Companhia de Saneamento Básico do Estado de São Paulo - SABESP (SBS) Earnings

Management highlights

1. Operational and Financial Highlights: CFO Daniel Slak presented that adjusted net revenue grew 11% year-on-year in Q1 2026, driven by price, volume, and mix factors. Adjusted EBITDA grew 26% to $3.8 billion, underpinned by higher revenue and cost efficiency. CapEx reached 3.7 billion in the first quarter, up 31% year on year. 2. Strategic Pillars Progress: - Growth: Maintained strong investment pace with CapEx of 38 billion reais in the first quarter, approximately 31% higher year on year, and a CapEx backlog of 39.8 billion reais from April 2026 through 2029. - Profitability: Substantially closed the historic gap related to discounts granted to large clients with 80% of related injunctions ruled in SubSB's favor. Advanced infrastructure modernization with installation of 326,000 meters, a 51% increase year over year. Collection rate was 96.9% in the quarter, excluding court-ordered debt payments. - Digital Transformation: Successful go-live of SAP S4 HANA, enhancing agility, data quality, and operational integration. - Quality and Customer Experience: Expanded and strengthened digital customer journey with 10.5 million customers using digital payment channels, WhatsApp platform averaging 2.8 million interactions per month, and SubSB's app maintaining a strong 4.6 rating with approximately 1.5 million monthly interactions. - ESG: Remained a member for the second consecutive year in ISEP3's annual index composition and received a B rating in the CDP Climate Assessment in January.

Guidance

1. CapEx plan will continue to be advanced with a strong start in the first quarter. 2. In 2026, the implementation of new regulatory accounting principles, including the new RAB methodology, is expected to be concluded by year end. 3. Actively contribute to the public consultation on the new DRC methodology by submitting recommendations by May 13th, 2026.

Segment performance

1. Water Production: Total water production in the first quarter of 2026 was 778 million cubic meters, 4.6% lower year-on-year. This decline was due to a milder summer with average temperatures 3.3 degrees Celsius lower than the previous year and the application of SEP AGUA's operational rule of denied pressure management for approximately 10 hours per day. 2. Customer Base: The active customer base remained stable with about 9.5 million water and 8.2 million sewage connections. The slight year-on-year reduction was mainly driven by increased revenue assurance actions and verticalization of operating cities. Excluding these impacts, water connections would have been flat year-on-year and sewage active connections would have increased by approximately 0.2%. 3. Financial Performance: - Adjusted net revenue for the first quarter of 2026 was 6 billion, an increase of 11% year on year. - Adjusted EBITDA was $3.8 billion, up 26% versus the year ago, reaching 62.9% margin. - Adjusted net income was $1.5 billion, growing 32% year over year. The revenue growth was driven by three main factors: price contributed 12% (reflected in the January tariff increase and commercial initiatives), volume was up 2.4% (customer base expansion partially offset temperature effects), and mix reduced revenue by 3.4% (expansion of subsidized tariff programs).

Risks & headwinds

1. Changes in market, regulatory, and economic conditions may lead to outcomes different from current trends. 2. Complexity in the implementation of new regulatory accounting principles, such as the new RAB methodology. 3. Higher interest rates may increase net financial expenses due to the higher average debt to fund the CapEx program.

Analyst Q&A

• Q: Electricity and material expenses came in higher than expected. Could you disclose to what extent these lines were impacted by the company's current hydrological situation, what could be normalized levels, and whether a portion of these incremental costs could be subject to future reimbursement?

  A: Daniel Slak responded that electricity expenses saw a year-on-year decline in consumption due to lower production from night pressure management, but higher costs per kilowatt in the captive market. Materials costs were mostly due to phasing. Regarding reimbursement, no specific major items indicated. For social tariff revenue loss, the number of connections benefiting from subsidized tariffs stabilized around 2 million, with organic growth expected as the company serves more underprivileged communities. 2.

• Q: Can you comment on the recent normative that RSSP published presenting the guidelines for the discount policies for large users? What's your thoughts on these guidelines, expectations surrounding this definition? And how can this help you guys in future negotiations with big clients?

  A: Daniel Slak stated that the next step is for SBESP to submit a policy regarding the discount policy for large users, expecting SASB to approve the submitted policy by the end of the quarter, which would help in future negotiations with big clients. 3.

• Q: The government announced the public hearing on the Universaliza Sao Paulo program. So looking at the documents released, what's your first thoughts on that? The expectations for the blocks per se, if it's going to be more than one block and potential size of blocks here in case you have Any views on that? And of course, expectations on possible differences between this model, new model versus the first version and maybe the timeline for that?

  A: Carlos Piani mentioned that it's still early days for these initiatives. Regarding the Universaliza Sao Paulo program, the big unknown is the number of municipalities involved in the formal process. The new news is that there's a piece of drainage in the process, and the DRC to be approved for Cebesp will be rolled out for Universaliza Sao Paulo.