Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp Q1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2026

Key Takeaways

  • Positive Sentiment: Company reported strong Q1 results with adjusted net revenue of BRL 6.0bn (+11%), adjusted EBITDA BRL 3.8bn (+26%) at a 62.9% margin, and adjusted net income BRL 1.5bn (+32%), driven by price increases and cost discipline.
  • Positive Sentiment: CapEx ramped up sharply—Q1 investment of BRL 3.7–3.8bn (+31% YoY)—with a BRL 39.8bn CapEx backlog (Apr 2026–29) and significant progress toward universal access targets (87% water, 77% sewage collection, 71% sewage treatment for 2024–26).
  • Positive Sentiment: Balance sheet and liquidity are highlighted as strengths: net debt BRL 32.5bn, extended average debt maturity to 6.3 years, 64% of debt maturing 2031+, and BRL 19.2bn cash covering over five years of debt service.
  • Negative Sentiment: Regulatory and social-tariff pressures pose uncertainty: expansion of subsidized tariffs (now >2m connections) reduced revenue mix by 3.4%, and implementation of new regulatory accounting/RAB and DRC methodology remains a complex, year‑long process that could affect future tariffs and asset treatment.
  • Positive Sentiment: Operational transformation is progressing—headcount down ~13% YoY, SAP S/4HANA went live, 326k meters installed (+51% YoY), and collection rate near 96.9%—supporting efficiency gains and revenue assurance initiatives.
AI Generated. May Contain Errors.
Earnings Conference Call
Companhia de saneamento Basico Do Estado De Sao Paulo - Sabesp Q1 2026
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Operator

Good morning, and welcome to SABESP's first quarter of 2026 earnings presentation. With us here today are Carlos Piani, CEO, Daniel Szlak, CFO, and Thiago Levy, Investor Relations. Before we begin, we clarify that the statements made during this presentation will not include projections or estimates of future events. They may contain forward-looking statements indicating potential trends related to SABESP based on reasonable expectations, beliefs, and assumptions of SABESP's management as of today. These statements involve risks and uncertainties and are based on assumptions and factors such as market, regulatory, and economic conditions, which may not materialize, in addition to the risk factors disclosed in SABESP's filings with the Brazilian Securities and Exchange Commissions, B3, and on its investor relations website.

Operator

Investors should understand that changes in such factors may lead to outcomes that differ from current trends and that undue reliance should not be placed on these statements. The full disclaimer will be presented next and must be read carefully by all participants. This presentation is being recorded and all participants will be in listen-only mode during the presentation. After that, we will begin the question and answer session for analysts and investors only. If you wish to ask a question, please raise your hand and submit it via the Zoom Q&A informing your name and company. I will now turn the floor over to Daniel Szlak, who will discuss the results. Daniel, you may proceed.

Daniel Szlak
CFO at SABESP

Thanks, operator. Good morning, everyone. Thank you for joining us for SABESP's first quarter 2026 earnings call. I'm Daniel Szlak, CFO. I'll present our operational and financial highlights for the quarter. After which, I'll handle the call over to our CEO, Carlos Piani, to update you on our progress. We will open the floor for the Q&A. Before I begin, I would also like to clarify that all the numbers in this presentation are SABESP only and do not include MI's figures. For this first quarter, we have only consolidated the balance sheet. In the first quarter of 2026, total water production reached 778 million cu m, 4.6% lower versus the year-ago.

Daniel Szlak
CFO at SABESP

This decline reflects a milder summer with average temperatures 3.3 degrees Celsius lower than last year, as well as the application of SP Águas' operational rule of the night pressure management implemented for approximately 10 hours per day to enhance the system resilience. Our active customer base remains stable with about 9.5 million water and 8.2 million sewage connections. The slight year-on-year reduction is primarily driven by increased revenue assurance actions and the verticalization of the cities in which we operate. Excluding the impact of such actions, water connection would have remained flat year-over-year, while sewage active connections would have increased by approximately 0.2%. We continue to prioritize service quality and operational reliability for the nearly 30 million customers, ensuring consistent water supply and sewage services, even amid varying weather conditions and operational challenges.

Daniel Szlak
CFO at SABESP

Turning to our financial performance, adjusted net revenue for the first quarter of 2026 was BRL 6 billion, an increase of 11% year-on-year. Adjusted EBITDA was BRL 3.8 billion, up 26% versus the year ago, reaching 62.9% margin, a significant expansion from where we were a year ago. This higher margin illustrates the impact of our continued efficiency efforts and disciplined cost control to free up resources for our CapEx plan. Adjusted net income was BRL 1.5 billion, growing 32% year-over-year, supported by improved operating results and lower spreads in our debt stack. Before we deep dive into the operating performance, let me briefly walk you through the reconciliation between reported and adjusted figures, same as we did in previous quarters.

