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.

Thank you. We will now begin the Q&A session for investors and analysts. To ask a question, please submit it via the Zoom Q&A informing your name and company. Our first question comes from Mr. Bruno Morim from Goldman Sachs.

Hi, good morning everybody and thank you for the opportunity to ask a question. You know, how much of the higher costs in the second quarter are either transitory or subject to future tariff coverage in your opinion? Just a follow-up to that, can you also better explain the nature of the components of the bridge in the bottom of slide 9, especially the revenue and timing components which you exclude from the calculation of the underlying EBITDA? Thank you so much.

Thank you Bruno, thank you for your question. This is Daniel. Good morning everyone once again. Thinking about, maybe I'll start from the back, I think it helps explain the earlier part of your question, right? So on page nine, what we tried to bring was what are the things that we've decided to do, what are things that are new versus what we've been communicating with the market? So one of the things that we started to disclose is the effect that weather has in our results. This is a good practice that happens across the globe with our peers. So we started to disclose that as this is very material to the business and something that will oscillate positive or negative depending on the quarter and to bring that sensitivity to the market. The second part which is still on net revenue, about 60 million of that, and combined with the second item on the bridge of time is related to the SAP go-live. The part that's hitting revenues is mainly due to a higher fiscal fee, a higher sales tax rate based on the go-live of the system because we had fewer invoices coming in where we are able to take credits, tax credits from them. So we had more accruals to reflect the actual cost of the quarter, and hence we expect that to transition down in Q3, so we expect to recover that in Q3. When we look at the timing part of cost, I'll say half of that is Q1 expenses that move to Q2, and the other half are Q3 expenses that move into Q2. So I'll expect half of that to be recovered over Q2. Thinking about All the other things, and I'll leave the customer experience to the end, because that's the part that we want to debate a little bit more. But we had this year, for one quarter, oil prices at 115, 110, that put an additional pressure to our chemical costs. That was about a 20% average increase in cost to our chemicals. There are chemicals that increased more than that, chemicals that didn't increase, that are linked to the supply chain that comes all the way from the Middle East. So in that aspect, we had extraordinary costs. Now our task and challenge is to negotiate that back down to the current levels and to try to bring that back for the second half of the year. We're already making progress to that, but we still have some things to be done. Thinking about the commercial plan, as Piani highlighted in his speech, we expect to spend about 800 million this year in many areas. Some of that we'll see through cost, some of that we'll see through revenue. On the revenue front, one thing that we didn't mention here, but we had 50 million reais increase in reforms in this quarter, just rounding the numbers. We expect to see that continue. One of the things that we used to do when we think about reforms, we were more reactive Daniel Saneamento Básico do Estado de São Paulo On the cost side, that we flagged also on the bridge, that's mainly related to the communication outreach that Piani mentioned. About half of that is related to that. And the other half is mainly linked to the expansion of customer service agencies, such as , increasing 200 people on the service agencies that actually provide a service to the population. And another 120 people call it on the call center, so that we can solve a backlog of tickets that we had that accumulated As we grew, what we started noticing that we grew and we started also being more on point on collection and as we started doing that, we realized that we had to also expand our service capacity to be able to meet the questions or the concerns that the clients had and we wanted to improve the service. So that's a little bit of the general picture. Of that general picture, what we expect based on the rules 106 by SASB and all the other rules on our contract, we expect that about a little bit more than half of that, to some extent, will either be a pass-through or it will be something that we will cover through the histogram in upcoming tariff cycles. When you think about that, a part of the amount that Piani flagged is also in anticipation of the public hearing that closed with regards to discounts to large clients, so we've already placed a number inside that 800 million, assuming that this comes live very soon, to be conservative. And the rest of that, I would say that half of the half, so about 20-25% of that, we expect to stick, and the other half we expect to improve through productivity as we transition more to digital channels, Thank you. I'll let others ask. Thank you so much.

Thank you, and remember that to ask a question, submit it via the Zoom Q&A, informing your name and company. Our next question comes from Mr. Arthur Pereira from JP Morgan.

