Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Good afternoon, everyone, and welcome to SABESP's video conference to discuss the results for the second quarter of 2021. My name is Mario Sampaio. I'm the head of capital markets and investor relations. Let's start by informing all participants that this video conference is being recorded. The presentation, followed by slides, is being transmitted over the internet through the website www.sabesp.com.br. and through the MZIQ platform. The presentation will be available for download on the same portal as well as the results release. We remind you that questions will be accepted to the speakers only through the videocast platform. But before proceeding, we would like to clarify that any statement that may be made during this conference relating to the company's business prospects Projections and Operational and Financial Goals constitutes the beliefs and assumptions of SABESP management as well as information currently available for the company. Future considerations are not guarantees of performance. They invoke risks, uncertainties and assumptions as they refer to future events and therefore it depends on circumstances that may or may not occur. Investors should understand that general economic conditions Industrial conditions and other operating factors may affect the future results of the company and may lead to results that differ materially from those expressed in such forward-looking statements. Now let's open the image. I would like to present the participants today, starting with Mr. Benedito Braga, our Chief Executive Officer. Mr. Osvaldo Garcia, Chief Financial and Investor Relations Officer, Luis Tiberio, Executive Assistant, Marcelo Miyagi, Head of Accounting, Agnaldo Pacheco, Controller, and Marcel Sanchez, Head of Regulation. Now I would like to pass the floor to Mr. Braga. Mr. Braga, for your opening, please.

Thank you. Thank you, Mario. Good afternoon. Good morning. Good evening to everybody connected in this call. First of all, I would like to introduce you Osvaldo Garcia, the new Superintendent of Financial and Economic Matters and Relations with Investors of SABESP. We recently had them at our environment. He is an engineer with a degree in engineering and has been the director-president of Caixa Participações and the national secretary We are very happy to have him with us as the superintendent of this very important directory of SABESP. I would like also to take this opportunity to bring to your attention that we have taken some measures to improve our regulatory framework and our relations with the regulatory agency. In the past, we had the regulation in two different The tariffs and costs in the directory of finances and economic affairs and the regulation and the communication with the regulatory agency with contracts and also with fiscalization with the area in the presidency of SABESP and now these two areas are joined in one single superintendence headed by Marcel Sanchez who's with us today and this will give us Thank you very much. Osvaldo Garcia. Now we also have created a superintendency to deal with the new business and expansion of our sanitation market. This is something very important for us due to the opportunities that we have under the new regulatory framework Approved recently Law 14-026 of 2019. Also, a decree has been promulgated to regulate Article 10 of Law 14-026 and this is a decree that establishes the rules for the the comprobatory economic capacity financial and economic capacity of the service providers public service providers we are we are I'm happy with what has happened. We understand that some companies may have some difficulties in complying with the established dates and deadlines of March next year. However, we are okay in this respect. because most of our contracts are okay under this new regulatory framework. We also report to you that a state law has been promulgated, a law 17383 on the regionalization of the Sanitation Areas. This is something that was in the federal law and states are responsible to promulgate this law. And we have the state assembly has defined There are four regions for the state, and the southeast-southwest region is the one that comprises 370 municipalities where we operate, so one of the regions is exactly the area that is We are very happy with this situation because it gives us the situation of not having to make any change in our contracts, our current contracts. These are two good news in the legislative area. We have excellent news also in the financial and economic areas. Mario Sampaio will detail that for you, but I would say that we have reverted a very inconvenient situation we went through Thank you very much. 773 million reais of excellent results for the second quarter of the year. Also, I would like to report that the climatic and hydrologic situation is under control. You may have heard some news that we may have some problems of energy in Brazil due to lack of water in our hydroelectric power plants. But this is something that relates to the federal government that is in charge of this sector, the energy sector in Brazil. As you know, municipalities and the state are the ones responsible for providing the sanitation, water and sanitation. And I want to report to you that the situation is under control. With the infrastructure that we have built in the last years, we came to a very resilient and we have faced already difficult times during the last two years but we had no problem in providing the service. This infrastructure together with the new behavior of our consumers has given us this very calm situation In a very complex environment that we're going through with the pandemic of COVID and this climatic situation in the southeast of Brazil. With this, I would be available for any questions that you may have. and I will give the floor to Mario Sampaio to detail the financial situation and also the implications of the new regulatory framework in our business. Thank you.

Okay, so thanks. Let's get started. And let's start by taking a moment to welcome once more Marcelo Sanchez, who as you heard was already the head of of the Regulatory Superintendency for Regulatory Affairs and now joins the finance team to the new and expanded regulation area. With the changes, as you saw, Luis Chiberio, who was the former head superintendent of cost and tariffs, will now be Osvaldo's executive assistant, the kind of chief of staff, increasing his attribution and supporting the CFO in all matters related to the area. As for the position of head of superintendent of new businesses, Marcelo Batista Gomes is joining our team this week to lead these activities and will be introduced to everyone in the near future. Before moving on to the slides and providing details on the quarterly results, we would like to highlight the following points in May. With the conclusion of the third ordinary tariff review, we applied an average increase of 7% in our tariffs, noting that the amount reflects specifically a 7.6% increase in the residential and non-residential categories, and a 1% reduction in the social and favela category, and a 5.45% increase in wholesale. In this sense, the effects from this average 7% adjustment, tariff adjustments, will only be fully reflected in the coming next quarters, which will allow us at the time to have a better assessment of the impacts on our revenue. Note that the application of the tariff adjustment this year gave start to the implementation of new tariff structures with the definition of differentiated readjustments by category, where by the end of 2024, we will have a more balanced distribution of tariffs by category, resulting in a more predictable recurring revenue than we have today. In the second quarter of 2021, we saw an increase in revenues and expenses compared to the second quarter of 2020. As a result of these increases, adjusted EBITDA decreased by 128 million reais. However, if we exclude the non-recurring effects presented in the second quarter of 2020 with emphasis on the agreement, with a municipality of Mauá of 181 million reais, the adjusted EBITDA shows actually an increase of 66 million reais. A similar effect occurred with the average tariff when estimated considering net revenues without construction revenues divided by the total built volume, which in this quarter, when compared to the second quarter, 20, resulted in an increase of 3%. In this case, if we disregard the non-return effects of MAWA, the average tariff increased by 9.2%, and if we also disregard the second quarter, 20 volume, of the residential, social, and favela categories, which were exempt for payment for a certain period of last year, the average tariff still increases by 4.3%.