Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp Q1 2025 Earnings Report

Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp EPS Results

• Actual EPS: $0.37
• Consensus EPS: $0.38
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: N/A

Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp Revenue Results

• Actual Revenue: $1.04 billion
• Expected Revenue: $7.67 billion
• Beat/Miss: Missed by -$6.62 billion
• YoY Revenue Growth: N/A

Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp Announcement Details

• Quarter: Q1 2025
• Date: 5/12/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, May 13, 2025
• Conference Call Time: 7:00AM ET

Companhia de Saneamento Basico do Estado de Sao Paulo SABESP engages in the provision of water and sewage service. It also offers advisory services on the rational use of water, planning and commercial, and financial and operational management. The company was founded on September 6, 1973 and is headquartered in São Paulo, Brazil.

Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp Q1 2025 Earnings Call Transcript

Key Takeaways

• Voluntary dismissal program adhered to by 2,040 employees, reducing headcount from 10,500 to 9,700, with additional departures planned by end of Q2 and rehiring at a lower average cost.
• Tariff mix impact led to a BRL105 million negative hit in Q1 due to harmonized social and vulnerable tariff criteria, though about 60% is expected to be recuperated in the year-end tariff revision.
• Commercial contract rescissions of approximately 580 agreements have freed up BRL500 million of potential discounts, with ongoing injunctions and an expected full recovery by year-end.
• Regulatory relationship remains strong and technical with ARSESP, boosting confidence in closing historical revenue gaps and securing timely tariff revisions.
• Digital transformation investments including an S/4HANA go-live in mid-2026 and smart metering rollouts are set to drive process efficiency and redeploy staff to higher-value activities.

Presentation

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

Order. And when we think about that, we mapped at least 400 critical positions that for sure we needed to replace. So that's that's how I we we think about that in in in itself. When I think about how we continue to work with our personnel, I think there are a few things that that you have to keep in mind. The first one is as an SOE and given the the the the career tenure, there are many things that you tack on to the personnel cost, and that's a comparison that everybody used to make about the average personnel cost for Sebastian compared to the market and to other companies.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

And we start to see that change in the mix and the average cost in in the new hiring process. So this is one of the things that you have to keep in mind. But I think it's, actually, the opposite, Bruno. As an SOE, the company had to wait for a public servant test to recruit people. We no longer have to do that.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

So there were many positions that were hired through third party services because the company could simply couldn't hire people. And we're actually looking at how and which positions of those are actually positions that we want to internalize and actually to make offers to these people. So we actually expect a bit of the opposite. And there are other things that are gonna materialize in terms of savings and so on. And and this will bring in itself savings to the company because we'll we'll we'll no longer have to pay a margin for someone that's actually outsourcing that.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

But more than that, I think there will be things that will actually require investment and require changes in processes that will happen throughout our journey here. For example, the s four go live that which will happen in in the middle of twenty twenty six is for sure one of those enablers. But there are many other things that we're doing in terms of investments, the smart metering and other things that will actually enable us to continue becoming more and more efficient and actually using people for more value added activities vis a vis manual repetitive tasks.

[Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP]

Thank you, Daniel.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

Thank you, Bruno. The next one comes from Luisa Caggiota from Itau. Luisa?

[Luiza Candiota, Equity Research Associate at Itau BBA]

Good morning, and thank you for the opportunity. Actually, my my question is a follow-up on Bruno's question regarding personnel expenses. So we observed a significant year over year reduction in this line, mainly due to the employee layoffs, as you mentioned during the presentation. I would just like to to get more color on the exact impact, of the most recent voluntary dismissal program in this quarter. And if you could, share more details on the expected cost savings going forward, the expected payback period coming from this program, and also the timeline for the for the departures? Thank you.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

Thank you, Luisa. Thank you for your question. I'll take this one too. Look. We had about 2,040 people that actually adhered to the voluntary dismissal plan.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

We started the departures in February 2025, so we we don't see a lot of impact from that plan in q one. That said, we ended twenty twenty twenty four with about 10,500 employees, and we ended q one with 9,700 employees. So we had already a relatively big departure in March, but the bulk of the departure actually happens between April and May. Okay? So I think at the end of q two, we should probably be relatively well in terms of the the the the the execution, the itself of the voluntary dismissal plan.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

But in parallel, like I mentioned, we'll probably be rehiring some of those positions in the market. But, again, at probably a lower average cost as we've seen so far as you've compared SOE's average personnel cost compared to regular companies, especially on the base of the pyramid that they're very different. So this is what we'll expect. We'll see we'll see in in the upcoming months. We're not necessarily disclosing the payback of the plan, but you one thing that you should keep in mind is we have a a a a a a no layoff policy until January and April 2026 with with different triggers.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

And for sure, the plan has to pay back better than this. So because otherwise, we just wait for it. Right? So I think that's a that's a good a good thing to keep in mind as, like, what would be your your ceiling in terms of payback. That's what we probably could comment on that.