Hi, good morning, guys. So we still want these investments in commercial efforts. You mentioned that out of the 800 million reais, you should consider office and revenues just to make sure that nothing goes into CAPEX. And you mentioned the 150 million reais in expenses in the second quarter, 50 million in revenues. So the remainder, 600 million, should we consider in the second half of this year or was anything already dispersed in the first quarter? And on the expenses, was this fully booked as third-party expenses or also personnel? Because personnel expenses increased quarter over quarter. And maybe just wanted to recap a little bit what you see as underlying. You exclude the 150 million in this quadrant on the underlying figure that you presented. So how much of these optics on the commercial efforts should we consider as recurring in the coming years, thinking about 2027 onwards?

Thank you, Arthur. Thank you. Long question. I'll try to remember everything. I wrote down most of what you said, but let me know if I missed something. Look, thinking about 27 onwards, as I said, I think about 20 to 25% of that is what I expect will stick, given to some extent will recover apart. So let me put it in a different way. A part of that, which is a majority part of that, will stick. Half, more than half of that will come back through the tariff cycles, which is the part that's linked to revenues and large client discounts and mandatory communication as we go commission construction work. So these are things that are mandatory by the regulation. So, and these things will get eventually reimbursed. Another 20% are things that we are increasing cost and that we'll stake. and the remainder of that we expect we'll see in productivity over the next years improving. So, we don't expect that to stick over 27 and so on and so forth. So, from an MPP perspective, the only lagging part is going to be the 20% that will stick in terms of cost. I know that that's where you're going. In terms of personnel, A small portion of that is in personnel. I don't expect to see a big part of that line hitting personnel. I wouldn't model that. My view is that the oscillation that you see in personnel is more linked to timing of benefits and things like that that we don't even deem worth of calling out. And in terms of the timing of commercial, you're right. We've cycled through 200, give or take, of the 800 that we mentioned. We will see the next 600 over the next quarters between Q3 and Q4. That's where we expect we will land.

Did I miss anything? I think, Daniel, I think you got everything, but just let me try to give a 10,000 feet overview. What we're doing, we're taking the customer by the hand. Instead of letting him complain, we're preempting any big variations on customer bills and bringing those customers Thank you very much. That goes through revenues because it's a bill reform, okay? So this is basically an anticipation of something that we are going to be compensated through different turf revisions moving forward. So just to be clear on that front. The second piece that I think is worthwhile, we invested a lot, much more than I think it's a recurring basis on communications. Besides everything that we're doing that we need to communicate, we're communicating all these changes to the consumer so he can appreciate and know what are his rights. of course this has a bump at the beginning and then this has a reduction and as Dan in general independent if it has a regulatory recognition or not and part of these communications are also regulatory compliance that can be compensated for the tariff cycles and to be very specific and one of the measures that Daniel made is that we created, as I mentioned on the opening of the call, we created an additional group that's small. I don't think it's relevant for you guys to model, but we have a dedicated team to improve the experience with the consumers. So yes, there's a pickup increase on personnel, but we don't believe that this is going to change the trajectory that we had before.

Very clear. Thank you.

Thank you. Our next question comes from Mr. Francisco Navarrete from Bradesco BBI.

Good morning. Can you hear me well?

Yes.

Okay. Thank you, Piani and Daniel, for the call. I just have two questions, if I may. One is if you could comment about the CAPEX leveling to Q26. Maybe the pace at which the CapEx showed in 2Q was a little bit below expectations, and if you could talk about that and then tell us what your ambition for the CapEx for the full year 26, that's one question, and then the second. I know you already explained part of it, but if you could provide more detail on the revenue gap that we're seeing, I think we're making something that seems to be a little bit higher than in the first quarter, so if you could You could help us understand that. I know in the press release you already mentioned 177 million reais of mix, but what else should we consider there to close that gap? Thank you very much.

