Companhia de Saneamento Básico do Estado de São Paulo - SABESP Q3 FY2022 earnings call

• Water reservoir status: This year, the total volume stored in the eight drinking water production systems is at 45% compared to 39% in early November 2021, but a drier summer forecast needs monitoring. - Restructuring: Unifying regulation oversight and creating a new business department in July 2021 brought excellent results. - SPEs: Created 3 SPEs, including acquiring 20% of Foxx URE-BA, setting up Katerra SP Energia SA for photovoltaic energy, and formalizing a partnership for a paving company. - Sewage connections: Increased residential connections to sewage collection and treatment in the Pinheiros River Basin to 650,000 households, exceeding the initial goal by ~20%. - Environmental initiatives: Three quality recovery units in operation, with one starting assisted operation by the end of the month, improving river quality.

For Q3 2022, the total billed volume increased by 8.8% for water and 2.5% for sewage, resulting in a 1.6% compound growth. Sanitation service revenues net of taxes rose from R$3.9 billion in Q3 2021 to R$4.6 billion in Q3 2022, a 16.9% increase. EBITDA grew 19.5% from R$1.8 billion in Q3 2021 to R$2.1 billion in Q3 2022. Net income saw a significant jump, going from R$469 million in Q3 2021 to R$1.1 billion in Q3 2022.

• Doubtful receivables: Expected to get closer to pre-pandemic levels in the second half of 2023 due to commercial actions and service sector recovery. - Tariff structure: New tariff structure expected in 2023; current revenue is below the 2022 revenue cap, with protection mechanisms in place if not met by year-end. - SPE acquisitions: Anticipates more URE-Barueri and asphalt partnership initiatives in 2023 with expected good returns.

• Weather: Drier summer forecast could delay rains, affecting water sources. - Economic conditions: Inflationary pressure on family income may impact delinquency reduction. - Regulatory approvals: Pending approval of the acquisition of 20% of Foxx URE-BA by the Administrative Council for Economic Defense.

Q: The level of provisions for doubtful receivables dropped in Q3 compared to Q2. Comment on whether it reflects stabilization of new systems and practices and if it's a normalized level.

A: Osvaldo Garcia stated that the drop in doubtful receivables was due to strict discipline to reduce default levels, and expects levels to get closer to pre-pandemic levels in the second half of 2023.

Q: Comment on the last two investments (purchase in share of URE-Barueri and paving company). Rationale behind them.

A: Benedito Braga said the rationale includes reducing landfills, contributing to ESG, and cost reduction; Osvaldo Garcia added expected higher returns and cost reduction for the paving partnership, and technology acquisition with URE-Barueri for exploring the market across 375 cities.

Q: Consumption mix and tariff mix, are they back to pre-pandemic levels?

A: Osvaldo Garcia responded that levels are close to pre-pandemic, with a small gap, and economic activity resuming in Commercial and Industrial fronts.

Q: News about implementation of new tariff structure and current revenue within 2022 revenue cap?

A: Benedito Braga said the regulating agency delayed the new tariff structure, expected in 2023; current revenue is below the cap, with protection mechanisms in place if not met by year-end.

Q: Any new agreements still to happen in 2022 for solid urban residues?

A: Benedito Braga stated no specific new agreements for 2022, but expects more in 2023 as it takes ~1.5 years for assessments.