Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Good morning and welcome to SABESP's second quarter of 2026 earnings presentation. With us here today are Carlos Piani, CEO, Daniel Szlak, CFO and Thiago Levy, 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 and related to SABESP based on the 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 risks Investors should understand that change in such factors may lead to outcomes that differ from current trends and their underlying should 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 no 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 Zoom, Q&A, informing your name and company. I will now turn the floor over to Daniel Szlak, who will discuss the results. Daniel, you may proceed.

Thanks operator, good morning everyone and thank you for joining SABESP's second quarter 2026 earnings call. I'm Daniel Szlak, CFO, and I'll present our operational financial highlights for the quarter, after which I'll handle the call over to our CEO Carlos Piani to update you on our priorities. will then open the floor for the Q&A. In Q2 2026, total water production reached 779 million cubic meters, 4.3% lower year over year. As mentioned last quarter, consumption continued to be affected by milder weather conditions. 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 during Q2. Our active customer base remains stable, with 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. Quarter over quarter, we see an increase in both water and sewage connection. Before I begin, I would like to clarify that this quarter we started to consolidate EMAI's results into our operating figures. Therefore, the figures presented in this slide include EMAI's contribution. Adjusted net revenue grew by 9.4% year-on-year. mainly reflecting the tariff and the expansion of customers adjusted EBITDA was 3.5 billion down 2.3 percent compared to the same period of last year with an EBITDA margin of 58.3 percent this performance reflects investments associated with our customer service initiatives as well as inflationary pressures which I'll explore more in the next slides. Adjusted net income totalled 1.2 billion. The decrease versus the prior year reflects the higher net debt to fund our universal access program. Cash conversion and generation remained solid with operating cash flow reaching nearly 3 billion in the quarter and a solid conversion above 75%. Moving to slide 6. and before diving deeper into the quarter, I'll briefly go through the reconciliation between reported and adjusted figures. From this point onwards, I will focus on the adjusted figures, excluding the effects that do not reflect SABESP's operating performance. As in previous quarters, we exclude construction revenue and financial asset refurcation effects, which are merely accounting in nature. Keep in mind that while SABESP does not record the margin for construction, We will exclude 68 million mainly related to the Jaguaré incident and EMAI's figures. Given EMAI is much smaller than SABESP, we will exclude its figures from the next pages so that we can properly discuss the core business performance. However, investors can find more information on EMAI's performance in the appendix, in our filings at CVM and on EMAI's own filings, given it is also a publicly traded company. Turning to slide 7 and exploring our revenue drivers. Adjusted figures increased 6.7% year-on-year. The quarter was also affected by two additional factors, milder weather conditions with average temperatures about 1.1% lower year-on-year and our ERP implementation. Excluding these effects, underlying revenue would have grown by about 10%. Price contributed 8.7% driven by January 2026 terrorist cycle, partially offset by reforms, which will be subsequently adjusted in 2027's terrorist review. Second, volume contributed 1.1%, explained by a 1.0% contribution from new units and 0.6% from metering uprate. These were partially offset by the negative weather impact on consumption. Finally, mix was a negative 3.1% effect, which is split into 2.3% from category mix, mainly reflecting the expansion of low-income tariffs versus the year ago, and a 0.6% impact from band mix driven by weather. On slide 8, we provide additional color on revenue performance. Roughly 2 million units now have access to discounted rates We're presenting an increase of about 15% year on year and almost doubling what we had before the privatization. This reflects our commitment to expanding access to sanitation services while supporting vulnerable populations. An interesting fact is that the new social tariff program has driven average price to consumer to