Q2 2026 Companhia de Saneamento Basico do Estado de Sao Paulo SABESP Earnings Call

August 13, 2026

Speaker #1: Otherwise, just press pound to continue. Please enter the meeting passcode followed by pound. The meeting has not started. Please wait or try again later.

Speaker #1: You have joined the meeting as an attendee and will be muted throughout the meeting.

Speaker #2: Good morning and welcome to SABESP Q2 of 2026, earnings presentation. With us here today are Carlos Piani, CEO; Daniel Szlak, CFO; and Tiago Levy, investor relations.

Operator 2: Good morning, and welcome to SABESP's Q2 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 risk factors disclosed in SABESP's filings with the Brazilian Securities and Exchange Commission, CVM, B3, and on its investor relations website.

Operator: Good morning, and welcome to Sabesp's Q2 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 risk factors disclosed in Sabesp's filings with the Brazilian Securities and Exchange Commission, CVM, B3, and on its investor relations website.

Speaker #2: 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.

Speaker #2: 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 Commission, CVM, B3, and on its investor relations website.

Speaker #2: Investors should understand that changes in such factors may lead to outcomes that differ from current trends and are under reliance should be placed on these statements.

Operator 2: Investors should understand that changes in such factors may lead to outcomes that differ from current trends, and undue reliance 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 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 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.

Operator: Investors should understand that changes in such factors may lead to outcomes that differ from current trends, and undue reliance 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 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 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.

Speaker #2: 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 enlisted in only mode during the presentation.

Speaker #2: 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.

Speaker #2: I will now turn the floor over to Daniel Szlak, who will discuss the results. Daniel, you may proceed.

Speaker #3: Thanks, operator. Good morning, everyone, and thank you for joining SABESP's Q2 2026 earnings call. I'm Daniel Szlak, CFO, and I'll present our operational financial highlights for the quarter.

Daniel Szlak: Thanks, operator. Good morning, everyone, and thank you for joining SABESP's Q2 2026 earnings call. I am Daniel Szlak, CFO, and I will present our operational financial highlights for the quarter. After which I will hand the call over to our CEO, Carlos Piani, to update you on our priorities. We 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 compared to the prior year, as well as the application of SCPE Aguas' operational Rules 106 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.

Daniel Szlak: Thanks, operator. Good morning, everyone, and thank you for joining Sabesp's Q2 2026 earnings call. I am Daniel Szlak, CFO, and I will present our operational financial highlights for the quarter. After which I will hand the call over to our CEO, Carlos Piani, to update you on our priorities. We 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 compared to the prior year, as well as the application of SCPE Aguas' operational Rules 106 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.

Speaker #3: After which, I'll handle the call over to our CEO, Carlos Piani, to update you on our priorities. We'll then open the floor for the Q&A.

Speaker #3: 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.

Speaker #3: Compared to the prior year, as well, as the application of SIPAGUAS operational rule of the night pressure management implemented for approximately 10 hours per day to enhance the system resilience during Q2.

Speaker #3: Our active customer base remained 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.

Daniel Szlak: 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 a 0.2% increase in both water and sewage connections as a result of the universal access program. Turning to slide 5. Before I begin, I would like to clarify that this quarter we started to consolidate EMAE's results into our operating figures. Therefore, the figures presented in this slide include EMAE's contribution. Adjusted net revenue grew by 9.4% year-on-year, mainly reflecting the tariff and the expansion of customers. Adjusted EBITDA was BRL 3.5 billion, down 2.3% compared to the same period of last year, with an EBITDA margin of 58.3%. This performance reflects investments associated with our customer service initiatives, as well as inflationary pressures we shall explore more in the next slides. Adjusted net income totaled BRL 1.2 billion.

Speaker #3: Quarter over quarter, we see a 0.2% increase in both water and sewage connections. As a result of the universal access program, turning to slide 5.

Speaker #3: Before I begin, I would like to clarify that this quarter we started to consolidate MI's results into our operating figures. Therefore, the figures presented in this slide include MI's contribution.

Speaker #3: 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% compared to the same period of last year, with an EBITDA margin of 58.3%.

Speaker #3: 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 totaled 1.2 billion, a decrease versus the prior year, reflects the higher net debt-to-fund our universal access program.

Daniel Szlak: 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 BRL 3 billion in the quarter and a solid conversion above 75%. Moving to slide 6, and before diving deeper into the quarter, I will 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 bifurcation effects, which are merely accounting in nature. Keep in mind that while SABESP does not record the margin for construction, EMAE still does. We also exclude BRL 68 million, mainly related to the Jaguari incident and EMAE's figures.

Daniel Szlak: 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 BRL 3 billion in the quarter and a solid conversion above 75%. Moving to slide six, and before diving deeper into the quarter, I will 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 bifurcation effects, which are merely accounting in nature. Keep in mind that while Sabesp does not record the margin for construction, EMAE still does. We also exclude BRL 68 million, mainly related to the Jaguaré incident and EMAE's figures.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: As in previous quarters, we exclude construction revenue and financial asset bifurcation effects, which are merely accounting in nature, keep in mind that while SABESP does not record the margin for construction, MI still does.

Speaker #3: We also exclude 68 million mainly related to the Jaguaré incident and MI's figures. Given MI is much smaller than SABESP, we'll exclude its figures from the next pages so that we can properly discuss the core business performance.

Daniel Szlak: Given EMAE 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 EMAE's performance in the appendix, in our filings at CVM, and on EMAE'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 tariff cycle, partially offset by reforms, which will be subsequently adjusted in 2027's tariff review. Second, volume contributed 1.1%, explained by a 1.0% contribution from new units and 0.6% from metering upgrades.

Daniel Szlak: Given EMAE 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 EMAE's performance in the appendix, in our filings at CVM, and on EMAE'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 tariff cycle, partially offset by reforms, which will be subsequently adjusted in 2027's tariff review. Second, volume contributed 1.1%, explained by a 1.0% contribution from new units and 0.6% from metering upgrades.

Speaker #3: However, investors can find more information on MI's performance in the appendix, in our filings at the CVM, and in MI's own filings, given it is also a publicly traded company.

Speaker #3: 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.

Speaker #3: Excluding these effects, underlying revenue would have grown by about 10%. Price contributed 8.7%, driven by January 2026 tariff cycle, partially offset by reforms, which will be subsequently adjusted in 2027's tariff review.

Speaker #3: Second, volume contributed 1.1%, explained by a 1.0% contribution from new units and 0.6% from metering upgrades. These were partially offset by the negative weather impact on consumption.

Daniel Szlak: These were partially offset by the negative weather impact on consumption. Finally, mix was a -3.1% effect, which is split into 2.3% from category mix, mainly reflecting the expansion of low-income tariffs versus a 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, representing an 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 in future tariff reviews.

