Companhia de Saneamento do Parana Sanepar

BOVESPA:SAPR4

Earnings Call Transcript 2024-Q3

[Operator]

[ Audio Gap ] announcing the results of the third quarter 2024 for Companhia de Saneamento do Parana - SANEPAR.

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Please note that this video conference is being recorded and will be made available on the company's Investor Relations website at [e-mail], where the full material is available. [Operator Instructions] We recommend submitting all the questions at once for efficiency. If your question is not answered during the event, please feel free to email it to [e-mail].

Please be aware that the information provided during this presentation, including any forward-looking statements regarding SANEPAR's business outlook projections and financial targets reflect the management's current beliefs and assumptions, as well as information available at the time. These statements are subject to risks, uncertainties and changes in circumstances that could cause actual results to differ materially. Investors should consider general economic conditions, market factors and other variables that could impact the company's performance and cause actual results to differ from those expressed in forward-looking statements.

Now I'll hand it over to our Chief Financial and Investor Relations Officer, Abel Demetrio.

[Abel Demetrio, executive]

Thank you, Rodrigo. Good morning, everyone. Thank you for joining us today. We are here with our CEO, Wilson Bley, our [ Investment of Investor ], Leura Lucia Conte de Oliveira; and Julio Cesar Gonchorosky, our Chief Environment and Social Action Officer; and also our RI team and our accounting manager.

The highlights of the third quarter of 2024, we have the net revenue with an increase of 6.5%. EBITDA reduced 2.5%, and net profit had a reduction of 4.9%, all this compared to the same period of last year. Related to the 9 months, the net revenue increased 10.4%, EBITDA increased 3.4% and net profit in 9 months dropped 0.5%. We had an increase of 25,000 water connection, 36,500 sewage connections. We reached 80.8% in our service index and 100% is taxed -- 100% of service in water for the population. Our EBITDA margin reached in the third quarter 44.4% and, in 9 months, 42.9%.

The investments in the quarter reached BRL 503 million and in 9 months, BRL 1.3743 billion. We had as highlights, the ANEFAC Transparency Award 2024 and this company's highlight in its category with -- in revenue between BRL 5 billion and BRL 20 billion. We had the Southern Region's Innovation Champions Award awarded by Amanha Magazine.

In terms of operating results, our highlight of the measured yield volume increasing 9%, the increase in economies, 28.9 economies of water. Concerning sewage, we had an increase in the volume in 5.5% and an increase in the economies of over 49,000 new economies of sewage. Our default was 0.8% accumulated in 9 months. And the operational efficiency was 222.6 per liter of losses per day.

Now, the reservoir levels, which supplies the region. We closed the third quarter in practically 96% of our capacity. And currently, we are keeping this level due to the good levels of rain and against 99% of 2023. So the situation of the reservoir is quite comfortable.

And now let's talk about our performance indicators, our covenants. We have concerning the debentures in the market, which are from the 9th to the 14th issues, all the covenants fulfilled, the debt bank adjusted less or equal to 3 -- 1.74. Adjusted EBITDA by net financial expense, we have 8.66. And concerning the bench system, the second issue. Now in September, we have the net bank debt by EBITDA 1.65 at the end of 9 months of 2024. The EBITDA by the service coverage ratio, 2.63. This level has to be equal or more than 1.5.

On our other onerous debt, which have to do with health care and social security and taxes or electricity can be maximum 1x our EBITDA, and we have 0.39. In other words, we have quite a big margin in this regard. Concerning the other items, I didn't mention, the Caixa contracts, other onerous debt, we have 0.41.

On the next page, speaking of the KfW contracts, besides the index mentioned, we have the debt service, which is limited to 60%. We have 49.6% below the same periods verified in 2022 and 2023. Our EBITDA margin is 42.9% in 9 months, ROIC annualized 11.5%, and ROE annualized 14.8%.

Next page, let's go to financial performance of the quarter. We see our net revenue increased 0.5%, reaching BRL 1.710 billion in this quarter. EBITDA was BRL 759 million, a reduction of 2.5% and still with a margin of 44.4%. The net profit and net margin reached BRL 377 million with a 22% margin and a reduction in the same period of last year of 4%. The expenses with impact in EBITDA reached BRL 951 million with an increase of 4.9%.