be flat versus where it was before the privatization. For SABESP shareholders, these discounts are contemplated within the regulatory framework and are expected to be addressed We also experienced a temporary slowdown in meter replacement activity due to import constraints which affected the pace of upgrades in the core. Moving to EBITDA on slide 9, adjusted EBITDA declined 3.2% year-on-year to 3.5 billion. Starting from the top, the positive contribution from net revenue was more than offset by a strong lapping in costs versus a year ago. G&A saw an impact as Q2-25 benefited from 230 million in reversals of legal accruals. Service costs were driven by investments in customer experience initiatives, including the expansion of service channels with agencies and botatempos, reinforcement of field operations, and strengthening of customer service capabilities. It also includes higher customer communication and marketing outreach efforts as part of our commercial plan. We also saw inflationary pressures associated with the geopolitical environment for about 28 million in the quarter affecting mainly chemicals. We also wanted to share with investors a perspective of where we see the underlying EBITDA for the quarter, excluding the gains from 2025 legal victories, ERP timing effects, Customer Experience and Extraordinary Inflation Underlying EBITDA would have grown close to 20% year-over-year in the quarter. Deep diving into costs on slide 10, personnel expenses remain controlled, increasing 1% year-on-year despite a 4.4% wage adjustment behind inflation. This was largely offset by the workforce optimization initiatives implemented over the last quarters with the Ontario Dismissal Funds. Power costs increased 2.2%, mainly due to transmission and sector charges, including the new one from Angra. However, migration to the free market helped mitigate part of these pressures, with 88% of total consumption now sourced through the free market. Moving to the next slide, reported net income reached 1.5 billion in the quarter. The main driver behind the year-on-year decline was the increase in financial expenses, reflecting a higher average net debt balance The increase in interest expense is consistent with the financing needs of our accelerated investment program. Depreciation and amortization expenses also increased, reflecting the expansion of our asset base, which grew from approximately 55 billion to 70 billion year-on-year. These effects were partially offset by a lower effective tax rate, which declined from 34% to 29% Moving to slides 12 and 13, we'll update you on our CAPEX. Investment execution remains one of the highlights of our transformation and continues to demonstrate our ability to bring definitive solutions to historical issues. CAPEX totaled $7.5 billion year-to-date, an increase of roughly 16% versus the year ago. We also ended the quarter with more than $40 billion in contracted backlog through 2029. Providing strong momentum for future execution. We would like to remind our investors of the historical seasonality of work topics, which is usually higher in the second half of the year. Year factor targets continue to evolve at a fast pace. As of July, we virtually met water targets for the year and our sewage collection and treatment targets have reached 90% and 82% respectively, giving us a good runway for this year and the next one. Physical evolution remains strong across our key programs. We deliver two new sewage treatment plants, Calleiras and Agua Vermelha, which together add 0.4 cubic meters per second of treatment capacity. 127,000 additional people now have access to treated sewage in their households. In the countryside, Phase 1 continues to advance With 11 projects in execution representing 5.1 billion in investments, the next phases continue to advance as expected. Turning to slide 14, our balance sheet remains strong and well positioned to support the investment cycle. Gross debt totalled 52 billion, while net debt stood at 34 billion at the end of the quarter. Thank you for joining us. and provide substantial liquidity and flexibility to continue executing our investment plan. Finally, on slide 15, our net debt closed at 2.5 times EBITDA, a level we deem appropriate for a company executing one of the largest infrastructure investment programs in Brazil. Return metrics also showed resilience, even in a higher-for-longer interest rate scenario. ROIC was 10% and ROU was 17%. Reflecting the strength of the business as we continue investing for future growth. With that, I will now hand over the call to our CEO, Carlos Piani, to discuss our priorities in greater detail.

