Companhia de Saneamento do Parana Sanepar

BOVESPA:SAPR4

Earnings Call Analysis

Solid Revenue Growth Amid Challenges

In the first half of 2024, Sanepar saw a net revenue increase of 12.5%, amounting to BRL 3.362 billion. However, the second quarter's EBITDA declined by 2.9%, though it improved by 6.9% over six months. Net profit rose by 1.8%, yielding a net margin of 22.5%. Despite an 11% drop in net margins over the quarter, the company maintained an EBITDA margin of 42.2% for the first half. Key recognitions included the Global Water's 'Champions of ODS 6' award. Looking ahead, Sanepar plans significant investments, with BRL 2.3 billion slated for 2024 and BRL 11.2 billion through 2028.

Impressive Revenue Growth

In the second quarter of 2024, Companhia de Saneamento do Paraná (Sanepar) demonstrated strong financial performance, with net revenue increasing by 8.4% compared to the previous year, reaching BRL 3.362 billion for the first half, a notable 12.5% growth. This growth is largely attributed to the increase in new connections and higher billed volumes in water and sewage services.

Stable Profitability Metrics

Despite fluctuations in operational costs, Sanepar's EBITDA rose by 6.9% in the first six months, amounting to BRL 1.418 billion. However, the EBITDA margin for the second quarter saw a decline to 38.7%, reflecting operational pressures. The net profit improved by 1.8%, equating to BRL 755 million, illustrating Sanepar's ability to maintain profitability even amid challenges.

Impact of Increased Expenses

Operational costs rose significantly, increasing by 16.9% to BRL 1.944 billion, influenced by several factors such as personnel costs, which increased by 26.5% due to salary adjustments and collective agreements. Energy costs also rose by approximately 20%, although management highlights efforts to migrate to a free energy market as a long-term cost-saving strategy, predicting annual savings of BRL 50 million in 2024 and up to BRL 150 million by 2025.

Investment in Infrastructure

Sanepar's capital expenditure (CapEx) for the first half amounted to BRL 871 million, which reflected a slight decrease from the previous year. Notably, 36% of CapEx was allocated to water projects while 56% supported sewage infrastructure, indicating the company's commitment to improving service delivery. For the year, Sanepar plans to invest a total of BRL 2.3 billion in CapEx, with an ambitious long-term goal of BRL 11.2 billion through 2028.

Focus on Debt Management

As of June 2024, Sanepar reported a liquid net debt of BRL 4.493 billion, with a net debt-to-EBITDA ratio of 1.7x, signaling manageable leverage levels. The company's financial strategy appears cautious yet robust, maintaining a strong cash position of BRL 1.438 billion despite a modest increase in debt levels.

Commitment to Universal Services

Sanepar continues to prioritize universal access to water and sewage services, with 100% of sewage collected being treated. Their goal is to reach a universalization level of 90% in sewage treatment by the end of the year, having already achieved 80.5%. The company aims to enhance infrastructure and service reliability as part of its core mission.

Navigating Regulatory Challenges

Looking ahead, Sanepar’s management indicated ongoing discussions with regulatory bodies concerning price adjustments necessary to sustain service quality without imposing excessive financial burdens on consumers. The upcoming price review scheduled for May 2025 is seen as a critical opportunity for the company to align its service costs with the economic realities of the sector.

Strategic Outlook and Future Guidance

Management remains optimistic about future growth potential, citing ongoing efforts in innovation and process efficiency, including digitization and improved customer service response. The focus on reducing operational costs and enhancing service delivery will be crucial as Sanepar navigates future challenges in a competitive market.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, everyone, and thank you for waiting. Welcome to this video conference to announce the results of the second quarter 2024 of Companhia de Saneamento do Parana - SANEPAR.

For those who need simultaneous translation, we have these too available on the platform. To access it, just click on the interpretation button using the globe icon at the bottom of the screen and choose your language of choice, Portuguese or English.

For those listening to the video conference in English, there is an option to mute the original audio in Portuguese by clicking on mute original audio.

This video conference is being recorded and will be made available on the company's IR website, ri.sanepar.com.br, where the complete material from our earnings release is available. You can also download the presentation from the chat icon in English too.

[Operator Instructions] We recommend that you ask your questions all at once. If for any reason your question is not answered during the event, please send it to the [e-mail].

We would like to inform that the information contained in this presentation and any statements that may be made during the video conference regarding Sanepar's business outlook, projections and operational and financial targets are based on the beliefs and assumptions of the company's management as well as on currently available information.

Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions because they refer to future events and therefore depend on circumstances that may or may not occur.

Investors should be aware that general economic conditions, market conditions, and other operating factors may affect the company's future performance and lead to results that differ materially from those expressed in such forward-looking statements.

To begin, we hand over the floor to the Chief Financial and Investor Relations Officers, Abel Demetrio.