Looking at the accumulated period, we grew BRL 5.72 billion. Our EBITDA grew 3.4%, reaching BRL 2.177 billion with a margin of 42.9%, below last year in the same period, but higher than 2022. The net profit of BRL 1.132 billion with a margin of 22.3% and the operating costs and expenses increased 16.2% comparing to the same period of 2023.

Now concerning the cash generation and EBITDA conversion. We had a nice growth, 19.1%, a conversion very good of 94.7%. Generation of cash flow reached BRL 2.061 billion. Our net debt and leverage, we have a debt in the short term of BRL 573 million and in the long term, over BRL 5 billion and BRL 6 billion of total debt. So with cash and equivalent, BRL 1.675 billion at the end of September, we have the net debt of BRL 4.784 billion and with a margin of leverage of 1.7x, in line with what was verified at the end of 2023.

Our weighted average cost of debt was decreasing. In 2022, we closed with 11.5%, '23, 11.3% and now 10.5%. But of course, this is due to the increase of Selic rate and, let's say, inflation due to IPCA with some impact. So this curve depends on these indicators in the future. The CapEx grew 0.2% compared to the same period to reach BRL 1.374 billion of investment, being 35% of this investment in systems of water, water work, implementation of action and 57% destined to the system of sewage and 8% in other investments.

The income statements of the quarter, we've seen the growth. We grew 30.9%. The personnel in this volume growth is due to several judicial lawsuits and labor suits that were done in the period. Only in this period, the volume of lawsuits reached over BRL 80 million compared to -- we had an increase of $76 million this year. And on the other hand, we are reducing provision. So these were actions that were provisioned, they left provision and now the expense has become effective.

The material, we continue okay in the year with a reduction of 3.2%. Electricity, we noticed a reduction in the quarter of 7.5%. So the accumulated in 9 months is positive. In the quarter, we see a reduction of electricity important to the migration of the free market of energy provisions. a reduction is quite important of BRL 128 million. The part of provisions were due to the work layoffs and legal actions due to civil nature, which were concluded in the quarter.

Other costs, the civil, I want to highlight the gain of a lawsuit that allowed a reduction of BRL 63.5 million of -- which is a probable to possible cause due to lack of water in Maringa and due to the -- so we had a very good legal results and due to the good work of the company and legal justice favored our company. And other costs and expenses has been growing 143.8%, reaching BRL 138 million. We remember that last year, we had a strong impact due to the RECLIP where we had a lot of negotiations and credit recovery.

And when we compare with other cost and expenses of last year, which was BRL 66 million, it is impacted due to this issue of RECLIP. So if we exclude this effect of these losses in the credit fulfillment, we would have an increase of 12.5%. And we can say that this is close to a normal standard, which was in 2022, which was BRL 134 million and this year, BRL 138,474,000. The net result was BRL 4.9 million in the quarter of net result, closer to less than last year.

On the next page, speaking of the 9 months, we grew 36%, which did on account of the impact of the closing of the issues of the legal issues. Electricity 9 months grew 10.8%. The provisions, we have an effect of these solutions in the quarter. So, from -- the provisions comes out from that and other expenses affected in the period of 9 months to close to BRL 92 million with losses in the credit realizations and last year, we had a reversion of approximately BRL 88 million.

Now let's talk about balance sheet. Our net debt grew 3.8% in financial investments, given the bigger volume of water we grew 30.9%. On the other hand, we had an increase of our loans and financing to be able to face the investment plans in the company. We grew 11.8%, reaching the debt of BRL 6.458 billion.

About operating working capital, we highlight receiving with over BRL 1 billion at the end -- over BRL 1 billion last year to BRL 1.455 billion at the end of 2024. About -- we had -- in other assets, we had a reduction to BRL 632 million. And given the volume of investment, we can see a growth of other assets -- contract assets with a growth of 6.9%, reaching BRL 2.951 billion. Our fixed assets at the end of September closed in BRL 1.557 billion and with an improved -- and with an operating working capital turnover with 45 days at the end of 2024.

