Companhia de Saneamento do Paraná - SANEPAR (SAPR11) Earnings Call Transcript

Good morning, everyone. Thank you for joining us today. Welcome to the video conference announcing the results of the Second Quarter for Companhia de Saneamento do Parana - SANEPAR. [Operator Instructions] Please note that the video conference is being recorded and will be made available on the company's Investor Relations website, ri.sanepar.com.br, where the earnings release and presentation materials is accessible. You can download the presentation directly from the chat available in English. [Operator Instructions] If your question is not addressed during the event, please feel free to e-mail it to ri@sanepar.com.br. 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 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 editions, 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. So now I will hand it over to our Chief Financial and Investor Relations Officer, Ozires Kloster.

Thank you. Good morning, everyone, participating in this conference. I would like to join with us. We have our CEO, Wilson Lipski; the Investment Director and our Environment and Action -- our Accounting Manager is also with us today; the RI manager, Ricardo with all his team. Before starting the presentation, I would like to hand it over to our President.

Good morning, everyone. I would like to greet my Board and thank them for all their efforts. And I'd like to greet all our shareholders and show the importance of their participation in this event. I'd like to say that the company continues in a healthy financial condition. We can fulfill our targets, whether contracts or legal. It's an accelerated rate to reach universalization access in water entry and sewage before the legal deadlines, bringing comfort to our contracts. We would renovated until 2042 guaranteeing comfort. And the second quarter is within what was predicted with an extraordinary factor, which is will address. But if you -- but without this extraordinary factor, we can see an increase both in revenues and also build revenue and new connections, whether water or sewage. And this shows that the company continues to serve the society, bringing revenues, dividends to be able to make the necessary investments to continue all this operation, which is not so simple. But this complexity brings challenges, and we are fulfilling these challenges, which makes us comfortable. What makes us comfortable is that we see a lot of rainfall, quite a normal level, and this allows us to have the feeling of the new reservoir, which is close to 20%. And the other reservoirs are within a normal level of volume so that it guarantees that in the next few months, we have a good volume. Of course, with El Nino, all the resilience of the company is being planned and with a strong resilience plan for us to be able to face all the challenges with no -- without any problems in the supply of water and investments. When speaking of investments last year, we had record investments in this year. as you will see in our figures, our numbers, we are reaching our targets within our investment plan. So I would like to assure everyone the company is doing very well, but we had all this problem of the [ Precatorios ]. And I want to say that the company will always defend its position in the recognition of this [ Precatorios ] which is 25% for the company and 75% for the moderation of -- tariff moderation, and we will make every effort necessary to reach this result, which is the result not only expected by the company, but that we believe that it's our right. So I'd like to assure you that we have taken all the measures. And if necessary, we will take other measures until we receive a final decision and that which is into favor because we believe it's our right. So I thank all of you and wish you a good day and good work to all of us.

