Companhia de Saneamento de Minas Gerais : 2Q21 Release

Earnings

Release

2Q21

Rio Manso System - Brumadinho

Conference Call (Simultaneous Translation)

Date: August 4, 2021 11:00 a.m. (Brasília) 10:00 a.m. (NY)

3:00 p.m. (London).

Phones:

Brazil: [phone]

USA: [phone]

UK: [phone]

Code: COPASA

Webcast:Click here.

Participants:

Carlos Eduardo Tavares de Castro

CEO

Carlos Augusto Botrel Berto

Chief Financial and Investor Relations Officer

IR Contact:

Phones:

[phone]

[phone]

[phone]

[e-mail]

ir.copasa.com.br

COPASA MG (CSMG3) Closing Price on July 30, 2021: R$14.03 Number of shares: 380.3 million

Market cap: R$5.3 billion

Belo Horizonte, August 2, 2021 - COPASA MG - Companhia de Saneamento de Minas Gerais

• (B3: CSMG3), hereby announces its results for the second quarter of 2021 (2Q21). The financial information, except where otherwise indicated, is presented in thousands of Brazilian Reais (R$ thousand), and refers to the Parent Company. All tables in this report are available for download on the Company's Investor Relations website: (ri.copasa.com.br).

				2Q21			2Q20
	FINANCIAL HIGHLIGHTS	2Q21	2Q20	vs.		2Q19	vs.
				2Q20			2Q19
	Net Revenue from Water, Sewage and Solid Waste	1,303,360	1,185,822	9.9%		1,086,318	9.2%
	Cost of Services, and Selling and Administrative	956,683	946,311	1.1%		831,592	13.8%
	Expenses
	Other Net Income (Expenses)	(22,415)	(19,023)	17.8%		(55,723)	n.m.
	Earnings before Financial Result and Taxes	321,349	218,446	47.1%	197,293	10.7%
	Financial Result	3,069	(20,051)	n.m.		(30,819)	-34.9%
	EBITDA	492,370	378,551	30.1%	346,147	9.4%
	EBITDA Margin	36.7%	31.0%	-		31.0%	-
	Net Income	237,129	146,345	62.0%	119,059	22.9%
	Net Debt	2,612,193	2,396,204	9.0%		3,042,740	-21.2%
	Net Debt/EBITDA	1.3	1.3	-		2.0	-

			2Q21		2Q20
OPERATIONAL HIGHLIGHTS	2Q21	2Q20	vs.	2Q19	vs.
			2Q20		2Q19
Water
Units (1,000's)	5,488	5,360	2.4%	5,270	1.7%
Distributed Volume (1,000 m³)	267,116	253,952	5.2%	253,608	0.1%
Measured Volume (1,000 m³)	156,806	148,645	5.5%	146,487	1.5%
Network Extension (km)	62,136	56,457	10.1%	55,335	2.0%
Sewage
Units (1,000's)	3,808	3,711	2.6%	3,642	1.9%
Measured Volume (1,000 m³)	106,691	101,306	5.3%	100,160	1.1%
Treated Volume (1,000 m³)	83,626	76,952	8.7%	75,872	1.4%
Network Extension (km)	31,898	28,767	10.9%	27,659	4.0%

Contents

1.	Highlights......................................................................................................................................................	3
1.1.	Investment Program ....................................................................................................................................	3
1.2.	Regulatory Environment .............................................................................................................................	4
1.3.	Coronavirus .................................................................................................................................................	5
1.4.	Shareholder Compensation .........................................................................................................................	5

2.	Operational Data .........................................................................................................................................	7
2.1.	Service Concessions ....................................................................................................................................	7
2.2.	Operational Data .........................................................................................................................................	8
2.3.	People Management ....................................................................................................................................	9
2.4.	Customer Base ..........................................................................................................................................	10

