Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Good morning, welcome to the SABESP second quarter earnings release call. I'm Tiberio, I'm superintendent of investor relations. We have with us André Saucedo, the CEO of the company, Katia Pereira, CFO and investor relations officer, and Marcelo Miyagi. and the Accounting Director. Before I give the floor to André to start this call, I'd like to give you some information. This call has simultaneous translation into English and it's being recorded. The presentation and recording will be available for download in the investor relations portal. Questions will be asked only in writing in the chat box in this platform. Our call will last for around 1 hour and 30 minutes and we will have 45 minutes for questions asked by the analysts and 15 minutes questions for journalists. I would like to clarify that statements that may be made during this call related to business prospects of the company financial goals are forecast based on premises of the board of SABESP and The information currently available to the company and they are not recommendations for investment, forward-looking statements are not guaranteed because they involve risks, uncertainties and premises, because they refer to future events and therefore they depend on circumstances that may Good morning. I'd like to greet the team who is here. Thank you, Tiberio, Katia, Marcelo. Another quarter where we are really making a great effort to make all the changes and prepare the company for this new phase, a phase of a more agile, more competitive and more modern company. And I start with two main items here. Conclusion of the PDI, which is the incentivized dismissal program. And the purpose is to encourage employees who have been working for the company for a long time, who have contributed a lot to build the company that we have today, this company we are so proud of having in the state of São Paulo. Making sure that they can have a smooth transition to their retirement. We've concluded the adherence to this voluntary resignation program And it was very much in line with what we thought originally regarding the potential of this program, considering the restructuring in our company. The restructuring of the company aims at centralizing processes, rethinking the company as a whole with a more integrated vision. And in this context, we identified a potential of reducing 2,000 jobs scattered throughout the whole company, considering And this initial estimate, the adherence was very close to what we thought it would be, it was successful, so over 1,800 employees registered and we finished this cycle of resizing and the staff. Now we have to look forward and build the foundations for this new chapter of the company with this new management, with this new vision which is more focused on customers, the environment and with the focus on value creation both for society, shareholders and our employees. Also a piece of information we have published in the release in line with what we thought in the Pass, the payback of this incentivized dismissal program is very much in line with the market, so no surprise in this context. Going back to the implementation of the new company structure, With the support of shareholders, in April, we approved the establishment of a new executive office focusing on customers. And the rationale of this focus started in two big fronts. One, making sure ready and appropriate service with these bases of 228 million customers looking at our customers. as an opportunity of a relationship that can be expanded, providing services and new businesses with a ability to innovate and also preserving the value of the company through a more efficient management of accounts receivable. And this has been the focus of our management. And now we will have someone devoted to that This will be further enhanced in managing both flow and also with more sophisticated ideas in order to try to recover what we had in the past of credits. So we have a big expectation and later we will give more details and we hope Thank you very much. With the message we have been communicating, we are still very much focused on capital discipline, proper management and more efficient allocation of resources in the second quarter and By the end of July, early August, we have two very important information that really show the commitment we have with the company. First was the first time in the history of sanitation in Brazil, a state company won a contract in the city of Olimpia. It's an iconic municipality they have. A lot of tourism there, water. So it reinforces our position in an area of the state where we already have a good position. So we dilute costs there. It helps us be more efficient. And we have very high expectations that this first case, which is a symbol of this new company, It may add further contracts to our base. And we also had the right to exercise in the context of the sales Iguassa did of their assets. And two of these assets were assets where we have a minority shares or minority interests. And one of the rights we had was to have preference to acquire interests of Iguassa and the same conditions offered by the buyer. We deeply analyzed the assets and our conclusion is that in this capital discipline, considering other opportunities we have, exercising this preference right wouldn't be the best choice. So we will remain in the position where we were and then we will start The negotiations so that asset management is as efficient possible both for SABESP and for this new partner. And the result we will present today, or Kátia will present today, is the result that is according to the commitment we have had with you over this journey starting in January. So we were established in March and now we have a whole team and around seven, six, five months of work, we managed to present the results we were looking for in the first quarter, the second quarter, we further advanced in terms of operational improvement, Efficiency and Reviewing Processes, Mapping Value Leverage, both short and long term, and a corporate vision. A vision of not only centralization, efficiency, and change on decision-making focus, it will be more centralized, but also bring strategic topics so that