[Luiza Candiota, Equity Research Associate at Itau BBA]

Thank you.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

The next question comes from Francisco Navajecchi from Bebe. Nava, do you want to open your mic and and go ahead?

[Francisco Navarrete, Director of Research at Bradesco BBI]

Thank you, Daniel, Piani and Thiago, thank you very much for the call. I just have two questions, if I may. One is regarding the tariff mix. You indicated that because of this mix and the Caliunico, you had a negative impact of BRL 100,000,000, BRL 1 hundred and 5 million estimated in the first quarter. And first, just to see if I'm getting this right, this would mean that maybe that if if you forecast it for the full year, it would be equivalent to about 400,000,000 reais.

[Francisco Navarrete, Director of Research at Bradesco BBI]

And then, can you recover this at the tariff review? I I understand that this, increase in the number of consumers with access to, subsidized tariffs makes all the sense in the world because they're they're you're including them in the because, of course, they should be enrolled in this program. Makes sense. I I I suppose, and I believe so. But will the regulator, be sensible to look at this, from the standpoint that this is public policy and should be public policy and not something that should be paid by the company and by investors.

[Francisco Navarrete, Director of Research at Bradesco BBI]

And then and if if I may well sorry, Daniel. Go go

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

No. No. Go ahead. Go ahead. Go ahead.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

If if you have a follow-up, go ahead. Go ahead.

[Francisco Navarrete, Director of Research at Bradesco BBI]

No. Then the the second question was only, about what, what Carlos said on the gap on the revenue gap, that 50 or 60,000,000 reais that will remain. All else held equal, just imagine that, just for the sake of argument, we we don't get any other fix into this. The curve to get to the $50.60, as a permanent gap will be, I I imagine, only 2026. Would that be correct statement?

[Francisco Navarrete, Director of Research at Bradesco BBI]

Like, first quarter twenty six is when I would see this this gap going forward of only $5,060,000,000 reais as just for the sake of argument. Would that be a a correct statement? Those two questions only. Thank you very much again.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

Thank you, Nava. Let me first address the the mix question. Right? We had a a hundred and 5,000,000 negative impact from mix, and this is driven by two factors mainly. The first one is as per the new contract, we had we used to have social and vulnerable tariffs that had a criteria.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

And for the new contract, we had to introduce. We had to harmonize as the eligibility criteria for these tariffs. And that meant that we would exclude people that had access to to to vulnerable social tariffs with this new scheme. Right? And what we decide when we saw that in December, what we decided to do was to extend that for a few months, which is gonna happen until the end of q two with access to those subsidized tariffs for many reasons.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

But in the end, when we think about the 5,000,000 that we had in q one, I would say, Nava, about 60% of that is the adoption of of Cardass and that would be for sure contemplated into the new tariff revision at the end of the year. And and and and if you think about that and you think about the expansion, you recall in in last quarter's call, one of the investors actually asked a question about how this would impact our mix in terms of economies as we grow. Right? Because we go we we typically grow, especially in the metropolitan regions, we grow to lower income economies. Right?

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

So that that will be a a mix impact. The first year naturally is a negative working capital, I wanna say, impact because you you get a a compensation for that into the next tariff cycle. With the last year, assuming you you you don't continue growing to lower income economies, you don't continue worsening your mix with regards to to average price, you actually get a a positive carryover at the last year. So it's it's just a head and tail effect with roughly 60% of that. The remaining 40% of that is it was done at our discretion as a company, and we'll we'll continue doing that at the until the end of q two.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

But after at which we're we're discussing together with the regulator and the government a potential expansion of the subsidized rates to to make sure that we we encompass the whole population that that that is currently receiving these these discounts. If that does happen, then we would get compensation for that, and we'll keep these people on the tariffs. But that's how you should think about that going forward. Understood. That's the that's the first question.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

Your your second question with regards to to commercial discounts, I think what Piani said is is we're we've we've first rescinded 580 contracts, give or take. And and and with that, we we captured about 500,000,000 of potential discounts, which we have about 5 to 6,000,000 reais per month now that are actually fighting with injunctions, and we're we're so far have been successful at that. We've we've won more than what we lost, so which is always a good a good thing to happen. And we've taken the the remaining 260,000,000 that we had in terms of discounts, and we've we've rescinded another 200 of that. And when we think about those 200 that we've we've rescinded, naturally, they are not all like a flip off a switch rescission.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

