Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 12, 2025

Key Takeaways

  • Positive Sentiment: Revenue rose 3.5% from volume growth, supported by a 5% tariff carryover and removal of discounts for large clients.
  • Positive Sentiment: EBITDA benefited by $200 million from legal claim settlements, 11% headcount cuts and disciplined cost controls, driving strong margin improvement.
  • Positive Sentiment: Net income jumped 77% YoY to BRL 2.1 billion due to asset bifurcation, lower amortization and reversal of legal accruals.
  • Positive Sentiment: CapEx spending surged 178% YoY to BRL 3.6 billion in Q2, putting the company ahead of its 2024–25 universalization targets.
  • Neutral Sentiment: The final 2024 tariff adjustment—including pass-through costs and compensation for non-executed CapEx—is expected by December with implementation on January 1, 2026.
AI Generated. May Contain Errors.
Earnings Conference Call
Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp Q2 2025
00:00 / 00:00

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

Driven by tariff adjustments and volume expansion with partial offsets from Fawuspi and mix. Volume growth contributed 3.5% supported by 1.5% from new connections for the aggregate of water and sewage. Additionally, we saw 2% in increased consumption in the quarter despite slightly lower temperatures in Sao Paulo State in the period versus last year. As a reference, historical consumption increase in the past three years for Q2 has been 3.2%. Breaking down the revenue dynamics, average prices rose by 5% largely due to tariff carryover in April and May from May's 2024 tariff cycle, while in June we saw a tariff decline driven by July 2024 one percent tariff decrease.

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

In addition to that, we also continue to benefit from the removal of discounts to the first cohort of large clients with prices rising an average 47% versus Q4 twenty twenty four. As mentioned in Q1 twenty twenty five call, we have also terminated more contracts and we'll start seeing the benefit of them throughout H2. On the mix topic, it was impacted by the growth in the number of subsidized residential units, notably with the expansion of clients eligible for discounts. In July 2025, we saw the approval by the concession of the extension for eighteen months of subsidies to current clients that do not fit the CADI Unico rules and the introduction of a new intermediary discount class called Tarifa Paulista, which will further help consumers in vulnerable situations. EBITDA growth was driven by price and discipline in cost control.

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

On the cost front, we have been communicating that we would be changing the conduction in legal claims, outsourcing an important part to specialized external counsel and implementing settlements. This has contributed about $200,000,000 in EBITDA year on year for this quarter. Deep diving into personnel, expenses fell 10.3% year on year despite a 5.5% increase derived from the collective bargain with our unions. This was mostly driven by an 11% reduction in headcount from 2023 and 2024 voluntary dismissal plans, which have been substantially captured in June. These measures are part of our broader efficiency strategy.

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

Net income rose 77% year on year, reaching 2,100,000,000.0 The key drivers include the financial asset bifurcation, lower amortization from the extended concession agreement and the interest and monetary correction driven by the reversal of legal accruals I mentioned before. This was partially offset by lapping a prior year lower effective tax rate. Going to one of our most important commitments and a fundamental pillar for our next five year strategy, CapEx totaled $3,600,000,000 in Q2 twenty twenty five, a 178% increase year on year and a 26% acceleration versus Q1 figures. We're ahead of schedule on our 2425 U factor targets with water units target already met and 86% of sewage collection and 51% of sewage treatment delivered. To bring more color to the financial figures, our main programs including Tegre Chiete, Coastal Works and Sao Paulo Metro Region among others.

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

As an example, we're increasing treatment capacity by 68% adding 17 cubic meters per second across our top five sewage treatment plants like Barueri. Our leverage continues to be under control with no effective exposure to currency, given our foreign denominated debt is fully swapped. We closed July with four years of debt amortization in cash on hand, which we expect to deploy throughout the next months as we advance the CapEx agenda. 53% of our debt now matures from 2030 onwards, improving our long term profile. Key financial ratios continue to improve ROIC reached 13% and ROE 15%, while net debt to adjusted EBITDA remains conservative at 1.9 times, reflecting the strength of our balance sheet and operating model.

