Aguas Andinas: Harnessing Regulatory Tailwinds and Operational Efficiency for Sustainable Growth

In the second quarter of 2025, Aguas Andinas S.A. delivered a performance that underscores its strategic positioning as a defensive, long-term investment in Chile's water utility sector. The company's ability to navigate regulatory dynamics, operational challenges, and climate-related risks while maintaining robust revenue growth and shareholder returns highlights its resilience and forward-looking governance. For investors seeking stability amid macroeconomic volatility, Aguas Andinas offers a compelling case study in leveraging structural advantages to drive sustainable value.

Regulatory Tailwinds: A Catalyst for Revenue Growth

Aguas Andinas' Q2 2025 results reflect the tangible benefits of its proactive engagement with Chile's regulatory framework. The VIII Tariff Process, a cornerstone of the company's strategy, has already delivered a 9.5% year-over-year increase in ordinary revenue, driven by higher sanitation tariffs and a 0.6% rise in drinking water supply volumes. This tariff adjustment, coupled with the pending approval of the Alternative Supply Plan tariff—a measure designed to enhance system resilience—positions the company to capture additional revenue streams in Q3 2025.

The Alternative Supply Plan, which requires authorization from the Superintendency of Sanitation Services (SISS), is a critical innovation. By aligning with regulatory expectations for climate adaptation, the plan not only secures higher tariffs but also reinforces the company's role as a steward of public infrastructure. This regulatory tailwind is not merely a short-term boost; it reflects a structural shift in how water utilities are valued in an era of climate uncertainty.

Operational Efficiency: Balancing Costs and Investment

Despite rising operating costs—up 10.1% year-over-year due to inflationary pressures and higher labor expenses—Aguas Andinas maintained a 10.5% growth in operating results and an 8.9% increase in EBITDA. This achievement is a testament to the company's disciplined cost management and strategic capital allocation.

The company's first-half 2025 investment of $68.4 billion in infrastructure projects under the Biocity plan exemplifies this balance. These investments, focused on renewing water and sewer networks, upgrading treatment plants, and enhancing hydraulic efficiency, are not just regulatory compliance measures but also long-term value drivers. By improving system resilience, the company reduces the risk of service disruptions—a critical factor in maintaining customer trust and regulatory favor.

However, financial pressures remain. Net income dipped slightly due to higher interest expenses and the absence of asset sale income from 2024. Yet, the company's cash reserves increased by $4.2 billion in Q2 2025, demonstrating its ability to generate liquidity even amid elevated costs. This liquidity, combined with a dividend policy that prioritizes shareholder returns, reinforces the company's dual focus on reinvestment and profitability.

Strategic Leadership and Governance: A Foundation for Long-Term Success

The appointment of José Sáez Albornoz as CEO and the renewal of the Board of Directors in April 2025 signal a renewed emphasis on governance and strategic agility. Under Sáez Albornoz's leadership, the company is poised to accelerate its climate adaptation initiatives and deepen its commitment to infrastructure modernization. The election of Felipe Larraín as Chairman and Gustavo Migues as Vice Chairman further strengthens the board's alignment with long-term value creation.

These leadership changes are not merely symbolic. They reflect a strategic pivot toward addressing the dual challenges of climate change and regulatory scrutiny. For instance, the company's management of the Maipo River watershed—evidenced by the 82.3% capacity of the Embalse El Yeso reservoir—demonstrates its proactive approach to water resource management. This capability is increasingly valuable in a region where water scarcity could become a systemic risk.

Investment Implications: A Defensive Play with Upside

Aguas Andinas' Q2 2025 performance underscores its role as a defensive investment in a sector where demand is inelastic and regulatory support is strong. The company's ability to secure tariff increases through the VIII process, combined with its infrastructure investments, creates a virtuous cycle of revenue growth and operational efficiency.

For investors, the key question is whether the market has priced in these structural advantages. A comparison of Aguas Andinas' EBITDA growth (6.0% year-to-date) with its peers in the Latin American utilities sector suggests it is undervalued relative to its fundamentals.

Moreover, the company's dividend yield, supported by its strong cash flow generation, offers an attractive income stream. While financial costs and inflation-indexed liabilities pose near-term headwinds, the company's liquidity position and regulatory tailwinds mitigate these risks.

Conclusion: A Model for Sustainable Infrastructure Investment

Aguas Andinas S.A. exemplifies how a utility company can thrive in a high-risk, high-uncertainty environment by aligning with regulatory priorities, investing in resilience, and maintaining operational discipline. Its Q2 2025 results are not an anomaly but a continuation of a strategic trajectory that prioritizes long-term value over short-term gains.

For investors seeking a defensive, high-conviction holding, Aguas Andinas offers a rare combination of stable cash flows, regulatory support, and infrastructure-driven growth. In a world increasingly shaped by climate change and resource scarcity, the company's ability to adapt and innovate will likely ensure its continued relevance—and profitability—for years to come.