they become central in corporate terms. We have created an area which will be dealing with strategic points, giving a direction to the company, where we want to go, what are the goals we want to achieve. And we're also working very hard. Well, and we have been doing it and we will continue in the third quarter of identifying opportunities and the situation the company is right now In terms of carbon footprint and the greenhouse gas balance, so that we can really show society that the role played by SABESP in the environmental and social agenda, and this is very dear to us in a vision of circular economy, integration, people who are at the margins of society. So this Social vision is something very strong in our company and we have an amazing capacity of taking basic sanitation and water supply and basic infrastructure to low-income people. Additionally, and connected to the customer strategy, we have a digital transformation area and data science area. The rationale here, these are two different areas, one looking into the company, looking for opportunities involving data monitoring, automation, prediction of failures, leaks that may happen, We have a lot of data available in our company and the idea is to organize the data so that it generates intelligence for our company. And on the other hand, the rationale is to look at our customer base, looking outside the company, the amount of data we have and how we can use this data for the benefit of the company so that we can provide better services to our customers. So we have a big potential here. Looking for opportunities for a better recovery of credit, predicting bad debts, and also looking for new services, new products to be provided to our customers. On the left side of the slide, and I think all this information partially materializes, in the progression of the EBITDA margin of our company in the first quarter, it was very different from the previous quarters. And the second quarter confirmed this progress we have had in our company, with a focus on operational improvement, improving management, with a focus on efficiency, and a focus on generating value. The contracts of our company are medium to long term, six months to many years. Most of the efficiency we have been generating in new contracts will be captured over time, because it's part of our nature to have long-term contracts. That's it. Once again, I'd like to thank the whole team, acknowledge the role of all directors and our co-workers who really embraced this agenda of modernity, innovation, competitiveness and efficiency. We have a very nice challenge, which is to transform this company and really be at the avant-garde of sanitation in our country and all directors, Katia, Sabrina, management, Bruno, regulation, new businesses, Roberval, integrating the whole operational team, with this vision of one single SABESP, Paulo Violante with a long-term, a medium long-term vision bringing together innovation with the CAPEX we have to deliver. So I would like to congratulate all directors. I cannot name everyone here, but again, congratulations. This is only the beginning. We are really happy and I'm excited with the ability we see in the company to do more and better for shareholders, employees and our customer base. Thank you very much. Good morning, everyone. I'm Katia Pereira. This is the third time I'm here talking to you. I'd like to thank Andrea. Thank you, Andrea. for this opportunity and for this challenge that has been presented to all directors and my financial team represented here by Tiberio, investor relations officer, and Miyagi, accounting director. Thank you all for the great job. Let's take a look at the numbers I have to show you the figures starting with operational performance. In this quarter, we had an increase in water build volume, 2.2%, sewage, 3.1%, showing our focus and the investments More for sewage, both collection and treatment, trying to reach the universalization goal. So more sewage. If we put them together, we have an increase in volume of 4.3. Looking at the graph, the main growth came from residential in ranges and many more. In addition to that, to this build volume, we had a growth in new connections. Water 44 000 new connections of this quarter and 48 000 new connections of sewage volume growth growth by consumption and also growth through new connections it was a very good quarter when we look at the growth compared to the previous year and compared to the previous quarter the first quarter 2023 showing that we are capturing, improving volume through the investments that are being made by the company. Financial highlights. The main highlights. Revenue for sanitation and water supply. We had a growth of 19%. Basically, what we have here 2.6% increase in volume we had impact of the tariff we had a tariff raise on May the 10th this year 9.656 raise and we have the capture of the tariff fully after June we still have the impact of last year's tariff 12.56 when we look comparing borders we see a positive impact in terms of tariff 11.88%. Additionally, as I said, we had the mix that contributed to the ranges where our billed volume grew. With that, our revenue goes up because the average tariff is higher. When we look at EBITDA, which is a reflex of increased revenue, we don't consider here the IPD, and we reach an EBITDA of 2.2 billion. A growth of 47.1%, a very significant growth comparing 22 to 23, the same quarter. And also margin, EBITDA margin. Without construction, from the second quarter, 2022 was 37 and now 45%. So increase in value and Looking at the margin, we also had an increase. When you look at net income, we see the same increase. Net income here has the impact of this program of incentivized resignation. So, without considering this voluntary resignation program, we had an increase of 76.1%. We went from 422 to 744,000. So we'll be talking here of a income of almost 1.3 billion, an increase of 200%. So again, when we look at each indicator, we'll impact the next one, but the message is very positive, both growth in revenue, capturing volume with a position of the mix, tariffs, Considering our base of assets and also EBITDA and the care we have been taking with cost management, trying to achieve efficiency