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

Finally, a quick update on the tariff cycle as we had many inbound questions. We have submitted to our SASP the data for our 2024 RAB and expect to hear back by September, after which we will have the final tariff adjustment by December 1. This will become public information and be effective by 01/01/2026. The main topics of that iteration will be the net additions to the RAB, twenty twenty four's pass through expenses, compensation adjustments from the last twenty nineteen-twenty twenty three forward looking cycle on non executed CapEx, adjusted 2024 histogram and the contractual amendment signed in December 2024. I will now pass the floor to our CEO, Mr. Carlos Piani. Piani, the floor is yours.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

Thanks again, Daniel. Let's now move to the next session of our presentation and review the highlights of our focus areas. Starting with Slide 18, our strategy remains focused on three priorities: meeting new concession agreement challenges through faster universalization and regulatory compliance raising operating standards in quality, reliability and customer service and boosting financial efficiency while strengthening people, technology and processes for long term success. Now turning to Slide 19 and our latest operational updates. CapEx execution continues to accelerate.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

In the second quarter, we invested BRL3.6 billion bringing our last twelve month total to BRL10.6 billion. Our backlog now stands at BRL35 billion across five forty two projects, which are scheduled to be executed until the 2029. On the regulatory side, we've maintained our positive track record. Around seventy percent of injections from large clients related to legacy discounts have been overruled in our favor. This remains one of our main initiatives to close the revenue gap.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

Operationally, we've seen significant improvements in the client service front quarter over quarter. 18% reduction in complaints about water shortages, 23% reduction in water leaks reported by the population, and 42% reduction in the average time for pavements restoration. On the energy efficiency front, we commissioned 32 photovoltaic plants with 44 megawatt peak of installed capacity, which we expect to generate annual savings of 44,000,000 highs per year. By the 2026, we expect to increase the total number to 44 plants with 60 megawatt peak of installed capacity. On the commercial front, our metering upgrade program is starting to gain traction with 225,000 new units installed in the quarter, 10% more than in Q1.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

In addition, Sabespia recently signed a 3,800,000,000.0 hash turnkey contract that will cover the replacement of 4,400,000 meters with smart IoT enabled units by 2029, a landmark move in leveraging data, accuracy and advanced infrastructure capabilities. One of our most important goals on the commercial front is to protect and secure our revenues. In this regard, we became the first utility in Brazil to operate with automatic PIX payments, that is recurring PIX transactions. We also began operating with smart POS machines in the field and in May, launched our customer service channel for WhatsApp. This new channel is already delivering promising results, which I will detail on the next page.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

And in the cost management front, ZBB initiatives deliver concrete results. Standardization of global maintenance contracts, craft of a legal settlement strategy to streamline legal processes, optimization of chemical use, improvement of meter reading processes and prioritization of pump replacements. This leads us to Slide 20, which focuses on our technology driven customer service initiatives. Our recently created customer service WhatsApp channel has now handled over 3,000,000 conversations and collected R96 million dollars an average satisfaction rating of 4.52. We're proud to be the first utility in the world to process payments through WhatsApps using Meta's proprietary technology.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

We've also expanded digital service, adding second copies of invoices, facial authentication, pics and credit card payments, and conversational AI, bringing faster, more personalized, more accessible customer interactions. All these results were achieved in just the past sixty days. Our new Smart POS enables payments directly at the customer's location from PICCs or credit card in up to 24 installments, helping avoid immediate disconnections, providing convenience, and ensuring secure, fast and inclusive transactions. Finally, on slide 21, let's reflect on our first year postprovenization. As mentioned by Daniel, our universalization targets are progressing at accelerated pace.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

In total, over 1,300,000 people gain access to water, 1,400,000 people gain access to sewage treatment in this first cycle. Now more than 5,000,000 people benefit from affordable tariffs, including the new Tariffa Socialpolista. And our CapEx program has induced the creation of more than 7,005 direct jobs in our construction sites alone. In summary, the second quarter demonstrates that our transformation is on track. We're scaling infrastructure, improving service quality, enhancing customer experience, strengthening our financial position and delivering tangible, social, and environmental benefits.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

That is all for now. But before we move to the q and a session, there will be a one minute video that we would like to share with you. Thank you.

Operator

Thank you. We will now begin our Q and A session for investors and analysts. Our first question comes from Luisa Cangiotta with Itau BBA.