Daniel Szlak
CFO at SABESP

As usual, we exclude construction revenues for which we don't book any margin and the financial assets, which are merely accounting requirements and do not reflect, in our view, the underlying operations of the business. In addition, during the quarter, we incurred in BRL 16 million of one-off M&A expenses. Adjusted net revenue grew 11% year-on-year in Q1, driven by three main factors. First, price contributed 12%. This reflects the last tariff increase implemented in January, with a 9.1% phase-in from last year's bills invoice in 2026. It also reflects an additional 2.8% gain from commercial initiatives, particularly the termination of large client contracts. Second, volume was up 2.4%. While the expansion of the customer base contributed 2.9%, this was partially offset by temperature effects that drove consumption per capita down 0.6%.

Daniel Szlak
CFO at SABESP

Finally, mix reduced revenue by 3.4%, reflecting the expansion of subsidized tariff programs year-over-year. These programs now benefit more than 2 million connections and remain a key mechanism to ensure access to basic sanitation services at affordable prices for underprivileged communities. While these affects revenue mix in the short term, it is fully aligned with our social mandate and is covered within the regulatory framework. On the next slide, we deep dive into some of the aspects supporting the revenue performance. The price index, excluding mixed effects, remains stable with a 9.1% increase driven by the January tariff adjustment. On the social front, the number of connections benefiting from subsidized tariffs surpassed 2 million. While this was virtually stable quarter-on-quarter, it represents a 23% increase year-over-year.

Daniel Szlak
CFO at SABESP

This expansion reinforces our best role in promoting social inclusion while continuing to broaden service coverage in a financially sustainable manner. Moving to EBITDA, adjusted figures grew 26% to BRL 3.8 billion. This was underpinned by higher revenue and cost efficiency across multiple areas. G&A saw a gain from a BRL 30 million past due settlement with one of our cities and generally tighter cost discipline. Power went down largely from an increasing mix, with the free market now representing 86% of total consumption. Personnel costs have declined as a reflex of our workforce restructuring. The average workforce in Q1 2026 reduced 13% compared to the year ago to 8,800 employees. With revenues up and costs well contained, our EBITDA margin expanded to 63%, freeing up resources for our ambitious CapEx plan.

Daniel Szlak
CFO at SABESP

Now, deep diving into personnel, we saw a reduction of 26% year-over-year, which reflects a combination of a 13% headcount reduction and a gain in workforce job and salary mix. These structural measures more than offset the 5.5% wage inflation applied during the period. Reported net income was BRL 1.7 billion for the quarter, up 18% from BRL 1.5 billion in the year ago. The substantial EBITDA growth more than offset an increase in net financial expenses, which rose as expected due to higher interest rates and our higher average debt to fund the CapEx program. These effects were partially offset by a lower income tax expense, aided by the deduction from interest on capital payments in the quarter. Our transformation is most visible in the acceleration of the investment program.

Daniel Szlak
CFO at SABESP

In the first quarter alone, CapEx reached BRL 3.7 billion, up 31% year-on-year. This strong start to the year puts us well on track to achieve our ambitious plan. We have already delivered a large portion of our multiyear universal access targets as of Q1. We have fulfilled 87% of our water connection goal, 77% of our sewage collection goal, and 71% of our sewage treatment target for the years of 2024 through 2026. Moving to the next slide, our major projects are advancing as planned. For example, under our Countryside Universal Access Program, phase one is underway with 11 projects involving BRL 5 billion of investments already in execution phase. Earlier this year, we launched the phase two tenders for additional eight projects, totaling another BRL 5.4 billion in investments.

Daniel Szlak
CFO at SABESP

We made further advances in the Integra Tietê program with the expansion of the Barueri Sewage Treatment Plant, a BRL 5.7 billion project that will boost the plant's capacity by 41%, benefiting about 4 million people by 2029. Turning now to our balance sheet, our leverage ratios remain controlled even as we ramp up investments. At the end of March, net debt stood at BRL 32.5 billion. Our average cost of debt remains low at roughly the benchmark rate, and we have extended our average debt maturity to 6.3 years. It's worth highlighting that 64% of our debt now matures in 2031 or later, reflecting our proactive efforts to push out maturity, post universal access, and lock in long-term financing.

Daniel Szlak
CFO at SABESP

We also maintain a very strong liquidity position, BRL 19.2 billion in cash at quarter end, which is sufficient to cover over five years of debt service. Our solid capital structure and balance sheet provides ample flexibility to continue executing our investment plan while safeguarding our financial stability. Finally, looking at our key financial ratios, net debt to adjusted EBITDA was 2.4% at the end of the quarter. Still, at a very comfortable level, given our robust cash generation and long-term debt profile. Our profitability metrics remain strong and stable with a trailing ROIC of 11% and ROE about 17%, combining both growth with profitability. With that, I will now hand over the call to Mr. Carlos Piani, our CEO, to discuss our strategic priorities and recent developments.

