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.

Thank you. We will now begin our 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 Bruno Amorim with Goldman Sachs.

Hi, good morning. Thanks for taking my questions. The first one is related to... the message that you conveyed in slide 16 of the presentation. Can you give us an idea of the potential upside to the 70 billion number for Total CapEx in this cycle? Also, what types of investments are we talking about? Is it investments that could drive further cost efficiency gains? additional volumes, just so we have an idea of how much value you can create with this additional investment. And the second question, on the fourth quarter, the analyzed level of CapEx was around 19 billion per year. So does it mean we can see another step up in CapEx to this level or was fourth quarter kind of a one-off? Thank you.

Thank you, Bruno. Good morning to all our shareholders once again. Look, in terms of your first question, right? The number of topics that we've been conveying to the market has been defined at 2022, 2023 levels. So since then, we've naturally seen an accumulative impact from inflation that adds up to that number. So that's one piece of the story. The other piece of the story is we understand better the business and we start seeing the different needs of the business. As the business evolves, there are investments that were initially planned for cycles in the future that are now being advanced to this cycle. So one of the examples is water safety, naturally. So one of the things that we're doing is we're doing the first indirect reuse water facility at scale here in the metropolitan region. We're integrating and bringing new water sources into our integrated system. So this is one of the things that we're doing. The other things that we're doing is we're advancing metering upgrades with the smart meters. In the contract, we had about five cycles, sorry, seven cycles of metering upgrade every five years. We're doing that with the different technology, more advanced technology that requires less updates, but we're doing more early on. And on top of that, We're trying to add sensors and control remotely a big part of our network that gives us better operational flexibility and improves our loss prevention and detection, thus saving water, which is an important resource. So going back to your first question, those are the main drivers behind that increase. And we expect that this is more or less the plan. We're still negotiating them and discussing them with the regulator to make sure that these are prudent and they make sense for the consumers in general. And we'll keep the market updated on that. I think the second question about the pace, look, we're trying to accelerate as much as we can. And if we believe that we are able to deliver universal access before, for sure do it. So in the end, that's our main goal, right? Last year, we had the 3.8 million people that didn't have sewage treatment. Imagine the impact to their lives, right? I grew up with that for my whole life, but for who didn't have that, that makes a lot of sense. So we're trying to anticipate as much as we can. We're trying to accelerate as much as we can. If we believe and if we're able to execute more in 2026, we will do more in 2026 and we'll try to maintain that pace, if not accelerate that pace as much as we can.

Our next question comes from Francisco Navarrete with Bradesco BBI.

Daniel, Levi, can you hear me well? Okay. Yes. So thank you very much for the call and the opportunity. Just have, you know, sort of like an operational question and then more of a strategic one. But on the operational one, just to check on 4Q results, the payroll line, came quite low. And I think that you're collecting a lot of the benefits from reducing cost, workforce, and becoming more efficient. But at the same time, just wanted to check if there's a higher level of capitalization of this expense in 4Q25 as it was in 4Q24. And if there is, is this a seasonal effect or it's a one-off and we should not consider that number going forward? And then the second question, more of a strategic one, goes in the line of the CapEx deployment that you have in the concession that you already own in Sao Paulo, and that number probably will grow, and maybe, who knows, will grow substantially, versus investing in concessions or in opportunities of privatization of assets outside of Sao Paulo, for example, Copasa or any other uh any other opportunity that may come in the sanitation sector in the next um 12 to 36 months uh the pipeline is quite robust how are you thinking about that and specifically which capital location specifically about copasa what are the the the the points of attention that you have about that asset you know beyond price of course we understand that that's a one of the most critical points. But what else is there that you're looking at and you're thinking, well, you know, this is a condition for me to be at that auction and participate, again, beyond price. And with this, I'll do it. With this, without this, I will not. Just for us to understand how you're thinking about it, again, versus a scenario where you might have a really big opportunity to keep investing in Sao Paulo We've seen Secretary Natalia Resende talk about urban drainage as well. So that may be part of the story as well here in the state. Thank you.

Thank you, Nava. Maybe I'll take the first one and you take the second, Peony. Sounds good? Okay. Look, with regards to personnel expenses, every year end we revise all our cost centers, and as CAPEX also grew, We are able to absorb more through COPICS. We have more indirect expenses with regards to COPICS. So in the end, this is a reflection of a full year result. I wouldn't take that as a single quarter, but we've been revising that. Last year, we did a first revision. This year, we did that once again, specifically also looking at the operational cost centers that this is something that we hadn't done before so as we change and we're starting to centralize the operation it's much easier for us also to assess what is directly linked to copics and what is not and and allows us to more more properly reflect that between opix and copics regarding the second one the second question part of your question

