Companhia de Saneamento Básico do Estado de São Paulo - SABESP Q4 FY2021 earnings call

• ARSESP issued evidence of SABESP's economic and financial capacity for sanitation, with 370 municipalities in URAE Southeast compliant by June, though 6 municipalities (3.5% of revenue) had caveats.
• In 2021, R$5 billion invested in 375 municipalities (68% of state's population). Tietê Project serviced 2.4 million people in full sanitation cycle, and Novo Rio Pinheiros program reached 516 new properties/1.5 million people.
• Tariff adjustments: 3.5% in Aug 2020 and 7% in May 2021. ARSESP authorized a 12.8019% tariff adjustment in March 2022.
• Costs and expenses: Administrative and sales costs increased 14.6%, staff cuts (1,500 employees in 2020-2021), inflation impact, electricity expenses up 20.4%, etc.

Sanitation services revenue increased to R$16.3 billion in 2021 from R$15.2 billion in 2020, a 7.6% rise. Net operating revenue went up to R$19.5 billion from R$17.8 billion, a 9.5% increase. Construction revenue contributed R$660 million to the growth. Billed volume saw a 1.2% increase over 2020, with residential category up 3.8%, industrial up 3.1%, commercial up 2.5%, and public service down 2.9%.

• Tariff adjustment in March 2022 by 12.8019% as per ARSESP's deliberation. Plans to introduce commercial programs to increase volume and adjust tariffs.
• Investment plan: R$4.7 billion in 2022 and R$4.6 billion in 2023.
• Expectations for next tariffs to include elements not adopted in the latest adjustment.

• Caveats on 6 municipalities affecting access to federal funds. Legal uncertainty around irregular contracts preventing municipalities from accessing federal funds.
• Foreign exchange exposure risks, though SABESP reduced exposure in 2020, but past exposure and currency movements still pose risks.
• Inflation impact on costs and tariffs, with tariffs lagging behind inflation increases.

Q: About the tariff adjustment of this year, ARSESP mentioned a deduction of R$200 million due to Factor K. What is Factor K and why the deduction?

A: Factor K is related to certain aspects, and the deduction was due to how the regulating agency addressed it. We plan to explain details in documents to the agency.

Q: What is SABESP's opinion about the decree to prove economic and financial capacity for sanitation companies?

A: Contracts deemed irregular prevent municipalities from accessing federal funds. There's legal uncertainty, but contracts remain valid for maintenance.

Q: Why did water and sewage connections decrease in Q4 2021?

A: Due to deploying a new commercial system which updated the register, cleaning up active and inactive connections.

Q: About provisions for doubtful accounts (PCLD) increasing to 6.6% in Q4 2021. Why?

A: Due to introducing a new system and a conservative stance until it's fully regulated, expecting it to decrease in next quarters as the system stabilizes.

Q: What are SABESP's plans in terms of bidding situations and projects?

A: Looking into opportunities in municipalities and cities, considering Article 10 of Law 1706 for partnerships, with no specific current program but open to interesting financial opportunities.

Q: How much will SABESP invest in 2022 and 2023?

A: R$4.7 billion in 2022 and R$4.6 billion in 2023.