Luiza Candiota
Equity Research Associate at Itau BBA

Good morning, and thank you for the opportunity. So could you give us more details on the OpEx performance this quarter? We saw basically all cost lines showing a significant reduction on both yearly and quarterly basis. So I'd like to understand what we can expect going forward in terms of recurring level, not only looking at the personnel expenses, but also third parties, materials and mainly in general expenses? That's my first question.

Luiza Candiota
Equity Research Associate at Itau BBA

And secondly, if you could also provide more details on what you mentioned in the beginning of the presentation regarding the evolution of the social tariff and its potential impact in the coming quarters? That's it from our side. Thank you.

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

Thank you, Luisa. Daniel here. Thank you for your questions. Talking about the OpEx, right, first. Look, we have a mission to invest BRL70 billion in the next five years, which is more than the and if you think about that on a yearly basis, thinking about BRL14 billion, it's more than what the company generates in terms of profit up until 2024.

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

So the efficiency program that we're putting in place is an important part of how we source that money to invest. So looking at all the lines and no line is not subject to questioning here as we do that job. So when we think about all these lines, right, so the first one being personnel, this one is a reflection of the voluntary dismissal plan that we've executed in the late twenty twenty four, early twenty twenty five. As we mentioned in the last quarter call, we saw a levers curve throughout the first half. So we saw a positive effect from that, almost BRL70 million, give or take.

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

In the remaining lines, like we've been communicating to the market, right, there is no one silver bullet. There are many, many, many initiatives that we're pursuing. And when we think about them, we're starting to see a combination of them coming to fruit. And we'll see those initiatives ramping up or ramping down depending on how they progress. So we'll see impacts on all lines.

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

On Power, we've been increasing our percentage on the free market, for example, we're above 70 percent on the free market today on our consumption as of June. So we're really making progress on all fronts. There's one specific item that we've highlighted as well, which is the reversal of legal accruals. As we've been communicating proactively to the market, as a company that is no longer an SOE, we have more degrees of freedom to operate inside this line. So we are able to make settlements proactively, we're able to outsource the conduction of legal claims and so on and so forth.

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

And these are starting to bear fruit as we saw in Q2, and we expect that to continue helping in the future. So when we think about the expenses, we try to avoid giving guidance, right? But in the end, the sense of urgency is here in terms of how we materialize the cost savings and initiatives that aim to improve the efficiency of the company. When we think about the mix, right, which is the Catastronico, right, let's rewind movie a little bit. When we think about the company last year had a mechanism whereby it gave discounts to about 900,000 economies.

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

And in October, the company adopted the Cadastro Unico eligibility criteria, which and we had an overlap of the two mechanisms up until the November. So when we did that, we reached almost EUR 1 400,000, 1,500,000 economies in discounts. And then when we we turned off the old mechanism for for for discounts, we saw that dropped to about a million a million and change. So we saw that there were a lot of people that still needed those discounts that were no longer eligible to them with the new. So what we did at our own expense and at your at the shareholders' expense was to give these discounts, and and to communicate to the concession that need.

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

And throughout the first half, we saw about 1,500,000 economies that were eligible for discounts when we kept both criterias in Q1 and almost 1,800,000 economies in Q2 as we communicated in the release. So when we look at those two figures and what happened later on, which was the approval of Tarifa Publicis the extension of eighteen months for discounts for the clients that are eligible to vulnerable and social tariffs. We saw in q one a 40,000,000 mixed impact incremental to the CACI Unifu criteria, and we saw BRL 130,000,000 in Q2, incremental to the Caji Unifu criteria. So in total, the company, invested, BRL 170,000,000 in the population for the first six months that are now, from July onwards, going to be compensated in the tariff cycle. This is going to happen just to make sure the timing is right.

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

This is going to happen in January 2027 when we issue the tariff cycle with the market of 2025, which is going to be in 2026. So just to keep in mind. That said, when we look at the financials of the company in the second half, we'll continue to see that impact, but this impact is going to be compensated in the tariff that's going to be effective 01/01/2027.

Luiza Candiota
Equity Research Associate at Itau BBA

Very clear. Thank you.

Operator

Our next question comes from Giuliano Agieggi with UBS.

Giuliano Ajeje
Giuliano Ajeje
Executive Director at UBS Group

Hello, guys. Good morning. So my question is about the universalization CapEx. So SABESP has a target of over 1,000,000 new sewage connections for the cycle 2425. However, by the second quarter, only about half of the target has been delivered, implying that the company would need to complete 5,000 new connections in the second half, which is three times the pace achieved so far.