Carlos Piani
CEO at SABESP

Thanks, Daniel. Good morning, everyone, and thank you for joining the call. I will now provide an update on the strategic and operational progress achieved during the first quarter of 2026. Turning to slide 17, you can see a summary of the key accomplishments across the four strategic pillars we presented at our Investor Day last April: quality, profitability, growth, and society. Starting with growth and our universalization agenda, we maintained the strong investment pace established last year. CapEx reached BRL 3.8 billion in the first quarter, approximately 31% higher year-over-year, clearly demonstrating our execution capacity and ability to accelerate project delivery. Visibility also remains high with a CapEx backlog of BRL 39.8 billion from April 2026 through 2029, providing a solid foundation to sustain this investment cycle over the coming years.

Carlos Piani
CEO at SABESP

Turning to profitability and operational efficiency, as discussed during our fourth quarter 2025 earnings call, we have substantially closed the historic gap related to discounts granted to large clients. At this stage, 80% of the related injunctions have been ruled in SABESP's favor, reinforcing both revenue quality and regulatory alignment. We also continue advancing our infrastructure modernization agenda with installation of 326,000 m during the quarter, a 51% increase year-over-year. This initiative is expected to contribute to lower losses, greater billing accuracy, and improve operational efficiency over time. Collection performance also remained strong with a collection rate of 96.9% in the quarter, excluding court-ordered debt payments. In digital transformation, the quarter was marked by the successful go live of SAP S/4HANA, a major milestone for the company.

Carlos Piani
CEO at SABESP

This implementation enhances agility, data quality, and operational integration, while also establishing an important foundation for the next phase of SABESP's transformation agenda. On quality and customer experience, we continue to expand and strengthen our digital customer journey. Today, 10.5 million customers use our digital payment channels. Our WhatsApp platform continues to scale, averaging 2.8 million interactions per month, while SABESP's app maintains a strong 4.6 rating with approximately 1.5 million monthly interactions. At the same time, we're adapting our call center branches and ombudsman operations to a new commercial and operational reality. This includes redesigning processes, standardizing workflows, and resizing teams to better match current demand volumes. Additional adjustments and improvements are planned for the coming quarters as we continue to enhance customer satisfaction and improve our Net Promoter Score.

Carlos Piani
CEO at SABESP

On ESG, I would like to highlight two important achievements this quarter. Earlier this week, ISE B3 published its annual index composition, and SABESP remains a member for the second consecutive year, reinforcing the strength of our ESG positioning in the Brazilian market. In addition, in January, we received the B rating in the CDP Climate Assessment, representing an improvement versus last year and reflecting continued advances in climate governance and environmental management. Taken together, these results demonstrate the consistency of our execution across all strategic pillars and reinforces our ability to deliver sustainable growth with quality, efficiency, and positive social impact. Moving now to Slide 18, while we're making strong progress across priorities, it is equally important to remain transparent about the challenges ahead as we advance towards our 2029 commitments presented at Investor Day. Each year, this transformational journey brings a distinct set of priorities.

Carlos Piani
CEO at SABESP

In 2026, one of our main challenges is the implementation of the new regulatory accounting principles, including the new RAB methodology, which we expect to conclude by year-end. This is a complex but fundamental step to ensure greater transparency, consistency, and alignment with the evolving regulatory framework. In this context, ARSESP, our regulatory agency, has launched a public consultation to discuss the new DRC methodology, and we intend to actively contribute to this process by submitting our recommendations by May 13 of this year. Successful delivery on this milestone will be critical not only from a compliance perspective, but also to support the next phases of our transformation agenda, including future tariff reviews, the advancement of universalization targets, and the integration of new assets into our operating and financial model. With that, I conclude this session of the presentation. We can now move on to the Q&A.

Operator

Thank you. We will now begin the Q&A session for investors and analysts. To ask a question, please submit it via the Zoom Q&A informing your name and company. Our first question comes from Mr. Guilherme Lima from Santander. Mr. Guilherme, the microphone is open. You may proceed.

Guilherme Lima
Guilherme Lima
Analyst at Santander

Good morning, guys. I have here two questions. First, electricity and material expenses came in higher than we were expecting. Could you disclose to what extent these lines were impacted by the company's current hydrological situation, what could be normalized levels, and whether a portion of these incremental costs could be subject to future reimbursement? The other question is if you could share your expectations for the 2026 revenue loss stemming from social tariff benefits to be reimbursed in 2028 tariffs. That's it.

Daniel Szlak
CFO at SABESP

Thank you, Guilherme. Good morning. Daniel here. Thank you for your questions. Look, starting from electricity materials, we don't see necessarily major shifts, electricity with regards to hydrological situation versus what we had, for example, in the second half of last year. What we see first is a decline year-on-year on power expenses. We're actually consuming less versus the first quarter of last year, as we have a lower production given by the fact that we're doing the night pressure management in connection with SP Águas operating rule, which is good.

