Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Good morning and welcome to SABESP's first quarter of 2026 earnings presentation. With us here today are Carlos Piani, CEO, Daniel Islac, CFO, and Thiago Levi, Investor Relations. Before we begin, we clarify that the statements made during this presentation will not include projections or estimates of future events. However, they may contain forward-looking statements indicating potential trends related to Sabesp based on reasonable expectations, beliefs, and assumptions of Sabesp's management as of today. These statements involve risks and uncertainties and are based on assumptions and factors such as market, regulatory, and economic conditions, which may not materialize in addition to the risk factors disclosed in Sabesp's filings with the Brazilian Securities and Exchange Commissions and on its investor relations website. Investors should understand that changes in such factors may lead to outcomes that differ from current trends and that undue reliance should not be placed on these statements. The full disclaimer will be presented next and must be read carefully by all participants. This presentation is being recorded and all participants will be in listen-only mode during the presentation. After that, we will begin the question and answer session for analysts and investors only. If you wish to ask a question, please raise your hand and submit it via the Zoom Q&A informing your name and company. I will now turn the floor over to Daniel Slak, who will discuss the results. Daniel, you may proceed.

Thanks, operator. Good morning, everyone, and thank you for joining us for SABESP's first quarter 2026 earnings call. I'm Daniel Slak, CFO, and I'll present our operational and financial highlights for the quarter. After which, I'll handle the call over to our CEO, Carlos Piani, to update you on our progress. We will then open the floor for the Q&A. Before I begin, I would also like to clarify that all the numbers in this presentation are SEBASP only and do not include EMAIS figures. For this first quarter, we have only consolidated the balance sheet. In the first quarter of 2026, total water production reached 778 million cubic meters, 4.6% lower versus the year ago. This decline reflects a milder summer with average temperatures 3.3 degrees Celsius lower than last year, as well as the application of SEP AGUA's operational rule of denied pressure management implemented for approximately 10 hours per day to enhance the system resilience. Our active customer base remains stable with about 9.5 million water and 8.2 million sewage connections. The slight year-on-year reduction is primarily driven by increased revenue assurance actions and the verticalization of the cities in which we operate. Excluding the impact of such actions, water connection would have remained flat year-over-year, while sewage active connections would have increased by approximately 0.2%. We continue to prioritize service quality and operational reliability for the nearly 30 million customers, ensuring consistent water supply and sewer services, even amid varying weather conditions and operational challenges. Turning to our financial performance, adjusted net revenue for the first quarter of 2026 was 6 billion, an increase of 11% year on year. Adjusted EBITDA was $3.8 billion, up 26% versus the year ago, reaching 62.9% margin, a significant expansion from where we were a year ago. This higher margin illustrates the impact of our continued efficiency efforts and disciplined cost control to free up resources for our CapEx plan. Adjusted net income was $1.5 billion, growing 32% year over year, supported by improved operating results and lower spreads in our debt stack. Before we deep dive into the operating performance, let me briefly walk you through the reconciliation between reported and adjusted figures, same as we did in previous quarters. As usual, we exclude construction revenues for which we don't book any margin and the financial assets, which are merely accounting requirements and do not reflect in our view the underlying operations of the business. In addition, during the quarter, we incurred in 16 million reais of one-off M&A expenses. Adjusted net revenue grew 11% year on year in Q1. driven by three main factors. First, price contributed 12%. This reflects the last tariff increase implemented in January, with a 9.1% base in from last year's bills invoiced in 2026. It also reflects an additional 2.8% gain from commercial initiatives, particularly the termination of large client contracts. Second, volume was up 2.4%. While the expansion of the customer base contributed 2.9%, this was partially offset by temperature effects that drove consumption per capita down 0.6%. Finally, mix reduced revenue by 3.4%, reflecting the expansion of subsidized tariff programs year over year. These programs now benefit more than 2 million connections and remain a key mechanism to ensure access to basic sanitation services at affordable prices for underprivileged communities. While this affects revenue mix in the short term, it is fully aligned with our social mandate and is covered within the regulatory framework. On the next slide, we deep dive into some of the aspects supporting the revenue performance. The price index excluding mixed effects remained stable with a 9.1% increase driven by the January tariff adjustment. On the social front, the number of connections benefiting from subsidized tariffs surpassed 2 million. While this was virtually stable quarter on quarter, it represents a 23% increase year over year. This expansion reinforces ABBESP's role in promoting social inclusion while continuing to broaden service coverage in a financially sustainable manner. Moving to EBITDA, adjusted figures grew 26% to $3.8 billion. This was underpinned by higher revenue and cost efficiency across multiple areas. G&A saw a gain from a 30 million past due settlement with one of our cities and generally tighter cost discipline. Power went down largely from an increasing mix with the free market now representing 86% of total consumption. Personnel costs have declined as a reflex of our workforce restructuring. The average workforce in Q126 reduced 13% compared to the year ago to 8.8 thousand employees. With revenues up and costs well contained, our EBITDA margin expanded to 63%, freeing up resources for our ambitious CapEx plan. Now, deep diving into personnel, we saw a reduction of 26% year-over-year, which reflects a combination of a 13% headcount reduction and a gain in workforce, job, and salary mix. These structural measures more than offset the 5.5% wage inflation applied during the period. Reported net income was $1.7 billion for the quarter, up 18% from $1.5 billion in the year ago. The substantial EBITDA growth more than offset an increase in net financial expenses, which rose as expected due to higher interest rates and our higher average debt to fund the CapEx program. These effects were partially offset by a lower income tax expense