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CIA. DE SANEAMENTO BÁSICO DO ESTADO DE SÃO PAULO - SABESP
Rui de Britto Álvares Affonso
Chief Financial Officer and Investor Relations Officer
Mario Azevedo de Arruda Sampaio
Head of Capital Markets and Investor Relations

1. Net revenue grows 10.2% and EBITDA grows 13.5% in 2Q07

In 2Q07 net operating revenue totaled R$ 1.4 billion, a 10.2% increase in comparison to the same period of the previous year. Costs and expenses, in the amount of R$ 935.3 million, were 7.1% higher than in 2Q06, but as a percentage of net revenues, costs and expenses were 64.6% in 2Q07 versus 66.5% in 2Q06.

EBIT recorded a 16.5% growth, from R$ 440.1 million in 2Q06 to R$ 512.5 million in 2Q07. EBITDA moved from R$ 591.2 million in 2Q06 to R$ 671.3 million in 2Q07, corresponding to a 13.5% growth. The EBITDA margin went up from 45.0% to 46.4% .

Net income reached R$ 295.5 million, up by 68.3% when compared to the R$ 175.6 million recorded in 2Q06.

2. Gross operating revenue

Gross operating revenue totaled R$ 1.6 billion, up by R$ 141.7 million or 10.0% over 2Q06. The main reasons for this increase were:

• The 3.2% increase in billed water and sewage volume; and
  
• The 6.71% tariff readjustment as of August 2006.

3. Billed volume

The following tables show billed water and sewage volume per customer category and region in 2Q06, 2Q07, 1H06 and 1H07.

BILLED WATER AND SEWAGE VOLUME⁽¹⁾ PER REGION - million m³

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BILLED WATER AND SEWAGE VOLUME⁽¹⁾ PER CUSTOMER CATEGORY - million m³

4. Costs, administrative and selling expenses

In 2Q07, cost and administrative and selling expenses moved up by R$ 62.0 million or 7.1% .

4.1. Payroll and benefits

In 2Q07 the number of employees dropped from 17,289 to 16,922, or 2.1% between 2Q07 and 2Q06. The number of connections per employee moved from 664 in 2Q06 to 695 in 2Q07 (a 4.6% growth) due to the 2.5% growth in the number of water and sewage connections, representing a 4.7% increase in productivity per employee.

In the quarter payroll and benefits dropped by R$ 21.8 million or 6.4%, from R$ 342.6 million to R$ 320.8 million, due to the following factors:

• Provision for a bonus payment per performance evaluation in the amount of R$ 40.8 million in 2Q06, non-recurring in 2Q07, which generated a drop in the same proportion;
  
  
• This drop was partially offset by the following increase:

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4.2. Supplies

In 2Q07, supplies grew by R$ 4.6 million, or 15.2%, from R$ 30.3 million to R$ 34.9 million, mostly due to:

• Network and residential water and sewage connection maintenance and a larger amount dedicated to the loss control program in the amount of R$ 2.3 million;
  
• Supplies used in security and protection in order to attend the rule that fixes conditions to guarantee employees’ safety conditions, in the amount of R$ 0.7 million, in accordance with the international health and safety management rule; and
  
• IT supplies in the amount of R$ 0.5 million.

4.3. Treatment supplies

Recorded a R$ 2.8 million or 10.5% increase, from R$ 26.7 million to R$ 29.5 million in 2Q07 due to the 8.7% consumption increase and the 2.8% average price readjustment.

The main variation was in the consumption of Copper Sulfate due to the proliferation of algae in the São Paulo Metropolitan Region, generating growth of R$ 1.4 million. The algae appear due to natural reasons, such as the increase in isolation and some nutrients, which favor its growth. When not prevented, algae can cause problems of taste and smell.

4.4. Third-party services

In 2Q07 third-party services grew by R$ 29.3 million, or 27.7%, from R$ 105.9 million to R$ 135.2 million. The main reasons for this performance were:

• Residential network and water and sewage connection in the São Paulo Metropolitan Region maintenance in the amount of R$ 7.8 million, due to the increase in jobs related to the Global Sourcing agreement and a larger amount dedicated to the loss control program;
  
• Detection of invisible leakage in the São Paulo Metropolitan Region, as part of the loss control program, in the amount of R$ 1.7 million;
  
• Services regarding the implementation of specific software to redefine the corporate website and data storage during 2Q07, in the amount of R$ 7.6 million, non-recurring;
  
• Publicity and advertising in the amount of R$ 4.5 million, due to the release of campaigns focused on the new policy and socio-environmental actions from the Company’s new strategic drivers;
  
• R$ 3.8 million increase due to the maintenance at Sewage Treatment Stations, cargo services, transportation and final disposal of solid waste, sludge removal and storage; and
  
• Hydrometer reading and bill delivery, in the amount of R$ 2.2 million, as a result of the expansion of the covered area in some municipalities in the São Paulo Metropolitan Region.