[Abel Demetrio, executive]

Thank you, [ Rodrigo ]. Thank you all for your presence in this videoconference for the presentation of results accumulated until June 2024. And we also have the direct -- Wilson Lipski; our Environmental and Social Action Environment Director, Julio Cesar Gonchorosky; our [indiscernible], besides Ricardo Goncalves, who is our RI (sic) [ IR ] Manager together with his team in this room.

So now let's, discuss the highlights on the next page. In this first quarter -- in the second quarter 2024, our net revenue growing 8.4%, in 6 months 12.5%. Our EBITDA had a reduction of 2.9% on the second quarter and an increase of 6.9% and net margin, a drop of 11% and an increase of 1.8% in 6 months, all that comparing to the same period of 2023.

We had in this first quarter -- first half 15,000 water connections in our system and 22,900 sewage connections, and we reached in June 80.5% of our service -- sewage service. 9.5% for the -- 90% reaching universalization. A 100% of our sewage collected is treated. Water, we have been universalized for many years, we had the index of 100%.

Our EBITDA margin was 38.7% and in first half, 42.2%. We reached investments of BRL 476.7 million (sic) [ BRL 477.6 million ] on the -- and in 6 months, BRL 871.3 million.

In this first half, we received the awards, Champions of ODS 6, granted by Global Water, international award. In the Success Cases ESG [ ECH ] granted by Instituto Trata Brasil by FGV Foundation, Getulio Vargas Foundation. We have this recognition and we have to remember that Maringa is the first municipality in the ranking of sewage by the Instituto Trata Brasil.

Now, some operational results, in the first -- we have a measured volume increasing 7% about the 3 months of '23, the increase in economies, 22,068 economies, a reduction of 22.7% compared the same period of last year.

Concerning sewage, our billed volume increased 7.3%, and the economic unit increase was 35,000 of new economies with a reduction compared -- of 13.8% compared to last 2 year, due to the issues of the cuts in -- and especially starting in the second quarter of last year, second semester, when we had an amount -- an bigger amount of cuts, and more cuts than connections. That impacts the connections and the increase of even economic units.

Our default, closing 1.1%, an increase of 3.5% compared to last year, given the recovery credit, we had the default --negative default. In other words, we collected more than we billed, then we -- in 2023. Our volume of loss, close to [ 223 ] liters per connections per day, a decrease of 0.6% compared to the same period of last year.

The reservoir volumes in Curitiba, we closed the semester with practically all the 4 reservoirs with 99%, 100% last year. To compare, we had 93% of the volume. Obviously, there we served Curitiba and the cities around. And sometimes we collect by wells or the rivers and the superficial captations.

Now, I will go through the performance indicators. We have compared to debentures all the issues of the companies continue in force in this -- the 9th, the 10th [ innation ] and bank debt by EBITDA adjusted we have 1.69, a reduction EBITDA adjusted by financial expense, we have 8.73. So we have to remember that we -- in July, we had the 12th issue in the 2.5 years more. And all the shareholders accepted the conditions that -- concerning the covenants of the BNDES system that have to do with finances related to the private debentures, which is the 2nd, 4th and 7th.

The net bank debt by less that would equal to 3. We are 1.69. The service to debt EBITDA, we have 2.76. And other onerous debts involving the health care and other energy or tax payment, we have 0.39, in line with the same period of last year. Very comfortable with this result.

The contracts of CAIXA, they also review the covenants. We are also, let's say, fulfilling completely. We also have the covenants of banco KfW different from the previous one, was the level of debt. We closed the first half with 48.4%, in line with the previous debt in 41.8% (sic) [ 48.1% ] , 48.6% in '23. So we've been keeping this -- so 60% is the level of debt. We've seen the margin EBITDA of 42.2% in the first half. ROIC of 12% and ROE of 15.2%, all indicators in line with the periods of 2023.

Now discussing the financial performance. Our net revenue increased to 12.5% in the 6 months, reaching BRL 3.362 billion. Although, EBITDA reached BRL 1.418 billion, an increase of 6.9%. The net profit reached BRL 755 million with an increase of 1.8% and a liquid margin of 22.5% compared to the liquid revenue.

Cost in operations and expenses with the impact in EBITDA, excluding the finances, we increased 16.9%, reaching BRL 1.944 billion and compared to the same period of 2023.

On the next page, let's talk about the cash generation. We had cash generation increasing 20.3%, reached BRL 1.233 billion with a conversion close to 87%, a better conversion than verified in the same period of last year. Concerning our net debt and leverage, we have debts of short-term of BRL 574 million. And we can see that our debts are more long-term. We have a time line of amortization comfortable for 2024 and 2025.