Daniel Szlak
CFO at SABESP

What we see naturally, and we try to signal that in the investor day, is higher costs per kilowatt with regards to the captive market, given the price increases that have been already passed in the places where we operate. This is one of the things. Looking to materials, I would attribute that mostly through phasing than anything else. There was no specific major item on materials in the quarter that would lead me to believe that we're on a different path. With regards to revenue loss from the social tariff, right, which is a timing effect, naturally. What we see, today we have virtually stabilized the number of economies that actually access the benefit with about 2 million.

Daniel Szlak
CFO at SABESP

If we look at year-on-year, this is a big impact, growing almost 50% year-on-year quarter. When we look at Q4 versus Q1, the number is relatively stable. I don't see major spikes from one quarter to the other. What I do see, and one thing that you have to keep in mind, is every time that we grow, we're growing more and more to underprivileged communities. As we grow, an important part of that growth is gonna be eligible to the Tarifa Paulista or to the CadÚnico, depending on each level of eligibility. This is gonna add to that number. Is it gonna be one for one for each economy that we grow, this is gonna go there?

Daniel Szlak
CFO at SABESP

I don't think so, but this is gonna be less something that's less predictable from a day-to-day perspective. You'll see some growth, but this is gonna be much more organic now, and it's gonna be less stochastic. Sorry, less discrete. Sorry.

Guilherme Lima
Guilherme Lima
Analyst at Santander

Thank you, Daniel.

Operator

Thank you. Remember that to ask a question, submit it via the Zoom Q&A informing your name and company. Our next question comes from Mrs. Maria Carolina from Safra.

Maria Carolina Carneiro
Analyst at Safra

Hi, everyone. Good morning. Thanks for the call, and also for taking my questions. I have two, one on regulatory front and the other on growth opportunities. Starting with regulation, can you comment on the recent normative that ARSESP published presenting the guidelines for the discount policies for large users? What's your thoughts on these guidelines, expectations surrounding this definition, and how can this help you guys in future negotiations with big clients? Secondly, the government announced the public hearing, as you guys mentioned on the investor day, for the Universaliza São Paulo program. Looking at the documents released, what's your first thoughts on that, the expectations for the blocks per se, if it's gonna be more than one block, and potential size of blocks here, in case you have any views on that.

Maria Carolina Carneiro
Analyst at Safra

Of course, expectations on possible differences between this model, new model, versus the first version, and maybe the timeline for that. Thank you.

Carlos Piani
CEO at SABESP

Thank you, Carol. A few thoughts, not definitive yet because I think we're still early days in some of these initiatives. First, regarding the commercial discount policy, not policy or ruling that SABESP did. I think the next step is for SABESP to submit a policy in how this deliberation would work. Our expectation is to do this in the next couple of weeks, to be honest. This has been long overdue. This segment of the market is expecting this since the privatization. Our expectation is that SABESP will approve with any adjustments the policy that we submit, I think by the end of this quarter. This would be in, I think, valid for consumers on the second half of the year.

Carlos Piani
CEO at SABESP

The consequence would be, I think, consumers to adopt these new tariffs. We would probably, this would have impact on our second quarter, second half of the year results, as this rolls out, and we would be compensated two years down the road because of the volume, how the regulation works. I think this would mitigate a lot of the pressure, a lot of the demands that some large clients, industrial and commercial clients have. All in all, I think that we'll have a clear view of definition of the policy that we're gonna propose and if it's gonna be approved by the end of that first half, and this would be applicable and valid for the second half of the year, flowing through our numbers.

Carlos Piani
CEO at SABESP

Regarding Universalization, I think it was good to hear that this process is moving forward. I think the big unknown still is how many municipalities are gonna be there for the formal process. This is still not set in stone. I think that's the big, I think, uncertainty. We don't have a clear view of how many blocks. I think it depends, at the end of the day, how many municipalities will be in the process when the process formally starts. I think the new news, I think, is the drainage. It's small, but there's a piece of drainage in the process. This is different from what we had at SABESP. All the rest, I think, is most of the same.

Carlos Piani
CEO at SABESP

That's good news because there's no surprise. There's also provision of DRC. What's going to be approved for SABESP is going to be rolled out for Universaliza São Paulo. This is, I think, the unknown that may affect us and the Universalization. Okay, this is our takeaway for now. And glad that see both of these initiatives moving forward during this year.

Maria Carolina Carneiro
Analyst at Safra

Okay, amazing. If I may add.

Carlos Piani
CEO at SABESP

Sure

Maria Carolina Carneiro
Analyst at Safra

One additional one here. We noted this quarter that the unitization curve seemed a little bit slower compared to the previous quarter. Of course, we're talking about tough comps, right, given you guys did a great job last year. Just to understand, if there was any kind of events this quarter that changed a little bit the rhythm here, or nothing to be noted on that. Thank you.