and integration of processes so that we are able to see the whole, thus being able to make strategic decisions and net income go in the same direction. Well, so comparing income second quarter 22, comparing with this quarter, results of construction, In our statement, we still have that information, so we are putting it together here to neutralize the effect. The effect is almost nil, and bringing here costs and expenses for this voluntary resignation program. When we look at the impact, the negative impact in this quarter when compared to last year's, we see an increase in costs, 150 million and 530, which is this voluntary resignation program, which is not a recurring event. It's highlighted here because it's not a recurring effect. So this will not happen later when we really close this process in this period. When these employees will leave the company as has been scheduled for one year. Other revenues and expenses. Here we have penalties to suppliers. This is basically what we have in this item. When we look at net financial results, here we had a very positive contribution in the formation of our net income, which is 373, Coming from exchange rate variation, which we had in this quarter, we had a devaluation of the US dollar around 5% and yen to above 12%. And that contributed so that the share of our debt, that is around 3%, generates this positive exchange rate variation. So out of the 310, 373 come from exchange rate variation. Some of our contracts also had monetary variations, so we had that impact. From the point of view of financial expenses and revenue, we also had impact because we had new loans. Two entries of new loans starting in the second quarter 22, Bid Invest, one July 22 and the other one May 23. So both totally 940 million reals. So we had an increase in the basis and we had this increase in financial expenses. And when comparing interest rates, we also have an effect from the interest rate. Second quarter 22 compared to second quarter 23 went from 12.88% to 13.5%. So we had a significant variation and also considering our contracts in US dollar from a level of rate of 1.5 to 5.1. So on the one hand, in this net financial items, we had this effect of 372 million of monetary and exchange rate variation and 73 million of financial expenses. When we look at social security contribution and income tax, well, as a result, we have increased income leading to more taxation and more social security payment, neutralized by this program of voluntary or incentivized resignation program, leading to the 744 million which I showed you before. This was one of the highlights in this quarter. Now, talking more about expenses. Expenses with staff, personnel. In the second quarter 22, it was 776 million and now a total expense of 1.3. But if we remove the voluntary resignation program, looking at the recurring expenses with staff, we had an increase of 5.4%. So from 776 to 818. And this is explained by the salary raise. and 1% of raise in salaries and jobs which happen every year in February. So when we compare second quarter 22 to 23, we have that. So the annual salary raise and also raise in salary plans that happened in February leading to higher expenses with personnel. We had a Reduction of 1.5% in the number of employees. 220 employees less comparing June 22 to June 23. No impact of this voluntary resignation program. So the employees that joined this resignation program, they will start So it will happen from July 23 to July 24. General material expenses. We had a reduction of 17.4%, basically less expenses with maintenance or maintenance materials, maintenance and conservation of buildings and fuel and lubricants. Here we had a reduction because we had a reduction in our fleet. So we start capturing the benefit in terms of consumption. Treatment materials. I think this is the first time after some quarters that it went down. So basically we had this drop 2.8%. This is related to reduction in consumption. We had a reduction in consumption and this reduction in consumption of treatment materials has to do with the level of the quality of the water. With that, we have less consumption of materials used for water treatment and also some impact related to price. We start to see a reduction in prices when compared to the same quarter in 2022. Services. We had an increase of 7.3%. Basically, these are professional services, part of services are related to technology. We are talking here about improvements in the communication channel, digital channels to communicate with our customers, also improvement in our billing system that enables us to have information and help in the Collection actions trying to stop or improve unpaid bills and also data security and also including maintenance and installation costs related to connections. This is all part of the 7.3% increase in services. Power, 2.8% increase explained basically by an event, a single event, which is payment of 11 million Brazilian Reais of natural gas, which is a contract we signed in 2021 that expired in the second quarter 23, which is related to a gas for pumping from reservoirs. With the level of water we have in our reservoirs, we didn't use this contract fully. This was signed in a take-up pay condition. So at the end of the contract, we measured and assessed what it would be. And when we closed the contract, then we have to pay this 11 million, which is the variation of the energy bill. We see movements of migrating from the regulated to the free power market. When we talk about values, 54% in the free energy market and 46% in the regulated energy market. When we talk about power, kilowatts-hour, 65% vis-à-vis 35%. We are also advancing in this agenda to increase our share of free market for energy, but the event that happened in this quarter was the closing of this contract with the water level we have today around 73%. This is very recent information from August, so 73% of water level. With Cantareira system, 77%. When we compare with the same period last year in August 22, the level of Cantareira was 33%. So this is when we had a major drought. So if we compare both years, we see that this helps also with treatment materials and it helps us not having the need of using different energy or power