Table of Contents

Company Information / Capital Breakdown

Company Information / Cash Proceeds

Financial Statements / Statement of Financial Position - Assets

(R$ thousand)

Financial Statements / Statement of Financial Position – Liabilities

(R$ thousand)

 Financial Statements / Statement of Financial Position – Liabilities

(R$ thousand)

Financial Statements / Statement of Income

(R$ thousand)

Financial Statements / Statement of Comprehensive Income

(R$ thousand)

Financial Statements / Statement of Cash Flows – Indirect Method

 (R$ thousand)

 Financial Statements / Statement of Cash Flows – Indirect Method

 (R$ thousand)

Financial Statements / Statement of Changes in Equity – 01/01/2013 to 03/31/2013

(R$ thousand)

Financial Statements / Statement of Changes in Equity– 01/01/2012 to 03/31/2012

(R$ thousand)

Financial Statements / Statement of Value Added

(R$ thousand)

1.   Financial highlights

(*) Earnings before interest and taxes

EBITDA Reconciliation (Non-accounting measures)

(**) EBITDA corresponds to net income before: (i) depreciation and amortization expenses; (ii) income tax and social contribution (federal taxes on income); (iii) financial result; and (iv) other operating expenses, net.

In 1Q13, net operating revenue reached R$ 2.6 billion, a 2.6% growth compared to 1Q12.

Costs and expenses, including construction costs, in the amount of R$ 1.9 billion grew 2.4% over 1Q12.

EBIT grew 3.5%, from R$ 701.7 million in 1Q12 to R$ 726.3 million in 1Q13.

Adjusted EBITDA increased 3.7%, from R$ 888.2 million in 1Q12 to R$ 921.5 million in 1Q13.

The adjusted EBITDA margin was 34.8% in 1Q13 in comparison to 34.5% in 1Q12. Excluding construction revenues and construction costs, the adjusted EBITDA margin was 42.4% in 1Q13 (43.3% in 1Q12).

Net income reached R$ 496.2 million in 1Q13, 0.9% higher than in 1Q12.

2. Operating revenue before construction revenue

Gross operating revenue from water supply and sewage collection grew from R$ 2.2 billion in 1Q12 to R$ 2.3 billion in 1Q13, an increase of R$ 129.4 million or 5.9%.

The main factors that led to this variation were: the increase of 2.0% in the Company’s billed volume (2.1% in water billed volume and 1.9% in sewage billed volume), and the tariff adjustment of 5.15% since September 2012. 

3. Construction revenue

In 1Q13, construction revenue decreased R$ 55.3 million or 10.0%, comparing to 1Q12. This variation was mainly due to lower investments in 1Q13.  

4. Billed volume

The following tables show the billed water and sewage volume per customer category and region in 1Q12 and 1Q13.

             (1) Unaudited

             (2) Including coastal and countryside

5. Costs, administrative, selling and construction expenses

In 1Q13, costs of products and services, administrative, selling and construction expenses grew 2.4% (R$ 44.4 million). Excluding construction costs, total costs and expenses grew 7.3%. As a percentage of net revenue, cost and expenses moved from 72.7% in 1Q12 to 72.5% in 1Q13. 

5.1. Payroll and benefits

In 1Q13 payroll and benefits grew R$ 55.5 million or 13.7%, from R$ 406.3 million to R$ 461.8 million, due to the following:

·         6.17% increase in wages since May 2012, with an impact of approximately R$ 33.0 million;

·         Provision for vacation with a R$ 4.3 million impact, due to the increases in wages and headcount;

·           R$ 5.0 million increase in overtime pay; and

·         R$ 9.3 million upturn in the provision for the Defined Benefit Plan, arising from changes in actuarial assumptions.

5.2. Supplies

In 1Q13, expenses with supplies increased by R$ 3.8 million or 9.4%, when compared to the previous year, from R$ 40.5 million to R$ 44.3 million, mostly due to: (i) preventive and corrective maintenance in water and sewage systems, in the amount of R$ 2.0 million; and (ii) R$ 1.0 million higher spending on property and facility upkeep in administrative and operating areas.  