Thanks for the question. I'll make a brief introduction, pass to Daniel, and maybe I'll come back. But in terms of CAPEX, Usually the first quarter is the softest quarter of the year, because people are tired of pushing until the end of the fourth quarter, given all the incentives that we have, annual revisions of the regulatory asset base and so forth. So there's a seasonality, there's a pacing, and it's back-ended. This is natural as expected. The second comment I think is worthwhile. The works that we were pursuing at the beginning of this journey, we're less than two years in, were the projects that were closest to us, basically here in the north region of the metropolitan area of São Paulo. They were known and so forth. The change, why are we confident that we're going to pick up and we're going to pick up strongly the pace? Because, as I think we highlighted in the presentation, Daniel can give a little bit more color, we're concluding the hiring of four faces, so we highlighted two, but there's four faces of the universalization program for the countryside of São Paulo. That's where we're going to be measured next year. So we need to pace that. We need to pick up in 100% of the municipalities of Dourai. So there's a lot of volume of works that are being hired. And this gives us conviction that we're going to aim towards the 20 billion reais a year end. Of course, there's a challenge, as always, not a piece of cake, but I think we have, what I can tell you guys is that we have an action plan to get there, and we know how to get there, right? Of course, we need to prove this on a daily basis, but we have the contracts now signed, and we have a plan to get there, back-ended, until the fourth quarter this year.

All right, just to complement here, going to the topics, right, so we have about 40 billion of backlog, last quarter we also had 40 billion of backlog, so we executed almost four and continue with 40, which means that we contracted 4 billion through the quarter. We're now in the final stages of contract, final, no, but I'll say over the next, and many more will be contracting under 20. So that will allow us to continue ramping up the CAPEX. As it stands today, we have about 1,500 different CAPEX fronts active. We expect to reach at the end of next year, at some point close to that, which is going to be our peak, about 4,000 simultaneous work sites. So that's definitely a big increase. As Piani alluded to, we have a lot of people Working around internally and on the contractor's front, these numbers are going to almost double by the end of next year. So we're very well advanced in the new factory targets for this year, right, as you can see from the presentation. And now we're turning our attention a lot to the new factory targets for next year. So that's where we are, more or less, with regards to that number. In terms of the revenue gap versus the regulatory fronts, we have basically three items that are relevant. The first one is, as you mentioned, is the mix, about 877 million reais from social tariffs and from consumption-band mix because of the lower temperatures. The second part of that is the reforms that I mentioned, and as you correctly pointed out, about 15 million in a quarter. and then when you look at the remaining 50 million in our view that continues to exist, this is mostly related to large clients and basically it has a 50 million impact on the quarter that's mostly linked to very few clients that still have active contracts of discounts in half of that 50 million and the other half is another gap that's driven by the injunctions that are still active. Every quarter we've been reducing that number, but we still have some injunctions that are active that prevent us from charging the full price to some clients. Okay, so that's give or take where we see the regulatory gap today.

Thank you very much, Daniel.

Thank you. Our next question comes from Mrs. Sofia Gran. From Moneda.

If it's not the case that she doesn't have her mic on, I can read her question here. I think it's directly to Daniel. What percentage of universal coverage have you reached so far and how many connections remain to be achieved? There's some other questions. How do you plan to finance the CAPEX for universal coverage and what percentage of the total CAPEX expected to be deployed for sewage and for water? How much CAPEX is going to be used to improve the network?

Great. Thank you, Sofia, for your question. So, when we think about our percentage coverage, this is something that we don't have. I cannot give you a final number yet because we're still doing the census, right? And this is going to be what's going to be used to calculate what is the percentage coverage. And this is going to happen until the end of this year. What I can say today is that from our And like I said our attention is focused right now in contracting what is 27 So as we progress and as we have the result of the census, we'll be able to update everyone as to what's the percent coverage compared to the 99% that we need to reach by 2029. How are we going to finance the CAPEX? We've been funding that mostly through that and we'll probably continue to do that over the next year. and expected by 28 to start generating enough cash flow to be able to continue funding that with less percentage of debt. About two-thirds of that capex goes into sewage treatment and one-third goes into water. That's just how much the split is. And in terms of improvement of the network, we've been doing about 10% of that total capex, Our next question comes from Felipe Andrade

From Itaú, BBA.