Thanks, Daniel. Good morning, everyone. Before going to the operational highlights, I'd like to revisit what we call SABESP's culture on a page. This is the framework that has guided our transformation over the past two years. It brings together our purpose, our long-term dream, the strategic paths we need to execute to get there, and importantly, our values, which define how we want to get there. As we've completed two years since privatization in July, I think it's useful to look at how far we have come, and equally important, where we still need to improve. We have made significant progress across several of our strategic paths. We have accelerated universalization and strengthened water and sewage security, resilience, and quality through both organic and inorganic investments. We have advanced innovation and digital transformation, made important progress in business efficiency, and continue investing in people development. But transformation at this scale is a journey, and there are areas where we still have significant work ahead of us, customer satisfaction being one of them. So this quarter, I would like to focus on three of our corporate values that are particularly relevant to our equity story today. Deliver results with purpose, be guided by ethics and safety, and put customer first. Let me start with delivering results with purpose. For us, this means delivering exceptional results by creating sustainable value for all our stakeholders. Sustainability is therefore not something separate from our strategy. It is embedded in the way we operate and allocate capital. This quarter, we received an upgrade in our MSCI ESG rating to a triple B, recognizing the progress we're making in integrating sustainability into our strategy and operations. This is particularly relevant for SABESP because many of the most important ESG issues are also fundamental business issues for us. Managing water resources, increasing system resilience, adapting to climate change, expanding sanitation coverage, and providing reliable and affordable essential services. We see this upgrade as recognition of the progress already made, but also as an indication Thank you for watching. The scale of our operations has changed dramatically over the past two years. Two years ago, SABESP had a workforce of approximately 30,000 people, including our own employees and third-party workers, and around 200 construction sites in execution. Today, our workforce is approximately 55,000 people, an increase of roughly 83%. and we have around 1500 construction sites underway, seven and a half times the level of two years ago. This extraordinary increase in activity is what allow us to accelerate universalization, but it also materially increases the complexity of our operations and our exposure to safety risks. Although our last time injury frequency rate has declined Recent incidents made it clear to us that we needed to go further. We therefore conducted a comprehensive review of our safety procedures and decided to raise our standards beyond Brazilian technical requirements. As you can see on the slide, we expanded the attention zone around underground infrastructure from 1 meter to 3 meters. Strengthened verification procedures from natural grass and other underground infrastructure and made ground penetration radar mandatory throughout the attention zone. We have also tripled the number of field inspectors, reinforced supervision based on project risk and complexity, and established mandatory training, qualification, and certification requirements for both SABESP and third-party employees. At the same time, we are increasingly using technology, including cameras and artificial intelligence, to identify underground risks and strengthen field monitoring. And finally, we created an operational safety group reporting directly to me, reinforcing accountability and ensuring that safety has the appropriate visibility throughout the organization. The message here is straightforward. The acceleration of our investment program cannot come at the expense of safety. As our construction program grows, our safety standards, controls, and capabilities must grow with it. Let me now turn to the third value I want to highlight today, put customers first. Over the past two years, the transformation of SABESP has accelerated significantly across virtually every dimension of the company. But that transformation has also generated incremental demand across our customer channels. More construction, more connections, We recognize that our customer-facing infrastructure needed to evolve at the same speed as the rest of SABESP. So, in the second quarter, we decided to accelerate both OPEX and COPEX investments across our entire customer service platform. Our commercial plan is organized around three priorities. For strengthening our customer service infrastructure and capabilities, we created a dedicated customer experience executive team, added approximately 200 FTEs, including internal and outsourced personnel, expanded our physical presence with 12 new stores, 34 stores retrofits, and 20 new Popatampo service centers, and strengthened Our call center with a new provider, enhanced capabilities and 120 additional service positions. Second, redesigning the customer journey and improving every point of interaction with SABESP with particular attention to our low-income customers. Since privatization, the number of customers with access to discounted tariffs has nearly doubled from approximately 1 million to almost 2 million households, with an average discount of approximately 66% compared with the standard residential tariff. For us, universalization is not only about connecting households to water and sewage infrastructure. It is also about making those services accessible, affordable, and easier to navigate. Significantly increasing communication with our customers. We're transforming SABESP at an unprecedented speed, but the benefits of that transformation need to be understood and experienced by our customers. That required us to communicate more frequently and more proactively about planned maintenance, construction, water conservation, service changes, and the improvements we're delivering. These initiatives are already producing tangible improvements. Average handling time in June was 87% lower than in December 2025, and complaints across critical channels declined 31% quarter over quarter. All together, we expect approximately 800 million reais of spending and investment in commercial initiatives in 2026. As the new operating model becomes fully implemented and reaches maturity, we expect part of the remaining cost base to normalize and the overall structure to become increasingly efficient. Ultimately, our objective is very clear. We want the customer experience to catch up with the transformation already taking place Before we move to Q&A, let me leave you with one final thought. Two years into this transformation, SABESP is a very different company. We're investing and executing at an unprecedented scale, accelerating universalization, strengthening the resilience of our operations, and building the capabilities required for the next phase of our journey. But transformation is not only about doing more, it is about doing it better. That means delivering results with purpose, raising the bar on safety, putting our customer first, and continuously improving business efficiency to generate the resources needed to help fund this transformation. We have made significant progress, but we know there is still a lot to do. Our ambition remains unchanged. to build the global leader in water and sanitation while creating sustainable long-term value for our shareholders and for society. With that, we can move to the Q&A.