5.3. Treatment supplies

Treatment supplies expenses in 1Q13 were R$ 20.3 million or 45.5% higher than in 1Q12, from R$ 44.6 million to R$ 64.9 million. The main factors for this variation were:

·         Increase of R$ 5.5 million due to the higher consumption of aluminum polychloride, mainly used at the Water Treatment Station of Guaraú, ensuring water quality in maximum flow;

·         Higher consumption of activated carbon, with a price increase of approximately 11.73%, leading to an upturn of R$ 3.2 million due to weather and watershed conditions;

·         Higher consumption of lime, due to the higher treated volume, associated with the price increase of approximately 7%, leading to a net upturn of R$ 1.7 million;

·         Higher consumption of iron chloride, with a net addition of R$ 1.3 million, in order to meet the quality parameters of the treatment of the water resulting from the strong rain in the city of Cubatão; and

·         Increase of R$ 8.7 million from the consumption of products, such as: (i) hydrogen peroxide, due to the startup of 2 sewage pumping stations in Guarujá; (ii) sodium hypochlorite as a replacement of chlorine gas, due to the increased efficiency and security related to the use of a less dangerous product; and (iii) chlorine, arising from the increase in turbidity and color at the Guaraú Water Treatment Station.

5.4. Services

In 1Q13 this item decreased R$ 36.3 million or 13.7%, from R$ 265.0 million in 1Q12 to R$ 228.7 million in 1Q13. The main factors were:

·         Decrease of R$ 38.3 million, due to the reversal of the provision for expenses, following the end of the partnership with the São Paulo Municipal Government - PMP.

·           Decline of R$ 4.3 million in expenses with risk credit recovery contracts, due to the discontinuation of these contracts in several Business Units; and

·         Decrease in paving services and replacement of sidewalks in the amount of R$ 4.2 million, due to the conclusion of the paving contract with the Municipal Government of São Bernardo do Campo, whose services were included in Global Sourcing. 

The following services presented increases:

·         Preventive and corrective maintenance in the water and sewage systems in the amount of R$ 4.6 million; and  

·         Increase of R$ 2.0 million due to the new contracts of the Program for the Rational Use of Water – PURA in municipal entities. 

5.5. Electric power

In 1Q13, this item decreased R$ 5.5 million, or 3.7%, from R$ 150.3 million in 1Q12 to R$ 144.8 million in 1Q13, due to the average decrease of approximately 25.5% in the tariff for the Use of Distribution System Tariff (TUSD), of the consumption units by the Free Market, as a consequence of Provisional Presidential Decree 579/12 and Law 12783/13. 

5.6. General expenses

In 1Q13 general expenses increased R$ 47.6 million or 28.4%, from R$ 167.8 million in 1Q12 to R$ 215.4 million in 1Q13, due to:

·         Increase in the provision for lawsuits, in the amount of R$ 24.6 million;

·           Increase of R$ 17.3 million, arising from agreements for environmental compensation; and 

·         Increase of R$ 5.0 million in the provision for payment to the municipal fund pursuant to the Service Agreement with the Municipal Government of São Paulo.

5.7. Depreciation and Amortization

Depreciation and amortization increased R$ 8.7 million or 4.7%, from R$ 186.5 million in 1Q12 to R$ 195.2 million in 1Q13, due to the higher transfer of works to the operating intangible asset in the period. 

5.8. Credit write-off

In 1Q13 credit write-offs decreased R$ 1.4 million or 13.7%, from R$ 38.8 million in 1Q12 to R$ 33.5 million in 1Q13, chiefly due to the lower need for provision. 

5.9. Tax expenses

In 1Q13 tax expenses grew R$ 5.1 million or 14.6%, mainly in the municipality of São Paulo, due to: (i) 5.4% adjustment by the São Paulo Municipal Government; and (ii) expansion of the Centro Business Unit.

6. Financial revenues and expenses

6.1. Financial expenses

In 1Q13 financial expenses dropped R$ 28.3 million, or 16.6%. The main reason for this result was the lower interest related to lawsuits, mainly regarding corporate clients.

