Companhia de Saneamento Básico do Estado de São Paulo - SABESP

Good morning and welcome to Sabesp's fourth quarter of 2025 earnings presentation. With us here today are Carlos Piani, CEO, Daniel Slak, CFO, and Thiago Levi, Investor Relations. Before we begin, we clarify that the statements made during this presentation will not include projections or estimates of future events. However, they may contain forward-looking statements indicating potential trends related to SABESP, based on the reasonable expectations, beliefs, and assumptions of SABESP 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 subesp filings with the brazilian securities and exchange commission b3 and on its investor relations website Investors should understand that changes in such factors may lead to outcomes that differ from current trends and that undue reliance should not be placed on these statements. The full disclaimer will be presented next and must be read carefully by all participants. This presentation is being recorded and all participants will be in a listen-only mode during the presentation. after that we will begin the question and answer session for analysts and investors only if you wish to ask a question please raise your hand and submit it via the zoom q a informing your name and company i will now turn the floor over to danielle slack who will discuss the results danielle you may proceed thank you operator good morning everyone thank you for joining us

I'm Daniel Slack, CFO of the company. Today I'll present our financial and operational highlights, then pass the mic to our CEO, Carlos Piani, where he'll discuss the strategic transformation underway, and then we'll open the floor for Q&A. Let's begin with our operational highlights for the quarter. Operational KPIs remain solid as we continue expanding service coverage and advancing towards universalization targets. Water production totaled 789 million cubic meters in the quarter, broadly stable as a result of our disciplined system management to ensure water safety. At the same time, our customer base continued to expand. Water connections reached approximately 9.5 million, increasing 0.4% year over year, while sewage connections grew 0.8%, reaching 8.3 million. These numbers reflect the advance of our investment program and the expansion of sewage infrastructure across our concession area, improving the standard of living for the population of São Paulo. Moving to financial highlights for the quarter, our results once again demonstrate the operational and financial improvements achieved since the company's transformation began, which give us the capacity to continue investing back and expand service for our population. Adjusted net revenue reached 5.7 billion, growing 2.1% year over year. Adjusted EBITDA totaled 3.4 billion, representing 13% growth versus the year ago, with margins expanding to 60%, reflecting cost discipline and efficiency initiatives. Adjusted net income remained stable at around 1.9 billion. Cash generation was particularly strong. Cash flow from operations reached $3 billion, representing a 24% growth, and cash conversion increased to 83%, showing the quality of our earnings and disciplined working capital management, which pumps more resources to our COPX program. Looking at the full year for 2025, the transformation becomes even clearer. Adjusted net revenue totaled 22.2 billion, representing a 2.2% growth versus 24. However, the key highlight is profitability. Adjusted EBITDA reached 13.2 billion, growing 17% year over year, with margins expanding to 60%. Adjusted net income reached 6.3 billion, representing a 22% growth, reflecting both operational improvements and stronger financial discipline. Operational cash generation also improved meaningfully, with cash flow from operations reaching 8.1 billion, reinforcing our ability to fund our investment program while maintaining a fortress-like balance sheet. To start deep diving into the results, let me briefly explain the bridge between reported and adjusted figures for the quarter. As usual, we exclude construction and the financial asset bifurcation, which are merely derived from accounting norms. In addition, this quarter includes some specific non-recurring items like $60 million from the continuation of our logistic network restructure, a reduction of legal accruals of $28 million, mostly behind settlements, and a $370 million in one-off tax gains recognized during the quarter. Adjusting for these effects, we get net revenue of $5.7 billion and EBITDA of $3.4 billion, which in our view as management, better represent the underlying performance of the business. A similar reconciliation applies to full year results, where we have the impact of, among others, SABESP-GENCI, court order payments in favor of the company, and other items. A detailed bridge by line of these effects can be found in the appendix. Once these items are excluded, we arrive at an adjusted EBITDA of 13.2 billion, representing a 17% increase year over year. Let's now break down the drivers of revenue growth for the quarter. We saw 2% growth driven by three factors. First, pricing, which includes the continued removal of discounts previously granted to large clients. This initiative alone contributes about 1.5 percentage points to revenue growth. Second, volume growth, reflecting the addition of new units, which contribute roughly three percentage points to revenue growth. And third, mix, where we've doubled the number of consumers with access to our subsidized rate program. These programs are an important tool of affordability for those in need, and their financial impacts are expected to be addressed in the next rate revision. Looking at the full