Hello, good morning. Thanks for accepting the questions. If you could just please go through the increase on the allowance for Delta accounts. What explains this increase from 1.4% and the past three quarters to the 2.5% figure on the second quarter of 26. And also, if you could just please comment on the unitization pace expected for 2026, if the company sees any changes on what it was expecting before the reduction on CapEx deployment of the second quarter. Thank you.

Thank you, Felipe. I'll take the first one. So, in terms of Allowance for Adopt-Full Accounts, I think it's worth rewinding a little bit further the movie. When we came in, the run rate of the Allowance for Adopt-Full Accounts was about 4% of revenues, which meant that this created a very long backlog of collections that we could act on, and we've acted on that, and we've been able to achieve the lowest historical number, which was 1.4 at the end of Q1, and even I think at the end of Q4 last year as well. So we've reached the historical best, but that was also at the expense of collecting some of the backlog, right? And naturally, as you start working through that, this starts reducing. So that opportunity starts reducing. I think going forward, and then I'll talk about Q2, but going forward, What we expect is something that will eventually land at something that's similar to other utilities from our benchmark is supposed to do. A little bit less, a little bit more, but that's what we expect will be eventually the recurring pattern of the company. As we upgrade to smart meters, that might present an opportunity for us to continue improving structurally. So as they become a bigger part of our metering fleet, eventually this is going to be able to improve. That said, for Q2, historically Q2 is one of our highest allowance-credential accounts quarters from a seasonality perspective, okay? So that's in the end a little bit of that. I would look at that more as a first half rather than Q1 and Q2, but that's where we see the numbers. In terms of unitization, we don't expect any change to what we've been communicating. We think that about two-thirds of the CAPEX of the year usually is able to commission in that year, and one-third goes to the work in progress. This is more or less what we continue to expect. We don't see major changes here.

Thank you.

Our next question comes from Ander Santayo from Santander. Our next question comes from Carolina Carneiro from Safra.

Hi, everyone. Good morning.

Thank you for the call and the opportunity.

I wanted to go back to CAPEX. If you can now update us a little bit on the overall CAPEX plan. In regards especially of the potential dissipation of the projects, they're aiming to enhance the water resilience and the security of supply here in São Paulo. And also, how has been the conversations, are conversations going already with the regulatory agency here in order to recognize that, support that, especially noting that we are going to have this year the application of the Thank you Carolina. Given I think since August of last year there's a specific protocol that has been enacted by the state government which has

Today by weekly meetings, previously it was weekly meetings where all the strategy regarding water scarcity involving all players was decided in that group. That group decided together to anticipate a couple of investments as I think we mentioned in the past. I think the major one that we have is a connection between Veilings and our Alto Chietiê So we can take water from buildings to the water treatment plant at Taixapaba, which represents roughly 30% of the water, potable water of the metropolitan region of São Paulo. This construction is expected to be concluded by the third quarter of next year. and it's around 1.4 billion reais so this has been aligned everybody knows we still don't have clarity about the new methodology as you mentioned that had already a public hearing we expect this to come out to the market probably and it may be until the end of the third third quarter but i think what i can tell you is everybody knows that we're doing the best we can to help Thank you very much. But everything that we're doing is aligned and we expect to be recognized in the tariff, in the regulatory asset base, independently of the methodology that's going to come forward in the next couple of quarters.

Thank you.

Okay, our next question comes from Mr. André Sampaio from Santander, and I will read it. I want to go back to OPEX, but focus more on the Extraterrestrial Long-Term View. How the company views the Efficiency Agenda moving forward?