6.2. Financial revenues

Financial revenues decreased by R$ 11.4 million, due to:

·         Decrease of R$ 21.8 million in interest from financial investments, due to the gradual reduction in the interest rates and the lower cash availability in the period; and

·           Increase of R$ 6.3 million in interest revenue, related to the period between the date of the 17^th debenture issue, in January 2013, and its respective financial settlement in February 2013.

7. Monetary variation on assets and liabilities

7.1. Monetary variation on liabilities

The effect on the monetary variation on liabilities in 1Q13 was R$ 52.1 million higher than in 1Q12, specially:

·         Increase in the exchange rate variation on loans and financing, in the amount of R$ 29.6 million, due to: (i) the lower appreciation of the Brazilian Real versus the US Dollar in 1Q13 1.4%, compared with 2.9% in 1Q12; and (ii) the 10.0% appreciation of the Brazilian Real versus the Yen in 1Q13 (9.0% appreciation in 1Q12);

·         Monetary variation on domestic loans and financing increasing by R$ 15.6 million, mainly due to: (i) the increase in debt following the 17^th debenture issue in February 2013; and (ii) the 1.9% IPCA rate variation in 1Q13 compared to the 1.2% variation in the same period in 2012; and

·         Expenses relating to lawsuits in the amount of R$ 4.7 million.

7.2. Monetary variation on assets

Monetary variation on assets increased by R$ 17.5 million in 1Q13 over 1Q12, chiefly due to:

·         R$ 6.8 million related to the period between the date of the 17^th debenture issue (January 2013) and its financial settlement (February 2013); and

·         R$ 6.5 million related to the restatement of judicial deposits, arising from the increase in deposits related to lawsuits.

8. Operating indicators

Regarding the loss index, it remained stable at 25.5%.

It is worth noting that the Corporate Loss Reduction Program was granted an unprecedented financing with JICA in February 2012, in the amount of R$710 million. The funds support the hiring of the actions provided for in the 1^st Stage of the Program, scheduled for the second half of 2013, when the drop in the index should resume.

(1) In thousands units at the end of the period.

(2) In millions of inhabitants at the end of the period. It does not include wholesale supply.

(3) In millions of m³ at the end of the period.

*Unaudited

(All amounts in thousands of Brazilian reais - R$, unless otherwise stated)

1.     OPERATIONS 

Companhia de Saneamento Básico do Estado de São Paulo ("SABESP" or the "Company") is a mixed-capital company headquartered in São Paulo, at Rua Costa Carvalho, 300, CEP 05429-900, controlled by the São Paulo State Government. The Company is engaged in the provision of basic and environmental sanitation services in the State of São Paulo, as well as it supplies treated water on a wholesale basis. 

In addition to providing basic sanitation services in the State of São Paulo, SABESP may perform these activities in other states and countries, and can operate in drainage, urban cleaning, solid waste handling and energy markets. The objective set in the new vision of SABESP is to be recognized as the company that ensured universal access to water and sewage services in its marketplace, focused on the customer, and in a sustainable and competitive manner, with excellence in environmental solutions.

On March 31, 2013, the Company operated water and sewage services in 363 municipalities of the State of São Paulo. Most of these municipalities operations are based on 30-year concession agreements.  

SABESP is not temporarily operating in some municipalities due to judicial orders under ongoing lawsuits: Iperó, Cajobi, Álvares Florense and Macatuba, whose carrying amount of these municipalities' intangible assets was R$16,536 as of March 31, 2013.

On March 31, 2013, a total of 66 concessions had expired and are being negotiated. From 2013 to 2034, 38 concessions will expire. Management believes that all concessions expired and not yet renewed will result in new contracts, disregarding the risk of discontinuity in the provision of municipal water supply and sewage services. By March 31, 2013, a total of 259 program and metropolitan contracts were signed (258 contracts on December 31, 2012). 

On March 31, 2013, the carrying amount of intangible assets used in the 66 concessions of the municipalities under negotiation totaled R$5,801 million, accounting for 25.94% of total, and the related gross revenue totaled R$484 million in the three-month period ended March 31, 2013, accounting for 17.20% of total. 

The Company's operations are concentrated in the municipality of São Paulo, which represents 50.57% of the gross revenue in the three months ended on March 31, 2013 (53.47% in the three months ended in March 2012) and 43.19% of intangible assets as of March 31, 2013 (43.51% on December 31, 2012).   