So the reservoir volumes -- sorry, but the sound is not audible. Okay, at the end of June, we had 83%. Today, we have 88% and the water is around 20% reservoir in June was 13%. In the next slide, we will highlight the issue of the history of every of service, we are universalized water 100% in sewage, we reached 82.9%, highlighting that 100% of this sewage is treated as wastewater is treated. In the next slide, we can see the operational results, which was very good. If we -- both the court and the 6 months, we have grown in quarter in the measured volume in water. We increased 5.4%. And in the 6 months, 3.3%. In build volume in the quarter, saw an increase of 5%. And for 6 months, the increase was 3.1%. In connection numbers, new connections that happened within the period of 6 months in water was 24,643 connections and an increase of 0.7%. And an increase also in new economies of 4,400 -- an increase of 0.7% with 32,668 new units. We have the history of connections, we have [ 3,555,000 ] new connections in the last 12 months, an increase of 48,923 connections. In the history of Human aids, we closed June with 4 million -- 424 million. And in the last 12 months, 60,616 units. In the next slide, if we look at the surge, there was an increase -- a significant increase, the build volume in the quarter increased 5.9%. And in the period of 6 months, 4%. So the number of connections has also been quite significant 1.3% closing almost 35,000 connections. The units increased 1.4% with an increase of 5,560 units. And on the right side, we can see the history of the connections, the total connections today is 2 million connection, an increase in the last 12 months of 75,896 connections. In the history of the economic units closing in June with 3,636 [indiscernible] units and an increase of 109,000 units in the last 12 months. Now moving to the indicators, financial indicators. So we can feel here an impact of the recognition of the 25% of the regulatory liability. So our EBITDA margin in the quarter closed in 28.4%. And in the accumulated of 6 months, 36%. And then we will show you later on, that is a slide that will show you what would be the adjusted if discounting -- not counting the precatory -- the liquid the net margin, we had a negative result, both in the quarter and the accumulated. We had negative margins in the quarter and minus 26.6% and accumulated less 4%, ROI and ROIC annualized ROE closing 3.7% and ROIC 4.7%. Some good news. The delinquency closing 1.9%. So in line with our strategic planning, even a little below what we anticipated losses per connection, it's an indicator that is quite positive. In this quarter, we closed with an indicator 216 liters of connections per day, one of the lowest in the past quarters and years. So if we look at June 2025, we had 223 liters. And in 2024, we had 220 liters per day. So here, if we the quarter results statement. If we look at net revenue was very positive, increased 11.5%. The cost with personnel saw an increase of 7%. We have the effect of the collective agreement, which was in March this year with [ INTC ] adjustment of 36% we have an effect of the new hirings, the new employees that join our company. It accumulated. I will see the effect of the volume is evidence program, which is seeing a positive result. And in material, we had a small decrease electricity, we had an increase. The issue of energy besides the volumes produced that increase and also the treated wastewater. We also saw all of the suppliers of the free market, one of the companies is in judicial recuperation. So Sanepar had to look for an emergency contracted at a price a little higher than the free market prices, but this is being addressed. We are looking for a solution. Looking at the third-party services. This is a line that had an increase in the quarter, especially driven by the third-party services and the we have the micro regions that started operating their PPPs last year. So this year, the cost is higher. Now moving to the next slide and we can analyze the results more in depth. We can see the net revenue in -- of June 2025 and also showing the progress we reached this accumulated revenue in June 2026. So we had an increase in economies in the graph amount, BRL 36 million. It represents an increase in volume, BRL 53 million, readjustment in tariff that we had, it brings an impact. We had -- if we look at the readjustment in March, we had [ IRT ], that was approved -- so this brought us an increase of BRL 100 million and other revenues, BRL 7 million, it's closing in almost BRL 2 billion. Out of this revenue, we have the costs and expenses, personnel, material, energy provisions, it was positive. We it was a lower amount than last year. And the highlight of the regulatory liability. So it's highlighted that only in EBITDA impacted BRL 260 million and down there, if you look at the financial expenses. We segregate we can see the regulatory liability, BRL 693 million. With that, we had this loss in the quarter of BRL 505 million. But if we look later, we made composition, excluding this effect of the [ Precatorios ] of the -- we had an EBITDA of BRL 800 million, which is like a nonrecurrent and a profit of BRL 447 million if we exclude the effect of the court order debt payments. So our EBITDA margin would be just in 41% and the liquid the net margin would be positive in 23%. Now moving on to the accumulated result. We have an increase in the revenue of 9.6%. The net revenue. The cost in personnel, as I mentioned, we have -- we are seeing a reduction in 27.4%, last year was over BRL 1 billion. And in the first quarter of last year, there was the program of voluntary severance program. So over 500 employees left and this cost to the company. So even with the hiring that we are making, we are so that we are paying less salary. So we are seeing a reduction in the cost compared to the accumulated last semester. Now I will break down the same thing I did in