Daniel Szlak: These were partially offset by the negative weather impact on consumption. Finally, mix was a -3.1% effect, which is split into 2.3% from category mix, mainly reflecting the expansion of low-income tariffs versus a year ago, and a 0.6% impact from band mix driven by weather. On slide eight, we provide additional color on revenue performance. Roughly 2 million units now have access to discounted rates, representing an 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 in future tariff reviews.

Speaker #3: 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.

Speaker #3: On slide 8, we provide additional color on revenue performance. Roughly 2 million units now have access to discounted rates, representing an increase of about 15% year on year, and almost doubling what we had before the privatization.

Speaker #3: 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.

Speaker #3: For SABESP shareholders, this discounts are contemplated within the regulatory framework and are expected to be addressed in future tariff reviews. We also experienced a temporary slowdown in meter replacement activity due to import constraints which affected the pace of upgrades in the quarter.

Daniel Szlak: We also experienced a temporary slowdown in meter replacement activity due to import constraints, which affected the pace of upgrades in the quarter. Moving to EBITDA on slide 9. Adjusted EBITDA declined 3.2% year-on-year to BRL 3.5 billion. Starting from the top, the positive contribution from net revenue was more than offset by a strong lapping in cost versus a year ago. G&A saw an impact as Q2 2025 benefited from BRL 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 Poupatempo, reinforcement of field operations, and strengthening of customer service capabilities, expanding the call center and changing its provider. It also includes higher customer communication and marketing outreach efforts as part of our commercial plan.

Speaker #3: 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 cost versus the year ago.

Speaker #3: GNA 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 BOPA tempos, reinforcement of field operations, and strengthening of customer service capabilities.

Speaker #3: We are expanding the call center and changing its provider. This also includes increased customer communication and marketing outreach efforts as part of our commercial plan. We also saw inflationary pressures associated with the geopolitical environment, amounting to about $28 million in the quarter, affecting mainly chemicals.

Daniel Szlak: We also saw inflationary pressures associated with the geopolitical environment for about BRL 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 voluntary dismissal plans. Power costs increased 2.2%, mainly due to transmission and sector charges, including the new one from ANA. However, migration to the free market helped mitigate part of these pressures, with 88% of total consumption now sourced through the free market.

Daniel Szlak: We also saw inflationary pressures associated with the geopolitical environment for about BRL 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 voluntary dismissal plans.

Speaker #3: We also wanted to share with investors a perspective of where we see the underlying EBITDA for the quarter, excluding the gain 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.

Speaker #3: Deep diving into costs on slide 10, personnel expenses remain controlled, increasing 1% year-on-year despite a 4.4% wage adjustment, which is behind inflation. This was largely offset by the workforce optimization initiatives implemented over the last quarters, with the voluntary dismissal plans.

Speaker #3: Power costs increased 2.2%, mainly due to transmission and sector charges, including the new one from UNGA. However, migration to the free market helped mitigate part of these pressures, with 88% of total consumption now sourced through the free market.

Daniel Szlak: Power costs increased 2.2%, mainly due to transmission and sector charges, including the new one from ANA. However, migration to the free market helped mitigate part of these pressures, with 88% of total consumption now sourced through the free market.

Speaker #3: 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 for the quarter.

Daniel Szlak: Moving to the next slide, reported net income reached BRL 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 for the quarter. The increase in interest expense is consistent with the financing needs of our accelerating investment program. Depreciation and amortization expenses also increased, reflecting the expansion of our asset base, which grew from approximately BRL 55 billion to BRL 70 billion year on year. These effects were partially offset by a lower effective tax rate, which declined from 34% to 29%, driven by interest on capital paid in April. Moving to slides 12 and 13, we will 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.

Speaker #3: The increase in interest expense is consistent with the financing needs of our accelerating 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.

Speaker #3: These effects were partially offset by a lower effective tax rate, which declined from 34% to 29%, driven by interest on capital, paid in April.

Speaker #3: 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.

Speaker #3: 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.

Daniel Szlak: CapEx totaled BRL 7.5 billion year to date, an increase of roughly 16% versus the year ago. We also ended the quarter with more than BRL 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 our CapEx, which is usually higher in the second half of the year. New 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 delivered two new sewage treatment plants, Caveiras and Água 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.

Speaker #3: We would like to remind our investors of the historical seasonality of our CapEx, which is usually higher in the second half of the year.

Speaker #3: Your 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.

Speaker #3: Physical evolution remains strong across our key programs. We delivered two new sewage treatment plants: Cayeras and Agua Vermelha, which together add 0.4 cubic meters per second of treatment capacity, y, 127,000 additional people now have access to treated sewage in their households.

Daniel Szlak: We delivered two new sewage treatment plants, Caveiras and Água 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.

Speaker #3: In the countryside, phase one continues to advance, with 11 projects in execution representing 5.1 billion in investments. The next phases continue to advance as expected.

Daniel Szlak: In the countryside, phase 1 continues to advance, with 11 projects in execution, representing BRL 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 totaled BRL 52 billion, while net debt stood at BRL 34 billion at the end of the quarter. It is worth highlighting that 54% of our debt is now covenant-free, and once we reach our capital target for the year, we will have two-thirds of our debt with no financial covenants. Our average cost of debt remains close to CDI, with a 6.1-year weighted average maturity. In addition, 64% of our debt matures from 2031 onwards, reflecting the long-term profile of our financing structure.

Speaker #3: Turning to slide 14, our balance sheet remains strong and well-positioned to support the investment cycle. Gross debt totaled $52 billion, while net debt stood at $34 billion at the end of the quarter.

Speaker #3: It is worth highlighting that 54% of our debt is now covenant-free, and once we reach our capital target for the year, we will have two-thirds of our debt with no financial covenants.

Speaker #3: Our average cost of debt remains close to CDI, with a 6.1-year weighted average maturity. In addition, 64% of our debt matures from 2031 onwards, reflecting the long-term profile of our financing structure.

Speaker #3: We also ended the quarter with 17.4 billion in cash, which covers more than four years of amortization and provides substantial liquidity and flexibility to continue executing our investment plan.

Daniel Szlak: We also ended the quarter with BRL 17.4 billion in cash, which covers more than four years of amortization and provides substantial liquidity and flexibility to continue executing our investment plan. Finally, on slide 15, our net debt closed at 2.5x 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 ROE 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.

Speaker #3: 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.

Speaker #3: Return metrics also showed resilience, even in a higher-for-longer interest rate scenario. Our OIC was 10%, and our OE was 17%, reflecting the strength of the business as we continue investing for future growth.

Speaker #3: With that, I will now hand over the call to our CEO, Carlos Piani, to discuss our priorities in greater detail.

Speaker #2: Thanks, Daniel. Good morning, everyone. Before going to the operational highlights, I would 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.

Carlos Piani: Thanks, Daniel. Good morning, everyone. Before going to the operational highlights, I would 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 completed two years since privatization in July, I think it is 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.

Carlos Piani: Thanks, Daniel. Good morning, everyone. Before going to the operational highlights, I would 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 completed two years since privatization in July, I think it is 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.