Giuliano Ajeje
Giuliano Ajeje
Executive Director at UBS Group

So we understand that the sewage treatment connections might be delivered in large blocks as a treatment capacity is expanded. So two questions here. Number one, so first, if this explanation is correct? And second, which projects projects is still needed to be completed in 2025? What percentage of competition has they reached?

Giuliano Ajeje
Giuliano Ajeje
Executive Director at UBS Group

And when are they expected to be delivered? Also, guys, if you also, could do another question, I I would like to have more informations about the the, materials reduction of the effects. Okay? So two questions, materials, and the first one about the CapEx of universalization.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

Giuliano, thanks for your question. I'll take the first one. Daniel, I'll take the second one. So we have basically three types of goals, water coverage, sewage collection coverage, and the sewage treatment coverage. The treatment, the last one, is the most challenging one because we need to expand our treatment capacity to treat units already connected to the sewage collection network.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

We're at we're more advanced than what we imagined for this time of the year. So we're not concerned about this challenge about the 1,000,000. We're roughly eighteen months on because our target started beginning of 02/2024. We our goal is measured by the 2025. We still have five roughly, based on the data that you we have provided for the end of the quarter, 500,000 units to be connected, and we're above pace.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

We're gonna probably reach this only on the fourth quarter because, as you mentioned, we're gonna connect by bulks. So give me a little bit more detail. This is gonna be concentrated connecting units in the northern part of our of the metropolitan region of Sao Paulo, namely Guadulhos. We have 15 projects that are that are that concentrate most of these units that are gonna be connected by year end. You're gonna see this evolution based on the transparency agreements that we have signed commitment with the concession contracts.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

So we're gonna publish this through time. But I I will tell you, I'm not concerned of this, but it's gonna be at the very end. So we have 15 projects located in the North North region of the metropolitan region. They're gonna provide us these 500,000 connections. And take into account as well that we we're facing even better on the water and the sewage collection targets.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

These connections will also provide material to to this other target. So every new connection of sewage collection in an area where sewage is already treated becomes an additional unit for sewage treatment. So we're advancing on the two fronts even if we reach the target we're going to go over and above because this will happen will help, sorry, the treatment, sewage, go as well. Daniel, on the second part.

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

Sure. Thank you, Giuliano. In in the materials line, specifically for that and for chemicals, what we've been doing, right, SABESP was formed fifty two years ago as a as a a union of many companies. And for many, many years, we still had Deborah says that we still had the Sabes Pinas, which was the units had a lot of operational difference and freedom, and there was little standardization as an operation. So what we've been doing, right, we've named two different roles here.

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

We have a head for water, a head for sewage, and we've started standardizing how we work across the network in terms of how we apply materials and how we do things. And we're starting to see the fruit of that. In parallel, we've also enhanced our procurement team, and we have less constraints as no longer EMEA. So we also to operate differently in how we do the procurement and so on and so forth. So I think it's a combination of the two things that is starting to show results to help us drive better savings.

Giuliano Ajeje
Giuliano Ajeje
Executive Director at UBS Group

Okay. Excellent. Peony, just one question Yes. The company will keep the CapEx base of BRL 3,500,000,000.0 per quarter.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

Giuliano, I think probably, yes. Probably, the profile of the CapEx will change through time, and we're going to see minor differences on the level of CapEx. We started the first thing that we did was the expansion of the big the largest sewage treatment plants to deal exactly with the treatment goal that you mentioned. Through time, we're gonna finish those expansions, and we're gonna have shorter cycles of CapEx, usually making smaller connections in the countryside of Sao Paulo. So we're we're gonna see we're probably gonna see a change of the profile of the CapEx and probably maintaining the same level. That's my educated guess today.

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

But I think just to to to present, I think the law of the average is a good a good application of how you think about our CapEx for the next five years of law of the average of the by quarter. So I think it's a good way to think.

Giuliano Ajeje
Giuliano Ajeje
Executive Director at UBS Group

Okay. Excellent. Thank you very much.

Operator

Our next question comes from Guilherme Leema with Santander.

