Sabesp Q4 2025 Earnings Call - CapEx Doubled to BRL15.2bn as Company Chases Universalization; EBITDA Margin at 60%

Thiago Levy, Investor Relations, Sabesp: Good morning, and welcome to Sabesp fourth quarter of 2025 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 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 Sabesp 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 Daniel Szlak, who will discuss the results. Daniel, you may proceed.

Daniel Szlak, Chief Financial Officer (CFO), Sabesp: Thank you, operator. Good morning, everyone. Thank you for joining us for Sabesp full year 2025 earnings call. I’m Daniel Szlak, 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. 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 BRL 5.7 billion, growing 2.1% year-over-year. Adjusted EBITDA totaled BRL 3.4 billion, representing 13% growth versus a year ago, with margins expanding to 60%, reflecting cost discipline and efficiency initiatives. Adjusted net income remains stable at around BRL 1.9 billion. Cash generation was particularly strong.

Cash flow from operations reached BRL 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 CapEx program. Looking at the full year for 2025, the transformation becomes even clearer. Adjusted net revenue totaled BRL 22.2 billion, representing a 2.2% growth versus 2024. However, the key highlight is profitability. Adjusted EBITDA reached BRL 13.2 billion, growing 17% year-over-year, with margins expanding to 60%. Adjusted net income reached BRL 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 BRL 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 BRL 60 million from the continuation of our logistics network restructure, a reduction of legal accruals of BRL 28 million, mostly from settlements, and BRL 370 million in one-off tax gains recognized during the quarter. Adjusting for these effects, we get net revenue of BRL 5.7 billion and EBITDA of BRL 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 Gente, court order payments in favor of the company, and other items.

A detailed brief by line of these effects can be found in the appendix. Once these items are excluded, we arrive at an adjusted EBITDA of BRL 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 a 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 3 percentage points to revenue growth. 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 Sabesp’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, remains 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 Sabesp’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 will 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 the quarter, personnel expenses declined despite a 5.5% collective bargain increase, reflecting a 15% reduction in headcount following the voluntary dismissal programs. Net for the year, we had about 3,800 departures and 2,500 arrivals, ending the year at 9,200 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 BRL 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 BRL 8.5 billion.

This result was negatively impacted by lapping a BRL 4.5 billion non-cash gain from 2024 related to the contract with Uraium, the bifurcation of financial assets, and positively impacted by stronger operational EBITDA and the BRL 1.5 billion monetary update of court-ordered payments. Our transformation is mostly visible in the investment program. In 2025, CapEx reached BRL 15.2 billion, representing more than double the level invested in 2024. In the fourth quarter alone, investments totaled BRL 4.8 billion, more than a full year of the SOE Sabesp 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 Integra Tietê 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 2029. With that, we also took the opportunity to update our CapEx plan for the period.

Starting from the BRL 70 billion defined at 2022’s prices, we’ve updated for inflation through December 2025 and also brought forward some progress from the next cycles, mainly in water safety and metering upgrades, combined with network sensors. 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 are discussing this plan with the regulator and will keep our shareholders informed of developments on this front. Turning now to our balance sheet, at the end of 2025, gross debt stood at BRL 40 billion with net debt at BRL 28 billion. Our average cost of debt 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 BRL 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 2.2x, 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.

Carlos Piani, Chief Executive Officer (CEO), Sabesp: 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 through affordable tariffs. Second, achieving a step change in operational 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 BRL 4.8 billion, bringing total investments in 2025 to BRL 15.2 billion, 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. 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 Sabesp culture principles into daily routines, reinforcing transparency, ethics, and collaboration. Through the Sabesp Gente 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 and alignment with Sabesp’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 BRL 39 billion in contracted investments through 2029. On the regulatory front, 74% of injunctions related to large client discounts have already been ruled in Sabesp’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 discipline culture across the organization.