Speaker #2: 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.

Speaker #2: As we 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.

Speaker #2: We have made significant progress across several of our strategic paths. We have accelerated universalization and strengthened water and sewage security, resilience, and quality for both organic and inorganic investments.

Speaker #2: 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.

Carlos Piani: But transformation of 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 while 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 triple B, recognizing the progress we are making in integrating sustainability into our strategy and operations.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Carlos Piani: 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 of where we can continue improving. Now let me move to another value that is fundamental to our transformation, be guided by ethics and safety. The scale of our operations has changed dramatically over the past 2 years. 2 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.

Carlos Piani: 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 of where we can continue improving. Now let me move to another value that is fundamental to our transformation, be guided by ethics and safety. The scale of our operations has changed dramatically over the past 2 years. 2 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.

Speaker #2: We see this upgrade as recognition of the progress already made, but also as an indication of where we can continue improving. Now, let me move to another value that is fundamental to our transformation: be guided by ethics and safety.

Speaker #2: 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.

Speaker #2: Today, our workforce is approximately 55,000 people, and increase of roughly 83%, and we have around 1,500 construction sites underway. Seven and a half times the level of two years ago.

Carlos Piani: Today, our workforce is approximately 55,000 people, an increase of roughly 83%, and we have around 1,500 construction sites underway, 7 and a half times the level of 2 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 lost time injury frequency rate has declined year over year, 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 gas and other underground infrastructure, and made ground penetration radar mandatory throughout the attention zone.

Carlos Piani: Today, our workforce is approximately 55,000 people, an increase of roughly 83%, and we have around 1,500 construction sites underway, 7 and a half times the level of 2 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 lost time injury frequency rate has declined year-over-year, 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 gas and other underground infrastructure, and made ground penetration radar mandatory throughout the attention zone.

Speaker #2: This extraordinary increase in activity is what allows us to accelerate universalization. But it also materially increases the complexity of our operations and our exposure to safety risks.

Speaker #2: Although our lost-time injury frequency rate has declined year over year, 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.

Speaker #2: As you can see on the slide, we expanded the attention zone around underground infrastructure from one meter to three meters, strengthened verification procedures from natural gas and other underground infrastructure, and made ground penetration radar mandatory throughout the attention zone.

Speaker #2: 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.

Carlos Piani: 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. 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 2 years, the transformation of SABESP has accelerated significantly across virtually every dimension of the company.

Carlos Piani: 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. 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 2 years, the transformation of Sabesp has accelerated significantly across virtually every dimension of the company.

Speaker #2: 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 the safety has the appropriate visibility throughout the organization.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: But that transformation has also generated incremental demand across our customer channels. More construction, more connections, changes in our systems and processes, and a much greater pace of activity inevitably create more interactions with our customers.

Carlos Piani: That transformation has also generated incremental demand across our customer channels. More construction, more connections, changes in our systems and processes, and a much greater pace of activity inevitably create more interactions with our customers. We recognize that our customer-facing infrastructure needed to evolve at the same speed as the rest of SABESP. In the Q2, we decided to accelerate both OpEx and CapEx investments across our entire customer service platform. Our commercial plan is organized around three priorities. First, 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 Poupatempo service centers, and strengthened our call center with a new provider, enhanced capabilities, and 120 additional service positions.

Carlos Piani: That transformation has also generated incremental demand across our customer channels. More construction, more connections, changes in our systems and processes, and a much greater pace of activity inevitably create more interactions with our customers. We recognize that our customer-facing infrastructure needed to evolve at the same speed as the rest of Sabesp. In the Q2, we decided to accelerate both OpEx and CapEx investments across our entire customer service platform. Our commercial plan is organized around three priorities. First, 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 Poupatempo service centers, and strengthened our call center with a new provider, enhanced capabilities, and 120 additional service positions.

Speaker #2: 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 CAPEX investments across our entire customer service platform.

Speaker #2: Our commercial plan is organized around three priorities. First, strengthening our customer service infrastructure and capabilities. We created a dedicated customer experience executive team, added approximately 200 FTs, including internal and outsourced personnel, expanded our physical presence with 12 new stores, 34 stores retrofits, and 20 new pop-up temple service centers.

Speaker #2: 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.

Carlos Piani: 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. Third, significantly increasing communication with our customers. We are 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 are delivering.

Carlos Piani: 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. Third, significantly increasing communication with our customers. We are 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 are delivering.

Speaker #2: 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 tariffs.

Speaker #2: 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.

Speaker #2: And third, 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.

Speaker #2: That requires us to communicate more frequently and more proactively about planned maintenance, construction, water conservation, service changes, and the improvements we're delivering. In the second quarter, our proactive customer communications were approximately 2.4 times the level of the second quarter of 2025.

Carlos Piani: In Q2, our proactive customer communications were approximately 2.4 times the level of Q2 2025. 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 BRL 800 million 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 across the rest of SABESP. 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.

Carlos Piani: In Q2, our proactive customer communications were approximately 2.4 times the level of Q2 2025. 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 BRL 800 million 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 across the rest of Sabesp. 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.

Speaker #2: 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.

Speaker #2: Altogether, we expect approximately 800 million hours of spending and investment in commercial initiatives in 2026, as the new operating model becomes fully implemented and reaches maturity.

Speaker #2: We expect part of the remaining cost base to normalize in 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 across the rest of SABESP.

Speaker #2: 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.

Carlos Piani: We are 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. 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.

Speaker #2: 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.

Speaker #2: We have made significant progress, but we know there's 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.

Speaker #2: With that, we can move to the Q&A.

Speaker #1: 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.

Operator 2: 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 Amorim from Goldman Sachs.

Operator: 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 Amorim from Goldman Sachs.

Speaker #1: Our first question comes from Mr. Bruno Amorim from Goldman Sachs.

Speaker #3: Hi, good morning, everybody, and thank you for the opportunity to ask a question. How much of the higher costs in the second quarter are either transitory or subject to future tariff coverage, in your opinion?

Bruno Amorim: Hi. Good morning, everybody, and thank you for the opportunity to ask a question. How much of the higher costs in Q2 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.

Speaker #3: And 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?

Speaker #3: Thank you so much.

Speaker #4: Thank you, Bruno. Thank you for your question. This is Danielle. Good morning. Everyone once again. Thinking about maybe I'll start from the back. I think it helps explain the early part of your question, right?

Daniel Szlak: Bruno, thank you for your question. This is Daniel. Good morning, everyone, once again. Maybe I'll start from the back. I think it helps explain the early part of your question. So on page 9, 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.

Speaker #4: So on page 9, what we try 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?

Speaker #4: So one of the things that we started to disclose is the effect that water has in our results. This is a good practice that happens across the globe with our peers.

Speaker #4: So we started to disclose that. This is very material to the business, and something that will oscillate positive or negative depending on the quarter.

