Companhia de Saneamento Básico do Estado de São Paulo - SABESP Q4 FY2022 earnings call

New Management Vision - Focus on modernizing the company, organizational transformation, and being innovative and inclusive. - Defined new Board composition to align with strategic views, including roles for different areas like regulation, investments, and client relations. - Plan to review methods for Board of Directors and the company for better decision-making efficiency. - Emphasize ESG agenda, separating clients into tiers, and training/developing employees. - Volume mix shift from residential to commercial/industrial, which had a positive impact on tariff and revenue. - Financial performance: Revenue growth, adjusted EBITDA increase, and net income rise due to various factors including tariff readjustment and volume changes.

In terms of volume, water volume increased by 0.2%, sewage volume rose by 1.7%, and overall volume grew by 0.9%. Financially, revenue grew by 13.7%. Adjusted EBITDA increased by 11.2% from R$6.6 billion to almost R$7 billion. Net income saw a 35.4% increase, going from R$2.3 billion to R$3.1 billion in 2022. The revenue growth was influenced by tariff readjustment and volume mix changes.

Forward Looking - Planning the next four years focusing on organizational transformation and process review. - Reprioritizing the company's CapEx with a focus on environmental compliance and regulatory compliance. - Expecting to share detailed cost reduction and efficiency plans once consultancies and internal work are completed. - Awaiting regulator's publication of tariff review results by April 8, with new tariffs likely in force after May 10, expecting an increase of around 10% - 12%.

Risks - Cost inefficiencies that need to be addressed. - Uncertainties in the regulatory model review and potential privatization negotiations. - Impact of exchange rate variations and debt composition on financial expenses. - Contingencies and legal implications that could affect the company's financials.

Q: About costs, with the new management, do you have a mapped plan to reduce inefficiencies? When will you announce the detailed plan? How long to reach adequate cost levels?

A: We have a new strategy, created centers like CST for contract and hiring, ongoing review of processes. Expect relevant reductions, will share once concluded. For electricity, ongoing distributed generation process. Allowance for doubtful accounts has dedicated attention. External consultancies are analyzing efficiencies, results in 2 or 3 months.

Q: What is the review process of the tariff? Will the resulting fees be given along with annual adjustments? What's the estimate of total tariff increase for 2023?

A: Regulator has public consultation, percentage value not defined yet, to be published by April 8 along with extraordinary adjustment due to inflation. New tariffs likely in force after May 10, expecting around 10% - 12% increase.

Q: Could you comment about the regulatory model, expectation for extraordinary review, and change to fixed tariff using privatization negotiation?

A: IMC is evaluating privatization modeling. Review of regulatory model is part of this study. Difficult to know result before state government's study concludes. Privatization only makes sense if it benefits society.

Q: Guidance on default projections, whether PDD has reached peak, explanation of significant increase in legal deposits, and normalized provision level?

A: Legal implications from lawsuit not a recurring effect. Difficult to say if PDD has reached peak, but signs of improvement with unemployment rate change and focus on client relationship. Contingencies are monitored proactively.

Q: Results show cost pressure and PDD higher than average, what to expect in terms of operational costs, tariff mix management, and profitability of capital used? Will present strategic plan to investors?

A: New strategic view will impact costs, but no specific numbers yet. Management of tariff mix has ongoing programs with large clients. Creation of client department allows better opportunities. Debate with regulator on tariff changes.

Q: Is SABESP considering reviewing pricing, investing in new returns, reducing consumption cost price to expand performance?

A: Objective is to make SABESP efficient, reprioritizing CapEx for compliance and value generation. Tariff costs reflect company structure, next review in 2025, new tariff base developed for next four years.

Q: Investment plan for next years, any major change?

A: Published plan last year totaling R$27 billion in five years. Reprioritization of investments ongoing, focusing on environmental and regulatory compliance.

Q: Does SABESP intend to reopen voluntary resignation plan for cost reduction?

A: Option of voluntary resignation plan is being evaluated, ongoing conversations but no decision made yet.

Q: Any concerns in new management?

A: Transition process was harmonious, no major concerns identified. Urgency to implement value triggers, but decision-making involves state government levels.

Q: Detail on Tiete River activity?

A: Planning with environment secretariat to launch an integrated and structured plan on Friday regarding Tiete River activities, building on experiences from Pinheiros River.