sources. Overhead expenses. We have here something that, well, many of our investors or shareholders asked us to open that, general expenses or overhead. So we broke it down. So if you look here, the first bit of this column, is the so-called city or municipal fund of the 357 million in the second quarter 22 172 refers to transfer of municipal funds and 184 are overhead general expenses in the second quarter 23 we have 207 million transfer for the municipal funds and general expenses 189 so basically virtually no change looking at general expenses or overhead the big variation is related to the municipal funds and this variation follows the increase in revenue it's paid depending on the revenue so this increase is around 20 percent where basically 17% is municipal funds for the city, for the municipality of São Paulo. Looking at depreciation and amortization, we had an increase of 12.2%, which basically reflects our volume of investments in the past year from July 23 to now, from July... Sorry, from July 22 to July 23, we had an addition of immobilization, 5.9 billion, representing an increase of 12.2% in depreciation expenses. Looking at allowances for bad debts, we had a drop comparing 22, 14% drop in allowance for bad debts, And if you look on the graph on top, in the first quarter this year, we had 3.3, a significant drop in the first quarter in allowance for bad debts, where it didn't do anything in a strict fashion to have a reduction in this allowance for bad debts, and now 4.2%. And it got worse. And what does that mean, this was in the second quarter of 23? We have really looked at bad debts of our company and the delinquency rates and what we could possibly do so that we went back to the delinquency levels we had before the pandemic. And we did that system, having the billing system. And the billing system entered during the pandemic. We had the full goal live in October 21. We stopped to look at everything the system could provide us in terms of information and continuity in the collection process. We made some improvements. We identified the opportunity to reconnect previous contracts that were broke, but do something so that our collection options followed what was designed so between May and June we had this process of have we looked at the results of this action looking at broken contracts but on the other hand we had Compensation of that with new agreements that were broke. So agreements made in the first quarter were broken the second quarter, and those who were broke from previous years, we recovered some of them, but the net effect was really an increase in the delinquency rates in this quarter, second quarter 23. What we also did, and something we started doing in June, everything that was in our roadmap We had a significant number of bills that were due and that were so we tried to have them paid so now in July we had a significant number of unpaid bills paid and in addition to that we brought that together by getting these paid bills we also had a special action for payment of Unpaid bills, and this will take place until September to try to capture this, the paid bills we had now in July, but also actions of disconnection, which we are having for the agreements that were broken. So we are extending this so that we have time for these bills to really be paid so that disconnection actions We are coordinating with the operation team is also a lever to bring our customers to this negotiation program. This negotiation program, we have a very attractive condition for cash payment so that we no longer have this endless cycle of agreement Because when we have an agreement, they will not be disconnected, but sometimes they don't... In the end, they have no money and they break the agreement. So we give a 100% discount in interest rates for cash payments so that we can collect as much as possible Tavares de Souza, Luciane Godinho Domingues How do customers behave? We look at the customers' behavior so that we could build this payment negotiation program. Structuring actions will provide results or bring results in the second half of this year because we are building this road and now with this new customers director the focus will be on that and we will effectively see these results being delivered in the second half of the year looking at tax expenses it's virtually neutral the increase and looking at all the costs and expenses of our company Except this non-recurring event, which is a voluntary resignation, we had an increase of 2.7%.

Next one.

Talking now a little bit about investments. We're still at a fast pace to deliver what we have in our investment plan in the second quarter. We had 1.3 billion invested in a cash effect, 945. Out of those investments we made, 57% were in sewage, 56% or 57%. Again, the commitment of balancing, really reaching a balance regarding sewage treatment. We have 92% of sewage system, looking at all municipalities on average, and regarding sewage, we have 90% sewage collection, but sewage treatment, 84%. And we look at the timeline, our investment plan from 2022 to 2027, we see that amount, which we have been talking about, that has been approved, and again, A focus on sewage treatment, increasing sewage treatment and also sewage collection, so that we can reach our sewage services universalization, which is our target. Talking a little bit about our debts. When you look at net debt versus adjusted EBITDA, our covenant, When we look from the second quarter of 22 to now, we basically have a very comfortable indicator, 2.2. Our net debt in the second quarter of 22 was 115 to 1649. Basically, this is the entry of the two FENINVEST loans in July 22 and now May 23. Increases the net debt and additionally a positive effect of the exchange rate variation. When you look at adjusted EBITDA versus financial expenses, we have the covenant 280 and 4.1. That's the level. Also very comfortable considering all the covenants we have. That's it regarding the debt composition. Basically 87% debt in national currency, foreign currency debt around 13%. So no new entry regarding what we had been reporting in terms of foreign debt, foreign currency debt. This is due to exchange rate variation and also amortization of the debt over the past