Speaker #4: And to bring that sensitivity to the market. The second part, which is still on net revenue—about $60 million of that, combined with the second item on the bridge of timing—is related to the SAP go-live.

Daniel Szlak: The second part, which is still on net revenue, about BRL 60 million of that, and combined with the second item on the bridge of timing, is related to the SAP go live. The part that's hitting revenues is mainly due to a higher fiscal fee, the 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 expect to recover that in Q3. When we look at the timing part of cost, I would say half of that is Q1 expenses that moved to Q2, and the other half are Q3 expenses that moved into Q2. So I'll expect half of that to be recovered over Q2.

Speaker #4: The part that's hitting revenues is mainly due to a higher fiscal fees, 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 credit, tax credits from them.

Speaker #4: 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.

Daniel Szlak: So expect to recover that in Q3. When we look at the timing part of cost, I would say half of that is Q1 expenses that moved to Q2, and the other half are Q3 expenses that moved into Q2. So I'll expect half of that to be recovered over Q2.

Speaker #4: When we look at the timing part of cost, I would say half of that is Q1 expenses that move to Q2, and the other half are Q3 expenses that moved into Q2.

Speaker #4: 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 deep dive a little bit more.

Daniel Szlak: 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 deep dive 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 chemical. 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 H2 of the year. We're already making progress to that, but we still have some things to be done.

Speaker #4: 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 chemical, their chemicals that increased more than that chemical that didn't increase, that are linked to the supply chain that comes all the way from the Middle East.

Speaker #4: 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.

Speaker #4: We're already making progress to that, but we'll 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.

Daniel Szlak: Thinking about the commercial plan, as Carlos Piani highlighted in his speech, we expect to spend about BRL 800 million this year in many areas. Some of that we will see through cost, some of that we will see through revenue. On the revenue front, one thing that we did not mention here, but we had BRL 50 million increase in reforms in this quarter, just rounding the numbers. We expect to see that continued. One of the things that we used to do when we think about reforms, we were more reactive than proactive when we saw that there was an increase in consumption volume for a given connection. What we did was we anticipated the resolution time by being proactive in flagging that to the consumer and treating that.

Speaker #4: Some of that, we'll see true costs. Some of that, we'll see true revenue. On the revenue front, one thing that we didn't mention here: we had a 50 million hours increase in reforms in this quarter, just rounding the numbers.

Speaker #4: We expect to see that continue. One of the things that we used to do when thinking about reforms is that we were more reactive than proactive when we saw an increase in consumption volume for a given connection.

Speaker #4: And what we did was we anticipated the resolution time by being proactive in flagging that to the consumer and treating that. We've increased a part of the cost also comes from increasing the number of people that actually do that job.

Daniel Szlak: We have increased a part of the cost also, comes from increasing the number of people that actually do that job, and to reduce the friction on the consumer front. So, that is about BRL 50 million in the quarter, and we have another BRL 150 million on the cost side that we flagged also on the bridge. That is mainly related to the communication outreach that Carlos 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 Poupatempos, increasing to 100 people on the service agency that actually provide a service to the population, and another 120 people called 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.

Speaker #4: And to reduce the friction on the consumer front. So that's about 50 million in the quarter. And we have another 150 million on the cost side that we flagged also on the bridge.

Speaker #4: 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 POPA Tempus, increasing to 100 people on the service agencies that actually provide a service to the population.

Speaker #4: And another 120 people, let's call it, in the call center, so that we could solve a backlog of tickets that had accumulated. As we grew, what we started noticing was that we grew, and we started also being more on point with collection.

Daniel Szlak: As we grew, what we started noticing, that we grew and we started also being more on point on collection.

Speaker #4: 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.

Daniel Szlak: 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 is a little bit of the general picture. Of that general picture, what we expect based on the Rules 106 by SABESP 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 Carlos Piani flagged, is also in anticipation of the public hearing that closed with regards to discounts to large clients.

Daniel Szlak: 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 is a little bit of the general picture. Of that general picture, what we expect based on the Rules 106 by Sabesp 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 Carlos Piani flagged, is also in anticipation of the public hearing that closed with regards to discounts to large clients.

Speaker #4: 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 our SASB and all the other rules on our contract, is that a little bit more than half of that, to some extent, will either be a pass-through, or it will be something that we'll recover through the histogram in upcoming tariff cycles.

Speaker #4: 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.

Speaker #4: 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.

Daniel Szlak: So we have already placed a number inside that BRL 800 million, assuming that this comes live very soon, to be conservative. The rest of that, I would say that half of the half, so about 20% to 25% of that we expect to stick. The other half we expect to improve through productivity as we transition more to digital channels rather than physical channels. So this is more or less what we expect going forward and how we see this transitioning. I do not know if I was able to answer everything, Mr. Bruno Amorim, but of what I remember you asked, I think I addressed it.

Speaker #4: And the other half, we expect to improve through productivity as we transition more to digital channels rather than physical channels. So this is more or less what we expect going forward and how we see this transitioning.

Speaker #4: I don't know if I was able to answer everything, Bruno, but from what I remember that you asked, I think I addressed it.

Speaker #2: No, that's helpful. Thank you. I'll let others ask. Thank you so much.

Bruno Amorim: No, that is helpful. Thank you. I will let others ask. Thank you so much.

Speaker #1: 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. Artur Pereira from JP Morgan.

Operator 2: Thank you. 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.

Operator: Thank you. 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.

Speaker #2: Hi, good morning, guys. So, we're still on these investments in commercial efforts. You mentioned that, out of the 800 million reais, this should consider OPEX and revenues.

Arthur Pereira: Hi. Good morning, guys. Still on these investments in commercial efforts. You mentioned that out of the BRL 800 million, this should consider OpEx and revenues, just to make sure that nothing goes into CapEx. You mentioned the BRL 150 million in expenses in Q2, BRL 50 million in revenues. The reminder, BRL 600 million, should we consider in the H2 of this year, or was anything already disbursed in Q1? On the expenses, was this fully booked as third-party expenses, also personnel, because personnel expenses increased quarter-over-quarter. Maybe just wanted to recap a little bit what you see as underlying. You exclude the BRL 150 million in this quarter on the underlying figure that you presented. How much of these OpEx on the commercial efforts should we consider as recurring in the upcoming years? Thinking about 2027 onwards.

Speaker #2: Just to make sure that nothing goes into CAPEX. And you mentioned the 150 million hours in expenses in the second quarter, 50 million in revenues.

Speaker #2: So the reminder, 600 million should we consider in the second half of this year, or was anything already disbursed in the first quarter? And on the expenses, was this fully booked as third-party expenses also personnel?

Speaker #2: 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 quarter on the underlying figure that you presented.

Speaker #2: So, how much of the OPEX on the commercial efforts should we consider as recurring in the upcoming years? I'm thinking about 2027 onwards.

Speaker #4: Thank you, Artur. 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.