Guilherme Lima
Guilherme Lima
Equity Research Analyst - Electric & Other Utilities at Banco Santander

Good morning, guys. Just a follow-up in the OpEx question. Just in the general and administrative line in the sheet, you have a negative BRL 50,000,000 expense. We assume this line was impacted by a reversal of provision of BRL 200,000,000. Is that correct?

Guilherme Lima
Guilherme Lima
Equity Research Analyst - Electric & Other Utilities at Banco Santander

Can we expect this line to come above BRL 200,000,000 negative BRL 200,000,000 from now on? In the first quarter twenty twenty five, it was close to negative $216,000,000 It is just to help us to have an idea what could be a recurring level for this general and administrative line in the sheet. And the second question is in the bigger consumer tariff discounts, you reported $111,000,000 gains in the quarter with fewer discounts. In the first quarter 'twenty five, it was $100,000,000 gain, closing first half 'twenty five with $211,000,000 gain. Can we expect the second half 'twenty five to have a similar gain with the first half twenty twenty five?

Guilherme Lima
Guilherme Lima
Equity Research Analyst - Electric & Other Utilities at Banco Santander

We should see this gain accelerating from now on. And what could be the this gain in the 2025?

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

Good question, Guilherme. Thank you very much. Look, talking about the expenses first. On the expense front, yes, you have 200,000,000 reversal of legal accruals. And on top of that, when you compare year on year, you also have lower municipal funds for about BRL100 million, which are driven from the fact that we've anticipated the municipal funds last year.

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

So we will see less of that. If you look at Q1, you see the exact same number when you think about year on year effect. Okay. So that's point number one on the expense. Okay?

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

On the revenue, we've removed the discounts from our first cohort, which was at the end of last year, and we're seeing the benefit of that in Q2, and we saw some of that in Q1. We're at the running rate here. We have some injunctions that were filed that we're still fighting in court, but this is a small amount. What we've done, and we've communicated that also at our Q1 call, we've also removed discounts from more clients, from the majority of the clients. But these also had a cure period of how long it will take the discounts, to actually be removed.

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

So sixty days, ninety days, one hundred and twenty days. So as we go and as we have the measurement cycle, the metering cycles, from our readers, we'll also start seeing the capture of the second cycle of this country removal, until the end of the year. So we'll see a ramp up of that in the second half. That's our expectation as of today.

Guilherme Lima
Guilherme Lima
Equity Research Analyst - Electric & Other Utilities at Banco Santander

Thank you, guys.

Operator

Our next question comes from Daniel Travitsky with Safra.

Daniel Carabolante Travitzky
Equity Research Associate at Safra

Hello, guys.

Daniel Carabolante Travitzky
Equity Research Associate at Safra

For the opportunity. So I have two questions. First, can you give us more information on the reasons why we had an increase on delinquency rates in this quarter, just to understand a little bit more? And secondly, if you could give us more details on the initiative of smart metering agreement you closed this quarter would be very nice. Thank you.

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

Great. So maybe I'll take the first. You want to take the second?

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

Yeah.

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

Okay.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

Sure.

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

Cool. So with regards to allowance for doubtful accounts, last year, we had about BRL60 million in terms of deals or settlements that we made with delinquent customers. So year on year, you have that effect that's explaining more or less half of the year on year difference. On top of that, we've also seen we've also had the tariff increase, that also helped increase a little bit the delinquency.

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

But more more than that, remember that I mentioned about the card you have in the that we removed the discounts in December and January, from a lot of the customers. So we're actually seeing that effect now. So these customers at work were rebuild and reinvoiced later on. So potentially, we'll see a change in the profile in Q3 due to that, but this is just the lagging effect of that, okay? So those are the main three drivers for that impact.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

Regarding your second question, first, let's set the stage. We have the obligation, according to the new concession agreement, to provide smart meters in the city of Sao Paulo and Sao Jose Doscot. At least on these two municipalities, this is an obligation, and we have the degrees of freedom if we choose to to do so in the other municipalities. So after after we got here, we're we're in for eleven months now, we we went out on a journey to understand what type of experience, existed around the world regarding smart meters. So we went to Europe.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

We went to we went to Asia. And and we based on this, investigation, we chose a technology based in NBOT. It's a type of technology using some of the spectrum of the wireless companies. We also took the decision to to go to to meet this obligation through a turnkey project because usually, there's a there's a discussion about the responsibility when you have problems about the the carrier, the telecom carrier, and the manufacturer of the meters. So we took the decision to have only one point major point of contact that's gonna be the telecom communication company.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