aided by the deduction from interest on capital payments in the quarter. Our transformation is most visible in the acceleration of the investment program. In the first quarter alone, CapEx reached 3.7 billion, up 31% year on year. This strong start to the year puts us well on track to achieve our ambitious plan. We have already delivered a large portion of our multi-year universal access targets as of Q1. We have fulfilled 87% of our water connection goal, 77% of our sewage collection goal, and 71% of our sewage treatment target for the years of 24 through 26. Moving to the next slide, our major projects are advancing as planned. For example, under our Countryside Universal Access Program, phase one is underway with 11 projects involving 5 billion of investments already in execution phase. And earlier this year, we launched the phase two tenders for additional eight projects, totaling another 5.4 billion in investments. We made further advances in the Integral Tietê program with the expansion of the Barueri Sewage Treatment Plant, a 5.7 billion project that will boost the plant's capacity by 41%, benefiting about 4 million people by 2029. Turning now to our balance sheet, our leverage ratios remain controlled, even as we ramp up investments. At the end of March, net debt stood at 32.5 billion. Our average cost of debt remains low at roughly the benchmark rate, and we have extended our average debt maturity to 6.3 years. It's worth highlighting that 64% of our debt now matures in 2031 or later, reflecting our proactive efforts to push out maturity, boost universal access, and lock in long-term financing. We also maintain a very strong liquidity position. $19.2 billion in cash at quarter end, which is sufficient to cover over five years of debt service. Our solid capital structure and balance sheet provides ample flexibility to continue executing our investment plan while safeguarding our financial stability. Finally, looking at our key financial ratios, net debt to adjusted EBITDA was 2.4% at the end of the quarter, still at a very comfortable level, given our robust cash generation and long-term debt profile. Our profitability metrics remain strong and stable, with a trading ROIC of 11% and ROE about 17%, combining both growth with profitability. With that, I will now hand over the call to Mr. Carlos Piani, our CEO, to discuss our strategic priorities and recent developments.

Thanks, Daniel. Good morning, everyone, and thank you for joining the call. I will now provide an update on the strategic and operational progress achieved during the first quarter of 2026. Turning to slide 17, you can see a summary of the key accomplishments across the four strategic pillars we presented at our Investor Day last April, quality, profitability, growth, and society. Starting with growth and our universalization agenda, we maintained the strong investment pace established last year. CapEx reached 3.8 billion reais in the first quarter, approximately 31% higher year over year, clearly demonstrating our execution capacity and ability to accelerate project delivery. Visibility also remains high, with a CapEx backlog of 39.8 billion reais from April 2026 through 2029, providing a solid foundation to sustain this investment cycle over the coming years. Turning to profitability and operational efficiency, as discussed during our fourth quarter 2025 earnings call, we have substantially closed the historic gap related to discounts granted to large clients. At this stage, 80% of the related injunctions have been ruled in SubSB's favor, reinforcing both revenue quality and regulatory alignment. We also continue advancing our infrastructure modernization agenda with installation of 326,000 meters during the quarter, a 51% increase year over year. This initiative is expected to contribute to lower losses, greater billing accuracy, and improve operational efficiency over time. Collection performance also remained strong with a collection rate of 96.9% in the quarter, excluding court-ordered debt payments. In digital transformation, the quarter was marked by the successful go-live of SAP S4 HANA, a major milestone for the company. This implementation enhances agility, data quality, and operational integration, while also establishing an important foundation for the next phase of SAP's transformation agenda. On quality and customer experience, we continue to expand and strengthen our digital customer journey. Today, 10.5 million customers use our digital payment channels. Our WhatsApp platform continues to scale, averaging 2.8 million interactions per month, while SubSB's app maintains a strong 4.6 rating with approximately 1.5 million monthly interactions. At the same time, we're adapting our call center, branches, and ombudsman operations to a new commercial and operational reality. This includes redesigning processes, standardizing workflows, and resizing teams to better match current demand volumes. Additional adjustments and improvements are planned for the coming quarters as we continue to enhance customer satisfaction and improve our net promoted score. Finally, on ESG, I would like to highlight two important achievements this quarter. Earlier this week, ISEP3 published its annual index composition, and SABESP remains a member for the second consecutive year, reinforcing the strength of our ESG positioning in the Brazilian market. In addition, in January, we received the B rating in the CDP Climate Assessment, representing an improvement versus last year and reflecting continued advances in climate governance and environmental management. Taken together, these results demonstrate the consistency of our execution across all strategic pillars and reinforces our ability to deliver sustainable growth with quality, efficiency, and positive social impact. Moving now to slide 18, while we're making strong progress across priorities, it is equally important to remain transparent about the challenges ahead as we advance towards our 2029 commitments presented at Investor Day. Each year, this transformational journey brings a distinct set of priorities. In 2026, one of our main challenges is the implementation of the new regulatory accounting principles, including the new RAB methodology, which we expect to conclude by year end. This is a complex but fundamental step to ensure greater transparency, consistency, and alignment with the evolving regulatory framework. In this context, our regulatory agency has launched a public consultation to discuss the new DRC methodology, and we intend to actively contribute to this process by submitting our recommendations by May 13th of this year. Successful delivery on this milestone will be critical not only from a compliance perspective, but also to support the next phases of our transformation agenda, including future tariff reviews, the advancement of universalization targets, and the integration of new assets into our operating financial model. With that, I conclude this session of the presentation. We can now move on to the Q&A.