Strategy and Competitive Advantages

Strategy and Competitive Advantages

Our prominent position in Brazil’s private sanitation market and future prospects stem from the following factors:

Well‑established business with significant scale and know‑how. We are Brazil’s leading private sanitation company. We provide services in 503 municipalities of all sizes, with population ranging from 2 thousand to more than 6 million, across 15 states in all the regions of Brazil, which proves our flexibility in adapting ourselves to towns of different sizes, as well as social and economic realities. The know-how we compiled over the years helped us in our recent successful acquisitions, such as Águas Guariroba, a water and sewage concessionaire in Campo Grande, Mato Grosso do Sul. Since its acquisition, Águas Guariroba has cut its water distribution loss rate from 57% in 2005 to 19.7% in 2023, one of the lowest among Brazilian cities. Furthermore, we expanded sewage collection by Águas Guariroba from 27% in 2006 to 89% in 2023.

We replicated our business model at other units, with focus always on operational efficiency and the quality of services provided. Following are some of our successful actions:

• Water distribution loss rate in Prolagos reduced from 57% in 2007 to 28% in 2023. Besides reducing water waste, it represents greater quality of life for residents and tourists, given the importance of the cities served by Prolagos for the tourism sector in Rio de Janeiro. The cities of Cabo Frio, Búzios, Iguaba Grande, Arraial do Cabo and São Pedro da Aldeia welcome a large number of tourists during the peak season, which significantly increases the population to be served;

• Restoration of Araruama Lagoon, the world’s largest hypersaline lake, whose ecosystem is vital for the region covered by the Prolagos concession;

• Providing universal access to water supply in Teresina, the capital city of Piauí, in just three years through the Águas de Teresina sub-concession. This achievement required investments in retooling and expanding water treatment plants (WTP) and water lift stations (WLS), installing new pumping units and building closer relations with the 32,500 residents living in the areas;

• Adoption of programs such as Vem com a Gente, an itinerant service to regularize the water supply. Vem com a Gente began in 2018, in Águas de Manaus, with a focus on regularizing and expanding access to treated water for the population, with special attention to families living in stilt housescommunities and others. The same program was adopted in Águas do Rio.

• We implemented in Manaus the Tarifa 10, which establishes a fixed charge of R$ 10 on the water and sewage bills, combined. The estimate is that, initially, at least 28 thousand families will be contemplated, totaling more than 140 thousand people with the new benefit.

• Providing universal access to sewage sanitation services in the state of São Paulo in our three concessions (Águas do Mirante, Águas de Matão and Águas de Holambra). Here we highlight our operations in Piracicaba (Águas do Mirante), where universal access was achieved after two years of operations.

• 100% water treated in Timon, Maranhão – the first city in the state to reach this service level.

Diversified high-quality assets and long-term concession agreements. We have a high-quality, diversified asset base with long-term concession agreements (average remaining concession term in 2022 was 30 years, based on the weighted average revenues). Our asset base has the following characteristics: (i) demand is relatively inelastic; (ii) tariffs are adjusted annually based on inflation indices; (iii) concession agreements include clauses that establish economic rebalancing for events not expected at the time of bids, resulting in predictable cash flows. We mitigate risks through geographical and regulatory diversification, with operations in 13 states and 489 municipalities.

The water resources available in the regions where we operate, such as rivers, dams, lakes and groundwater guarantee an adequate supply to the population we serve. Moreover, we monitor consumption and forecast demand in order to guide our investments in water production, distribution and reservoirs, which enables us to meet current and future demand in a predictable manner.

High quality and excellence in services provided and creation of shared value. We follow high service standards and employ the best technology available in the basic sanitation sector to control the quality of water we collect, process and supply. We have our own laboratories and also use outsourced labs to monitor the quality of treated water and sewage, as required by the Company’s internal standards and by law.

We have a department dedicated to combating losses in water distribution and which works on diverse fronts, from detecting leaks using cutting-edge software to investing in improvements and maintenance of the distribution network. On the commercial front, we work to identify fraud and renew the hydrometers in order to reduce revenue losses.

In order to replicate our business model, in 2014 we created the AEGEA Academy, our own educational institution, which trains people in order to add the best practices from the more experienced concessionaires to the new ones.

Our goal is to create value, together with all concessionaires, by employing efforts to promote health, environmental education and universal access to water and sewage treatment. These efforts need constant communication with local governments, communities and trade associations in the regions where we operate. We also implement social responsibility programs and initiatives dedicated to improving the Human Development Index (HDI) of the towns where we operate, with the focus on the pillars of Income, Education and Health.

Strong profitability and predictable cash flow generation. Our operating results show strong profitability. The EBITDA margin of the Aegea Ecossistem stood at 44.2% in 2022, as against an average of 38.5% recorded by Brazilian listed water and sewage companies.

Contrary to what happens in state-owned sanitation companies, our tariffs are already fixed in the agreements and pegged to inflation indices, thus assuring stable and predictable returns for us and our shareholders.