year. When we talk about costs, just to highlight that, Looking at average of our debt in national currency, 1285. When we look at foreign currency, 3.56%. Total of our debt, 1153, meaning that Today, we have over 50% of our debt in local currency is related to DI. So basically, this effect of a greater debt in local currency is pulled by an increase in DI. I think this is it for the numbers. And now I give the floor to Tiberio to open the floor to questions. to be asked by our investors. Thank you all. Thank you, Katia. Thank you, André. We already have a few questions here. We start answering the questions by the investors and then we will answer the questions asked by journalists. The first question we have comes from Carolina Corneiro. I have two questions. In addition to PDI, which is the voluntary resignation program, what else have you done in terms of personnel costs to reduce the regulatory gap? Is our SASP being involved in the discussion so that you don't lose this efficiency in the next revision cycle? Second question, where the privatization process launched, we know that the company do not make decisions but should be listened regarding relevant points. What are the topics that, in your opinion, should be the focus to improve contracts? Or what are the agendas or topics that should be addressed? Andrea, thank you, Tiberio, Carol, thank you for your questions. Regarding the regulatory gap, there are many initiatives underway, particularly regarding personnel expenses. We were already better than what regulations enable us to have. So there is a relationship between personnel expenses and contractor expenses. If you reduce one, we will need more contractor services. Even if we improve the contracts of a service, there is a trend or room of migrating everything that was done by our own employees. Part of it will be done by contractors. We have been talking to the agency and the new regulatory actions executive office led by Bruno has been discussing with the agency and they have this agenda and they are talking to the agency Telling them about our concerns regarding the sustainability of our company and the focus we all have, not only the company, but the state and the agency to have better quality services to as many people as possible. So this is the agenda we have been discussing with the agency and they have been very receptive. And we understand that this tariff cycle will be very positive On the company side, we're doing our homework, trying to be more efficient, reducing this regulatory gap, and on the side of the agency, really understanding our points, telling them how we operate and how regulations can help us provide better services. Regarding the privatization process, As I have been talking to you, this is led by the government. It's a decision by the state government. And the governor is the main leader here. And this is being negotiated with the team led by Rafael and Natalia in the Department of Environment with the state. And they contract AFC that has legal consulting, strategic consulting to support the whole project. We have been participating at all levels, providing this group with information from our company, information regarding our vision In terms of what is more efficient and what can create more values, not only for investors, but also more value for society so that we can provide better services and turning services universal. So these are very technical discussions and we have been working with this group and specifically Carolina regarding your question in regulations and you have been making that very clear, both investors and analysts, and we too think this is the way to go. So if we can really reduce uncertainties in this tariff process, well, in other words, the more predictable this process is, so much the better. So the governor has been mentioning this in events Related to privatization, he too understands that improving predictability is something that they are aiming at. So this is a positive agenda. We have been working on this agenda so that this really happens, so that we can really reduce the subjectivity in tariff cycles. Again, Natalia, Rafael and the governor and the agency, they have been working on this agenda. So it's a matter of time. We cannot anticipate decisions that haven't been made yet, but this agenda is being taken care of by all participants and stakeholders in this process. Thank you, André. I'd like to remind investors, if you want to ask questions, please ask the questions in the Q&A box. Valsir Mizog asked the following question. Revenue mix with water and sewage in the ex-construction revenue. I can answer that. The mix, 53% is water in our revenue and 47% sewage. This is the revenue mix we had in the second quarter, 23. Thank you for the question. Question by Guilherme Lima Santander. Even though the quarter PDD increased to 4.2% in this quarter, looking to a longer period, past 12 months, we see an improvement that is indicated. We went from 4%, the first quarter 23, to 3.7% and the second quarter 23. Do you think that we can expect a further improvement for the second half or we may have problem? What level of PDD do you think is feasible to reach? And the other question is, could you please talk about the interest of the company to go on growing in assets in the state of São Paulo, like in the city of Olímpia? Do you have any project in the pipeline today? I can start answering and then I'll give the floor to André. Regarding PDD, we really expect to have an improvement in the second half. So PDD is allowance for bad debts. So right now we have a structured action Thank you for watching! So that we don't really generate any volatility in the results, as we had good results in the first quarter and worst results in the second quarter. But on average, We have 3.8 first quarter compared to the end of last year where we had 4.2 allowance for bad debts. We have had an improvement. We identify points that will lead to volatility. We are looking at it. So agreements and these Thank you for your question. I don't know if I could add anything to that. Other projects similar to the one you have in Olympia, is there anything else in the pipeline? Okay. Guilherme, we are looking at all projects