We have BRL 5 billion -- over BRL 5 billion in the long-term. And we reduced what we have in cash and equivalents, BRL 1.439 billion. We have a liquid net debt of BRL 4.493 billion. EBITDA leverage closed to the verified 2022, which was 1.6x. And in June, it would be 1.7x, the net debt by EBITDA.

Our -- we have an increase in our debt -- weighted average debt, we have 10.8% and reflecting the issue of the last [indiscernible] of the accumulated of 12 months. And the inflation rates, which are somehow in line with -- without big variations and with a reduction in the last 12 months.

Our CapEx reached BRL 871 million, a decrease of 1% compared to last year, being 36% invested in water, 56% in sewage and 8% in other investments.

So let's go through the income statements of the second quarter. We can see an increase in the revenue net of 8.4%, especially, of course, due to the adjustments increase of new connections, the volume -- increase in volumes. We have to remember that in May, we had a readjustment of tax, which was in May and it will be enforced until next -- it is predicted to April 2025.

In personnel, we had an increase of 26.5%. This increase is due to the salary adjustment, 3.8%, to the employees, and it has a reflection of 5.5% of INPC of last year. We had here collective adjustments of the employees. But an important factor with the issues of the legal payments, BRL 141 million against BRL 35 million for the same period last year, that gives a difference of BRL 1.7 million. And actually, these were from provisions. We have a reduction of provisions, and this is the expenses -- the actual expenses.

The issue of materials was well behaved, a reduction of 1.9% compared to the same period last year. So we had a good quarter compared -- in terms of materials, electricity increased 20%. And although, the increase is representative, we can see as a positive factor to issue that Sanepar is migrating part of its -- or electrical part to the free market. In this first quarter, we had a saving of BRL 80 million.

If we had kept everything there -- we hadn't kept. We migrated in the first -- 9 lots -- batches, we migrated [ 88% ]. So our expectation is to reach BRL 50 million economies this year due to the migration to the free market of energy. For 2025, the expectation is to reach around BRL 150 million, which was the electricity bill to be in the future with some level of management.

You have to remember that [ OCPC ], which is our main distributor in the case of the company announced the readjustment in June of '24, which average adjustment of 0%. So besides the end of subsidies, we finished last year, it had an impact of 3% per year. This year, we have a readjustment for the current market of 0%, which is obviously -- it does not press our future increase in electricity.

And outsourced services, an increase of 29.6%. We can mention 2 points. We had some accounts with some -- we have a history reference and now this sort of happens because until last year, the first quarter -- or the first half, we had small actions of cuts because we did not -- we had not been practicing cuts. Sanepar spent 42 years without any cut. So we had several actions like for example, charge service to the clients. And we had a long history in the first half and the second quarter of 2023. And consequently, when we compare, we have an increase of around 29.6%.

Besides that, we can mention the issue of data processing. We had an increase considering all the investment and the effort of the company that has been made in IT. This is some expenses that have increased in maintenance of networks and the company's effort in terms of being agile and recovering some services that were in -- the first quarter of 2023, first half, it will be lower. Now we had a more accelerated pace.

And we have an increase -- we have 3 judicial settlements and action related to the demonization of an accident that happened in 2003. So Sanepar had to recognize now this compensation and compensation that questions some taxes in Foz do Iguacu [indiscernible] the company took over. Besides, we had legal action to the financial recovery, which is in the general and tax accounts. And this also causes some impacts in the municipal funds.

Due to these movements, both in the personnel account and general and tax accounts, we had a provision and in the first -- the -- of a reduction of BRL 215 million. Last year we -- adjustment -- we saw an expense of -- in the second '24 quarter, we had a reversion of BRL 66.251 million.

Provision for healthcare and retirement, and we increased 50.9% an importance data and the volume that we have of finances and the debts, and we have a financial expense increasing due to that.

Other expenses increased 51.9%, despite having seen our default of 1.9%. The fact is that there was a reversion considering the same period last year. First 6 months of last year, we had a reversion of the provision of losses of BRL 44.4 million. And this year, we have provisions of BRL 61.1 million, which is a difference in 3 years of BRL 105 million.

So this is an account that we are concerned because we -- we are concerned about being able -- about having the clients able to go back to paying their bills because we would like our default to be less than what is registered. We are receiving the installments of last year. And the expectation is that we can at least our -- we anticipated to have this year a default -- negative default in the sense that we will try to recover more credits than the billing itself. But good net result. We've seen 11%. It's a reduction of 11% and EBITDA margin 38.7%.

The next page, we will go to the first half. The net revenue total cost 16%, as we've seen. Net result grew 8.8%. EBITDA increased 6.9% in the first half.

Next page, we will see some balance sheet. Our net debt increased 7.2%, compared to 2023. And the main accounts, the financial investment, we increased 12.1%, reaching BRL 1.399 billion. Loans, financing and debentures increased 10.5%, reaching BRL 6.385 billion.

