SABESP's Q3 2025 Earnings Call: Contradictions Emerge on Social Tariff Recovery, Dividend Strategy, and Cost Reduction Plans

Business Commentary:

* Operational and Financial Performance: - SABESP's water production reached 809 million cubic meters, up 4.4% year-over-year, while active connections grew 0.6% in the quarter. - Adjusted net revenue was BRL 5.5 billion, stable year-over-year, with adjusted EBITDA growing 15% to BRL 3.2 billion, reaching a 59% margin. - Growth was driven by efficiency initiatives, improved collection rates, and strategic mix adjustments.

• Regulatory and Tariff Dynamics:
• SABESP faced a BRL 478 million severance adjustment due to voluntary dismissals, impacting EBITDA by BRL 430 million.
• A BRL 1.9 billion one-off gain from court order payments was recognized, with BRL 1.1 billion already collected.

• These adjustments were necessary to align with regulatory requirements and ensure financial stability.

• Capital Structure and Investment Agenda:

• CapEx accelerated to BRL 4 billion, growing 175% from the previous year, with BRL 4.9 billion in new debt issued.
• BRL 5 billion in new debt was issued with maturities ranging from 5 to 10 years, improving long-term financial profile.
• Investments are focused on infrastructure upgrades and enhancing water and sewage treatment capabilities.

• Strategic Transformation and Sustainability Initiatives:
• The company is piloting the Nereda treatment technology, aiming to multiply sewage capacity 2.5x, serving 3 million people.
• SABESP announced clear carbon reduction targets, aiming to decrease emissions 15% by 2035.
• These initiatives align with the goal of sustainable growth while expanding access to essential services.
  

Contradiction Point 1

Social Tariff Impact and Recovery

It reflects differing perspectives on the impact of social tariffs on revenue and the timeline for recovery, which are crucial financial aspects for investors.

Can you clarify the social tariff's impact on revenue and its recovery? - Francisco Navarrete (Banco Bradesco BBI)

2025Q3: The social tariff benefit 1.8 million customers, impacting revenue by BRL 117 million. Recovery occurs through annual tariff adjustments due in 2027, driven by consumption histogram adjustments. - Daniel Szlak(CFO, Investor Relations Officer & Member of Executive Board)

Can the BRL105 million mix impact be recovered through the tariff review, and what is the timeline to address the remaining revenue gap? - Francisco Navarrete (Banco)

2025Q1: Sixty percent of the negative impact from CadUnico will be addressed in the tariff review. Discussions are ongoing for potential expansion of subsidized rates. For the revenue gap, we aim to resolve it by year-end. - Daniel Szlak(CFO, Investor Relations Officer and Member of Executive Board), Carlos Piani(Chief Executive Officer)

Contradiction Point 2

Dividend Payout Strategy and Universalization

It involves the company's strategy regarding dividend payouts and the impact of earlier universalization on this strategy, which could affect investor expectations and financial planning.

Is there a possibility of an early dividend payout due to early universalization? - Unknown Analyst (Unidentified)

2025Q3: Earlier universalization is being investigated, but current focus remains on optimizing cost structure and ensuring resources to achieve universalization targets. - Daniel Szlak(CFO, Investor Relations Officer & Member of Executive Board)

Does the company participate in the Universaliza Sao Paulo program? Are there any updates on the timeline? - Bruno Amorim (Goldman Sachs)

2024Q4: The process is managed by the State of Sao Paulo, with an expected conclusion by the first or second quarter of 2026. SABESP will evaluate the opportunity when it arises, but discussions are still at early stages. - Carlos Augusto Leone Piani(Chief Executive Officer)

Contradiction Point 3

Personnel Cost Reduction Strategy

It pertains to the company's approach to reducing personnel costs, which is a significant operational consideration affecting financial performance.

Are there plans for further personnel cost reductions, and how is Cantareira impacting operations? - Daniel Travitzky (J. Safra Corretora de Valores e Cambio Ltda)

2025Q3: No further voluntary dismissal programs planned. - Carlos Leone Piani(CEO & Member of Executive Board)

Regarding tariffs, what alternatives exist for those unable to remove discounts, and what is the timeline for the regulatory asset base appraisal? - Maria Carolina (Safra)

2025Q1: Our strategy includes internal moves, recruiting fresh talent, and a voluntary dismissal plan. We expect to reduce average personnel costs as we hire more people at the market rates, which are lower than SOE rates. - Daniel Szlak(Chief Financial Officer and Investor Relations Officer)

Contradiction Point 4

Cost Reduction and Efficiency

It involves the company's approach to cost reduction and efficiency, which is crucial for financial performance and operational effectiveness.

Will there be further initiatives to reduce personnel costs? - Daniel Travitzky (J. Safra Corretora de Valores e Cambio Ltda)

2025Q3: No further voluntary dismissal programs planned. - Carlos Leone Piani(CEO & Member of Executive Board)

What are your expectations for personal savings following the voluntary dismissal program? - Marcelo Sa (Itau)

2024Q4: The voluntary dismissal plan costs are fully booked, and there are no additional costs expected. - Daniel Szlak(CFO and Investor Relations Officer)

Contradiction Point 5

Delinquency Rates and Collection Improvements

It involves the company's strategies to improve collection efficiency and delinquency rates, which are crucial for financial performance.

What are the expected payback and hiring back under the layoff program, and are there initiatives to maintain delinquency rates? - Arthur Pereira (JPMorgan Chase & Co)

2025Q3: Delinquency rates improve with technology, such as WhatsApp and Pix Automático, increasing collection rates. - Carlos Leone Piani(CEO)

Did the Q3 reduction in provisions for doubtful receivables compared to Q2 2022 reflect the stabilization of new systems and practices? - Carolina Carneiro (Credit Suisse)

2022Q3: It's a part of our exchange and our commercial system. You were correct. And they have been showing good results. We expect to see some variations, but we do believe that starting in the second half of next year, 2023, those numbers will be close to what we had in the pre-pandemic period. - Osvaldo Garcia(CFO)