Good morning, ladies and gentlemen, and welcome everyone to Copasa MG's audio conference relative to Q1 2025 results. This conference is being recorded, and a replay facility will be able to be accessed at the company's website at ri.copasa.com.br. The respective slide deck is also available for download at the same URL. All participants will be connected in listen-only mode during the company's remarks. After that, we'll start a Q&A session when further instructions will be provided.
The presentation is also being recorded and simultaneously translated. Translation is available by clicking on the interpretation button at the bottom of the screen. For those listening to the conference in English, you can also mute the original audio by clicking on mute o riginal audio. Before moving on, I'd like to reinforce that forward-looking statements are based on beliefs and assumptions on the part of Copasa's management and also on information currently available for the company.
Such forward-looking statements might involve risks and uncertainties as they refer to future events and therefore depend on circumstances that may or may not materialize. Investors, analysts, and journalists should have in mind that events related to the macroeconomic environment, to the industry, and to other factors might lead the results to be significantly different from those expressed in these forward-looking statements. I'd like now to turn the floor over to Adriano Rudek De Moura , CFO and IRO. Please, sir, you have the floor.
Good morning, everyone, and welcome to our video conference, audio conference. Thank you for being here. Joining me today, I have the whole board and the executive directors of the company. With the exception of Fernando Passalio , our CEO, who will not be able to be here today. He is traveling abroad this week. I would like to thank the presence of Cleyson Jacomini , our Customer Communication and Sustainability Director, Guilherme Frasson , Operations Director, Pablo Terrazzo, Engineering Director and Environment, and Michelle Resende , Strategic Management Manager and also Head of Regulation. It is with great satisfaction that we are here today gathered with you to present Q1 results which were nothing short of exceptional. This has been a historical quarter with records across different operating and financial indicators, as we will see moving forward.
In addition to reinforce our commitment even further with continued improvement in efficiency, profitability, and quality, it also shows a high level of alignment across the whole team as we execute our strategic plan to generate value. During the presentation, I'll go into detail about the advances that we continue to support this plan to generate further value at Copasa.
Starting with the highlights on the first slide, slide number two, actually, two important facts that make us all very happy. We have reached the highest credit rating issued by Fitch. In addition to having good rating by Moody's, we also have AAA by Fitch. This upgrade was supported by solid fundamentals in terms of demand, profitability, leverage level, and especially cash generation, and very positive impact on the regulatory environment.
The second great piece of news was the confirmation by B3 of our shares being capped at the ISE portfolio, Industrial Sustainability Index, that measures the company's real commitment with sustainable practices, not only from the point of view of environmental balance and social balance, but also from the point of view of governance and economic efficiency. Another exceptional highlight for the quarter is that the EBITDA for the quarter was the best in history, a margin of 43%, BRL 814 million. I also would like to highlight a robust cash operating cash generation over BRL 560 million. We're going to go into detail about that number.
Our CapEx, BRL 543 million, in line with our investment plans, both in financial terms but also in physical terms, which also shows we are moving forward in increasing our capacity, both operationally and financially, to support that new CapEx level for the coming years, which is quite aggressive. Also important is our focus on incorporating those assets to our regulatory asset base. As an example, this quarter, we broke a record in terms of incorporation into the base of over BRL 850 million. Once again, all the investments for the past cycle will be incorporated into our base after the assessment by RSI up until March the 31st. After validation, it will be going through the tariff review process as of January 2026.
Also, our regular dividends, which were paid for the first quarter, paid out on the 25th of April, BRL 181 million. In the last shareholders' meeting, we approved a date for the payout of remaining dividends for 2024, which will happen on June the 30th, BRL 154 million. Our board also defined that the dividend payout for 2025 will be of 50%. That is the maximum autonomy from the board for regular dividends. Once again, that does not mean that we will not pay extraordinary dividends. That topic has not been addressed yet by the board of directors.
Another highlight is the level of loss. Our loss reduction has been moving forward consistently. We have reached 37.5% of losses in March. We will give you more details on that moving forward with the presentation. Lastly, but not less important, consistent reduction in the level of delinquency, which reached the best level of our track record at 2.86%. As you can see on the slide, next slide, please, page number three.