Carlos Piani
CEO at SABESP

I can take it. Daniel can also comment if you want, but I think there's small seasonality. At the end of the day, there's a big push, given how regulation works, to have everything ready for the regulatory discussion by end of the year. The fourth quarter is our peak, and usually the first quarter is where from a seasonality standpoint, a little bit lower. I think nothing that concerns us. This has basically two things: the comp of the fourth quarter, and I think the way that the construction works evolve through the year. I think the first quarter, usually it's a little bit slower from a unitization standpoint.

Daniel Szlak
CFO at SABESP

I just wanted to add something here, Carol, to Piani. We also had the cut over for SAP. We had to cut the month a little bit earlier in March, so we didn't have the typical days that we take in at the end of every month to go through the unitization process. This is gonna be picked up in Q2. Okay.

Maria Carolina Carneiro
Analyst at Safra

Okay. Thank you, guys.

Carlos Piani
CEO at SABESP

We lost two, probably two of the 90s+.

Maria Carolina Carneiro
Analyst at Safra

Okay, thanks.

Operator

Our next question comes from Bruno Amorim from Goldman Sachs.

Bruno Amorim
Bruno Amorim
Analyst at Goldman Sachs

Hi, good morning, everybody. Thanks for taking my questions. I have two here. The first one, you know, could you comment or remind us where you are in the journey to improve operational efficiency of the company? Just so we understand, you know, how much more room you still see for further cost and revenue efficiencies going forward. The second question, you know, on the Copasa privatization. If Sabesp decides to participate, is it decided that that would be together with Equatorial, given none of those companies are, have exposure to Minas Gerais yet, or not necessarily? Thank you very much.

Carlos Piani
CEO at SABESP

Daniel, you take the first one. I can take the second.

Daniel Szlak
CFO at SABESP

Okay. On the cost side, look, we have a lot of things that we did last year and thinking through why we're doing this. We've invested already BRL 22 billion. We've invested another BRL 3 billion plus this quarter. We're investing a lot, and this is one of the ways that we free up resources for that investment. Interest rates that are at 14.5%. This is one of the things that why we do this. Thinking through this, we did a lot last year. There's a lot of carryover from last year. Naturally, we're doing other things this year. And one of the things that we have that's big and it's gonna come up is the auto production on power.

Daniel Szlak
CFO at SABESP

We have some of that coming live now in Q2, some of that coming now live in the Q3. We'll also see a carry forward benefit for that for next year. This is one of the large things that we're doing. Otherwise, one of the things that we are looking also is through the structural things like the SAP Go Live. We are also revisiting all our commercial efforts and our commercial processes also to improve the quality of the service and so on and so forth. We try to avoid giving too much guidance on that front, as you are well aware. This is what we can comment for now.

Carlos Piani
CEO at SABESP

Regarding M&A opportunity, the one you mentioned, I think given everything that's happening with us, because we're doing a transformation while being a public company and so forth, I think the partnership is welcome at this phase. For any major opportunity, I cannot tell, confirm partnership, but I think that partnership is something that we want to seek, and Equatorial is a partner of choice if we decide to move forward. I think we're ready for the process and the partnership is something that it's something that we think it's good for us at this moment in time, and Equatorial would be a good partner. In the right time, when we publicly make the decision in the process, this decision is gonna become public.

Carlos Piani
CEO at SABESP

That's what I can say for now.

Bruno Amorim
Bruno Amorim
Analyst at Goldman Sachs

Thank you. Have a good day.

Operator

Our next question comes from Felipe from Itaú.

Analyst at Itaú

Good morning, everyone. Thanks for taking my questions. Quick follow-up on a previous question here. At its investor day, SABESP presented a CapEx estimate of roughly BRL 20 billion for 2026. Could you please share your expectations on the disbursement curve in the coming quarters, as well as the expected normalized unitization rate? Also, if you could comment on the discussions with the regulatory agency regarding the CapEx plan for 2024-2029. Do you have any insights on the timing or the outcome of these discussions? Thank you.

Daniel Szlak
CFO at SABESP

Okay. Thank you. Thank you. Thank you for the question, Felipe. Let me maybe start with the first part on the internal side, and then, Piani, talk a little bit more on the external side. On the internal front, right, CapEx typically starts slower off the gate in Q1 and then ramps up throughout the year. Every place that I've worked in my life, this happen. It's no different here in SABESP. When we look at last year, a part of the slope of the curve, of the acceleration was indeed because of how we were changing the processes. There will always be a compounding curve throughout the year in terms of CapEx.