So that's that's what we did. So we're very excited with the deal that we struck with with Vivo, Telefonica from Spain. They already rendered this similar type of service in Spain for the water industry. They rendered this type of service in in The UK for the electricity sector. So they have experience providing smart meter technology to other utilities.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

They're gonna be responsible for the rollout of of this obligation. We have pre negotiated with some meter companies to provide the meters by who, and they are going to be billed directly to SABESP, so they're going to be incorporated to our regulatory asset base. But all the interaction is going to be done through Vivo, and they're going to be responsible for rolling out this. We're we're probably going to bring other metering companies from around the world to help us meet this target. So we have a couple of foreign companies interested in this contract as well to help us meet the 4,400,000 unit targets that we communicated to the market.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

So basically, this is the relationship, part of the amount of the R3.8 billion dollars we mentioned. Most of that amount is related to the meters, but there's also a fee to be paid for the communication, the setup, the software, all the the connection that's gonna be set up by Vivo. And they're gonna guarantee the lifespan of of the meters that we remain around ten years. Okay? That's the regulatory life cycle of the meters.

Operator

Our next question comes from Artur Pereira with JPMorgan. You can open your microphone, sir.

Arthur Pereira
Arthur Pereira
ED - Equity Research at J.P. Morgan

Hey, good morning, guys. So two questions on the tariff review process. First, on the time line, I think that it differed a little bit from the expectations from that we had and also that investors had regarding the public disclosure, right? You mentioned that the only public disclosure would be the final review by, early December. We were expecting something at least in September or October.

Arthur Pereira
Arthur Pereira
ED - Equity Research at J.P. Morgan

And the main question about this is why not a public hearing process, right? This is, usual for any regulated utility, especially in a process in which we will discuss a new methodology about the financial compensation for the CapEx that were included in the contract amendment from December. And wouldn't this be a risk of friction from consumer associations, etcetera? And the second, as Daniel mentioned, out of the three main drivers for this tariff review process, one of it would be the financial compensation for the CapEx not executed right in the previous tariff cycle. Could you provide any kind of details or expectations about how much CapEx you didn't execute or at least what could be the best way to look at it?

Arthur Pereira
Arthur Pereira
ED - Equity Research at J.P. Morgan

We know that there could be some differences between the CapEx reported and also how the regulator assesses CapEx in the tariff review. Thank you.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

Thank you, Arthur. I I think what we try to do here was just to give visibility of what's already embedded in the contracts. A lot of investors question us, what's the road map? What's gonna happen? So what we provided today is the roadmap that's agreed and it's described in the conference.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

What's described regarding the wrap is that we're gonna have we're we submitted already the 2024 wrap by the May, and the regulator actually has until the September to provide a final number to us. We still don't know if if it's gonna be confidential or not, but my my personal opinion here and we're gonna live this first cycle. If this is definitive, probably, I'll I'll make the case here to to make it public because I'm not gonna hold the the final private information. Probably, it's easier to to disclose this information. So this we're gonna see how this is gonna play out in September.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

In October, we're gonna receive the number that's gonna be embedded on the tariff increase next year so we can apply apply appropriately in the January 1 or the following year. So this is the mechanics. There's a couple of things that we are gonna learn together with SASB. Okay? I think the second question that you mentioned is regarding the change of the methodology regarding how the RAB is evaluated.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

This we're gonna have a public hearing. I think this is a little bit behind schedule, but I I my understanding that we're gonna have a public hearing regarding this this issue as well where every stakeholder will will have an opportunity to to make a voice and express their opinions about the proposal that the regulators are gonna make. So even us, we're gonna make comments and see how we see the proposal of these changes. So I don't think this is out of the I think this is part of the process and it's still going to happen in the due time. Okay?

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

That's my my 2¢. Do want to take the second one or do you want to make it?