3.	Water Supply Situation .............................................................................................................................	11
3.1. Belo Horizonte Metropolitan Area (BHMA) ............................................................................................	11
3.2. Other municipalities in the Minas Gerais State.........................................................................................	12
4.	Quarterly Performance .............................................................................................................................	14
4.1.	Revenues ...................................................................................................................................................	14
4.2.	Costs and Expenses ...................................................................................................................................	15
4.3.	Other Operating Revenues (Expenses)......................................................................................................	2	17
4.4. Equity Pickup (Subsidiary COPANOR)		2
18
4.5.	Financial Result.........................................................................................................................................	18
4.6.	Taxes on Income .......................................................................................................................................	19
4.7.	Net Income ................................................................................................................................................	19
4.8.	EBITDA ....................................................................................................................................................	19
5.	Indebtedness and Rating ..........................................................................................................................	20
5.1. Gross Debt and Net Debt ..........................................................................................................................	20
5.2. Indexes and Average Coupon ...................................................................................................................	21
5.3.	Corporate Ratings......................................................................................................................................	21
6.	Appendix.....................................................................................................................................................	22
6.1.	Quarterly Financial Statement...................................................................................................................	22
6.2.	Balance Sheet - Assets ..............................................................................................................................	23
6.3.	Balance Sheet - Liabilities.........................................................................................................................	24
6.4.	Cash Flow..................................................................................................................................................	25
6.5.	Debt ...........................................................................................................................................................	26

2Q21 Earnings Release

1. Highlights

1.1. Investment Program

1.1.1. 2021 Investment Program

The table below shows the investments made in the first half of 2021 (1H21):

Investments (R$ million)	1H21
Water	138.0
Sewage	139.9
Business and Operational Development	53.0
Parent Company (COPASA MG)	330.9
COPANOR	8.4
Total	339.3

1.1.1.1. Water Supply Systems

• expansion of the production capacity of the Water Supply Systems in the municipalities of Barroso, Camanducaia, Frei Lagonegro, Lagoa Santa, Mato Verde, Montes Claros, Nova Serrana and Patos de Minas;
• expansion of the Water Supply Systems in the municipalities of Extrema, Ipatinga, Montes Claros, Nazareno, Nova Resende, Poço Fundo and São Gotardo;
• improvements to and optimization of the Water Supply Systems in the municipalities of Belo Oriente, Betim, Conceição do Mato Dentro, Lavras, Medina, Paracatu, Pote, Pouso Alegre, Resplendor and Timóteo;
• implementation of the Waste Treatment Unit of the Water Treatment Stations in the municipalities of Araxá, Betim, Caratinga, Divinópolis, Itajubá, Lavras, and Varginha;
• acquisition of water micrometers, aiming at the efficiency of water level measurement and the reduction of losses;
• acquisition of operational equipment for renovation and optimization of the Water Supply Systems in several operated municipalities; and
• implementation of distribution networks and water connections in buildings in several municipalities in the Minas Gerais State.

1.1.1.2. Sewage Systems

• expansion of the Sewage Systems in the municipalities of Diamantina, Estrela do Sul, Fronteira, Ibirité, Ipatinga, Medina, Pouso Alegre, Ribeirão das Neves and Sabará;
• implementation of the Sewage System in the municipalities of Caratinga, Divino, Espinosa, Ijaci, Inhapim, Patis, Santana do Paraíso, São João Nepomuceno, Ubá and Visconde do Rio Branco;
• execution of sewage treatment works in the municipalities of Bom Despacho, Cataguases, Mateus Leme, Minas Novas, Patos de Minas, São Gotardo and Serra da Saudade;
• acquisition of operational equipment for renovation and optimization of the Sewage Systems in several operated municipalities; and

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2Q21 Earnings Release

• implementation of sewage collection networks and connections in buildings in several municipalities in the Minas Gerais state.

1.1.1.3. Business and Operational Development

• renovation of the computing infrastructure, with implementation (in progress) of the SAP S/4 Hana system, aiming at improving and streamlining customer service and internal processes; and
• implementation of tools to ensure data and information protection, in compliance with the General Data Protection Law (LGPD).

1.1.2. Investment Program - 2022 to 2025

The projected amounts of the Multi-Year Investment Program for the Parent Company (COPASA MG) for the period between 2022 and 2025, based on the Board of Directors' approval, are as follows:

Year	2022		2023	2024	2025
Projected Amount (R$ million)	1,365	1,275	1,275	1,250

1.2. Regulatory Environment

1.2.1. Tariff Revision

According to the Material Fact disclosed on June 29, 2021, the Minas Gerais State Water and Sewage Regulatory Agency - Arsae MG, disclosed on June 29, 2021, Arsae-MGResolution 154/2021, with the result of COPASA MG's second Tariff Revision.