In operating working capital, we had a reduction of over BRL 1 billion to BRL 1.474 billion at the end of June '24, a reduction of 3.7%.

Other assets and liabilities increased 12.3%. We had a reduction in provisions of BRL 858 million to BRL 760 million, a reduction of 11.4%. And the contract asset is an important thing registered in these assets, its BRL 2.856 billion by the end of June. Our fixed assets with the operating working capital turnover changed to 50 days compared to 55 days in 2023.

And now the impact in the cash flow, we had BRL 1.233 billion for the cash -- as cash flow and the financing activities, BRL 871 million, a reduction of 1.1%. And the financing activities, we had BRL 207 million. Compared that in June we had the payment of the dividends, a PPR to the employees. So this account is negative in BRL 207 million.

But in the period, we had an increase of BRL 150 million, and we closed the first half of 2024, with BRL 1.438 billion in -- which is a good liquidity for the company with the payments of its due. So that was the presentation of the second half of 2024 and the first half of 2024.

So, I will hand over to our Director, President -- President, Director.

[Wilson Bley Lipski, executive]

Good morning, everyone. I'm here. I've been here for 60 days. I've been [ Ratinho Junior ] the Governor, assigned me for this position, and he asked us to continue with this look of austerity and responsibility and a lot of transparency in what we do.

We need to effectively accelerate investments. We need to bring results. But effectively, we must have this balance that causes our company to render this excellent service, having its good results.

Since this is my first participation. I would like very briefly to bring a little bit of my history of my professional life. I've been here for 60 days. In the past 5 years, I was together with the Banco Regional of BRDE, but I was Administrative Director and Operational Director, Financial Director, Vice President and President, where the results of this -- the last 5 years were quite surprising.

The bank moved from BRL 2.3 billion of contracts to over BRL 6 billion contracts per year. So the result is extremely substantial, expressive, robust and in puts a lot of pride for my work there.

Before that, I was in Paranacidade, which is a management body, a planning body connected to the secretariat of development -- urban development plan of Parana, which oversees and leads the supervision, and releases resources for all the municipalities of Parana. So we can also include in our curriculum, over 12,000 works delivered in the period, I worked there.

I was also at the Senate with Technical Assistant. And before that I was a State Secretary in the Urban Development and General Director, where I spent 8 years in the Urban Development Secretariat and I was in this relevant -- I had this relevant contact with the municipalities of Parana.

I am a lawyer, graduated in Contemporary Law. And I'm very proud right now to be here having this company. This company that brings a lot of pride to Brazil, to the state of Parana. And with international recognitions for its excellent work that it renders on day-by-day.

We sell quality of life, and we want to continue delivering this excellent service. So I want to leave my first manifestation and talking about my commitment, my responsibility, and you can count on us, so that this -- the parts of this company will always be the right ones and ones that who bring results and prosperity for all of us.

[Operator]

So ladies and gentlemen, we will start on the Q&A session. [Operator Instructions] Let's start our first question coming from [ Leandro Agar ], an investor. First, he wants to congratulate all the team for the good result of this quarter.

His question, I identified a reduction on expenses with material in this quarter, confirming the company has been seeking alternatives for raw material to combat increase of prices that were impacting the sector. Could you comment on this action plan -- ongoing action plan concerning this team? And if there is any possibility of new positive surprises in the future?

[Abel Demetrio, executive]

Yes, indeed, the materials account in the first 6 months was a very good surprise with a reduction of 3.4%. And we had some actions on the part of the company that contributed to this result. Like for example, the replacement of products that are possible to be replaced, of course, due to prices. So we change products for those -- for a better price.

And of course, all the products, when we speak of material, we have 66% in this account connected to the consumption of treatment material. And the treatment material is connected to the variations of exchange rates. It's difficult to make a projection of what will be the levels of prices practiced.

But we have some actions -- management actions that allow us to replace products, through our innovation area. We are seeking some technological actions, more efficient products. And we also have compared to -- in terms of what we had as expenses last year, we have a reduction of the best prices.

Besides that, all the issue of chemical products, it's an issue that Sanepar looks only from the or not only from the perspective of cost, but also -- but also in this composition. So it shows that besides the management, the company has on this item, the fact is the company needs to apply chemical products in the water, apply chemical products in the sewage. And much of this expense cannot be managed by the company. And we understand that in the last revision of price, it was behind the expectation of the company. So to replace this issue the company has concerning this item.

[Wilson Bley Lipski, executive]

I thank you for question, and I'd like to add that -- say that our innovation area, where we created our Board, and it's working strongly in the sense of finding other alternatives, so that we can lower within the possibilities, we would like to diminish the impact in our expenses. We are close to the academy. We are working P&D to bring new knowledge, new alternatives and deliver good results. The dedication -- it's the core business of the company, water and sewage, and we have to have this dedication to see the negative impacts and transform the positive possibilities to find good parts and balance.