underway in the state of São Paulo. We have around five projects, Igarapava and Urrinhos. Not all of them have the same level of attraction and robustness In the construction of the building, as was the case in Olympia, but well-structured projects with vision aligned leading to economic attractiveness in the state of São Paulo, we will closely look at them. We understand that we have financial and technical capacity to do that in our state. This is a commitment of SABESP with the people of the state of São Paulo. These are five projects, Garapava, Orinhos are still open, and Bauru, Marília and Brodowski, they are suspended today. And we are checking and looking at all of them. And obviously our participating will... depend on our analysis to see if it's really feasible and if they will generate value. So we are checking that. Thank you, André. Next question is by Luisa Candiota, Itaú BBA. The first part has to do with allowance for bad debts. I'll read her question. Good morning. My question is related to delinquency. Considering the initiatives you have right now focus on reducing the delinquency rates, I'd like to know what is the expected level for the next quarters and when will you have a normalization in terms of allowance for bad debts? My second question is related to a deduction in gross revenue and a drop compared to other quarters. Could you give us any further details, any one-off effect? Thank you for your question, Luisa. I think the question related to allowance for bad debts, I think I answered already in the previous question. We will go on working so that we have further and consistent reductions in bad debts. We cannot really say how we will be in the third or fourth quarter, but the actions are underway. And this area was structured and was structured basically now in August, this new area in executive office for billing. So we will have teams that will be devoted to that and doing this topic in a centralized fashion and taking all actions necessary. Regarding the reduction, Looking at the net, we had an increase of 19% in net revenue. We really had a one-off effect. We had a credit recovery from Biscoffins, 81 million. This 81 million contributed. When we look at the growth in net revenue, it grew 19% when growth sanitation grew around 16%. It was a one-off event, 81 million recovering credits from Pescofins tax. Thank you, Katia. Next question by Hugo Gomes from Safra. Could you please tell us something about the investment schedule payment per year considering the expectation of accelerating CAPEX if we have privatization? Thank you for your question. These details and these analysis They have been produced by our company. What we have today is our investment plan until 2023. This plan and current values total 56 billion Brazilian reals and it's programmed to happen until 2033. Simulations by the consultants show that if we have privatization, Maybe this schedule is anticipated to 2029. And there is an addition of investments that were standardized by the government of 10 billion BRLs. So this level of details of the schedule for this investment, how it will take place, this will be Better clarify to the company doing phase number one of the project, when we will start designing what is this privatization all about, this phase that started in August and will go into January next year, we'll have audits and details about investments, what has to be done, so we don't have the answer right now. Next question by Matheus Amorim, Navi Capital. Good morning. Congratulations for the results. Could you give more details regarding the regulatory initiatives to bridge the gap between net revenue reported by the company and the regulatory band? What are the initiatives to reduce contractors' costs mainly and also costs with materials? So the CSC, is it being implemented? Could you please talk more about this initiative to reduce costs and gain efficiency? I can start. and we can complement later look at the regulatory gap what we have is that the regulation area which we created we have a new structure now we have an area for regulation so they're very close to the agency when we had the tariff so when the tariff raise of 956 was approved there was some These were points that were addressed with a SARSP related basically to peace, cofins, taxes. This was an action that the regulation area did after approval of the tariff raised approved for this year regarding commercial programs. The area today, well, some work is being done between the regulation area and the commercial area, sales area, where we are revisiting all our commercial customers' level of price and level of discount we have, what is part of a profile which we think makes sense for the company. We are organizing this information. and the idea is that we submit this to a CSERSP. So this work is being done already by the customer team and by the regulation team. The financial area is also participating where we are building this rationale to submit to a CSERSP. I think with that we can address one important point which is one of the discussions that always shows of this Regulatory Revenue Gap Recognition of the Discounts Given by the Company in the Commercial Programs. When we talk about reducing costs, let's start with the implementation of CSC, the Shared Services Center. The design is ready. We are working on the migration phases. It was totally, well, migration will officially start next week with some activities and processes will start being migrated. And we already had a structure in place to serve some business units of the metropolitan. So we are capitalizing and speeding up what is more at hand. We are already doing that movement. And this is a process that will take Well, think about a full transition. Until the end of the year, we'll have the transition of our activities, but the maturity will happen within nine months. And we also have technology actions that will help speed up this process of migration and integration and centralization of processes. As Andrea mentioned, our contracts, you know, we have different maturity contracts And since we have contracts that go from six months to one year, three years and even beyond, we will have to respect the maturity or the expiration date