Thank you, Operator. Thank you, André. Look, the Efficiency Agenda continues to be one of the company's main strategic pillars, right? There are three strategic pillars. Delivered Universal Access, Deliver the Efficiency to Funding Universal Access, and then as we progress, eventually as we reach good customer satisfaction, good service levels, and so on, so forth, dream a little bit beyond our borders. That's basically our strategy in a nutshell, right? We already achieved very important milestones. We started with, I would say, maybe the low-hanging fruits and captured a lot of that. There's still some remaining opportunities on that front, but I think we've done a lot In that first wave. What I expect now is that we enter a different phase that comes from the top and from the bottom. On the top, we have important initiatives, strategic initiatives, like the integrated operation center, like the metering upgrade for smart meters, like the biogas projects, all the software upgrades that we're doing that will allow us in the future to start using artificial intelligence even more to gain productivity. So all of these things are top-of-the-house initiatives that we push here from the center. But another thing that's important, as Piani started talking about our values, is the culture. The culture of treating the company as your own, right? And making the right decisions on the day-to-day and really being frugal on the day-to-day of the company so that this provides a cumulative effect on savings and a compounding effect. So I think what we'll see is From the top, very large initiatives with capital deployment and investment that has a J-curve nature. And from the bottom, the cultural change and how this evolves on the day-to-day and at the edge of the operation in the day-to-day. So that's more or less what I see for the future.

Thank you. Our next question comes from Mr. Henrique Simões from UBSDB.

Okay, hi everyone, thanks for taking my questions. I had a follow-up first on Bruno's question regarding the time in effect on revenues. I had in my mind that in the first quarter you had two days of revenues that weren't built due to the immigration of the ERP and that you were... I was expecting a reversal of that, that you should exclude two days of revenues from this quarter. But you had a positive effect again on the timing. I'm just curious if those are separate effects and it would be fair to still make that adjustment to the revenues. And the second one was on the costs, on the quality of service and communication, if that should be the new recurring level or is that temporary for this year and then we should go back to normal levels next year. Thank you.

Thank you. Thank you, Henrique. Thinking about taking your first question first. On SAP, when we went live with SAP, you saw a lower volume, but we also did an accrual for unbilled revenues. So from a revenue perspective, you don't see the impact in Q1 from the SAP Go Live. On Q2, you see more volume, but the reversal of that accrual Thank you very much. Thank you. And as the invoices come in Q3, we're naturally able to take more tax credits on the sales tax, whereas when we do the accruals to keep the cost in line with what we know the cost is, we're not able to take sales tax credits for that. So that's the difference between Q2 and Q3 that we call now in Q2. Thinking about cost, I think overall, Our efficiency agenda continues, right, and we will continue to pursue that. We saw very good results on the migration, for example, of power. We continue to carry over positive effects from the voluntary dismissal plans in terms of cost. So all of that is still continuing, and we see that momentum. What we did is we selectively decided to invest in the commercial plant so that we want to explore more our value of putting the consumer first. And on the chemical side, we're fighting now to reduce those costs back to where they were before that oil increase. But that's it.

Our next question comes from Sushinta Chakraborty from Goldman Sachs, and I will read it. Provide an update on the company's following strategy, including expected annual debt raising requirements over the next few years.

Thank you, Sushinta, for your question. Thank you, operator, for reading. In terms of funding, right? We've anticipated our funding for the year of 2026. Between January and February, we raised about 14 billion, 1.4 reais. And by the end of Q3, we'll probably have met all our funding targets for the year. And that will put us in a position where we'll probably have more than 60% of our debt with no financial covenants and with a longer maturity and a more structured pace. When we look at the next years, naturally those funding needs, they will start declining as the cash flow of the company also starts picking up. But naturally, the year of 25 and 26 were the largest funding needs in our view. So that's what we can say. In terms of actual figures for debt raising requirements, All the sell-side models are fairly well designed and they can provide some good clarity on that as we disclose guidance.

Our next question comes from Mr. Raul Cavendish from XP. The Q&A session is now over. We wish to give the floor to Mr. Carlos Piani for the company's closing remarks.

I'd like to thank everyone for participating in the call today and for the continued support and hope to see you all on the next call. Have you all a nice day. Thank you very much. Bye-bye.

The SABESP earnings presentation is now closed. Thank you very much for your participation and we wish you all a very good day.