Before I go into the details of the numbers for the quarter, I would like to emphasize a couple of important advances we've seen across value generation. Some of those initiatives have already taken off. Others are more recent, but they are all focused on efficiency gains and the growth across our regulatory base, and as a consequence, an improvement in cash generation. Those initiatives are split around three pillars, which can be seen on the slide. Organizational restructuring, which will be process-oriented. The focus was to improve decision-making and productivity levels. We have already created a strategic position to follow up on all those initiatives. We are now working to bring several improvements across all processes, and we'll create, in the second half of this year, a shared services center, our SSC. This SSC will serve to consolidate about 140 processes involving over 600 people.
It is a significant advance in terms of efficiency gains. Another important pillar is that of CapEx management. The focus has been to redesign the whole process of efficient capital allocation vis-à-vis the CapEx covering planning, investments, contracting for the works, which we can do regionally to try to gain and scale. This will, of course, also bring more quality to our suppliers and also more alignment across all units, especially in the pre-working phase, licensing, and so on.
The third pillar, operating efficiency, will consolidate all initiatives aiming at improved efficiency with very clear targets for each manager, which will be defined through the best benchmarks in the market. We are bringing those references into the company. As a final product, we will have a pluriannual budget, which will be approved in early December to be put in place in 2026.
The main objective of all those initiatives is, in addition to get the company ready for a new level of investments, as it has been announced, but also to have a clearer view, a more structured view of how we can generate value for the next tariff cycle. Also, of course, an action plan for individual plans that can be better monitored. Next, please, going now into the numbers now, that chart shows our EBITDA bridge starting Q1 2024 all the way to the first quarter 2025 with the main components, variations in costs and revenues. We show just about all the main variations.
For growth, a growth of BRL 113 million vis-à-vis the same quarter of last year, 16% up in terms of revenues, in addition to the impact coming from the tariff increase as of January 1 this year, BRL 642 million. We also had an increase in volume, which has been announced previously to the market, and a mix which consolidated something close to 4% revenue, 10%, BRL 173 million when you combine volume and price. In terms of costs, I'm going to make a quick aside. Cost and efficiency is one of the strategic pillars we're going to be working on increasingly more intensely, and we'll evaluate all possibilities to improve. I have just mentioned that in my opening remarks, but that's an important work front.
As of June, we'll start an OBZ project, base Z budget, as we call it, and we'll have great discussions around additional opportunities we can find to reduce costs, some of which will be captured as early as next year.
In summary, in the first quarter, our costs came out below inflation, 4.7% for personnel, our largest cost. We had an increase of 6.7%, which had a huge impact on the provision for profit sharing because of the increase of something close to 22%, as we'll see going forward.
For comparison, in fact, if we exclude the profit sharing program, an increase in headcount would be below 4%. Despite the salary adjustments, collective bargaining adjustments, we also had positive offsets. The reduction in extra hours, overtime, we worked hard on reducing overtime, and also a reduction in headcount when you compare quarter on quarter . Some of the third-party services. We are now revisiting several contracts, eliminating some of them when possible. We did not have any extra costs, no known recurring costs. Those numbers follow contractual adjustments for non-administrative costs. The highest item continues to be electric energy. It is important to improve along that number.
We are growing in a controlled manner. Our migration to the free market and the use of photovoltaic energy has been providing results. That has been minimizing cost increases in energy, and also consumption has dropped. We also saw an increase in expense in fuel and lubricants coming from a high consumption in the period, fuel and lubricants.
On the next slide, on page number five, if you will, we have the same comparison, but now in terms of net income. Q1 2024 all the way through Q1 2025, the main variations, a robust growth of 22% quarter- on- quarter. In addition to a positive impact coming from the EBITDA, as we saw before, we also had an improvement in the net financial number due to an appreciation of the currency to the tune of EUR 45 million in our Euro linked debt. Taxes grew in alignment, and we are maintaining an effective rate at the same level as we had last quarter, 25% give or take.
Lastly, a normal growth in depreciation coming from higher investments we are making. Depreciation is part of the regulatory asset base. Going to the next slide, slide number six, cash flow. I would like to highlight a couple of things. A solid cash generation from operating activities, net debt from taxes and interest rates, as per accounting rules. That amount was enough to meet the robust CapEx level in the period. On the next slide, slide number seven, we have our investment program, past and future, as it has been announced. We are maintaining our prediction for the coming years, BRL 17 billion until 2029. During the third tariff cycle, we are talking about an average of BRL 3.5 billion when compared to the previous cycle.