of these contracts. And when they expire, we have to bring this to one single model or a centralized contract. So the capture of this gain will come over time. It will not come right after this It will come as these contracts expire. I don't know if I really answered your question. André would like to add something. Well, generally speaking, this is a big company with a well-established contract structure. As we became aware of the demands and renewal of contracts, we have tried to rationalize Contacts, or maybe alternative modes of contracting to become more efficient, but this happens over time so that we avoid risk of discontinuity. We see that these gains will be consistent over time. We have some structuring initiatives we have been taking in order to review the way we contract We have services today that are being done together, that should be done separately, and the other way around. Services that are separated, that maybe should be centralized. I have examples for all of them, and another opportunity I can give you further details, but like collection. This connection is with the collection company, but the collection company have a greater affinity to perform remote activities. Field activities are very expensive, so effectiveness of this connection, we send a message, SMS, an email, these are all administrative processes, they're not physical processes. Adding this contract to a physical process, going to the household of the customer, this leads to more costs. Bringing this to a field of activity would be more efficient. This will improve our ability to really implement a better collection. We hope that in the next quarters this gain in efficiency will materialize in materials and the gap on the side of revenue is okay. On the side of expenses, a number of things are being done. Some of the things are about to show how we operate and for our SASB understanding to what extent what they want can be adjusted to our reality because we had some price shocks over time that were not captured. I think this is something we have been doing. Our homework so that our company is more efficient and also talking with the regulatory agencies showing that we are doing whatever we can to be as efficient as possible so that these visions are as close as possible for the next tariff cycle. Thank you, Andrea. Thank you, Katia. Next question by Liana Young from Asia SBC. Thank you for the opportunity. Could you give us an update of your discussions with our SESP? What requests by SESP are still being assessed by the regulatory agency? Is there a discussion underway to adjust or change the tariff model and regulatory model? And if yes, could you give us more details? Thank you, Lili, for joining us and thank you for your question. Most of your Question I think I answered in the previous question asked by Matheus. Details of what we have been discussing with the agency, I think that would expose our team and the agency's team. But generally speaking, we have been tackled the revenue gap through this alignment of accounting regarding commercial agreements and telling the agency that the other value levers Thank you very much. Thank you. Views Closer and Closer and we have a contact once a month by Bruno from the regulatory team and directors from other teams that will show the agency and we want to be as clear as possible with the agency showing what reality is and what is our capacity to invest vis-a-vis the reality what they see in our company I hope I have answered your question this is a very broad agenda but we're trying to tackle it Since the first day we are here. So we are reaching the last 15 minutes. Journalists have started asking their questions. So we still have some questions, some investors. Miguel Rodriguez from Morgan Stanley asks, Well, the decision of not exercising the preference right under Gina Castillo, were it exclusively related to the level of return or is there any other factor involved? Could you please comment, how has the company looked at the demands of return for different projects and maybe factors that may lead to the requirement of bigger returns or smaller returns? Well, Miguel. Good question. This is a very complex topic, but basically trying to simplify this complex analysis, any capital allocation by the company takes into account risks and returns coming from that opportunity. So what is risk in a concession regulatory environment? We have a lot of capex looking forward and obviously looking at the risk taking appetite of the company and this is shown at the decision making levels with the regulation office and we also have the other office taking this decision and depending on the investment this is submitted to the board of directors what we have been doing is that over this whole journey to standardize the risk the level risk and return we are willing to take depending on the project in the case of Andradina Castillo the risk is relatively low These are mature concessions and the regulation in that area is a regulation that we don't see has extraordinary risks. Having said that, it was much more a matter of return. We thought that we wouldn't get the best return for our investments, so we don't have any other right. And thank you for your question. Next question by Aaron Reim from RebelCo. He was kind enough to send the question translated into Portuguese, so I'll read. Apologize if the translation is not okay, but I think it's good enough. Total receivables have continued to grow. Total overdue receivables in those more than 360 days overdue also remained elevated. Then he asked, is there a plan to reduce these receivables by recovery, or should we expect them to be written down via the P&L? What is the expected timeline to meaningfully reduce the overdue receivables? I can answer that. Thank you for your question and thank you for being so kind to provide a translation. Increase in receivables follows the revenue. If you have a greater revenue, we have also more accounts receivable. An important piece of information is that today in our accounts receivable or in our balance sheet, we don't have anything above 360 days. We follow that because we are still trying to recover that. but everything that is above 360 days has been duly written