has a large market cap. It's a huge company in the water space. To bring incrementality from an NPV standpoint is a challenge. So I think looking for inorganic opportunities we try to focus more on large deals, basically, to do a very creative, a deal with high return, but very small. I think for all shareholders, this will be almost irrelevant, right? So size matters to us. I think COPASA is the second largest publicly listed asset in our space. So of course, we're interested in this opportunity. I believe that there's two major, I think, pillars for our decision-making process internally and with our board. I think number one is how is the regulatory framework set up? I'm talking besides price. And the second, how's the tender offer or the book building process, right? I think the regulatory, speaking a little bit about these two items for COPASA, I think the timeframe has been very challenging for the presentation of COPASA and the regulatory decisions have been, I think, a little bit laggard to the process. And I think public knowledge is... is the delay of the renewal of the contract with COPAS. So I think this will be critical at least for us, to infer what type of economics, the sharing of the profit pool of the business is going to be there for a little bit over 30% of the business. And we can extrapolate this rule with some level of probability for the other municipalities. So I think this is a pillar. The second one is how the bidding process will go forward. will be defined. This may benefit more of the market, more strategic or strategic players. This may impact our interest as well. So I think these are the two pillars. And at the end of the day, I think there's good companies and there's good investments. We're always going to try to do good investments in good companies. Not all the time that's feasible. So I think these conditions are going to be necessary for us to advance in this opportunity. Having said that, I think we'll keep posted, waiting to see the new developments of the deal. And myself, Daniel, and Tiago will share our interest with the market. Regarding other opportunities, I think in the state of Sao Paulo, we, despite the NPV challenge, we're executing and pursuing smaller deals because we're defending our home turf. It's our geography. So we're doing tuck-in opportunities. We bought two, three small municipalities. We look at these deals on a... constant basis. So I think in, in, at the end of the day, we'll have a, we can do more of this independent of universalism and this makes sense for us. I think the marginal cost to serve is zero. So that's why we're, we're pursuing these deals. Universally, I think it's a great opportunity. The state is conducting this process. The time frame, I think, never doubt this government. They achieved many incredible things since I met them. So if this deal comes through this year, we're going to be ready to look at this opportunity. And I think we're going to be competitive given it's in our backyard. Regarding drainage, I think drainage, we have had conversations with the state government of Sao Paulo, with the regulator for a little bit over a year. I think this is more a mid to long-term opportunity instead of short-term opportunity and challenge. What we're trying to do is try to... explore a pilot that can be outside or inside Universaliza if we are a winner in all or part of this process. And then based on this pilot, we can extrapolate the roles of engagement moving forward. I think the opportunity from a CapEx standpoint is huge. I think there's a lot of much more uncertainty to the current business that we have. So I think we should approach this with caution and see if we can set the right regulatory framework so we can explore this opportunity mid and long term for a long period of time. I think these are my comments.

Thank you very much.

Our next question comes from Ricardo Bello with Safra.

Hi, Tim. Thanks for your time and congratulations on the results. My question here is about tariffs. Could you please elaborate on the evolution of the reduction of discounts granted to larger customers? How much of this gap still remains to be closed? And on topics related to water security, if you guys could provide an update on the progress of this project for this year and the next year and the expected timelines. These are my two questions. Thank you.

Thank you. Thank you, Ricardo. Answering to the first question, right? So with regards to large clients discounts, we have captured about 450 million AI's worth of discounts removal in the year of 2025. And we've virtually zeroed all the contracts that we have in the company. We have less than a handful right now that are still active. And we'll continue to see the capture because of the timing of when they ran out through 2025. So we'll have a positive lapping into 2026. We've seen a small volume decline in these cases, but all in all, it's still a very positive net impact for the company. We still have about between 50 and 100 million reais worth of injunctions that we're still fighting. We've won more than two-thirds of them, about 70% of them, like Piani said, and we'll continue to pursue to zero that gap. Okay. With regards to COPEX for water safety, we've spent about 700 million last year out of the total COPEX for water safety. This year, we expect to spend something between 1.5 and 2 billion for water safety. And the total pipeline that we expect is close to 8 billion that was scattered through the rest of the contract that we're looking if we are going to anticipate or if we're not going to anticipate. So we're looking at all the construction work that we're going to do, if we're going to anticipate some, if we're going to anticipate all. So this is one of the discussions that we're having with ACP Aguas, with the regulator, and with the concession to make the best decisions for the population and improve the water safety for the population.

Thank you. The Q&A session is now over. We wish to give the floor back to Mr. Carlos Piani for the company's closing remarks.

Thank you for your questions and for your continued interest in Sabesp. We appreciate your participation and ongoing engagement, and we look forward to keeping you updated on our progress in the course ahead. Have you all a great day. Thank you. Bye-bye.

Sabesp Earnings presentation is now closed. Thank you very much for your participation and we wish you all a very good day.