According to the aforementioned Resolution, the average tariff effect applied on the current tariffs as of August 1, 2021, is -1,52% (one point fifty-two percent negative).

Below are the links to the main final documents referring to COPASA MG's Second Tariff Revision, whose tariff cycle comprises the period between August 2021 and July 2025 (Portuguese only):

• Arsae-MG Resolution 154, of June 28, 2021: Second Periodic Tariff Revision;
• Technical Note CRE 14/2021: Result of the Second Periodic Tariff Revision - After CP 23;
• Technical Note CRE 15/2021: Tariff Adjustment Methodology - After CP23;
• Calculation of the Regulatory Asset Base (BRE and BRA) - After CP23;
• Technical Note CRE 01/2021 - After CP 23/2021: Methodology to Restructure the Tariff Revenue, Tariff Adjustment Index, and Average Tariff Effect.
• Technical Note CRE 02/2021 - After CP 23/2021: Methodology - Capital Costs.
• Technical Note CRE 03/2021 - After CP 23/2021: Methodology - Efficient Operating Costs and X Factor.
• Technical Note CRE 04/2021 - After CP 23/2021: Methodology - Special Programs;
• Technical Note CRE 08/2021 - After CP 23: Methodology - Copanor Subsidy; and
• Technical Note CRE 10/2021 - After CP 23: Methodology - Investment Planning and Execution.

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2Q21 Earnings Release

According to the Notice to the Market disclosed on July 14, 2021, COPASA MG filed an Administrative Appeal with Arsae-MG, addressing, within the scope of the Review, the application of Hybrid Regulatory Methodologies, Regulatory WACC, Regulatory Asset Base, X Factor, Municipal Sanitation Funds and Sewage Tariff.

On July 26, 2021, a Material Factwas disclosed informing that, regarding the disclosure by Arsae-MG that "Copasa will have to return R$ 246 million to residents of Belo Horizonte" (link: http://www.arsae.mg.gov.br/2021/07/23/copasa-tera-que-devolver-r-246-milhoes-a-moradores-de-belo-horizonte/), COPASA MG would appeal the decision. The amount informed by the Regulatory Agency, which refer to the charge for sewage collection and treatment services to approximately 69 thousand customers in the municipality of Belo Horizonte, from January 2012 to December 2018, are not recognized and accepted by the Company. COPASA's current Executive Board is committed to solving the issue in a transparent manner with the population and will exercise its right to legal defense.

1.3. Coronavirus

Since March 2020, COPASA MG has been implementing several initiatives based on the recommendations of the Ministry of Health and the World Health Organization to preserve the integrity and health of its employees and adopting commercial aid measures and other preventive actions to minimize the effects of the pandemic to customers.

Overcoming the most critical moment of the pandemic in Minas Gerais, when, in March 2021, the State Government decided to include all the areas of the Minas Awareness (Minas Consciente) plan in the Purple Wave, and with the progress of vaccination, employees have been gradually returning to working on site.

The Company continues to act and closely monitor the situation of the pandemic in the various municipalities where it operates, to adopt, whenever necessary, appropriate measures for the safety of its employees, customers, and suppliers.

To reduce the circulation of people, COPASA MG is acting together with the municipalities, adopting on-site assistance to customers with previous appointments, prohibiting those without a previous appointment to enter the Company' Service Agencies.

COPASA MG has also adopted measures to help customers, especially those in the social residential category. For these customers, who account for 6% of the Company's revenue, the collection has been suspended. Furthermore, until July 2021, customers have the option to pay late bills in installments with no down payment and no interest or fines, in up to 36 months.

1.4. Shareholder Compensation

1.4.1. Dividend Policy (Revised by the Extraordinary Shareholders' Meeting of May 7, 2018)

1.4.1.1. Regular Dividends

The Board of Directors shall define, by March 31 of each year, the percentage of Adjusted Net Income to be distributed, observing the statutory minimum of 25% and the limit of 50%. This declaration must occur every quarter with payment up to 60 days from the approval date, except for the amounts referring to the fourth quarter, which will be defined at the Annual General Meetings (AGM).

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