4.5. Electric power

Recorded a R$ 15.0 million or 13.7% increase, from R$ 109.5 million to R$ 124.5 million, as a result of the 10.1% increase in the average electric power tariff and the 1.1% increase in consumption, versus a 3.2% increase in billed water and sewage.

4.6. General expenses

In 2Q07, general expenses moved up R$ 8.5 million or 20.1%, from R$ 42.2 million to R$ 50.7 million, chiefly due to provisions related to law suits.

4.7. Depreciation and amortization

Grew by R$ 7.7 million or 5.1%, from R$ 151.1 million to R$ 158.8 million, due to the transfer of works in place to permanent operating in 2Q07.

4.8. Credit write-offs

Recorded a R$ 17.1 million or 30.6% increase, from R$ 55.9 million to R$ 73.0 million, mainly due to:

• 9% tariff increase in August 2005, which impacted the accounts written off in 2Q07; and

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• Provisioning due to an adjourned agreement in the amount of R$ 8.0 million with one municipality from the Regional System.

4.9. Tax expenses

In 2Q07, tax expenses dropped by R$ 1.2 million, or 13.2%, in comparison to 2Q06, from R$ 9.1 million to R$ 7.9 million, due to the payment of debt in the capital markets in 2Q06, which generated the payment of CPMF tax in the amount of R$ 0.9 million in the period.

5. Financial expenses and revenues

Net financial revenues and expenses in 2Q07 dropped by R$ 13.1 million or 10.3%, as follows:

The domestic financing highlights are:

• The R$ 16.5 million drop in provision for interest over domestic financing, mainly due to the prepayment of the 1^st series of the 5^th debenture issuance in April 2006; amortization of the 4^th debenture issuance carried out in 2006 and settled in December 2006; payment of the principal amount of the agreement with Banco do Brasil which impacted the interest calculation, and the decrease in the DI rate, that contributed to the decrease in the interest calculation over the 6^th, 7^th and 8^th debenture issuance and FIDC.

The highlights regarding international financing are:

• The R$ 6.3 million drop due to the prepayment of part of the 2008 Eurobonds in November 2006. The new funding – 2016 Eurobonds – reduced interest rate from 12% p.a. to 7.5% p.a., which together with the US Dollar depreciation in relation to the Brazilian Real contributed to the decrease in the remaining payable balance (base for the interest calculation); and
  
• The R$ 2.5 million drop in interest over the agreement with the IDB, chiefly due to the US Dollar depreciation in relation to the Brazilian Real.

Other financial expenses:

• The R$ 11.4 million increase refers to the provision for monetary restatement and lawsuits updates.

6. Passive and active monetary variation

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6.1. Passive monetary variation

In 2Q07 recorded an R$ 87.3 million drop, due to the:

• R$ 3.2 million drop in the monetary variation calculated over the debentures, mainly resulting from the lower IGPM index in 2Q07, 0.34% versus 0.71% in 2Q06;
  
• R$ 2.3 million drop in the monetary variation of the agreement with the Federal Government / Banco do Brasil, mostly as a result of the lower TR variation, 0.39% in 2Q07 versus 0.47% in 2Q06, in addition to the lower payable balance due to the settlement of the installments due in the period; and
  
• R$ 85.4 million drop in the exchange variation calculated over loans and financing, due to a significant US Dollar depreciation in relation to the Brazilian Real, which recorded a negative variation of 6.06% in 2Q07 versus a negative variation of 0.37% in 2Q06, of which:

6.2. Active monetary variation

The R$ 3.1 million, or 32.0% drop was due to the agreement with the local government authority of the municipality of Diadema, entered into in 2Q06.

7. Non operating expenses

Recorded a R$ 2.5 million increase, due to:

• Tax benefits from the Rouanet Law, in the amount of R$ 1.0 million; and
  
• Real estate write offs, in the amount of R$ 1.5 million.

8. Operating indicators

The following table shows the Company’s continued improvement of services rendered.

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9. Loans and financing

10. Conference call

Live webcast trough the Internet at www.sabesp.com.br

For more information, please contact our Investor Relations Team:

Mario Sampaio
Phone.(5511) 3388-8664
E-mail: maasampaio@sabesp.com.br

Angela Beatriz Airoldi
Phone.(5511) 3388-8793
E-mail: abairoldi@sabesp.com.br

Statements contained in this press release may contain information that is forward-looking and reflects management's current view and estimates of future economic circumstances, industry conditions, SABESP performance, and financial results. Any statements, expectations, capabilities, plans and assumptions contained in this press release that do not describe historical facts, such as statements regarding the declaration or payment of dividends, the direction of future operations, the implementation of principal operating and financing strategies and capital expenditure plans, the factors or trends affecting financial condition, liquidity or results of operations are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties. There is no guarantee that these results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.

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Income Statement

Corporate Law Method (Law No. 6,404/76)

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Balance sheet

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Cash flow

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This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.