Significant increase, just about twofold. Most of that growth contemplates investments to meet a universalization of services by 2033, but also focusing on other objectives, such as improving services quality, water security, which is quite important, of course, loss reduction. A lot of room to improve, especially in the metropolitan area of Belo Horizonte. Belo Horizonte also retrofit of wastewater treatment plants. We also have a positive impact on the OPEX line. As I have mentioned in my highlights early in the presentation, we are fully meeting the physical schedule. Those BRL 550 million we have reached in the quarter are very much in line and quite relevant. 45% in addition to what we had in the same quarter of last year. A record for the period. Just a final comment before we move on.
Copasa is already above the universalization targets in terms of coverage for water, over 99%. Our challenge remains to universalize services for sewage. Today, we cover 78.2%, s lightly better than we had last year.
On the next slide, slide number eight. Data on our debt level. Leverage below two times, net debt over EBITDA. That means we still have a very large capacity to invest and pay out dividends. That also means our leverage tends to grow in the coming years. The investment plan and also to maintain a competitive dividend payout policy. That balance will be gauged yearly as investments are made and become part of our asset base. This will be happening in an annual period. And also have a more aggressive cost reduction plan. The idea is to maintain a more adequate capital structure with a leverage level closer to three times. That is not a guidance, just to be sure, just a reference as is.
That leverage level has been mentioned in a recent report from Fitch when we were awarded the AAA rating. In terms of that amortization, we have a compatible level with our cash generation level, considering a natural growth in the coming years. In the next fundraisings, we will try to find alternatives of longer term to extend our debt even further. The focus is across incentivized lines, credit lines. We are working hard to define projects that might fit within those prerequisites. We hope we are able to, maybe next year, be able to raise those funds, meeting those incentivized requisites.
In terms of exposition, we have linked most of the debt is linked to IPCA and CDI. We have some euros exposure, 20% of our debt. As I had mentioned in our last earnings call, we are already trying to find a hedge alternative in the market. For the next call, our next meeting, or even before, I hope to have a final decision on that. It is also moving forward quite well on track.
Moving close to our last but one slide. I would like to once again highlight the evolution of our main operating indicators, improving across the board in a consistent manner. Some of them have already mentioned better loss reduction, 37.5% in Q1, the best index in our track record. Still high when we compare to best practices, but we have already several initiatives in place to help us out as we embark on this journey of continued improvement.
We are replacing 20% of our meters, and we are improving the annual age of our equipment. Today, 3.2 years on average. When you go back to 2019, we were talking about five years of age. It is a better base today. The idea is to continue to improve by investing in that kind of equipment. We have new technologies to identify leaks and having good results with that, when also spinning up the replacement of about 350 km of water networks in the city of Belo Horizonte. We have the highest level of losses. Default 2.86%, as we mentioned, delinquency, the best index ever. We are being more efficient in terms of collecting, reviewing clearance credit certificates issued by Serasa.
We have a third-party company to have active collection processes. They are able to recover old credits in addition to a more effective debt negotiation policy. Another initiative that helps us out is also an access to more service channels and also including more clients in our so-called social tariff. In March, the ratio of employee by call continued at the level of 1.2 employees, showing a drop in the trend. We talk about 9,500,000. 9,500, sorry, 9,500 headcount today, as is. To wrap up, a couple of final comments about the third tariff review, which will be effective as of January 2026. We are well advanced in the process, on track with the established deadlines. We have contributed across the board.
We are now in the second phase of the process where we'll define some parameters of the methodologies to be applied. So far, we've seen important progress as the implementation of the WACC. The preliminary value for the coming cycle will be from 7.92% to 9.15%. Said by the regulator, there will be annual recognitions of investments made throughout this third cycle as of April this year. Details of that will still be defined during a public consultation scheduled for the next quarter.
This recognition is key. This has been an important fundamental advancement, and it will be very important for us to be able to increase our investment base and also be able to meet our investment plan. We have been looking to share efficiency gains. It's now under public consultation. It needs to be fair to truly generate incentives.
In short, this should be concluded in the second half of the year as we announce the results at the end of the year, late November, to be sure. The readjustments will take place in January 2026. We close our comments, opening comments and remarks for the quarter, and now we remain available for question answers and turn the floor back over to the operator. Over to you, please, operator.