year revenue bridge, the drivers follow the same pattern with revenue growing 2.2% behind the removal of large client discounts and 2024's rate cycle carryover, combined with volume growth behind the expansion of our consumer base. We also see a partial offset through mix from the full year impact of the expansion of subsidized rate programs. This dynamic reflects ABASP's dual mandate, expanding access and affordability while maintaining financial sustainability. The next slide shows the evolution of pricing and consumer mix in more detail. The price index excluding mix effects remained stable as expected, given there were no rate reviews for the year 2025. However, prices for large clients have increased, reflecting the ongoing removal of discounts. This process has already delivered meaningful improvements in revenue quality. At the same time, the number of units benefiting from subsidized rates reached nearly 2 million connections, or roughly 6 million people. This is about double the average from 2024 and reinforces ABESP's role in supporting social inclusion while expanding service coverage. Moving now to EBITDA performance, we grew 13% in the quarter and 17% in the year. Key drivers include G&A improvements, partly driven by better collection performance, energy efficiency supported by the migration to the free market, achieving 82% of our consumption in that market, which more than offset higher power prices in the captive market throughout 2025. headcount optimization following the voluntary dismissal program, and lower consumption of general and treatment materials. Partially offsetting these improvements were higher services expenses, mainly related to IT and automation, which we expect to generate a return for the company in the midterm. Overall, these results demonstrate the progress of our efficiency agenda to unlock resources for the CAPEX program. In a quarter, personnel expenses declined despite a 5.5% collective bargaining increase, reflecting a 15% reduction in headcount following the voluntary dismissal programs. Net for the year, we had about 3.8 thousand departures and 2.5 thousand arrivals, ending the year at 9.2 thousand people in December. These changes are part of a broader effort to update our workforce while investing heavily in technology and process standardization. Moving to reported net income, for the fourth quarter, we reached 2.7 billion, representing 87% growth year over year, mainly driven by strong EBITDA growth with the operational improvements we discussed earlier. For the full year, reported net income reached 8.5 billion, This result was negatively impacted by lapping a $4.5 billion non-cash gain from 2024 related to the contract with Urayun, the bifurcation of financial assets, and positively impacted by stronger operational EBITDA and the $1.5 billion monetary update of court order payments. But our transformation is mostly visible in the investment program. In 2025, CapEx reached 15.2 billion, representing more than double the level invested in 2024. In the fourth quarter alone, investments totaled 4.8 billion, more than a full year of the SOE sub-ASP used to do. These investments are directly supporting the targets established in our concession agreement. On the universal access targets, we achieved 2025's target a month in advance and started 2026 strong out of the gate. As of February, we have already reached 84% of water targets, 74% of sewage collection and 70% of sewage treatment for the year of 2026. Diving into what was physically delivered in 2025, 32 major projects with more than 827 kilometers of new infrastructure and expanded sewage treatment access to more than 3.8 million people. Looking ahead, 38 additional projects are scheduled to be delivered in 2026, including key initiatives under the Integrative program, water safety projects and infrastructure expansion in both coastline and the countryside. We have also concluded at the end of 2025, all conceptual engineering designs through 29. With that, we also took the opportunity to update our CapEx plan for the period. Starting from the 70 billion defined at 2022's prices, we've updated for inflation through December 2025, and also brought forward some products from the next cycles, mainly in water safety and metering upgrades, combined with network censoring. These projects will help us fight water losses and provide all our consumers with more water safety. Lastly, there were some changes in regulatory requirements. We're discussing this plan with the regulator and we'll keep our shareholders informed of developments on this front. Turning now to our balance sheet, at the end of 2025, gross debt stood at 40 billion with net debt at 28. Our average cost of that remains attractive. At CDI, our benchmark rate minus 0.2%, and the weighted average maturity is approximately 5.6 years. More importantly, 49% of our debt matures after 2031, reflecting a well-structured long-term maturity profile. We also ended the year with 12 billion in cash, which covers more than three years of amortizations, providing strong liquidity and flexibility to support our investment program. Finally, looking at our key financial ratios, our net debt to adjusted EBITDA stands at approximately 2.2 times, remaining at a comfortable level despite the acceleration of the investment program. Profitability indicators also continue improving. ROIC achieved 11% and ROE achieved 17%. reflecting both stronger earnings and more efficient capital structure. These indicators reinforce that Sabesp is successfully combining investment with financial discipline and profitability growth. With that, I will now pass the floor to our CEO, Mr. Carlos Piani. See you back in the Q&A.