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

No, no, that's fine. I think with regards to the adjustment based on the CapEx not executed on the last cycle or the old methodology, if you want to say the forward looking methodology. Yes, this is one of the items in the tariff review. We're not disclosing publicly what we think the number will be because this review is not a fulsome review, it's just an incorporation of RAB, right? But we'll see that together with the result of the tariff review. There is no there should be no big interpretation here. That's at least our expectation to be very technical.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

So usually on these technical items, just one final comment, Akhtur. There's the regulator gives a preliminary number where we have the opportunity to question and challenge some of of the positions. So even us, we we have an estimate, but this is not final. Okay? So that's that put us in a position that it's it doesn't make sense for us to disclose this number.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

But for sure, there is a gap on that number that's going to be considered on the repositioning of the tariffs for next year. And when we have definitive numbers, I think we'll work to make these numbers public as soon as they are final.

Arthur Pereira
Arthur Pereira
ED - Equity Research at J.P. Morgan

Perfect. No, this would be super important, okay? And just one final question about this financial compensation for the previous cycle. Besides the CapEx, is there any line in the previous financial compensations? There were also some adjustments for other revenues and concession fees or the CapEx should be the bulk of it?

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

I think the CapEx is a large bulk of it.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

We're we're near here, we're looking everything that happened in the past. There's positives. There are negatives. We're trying to make us inventory of everything that's on the table, and and probably we're we're gonna make a proposal considering a 100% of this. Okay?

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

That's usually the case. And and and it's also usually the case that you don't get everything. Right? So but we're trying to raise everything that that makes sense for Sabespi to make a plead with the regulator, And we're going to do in the due process, before the November final position of assessment.

Arthur Pereira
Arthur Pereira
ED - Equity Research at J.P. Morgan

Got it. Thank you very much.

Operator

Our next question comes from Bruno Amorin with Goldman Sachs. You can open your microphone, sir.

Bruno Amorim
Bruno Amorim
VP - Equity Research - LatAm Energy, Transportation & Infrastructure at Goldman Sachs

Hi. Good morning. Thank you for for taking my question. So maybe for Peony, you know, now that you have been running the company for roughly one year, you know, what's your assessment of the opportunity at Sabespino? Where did you find even more opportunities to create value, and what are the areas where the challenge is bigger than what was initially expected one year ago?

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

Thank you, Bruno. I think the the opportunity, it's it's very I think Sabes is one of the largest companies in the world. So it's an opportunity for me, for Dan, and for Thiago, for everyone who's being part of this transformation. I think we have evidence that the every day that we have many opportunities. I think the the what we didn't imagine is how heated was gonna be the economy of Sao Paulo.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

Right? I think the governor has promoted many many investments in the state, so there's it's a heated heated demand for services, for people, for for the workforce. I think this we didn't envision. Our challenge has been to balance the efficiency gains that the market always tries to get a commitment from us where we want to get to with the annual targets, right? Remember, we have annual goals, specific numbers that we we need to get to independently of the savings and so forth.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

So we need to balance these two things. And I think we have done so far a great job. Still early days, but but I think I'm very excited what we have done so far with very little friction and and and negative impact. So I think we're good in that front.

Bruno Amorim
Bruno Amorim
VP - Equity Research - LatAm Energy, Transportation & Infrastructure at Goldman Sachs

Thank you. Have a good day.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

Okay. Thank you, Bruno.

Operator

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 Board at SABESP

So I'd like to thank you all for the questions, for joining our call today. I I we understand that Sabestro is delivering on on its commitments. I think we we gave very robust strides towards the the universalization, a big pent up demand here in the state of Sao Paulo. We're improving service, the in service quality. We're strengthening the financial and operating performance at the same time.

Carlos Augusto Leone Piani
CEO & Member of Executive Board at SABESP

So I think we're very excited with what happened so far and optimistic with the future. Thank you for your ongoing support and see you all on the call for the third quarter results. Have all a nice day. Bye bye.

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

Thank you.

Operator

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

Analysts
    • Daniel Szlak
      CFO, Investor Relations Officer & Member of Executive Board at SABESP
    • Carlos Augusto Leone Piani
      CEO & Member of Executive Board at SABESP
    • Luiza Candiota
      Equity Research Associate at Itau BBA
    • Giuliano Ajeje
      Executive Director at UBS Group
    • Guilherme Lima
      Equity Research Analyst - Electric & Other Utilities at Banco Santander
    • Daniel Carabolante Travitzky
      Equity Research Associate at Safra
    • Arthur Pereira
      ED - Equity Research at J.P. Morgan
    • Bruno Amorim
      VP - Equity Research - LatAm Energy, Transportation & Infrastructure at Goldman Sachs
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