SBS' Net Falls in 4Q and FY11

Sao Paulo, Brazil-based Companhia de Saneamento Basico do Estado de Sao Paulo, or SABESP’s ( SBS - Analyst Report ) net income in the fourth quarter of 2011 plummeted 14.2% year over year to R$493.0 million (US$273.9 million) or R$2.16 per share (US$2.40 per ADR).

In the fiscal year 2011 also, net income fell by roughly 25.0% year over year to R$1,223.4 million (US$732.6 million) while earnings per share were at R$5.37 per share (US$6.43 per ADR). Earnings per ADR were in line with the Zacks Consensus Estimate of US$6.43 per ADR.

Revenue: Revenue in the quarter jumped 10.7% year over year to R$2,701.8 million (US$1,501.0 million).

Billed water and sewage volume in the quarter went up by 2.8% year over year to 898.5 million cubic meters. Of the total volume reported, roughly 57.8% represented water variation and 42.2% came from of sewage. The increase in billed water and sewage volume was due to higher number of connections and acceleration in consumption.

Water loss rate in the fiscal year 2011 was at 25.6% versus 26.0% in 2010. Water volume produced increased 1.4% year over year; water connections soared 2.5% and sewage connections rose by 3.6%.

In the year 2011, consolidated net revenue improved 7.7% year over year to R$9,941.6 million (US$5,953.1 million) and fared well exceeding the Zacks Consensus Estimate of US$5,874 million.

Margins

SABESP’s cost of sales and services, as a percentage of revenue, soared to 60.7% from 56.3% in the fiscal year 2010, thus hitting the gross margin by 4.4%. Operating expenses, including selling, administrative and other expenses increased in the fiscal and settled at 15.7% of total revenue versus 14.8% in the previous year.

EBITDA in the year was around R$3,213.3 million (US$1,924.1 million), down 0.3% year over year with a margin of 32.3%.

Balance Sheet

Exiting the fiscal year 2011, SABESP’s cash and cash equivalents increased 8.1% to R$2,150.0 million (US$1,156.0 million). Loans and financing, net of current portion decreased 0.8% to R$6,966.3 million (US$3,745.3 million).

Cash Flow

Net cash flow from operating activities jumped by 30.4% year over year to R$2,717.1 million (US$1,627.0 million). Capital spending on property, plant and equipment together with intangible assets were R$2,211.1 million (US$1,324.0 million).

Following its fiscal year 2011 earnings announcement, SABESP keeps up its position as the largest water and sewage services provider in the world, serving roughly 7.5 million customers for water and 5.9 million for sewage.

The company faces stiff competition from Veolia Environnement S.A. ( VE - Snapshot Report ) , a privately held Thames Water Holdings plc, and GDF Suez (GDFZY.PK).