[Operator]

So we received another question from [ Leandro ].

We identified a significant increase in the line of outsourced services in this quarter. Could you discuss this increase in maintenance of system, data processing and service registry data charges?

[Abel Demetrio, executive]

Thank you, Leandro for your question. Yes, we had some items within the outsource services account that surprised us. But others are based -- are comparing to 2023 that was behind the actual need for services. For example, the service client, for example, I repeat. Until last year, the first half, the cut -- the water cuts were suspended. We had the first half of 2023 quite behind what was the actual need of services in some items. So like charged services and the registry and billing service.

So compared -- because the comparison was low, now with the full service in action, we have an increase in costs. We had the issue of data processing service, which is a more relevant item in expenses this half. But the effort of the company to seek modernization of his technological part, we have to remember that we're implementing ERP in the company, which seeks administrative and financing areas of investment with systems more agile, more integrated, and this demands investment in IT. And a strong investment in IT to find solutions to our clients and to have a quicker service using the means of processing. That today, everyone prefers somehow to use digital means and the company understands that we need to update concerning some items.

So these are some of the main points we had. We had an increase above what we had in -- that would be the average of increase. Besides, our strongest service in maintenance of network. This is the main element of expenses in the outsourced services. We have priority in the fighting losses when we can accelerate the maintenance service network, and we can work more quicker. We can work with saving water. So there are several actions that we have been taking and some services might have a higher cost, but they will bring future benefits for the company due to this current expenses.

[Operator]

And to conclude, the last question of Leandro is.

In the taxes and licensing taxes, we recognized BRL 8 million expense in this line. Could you discuss this expense and to see if it has any connection with the PPPs, which are the ongoing PPPs? This is his last question.

[Abel Demetrio, executive]

So this -- all this licensing, they have nothing to do with PPP, which are services. These fees, they are mandatory things for the company, whether it is fiscal or regulation taxes. And so, this is -- it's an item, and they have somehow an integral recognition in the fee. Although we have an increase in this account of tax -- of licensing and fees, this is transferred to the fee. We do not manage a fee that is applied over it.

So although right now, we might have an impact of this increase, the important thing is to say that this all has a coverage -- a fee coverage, and we will have our third coverage revision in price. We have environmental licenses, payment of taxes in units, urban taxes, and this ends up having a mandatory expense on the part of the company, and that's why we verified this increase in this account.

[Operator]

And continuing, the next question comes from [ Marcelo ] [indiscernible] by side analyst [indiscernible]. He brings 2 questions.

Number one, what explains that such an increase -- such a significant increase of third-party services. Can we increase -- this is the new normal, this level or we might see reductions in the next quarters? Within the current framework -- regulatory framework, the current cost should be transferred to the fee or next adjustment in the fee?

[Abel Demetrio, executive]

Marcelo, thank you for your question. I think the third-party services was Leandro's last question, which was answered. I think concerning the electricity cost, today, the agency has 2 ways of calculating this fee, the issue of prices, at every -- it's recomposed at every readjustment. And the amount is at every revision of fee, the agency will verify whether the company is using the energy in an efficient way or efficiently in the sense of being able to recognize the fee.

If the company is not doing a good management of electricity, the regulator might infer this account. But the fact is Marcelo, that the issue of energy, as I said, we have a big -- huge program, which is the main problem, which is the free market of energy. You have to remember that it makes up 90% of the consumption. I will reach 90% of consumption of electricity in the company. The first contract with Copel, 49 units, we have great part implemented by June. We have to advance until the end of the year.

And we have -- we with the traded second contract, which encompasses a good percentage of this cost of energy. So since these are contracts in the long-term, 5-years, we expect a reduction this year of around BRL 50 million and a reduction for the future years of around BRL 150 million. For this 5-year cycle, it's a reduction of BRL 600 million -- BRL 2,630 million.

So I would say that we have an expectation that in the future years, we have an energy cost more controlled. And with these migrations of energies -- even these migrations, they are important because they will reflect in the fee -- in the cost of electricity. Because all the economy, all the savings we have, 75% it returns to the cost amortization. So the population has benefited and the company has benefited with 25% of this reduction in the current market. So the cost of energy are, once they are efficient, they are well managed by the company within what is it was spent, they are recognized by the regulating agency.

[Operator]

Next question come -- is Arlindo Souza sell-side analyst.

Concerning CapEx in the first half, BRL 100 million seems a little bit behind the investment volume expected for the year, according to the investment plans of yours that anticipates BRL 2.5 billion in total CapEx. Would you explore this issue to help us in the projection of the company?