Right? So so there are some contracts that need to run off. There are some contracts that have sixty days, some contracts that will have ninety days, some that will have a hundred and twenty days, and so on and so forth in different contracts. And we'll we'll potentially see a a movement on injunctions as well there. And we're ready for that.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

We'll continue to to do what we believe is is is is correct and and and and and fair for the whole system, which is continue to to try to enforce the the the actual tariff for those clients. But the timing of that could vary depending on that, Nava. I think optimistically, we we would finish the year with all of that captured, and and that's what we're working against. But but that that could vary depending on on on on clients' decisions with regards to trying to enforce that at the legal front. But that that that that that would be the part that we don't control. Understood.

[Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP]

If, Daniel and if I had to just to add a couple of things on the two points, our commitment was to finance with our own balance sheet until May of this year. We have aligned with the government starting on June, or there's gonna be a change on the eligibility process that will encompass more consumers, or these guys will or these consumers will become regular residential consumers. So we have discussed many alternatives with the government and with the regulatory agency, and this will happen starting in June. We are gonna stop financing at the May. So two options, where they become naturally regular consumers, or they are gonna be able to receive the benefits given a potential change, and this is gonna be compensated two years down the road.

[Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP]

This is it. Regarding the the discounts, where the injunctions happen because we have no decision at the first level. We're working with the court of appeals at the second level. When when we get there, this is gonna be judicial. We're gonna have a rule that's gonna decide this very quickly.

[Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP]

So we we expect when we get there, there's gonna be no injunctions anymore. As Daniel said, probably the the longer tenure that we have is a hundred twenty days on this new batch of contracts that we're terminating. So all that to say, probably, this is by year end. This is unfortunately, Brazil court's a little bit more complicated, but I think we're in a good track to solve all all the the majority of these these problems.

[Francisco Navarrete, Director of Research at Bradesco BBI]

Great. Understood. Thank you very much.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

Thank you, Nava. The next question comes from Antonio Junquera from BTG Pactual. Antonio?

[Antonio Junqueira, Equity Research Analyst at BTG Pactual]

Morning, guys. My my question was mostly answered in Navajo's question. And my my my question was answered, I guess, mostly, if not a % of it. I think it's clear, like, the the fingerprints of you guys on cost control, on investments, on the development of UFactor. Thanks, by the way, by for that slide.

[Antonio Junqueira, Equity Research Analyst at BTG Pactual]

It's interesting. So I I think I can complement his his question by asking how the relationship with the regulator is because this revenue gap thing is a historical problem for. I think all of us analysts always achieved much larger regulatory revenues than actual revenues. The previous administrations could not explain all the gaps, why the gaps existed. I think there was a philosophical debate on on wholesale discounts, on, you know, some variables that created that big gap, but the entire gap was never explained.

[Antonio Junqueira, Equity Research Analyst at BTG Pactual]

So how is the interaction of you know, about all those topics with the regulator? How is he is he receiving it? Because I guess, like, the the regulator has all also been, the reason for skepticism on our side. So how do how do how do you how's your confidence level that we're not gonna see revenue gap from the tariff event at the end of this year onwards?

[Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP]

Thank thank you, Junketa. I I think I can we can give you our perception, right, in our how we think. On a incentive based regulation, the one we have a hybrid regulation, but based on incentive based regulation where you have RAB concept and regulatory costs and so forth, you need a strong regulator. And this is this is to the benefit of the company. And I think Arcez is a strong regulator, and and this is helpful to us.

[Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP]

Right? If if we had a weak regulator that didn't understand the rules and had different parameters, this would be a different problem to solve. So our interactions based on this has been very good, I I would say, as very republic relationship, very technical. Many challenges of the new contract for both sides. Of course, I think the expectations of having SABESP as a private player or higher are the same, but at the end of the day, everybody expects more of the private player, and and we hope to deliver.

[Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP]

I I think that we're gonna be able, at the end of the day, to to solve most of the issues. I'm not gonna guarantee that we're gonna solve all the issues. Right? But I think we're gonna solve most of the issues through time. And I have I don't see, to to your point, that the agency is a restriction for our performance.

[Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP]

I see it the other way, and I'm telling this publicly on this call because I already told them publicly in in another event with them on my side. Okay?

[Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP]

So I I think this is to the benefit of SABESP, and I think we would have benefit in in other states if we had stronger regulators, to have those discussions. And I think through time, we're gonna show, through results, objective results that this this is this is feasible for us to achieve given this relationship and how competent they are. Thank you.