Next page, cash flow. We have operating activities growing 19.1% in terms of cash generation. We're growing 0.1% in investment activities and financing activities, we grew 2.6% compared to the same period of last year. We have an increase of BRL 389,578,000, moving from over BRL 1 billion to BRL 1.675 billion, which is important, given the big volume of investments that we need to make and several works that are hired and in execution.

So this is my presentation. So I hand over the word to Rodrigo.

[Operator]

[Operator Instructions] So the first question is from [ Arthelo Fonso by Clube Belvedere ]. The labor optimizations have been growing in the last quarters. What's the cause of that? Is it expected that these expenses continue at these levels in the next future quarters?

[Abel Demetrio, executive]

Thank you for your question. I want to give you a context. We had, in the past few years, a strong increase of provisions due to some legal actions, which promoted, for example, the engineered union lawsuits that got the company to make strong provisions. These legal actions are in execution phase and they go through the movement when they move from provision to expenses, and this affects the personnel account, but this is reverted from the provision account.

In this issue of the engineered unions, we have 70% of the legal actions, which were over 200 actions we have now, 70% are incorporated in the salaries and the company having paid indemnization is paying the new salary which was due. And we also had in the last 2, 3 years, a big action related to reintegration of retired with a lower volume, less than 100 people. And still, it has financial impact that were provisioned, and they start -- already have started seeing that effect due to the end of the legal actions of these cases. So I would say, Marcelo, that finalizing these processes, we tend to go back to a normal curve of growth, stability in the personnel account. And this is what we look ahead of us.

[Operator]

So next question comes from Maria Carolina Carneiro, Safra Bank. She brings us 2 questions. First question, we would like to have some more information about provisions this quarter and about the line of personnel that also had no recurrence. And second, we would like updates on the receivable against the federal government about conditions for payment to enter [indiscernible].

[Abel Demetrio, executive]

Thank you, Maria, for your question. We had, as I reported the personnel problem, all the increases. And concerning provision, we had a reduction of provisions exactly given the solutions that effectively became expenses. I can mention 2, 3 cases where we had a closing or partial closing of the processes, an accident we had in 2023 in Ponta Grossa, where there were victims. So the company at that point reverted the provision and made the payment and recognized this expense. We also had some actions with the condominium on the coast of [ Ponta Grossa ] where they were questioning the amount of the sewage bill. And so they were reverted at that time. So this provisioning was concluded.

But the positive effect of the period was that we highlight the Maringa issue that the company won this due to the shortage of water that happened 8 years ago. So this is an action which is quite relevant for us. So concerning provisions, that's what I have to say. And concerning the legal action of the rates of payment in this quarter, we did not have much change -- many changes besides the one we mentioned in that annual conference at the end of last year. So we are waiting for this to see what will happen in the next meeting to see if the rates of payment the company seeks is recognized in the budget of the federal government.

[Operator]

So next question comes from [ Renaldo Vedis ], an investor. Congratulations for your results. We talk a lot about rates of payment. And recently, it was rumored that part of the amount was used to reduce tariffs. I would like to know the position of SANEPAR on this regard. About sewage collection, we are below 77% in Colombia. What action has been made to reach universalization in this city in specific? And could you update if there is with IGA? So these are Renaldo's questions.

[Abel Demetrio, executive]

Thank you, Renaldo, for your question. I would like to hand over to Leura for her to explain some things related to the city of Colombia and the PPPs. And then we go back to the last question.

[Leura Lucia Conte de Oliveira, executive]

Concerning the works to meet this rate we have in Colombia. Today, we have a big action of an interceptor and he comes to [ Ataita Sul ], which is located in Curitiba, but he receives the sewage. It receives the sewage of the part of Colombo, and part of Colombo is part of the PPP and the coast. So we have actions for the few next years, we can reach the 90% goal. So this is quite a significant work. This interceptor has many kilometers, goes through regions where we have like illegal invasions, but we are working on legalizing so that we can, with all these elements, create a bidding and do all these works.

I think the issue of the rates of payment, I have to say that our explanation is that it should get into the budget law so that we have this right recognized like the provisioning of the payment so that we can -- after that, we can study the feasibility within the conformities -- the legal conformities to see what is the best action of all these resources. So right now, we do not have this answer in a definitive way. So we have several studies ongoing, but we are going to have to do work on that. We have started the activities. And for this new process, we managed to release recently in the Supreme Court, we have new biddings, and we have 3 new players in the PPPs. And with this governance tested and tried with Age, we will have the same parameters so that we can continue in these municipalities that we chose the option of PPPs.

[Operator]

Next question comes from [ Marconi Filio ], an investor. Do you have any more details why the costs increased so much, especially default? Is it the new reality? Or was this a one-off event? What measures are being taken? These are the questions.

[Unknown Executive]

Marconi, thank you for your issue -- for your question. Actually, default in the company, when we look in the accumulated of 9 months, it's 0.8%. I would say that this is a default looking by the number. It's a very good one in terms of Brazil. I think it's one of the lowest. The fact is that we expected it to be even lower, considering that giving the RECLIP, which is the program of recovery of credit implemented last year. So we expected the positive effects of this RECLIP to be more favorable, and we also -- for the year of 2024. So we can see last year, we saw a strong recovery, reversion of provisions for losses in credit. And this year, this is back to a level of provisioning, not reversion anymore. And obviously, when you compare the history of last year against the history of this year, we have the double effect. Last year, we had reversion of provisions. And this year, we are provisioning. But we have, within our Board, several ongoing actions in the sense of seeking our -- trying to improve our capacity of receiving the bills and mapping out the most representative ones, always looking at the payment condition of the users.

It's important to highlight the commercial Board established some strategies, a new level to have the actions at every moment that are mitigating in the process of the fall. We started a project called SANEPAR near you, where we bring all our services aiming to recover these credits. We started in the municipality near Curitiba, and we are going to go across the state, and we are doing some joint efforts to get -- and also working with the notaries. But one action that will be very good is the possibility now at the moment of the cut so our client can -- he can pay in installments in his credit card to avoid the cut. So this might make things easier. We started with this process, and we will be implementing it across the state.

[Operator]

And next question comes from [ Luis Alvis ], another investor. SANEPAR made a communication informing measures in Panada to face the drought. How is the situation? Are we rotating? Is that a rotation system? Should we expect something that happened in 2020?

[Abel Demetrio, executive]

I think all the actions -- we are making all the actions, the rainy season is abnormal. We've been seeing different situations, a rain of big volume now that in 1 hour, we had over 170 millimeters. So we can understand that this is not a normal regime. The rains get into Parana through Cascavel, they cross the state of Parana in 8, 9 hours. So the accumulated of water is very little. But many actions are being made and established together with our body of governments like the drilling of new wells and some other actions and increase of reserves. So there is a process that are extremely suitable and adequate, but this goes through a planning of contingency, a plan of action of short term and a plan of action of longer term, which we are calling more structural plans. So we are very alert about this moment we are going through.

[Leura Lucia Conte de Oliveira, executive]

Good morning, everyone. Besides the comments that President made, we are monitoring very closely the forecast and the perspective for the next 6 months. And as indicated, we will have -- we tend to have in November quite rainy all over the state, and this should help increase the reservoirs. But it's not only -- I think the thing is not only to have a trend of rain, but to have it well distributed for a longer period of time. So when you have rains of 8 hours crossing the state, they are like a wave, which does not cause us to recover the reservoirs and accumulate water. But the trend of November and December is to have good rain and throughout all the summer. So we have no perspectives for the metropolitan region. On the contrary, we have a reduction of our storage. And for the summer, the trend is for the drought to be more on the coast. So we will probably have a positive summer for the recovery of our water springs.

[Operator]

Next question comes from [ Leandro Giard ], an investor. He brings 2 questions. The first has been answered. And the second is, I identified an increase in the line of compensation for third-party damage due to this judicial lawsuits due to undue charges. So what is the outlook in the future and for others that are ongoing processes?

[Abel Demetrio, executive]

Thank you, Leandro, for your question. Of course, the judicial lawsuits, they have a period of maturation and in some -- so we always try to win all the lawsuits. But when you have the conclusion of the lawsuit, some of them, we cannot succeed in all of that. The issue of accident was 2003, and we are talking about something that lasts many years. And we have the issue of some legal actions that were solved due to the actions of the period of the coast of Foz do Iguacu area. These are some civil lawsuits and they were recognized, and we had a loss of a rebalance against a supplier. So we had to also pay that lawsuit, and we cannot estimate whether in the future, these lawsuits, we will win or lose.

So of course, our legal department is very capable to analyze the lawsuits, indicate the likelihood whether it is -- what is the likelihood of winning this according to the accounting. But the new lawsuits that we are subject to losses, it depends on the conclusion of the lawsuits. Most of the cases, we can -- we have good returns for the company. But in many cases, we are punished and we have to pay. So, this is common in every lawsuit.

[Operator]

And the next question comes from [ Jose Morato ] an Investor. Two questions. First question. Why does the service count to third parties increase in 80% from 2022 to 2024? And is there any plan for reduction of losses in the distribution of water as a consequence of the profit?

[Unknown Executive]

The service to third parties increased this year in 9 months in around 28.9%. The growth of these costs of third parties are related to activities that -- especially in 2023, we did not practice -- we did not practice the cut for 42 months. So, we have a series of actions related to the cuts that were resumed as of the end of the pandemic. Our company was the only one in Brazil probably that spent 42 months or 3.5 years without cutting water to the population, even the population -- the default population. So, that was important to go through the COVID crisis. We kept low levels of default compared to other companies. And when we resume the cuts, we had some cuts like cuts and connections and registry services, notifications to the clients, a series of actions, the service to the client. We had to improve a lot the service to be able to do all the repeat -- to recover the credit. And that brought a big volume -- a higher volume compared for third parties compared to what we saw last year. This year, we also had the issue of PPPs, which started to got into operation. It's a cost we did not see last year. And until the program of voluntary resignation that we want to implement 2025, we might have some issue of personnel that might be reduced, especially due to the starting of PPPs. These are the main points.

Besides the point of maintenance of networks, which is something quite emblematic for the company. And we had some problems with some contractors that ended up not managing to execute their contracts, fulfilling their contracts, and they left some undone work, some sidewalks, which were not covered. And then we hired new companies, and we managed to have now a contract that is being adequately fulfilled. So besides the normal routine of leakage, which is one of the main problems we have in sewage, so water leakage and the necessity of maintenance. So besides that, we have to redo what was left over from the past that needed redoing.

And I want to add something about the losses. If we make a benchmark with all the companies in Brazil, our indicators are the best, but effectively far from what we want. We try to effectively, on the day by day, the excellence. So, we have several actions, several OpEx being done for improvement of this network, several CapEx being done for us to have the investments done correctly and adequately, but an area of innovation of new businesses, which is our new Board, which is trying other alternatives. We even, with the identification of possible leakage through satellites to mapping, done by satellites, besides other actions that we do on our day by day. There is a natural trend to see this going down throughout the time, but we have to face these problems and it sometimes does not depend on us. And many of them have to do with stealth, with things being stolen. So these things -- they do not go through our management directly. So, we are forced to take actions, but after the problem appeared.

[Operator]

We received 2 questions related to the same question by [ Eduardo Nazareth ] and [ Luiz Alves ]. So, we're going to answer them together. It's clear the issue of legal actions in the personnel account. I would like to know until when we should expect this result. Is it concluded? Or should we expect recurrences in the next quarters? Lu and Eduardo's questions.

[Unknown Executive]

Thank you, Luis. Thank you, Eduardo. We had, as I said, several actions that are being concluded in the year of 2024. And therefore, they leave the provision line where we see clearly a reduction in 9 months of BRL 226 million in the line of provisions and an increase in the personnel line when we talk of legal actions. So the legal that have to do with the union, engineer union. A big percentage of them are incorporated in the salaries. They have been concluded, all the compensations. And we also have the issues of the employees that have been reintegrated. And there are cases of overtime, salary equity, which are the labor claims. So, we expect in 2024 and throughout 2025 that we have all this lawsuits concluded, and this is being done as we have the final decisions by the justice. But we have to remember that we have a reversion in the provision account. So, this is not an additional cost, but a transference from something that was probable as a loss in most of the cases. And of course, we may gain some case or that is a case where we did not have -- the result was not expected, but most of the cases, we were provisioned for that.

Another issue related to provision is the general taxes below the civil provisions. We mentioned them. The accident that we mentioned that contributed with BRL 13 million of payments. The issue of Foz do Iguacu, and the costs that I mentioned that was BRL 46.5 million that we had to pay. So, these are examples of lawsuits that were concluded and we had to pay. This, I would say that they are definite because they are one-off. But the personnel lawsuits, we expect them to continue until the end of 2024 and 2025.

[Operator]

Next question is from [ Joe Agusto Guaza ], an Investor. With the progress of infrastructure of the Parana Coast and all the cost of machines and the expansion of Guaratuba Coast and the construction of the bridge between Matinhos and Guaratuba, are there measures to fulfill this possible consumption of water in the next few years?

[Unknown Executive]

Yes. We have a project that is being developed. And as soon as it is concluded, we will start the bidding for the work and all the work to fulfill the need because it will be a region that will demand more systems, more reserves, more -- all the infrastructure and structure necessary to serve this population. And with the -- and also with this population that comes at the end of the year that increases the number of people using -- demanding the service, but we are working to avoid any problems. In the past few years in this period between Christmas and New Year, we managed to meet the needs of all the populations. We have very good strategies so that we can face all these problems.

And another thing, Sanepar starts making up the formation of public policies together with the government. So, we know what the impact of these new investments are. And within our attribution and competence, we can follow these movements. Not only the coast, we also have a good boom in the region of Ponta Grossa, especially due to the industrialization of that city and region; Londrina, Maringa, Cascavel. So, we are very alert to that, so that we can meet the needs, whether they are industrial, whether they are residential. So within the competency that is ours, we are participating in these studies with the government.

[Operator]

The question comes from Maria Carolina Carneiro from Banco Safra.

She brings 2 points. The first point. Could you comment on discussions and calendars of things relevant for the next tariff and the opening of the assets active and about payments of rates that are different. There are interpretations that part of receivable could be reverted to the consumer. Can this theme be taken to the regulator?

[Unknown Executive]

Thank you for your question. Concerning the third revision of the tariffs, we have a timeline by AGEPAR. We are, at the moment, evaluating the asset base to have a fiscal report and the chronogram and the timeline process is within what is predicted. It's quite challenging, but we are following. We have the technical notes of the third RTP, which should be released by the end of the year by the regulator. We have the fiscal -- fiscalization of what the company is going to deliver to the regulators. And finally, after the final technical report to establish the P0, which is the price of balance of the tariff that should happen until April 17 for the implementation of the new tariff. The database is May 17.

So in this process, we are constantly, let's say, with an interface with the agency, we depend on their information, clarifying out and conducting the process so that we can fulfill the calendar and saying that we are at a level of actions compatible to the delivery. And we expect to do an excellent work to deliver all the elements related to OpEx of the company, both the CapEx projected. So, we are acting in different fronts and delivering several information requested by the regulator. As for example, the issue of consumption, the levels of consumption, the commercial thing, OpEx, segregated according to the opening amended by the agency, all the technical. They have the several interfaces with the company, and we are providing all the necessary information. Optimism information still need to be concluded, considering that the calendar is December 31, 2024, and we sent information until June 30, and we are going to update with information of September 30. And we are sending all the information demanded by the agency. So, this process is ongoing.

Concerning the rates of payment, what the President mentioned, we are waiting the inclusion in the budget of the general -- of the federal government so that we can have this issue of being able to recognize a credit in favor of the company. This has to be in the law so that we can discuss in the future with the competent bodies, what is the destination of the resources because we know the volume is quite significant and demands complex analysis on the team.

[Operator]

Next question comes from [ Jose Morato ], an Investor.

In case the credit of the rates of payment is included in the budget of the federal government, when do you expect to receive it? And if it will be part of the balance of Sanepar?

[Unknown Executive]

We cannot anticipate the date for receiving that. What we have been observing is that the rates of payment that were inscribed or were taken to the budget law. They are being paid throughout the year. So the expectation that we create is that -- that we have is that once it is part of the law of the federal government, that we know as of -- that from January to December -- from January to the January 2026, because -- so you may -- so we -- this is the timeframe to receive this payment. So it's not speculations, but expectations because we have to understand that the movements that occurred until then without creating an expectation of definition -- effective definition of a date because it does not go -- it's not up to us. We do not have this control. The point was to have this right recognized and judged, and now go through this phase of the effectiveness of the payment of this credit in the favor of our company. And just adding this issue related to accounting, I see that at the moment, what the President said, we have an issue of inclusion in the federal government budget and a credit in the favor of the company. Obviously, when it becomes a law and is truly approved in the favor of the company, there is open space for discussion with our auditors. So, we have to remember that effectively, the fact you register in the company, the numbers in the company does not mean that it's part of the balance because the volumes, the BRL 4 billion that are credits in favor of the company, they have to be used from the moment they come into the company, otherwise the company would not have any way to make the destination of this amount.

[Operator]

[ Luiz Antonio Schneider ], Investor. Next question.

What are the reasons for such expressive amounts in labor expenses? What do you do to prevent this in terms of legal lawsuits?

[Unknown Executive]

So, mitigation actions on daily basis. We are doing that by our legal department. We are trying to identify stratifications of the main demands and the recurrence so that together with the administration, we can mitigate the governance process. In the past few years, we have been improving. And our relations with our workers and our unions, they are extremely real and very closely knit, and we've seen a lower tendency of demand. But we have to make some precautions, and this is being studied. This is within our strategic plan, and it's being done on a daily basis. The mitigation prevention, we are working on that in a very planned way.

And now the issue of why these actions had such big volume and what effectively happened. But if we look at the history, we can see some legal actions of lack of water in the favor of company of 2016. The issue of accidents in traffic in 2003, the retired issues that were reintegrated. It was a 2009, 2010 action. The engineers, it was an action that took place many years ago. So, perhaps the consolidation of the understanding taken these actions to take a long time, but all this interest and they are quite relevant. So when we look at something that happened 10 years, 15 years ago, we have the event that is updated and sometimes it exceeds inflation rate.

So in this sense, the company and this management has been trying to be always alert to prevent that big problems are done in a very stormy way to prevent the occurrence of new events of this magnitude. But still, given the amount of employees and legislation, the changes in the legislation, the companies are subject to possible problems in their journey. And the generator factor, we have to look in the past to learn from it and to learn resilience. And the look we have to have is precaution, the full precaution so that in the future, we do not have the same problems like faced in the past.

[Operator]

Next question is from [ Luiz Filip Olivera ], an Investor.

Three questions. The third question has been answered. The first is, congratulations for reducing the cost of material. Can we expect this maintain and to continue reducing or it's a one-off event? And how have you been working to improve the losses in connections?

[Unknown Executive]

Thank you, Luiz, for your question. The issue of materials, we can see that there is a reduction in 9 months of 2.3%. I think it's not only a reduction of 2.3%, but especially the issue that we are producing more water. We are also treating sewage. So the growth is bigger than that when we look at the growth of expenses with chemical products. That represent around 62% of the cost of the company. To speak of reduction [Technical Difficulty] of the dollar because many of these products, they have to do with international markets and we've seen a pressure with the increase of the dollar rate. And this can affect the company with increase of prices. The scenario is macroeconomic, and this will affect the number in the future.

We have several actions, attempt to change innovation studies to try to find new products that might be similar, compatible with the need of delivery in the patterns demanded according to the contract. So the innovation area has been contributing a lot with the studies in research and service, together with the operational area, aiming at a reduction of a cost that is quite relevant for the company, BRL 235 million in 9 months, not only in chemical products, but other materials as well and always trying to find new suppliers.

Our administration has been doing studies, trying to increase the competition of our bidding, bring new players to participate in the bidding and somehow, we see positive results this year in 2024. About the losses, I think that has been answered for 2, 3 times, but I want to say also that it's a daily effort. Although we have indicators that are quite reasonable, if we compare to the other companies, this does not comfort us. So, there are several actions, innovation actions, daily actions. And I believe that with this modernization of our park that we are doing through several actions with these new investments made with the sewage and for improvement of the water system is a system -- if the system is more adequate, we have less losses at the end.

[Operator]

We have received 2 questions about the same question, [ Izaki Morato ] and [ Marcos Marquez ]. So we will answer them together.

The company -- does the company intend to review the periodicity of the payments and also to pay them more quickly?

[Unknown Executive]

Thank you for your questions. We are in a moment of strategic planning of the company, and this takes into the perspective of the future, the perspective of revenues. And this obviously will be analyzed by the competent people here in this planning for 2025 -- from 2025 to 2029. Today, the company practices this policy. We pay in June, 2 months after the [ GO ]. And it's a consolidated policy in the company. It's not that it cannot be changed, but it is a policy that is quite consolidated. And the payment -- the period of these payments, they are analyzed vis-a-vis the reduction of the turnover capital and the need to fulfill the universalization project. We reached 90%, and also to fulfill the contract. So it's an analysis on the table that we are always discussing. I understand that at the right moment, the financial -- when our finances allow, this might obviously, if approved, might be done.

[Operator]

Another question from [ Luiz ] Investor. Has there been any evolution with the work of the new reservoir in comparison to last year?

[Unknown Executive]

I would say that, yes, we managed to unblock the license with a positive answer from IBAMA. And we have the necessary licenses, and we started some of the actions for us to have very soon with an expectation, which for us is short. The reinforcement of our system with the filling of the reservoir of Miringuava. As the President mentioned, the federal body that had to authorize us and all the license -- the state licenses, and this is all now ready. What we are doing right now is the preliminary actions and they are known, which is the working of the fauna, the flora to recover that, so that we can work with such a sensitive area to work, to protect all this area. But thinking not only in our environmental obligations, but also the image of the company, the image of sustainability, environmental responsibility. So, we understand that from next month, we will start the suppression. It's a long process, but next year, we should be accumulating water. And probably by the end of next year, we will start the operation of this reservoir of this dam.

Besides the actions that are -- the actions of suppression, environmental actions that bring this balance of sustainability, both for the company and the society, the relationship to the society, there are some actions of the people that are being impacted by this new reserve that rose. There are some actions that the Investment Board is doing. Yes, we have some work that is hired. We are in the process of infrastructure of the company so that it can start from the cut of the trees in the areas that we have to complement with public roads illumination and the actual pavement for the road, not to prevent any resident to have access to his residency. We made small adjustments recently with the body -- the proper public body that were not predicted in the project, but small actions, they are solved.

And then we now intend as of beginning of December to be fully working with this part of the public roads. We have to highlight that it's an important movement for us to be able to serve all the metropolitan area in a perennial way. It will increase our capacity to balance the cavitation of water. So, this brings a huge benefit, but we have to be vigilant with all the impacts, not only environmental but social as well. So, always with a very transparent dialogue, always talking with the society and to those who represent them like the Sao Jose do Rio Preto city hall together with the public ministry so that we have the best actions within the objective that is being managed for a long time in the company. And in the past few months, we managed to unblock and give the continuity to this project that is so important to all of us.

[Operator]

Thank you all. We are concluding the session of question and answers, and we hand over to Abel Demetrio, our President and CEO.

[Abel Demetrio, executive]

On behalf of the company, I'd like to thank the presence of everyone, and I wish you a very good weekend and a very good end of the year. Thank you.

[Operator]

The video conference of results of the third quarter of 2024 of Sanepar is concluded. Thank you for your participation. Have a wonderful day.

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