[Abel Demetrio, executive]

Arlindo, they for your questioning. The first half, we had some issues related to -- for example, to bids, we had some work that could not be initiated when we had programmed. So this, obviously, caused an impact in this volume of CapEx realized. We had some other issues. We had to deal with authorization issues. We have to remember that when we -- our works, they involve environmental issues. So we have to have a lot of licensing authorizations from the competent bodies, and we had some delays in some of these authorizations.

The company has been working strongly in terms of establishing dialogues to regulate the pending issues to keep the authorizations for -- to realize the work. We are trying to recover the investments. We have to remember that, we have had in the last years an increase of investment very relevant year-after-year. And it's always a challenge to execute all the works many times within the period predicted, given all these issues.

And many times, we end up managing, due to some savings in the works. All our works are through tenders. So what was in our budget sometimes it's even cheaper due to competitivity in the bids, which is good for the company that executes that work that was predicted for a certain amount, for a lower amount. So this is an efficiency that we always seek. And I can say that we have had very positive results in this issue of seeking more competitive price, better price to do the works.

Other than that, we have to consider some climate issues, and there is an impact related to that. But I would say that we are working with our dissipated number, BRL 2.3 billion for 2024 to do the investments and BRL 11.2 billion, which is the cycle of 2024 by 2028.

[Operator]

Second question of Arlindo Souza is similar to [ Jose Norato ] question on investors. So let's read them both combined.

As to the judicial -- the [ REIT ] repayment receivable, at what point do we send. In favorable case, could the company have securities to receive this? And related to this REIT repayment, what articulation this is being done to receive this? And what's the destination for this amortization of debts and investments? These are his questions.

[Abel Demetrio, executive]

Arlindo, Jose Norato, thank you for questions. So this is an action of a 30-year action. So we are speaking of a long-term action. We are on a good path. We are doing well in all the processes. The company has been disseminating this thing. This is -- you can see this in our statements -- financial statements. We have BRL 3.9 billion that the company follows up once this court ordered debt is issued. We want to include this court ordered debt in the budget in the Union Budget, and we want this in LDO, which is the budget law or in the law in 2024, still with the expectation of receiving this in 2025.

So we want this to get into the budget of 2025, we have in August. We have to go through this LDO, so that at the end of the year, the Congress will vote the Union Budget, include that for receiving in 2025. Obviously, the payment of this court ordered debt depends on the finances of the Union. And the fact, it's not included in the budget, does not mean that it will be paid by the Union. It depends on the fiscal conditions of the Union.

But I would say that a great part of the path has been covered. We have to remember that this involve the 3 powers of the Union. We are going -- there is always the possibility of revision of values of amount as part of the legal gain. We went to the Judiciary. Now we are expecting it to be sent to the Legislative and then to the Executive.

So the company concerning this team, given that we do -- that is a very relevant team we are speaking today. Sanepar today spent BRL 1 billion in net asset, which is 40% of the net asset of the company. All the steps the company has been giving is in the sense of not create expectation, not anticipate movements because we know that it depends on other agents. That is not under -- in our control.

But the next steps, the inclusion of the Union Budget, the possible recognition and then we have all the income statements and all the steps given in the future, the company, together with its controllers and administration, we will have a destination for these resources. But we can say that we'll always be welcome. It's a 30-year struggle and it's -- I think we are working well on that.

Actually, this is a big marathon. But step-by-step, we have to follow in this ritual, so that we can reach the final result. The moment now is the moment of articulations, the moment of waiting, so that we can be part of the budget of 2025, so that we can make all the articulation to receive the payment or make -- take other measures that might be notified, and we can bring as a relevant fact to all of you.

The path now is that we can have -- that we can receive -- we can have this court ordered that included in the LDO of 2024 or for 2025. But the discussion of this team now so that in the future budget, we can have the possibility of receiving this money.

[Operator]

So next question is from [ Louis Alvis ], investor.

Could we have an update concerning the Miringuava reservoir. The expectation that the reservoir will get into operation soon?

[Julio Gonchorosky, executive]

Thank you, Louis for question. We continue working strongly on the final licensee of Miringuava. As you know, the last step of this licensing, it depends on IBAMA approval and the time to issue this approval, it's due very soon. So we are working strongly to suppress vegetation, which is a complex step and very difficult. It has to be carefully done in terms of environment and there are some socially components involved. But we want to take advantage of the [ summer ] rains to fill up the reservoir.

[Wilson Bley Lipski, executive]

Another additional comment. Dedication and a special look for us to have the resolution of this issue as soon as possible.

[Operator]

Now continuing. We received 2 more questions. Similar questions coming from [ Renaldo Versine and Luis Alphis ], both investors.

So initially they congratulate the company for the results and the work together with Rio Grande do Sul. And the questions are, could you update the situation of PPP with Aegea and about compensations? Can we use the same improved universalization of sewage collection like Colombo City where Sanepar has 77% only. And the PPC is -- to reach sewage universalization -- are they in full operation in all the state?