[Antonio Junqueira, Equity Research Analyst at BTG Pactual]

Understood. And there's no there's no major pushback technical pushback on their side when you debate this revenue gap. Right?

[Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP]

No. They they weren't just they said the rules are are the rules. You should follow the rules. And when the rules don't make sense, they hear. I I can tell you this is the most technical relationship with a regulator that I had in many years. So up to so far, so good.

[Antonio Junqueira, Equity Research Analyst at BTG Pactual]

Cool. Thank you, guys.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

Good. Our next and final question comes from Andres Andres Ampayo. Ampayo, would you like to go ahead?

[Andre Sampaio, Equity Research Analyst at Banco Santander]

Hey, guys. Good morning. Very briefly here, I just wanna hear you guys a bit about the rural census. What is the expectation to to when we should have that ready and and what do you guys expect in terms of the impact for the for the project I mean, the the projections going forward? My second question was related to the to the tariffs as well, so fully already discussed it. So first on the rural census.

[Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP]

I can take that this one. We we already hired the the third party provider. There was a rule on the contract how to do this. We already been through this. Again, start q q q three beginning q three.

[Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP]

There's a eighteen month time frame at at the very end of the period to validate and provide a final report, but we expect to have intermediary results starting even in the second half half of the year so we can have a basis to compare to the plans that we're we're doing for the works until the end of the the 02/1929 cycle. So on track, no major issue here. Time frame is long, till the end of the year, but probably we, as a as the concessionary, we're gonna receive partial results first and probably the public re the final results are gonna be public at year end of of next year.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

Just to give you a few numbers on that and and and actual dates, the the field work actually is gonna start in June 2025. So it's gonna be a long work, and we'll we'll probably have about 400 people on the ground doing that census just to give you some color on that.

[Andre Sampaio, Equity Research Analyst at Banco Santander]

And, guys, let me see if I if I get this right. Let's imagine we have a census which are much higher expectation of, let me say, demand for CapEx. That's that that I would say would be something that we would probably have to have some discussion with the regulator and the government about adjusting tariffs potentially on on the revision. Right?

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

Yeah. In in theory, if you if let me see if I understand your question. In theory, what you're saying is if there is a variation on the CapEx because in the end, the rural census shows you that you actually have to do more than than than what was originally thought on on the the appendix of the concession agreement. Is that is that how okay. In the end, given the the contractual model that we have, the if if the CapEx is prudent, it gets compensated on the rep.

[Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP]

For sure, the the the the the the concession, so they would I, has an expectation of how much the tariffs are gonna increase to the to the consumers. And if that's materially different, they they, of course, need to discuss and understand. But in theory, this shouldn't be a a a change to the contract. You know? It it may be a change in expectations, but it shouldn't represent a change in the contract.

[Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP]

Yeah. Let me add here. There's a provision in the contract. If there's a gap larger or equal to three percentage points in coverage on the on the eve of switching between 02/1926 and '27, there may be a time to discuss. So that's the provision.

[Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP]

And maybe depending on the census where you have a larger pro rural population than expected may this may be triggered. We we don't see this. This is if this happen, it won't happen on the eve of of 02/1927. We'll we'll receive this by municipality by municipality, and the final result will happen just by year end of 02/1926. So we'll see the the the the buildup of this gap through time, and we'll have the time to manage this this deviation from expectation.

[Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP]

Okay? We just need to understand how we can communicate this to the market, given this is under the regulatory, contract. But, we don't see, just to be clear, this as an issue or additional risk for SABESP. Okay? And we're on track, and everything is working well.

[Andre Sampaio, Equity Research Analyst at Banco Santander]

Thanks for the time.

[Operator]

Thank you. The q and a session is now over. We wish to give the floor back to mister Carlos Piani for the company's closing remarks.

[Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP]

So thank you all for the questions, and thank you again for joining us today. We appreciate your continued interest and support as we move forward with the transformation of SABESP. We know that the road ahead is is ambitious, but we're confident in the path that we're taking. And more more importantly, in our ability to deliver results that create value for all stakeholders. We look forward to keeping you updated on our progress in the in coming quarters. Have have all a great day today. Bye bye.

[Operator]

SABESP earnings presentation is now closed. Thank you very much for your participation, and we wish you all a very good day.

Participants

Analysts

• Daniel Szlak, CFO, Investor Relations Officer & Member of Executive Board at SABESP
• Carlos Augusto Leone Piani, CEO & Member of Executive Baord at SABESP
• Luiza Candiota, Equity Research Associate at Itau BBA
• Francisco Navarrete, Director of Research at Bradesco BBI
• Antonio Junqueira, Equity Research Analyst at BTG Pactual
• Andre Sampaio, Equity Research Analyst at Banco Santander