Daniel Szlak: Thank you, Arthur. Thank you. Long question. I will try to remember everything. I wrote down most of what you said, but let me know if I miss something. Look, thinking about 2027 onwards, as I said, I think about 20% to 25% of that is what I expect will stick, given to some extent we will recover a part. Let me put it in a different way. A part of that, which is a majority part of that, will stick, but half, more than half of that will come back through the tariff cycles, which is the part that is linked to revenues and large client discounts and mandatory communication as we go commission construction work. These are things that are mandatory by the regulation. These things will get eventually reimbursed. Another 20% are things that we are increasing cost, and that will stick.

Speaker #4: 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, we'll recover a part so let me put it in a different way.

Speaker #4: A part of that, which is a majority part of that, will stick. But 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.

Speaker #4: 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.

Speaker #4: And that will stick. 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.

Daniel Szlak: The remainder of that, we expect we will see in productivity over the next years improving. So we do not expect that to stick over 2027 and so on and so forth. So from an MVP perspective, the only lagging part is going to be the 20% that will stick in terms of cost. I know that is where you are going. In terms of personnel, a small portion of that is in personnel. I do not expect to see a big part of that plan hitting personnel. I would not model that. My view is that the oscillation that you see in personnel is more linked to timing of benefits and things like that we do not even deem worth of calling out. In terms of the timing of conversion, you are right. We have cycled through 200, give or take, of the 800 that we mentioned.

Speaker #4: So, from an NPV perspective, the only lagging part is going to be the 20% that will stick, in terms of going. In terms of personnel, a small portion of that is in personnel.

Speaker #4: I don't expect to see a big part of that plan 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.

Speaker #4: 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.

Daniel Szlak: We will see the next 600 over the next quarters, between Q3 and Q4. That is where we expect we will land. Did I miss anything?

Speaker #4: Between Q3 and Q4. That's where we expect we will land. Did I miss anything?

Speaker #3: No, 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.

Carlos Piani: No, I think, Daniel, you got everything. Just let me try to give a 10,000 feet overview. What we are doing, we are taking the customer by the hand instead of letting him complain. We are preempting any big variations on customer bills and bringing those customers to a conversation, see if there is any, according to the regulatory framework, any reforms that are available for that increase. So what happened before was we were reactive, waiting for the client to complain. Now, we proactively, we are using the rules of the game below our arms and trying to give that benefit to the consumer. That is the piece of the commercial investment, in broader sense, that goes through revenues because it is a bill reform. Okay? So this is basically an anticipation of something that we are going to be compensated through different tariff revisions moving forward. Just to be clear on that front.

Speaker #3: Instead of letting him complain, we're preempting any big variations on customer bills and bringing those customers to a conversation, see if there's any according to the regulatory framework, any reforms that are available for that increase.

Speaker #3: So, what happened before was we were reactive, waiting for the client to complain. Now, we are proactive, we're using the rules of the game under our arms, and trying to give that benefit to the consumer.

Speaker #3: That's the piece of the commercial investment, in broader sense, 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 revisions moving forward.

Carlos Piani: That is the piece of the commercial investment, in broader sense, that goes through revenues because it is a bill reform. Okay? So this is basically an anticipation of something that we are going to be compensated through different tariff revisions moving forward. Just to be clear on that front.

Speaker #3: 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 is recurring, basically on communications.

Carlos Piani: The second piece that I think is worthwhile, we invested a lot, much more than I think it is a recurring basis on communications. Besides everything that we are doing that we need to communicate, we are 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. In general, independent if it has a regulatory recognition or not, and part of these communications are also regulatory compliance that can be compensated through the tariff cycles. To be very specific on 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 is small.

Speaker #3: 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.

Speaker #3: Of course, this has a bump at the beginning, and then this has a reduction. And, in general, independently of whether it has regulatory recognition or not, part of these communications are also regulatory compliance that can be compensated for in the tariff cycles.

Speaker #3: And to be very specific, in 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.

Speaker #3: 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.

Carlos Piani: 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. 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.

Speaker #2: Very clear. Thank you.

Arthur Pereira: Very clear. Thank you.

Speaker #1: Thank you. Our next question comes from Mr. Francisco Navarrete from Bradesco BBI.

Operator 2: Thank you. Our next question comes from Mr. Francisco Navarrete from Bradesco BBI.

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

Speaker #5: Good morning. Can you hear me well?

Francisco Navarrete: Morning. Can you hear me well?

Speaker #3: Yes.

Carlos Piani: Yes.

Speaker #5: Okay. Thank you, Piani and Daniel for the call. Just have two questions, if I may. One is if you could comment about the CapEx level in Q26.

Francisco Navarrete: 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 level in Q2 2026. I think maybe the pace at which the CapEx showed in Q2 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 2026. So that is one question. Then the second, I know you already explained part of it, but if you could provide more detail on the revenue gap that we are seeing. I think we are estimating something that seems to be a little bit higher than in the first quarter. So if you could help us understand that. I know in the press release you already mentioned BRL 177 million of mix, but what else should we consider there to close that gap?

Speaker #5: I think maybe the pace at which the CapEx showed in Q2 was a little bit below expectations and if you could talk about that and then tell us what your vision for the CapEx for the full year '26.

Speaker #5: So 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.

Speaker #5: I think we're estimating something that seems to be a little bit higher than in the first quarter. So if you could help us understand that.

Francisco Navarrete: I think we are estimating something that seems to be a little bit higher than in the first quarter. So if you could help us understand that. I know in the press release you already mentioned BRL 177 million of mix, but what else should we consider there to close that gap? Thank you very much.

Speaker #5: I know in the press release you already mentioned 177 million reais of mixed but what else should we consider there to close that gap?

Speaker #5: Thank you very much.

Francisco Navarrete: Thank you very much.

Speaker #3: Navarrete, 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.

Carlos Piani: Navarrete, thanks for the question. I will make a brief introduction, pass to Daniel, and maybe I will 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 is a seasonality, there is a pacing, and it is back-ended. This is natural as expected. The second comment I think it is worthwhile. The works that we were pursuing at the beginning of this journey, we are 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.

Speaker #3: 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.

Speaker #3: So, there's a seasonality, there's a pacing, and it's back-ended. This is natural and as expected. The second comment, I think it's 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. These were known, and so forth.

Carlos Piani: The change, why are we confident that we are going to pick up and we are 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 are concluding the hiring of four phases. So we highlighted two, but there is four phases of the universalization program for the countryside of São Paulo. That is what we are going to be measured next year. So we need to pace that. We need to pick up in 100% of the municipalities of Dourados. So there is a lot of volume of works that are being hired, and this gives us conviction that we are going to aim towards the BRL 20 billion at year-end. Of course, there is a challenge. As always, it is not a piece of cake. But I think what I can tell you guys is that we have an action plan to get there.

Speaker #3: 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 phases.

Speaker #3: So we highlighted two, but there's four phases. Of the universalization program for the countryside of São Paulo. That's where we're going to be measured next year.