[Wilson Bley Lipski, executive]

I will start by answering about PPPs. We did all the process, all the structuring, we launched the notice, and we had our first batch, very successful, and it's already working. And the other 3 batches, we had the manifestation of Aegea in the sense of taking out the clause of barriers. They understand that they would have no competition, which is wrong understanding or contrary to what we understand is that, we went to the tribunal account, this process, and they took that to a claim together with the superior tribunal. And so, we are taking all the measures.

We have the support of SP, which comes into as a friend of justice. They defend our thesis, and we expect it to very soon, we can restate this decision -- this decision so that we can reach results that we expect. And soon, we can open the envelopes and see the winners of the other batches.

We expect right now that we have in the Supreme Court, the necessary speed, all the actions are being taken. Every week, we are there in Brasilia, making the necessary articulation, presenting documents, our memorials, so that we can -- the result can be effectively -- the one we expect at the beginning of the structure, and that we can maintain the thesis with the fund.

[Abel Demetrio, executive]

So just adding the issue, the using of the resources, what we mentioned earlier, right now, it's premature. We prefer to follow the step-by-step of the decision of the receiving of this court ordered debt, of this amount. First, not to generate expectation, and second, because it depends on the context and even the governance bodies of the company. But we can always say that we have our commitment of universalization. We have 80.5% of sewage service in the urban areas. They will reach the company, make an effort to accelerate in this universalization plan according to the law, and we make all the investment efforts regardless of resource -- extraordinary resources, which is the case of this compensation.

[Operator]

Our next question comes from [indiscernible] sell-side and she is XP analyst.

Can you comment on the provision of doubtful debts. After a [ cooperation ] credit plan, the company presents such a high amount, such a high number?

[Abel Demetrio, executive]

[indiscernible] thank you for your questioning. In our planning of last year, we had a positive situation in terms of reduction of default. Last year, we had a negative default of 2.4%. We received more than we built, which was predictable because we were not doing cuts and we were not doing a more effective charging plan. And for more than 42 months doing that. In 2023, we went according to predicted. However, 2024 has been showing more challenging.

And we start to -- we begin to understand the movements of this provision. Probably the clients, when they look their installments, they made an estimate of payment capacity evolving. Now besides their monthly consumption of their water and sewage bills, they have to pay the previous installments. When you combine these 2 items, they -- some people have difficulty to pay their debt maybe because they have adopted a small number of installments due to their income and then they cannot afford to pay.

Last year, as we mentioned, in the first half, we had a reduction of provisions after -- when we speak of provision for losses, we are speaking of private clients, exclusively, we are speaking about individuals, above 180 days after the due date, you have to constitute a provision for losses. So we had a reversions of BRL 44 million in the first half of 2024. A new provision accounts that exceeded 6 months. So it impacted the result of this quarter.

But what we can say is that the Board has been following this account very diligently, stratifying our commercial areas, stratified all the people in debt, and we are making other simulations of certification due to consumption, and we are planning some actions, first in the sense of giving conditions for the clients for them to resume their payments -- of their installments, of their negotiations, giving them conditions for them to pay. The company can reduce this provision that is being done, in the sense that -- that we follow the results that is expected by the company.

And we also contacted some bodies to create some negotiations of this credit, bringing these resources to our company. So I think, no company has spent so much time without cutting water -- 42 months. So the volume of accounts was quite high and heavy. And the fact is that many clients went through some financial problems, loss of jobs due to the pandemic, they had difficult financial difficulties and not all of them were able to pay their debt.

But still, we have a default, 1.1%, which if we took it out from the installment, sum up, it would be a default of one of the lowest in Brazil. But the fact is that when we look at the history of last year, that brings default down, the expectation for the period of receiving these amounts, we identified together with our governance bodies, they need to adopt actions to take actions to seek reduction of this problem.

[Wilson Bley Lipski, executive]

Diligence, special look, profit, and we are taking measures. Today, we are participating in the Municipal Chamber of Curitiba in our joint effort where we propose to them the possibility to find solutions, so that we can recover these credits.

So the first measure is certification the value owed and then stratification of the amount of that -- I mean, the analysis of the profile of that person to see whether he goes through difficulty so that we can find another solution for these kind of people, which is proper for him to be able to pay for his -- the consumption -- the current consumption and the debt. So we have a special look to diminish these indicators.

[Operator]

Continuing our question comes from [ Jose Dorado ], Investor.

Many investors use their -- and there is an increase -- we anticipate the increase of this kind of investors that use their profit -- that -- do you have -- do you expect --

[Abel Demetrio, executive]

This issue of the installed payments, it's not outside our radars. The company pays its dividends according to its statute after 60 days after the GO. In other governance body, the company first expects the GO, which is the General Ordinary Assembly of the Shareholders approve the numbers of the balance of the previous years. So that in 60 days, it can make the payments of the dividends, which historically has been happening in July. So the GO has to happen by April and in June, that is the payment of dividends.