Daniel Szlak
CFO at SABESP

A part of that comes from the fact that we have started the Countryside Universal Access Program now. We have split the Countryside Universal Access Program into two pieces. The first batch of those programs have started already. The second batch, we're getting proposals now. We'll start at some point still this year. We are also contracting the expansion of the major sewage treatment plants that will also increase the CapEx throughout the year. Okay. Mechanically, this is how it will work. In terms of unitization also has to do with the good being put into use, right? It needs to be commissioned, right? There needs to be water or sewage passing through that. Usually, some of these things, they happen throughout the year, so the unitization curve also grows throughout the year.

Daniel Szlak
CFO at SABESP

As we've been voicing, do not expect that one for one will be unitizing the first two or three years. We expect that there will be more or less two-thirds, one-third, being left over. One third, and unitizing about two-thirds of the CapEx, a little bit less than two-thirds of the CapEx every year. Reversing that trend in the last two years of the cycle. This is more or less what we expect. What we are planning and seeing already in the day-to-day. Okay. Talking about the regulatory front, I'll defer to Piani. He can provide better insight.

Carlos Piani
CEO at SABESP

Felipe, there's no timeline from the regulatory standpoint for us to have a formal position on our CapEx projection. We expect at least this discussion to have some definition about the future and the beginning of the second half of this year, because we need to start planning on what we're gonna do next year, right? The years forward. We already have a lot of the CapEx contracted, given how things work here, but there's still some degrees of freedom how much money we're gonna deploy next year and in the following years. From our perspective, I think we need to have some visibility of this alignment by the beginning of the third quarter of the year.

Carlos Piani
CEO at SABESP

We'll try to pursue, if possible, this definition with the regulatory agents. Just to be clear, there's no time, formal timeframe, no obligation from the regulatory agency to provide that in that timeframe. Okay?

Analyst at Itaú

Thank you very much.

Operator

Thank you. Remember that to ask a question, submit it via the Zoom Q&A, informing your name and company. Our next question comes from Matheus Amorim from NAVI Capital.

Matheus Amorim
Analyst at NAVI Capital

Hello. Thank you for taking the question. Congratulations on the excellent result. I would like to understand a little bit more, what are your actions through the remainder of this year regarding revenue assurance and how you're seeing this thing evolving throughout this year and maybe next year. Thank you very much.

Carlos Piani
CEO at SABESP

Thank you, Matheus. This is a very important pillar for us. I think that all the commercial efforts where revenue assurance resides are one of the major pillars of any transformation from a state-owned company to a privately held enterprise. We have been moving fast and furious on that front. Many fronts like meters, substitution, collection, workflow adjustments, putting a negative mark on consumers that don't pay on time, and so forth. This has generated a lot of volume on our customer service channels across the board that are at the same time being redesigned. As we described on the opening presentation, we're constantly discussing this balance between how much volume we put in the system and how much structure do we have to support this.

Carlos Piani
CEO at SABESP

We know, we're all customers as well from other utilities, that usually customer service is a little bit difficult. So we expect through this quarter that we're living, right, the second quarter already, to the end of the year, to make potential adjustments so we can help the consumer navigate this change of different commercial policies following the regulatory framework that it's a little bit tighter than it was in the past. We have more flexibility with in partial installments for adjustments in volumes that are higher because of the meters that were obsolete. All in all, Matheus, I think we're gonna adjust. I think we're focusing on the long term.

Carlos Piani
CEO at SABESP

If it's required, we may reduce a little bit of the volume or invest a little bit more in the structure so we can continue to evolve, but with a good customer service level. This is our challenge. We're looking the long term and help the our consumer in this transition to pay on time, even if the bill's a little bit higher, that we'll do so in the next quarters to come by year-end.

Matheus Amorim
Analyst at NAVI Capital

Thank you very much.

Operator

Thank you. Remember that to ask a question, submit it via the Zoom Q&A informing your name and company. Our next question comes from Giuliano Ajeje from UBS.

Giuliano Ajeje
Giuliano Ajeje
Analyst at UBS

Hello, Piani, Daniel, and good morning. I have two, three questions. Let me start about the tariff, about the mixed tariff. You reported a growth in terms of households with the tariffs, with subsidies. I have two questions here. The first one, if the company's projects, this growth pace of the tariffs with subsidies will continue through 2027, 2028. If not, what should be the level? My second one is regarding the status with the regulatory work with ARSESP to recompose this. Another question is about Copasa. It's a simple one, if you already registered for the process. Finally, another question about the CapEx.

Giuliano Ajeje
Giuliano Ajeje
Analyst at UBS

The slide 13, you showed the CapEx expected for 2000, 2024 to 2029, and this is considering the anticipation of the second cycle. Assuming that ARSESP will not consider to anticipate, what should be the CapEx? My question is, the initial BRL 70 billion, how much should be adjusted by inflations and also by REM? Also second, how much should be the anticipation of the second cycle? Okay, three topics here.