the quarter. If I look at the net revenue in the 6 months last year, we -- it had closed in BRL 3.5 billion. So we had an increase in economies that brought BRL 74 million revenue, an increase in volume, build volume, BRL 44 million the adjustment and consumption, which can be migration of levels of consumption. It brought us BRL 250 million and other revenues, BRL 4 million. So we closed in BRL 3.8 billion in revenue, 6 months. EBITDA closing BRL 3.8 billion [indiscernible] revenue. So you would have an EBITDA practically BRL 1.4 billion. So -- if highlighting both in line of EBITDA, regulatory liability, and if we see the regulatory liability, it impacted BRL 843 million. So the profit reported the loss in the 6 months was BRL 152 million. We made the same account. In the next slide, we can see the adjustment, excluding the effect of the core or the debt payment, we would have an EBITDA of BRL 1.6 billion and a profit of BRL 950 million in the 6 months above what was reported last year, which was around BRL 650 million. So the margin EBITDA would be 42.7%, and the net margin would be around 24.7%. Now some comments before moving to investments. The accounts that had variations are the same. So if you look at the third-party services and electricity, the same comment I made in the quarter, it works for the 6-month period provisions was also positive in the both in the quarter in this adjusted profit of over BRL 900 million. Now looking at investments. like our President highlighted, it's a very robust investment we closed to BRL 1.152 billion in the period of 6 months, an increase of 4.8% compared to the same period last year. Last year, we also saw a record investment in the progress, the evolution we had BRL 1.099 billion in the period of 6 months. We had increased 26% compared to the previous year. And in June 24 was BRL 871 million. This investment is aggregated 35% in water, 55% sewage with the company is pursuing universalization. Consequently, the investment is higher and other assets, we have other assets administrative and the funding origin 65% owned resources and 35% third -- or third parties. Now moving on to the next slide. We have the structure of the capital when net debt closing BRL 2.6 billion, and leverage, which is the net debt buy and EBITDA, which is onetime, which is an impact of the precatory which is in the company's cash, which reduces our net debt. And if we convert the cash conversion was BRL 1.3 billion. and the conversion of EBITDA into cash was 95% utilization debt. We had debt in 2026 of BRL 384 million in 2027, BRL 1.82 billion. As you can see in the explanation in the financial note, we have a debenture that maturity date is next year. That's why the amount is higher than the other years. In 2028, we have BRL 789 billion, 2029 BRL 656 million, 2030, BRL 965 million. And as of 2031, we have BRL 3.4 billion, which represents 47% of our debt. It's a quite of diluted debt throughout the time, and it's with very well managed by the administration. The debt composition, the debt breakdown, we have the [ TR ] 37%. And IPCA 30%, [ DI22 ] 4%, [ IPCPP ] no correction 3% and Europe 3% and 1% in [ TJLT ]. Now moving on to date covenants. We have a general outlook of our contract obligations, the covenants. They are all being met looking the contract of KfW. I will mention the main indicators that cover all of them. So we have the coverage ratio has to be higher or equal to 1.1. The debt led equal or less to 3. We are reaching 0, add [ onerous ] debt less or equal to 1. We have 143. And the level of debt has to be level week 16, we reached 54%. In the next slide, we see the structure of our work balance sheet. So we had an increase of the net debt. So our PPPs, our loans, they dropped to 1.9%, but we had a reduction of our financial investments in June. We had some events. So in the next slide, we will see the cash flow. So we had some payments of dividends, about BRL 530 million and the BRL 520 million and also the participation of results with the increase. We saw a net increase. We saw an increase in the operational turnover and capital. We had an increased drop but some accounts, for example, contractors and suppliers, salaries and payroll charges, we had a decrease, so salaries and payroll charges. Our voluntary severe program was done in installments. So that's why the balance last year was lower. So now we paid out. So now that impacted in our balance. In the assets and contracts and other assets, it's a very significant line. We can see all the investments we make in the projects, all the projects that are being executed and they are in this account. And within later, it will become an asset and will and then it will be part of the fixed assets. So we closed with BRL 4.1 billion in this line. And this is reflecting all the investments made by the company. The fixed asset closing in BRL 14.3 billion and the equity closing in BRL 1 billion. The turnover capital close in 25 days, which is the relation between the turnover capital compared to the net revenue. So it's a good turnover if you look at the -- from this perspective. The cash flow, the operational activities in the company generated BRL 1.139 billion, the financing activities consumed our cash also BRL 1 billion and the financing activities brought a reduction of BRL 1.121 billion. So this financing activity is net. So we had some loans over BRL 380 million, the dividend payment and [ JCP ], BRL 524 million, finance payment we paid out a debenture. So that brought an initial value in the beginning of the year, but now it tends to be lower. Then lease payments, BRL 77 million and other variations BRL 39 million. With that, we saw a reduction in our cash flow equivalent of BRL 945 million. So at the beginning of the year, we had BRL 5.6 billion. And now in June, we have an amount of the BRL 4.6 billion. So we conclude our presentation. So now I hand over the floor to Rodrigo for the Q&A session.