Thanks, Daniel. Let's now move to the second part of today's presentation, our strategic focus areas and the progress we made during the quarter. As we've been outlining, our strategy remains centered on three priorities. First, delivering the new concession agreement obligations, accelerating universalization, closing regulatory gaps, and continuing to add new consumers to affordable tariffs. Second, achieving a step change in operation and commercial efficiency with higher quality, stronger service, reliability, and improved revenue assurance. Third, improving financial efficiency by optimizing costs and strengthening our capital structure. In the fourth quarter, we made progress across all three fronts with clear and measurable results. Turning to slide 21, I'll start with investment execution. In the fourth quarter alone, CAPEX reached 4.8 billion reais, bringing total investments in 2025 to 15.2 billion reais, a 120% increase year over year. This reinforces our commitment to accelerate universalization and expand the required infrastructure capacity. These investments translated into tangible outcomes. An additional 1.8 million people now have access to potable water, an additional 2.1 million gain access to sewage collection, and an additional 3.8 million now have their sewage treated. Most importantly, we have reached the quarterly execution pace required to deliver our universalization targets. On people and culture, we embedded our new Sabespi culture principles into daily routines, reinforcing transparency, ethics, and collaboration. Through the Sabespi Genchi program, we expanded internships, launched our first trainee program, and completed an organizational optimization cycle that improved efficiency and strategic alignment. Building on these efforts, last quarter, we also strengthened long-term alignment and retention by expanding our long-term incentive plan to 52 leadership and key employees, reinforcing meritocracy in alignment with SABESPI's long-term value creation agenda. Over time, we expect to further broaden participation as the organization continues to evolve. Our expansion backlog remains strong with approximately 39 billion reais in contracted investments through 2029. On the regulatory front, 74% of injunctions related to large client discounts have already been rolled in SABESPI's favor. We also launched a new integrated community engagement plan, working side by side with major communities to support universalization and address local social needs. In operational efficiency, we advanced the renewal of our metering infrastructure. During 2025, we installed 1.5 million new meters, improving accuracy and fairness in billing. We expect to install around 9 million additional meters between 2026 and 2029. We also completed the first full zero-based budgeting cycle in the company's history, strengthening accountability and reinforcing a cost-disciplined culture across the organization. Service quality and customer experience continue to improve. Our Net Promoter Score reached 47, up two points year over year. WhatsApp service scaled rapidly, reaching 2.6 million conversations in February, reducing average service time by 21% and achieving a 4.4 satisfaction rating. Quality indicators remain strong. Distributed water quality reached 98.8%, treatment plant quality 99.9%, and wastewater regulatory compliance 96.2%, the highest level ever recorded by the company. Collection performance also remained solid with 100% collection rate in the quarter, excluding court ordered payments. Moving to slide 22, water resilience remains a center pillar of our long-term strategy. Between 2015 and 2025, we increased system transfer capacity by 14.2 cubic meter per second. Looking ahead, projects scheduled between 2026 and 2030 will add another 12.8 cubic meters per second, supported by 5.9 billion highs in investments. These projects were brought forward due to their strategic importance in our strong capital structure. Reservoir levels have been improving month over month with the metropolitan integrated system above 50% and Cantareira surpassing 40% as we approach the end of the rainy season in April. Turning to slide 23, Sabespi's growth continued to translate into tangible benefits for society. In 2025, we generated 8.5 billion reais in net income with 75% reinvested to support infrastructure expansion. These investments supported 15.2 billion reais in economic activity, approximately 40,000 jobs, 5.8 billion reais in taxes, 1.3 billion reais through FAUSP to smoothen tariff impacts. social tariff access expanded to about 6 million people, a 60% increase year over year. Finally, on slide 24, we concluded the acquisition of MI's voting and non-voting controlling shares in January of this year. In addition, last week, we acquired an additional stake from the Oceana Fund representing 23.17% of the mine's common shares and 9.22% of its total capital at 80% of the price paid to the controlling shareholder of the voting shares adjusted by CDI. As a result, SubSB now holds approximately 98% of MI's common shares and the tender offer for the remaining voting shares is expected to take place in April. MI is a highly strategic asset with the potential to increase reservoir capacity in the metropolitan system by up to 52% in the long term. Ultimately, these results reinforce that SABESPI's transformation is not only about operational efficiency and financial performance. It's about converting scale, discipline, and capital into long-term value for society and shareholders. With this, I conclude this session. We can now move to the Q&A.