And the 2 last years, always 27 June, so this is in our release to make it easier for the investors to have a provision of their receiving. So we are a company of mixed economy. We are subject to questioning -- regional questioning, sometimes different from the reality of other states. But the fact is that the company made payments, and differently from what it practices currently. And there were questionings before the Public Ministry.

So the company looks very closely, very carefully because when the GO makes the -- when you pay according to the law, according to the rule, it's very well understood. But we analyze this condition. And obviously, all the investment volume that the company needs to make for the universalization and we want to be the first company to universalize this due to the new framework. So when you pay installments with less deadline, we have -- you affect the working capital.

It's not a thing that is forgotten on the contrary, but this is something the companies still needs to lean over and present and discuss with its governance bodies, so what is the way to follow. We can say that, yes, regularly, the company pays its dividends in June. Every year, the company has a stability of its dividends and the policy gives flexibility to the situations that are different in the Brazilian context.

Let's just mention 2 or 3: COVID, hydric crisis, water crisis in the Pan Americana, crisis that brought problems to the market. And we always have a flexibility in our policy to increase or reduce. We have a policy that allows to [ 25.50 ] net profit adjusted and has a capacity to keep a healthy company. We need to make more investments, where you have a limit of dividends that we can distribute. You have a better cash generation, you can advance in the distribution of dividends.

So from this perspective, our policy of dividends is flexible. And even with companies like, in a certain way, mimicking our policy of dividends. But yes, every time we want to improve. We always want to improve. We always want to bring something for -- that the shareholder expects. Only that right now, we are fighting these regulatory issues, and some issues about working capital, which are being analyzed.

[Operator]

Giving continuity to our next question, [indiscernible], analysts buy-side.

The questions, the expectations for the price revision for 2025?

[Abel Demetrio, executive]

Well, [ Jogo ], thank you for your issue. And as a regulation agency, it is in the Finance Board in the company, I can say that we speak about price revision every day with our regulation area. Obviously, the company does not disseminate expectations, whether about readjustments or price revisions. What we can say what is official and how -- what we are doing to reach the objectives that are -- so first to say, that we are -- on the July 29, we had a bid done by the company to hire a company that that will do -- will analyze the asset -- incremental asset report in 2024.

It will be measured by the agency in another way because obviously, we would not have enough time to include the investments of 2024. This is natural. And this is an important step in the price revision. We are hiring this, and it's in the phase of analysis of the technical issues to see whether the company -- they fulfills their requirements.

The agency on the other hand, we are having meetings in the sense, we have a system of movement of asset base, which is sealed. Everything that was done by 2020. Our technicians together with agencies' technicians are dealing with this movement. This is an important element for the company, the making up of the of the future balance price.

Another important point is that on the second of price review that concluded recently for 2023, the company through its technician and specialized companies found some differences in terms of what the agency determined its regulatory rule. So AGEPAR rules could be discussed in the third RTP. The company is looking for elements to show to the agency that what the company is requesting, makes sense, so that the agency can review from the third -- will consider something in favor of the companies -- what the company is requesting.

So we have a timeline by the agency that forces the revision, price revision on the date -- on the date to respect the date, our readjustment date for price revision. It has to be in May 17. We understand it's important for Sanepar, it's important for the cities and it's important for the investors.

And the second step, we are taking all the measures in the sense of the investments the company made, we have to put in the base, they are careful and necessary investments, making a lot of effort very diligently in the sense that we have at the end the third cycle, a price, which is fair and the balance that all the parties seek, the regulating agency, Sanepar and the users. So the that's the truth.

That's true, we cannot have a high price and that we will not have -- and the users do not -- cannot afford to pay, and then we cannot. So what we need is to look at a price that is in balance with all the needs. Of course, so we have -- AGEPAR have the competency. We give all the elements, we try to prove to them with data, with documents that everything has been done. We delivered all the documents and making all the management in the sense of showing the diligence of the company, the careful investments, efficient costs, so that they can judge us and determine the price.

[Operator]

We close the session of Q&A, and we handover the word to Abel Demetrio for his final considerations.

[Abel Demetrio, executive]

Well, thank you all for your participation in this videoconference. I don't know if the President wants to make any additional comment. So I wish you -- I wish you all a very good weekend. It's very cold in Curitiba. So if you want, you can come and spend some cold here.

[Wilson Bley Lipski, executive]

I want to thank you for the opportunity and make myself available, an open talk and sincere talk and in a transparent way with austerity and working to have the necessary efficiency to meet the demands for the management. And this is a commitment that I want to make and to make known to all of you. Thank you for the opportunity, and have you all a very good day.

[Operator]

The videoconference related to the results of Sanepar is concluded. Have an excellent day all of you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]