Daniel Szlak
CFO at SABESP

All right. Maybe I'll take the first one now, and I'll take turns with Piani here. On the first one, Ajeje, thank you for the questions. Very helpful. On the first one, we started this adding new tiers, right? First we had a methodology that was SABESP, and then the contract dictated us to move from that methodology to the Cadastro Único, which is the federal Social Security scheme. We moved to that throughout the last quarter of 2024. We realized that some people lost the benefits that, but they still needed the benefits, so we maintained those benefits for a while to allow them to register into Cadastro Único, and so on and so forth.

Daniel Szlak
CFO at SABESP

Throughout that period, the concession approved another program called Tarifa Paulista. Throughout all this period, I think until the end, almost, of 2025, we had changing rules, of who was entitled, what type of benefit, and so on and so forth. This stabilized at the end of last year.

Daniel Szlak
CFO at SABESP

Now I don't expect, and one of the things that we'll also start seeing is some of these people getting into the transition tariffs, right? People that had the benefit for 18 months, then they transition to a different class, and so on and so forth. Given that, and assuming that there are no changes going forward, I think the adjustments here, they're going to be only organic. What I mean by that is mostly driven by growth. If we grow to underprivileged communities, some people will be more eligible. Even when we grow into more formal areas, we also have people that are eligible for social or Tarifa Paulista, and so on and so forth. I don't expect to see the same amount of bumps up and down that we saw throughout last year going forward.

Daniel Szlak
CFO at SABESP

I expect to see organic, minor changes to those numbers, going forward, unless there are regulatory changes. Okay?

Carlos Piani
CEO at SABESP

Okay.

Carlos Piani
CEO at SABESP

That's the answer to your first question.

Giuliano Ajeje
Giuliano Ajeje
Analyst at UBS

Thank you.

Daniel Szlak
CFO at SABESP

To the second, talking about Copasa then.

Carlos Piani
CEO at SABESP

Copasa, yes, we're gonna register. We're gonna participate. I think simple as that, the process will, depending how it evolves, we can share our views with the market. Yes, we're gonna participate. I think the last one regarding the total CapEx, I think we need to wait for the regulator. Giuliano Ajeje, and I know this is a tough one because.

Carlos Piani
CEO at SABESP

We need to be aligned, but at the end of the day, there's a little bit of everything, right? That Daniel can explore, but there's a little bit of inflation on top of the BRL 70 billion. There was a little bit changes of scope. Basically, when we did all the georeference of all the consumers that needed to be connected, some of these works, I think, would be not prudent to be made. We discussed how to do this with the government and with the agency, sorry, and they're discussing maybe there's other alternative ways to provide service like we are gonna do to rural.

Carlos Piani
CEO at SABESP

There are some formal areas with rural characteristics, and may we can offer service with the same out of the rural, but to some of the formal areas. This would reduce, I think in a material way, a sample of the connections that we need to make. All in all, I think I would like to wait a little bit more to give you this visibility. I think what certain is what we're gonna invest this year, I think we have been crystal clear. I think Daniel can give a little bit more detail. I think that there's three components. There's inflation on the BRL 70 billion. There's a little bit more complex connections that increases the average cost per consumer that we're negotiating.

Carlos Piani
CEO at SABESP

There's good visibility that this will decline given our conversations up to this moment with the agency. There's some timing between cycles that at the end of the day is a cost of capital decision, right? Because the net present value may change a little bit more, but it's not different, right? I think the final number, we need to wait for the regulator.

Giuliano Ajeje
Giuliano Ajeje
Analyst at UBS

Okay. Agree. Rony, can I have one more question here?

Operator

Yeah, sure.

Giuliano Ajeje
Giuliano Ajeje
Analyst at UBS

The company reported a delinquency close to BRL 50 million, 54 million this year. My question is if the smart meters modernizations and also the digital channels improvement could change this for another level.

Carlos Piani
CEO at SABESP

I think I'm gonna join, and I'm gonna start, and then Daniel can pick it up later. I think, we reduce our provisions for bad debt provision, right?

Carlos Piani
CEO at SABESP

Basically, the reduction was because the provision was made based on the behavior of the collection in the past. Given that we changed a lot of the policies and procedures, we're improving the collection rate as we move on. Because of that, the accounting provisions, they decrease. That's why they're declining. It's simple, right? So we don't The policy has not changed. The bad debt provision is based on the collection history, and given that the history is improving, so the anticipated provision declines. If the behavior changes, the provision will increase. It's simple as that. We're aligned. Regarding the smart meters, I think they where they can help. Smart meters is not new in the world.

Carlos Piani
CEO at SABESP

I think we're laggards regarding smart meters to the Europe, U.S., Asia, and so forth. In one area that we, that I think we're leading is that we implemented Evolve on these smart meters. This will facilitate disconnections and connections according to the rules of ARSESP, right? I think this will help, I think, to be more efficient. This will help the smart meters, as always, will help the consumer have a daily reading of the consumption.