Speaker #3: So we need to pace that we need to pick up in 100% of the municipalities of Dourado. So there's a lot of volume of works that are being hired.

Speaker #3: 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 haven't action planned to get there.

Carlos Piani: As always, it is not a piece of cake. But I think what I can tell you guys is that we have an action plan to get there.

Speaker #3: 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.

Carlos Piani: We know how to get there. 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 Q4 of this year.

Speaker #3: And we have a plan to get there, back-ended until the fourth quarter this year.

Speaker #1: All right. Just to complement here, going to the CapEx, right? So we have about $40 billion of backlog. Last quarter, we also had $40 billion of backlog.

Daniel Szlak: All right. Just to complement here, going to the CapEx. We have about BRL 40 billion of backlog. Last quarter, we also had BRL 40 billion of backlog, so we executed almost BRL 4 billion and continue with BRL 40 billion, which means that we contracted BRL 4 billion through the quarter. We are now in the final stages of contract. Final, no, but I will say over the next nine months or so, we will be contracting another BRL 20 billion, give or take. 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 is definitely a big increase.

Speaker #1: So we executed almost $4 billion and continue with $40 billion, 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 nine months or so, we'll be contracting another $20 billion, give or take.

Speaker #1: 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 worksites.

Speaker #1: So that's definitely a big increase, as Piani alluded to. We have a lot of people working around internally and on the contractor front. These numbers are going to almost double by the end of next year.

Daniel Szlak: As Carlos Piani alluded to, we have a lot of people working around internally and on the contractors front, these numbers are going to almost double by the end of next year. So we are very well advanced into the U-Factor targets for this year, as you can see from the presentation. Now we are turning our attention a lot to the U-Factor targets for next year. So that is where we are, more or less, with regards to that, Navar. In terms of the revenue gap, versus the regulatory front, we have basically three items that are relevant. The first one is, as you mentioned, is the mix, about BRL 877 million 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 BRL 50 million in the quarter.

Speaker #1: So we're very well advanced into the new factory targets for this year, right? As now we're turning our attention a lot to the new factory targets for next year.

Speaker #1: So that's where we are, more or less, with regards to that, Nava. In terms of the revenue gap versus the regulatory front, we have basically three items that are relevant.

Speaker #1: The first one is, as you mentioned, the mix—about R$877 million—from social tariffs and from the consumption band mix, because of the lower temperatures.

Speaker #1: The second part of that is the reforms that I mentioned. And as you correctly pointed out, about 50 million in the 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.

Daniel Szlak: When you look at the remaining BRL 50 million that in our view that continues to exist, this is mostly related to large clients. Basically it has a BRL 50 million impact on the quarter that is mostly linked to very few clients that still have active contracts of discounts being half of that BRL 50 million. The other half is another gap that is driven by the injunctions that are still active. Every quarter, we have 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 is give or take where we see the regulatory gap today.

Speaker #1: 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, being half of that 50 million.

Speaker #1: 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.

Speaker #1: Okay. So that's give or take where we see the regulatory gap today.

Speaker #5: Thank you very much, Daniel.

Francisco Navarrete: Thank you very much, Daniel.

Speaker #2: Thank you. Our next question comes from Mrs. Sofia Graham from Moneda.

Operator 2: Thank you. Our next question comes from Mrs. Sophia Gran from Moneda.

Operator: Thank you. Our next question comes from Mrs. Sophia Gran from Moneda.

Speaker #1: If it's not the case that she doesn't have her mic on, I can read her question here. I think it's directed to Daniel. What percentage of universal coverage have you reached so far?

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

Speaker #1: 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?

Speaker #1: And for water? How much CapEx is going to be used to improve the network?

Daniel Szlak: Well, thank you. Thank you, Sophia, for your question. When we think about our percentage coverage, this is something that we do not have. I cannot give you a final number yet because we are still doing the census. This is going to be what is going to be used to calculate what is the percentage coverage. This is going to happen until the end of this year. What I can say today is that from our target that needs to be met by adding a net new number of economies, we have met 105% of the three-year target for water, 90% of the sewage collection, and 82% of the sewage treatment, which means that we are very advanced, as we think that we still have six months to deliver it. Like I said, our attention is focused right now in contracting what is 27.

Speaker #3: Great. No, thank you. 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.

Speaker #3: 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.

Speaker #3: What I can say today is that, from our target that needs to be met by adding a net new number of economies, we've met 105% of the three-year target for water, 90% for sewage collection, and 82% for sewage treatment.

Speaker #3: Which means that we're very advanced as we think that we still have six months to deliver. And like I said, our attention is focused right now in contracting what is 27.

Speaker #3: So as we progress and as we have the results of the census, we'll be able to update everyone as to what the percent coverage is compared to the 99% that we need to reach by 2029.

Daniel Szlak: As we progress and as we have the result of the census, we will be able to update everyone as to what is the percent coverage compared to the 99% that we need to reach by 2029. Okay. How we plan to finance the CapEx? We have been funding that mostly through debt, and we will probably continue to do that over the next year, and expected by 2028 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 is just how much the split is. In terms of improvement of the network, we have been doing about 10% of that total CapEx, which is maintenance, network upgrade, and so on and so forth.

Speaker #3: Okay. How do we plan to finance the CapEx? We've been funding that mostly through debt, and we'll probably continue to do that over the next year.

Speaker #3: And expected by '28 to start generating enough cash flow to be able to continue funding that with a lower percentage of that. About two-thirds of that CapEx goes into sewage treatment, and one-third goes into water.

Speaker #3: 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, which is maintenance, network upgrades, and so on and so forth.

Speaker #3: The bulk of the CapEx really goes into expansion and extending the network and extending the sewage treatment facility capacity. So that we can plug more economies into that.

Daniel Szlak: The bulk of the CapEx really goes into expansion and extending the network, and extending the sewage treatment facility capacity so that we can plug more economies into that.

Speaker #2: Our next question comes from Felipe Andrade, from Itaú BBA.

Operator 2: Our next question comes from Fillipe Andrade from Itaú BBA.

Operator: Our next question comes from Fillipe Andrade from Itaú BBA.

Fillipe Andrade: Hello, good morning. Thanks for accepting the questions. If you could just please go through the increase on the allowance for doubtful accounts. What explains this increase from 1.4% in the past three quarters to the 2.5% figure on the Q2 2026? 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 Q2. Thank you.

Speaker #5: Hello, good morning. Thanks for accepting the questions. If you could just please go through the increase in the allowance for DAP accounts, what explains this increase from 1.4% in the past three quarters to the 2.5% figure in the second quarter of '26?

Speaker #5: 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.

Speaker #5: Thank you.

Speaker #3: Thank you, Felipe. I'll take the first one. So in terms of allowance for doubtful accounts, I think it's worth rewinding a little bit further the movie.