[Operator Instructions] Our first question comes from Daniel Travitzky analysts from Safra.

So about the provision of the precatory, what are the arguments of the company of part of the receivables? And what are you going to do judicially speaking, to obtain that decision to obtain that choice.

About the judicial proceedings, we made some -- we took some mentions. We went all the way concerning administrative measures even before the publication of the note 2026. And from this node, we requested a review of all this new proposal. We made a new notification. And recently, we appealed -- we made an appeal, administrative appeal to requesting that if the note, the point note was valid, so this appeal was not judged by [ AGEPAR ]. So then we had a REIT of [ Manders ], the first rate of [ Manders ] because we were afraid that the rule will change, which happened. So we did not receive the injection. We were not successful, then we filed a new rate of [ mandamus ], and we requested some measures that were not granted to us. And now we are going to make the further step. And now in parallel, Dr. Flavio will add some information. So we are taking some actions so that we can understand whether we give up the path of risk of [ mandamus ] or then we were not extraordinary file. So whether we take some further measures, ordinary to reclaim the right that we understand is our right. Dr. Flavio, so he will add to my comment.

So as the President mentioned, the rest of mandamus was not appealed in definitely is being analyzed it's a phase of injunction, and we need to -- the final judgment. And we are studying new measures to reclaim our right, which is supported by the legal norms. We have several opinions, both from outside law firms, and also internal, we have a study by our bit companies of sanitation. And so we understand that the law is on our side. And so we have this path. We are not giving up we have a lot of arguments to discuss judicially. And I think we owe this to the company to defend this until the last higher court. And I think another important thing, it's a decision from high management that every legal path, we will follow. We will go all the way to pursue our right, which we understand is it's the right of the company. So the best law firms are being hired. We have several legal opinions that uphold our decision. And this path will be followed all the way to the end. So we will do everything we need to do to reestablish what was anticipated when we recognized this accounting and not change the rules in the middle of the way. And just like [ AGEPAR ] our agency has done. Sorry, it's not the provision in the quarter. So we were waiting to see whether we made the provisions. We were waiting for the legal decisions to see effect, to see -- the technical point to -- from [ AGEPAR ]. So since we did not have any new event, looking from the law in CPC, the deals with contingencies and the contingent liability. We did not have any other way, whether they recognize this in our accounts because -- so right now, we are considering the possibility of losing. So that's why we've recognized the 25% regulatory liabilities there is recognized 100% the reversal according to the technical note 002 that [ AGEPAR ] expedited on June 23 this year. The resources are invested in the company. So this note stipulated that 50% would be investment non-onerous and 50%, we would have to reverse or to better tariffs for the consumption in the level of 5 cubic meters. We understand that it would not be reasonable -- yes, it would not be fair to just benefit the consumers that consume less, so it would not be fair with those consume more.

So continuing the next question comes from Matti Paulini an investor. The same question was asked by other participants. Initially, he congratulates the company for its good results, and he has two questions. First question, after -- after the [ TG -- ] after the law did not accept your request. So in case there is that is a favorable decision. The reversal would be BRL 4.4 billion or only the 25%. Is that any way you can make an agreement with [ AGEPAR ] or come to an understanding? So how you will -- how will you work to operationalize the 50% discount in the tariffs and the liquid network and the 50% investment on onerous will they be excluded in the regulatory base? Or you will -- there is a possibility of incorporating it in the future?

I would like to add some information of cities and flat, but our expectation is an expectation that in the next 15, 20 days, we will have the final decision. So we are hopeful that this decision will confirm the right that we understand is fair which is the application of the Note 7, Technical Note 7, where 25% would be for reduction of tariffs to 75%. And we would like this discount to be applied in a linear manner for all the levels of consumptions, benefiting all our clients so that they all had the same discount applied in their bills. And 25%, of course, for the company, within the law. So we defend 75%, 25%, and we will fight for that, and we will do everything possible. But the expectation is big so that we can have this result. But if we don't have this result, we will try another strategy.