Companhia de Saneamento Básico do Estado de São Paulo - SABESP

And when we think about that, we mapped at least 400 critical positions that for sure we needed to replace. So that's how we think about that in itself. When I think about how we continue to work with our personnel, There are a few things that you have to keep in mind. The first one is as an SOE and given the career tenure, there are many things that you tack on to the personnel costs. And that's a comparison that everybody used to make about the average personnel costs for Sabesp compared to the market and to other companies. And we start to see that change in the mix and the average cost in the new hiring process. So this is one of the things that you have to keep in mind. But I think it's actually the opposite, Bruno. As an SOE, the company had to wait for a public servant test to recruit people. We no longer have to do that. So there were many positions that were hired through third party services because the company simply couldn't hire people. We're actually looking at how and which positions of those are actually positions that we want to internalize and actually to make offers to these people. We actually expect a bit of the opposite. There are other things that are going to materialize in terms of savings and so on. This will bring in itself savings to the company because we'll no longer have to pay a margin for someone that's actually outsourcing that. But more than that, I think there will be things that actually require investment and require changes in processes that will happen throughout our journey here. For example, the S4 Go Live, which will happen in the middle of 2026, is for sure one of those enablers. But there are many other things that we're doing in terms of investments, the smart metering and other things. that will actually enable us to continue becoming more and more efficient and actually using people for more value-added activities vis-a-vis manual repetitive tasks.

Thank you, Daniel.

Thank you, Bruno. The next one comes from Luisa Candiota from Itaú. Luisa?

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

Thank you. Thank you, Luiza. Thank you for your question. I'll take this one too. Look, we had about 2,040 people that actually adhered to the voluntary dismissal plan. We started the departures in February 2025, so we don't see a lot of impact from that plan in Q1. That said, we ended 2024 with about 10,500 employees, and we ended Q1 with 9,700 employees. So we had already a relatively big departure in March, but the bulk of the departure actually happens between April and May. So I think at the end of Q2, we should probably be relatively well in terms of the execution itself of the voluntary dismissal plan. But in parallel, like I mentioned, we'll probably be rehiring some of those positions in the market. But again, at probably a lower average cost, as we've seen so far, if you compare SOEs, average personnel cost compared to regular companies, especially on the base of the pyramid, that they're very different. So this is what we'll expect. We'll see, we'll see in the upcoming months. We're not necessarily disclosing the payback of the plan, but you, one thing that you should keep in mind is we have a, a, a, a, a, no layoff policy policy. Flavio Medina- Until January and April 2026 with with different triggers and for sure the plan has to pay back better than this so because, otherwise we just wait for it right so. Flavio Medina- I think that's a that's a good good thing to keep in mind as like what would be your your ceiling in terms of payback. Flavio Medina- that's what we probably could comment on that. Thank you. The next question comes from Francisco Navarrete from BBI. Nava, do you want to open your mic and go ahead?

Thank you, Daniel. Piani and Tiago, thank you very much for the call. I just have two questions, if I may. One is regarding the tariff mix. You indicated that because of this mix and the Cade Único you had a negative impact of 100 million reais, 105 million reais estimated in the first quarter. And first, just to see if I'm getting this right, this would mean that maybe if you forecast it for the full year would be equivalent to about 400 million reais. And then can you recover this at the tariff review? I understand that this increase in the number of consumers with access to subsidized tariffs makes all the sense in the world because you're including them in the because of course they should be enrolled in this program. Makes sense, I suppose, and I believe so. But will the regulator be sensible to look at this from the standpoint that this is public policy and should be public policy and not something that should be paid by the company? and by investors. And then if I may, well, sorry, Daniel.

No, no, no, go ahead, go ahead, go ahead. If you have a follow up, go ahead, go ahead.

No, then the second question was only about what Carlos said on the gap, on the revenue gap, that 50 or 60 million reais that will remain. All else held equal, just imagine that just for the sake of argument, we don't get any other fix into this. The curve to get to the 50-60 as a permanent gap will be, I imagine, only 2026. Would that be correct statement? Like first quarter 26 is when I would see this gap going forward of only 50-60 million reais, just for the sake of argument. Would that be a correct statement? Those two questions only. Thank you very much again.

