Companhia de Saneamento Básico do Estado de São Paulo - SABESP Q3 FY2021 earnings call

• Water safety: Extreme drought in SE Brazil affected electricity costs; authorization to bring 40 million cubic meters from Jaguari reservoir; works for Itapanhaú River to Biritiba-Mirim reservoir progressing, with inauguration expected in first semester 2022. Rainfall updates: October above average, November with early dryness but hopes for recovery. Rationing in Franca ended, normal supply restored in most cities.
• Tariff structure: New tariff structure to be applied in 2022, with single tariff for all cities, fixed connection fee plus consumption-based billing. Modernization of payment platform for better client interaction, reducing delinquency.
• Sanitation alliance: Decree regulating Article 16B to improve financial capacity, working towards 99% water and sanitation coverage by 2033.
• ESG: SABESP's agreement with UNFCCC on water system resilience, participation in COP 26, focusing on adaptation to climate change.

Total volume built grew 3.7% y-o-y, with sewer services volume up 4.1% and water segment up 3.4%. Residential segment, the largest, grew 3.2%. Non-residential categories saw higher tariff increases: public +15.7%, commercial +7%, industrial +6.6%. Revenue from sanitation services increased 17.7% y-o-y, from R$3.6 billion in Q3 2020 to R$4.3 billion in Q3 2021, driven by tariff hikes and volume growth. Net revenue went from R$4.4 billion to R$5.2 billion, with adjusted EBITDA at R$1.8 billion, a 18.2% increase y-o-y.

• Revenue for 2021 expected to be slightly lower than required but not significantly, to be finalized by end of December.
• New tariff structure to be implemented in May 2022.
• Pinheiros River project aiming for completion in 2022, with 87% of physical work ready as of October.

• Economic and industry conditions may affect future performance differently than projections.
• Inflation pressure on costs, including electricity costs due to drought and higher interest rates impacting financing costs.
• Exchange rate variations negatively affecting financial results.
• Uncertainties in rainfall and drought patterns impacting water supply.

Q: Question about tariffs and price increases, including when the new tariff structure will be implemented?

A: Benedito Braga and Osvaldo Garcia answered that the new tariff structure will begin in May 2022, with a fixed connection fee and consumption-based billing.

Q: Question about potential privatization of the company?

A: Benedito Braga stated it's up to the controller, with the government's privatization committee analyzing with IFC to prepare a study.

Q: Question about the Pinheiros River project's schedule and progress?

A: Benedito Braga said 87% of the physical work is ready, aiming for completion by the end of 2022.

Q: Question about expansion plans for operations and participation in sanitation auctions?

A: SABESP is looking at new business opportunities, focusing on current contracts but alert to opportunities to accelerate universalization if it doesn't affect existing contracts.

Q: Question about the new collection tool and expected reduction in PDD?

A: Benedito Braga said the tool is already working, with upgrades in the next 3-4 months to improve collection and reduce delinquency.

Q: Question about financing strategy, including new loans and potential buybacks?

A: Osvaldo Garcia mentioned ongoing refinancing of loans, diversifying sources of financing, and potential buybacks when opportunities arise.

Q: Question about the water scenario in 2022 and risk of rationing?

A: Benedito Braga said no immediate rationing expected, but monitoring rainfall and drought, with technical reserves available to handle challenges.

Q: Question about dividends?

A: Osvaldo Garcia stated the minimum dividend of 25% will be defined after the year-end report is closed.