down being treated accordingly in our P&L so our receivables is clean of any that that that cannot be collected we are trying to recover this overdue we're going down to five years even longer But that would have a positive effect. It wouldn't have a negative effect. So looking at my receivables, 360 is already okay. We do allowance for losses. After 180 days, we increase the volume we allow for, but accounting here does allowances by age. Looking at the delinquency history, we are very conservative. We look at what we In the overdue and to be due, and we apply them according to the history of the company, then we provide the allowance required to prevent any impact on results. Answer your questions. Receivables you see in our balance sheet is clean of any loss. Everything has already been generated and has already been taken into account in our P&L. and the growth we see is basically related to the growth in our revenue. Thank you, Katia. He goes on with another question around, I mean, since the third quarter 2022, a collection action against the city government of São Paulo has been reported in the Receivables for the quarters, the receivable cumulative now is 2.8 billion BRLs. I'd like to understand a little bit more about that. The probability of monetize this debt papers, what is necessary for this 2.8 billion to be recognized and the time during which they could be realized if there is a time or schedule for anticipated payment? And what are the uncertainties? And thirdly, how would they be considered in the balance sheet if recognized, meaning asset would be a commercial receivable or an investment paper? Well, of this 2.8 billion, we make them visible. We haven't recognized them in our results because this is a right we have. But the time depends on the availability of the city administration to pay. In 23, we see the city paying debts from 2006. Looking at the realization of these payments, there are two ways to go. Ways to enter into the flow of payment by the municipality or work with We have other possibilities. It has to do with an agreement and maybe we can provide further details. We are looking at other possibilities as well, but actually these are the ways we have to recover these 2 billion reais. Looking at the value, we have the principal and Interests, part of it is commercial, but part of it will affect the financial line. We are talking here about updating this value, this figure over time. Would like to complement, André? I think that's it. We have a stock of unpaid receivables. This is the most representative one, 2.8 billion. And we have been looking at the best way to Monetize that. The city administration launches bidding processes and the latest one was in April. We don't think the conditions were attractive and we are looking at other ways of monetizing that. Obviously, take into account conversations with the city administration. So we have been working to try to get other alternatives to get this paid. Nothing has been decided, but Aaron, we are paying close attention to that credit and we are really addressing this issue with the city administration of São Paulo. Thank you, André. This was the last question. We are answering questions coming through the Q&A box. If you have any further questions, you can ask, including journalists. If not, I'll give the floor to André and Katia for their final remarks. Well, no further questions. So André, Katia, if you want to make any final remarks. I would just like to thank the whole team and my peers, André. It's really been a challenge. We have a very important agenda ahead and we have a full focus so that we really deliver one single SABESP With the efficiencies, we have been capturing all the levels that have been identified. This is the commitment we have. Thank you, Tiberio. Thank you, Katia. So, again, we have the commitment to be transparent with a focus on results, have a company that uses its full potential to be more competitive, more modern, more flexible. A company adapted to this new reality and the opportunities that come together with the new regulations We have a set of opportunities we have been looking at to generate new businesses in our company with our customers, with our water and sewage treatment processes. We have been looking at all that and over time we will be communicating all this to you. I would like to thank our employees who really embraced this agenda, who have been working very hard transforming the company into a company that is much closer to consumers with a clear goal of being the best sanitation and water supply provider, not only in the state of São Paulo, but in Brazil. And finally, this is not done just by me, by Cátia Tiberio, We were already thinking about an event to introduce all the directors and the officers, people who really work to deliver results. Until the end of this month, we will have a meeting which we are calling SABESP Day, where we will be bringing the other directors and they will all be talking and they will talk about everything we did in the past six months, our challenges and the foundation that is being built for this future. Also talking about the vision, what we want to deliver in the next six and 12 months to you, to society, to our investors. Further details, the IR team will provide you, but investors and The Press Society. You will get to know our agenda and the people who are leading these agendas. So this is an invitation. Suggestions of topics and items for the agenda are welcome. You can submit them to us. And again, thank you very much for your feedback. Thank you for the constructive criticism we have been getting during our journey. And whenever possible, we implement them. This construction of the new SABESP is a joint construction. Part of it is done by us because we are in charge of leading it, but it starts in the company with suggestions made by our employees so that we have a better operation and also comes from our investors, from society, so that we also look at external visions in terms of what we can improve. So it is a thank you message to the state government for having Thank you all very much. Thank you to Barry, Miyagi, Katia, the whole team, and those who have been working with us. Thank you very much.