Thank you, Nava. Let me first address the mix question, right? We had 105 million negative impact from mix, and this is driven by two factors mainly. The first one is as per the new contract, we used to have social and vulnerable tariffs that had a criteria. And for the new contract, we had to introduce cadastro unico, we had to harmonize cadastro unico as the eligibility criteria for these tariffs. And that meant that we would exclude people that had access to vulnerable and social tariffs with this new scheme, right? And what we decided, when we saw that in December, what we decided to do was to extend that for a few months, which is going to happen until the end of Q2. with access to those subsidized tariffs for many reasons. But in the end, when we think about the 105 million that we had in Q1, I would say about 60% of that is the adoption of Cadastro Único, and that would be for sure contemplated into the new tariff revision at the end of the year. And if you think about that and you think about the expansion, if you recall in last quarter's call, one of the investors actually asked the question about how this would impact our mix in terms of economies as we grow, right? Because we typically grow, especially in the metropolitan regions, we grow to lower income economies, right? So that will be a mixed impact. The first year, naturally is a negative working capital, I want to say impact, because you get a compensation for that into the next tariff cycle. With the last year, assuming you don't continue growing to lower income economies, you don't continue worsening your mix with regards to average price, you actually get a positive carryover at the last year. So it's just a head and tail effect with roughly 60% of that. The remaining 40% of that was done at our discretion as a company. And we'll continue doing that until the end of Q2. But after that, at which we're discussing together with the regulator and the government, a potential expansion of the subsidized rates to make sure that we encompass the whole population that is currently receiving these discounts. If that does happen, then we would get compensation for that and we'll keep these people on the tariffs. But that's how you should think about that going forward. Understood. That's the first question. Your second question with regards to commercial discounts. I think what Piani said is we're... We first rescinded 580 contracts, give or take. And with that, we captured about 500 million of potential discounts, which we have about five to six million reais per month now that are actually fighting with injunctions. And we're so far have been successful at that. We've won more than we lost. So which is always a good thing to happen. And we've taken the remaining 260 million that we had in terms of discounts and we've rescinded another 200 of that. And when we think about those 200 that we've rescinded, Naturally, they're not all like a flip of a switch rescission, right? So there are some contracts that need to run off. There are some contracts that have 60 days, some contracts that will have 90 days, some that will have 120 days and so on and so forth and different contracts. And we'll potentially see a movement on injunctions as well there. And we're ready for that. We'll continue to do what we believe is correct and fair for the whole system, which is continue to try to enforce the actual tariff for those clients. But the timing of that could vary depending on that, Nava. I think optimistically, we'd finish the year with all of that captured, and that's what we're working against. But that could vary depending on clients' decisions with regards to trying to enforce that at the legal front. But that would be the part that we don't control.

Daniel, just to add a couple of things on the two points. Our commitment was to finance with our own balance sheet until May of this year. We have aligned with the government starting on June, or there's going to be a change on the eligibility process that will encompass more consumers. or these guys will or these consumers will become regular residential consumers. So we have discussed many alternatives with the government and with the regulatory agency. And this will happen starting in June. We are going to stop financing at the end of May. So two options, or they become naturally regular consumers, or they are going to be able to receive the benefits given a potential change, and this is going to be compensated two years down the road. This is it. Regarding the discounts, the injections happen because we have no decision at the first level. We're working with the Court of Appeals at the second level. When we get there, this is going to be jurisprudence. We're going to have a rule that's going to decide this very quickly. So we expect when we get there, there's going to be no injunctions anymore. As Daniel said, probably the longer tenure that we have is 120 days on this new batch of contracts that we're terminating. So all that to say probably this is by your end. This is, unfortunately, Brazil court's a little bit more complicated. But I think we're in a good track to solve all the majority of these problems.