Daniel Szlak: Thank you, Fillipe. I will take the first one. In terms of allowance for doubtful accounts, I think it is worth rewinding a little bit further the movie. When we came in, the run rate of the allowance for doubtful accounts was about 4% of revenues, which meant that this created a very long backlog of collection that we could act on, and we have acted on that. We have been able to achieve the lowest historical number, which was 1.4 at the end of Q1 of this year, and even, I think, at the end of Q4 last year as well. We have reached the historical best, but that was also at the expense of collecting some of the backlog, right? Naturally, as you start working through that, this starts reducing. That opportunity starts reducing. I think going forward, and then I will talk about Q2.

Speaker #3: When we came in, the run rate of the allowance for doubtful accounts was about 4% of revenues, which meant that this created a very long backlog of collection that we could act on. 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 of this year.

Speaker #3: 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?

Speaker #3: 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, which is close to 2.

Daniel Szlak: Going forward, what we expect is we will eventually land at something that is similar to other utilities from our benchmark, is close to 2, a little bit less, a little bit more, but that is 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. 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 for doubtful accounts quarters, from a seasonality perspective. Okay? That is in the end, a little bit of that. I would look at that more as a H1 rather than Q1, Q2. But that is where we see the numbers.

Speaker #3: 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.

Speaker #3: So, as they become a bigger part of our metering fleet, eventually this is going to be able to improve. That said, historically, Q2 is one of our highest quarters for allowance for doubtful accounts from a seasonality perspective.

Speaker #3: 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, Q2.

Speaker #3: But that's where we see the numbers. In terms of unitization, we don't expect any change to what we've been communicating, where we think that about two-thirds of the CapEx for the year is usually able to be commissioned in that year.

Daniel Szlak: In terms of unitization, we do not expect any change to what we have been communicating, where we think that about two-thirds of the CapEx of the year usually is able to commission in that year. One-third goes to the work in progress. This is more or less what we continue to expect. We do not see major changes here.

Speaker #3: And one-third goes to work in progress. This is more or less what we continue to expect. We don't see major changes here.

Speaker #5: Thank you.

Fillipe Andrade: Thank you.

Speaker #2: Our next question comes from Andrea Sampaio from Santander. Our next question comes from Carolina Carneiro from SASA.

Operator 2: Our next question comes from Andre Sampaio from Santander. Our next question comes from Carolina Carneiro from Safra.

Operator: Our next question comes from Andre Sampaio from Santander. Our next question comes from Carolina Carneiro from Safra.

Speaker #6: 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 regards, especially of the potential dissipation of the projects that are aiming to enhance the water resilience and the security of supply here.

Carolina Carneiro: 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 on regards especially of the potential dissipation of the projects that are aiming to enhance the water resilience and the security of supply here in São Paulo. 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 methodology to recognize the annual CapEx on tariff. If you can give us a hint on these specific points would be great. Thank you.

Speaker #6: In São Paulo, and also how has been the conversations or 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 methodology to recognize the annual CapEx on tariffs.

Speaker #6: So if you can give us a hint on these specific points, it would be great. Thank you.

Speaker #5: Thank you, Carolina. Given, I think, since August of last year, there was a specific protocol that has been enacted by the state government, which has today, biweekly meetings, previously it was weekly meetings where all the strategy regarding water scarcity involving all players was decided in that group.

Daniel Szlak: Thank you, Carolina. I think since August of last year, there is a specific protocol that has been enacted by the state government, which has today biweekly 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 it is a connection between Billings and our Alto Tietê watershed. So we can take water from Billings to the water treatment plant at Taiaçupeba, which represents roughly 30% of the water

Speaker #5: 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 billings and our output watershed so we can take water from billings to the water treatment plant at Texapaba.

Speaker #5: Which represents roughly 30% of the potable water for the metropolitan region of São Paulo. This construction is expected to be concluded by the third quarter of next year.

Carlos Piani: potable water of the metropolitan region of São Paulo. This construction is expected to be concluded by Q3 of next year, and it is around BRL 1.4 billion. 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 Q3. But I think what I can tell you is everybody knows that we are doing the best we can to help avoid a tail event. Okay? So there are two other smaller investments, but I think the major one is the one I just described. Our strategy is to pull forward a couple investments, but nothing that we can do is going to solve the next two, three months, right?

Speaker #5: And it's around 1.4 billion high. 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.

Speaker #5: We expect this to come out to the market probably maybe until the end of the third quarter. But I think what I can tell you is everybody knows that we're doing the best we can to help avoid a tail event.

Speaker #5: Okay. So, there are two other smaller investments, but I think the major one is the one I just described. Our strategy is to pull forward a couple of investments, but nothing that we can do is going to solve the next two to three months, right?

Speaker #5: I think the night pressure management is the lever that, as a community, we can pull together. 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.

Carlos Piani: I think the night pressure management is the lever that as a community, we can pull together. Everything that we are doing is aligned, and we expect to be recognized in the tariff, in the regulatory asset base, independent of the methodology that is going to come forward in the next couple of quarters.

Speaker #6: Thank you.

Carolina Carneiro: Thank you.

Speaker #2: Okay. Our next question comes from Mr. Andrea Sampaio from Santander. And I will read it. I want to go back to OPEX, but focus more on the extratorial long-term view.

Operator 2: Okay. Our next question comes from Mr. Andre Sampaio from Santander, and I will read it. I want to go back to OpEx, but focus more on the structural long-term view. How the company views the efficiency agenda moving forward.

Operator: Okay. Our next question comes from Mr. Andre Sampaio from Santander, and I will read it. I want to go back to OpEx, but focus more on the structural long-term view. How the company views the efficiency agenda moving forward.

Speaker #2: How the company views the efficiency agenda moving forward.

Speaker #3: Thank you, operator. Thank you, Andrea. Look, the efficiency agenda continues to be one of the company's main strategic pillars, right? There are three strategic pillars.

Daniel Szlak: Thank you, operator. Thank you, Andre. Look, the efficiency agenda continues to be one of the company's main strategic pillars, right? There are three strategic pillars. Deliver the universal access, deliver the efficiency to fund the universal access, and then as we progress, eventually as we reach good customer satisfaction, good service levels, and so on and so forth, dream a little bit beyond our borders. That is basically our strategy in a nutshell, right? We already achieved very important milestones. We started with what I would say maybe the low-hanging fruits and captured a lot of that. There is still some remaining opportunities on that front, but I think we have 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.

Speaker #3: Deliver universal access, deliver the efficiency to fund universal access, and then, as we progress—eventually, as we reach good customer satisfaction, good service levels, and so on and so forth—we can dream a little bit beyond our borders.

Speaker #3: That's basically our strategy in a nutshell. Right. We already achieved very important milestones. We started with what I would say maybe the low-hanging fruits and captured a lot of that.

Speaker #3: 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 initiative 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.