In addition, our investments are mainly related to connecting new households by expanding the water and sewage coverage networks, generating creating fresh cash flows and revenues and reducing our leverage in the short and medium terms, after the investments are concluded.

Access to diverse long-term financing sources. Our solid cash generation results from our operations and our role as an essential public service provider gives us some advantages when securing long-term, low-cost financing from Brazilian public banks, domestic and international multilateral agencies, development banks and capital markets – through the issue of debt in both the domestic and international markets. The fact that we are not dependent on a limited number of sources enables us to Company to diversify financing options in the Brazilian and international markets in order to fund our working capital and investment needs.

International shareholder and strong corporate governance practices. Our controlling shareholder is the Equipav Group, a Brazilian infrastructure conglomerate with a long history and vast experience in the sector, which holds 53% of our capital stock.

Another shareholder is the Singaporean Sovereign Wealth Fund (GIC), which holds 34% interest. GIC is an important global investor that holds assets of around US$100 billion in nearly 40 countries around the world, which brings a unique combination of technical expertise, financial diligence, a disciplined approach to new projects and a seal of quality that drives us to create value and pursue continuous growth for the Aegea Group.

Itaúsa became our third shareholder in 2021, acquiring a 13% stake. Itaúsa, a Brazilian investment company with over 45 years of experience and present in more than 50 countries through its investees, joined the Company to further strengthen its capital structure and continue with its growth strategy.

We have a solid corporate governance structure based on the principles of transparency, equality, accountability and corporate responsibility. The majority of members of our Board of Directors are considered independent as per IBGC criteria. The foundation of the Board of Directors consists of four executive committees and the Integrity and Compliance Department, which reports directly to the Board.

Our Strategy

Our mission is to implement sanitation solutions with excellence and corporate security, contributing to the improved quality of life of publics served. Our goal is to become the global benchmark in providing basic sanitation services in a sustainable, competitive and innovative way, while remaining focused on the needs of our clients. To this end, our strategic goals are based on the following principles: water availability, excellence in provision of services, sustainable growth, promotion and expansion of the operational base, innovation and technology, employee motivation and expansion of sewage coverage.

Guarantee water supply in the areas where we operate. Our goal here is to guarantee water supply in the areas where we operate and to promote the rational and integrated use of water resources while respecting demand and the critical water levels for each region and making investments to streamline the operation structure in the short, medium and long terms, thereby guaranteeing access to water.

Ensure quality and availability in our coverage area, providing excellent service and improving operational efficiency. Our goal is to maintain the water coverage index tagged to high standards of quality and availability of our services, while reducing physical and apparent losses in order to meet the expected growth of our consumer base. Sewage coverage will also be expanded in accordance with the objectives set forth in the concession agreements and in alignment with the targets established in Federal Law 14,026/2020, also known as the New Legal Framework on Sanitation.

We will invest in technology to boost speed and productivity to in response to regulatory changes, strengthen our financial, commercial and management structure, provide a solid and comprehensive database of information to support the decision-making process and increase the efficiency of our operations, besides reducing costs.

Our plan is to constantly improve the management of our assets by cutting down expenses, automating some facilities, streamlining operational processes, implementing the integrated plan and investing in innovation.

Constant pursuit of sustainable growth. Our goal is economic and financial growth combined with the best environmental and social practices. It means generating positive results through the quality of services rendered, while delivering returns to our shareholders.

We prospect growth opportunities and have an unquestionable track record of concessions won in public bid processes and acquisitions, expanding our coverage in Brazil to 503 municipalities across 15 states. We will continue to prospect growth opportunities by leveraging and enhancing our know-how.

To finance our growth, we use diversified sources of funding, including domestic and international development banks, multilateral agencies and capital markets.

Expand our sewage coverage. The plan is to implement sewage collection and treatment structures in an economically and technologically feasible manner, in accordance with the goals established in concession agreements. Such investments are necessary to restore the quality of watersheds, making new sources of water supply available. Our strong presence all around the country and our experience in providing water and sanitation services gives us a unique advantage to expand our sewage services.

Establish efficient and competitive ways to motivate, retain and attract people. Aegea Academy provided 516,061 hours of training in 2023, notably the establishment of a new front for higher education in 2019, which makes us Brazil’s first basic sanitation company to invest in a personalized college program for our sector. Another fundamental role of Aegea Academy is to trace the learning paths of the Trainee Program, which is designed to groom future leaders. Currently, five units are headed by former trainees, while nine other trainees hold leadership positions in corporate areas.

Aegea Academy also provides support for training executive leaders by developing behavioral and technical skills identified in the Talent and Succession Management Program. Launched in 2015, the program seeks to identify and groom internal talent in a structured, systemic and continuous manner at all leadership levels of the company (coordinators, managers, executive officers, vice presidents and CEO) through a career and skills development plan, thereby enabling vertical and horizontal mobility in our team.