On June 23, 2010, the State of São Paulo, the Municipality of São Paulo, the Company and the regulatory agency “Sanitation and Energy Regulatory Agency – ARSESP” signed an agreement to share the responsibility for water supply and sewage services to the Municipality of São Paulo based on a 30-year concession agreement. This agreement is extendable for another 30 years, pursuant to the law. This agreement sets forth SABESP as the exclusive service provider and designates ARSESP as regulator, establishing prices, controlling and monitoring services.

Also, on June 23, 2010, the State of São Paulo, the city of São Paulo and SABESP signed the “Public service provision agreement of water supply and sewage services”, a 30-year concession agreement which is extendable for another 30 years. This agreement involves the following activities:

i. protection of the sources of water in collaboration with other agencies of the State and the City; 

ii. capture, transport and treat of water;                       

iii. collect, transport, treatment and final dispose of sanitary sewage; and

iv. adoption of other actions of basic and environmental sanitation.

In the municipality of Santos, in the Santos coast region, which has a significant population, the Company operates under an authorization by public deed, a situation similar to other municipalities in that region and in the Ribeira valley, where the Company started to operate after the merger of the companies that formed it. As of March 31, 2013, the carrying amount of the municipality of Santos’ intangible assets was R$332,685 (R$328,693 on December 31,  2012) and gross revenue for the three-month period ended March 31, 2013 was R$55,658 (R$54,393 in March 2012). 

Article 58 of Law 11445/07 determines that precarious and overdue concessions, as well as those effective for an undetermined period of time, including those that do not have an instrument formalizing them, will be valid until December 31, 2010. However, Article 2 of Law 12693 of July 24, 2012 allows program agreements to be executed until December 31, 2016.

The Company’s Management understands that the concession agreements not yet renewed are valid and will be governed by Laws 8987/95 and 11445/07, including those municipalities served without an agreement.

Public deeds are valid and governed by the Brazilian Civil Code.  

The Company's shares have been listed in the Novo Mercado (New Market) segment of BM&FBOVESPA (the São Paulo Stock Exchange) since April 2002 and on the New York Stock Exchange (NYSE) as American Depositary Receipts (“ADRs”) since May 2002.

Since 2008, the Company has been setting up partnerships with other companies, which resulted in the following companies: Sesamm, Águas de Andradina, Saneaqua Mairinque, Aquapolo Ambiental, Águas de Castilho and Attend Ambiental. Although SABESP has no majority interest in the capital stock of these companies, the shareholders’ agreements provide for the power of veto and casting vote in certain issues jointly with associates, indicating the shared control in the management of investees.

This quarterly financial information was approved by the Board of Directors on May 9, 2013.

2.         BASIS OF PREPARATION AND PRESENTATION OF QUARTERLY FINANCIAL INFORMATION

(i)         Presentation of Quarterly Financial Information

The quarterly financial information as of March 31, 2013 was prepared based on CPC 21 – Interim Financial Reporting and the international standard IAS 34 – Interim Financial Reporting issued by the International Accounting Standards Board (IASB), applicable to the preparation of the Quarterly Financial Information – ITR, which are consistently presented with the standards issued by CVM. Therefore, this ITR considers the Circular Official Letter CVM/SNC/SEP 003 of April 28, 2011 which allows that entities report selected notes to the financial statements, in cases of redundant information already disclosed in the Annual Financial Statements. The quarterly financial information for the period ended March 31, 2013, therefore, does not include all the notes and reporting required by the CPC (“Brazilian Accounting Pronouncements Committee”) for the annual financial statements and, accordingly, must be read together with the financial statements under CPC and IFRS for the year ended December 31, 2012.

2.1       Accounting policies

The accounting policies used in the preparation of the quarterly financial information for the quarter ended March 31, 2013 are consistent with those used to prepare the Annual Financial Statements for the year ended December 31, 2012. These policies are disclosed in Note 3 in the Annual Financial Statements.

The adoption of CPCs 19(R2) and 33(R1) for the year ended December 31, 2012 resulted in the following adjustments: