Basic Sanitation Company of the State of Sao Paulo SABESP

SWB:SAJA

Earnings Call Transcript 2022-Q4

[Operator]

[Call Starts Abruptly] results conference call for 2022.

Today, we have with us, Mr. Andre Salcedo, Ms. Catia Pereira, Finance Director and Investor Relations Director and Mr. Marcelo Miyagui, Accounting Manager.

And before I turn over to Andre Salcedo, I would like to share some information and instructions. This video conference is being recorded and have simultaneous translation into English. The presentation and recording will be available at the IR website of SABESP. I would also remind you that questions will only be taken in writing in the chat of this platform. Our conference shall last about one hour and 30 minutes. And we're going to save 45 minutes for Q&A of analysts and then journalists.

To conclude, I would like to clarify that any statements made during this conference are regarding the company's businesses and projections for the future are only projections based on the assumptions of the company, as well as the information currently available to the company and do not constitute any results and involve risks uncertainties and premises, because they refer to future events, and therefore, these circumstances may have been or not. Investors should take into account, general operational factors and the industry take into account that they may change their results, which will be materially different in future projections.

And now, I would like to turn it over to Mr. Andre Salcedo, who will start the conference.

[Andre Salcedo, Chief Executive Officer]

Good morning. Thank you very much. I thank everyone who is been with us in these early months of our new management. I think investors, journalists and analysts for their presence, as well as the general public. For those who do not know me personally, I am Andre Salcedo. I have been assigned as President to Director last year, and I officially took over on January 13.

Since then we have been learning about the company's performance, getting to know the team of managers of the company, so that we can have a more extensive view of what is in fact the aspirations for SABESP. I was given a free charge to take care of the company to turn the company into a more modern one, into an innovative innovating and inclusive company. And this is the mission that we're going to implement throughout this management.

And to give you an idea of the work we're going to perform, we have already defined the new composition of the Board, so that we can align SABESP’s management with this strategic view, a view of modernity a better relationship with regulators with our clients. And also in terms of the end users.

With a more integrated view, a company that thinks together that uses its resources, Human Resources, Finance resources rationally. A management, which is closer to people, internally and externally and a management which will pursue a full opening, including all stakeholders, regulators, shareholders, investors to understand what can be improved and how we can improve. And whenever possible, we will be as transparent.

As possible, I'm very happy to be here in the company right now. We are at a moment where we're turning a page we will pursue new businesses, we want to grow, and we also want to provide better service to the population according to what we consider to be adequate in terms of investment.

And in this process, we're going to start planning the next four years focusing on an organizational transformation, and working in clusters very autonomous units, which could be more integrated in terms of processes, we're going to review our methods both for the Board of Directors and the company, so that it reflects what we understand to be more adequate for the company and also to guarantee more efficiency in the decision-making process.

And as I commented, we're going to focus on generating value to all stakeholders, we understand the importance of the environment and the ESG agenda, this is going to have a priority in our management. Also, we will separate clients into two tiers. First, the owner of the sanitation service that authorizes us to work and a second tier, which is actually the end user.

For this transformation, and this new vision, we will look carefully at our employees by training and developing their knowledge based on the demands we have in terms of investments. We want to have a more competitive company that can grow, compete for new markets. We see opportunities in optimizing our employees and in special for the development of activities that we do not to develop today.

Later on we will allocate activities two different activities that can generate more value. Also, a cost reduction is one of our targets, and also demanding our managers to meet our targets. To do that we are proposing new packages for the involvement of our employees so that we can reach our goals in the company.

And before moving on to the next slide, I wanted to highlight that last year was very challenging. Despite the challenges, we were able to have a net profit that was record in the history of the company. We're going to continue pursuing more growth and it's important to highlight that in the growth last year, it has not yet been acknowledged the tariff gap that we had in December. And so we hope that in the next cycles, this is incorporated in the annual review we're going to have.

And therefore turning our revenue, a more adequate one in terms of operations. And now talking more specifically about the new challenge of the company and then I move on to the next slide. What is SABESP going to be like in the next cycle, it is going to have a clear vision of what it has to pursue. And as you have noticed, our proposal for this year includes a change in our bylaws to make the company a more modern one.

We have specific attributions. But we want to be flexible in allocating roles as the Company changes. With a new view for each member of the Board of Directors, we are going to have communication, we're going to focus on the legal department and strategic beading, Sabrina has a lot of experience in management. She has been in the company since February, and has been doing wonderful work and therefore we are hoping to deliver a lot in this regard.

As the CFO, we have conscious, she's been in the company for two months, and she's already working with investors and in addition to the typical activities of the financial and investor relations department. She's also working with shared service centers. In the company that she used to work she had this experience and we're counting on her expertise to work with corporate, shared centers, and therefore be able to work with water production, distribution and treatment of sewage and leaving all of this integrated view to the corporate management to guarantee that the company will have adequate resources in due time.

With this regulation and new businesses is no longer in the financial and investor relations. But this will be the responsibility of Bruno D’Abadia who will lead the relationship with the regulating agencies with the different municipalities and a combination of opportunities for new businesses, whether they are a concession or not to the company, and there is a regulatory demand. And it's important to have this integration to generate value.

The other Board of Directors typically, engineering, which are separated in a regional area will be divided into two, we'll have one that will take care of CapEx and the long and midterm investment, as well as environmental management. And this will be led by Paula Violante. The idea is that the whole CapEx of the company goes through Paula, and will be prioritized according to the demands we're having, which are initially environmental investments that we have to meet the guarantee of safety for our employees, and also to meet our contract requirements.

Also, to complement this change, we will also adapt our metropolitan and regional department into a new one, which is already led by Roberval, who has a lot of experience with the company. He has been here for many years and he's already integrating the two departments so that we have a single view of the management of the company, so that the best practices are all taken to the company as a whole.

And with that, we expect to have improvement in operational costs. And a novelty that is being proposed is the creation of a new department, a new Board of Director, called clients. So that we can have a relationship close with the clients, guaranteeing that the cycle will receive all required attention. So that we can adjust everything to SABESP’s means and in addition in strategic terms, we have communication and they will report directly to me. I think this is very important for the exchange information with the market, providing access to mayors, regulating agencies, directly on our website.

We want to be totally transparent also digital transformation. All of the data collected from our operations and data on our client base, when combined, they can generate a lot of value for the company. We're going to create a digital transformation unit to guarantee that data management and decision-making based on data is a decision of the company, the strategic view remains a responsibility of the CEO, analyzing opportunities for improvement in the company, also providing adequate information and the ESG agenda.

Now, will be extremely important for the company so that we can define our goals and that everybody follows this corporate vision. We hope that within a few months, we will be able to fulfill ESG targets and share it with the market. We were very happy and the whole Board of Directors are happy. We consider ourselves to be very lucky to have the right people to face the challenges we're going to have in the company, it's going to be a very good cycle with a transformation of the company improving in all of the operational goals, client perception and above all.

I'm going to conclude now, I count on your support. SABESP has opened doors for comments, criticism, our objective is to turn the best company possible. And to do this, we count on you and I thank you for your attention.

Tiberio, I turn back to you.

[Luiz Tiberio, Resource Funding and IRO Officer]

Well, thank you, Andre. Now actually, I think it is Catia's turn to present the results.

[Catia Pereira, Chief Financial Officer and Investor Relations]

Good morning, everyone. Thank you, Andre, for the introduction and very inspiring introduction. First of all, I am Catia Pereira. I started working in the company in early March. I am very new in the company, but it takes pleasure to be part of this team and help in this construction in the finance area, playing a role of turning the company into an efficient company with integrated processes so that the finance department permeates all of the other areas of the company, and as Andre mentioned, providing focus on the delivery of the operation, turning processes, more integrated, faster and more efficient. This is the objective and is aligned with the introduction, shared services, and this is going to be our journey for 2023.

So now moving on to the next slide, I will start talking a little bit about volume. In '22, we saw an increase of 0.2 in terms of water volume. Basically, we see a decrease in residential area, but on the other hand, an increase in the commercial and industrial area. This only indicates life going back to normal after the pandemic. So we can understand that we are resuming our normal lives, moving from residential into life, into commercial and industrial.

We see the same trend in sewage. We had an increase of 1.7, also an increase in the commercial and industrial area. And this was a little bit higher in sewage because all of the focus we've given on sewage, and with that, we can see the results. When we look at the whole, we're talking about a growth in the order of 0.9 in terms of volume. And the good thing about this is that when I have this migration and this change in the mix from residential to other categories, I can have a differentiated mean tariff, which is better for the company, and this is a very important factor when we look at volume and the consequences of volume on our revenue.

Next slide, please. Now looking at the financial highlights, we can see a growth in the order of 13.7. As Andre mentioned, part of it results from the tariff readjustment we had in '22 in the order of 12.9%. And we also have a result of this volume mix. We also see the tariff mix in the changes of this consumption profile. This leads to a revenue of 17.2. I would like to remind you that this is related to sanitation and it's separate from construction.

When we look at the adjusted EBITDA [ph] we see an increase of 11.2%, so we went from R$6.6 billion to almost R$7 billion and the net income increased 35.4%. We went from R$2.3 billion to R$3.1 billion in '22. And later, I will talk a little bit more about our performance.

And now in the next page, when we look at our financial performance, we started with a net profit of R$2.3 billion. We had an increment revenue of R$2 billion. And we combined this to make the effect of the revenue with construction with a differential of 2.3%, following all of the metrics. And we really had an impact of cost and expenses in the order of R$1.6 billion.

Other revenues, we have about R$33 million. Nothing really expressive. In terms of net revenue, we can see the result of a monetary adjustment resulting from the GESP agreement, and this was entered in the third quarter and is seen here within this R$555 million as well as other positive effect of the exchange rate variations and a percentage of our debt, which is linked to foreign currency, and therefore, we had a valuation of the BRL when compared to the yen, and that generated a positive variation, which contributed with our net financial results.

And later on, I will get into the details of each one of these items. Also tax, income tax and social contribution increased because of the results obtained throughout '22.

And then next slide, please. Finally, here in terms of costs and expenses, this is something that should be highlighted. We can see a growth in these accounts. We see a growth of 12.8 with personnel, and this results from inflation in the order of 12.9. We also see an increase of 1% in -- with salaries and different positions, also the mean number of employees in the order of 12.8, so we ended '22 with 2,300 employees, and therefore, the result with personnel has to do with inflationary replacement. Also in terms of materials and materials in general, we had an important increase of 20%.

Basically, we talk about materials for the maintenance of the system, treatment and also the area of fuels and lubricants now that we're resuming our activities after the pandemic. So we can see a change when compared to 2021, which has some effect related to behaviours and all of the limitations of the pandemic.

Materials, this is our main impact. Basically, we had a volume increase, but what had a major impact was price in the external market. A lot of the materials we work with are raw materials that are related to commodities and are price of five in the external market as well as the war in Ukraine had a direct impact on these amounts.

In terms of services, we had an increase of 13.3%. This increase in services, we would like to highlight, expenses with IT, focusing on the improvements of our invoicing system. And I would like to remind you that it was implemented in October '21. So throughout '22 we had to bring in improvements to the system to help us with stabilization, focusing on our SLD.

Also, we had services that were associated to the maintenance of treatment services or EPs. And so we also had these services allocated here and they are associated to materials that were used.

These are the main aspects in services. We can also see investments made by the company in communication channels with clients to try to recover and go back to the levels we had before the pandemic, our allowance for doubtful accounts. Anyway, we are now focusing on guaranteeing our revenue.

In terms of electricity, we had an increase of 2.4%. Basically, we have a relationship between the regulated market and the free market, so we had 8.7 in the regulated market and 6.3 in the free contracting. And when we compare to '21, basically, our level of reserves and supply or reservoirs, we can see a reduction in the consumption of energy, lower cost to pump water. So we can see this positive effect, and at the same time, we can see an effect in the flat the cost of tariffs to rise enormously.

We also benefited by the price of energy because of the higher level of reservoirs in the generator. So in December, we had the end of the red flag. All of this contributed positively for us to have an increase in the order of 2.4.

In general expenses, we had an increase of 22%. We're talking about R$270 billion in overall expenses. We have two major events, which was a provision for a lawsuit which is part of our monitoring of all of the contingencies by the legal department, and we acknowledge an amount of R$190 million in the end of December. In addition to that, we had an increase of what we pay to the different municipalities and that is associated to higher revenue.

With that, I have more expenses because there is a direct relationship. So basically, the general expenses had these main motivators, main drivers.

In terms of the increase of our assets, we have been mobilized and this is going to generate depreciation. We are going to deliver the plan and activate the plan. And so we do have to take into account the effects of depreciation and amortization.

Now when we compare to how much it represents of our net revenue, we went from 4.3 to 4.5 in allowance for doubtful accounts, and we can see that everything we're doing is for us to go back to lower levels. This is really associated to what our CEO said when he mentioned the focus on the client, being closer to the client so that we can understand the client and guarantee that we will resume the same levels of default we had in the past. And this is something that started in the past management with the implementation of the invoicing system.

Looking at value chain invoices, charging and how we look at this and how we have effective actions for defaults and then recoveries and also guarantee that we will have a higher level of payments made in due time. This was my first mission here when I took over the financial department. Because of the criticality of the topic, because of how important it is for our company in terms of revenue. Regarding taxes, we are aligned to what we had in '21. There were no major changes.

Now in the next slide, please, looking at the financial results. As I had commented, we had an improvement from '21 to '22. In '22, we had an impact -- an effect of the exchange rate variations and also the GESP agreement, and we acknowledge the correction of this asset. And it is a recurring effect. We also had some gains with the valuation of the BRL when compared to the dollar and the yen. And I'd like to remind you that one-third of our net, we have two-thirds in yen and the rest in dollars.

So when we look at our net expenses, we had new captures throughout '22. We issued debentures and also had an impact of DI when we went from 5 to 12.5, and this is seen in our in and the cost of our debt. Part of it was mitigated, was offset by the revenue, but taking into account the size of our debt, it can be seen here and we had an increase in financial expenses. Somehow, this was offset by the exchange rate and monetary adjustment of this non-recurrent event.

When we look at our debt composition, we go from a position in '21 in the order of 19% and we ended '22 with 15%. So basically, we're talking about low loan. We were able to capture resources from bid invest in BRLs. And with that, we also decrease our exposure to exchange rates from 19% to 15%.

On the lower left side, we can see the increase of our debt. We went from R$17.7 billion going to almost R$19 billion. They are associated to investment plans. So this is here to fund universalization processes. And then on the side, we can see the distribution of this debt, where we have 16% in IPCA, 8% in PGLP, 9% in TR and 10% in foreign prefixed.

The major part of our debt is somehow related to the DI, 50% of our debt. And that's why we have an effect when we look at financial expenses. This is a direct impact. And even in the cases that we transform a debt in dollars to BRLs, the reference is always going to be associated to DI.

Next one, please. I have concluded the finance presentation, and I turn over to Tiberio so that we can have our Q&A session.

[Luiz Tiberio, Resource Funding and IRO Officer]

And I'm going to ask the first question by Carolina Carneiro.

Good morning. Our question is about costs. Another quarter where the company had a relevant increase in manageable costs, which was below -- above expectations, especially in PDD. So number one, with the new management, do you have a mapped plan to reduce these inefficiencies? Number two, when do you plan to announce this detailed plan? Question number three, how long do you think it will take to reach more adequate cost levels? Andre or Catia, who is going to answer?

Well, I can answer this question. This question by Carolina was asked before Catia's presentation. I don't know whether it is possible to go back to Catia's presentation and the bar code, when she talked about individual costs. With that, we can help answer what she mentioned. So Carolina and those who are watching this presentation, we have done a lot in 2.5 months. We have a new strategy for the company, a new Board of Directors with the new proposals, with strategies that are already ongoing. We hope to have our assembly to implement everything.

But based on what you can see here on the screen, the change in the management, review of processes, review of the strategic plan will have an impact in the allocation of people and the activities we have today. We have submitted a plan which is being analysed and this is something that we will share with you. We expect to have relevant reductions throughout the process. We will share with you once everything is concluded.

So the general supplies, treatment supplies and services in general are being treated within the context of process review. We have created two centers. One is the CST, which will take care of contracts, hiring and the things that are used on a continuous basis. Also the bidding model for large processes. So the demanding area will submit the investment demand, maintenance operation of specific system. And that's going to go through CapEx modeling and then it will go to the bidding process and hiring process.

With that, we guarantee a standardization of hiring processes, also unified contract pursuant so that we can negotiate with a scale and reduce costs with hiring. So we expect to have a reduction in these four items.

For electricity, we already have a very daring process ongoing for distributed generation. We also hope to see it in electricity. And the self-production modeling will be ready in the next quarter, and then we will hire in the market this year.

Also allowance for doubtful accounts is something that we are concerned about and we will have dedicated attention to this. We do not know what an adequate level is today. But since we have somebody taking care specifically in this area, and once we have an approval by the Board of Directors, we will move on with the plan.

At the same time, we have hired external support to analyse all of the opportunities in terms of efficiencies and the use of revenue in the company. We have different consultancies, and in two or three months, we'll be able to share with you our vision for value capture in all of these areas. Today, we don't have it yet.

Okay, thank you, Andre.

Now we move on to the next question. Marcelo Gonsalves, he asks.

What is the review process of the tariff? Will the resulting in fees of this review be given along with the annual adjustments? Does SABESP have an estimate of the total increase of the tariff for '23?

Tiberio, can you answer this one?

Yes, I can. In the practice, the regulator for public consultation has already answered about the situation, and we haven't defined the percentage value yet, but it will be published by April 8, along with the extraordinary adjustment because of the inflation. And these new tariffs will probably be in force after May 10. Of course, we expect to have something at around 10% or 12%, more or less.

Next question. Going back to another question by Carolina Carneiro. Could you also comment about the regulatory model? What is the expectation for the extraordinary review? Do you have any discussions to change the base model and cost some to a fixed tariff using a possible privatization negotiation?

I think we have already answered part of this question, but Andre can comment about it.

Yes, Carolina. Because this is public and the governor and secretary have already commented about it, what happened was that we are -- the IMC is evaluating the modeling of the privatization. As far as I know, the review of the regulatory model and what things are going to be like is being evaluated in this study and let's see what the results are. Today, we do not have any information regarding the desire or what will be followed. I know that it's a technical regulatory fact there. It's feasible but I don't know whether this is the model that the state is going to pursue.

Okay. We now have a question by [indiscernible]. He says the following. Hello, thank you for the call. I have two questions. Could you give us some guidance on the default projections? Do you believe that PDD has reached its peak? Could you explain why there was a significant increase of expenses with the legal deposits? And would it be possible to estimate the normalized provision level?

Well, I can answer this question. When we talk about the legal implications, I think that we had something that ended up having a different impact when we compare it to the other years. We don't see it as a recurring effect. Of course, we have the contingencies which are monitored proactively, looking at all of the possibilities to making it a concrete fact. We expect that this is not a recurring fact and it happened because of a lawsuit.

When we look at PCLD, it's difficult for us to know if we've reached the peak, but we can imagine that theoretically that we have reached the peak. When we look at these two variables, first of all, we had the pandemic, which in fact, reduces the power of consumption and also a change in the invoicing system. We can see some signs in '22 of improvement in unemployment rate in the state. And we see with good eyes the possibility of recovery throughout '23, but it's too early to say we're going to get. This is also associated to having somebody focusing on client relationship. So this is the comment I have about your question.

Thank you, Catia. Now we have a question by Gustavo Fabricio. He asked the following.

The results show us that there is a cost pressure when compared to other companies in the sector as well as a PDD which is higher than the average. Furthermore, in the fourth quarter of '22, we saw that the main tariff was below what was expected in the volume mix. Thinking about this new management, what can we expect in terms of operational costs, better management of the tariff mix and a better profitability of the capital used? Do you intend to present a strategic plan to investors?

Well, I think this question was asked before an explanation we gave after the question was asked. We do have a new strategic view. This will have an impact on costs. It will be quantified once the consultancies and the internal work of the company can change this impact, both in terms of personnel, also expenses with electricity, services, materials and so on and so forth. So our expectation is to have a relevant cost, but we still do not have any numbers to share with you.

Andre, perhaps we could comment about the mix and the tariff. In fact, all of the other questions you had already answered.

Well, the management of the tariff mix has non-relevant component. We've worked with the regulation of some activities that have an impact on losses, people who are consuming water in an unusual manner. But we do have a program with large clients. And I think that the creation of this new department, aiming at clients, allows us to have better opportunities. There is a debate with the regulator about the tariff changes. We've also started discussing with the regulator so that we can understand what the impacts will be on the company once we follow this path.

Thank you, Andre. I think that part of what you mentioned is also being questioned by Gabriel Caruso. He asked the following. Andre and team, I wish you success in the new management. I would like to know if SABESP is considering reviewing the company's pricing. As an investor, it's good to know that the company needs to -- or is considering investing in new returns.

As an end client of SABESP, do you think of reducing -- or do you consider reducing consumption cost price, aiming at expanding SABESP's performance and the mean consumption?

Well, thank you very much. We're really excited about the challenges and the opportunities we've identified thus far. Our objective is to turn SABESP into as efficient of a company as possible. We will try everything that is possible to make the cost and human resources management more efficient. We have also started reprioritizing the company's CapEx, aiming at also compliance, environmental compliance since we operate based on the rules and all of the demands, also complying with the program contracts and concessions that we have and also generating value.

So this is our goal, combined with this management shock that we intend to put into place so that we can have more efficient hiring processes and reduce inefficiencies. The issue of tariff costs reflects the company's structure. If we maintain the current structure, we have an annual review and adjustment every four years. The next one will be in '25. Of course, what we do will be analysed by the regulator. We will implement the new tariff base, which will develop for the next four years. So, this is related to a capture by the regulator and can also be turned into investments. I understand your question. I don't know whether I missed anything, but this is our vision.

Well, I think that you have answered all of his questions, yes. We have a question by Antonio here. It says the following. An important aspect in the case of privatization and the agreement of the model with the municipalities. Could you approach this aspect a little bit? Thank you very much.

Antonio, thank you for your question. I think we can only answer this once the IFC ends its analysis. The regulatory framework does include something on contract changes. We already have pre-established deadlines, a notification to the municipalities. They have 60 days to get back. This is an important debate. I understand everybody's interest because of the effect it will have on the value of the company.

But unfortunately, before the studies are concluded by the state government, which are performed by and you'll see it is very difficult to know what the result is going to be. We are interested in contributing and guaranteeing that the process will follow all of the rules as transparent as possible, which is good for the company, the shareholders and special for the society and government. It is a journey where we're trying to align all interests.

The governor has already said, and this was repeated by the secretary in terms of investment, environment and logistics, that privatization only makes sense if it generates benefits for the society. So we have to wait, see what model the stage is going to choose so that we can generate more value. And then once this is established, the company will collaborate to carry this out the best way possible.

Well, thank you, Andre. Antonio has another question. He asks if the company can talk a little bit about the investment plan for the next years. Will there be any major change?

Antonio, we will probably have changes. Today, we have already published a plan. It was published last year totalling R$27 billion in five years. And according to the logic I commented, environmental compliance, regulatory compliance, this is something that we are already doing. We have not concluded the reprioritization of investments planned but we will do that.

Thank you, Andre. Well, right now, all of the questions we received have been answered. I will wait a little bit. And if nobody has another question, we will stop with the investors and start the interview with the journalists. Very well. We do not have any new questions, Andre. And then I will ask journalists to ask their questions using the Q&A button that can be seen on the platform. [indiscernible] has asked a question.

Hello, [indiscernible] from Valor Economico. I have two questions. The first one is about the investment plan. According to the report, the plan for '23 is investing R$5 billion, R$5.18 billion. And in '22, this amount was R$5.39 billion. What explains this deceleration? Is this going to be reviewed by the new management? What will be the focus on investments for this year? And the second question is about the ongoing discussion on the new federal decree for sanitation. How does SABESP see the changes that are being discussed? What are the possible effects for the sector for the company?

Thank you for the questions. Regarding the investment plan, we have not reviewed it yet. It's ongoing, also the investment capacity volume, and once again, we expect to have this soon. We would like to make decisions based on this plan. This number was defined by the prior management, and we are reviewing it to determine whether it is aligned to our priorities.

Regarding your second question, I have not read the minutes of the decree. I read a report about it today and what they're saying. I have already commented here that the regulatory framework always has an opportunity to improve and governments try to have a different view, trying to improve something. Along these lines, the decree has some gaps.

We are monitoring. We are very interested in this vision. And if it is good for the society to reduce some gaps, existing gaps in municipalities whose contracts are not good enough, if we can do something via a new contract, this can be reviewed by the sector. And I think that this transition of the system in the regulatory context will help better organize the new context.

And the debate we're having, the change of the regulatory framework has been accepted as something that is already established. The adjustment of the decree comes along the lines of trying to fill in these gaps which were left by the previous management. And in this regard, this tends to be very positive.

Okay, Andre. Thank you very much. [Operator Instructions] We have a new question by Alberto Alerigi, Jr. He asks the following: Does SABESP intend to reopen any plan of voluntary resignation in this context of cost reduction?

Well, if after the structuring we're submitting to the state, do we have an opportunity to reduce costs? Yes, I think that this is an option that the company can consider to encourage those who can resign and if it makes sense for them to adhere to a voluntary resignation plan. This is something I have received from the unions and the different associations with a new plan for voluntary resignation. This is being evaluated, and we are -- actually, we have not decided anything yet, but there are ongoing conversations about this.

Okay. Gabriel Caruso asks if there is anything you'd like to share with us that worry you in the new management.

Gabriel, actually no. The transition process from the prior management to this one was very harmonious. We did not identify anything that should be highlighted. The company's controls as far as we could question and talk to the external and internal monitors, the auditing committee, accounting and also, the management of the main systems of the company, there was really nothing that was raised by any of them.

The company was managed very responsibly regardless of the current or the prior administration. So we do not have any concerns. But we do have a concern and we are worried about delivering results. I think there is an urgency in implementing the value triggers as soon as possible. But we work at a company whose decision-making process goes beyond the company itself. So, we have to go through different decision-making levels in the state government.

It's not a concern, it's a willingness, a legitimate willingness to deliver results as soon as possible. Otherwise, I think that Catia has already mentioned this, that the company is well managed. We do have relevant opportunities that we will pursue.

Very well, Andre. Next question is by Thiago Patricio. He asked the following. Thiago Patricio from Company. In the ESG context directly applied to the operations, I think that SABESP could improve the losses in the networks, reuse of recycled water, composting, production of bio methane and so on and so forth. Based on these technologies and techniques for optimization, which ones will have a priority for SABESP in the upcoming years?

Thank you, Thiago, for your question. I understand that sanitation companies, not only SABESP but the companies that work with sanitation, are perhaps the highest ESG trigger that a company can have. Today, we already have a clear view of circular economy in our treatment stations. We have pilot projects that are being trained for the production of biogas, bio fertilizers and also producing ceramic products for civil construction using mud.

We are not the largest -- actually, we are one of the largest recycled water providers in South America. Also, we want to leverage value. Our commitment with the environment is very important for us so that we have renewable sources to supply our units efficiently, also manage the watersheds. We could have a specific day for ESG because today, we don't have a lot of time for that. But I would like to talk a little bit about the value leverage that we want to use. And Thiago, I thank you for your question.

Okay, Andre. We have a question by Juliana Rocha from Red. When will the strategic plan be concluded and introduced? Her other question is about the funding for investments this year. Does SABESP intend to go to the market, issue debt using debentures or bilateral?