Daniel Szlak: On the top, we have important strategic initiatives like the integrated operation center, like the metering upgrade for smart meters, like the biogas projects, all the software upgrades that we are doing, that will allow us in the future to start using artificial intelligence even more to gain productivity. All of these things are top of the house initiatives that we push here from the center. But another thing that is important, as Carlos Piani started talking about our values, is the culture. The culture of treating the company as your own, right, and making the right decision on the day-to-day, and really being frugal on the day-to-day of the company, so that these provide a cumulative effect on savings and a compounding effect. I think what we will see is from the top, very large initiatives with capital deployment and investment that has a J-curve nature.

Speaker #3: 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.

Speaker #3: The culture of treating the company as your own, right? And making the right decisions on the day-to-day, and really being frugal in the day-to-day operations of the company.

Speaker #3: 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 which capital deployment and investment that has a J-curve nature.

Speaker #3: And from the bottom, the cultural change and how this evolves on the day-to-day and at the edge of the operation and in the day-to-day.

Daniel Szlak: 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. That is more or less what I see for the future.

Speaker #3: So that's more or less what I see for the future.

Speaker #2: Thank you. Our next question comes from Mr. Enrique Simones from UBS BB.

Operator 2: Thank you. Our next question comes from Mr. Enrique Simoes from UBS BB.

Operator: Thank you. Our next question comes from Mr. Enrique Simoes from UBS BB.

Enrique Simoes: Okay. Hi, everyone. Thank you for taking my questions. I had a follow-up first on Bruno's question regarding the timing effect on revenues. I had in my mind that in Q1, you had 2 days of revenues that were not billed due to the migration of the ERP, and that you were. I was expecting a reversal of that we should exclude 2 days of revenues from this quarter, but you had a positive effect again on the timing. I am 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.

Henrique Simões: Okay. Hi, everyone. Thank you for taking my questions. I had a follow-up first on Bruno's question regarding the timing effect on revenues. I had in my mind that in Q1, you had 2 days of revenues that were not billed due to the migration of the ERP, and that you were. I was expecting a reversal of that we should exclude 2 days of revenues from this quarter, but you had a positive effect again on the timing. I am 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.

Speaker #5: Okay. Hi, everyone. Thank you for taking my questions. I had a follow-up first on Bruno's question regarding the timing effect on revenues. I had in my mind that in the first quarter, you had two days of revenues that weren't billed, due to the migration of the ERP.

Speaker #5: And that you were, I was expecting a reverse of that—that we should exclude two days of revenues from this quarter. But you had a positive effect again on the timing.

Speaker #5: I'm just curious if those are separate effects and if it would be fair to still make that adjustment to the revenues. And the second one was on the costs, specifically on the quality of service and communication.

Speaker #5: Should that be considered the new recurring level, or is it temporary for this year, and then we should expect a return to normal levels next year?

Speaker #5: Thank you.

Speaker #3: Thank you. Thank you, Enrique. Thank you. About taking your first question first, on SAP—when we went live with SAP, you saw a lower volume, but we also didn't accrue for unbilled revenues.

Daniel Szlak: Thank you. Thank you, Enrique. 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. From a revenue perspective, you do not see the impact in Q1 from the SAP go live. On Q2, you see more volume, but the reversal of that accrual for revenue, so for unbilled revenue. Net revenue did not change when you think about that by component from the SAP go live. What we are calling out as a positive carryover for Q3 from the SAP go live versus Q2, is linked to the invoice entry that was delayed because of some contracts that we were not able to bind correctly to that phase.

Speaker #3: So from a revenue perspective, you don’t see the impact in Q1 from the SAP go-live. In Q2, you see more volume, but the reversal of that accrual for revenue.

Speaker #3: So for unbilled revenue, net revenue didn't change when you think about that by component from the SAP go-live. What we are calling out as a positive carryover for Q3 from the SAP go-live versus Q2 is linked to the invoice entry that was delayed because of some contracts that we were not able to bind correctly through that phase.

Speaker #3: And as the invoice is coming 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.

Daniel Szlak: As the invoices come in in Q3, we are 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 are not able to take sales tax credits for that. So that is the difference between Q2 and Q3 that we called now in Q2. Thinking about cost, I think overall our efficiency agenda continues, right? 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. All of that is still continuing, and we see that momentum. What we did is we selectively decided to invest in the commercial plan, so that we want to explore more our value of putting the consumer first.

Speaker #3: So that's the difference between Q2 and Q3 that we called now in Q2. Thinking about cost, I think overall, our efficiency agenda continues, right?

Speaker #3: 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.

Speaker #3: So all of that is still continuing and we see that momentum. What we did is we selectively decided to invest in the commercial plan so that we want to explore more our value of putting the consumer first.

Speaker #3: 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.

Daniel Szlak: On the chemical side, we are fighting now to reduce those costs back to where they were before that oil increase. But that is it.

Speaker #2: Our next question comes from Sushinta Chakraborty from Goldman Sachs, and I will read it: "Provide an update on the company's funding strategy, including expected annual debt-raising requirements over the next few years."

Operator 2: Our next question comes from Suchinta Chakraborty from Goldman Sachs, and I will read it. Provide an update on the company's founding strategy, including expected annual debt raising requirements over the next few years.

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

Speaker #3: 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 in between January and February we raised about $14 billion, $14.

Daniel Szlak: Thank you, Suchinta, for your question. Thank you, operator, for reading. In terms of funding, we have anticipated our funding for the year of 2026. Between January and February, we raised about BRL 14 billion. By the end of Q3, we will probably have met all our funding targets for the year. That will put us in a position where we will 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. Naturally, the year of 2025 and 2026 were the largest funding needs in our view. That is what we can say.

Speaker #3: 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 that with no financial covenants and with a longer maturity and a more structured pace.

Speaker #3: When we look at the next years, naturally, those funding needs will start declining as the cash flow of the company also starts picking up.

Speaker #3: 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 that raising requirements, all the sales side models are fairly well designed and they can provide some good clarity on that as we don't disclose guidance.

Daniel Szlak: In terms of actual figures for debt raising requirements, all the sell side models, they are fairly well-designed, and they can provide some good clarity on that as we do not disclose guidance.

Speaker #2: Our next question comes from Mr. Haul Cavendish from Shispay. The Q&A session is now over. We wish to give the floor to Mr. Carlos Piani for the company's closing remarks.

Operator 2: 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.

Operator: 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.

Speaker #1: I'd like to thank everyone for participating in the call today and for the continuous support. And hope to see you all on the next call.

Carlos Piani: I would like to thank everyone for participating in the call today and for their continuous support and hope to see you all on the next call. Have you all a nice day. Thank you very much. Bye-bye.

Speaker #1: Have you all a nice day. Thank you very much. Bye-bye.

Operator 2: SABESP earnings presentation is now closed. Thank you very much for your participation, and we wish you all a very good day. Goodbye.

Operator: Sabesp earnings presentation is now closed. Thank you very much for your participation, and we wish you all a very good day. Goodbye.

Browse all earnings call transcripts

Q2 2026 Companhia de Saneamento Basico do Estado de Sao Paulo SABESP Earnings Call

Request TrialDemo

SABESP

Earnings