SBS

Business Context and Reporting Period

Company: Companhia de Saneamento Básico do Estado de São Paulo - SABESP (SBSP3)
Filing Type: Form 6-K (Report of Foreign Issuer)
Reporting Period: Third Quarter ended September 30, 2025 (3Q25)
Business Overview: SABESP is the leading water and sewage company in Latin America, operating in the State of São Paulo, Brazil. The company is focused on universalization targets, infrastructure expansion, and CO2 reduction goals following its privatization process.

Key Financial Metrics

Liquidity & Balance Sheet (3Q25):
- Cash and Cash Equivalents: R$4,969 million
- Total Assets: R$95,987 million
- Total Liabilities: R$53,277 million
- Total Equity: R$42,710 million

Material Changes vs. Prior Period

• Revenue Composition: Reported Net Revenue decreased 37.2% YoY primarily due to the absence of the R$8.82 billion "Financial Asset" bifurcation revenue recognized in 3Q24 following privatization. Adjusted Net Revenue remained flat (+0.1%) driven by volume growth (+2.5%) offset by a shift to subsidized customer segments (-1.4% mix impact).
• Profitability: Adjusted EBITDA grew 14.7% YoY to R$3.2 billion, driven by operational efficiency, reduced general and administrative expenses, and lower electricity costs via free market migration.
• Investment Acceleration: CAPEX surged 175% YoY to R$4.0 billion in 3Q25, the highest quarterly investment in company history, with R$10.4 billion invested year-to-date (9M25).
• Operational Efficiency: OPEX decreased 15% YoY. Headcount reduced by 12% to 9,306 employees. Electricity expenses dropped 24.8% due to market migration.
• Universalization Progress: By October 2025, the company delivered potable water to 616,264 new units (surpassing annual target) and connected 733,846 new sewage units.

Guidance, Outlook, and Risks

• Management Commentary: Management highlighted a "solid performance" with a 15% increase in adjusted EBITDA. The company remains committed to universalization targets and CO2 reduction goals. The CFO noted the highest quarterly investment ever recorded.
• Outlook: The company expects to continue executing infrastructure projects to meet universalization targets. The U-Factor targets are reported as "well on track."
• Key Risks & Contingencies:
  • Regulatory & Legal: Significant impact from court-ordered debt payments (precatórios) with São Paulo City Hall. R$1.95 billion was approved, with R$1.118 billion received by 3Q25. A non-recurring gain of R$1.461 billion was recognized in financial results related to monetary adjustments of these payments.
  • Rate Adjustments: A R$108 million negative impact on EBITDA in 3Q25 due to water/sewage rate reductions (FAUSP) with retroactive effect.
  • Personnel Costs: R$478 million in provisions for personnel termination expenses related to the "Sabesp Gente Program."

Investor Verification Checklist

• Adjusted vs. Reported Metrics: Verify the distinction between reported EPS (R$3.16) and adjusted EPS (R$1.88). The reported figure is heavily skewed by the one-time financial asset bifurcation in the prior year and non-recurring gains in the current year.
• CAPEX Sustainability: Confirm the funding sources for the 175% increase in quarterly investments (R$4.0 billion) and its impact on future leverage ratios.
• Precatórios Resolution: Monitor the remaining balance of the R$1.95 billion court-ordered debt payments and the timing of future cash inflows.
• Customer Mix Impact: Assess the long-term margin pressure from the growth in subsidized customer segments, which offset volume growth in 3Q25.
• Universalization Targets: Validate the physical progress of water and sewage connections against the stated annual targets and U-Factor goals.