Service quality and customer experience continue to improve. Our Net Promoter Score reached 47, up 2 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 remains solid, with a 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 BRL 5.9 billion in investments. These projects were brought forward due to their strategic importance and 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, Sabesp’s growth continued to translate into tangible benefits for society. In 2025, we generated BRL 8.5 billion in net income, with 75% reinvested to support infrastructure expansion.

These investments supported BRL 15.2 billion in economic activity, approximately 40,000 jobs, BRL 5.8 billion in reais in taxes, BRL 1.3 billion 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 MIE’s voting and non-voting controlling shares in January of this year. In addition, last week, we acquired an additional stake from the Oceania Fund, representing 23.17% of MIE’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, Sabesp now holds approximately 98% of MIE’s common shares, and the tender offer for the remaining voting shares is expected to take place in April.

MIE 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 Sabesp’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.

Thiago Levy, Investor Relations, Sabesp: 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.

Bruno Amorim, Analyst, 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. You know, can you give us an idea of the potential upside to the BRL 70 billion number for total CapEx in this cycle? Also, you know, 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. The second question on the fourth quarter, the annualized level of CapEx was around BRL 19 billion per year. Does it mean we can see another step up in CapEx to this level, or was the fourth quarter kind of a one-off? Thank you.

Carlos Piani, Chief Executive Officer (CEO), Sabesp: Thank you, Bruno. Good morning to all our shareholders once again. Look, in terms of your first question, right? The number of CapEx that we’ve been conveying to the market has been defined at 2022, 2023’s 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.

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. 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 7 cycles of metering upgrade every 5 years. We’re doing that with the different technology, more advanced technology that requires less updates, but we’re doing more early on. On top of that.

Daniel Szlak, Chief Financial Officer (CFO), Sabesp: 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. Going back to your first question, those are the main drivers behind that increase. 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. 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.

If we believe that we are able to deliver universal access before, we’d for sure do it. In the end, that’s our main goal, right? Last year we had 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 makes a lot of sense. We’re trying to anticipate as much as we can, and 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.

Carlos Piani, Chief Executive Officer (CEO), Sabesp: Our next question comes from Francisco Navarrete with Bradesco BBI.

Francisco Navarrete, Analyst, Bradesco BBI: Danny, Daniel, David, can you hear me well?

Daniel Szlak, Chief Financial Officer (CFO), Sabesp: Yes.

Francisco Navarrete, Analyst, Bradesco BBI: Thank you very much for the call and the opportunity. I just have, you know, a sort of like an operational question and then more of a strategic one. On the operational one, just to check on 4Q results, the payroll line came quite low. I think that there’s a lot you are collecting a lot of the benefits from, you know, reducing costs, workforce and becoming more efficient. At the same time, just wanted to check if there’s a higher level of capitalization of this expense in 4Q 2025 as it was in 4Q 2024. If there is, should this be, is this a seasonal effect or it’s a one-off and we should not consider that number going forward?

Then the second question, more strategic one, goes in the line of the CapEx deployment that you have in the concession that you already own in São Paulo. And that number probably will grow and maybe, you know, who knows, will grow substantially versus investing in concessions or in opportunities or privatization of assets outside of São Paulo, for example, Copasa or any other, any other opportunity that may come in the sanitation sector in the next 12-36 months. Your pipeline is quite robust. How are you thinking about that and specifically which capital allocation specifically about Copasa? What are the points of attention that you have about that asset? You know, beyond price, of course.

We understand that that’s 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. 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 São Paulo. We’ve seen Secretary Natália Resende talk about urban drainage as well. That may be part of the story as well here in the state. Thank you.

Daniel Szlak, Chief Financial Officer (CFO), Sabesp: Thank you, Nava. Maybe I’ll take the first one and you take the second, Piani. Sounds good? Okay. Look, with regards to personnel expenses, every year-end, we revise all our cost centers. As CapEx also grew, we are able to absorb more through CapEx. We have more indirect expenses with regards to CapEx. So in the end, this is a reflection of a full year result. Navarrete, 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.