Great. Understood. Thank you very much.

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

Morning, guys. My question was mostly answered in Nava Hatch's question. My question was answered, I guess, mostly, if not 100% of it. I think it's clear the fingerprints of you guys on cost control, on investments, on the development of U-Factor. Thanks, by the way, for that slide. It was interesting. I think I can complement his question by asking how the with the regulator is because this revenue gap thing is a historical problem for Sebesp. I think all of us analysts always achieved much larger regulatory revenues than actual revenues. The previous administrations could not explain all the gaps, why the gaps existed. I think there was a philosophical debate on wholesale discounts, on some variables that created that big gap. But the entire gap was never explained. So how is the interaction about all those topics with the regulator? How is he receiving it? Because I guess the regulator has also been a reason for skepticism on our side. So how is your confidence level that we're not going to see revenue gap from the tariff event at the end of this year onwards?

Thank you. Thank you, Junquera. I think we can give you our perception, right, and how we think. On an incentive-based regulation, the one – we have a hybrid regulation, but based on incentive-based regulation where you have RAB concept and regulatory costs and so forth, you need a strong regulator. And this is to the benefit of the company. And I think our system is a strong regulator. And this is helpful to us, right? If we had a weak regulator that didn't understand the rules and had different parameters, this would be a different problem to solve. Our interactions based on this has been very good, I would say, as very republic relationship, very technical. Many challenges of the new contract for both sides. Of course, I think the expectations of having Sebesp as a private player are higher than Well, are the same, but at the end of the day, everybody expects more of the private player and we hope to deliver. I think that we're going to be able at the end of the day to solve most of the issues. I'm not going to guarantee that we're going to solve all the issues, right? But I think we're going to solve most of the issues through time. And I have, I don't see to your point, that the agency is a restriction for our performance. I see it the other way, and I'm telling this publicly on this call because I already told them publicly in another event with them on my side, okay? So I think this is to the benefit of... And I think we would have benefited in other states if we had stronger regulators to have those discussions. And I think through time, we're going to show through results, objective results, that this is feasible for us to achieve given this relationship and how competent they are. Thank you.

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

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

Thank you, guys.

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

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

I can take that, this one. We already hired the third party provider. There was a rule on the contract how to do this. We already been through this. Again, start Q3, beginning Q3. there's an 18 month timeframe at the very end of the period to validate and provide a final report, but we expect to have intermediary results starting even in the second half of the year. So we can have a basis to compare to the plans that we're doing for the works until the end of the 2029 cycle. So, On track, no major issue here. Time frame is long until the end of the year, but probably we as the concessionary, we're going to receive partial results first and probably the final results are going to be public at year end of next year.

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

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

In theory, let me see if I understand your question. In theory, what you're saying is if there is a variation on the COPEX, because in the end, the rural census shows you that you actually have to do more than what was originally thought on the appendix of the concession agreement. Is that how it is? Okay. In the end, given the contractual model that we have, if the CAPEX is prudent, it gets compensated on the RAB. For sure, the concession, so the URAI, has an expectation of how much the tariffs are going to increase to the consumers. And if that's materially different, they, of course, need to discuss and understand. But in theory, this shouldn't be a change to the contract. It may be a change in expectations, but it shouldn't represent a change in the contract.

Yeah. Let me add here. There's a provision in the contract. If there's a gap larger or equal to three percentage points in coverage on the eve of switching between 2026 and 2027, There may be a time to discuss. So that's the provision. And maybe depending on the census where you have a larger rural population than expected, this may be triggered. We don't see this. If this happened, it won't happen on the eve of 2027. We'll receive this by municipality by municipality. And the final result will happen just by year end of 2026. So we'll see the buildup of this gap through time, and we'll have the time to manage this deviation from expectation, okay? We just need to understand how we can communicate this to the market, given this is under the regulatory contract. But we don't see, just to be clear, this as an issue or additional risk for SubSB. Okay. We're on track and everything is working well.

Thanks for the time.

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

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

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