Carlos Piani
CEO at SABESP

There's gonna be less surprises when they have a leak, or they increase because they have visitors, and they will discuss less. There's gonna be less dispute, in my opinion, in aggregate of the final bills that they have, and we'll be able to collect more efficiency given that my first comment. I think on the margin there are some benefits, but this will take time. I think the smart meters that we have this daily consumption information to be relevant, this will take, I think, two years to have a relevant sample to make a dent in our numbers given our size.

Giuliano Ajeje
Giuliano Ajeje
Analyst at UBS

Agreed.

Daniel Szlak
CFO at SABESP

Just to add one thing, Ajeje, specifically for this quarter. We had a settlement with one of the cities that we serve that was a BRL 30 million recovery. This was also influencing the number for the quarter in a probably bit bigger form than just like an aggregate number of the collection.

Giuliano Ajeje
Giuliano Ajeje
Analyst at UBS

Okay. Thank you, Daniel.

Operator

Thank you. Our last question comes from João Pimentel from Citi.

João Pimentel
João Pimentel
Analyst at Citi

Okay. Hi, guys. Good morning. I have a more broader question. I wanted to discuss, you know, how do you perceive SABESP, you know, acting, allocating capital, in eventually different markets. I'm meaning, like outside Brazil or eventually into different segments because, you know, SABESP is already BRL 100 billion-plus market cap company. Of course, we have Copasa, we have Universaliza. Copasa, if you go in a consortium, comparing to the size of the company, it's not that much of a big check, right?

João Pimentel
João Pimentel
Analyst at Citi

Just trying to understand, you know, how do you perceive or how you think you are prepared in your journey of universalization in a sense that, okay, now we're more in the run rate, we know how things operate, you know, we are past the initial challenges of running, you know, of this migration from an SOE to a private company. You know, we're just too big eventually for where we currently operate. How do you feel about investing in different segments or looking to other geographies? Of course, take into consideration different regulatory risks and FX exposure. Just trying to get your sense on that. Thank you.

Carlos Piani
CEO at SABESP

Thanks for the question. I think this is in all the options of non-organic growth, these are the most risky, right? Probably there's less alignment between shareholders and stakeholders and so forth. Given the nature and our nature that you mentioned that the size, we have the fiduciary duty to look at all opportunities to generate alpha, right? I would say that I think we need to learn and do our homework. I think this is, we're still in early days of our journey, only less than two years. I think we're 19, 20 months in. I would say this is something that we're gonna look at.

Carlos Piani
CEO at SABESP

Initially, if this makes sense, it needs to be almost like an option type of structure, right? It's easier that way. If we have a very small opportunity outside in our industry, this would be a risk-reward relationship, easier to test the waters. I would say there's nothing critical. I think there's, just to be clear to the market, we're not looking to do a deal outside our geography or outside the industry that's major that's going to change the risk profile of SABESP. Okay? Given the nature and how regulation works and how probably the market cap will follow the increase or the recognition of the investments, the market cap will evolve and will be very large to the Brazilian market, water and sewage market.

Carlos Piani
CEO at SABESP

We, I think we have the obligation to look at this vis-à-vis to the, to the decisions to just distribute cash. We have time for this. Just to be, I just want to be clear on the message. We are not gonna try to be a holding company, invest a lot of things, but we're gonna look at other opportunities to see how we can leverage our skill set, our knowledge, the people knowledge of the people that are here in different ways. If that's, if we believe that there's a risk-reward relationship that makes sense, that we're convinced internally, that we can convince our board, we're gonna try to convince the market.

Carlos Piani
CEO at SABESP

If we believe that the opportunity is not there, we're just gonna stick here to São Paulo, do our homework, try to provide a better service to everyone, and move on and distribute the cash. I'm just passing you the framework. There's no nothing set in stone, but I think we have the skill set. If the opportunity arises in outside a little bit our backyard, I think we can do it, but we're not there yet.

João Pimentel
João Pimentel
Analyst at Citi

All right. Thank you. Super clear. Thank you, Piani.

Operator

The Q&A session is now over. We wish to give the floor to Mr. Carlos Piani for the company's closing remarks.

Carlos Piani
CEO at SABESP

Again, I just want to thank everyone for the questions and for the continuing interest in SABESP. We appreciate everyone joining on a quarterly basis on our calls. Looking forward to keep you guys all updated on our progress on the quarters ahead. Have all a great day, and see you next quarter. Bye-bye.

Analysts
    • Bruno Amorim
      Analyst at Goldman Sachs
    • Carlos Piani
      CEO at SABESP
    • Daniel Szlak
      CFO at SABESP
    • Giuliano Ajeje
      Analyst at UBS
    • Guilherme Lima
      Analyst at Santander
    • João Pimentel
      Analyst at Citi
    • Maria Carolina Carneiro
      Analyst at Safra
    • Matheus Amorim
      Analyst at NAVI Capital
    • Analyst at Itaú
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