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 CapEx and what is not, and allows us to more properly reflect that between OpEx and CapEx.

Carlos Piani, Chief Executive Officer (CEO), Sabesp: Regarding the second one, the second part of your question. Sabesp has a large market cap. It’s a huge company in the water space. To bring incrementality from a 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 accretive, very 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?

Talking besides price. The second, how is the tender offer or the book building process, right? I think the regulator was speaking a little bit about these two items for Copasa. I think the timeframe has been very challenging for the privatization of Copasa, and the regulator decisions have been, I think, a little bit laggard to the process. I think public knowledge is the delay of the renewal of the Del Rey’s oranges contract with Copasa.

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 gonna be there for a little bit over 30% of the business, and we can extrapolate this role with some level of probability for the other municipalities. I think this is a pillar. The second one is how the bidding process will be defined. This may benefit more the market, more strategic players. This may impact our interest as well. I think these are the two pillars. At the end of the day, I think there’s good companies and there’s good investments. We always gonna try to do good investments in good companies. Not all the time that’s feasible.

I think these conditions are gonna 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. Myself, Dan or Chad will share our interest with the market. Regarding other opportunities, I think in the state of São Paulo, we, despite the NPV challenge, we’re executing and pursuing smaller deals because we’re defending our home turf. It’s our geography. We’re doing tuck-in opportunities. We bought two, three small municipalities. We look at these deals on an ongoing basis. I think in at the end of the day, we can do more of this independent of the Universalização, and this makes sense for us. I think the marginal cost to serve is zero.

That’s why we’re pursuing these deals. Universalização, I think it’s a great opportunity. The state is conducting this process. The timeframe, I think. Never doubt this government. They achieved many incredible things since I met them. If this deal comes through this year, we’re gonna be ready to look at this opportunity. I think we’re gonna be competitive given it’s in our backyard. Regarding drainage. I think drainage we have had conversations with the state government of São 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 Universalização if we are a winner in all or a part of this process. Then based on this pilot, we can extrapolate the rules 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. 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.

Francisco Navarrete, Analyst, Bradesco BBI: Thank you very much.

Thiago Levy, Investor Relations, Sabesp: Our next question comes from Ricardo Bello with Safra.

Ricardo Bello, Analyst, Safra: Hi, team. 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? On CapEx, 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.

Daniel Szlak, Chief Financial Officer (CFO), Sabesp: Thank you. Thank you, Ricardo. Answering to the first question, right? With regards to large clients discounts, we have captured about BRL 450 million worth of discounts removal in the year of 2025. 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. We’ll continue to see the capture because of the timing of when they ran out through 2025. 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 income for the company. We still have about between 50 and 100 million reais worth of injunctions that we’re still fighting.

Carlos Piani, Chief Executive Officer (CEO), Sabesp: We’ve won more than two-thirds of them, about 70% of them, like Piani said. We’ll continue to pursue to zero that gap. Okay? With regards to CapEx for water safety, we’ve spent about BRL 700 million last year out of the total CapEx for water safety. This year we expect to spend something between BRL 1.5 billion and BRL 2 billion for water safety. The total pipeline that we expect is close to BRL 8 billion that was scattered through the rest of the contract that we’re looking if we are gonna anticipate or if we’re not gonna anticipate. We’re looking at all the construction works that we’re gonna do, if we’re gonna anticipate some, if we’re gonna anticipate all.

This is one of the discussions that we’re having with ARSESP, with the regulator and with the concession, to make the best decisions for the population and improve the water safety for the population.

Thiago Levy, Investor Relations, Sabesp: 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.

Carlos Piani, Chief Executive Officer (CEO), Sabesp: 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 quarters ahead. Have you all a great day. Thank you. Bye-bye.

Thiago Levy, Investor Relations, Sabesp: Sabesp earnings presentation is now closed. Thank you very much for your participation, and we wish you all a very good day.