The strategic view of the company has already been defined in the structure that we have assembled. We are going to be more efficient. We are going to align everything with the regulator, prioritize clients at a residential level and the end consumer, also having an integrated ESG view to guarantee that our activities will promote environmental improvements with more sustainable activities, helping cities to better interact with the environment with a lower impact. So, our strategic view reflects the new composition and attribution of this new Board of Directors.

Regarding the funding of investments, SABESP's very competent. We've seen the market capital with a lot of intensity in the last few years because it was favourable. But at the same time, we have a very close relationship with multilateral funding institutions. There is a Japanese institution that promotes investments. We have the IBD, the World Bank. We also have a public line with the BRICS and the Development Bank. And therefore, the company has always worked in different fronts to guaranteeing that the funding of its investment plans will be well provisioned. For this year, we have a very good opportunity that we'll be able to access efficiently to guarantee the resources we need to have for the investments to be made this year and next year.

Okay. Thank you, Andre. Let me see if we have any more questions. There is a new question by Alberto Alerigi, Jr. Could you update the situation of the de-pollution of the Pinheiros River Program in terms of investments that have already been made and that will be made? The prior management said that the activities were ahead, but we've read recent news on the high level of pollution. When will the river be returned to the population?

Well, regarding the volume of investments and everything that has been made, I do not have the updated numbers here. But the most part of what has been done in terms of water recovery has already been made. There was a huge impact on the quality of the water of the river. But this process is -- does not end on its own.

There is a combination of factors that involves the participation of SABESP but not only SABESP. It involves the municipality, the agent, the DAE that manage all of the different rivers and the Pinheiros River has a decreased water flow from its origin. Part of it has to do with the billings reservoir, which has been harmed and that reduces the flow of water of the Pinheiros River when compared to the past.

We continue investing. There are different fronts of activities and we've been doing everything that we can, but it's an effort made by the society so that we can move on with this agenda. And we have used the example of the Pinheiros River, but we also have the Tiete River using the same models and the learning experiences we had in the Pinheiros River to the Tiete River. We are coordinating it with the different municipalities that will be involved in the process and this will be done by means of the environment, secretariat of this administration.

Okay, Andre. There is another question by [indiscernible] She asks if you could detail what this activity in the Tiete River is going to be like.

Well, if you give me a couple of days, I will. We are planning something along with the environment secretariat to launch it on Friday. So today is Tuesday, so we will disseminate it around Friday in an integrated and structured way. We will inform what we're going to do in this first cycle of this government aiming at the Tiete River.

Very well Thank you. So, I think this was the last question. We are reaching our last 15 minutes, Andre, so perhaps you'd like to make a final comment.

Yes, I will, Tiberio. Thank you very much. I wanted to thank all of you for being present here today and also, for trusting us. We are really dedicated to transforming the company into a reference of efficiency, management and modernity. I would like to reinforce the message that we have an open door to receive criticisms, suggestions, a focus on communication and the cooperation so that we can evolve as a society and as a company.

I would like to reinforce the request for investors to participate in our assembly. We -- it would be very important to count on your presence so that we can implement this change in the bylaws in the very first assembly, so that we're all in agreement with this vision on modernity and therefore, I wholeheartedly thank you for your presence to enable us to make this change in the assembly.

Finally, I have a message that the whole company is very enthusiastic with the new management, with the perspective of having a modern management at all levels. We are inaugurating a new phase in the company. It's a promising phase, a relationship with the society and the whole Board of Directors, myself, Catia, Paulo and Sabrina and are dedicated to delivering a new company to the society and to the state.

I also wanted to mention that for the first time in the history of SABESP, we have three women at the Board of Directors. They are extremely well trained for the positions they occupy, and we wanted to more and more reinforce our commitment with inclusion in our company so that we can have a more robust decision-making process.

Once again, thank you all for your attention. Tiberio, I think that from our side, we can end. We're actually very happy to be here right now, and we are very enthusiastic.

Perfect, Andre. So we see you all again in the next result conference call.