Start the Q&A session. To make a question, please click on the raise the hand icon. If your question has been answered, you may remove yourself from the queue by clicking on lower the hand. To post a question by texting, writing, just send it through our Q&A icon. Please state your name and your company. Please wait as we pull for questions.
First question. I'm still waiting for the first question. Our first question comes from Luiza Candiota from Itaú BBA. Luiza, you may carry on.
We can want the second question while Luiza tries to reconnect. Second question, please.
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Now, address the questions that we have received through the webcast.
The first question, from Marcelo Goncalves , from Versa, asks Copasa made a decision about the payout of extraordinary dividends this year. Now, as I mentioned before, our dividend policy allows for extraordinary dividend payout, and our track record reiterates that for the past years. For 2025, the board has defined late last year that the payout would be of 50%, 5-0. That's the maximum autonomy that the board has for regular dividend payout. That does not mean that we won't pay extraordinary dividends, but that topic has not yet assessed by the board.
The first one about the PMSO cost. We see throughout the years and quarters a good reduction in PMSO coming from personnel. Do you still see space for that, room for that? Where do you see opportunities to improve efficiency of costs and expenses in the coming years? A second question about dividends. I have already answered. Leverage level getting close to three. Do you plan to alter dividend payout? The second part of the question about dividends, I have already addressed that.
As for the PMSO, the answer is yes. We have been constantly bringing that number down for the past few years. We have more room for improvement in terms of efficiency and costs. As I said, we have an important front, which is an OBZ or zero budget plan for June. The idea is to work for four to five months until November for us to include in the budget for 2026 all initiatives which were discussed based on the best references from the market.
This will bring good discussions for opportunities that might be included in our budget as we focus on reducing PMSO. Several fronts to be explored as we move forward. Luiza sent her question in writing. I'd like to have an update on the process about the next tariff review. You mentioned a bit of the timeline for the next steps. I'd like to have some more color on the OpEx, regulatory OpEx front, in terms of methodology for the calculation.
In terms of partial sharing of gains, of efficiency, and definition for the starting point for this OpEx. I will turn that question for Michelle, our regulation or regulatory head. I can also say that we have not defined that. That's under public consultation. We do not have more precise information as is. In any event, Michelle, if you want to jump in.
Good morning. Good morning, Luiza and colleagues. Yeah, that's exactly it. It's still under public consultation. The review has been following the timeline proposed, but with the last publication of one of the phases of public consultation, which deals exactly with efficiency sharing. The SAA has asked for some additional comments, observations. They have already addressed other incentive factors which have followed, which have been contemplated by the ANA. We do not have a final update on that. This topic, as it was said, is still under discussion, and that sort of delayed the start of the next public consultation, which had been scheduled to start in April.
We understand that as we move forward with those clarifications for the finalization of this current phase, we'll continue to follow on the timeline as established. As Moura said, we do not have any update as is. Nothing new in terms of sharing information on that front.
Thank you. Q uestion about the Belo Horizonte concession. Any news on that front?
Again here, no news. The concession only matures in 2032. Of course, we have already started studies to assess possibilities to renew it, considering several potential scenarios, and we are confident that we'll be competitive in terms of offering good alternatives for future negotiations with the city, not only for Belo Horizonte, but all the other ones.
Question from Leonardo. What's the company doing to reduce leverage? As I said, we're going to increase our leverage because of major investments planned for the coming years. Of course, leverage levels will improve as we include all investments in the new regulatory base and therefore increase revenue. We have also this cost plan that will improve our profitability, and consequently, this will sort of offset our leverage levels. Leverage levels should increase in the coming years because of major investments to be made.
Question from Marcelo. The revenue gain because of the volume mix is high. Was there any other relevant fact in the quarter that led to that improvement? I'll turn it over to Cleyson, our Commercial Director, to address that question.
Good morning, Marcelo. Good morning, everyone. The company has been trying to improve the reading of meters process, which directly affects the consumption mix. We are more precise in defining consumption, in addition to avoiding losses, commercial losses with frauds and waste, clandestine connections. That's also been the focus of our work and has helped change our levels. So what we have been doing is, in summary, improving reading the meters and having improved fighting losses.
Another question from Leonardo. An update on the Água dos Vales project. Michelle, please.
About the project, it is now in the phase of being embraced by the cities. We're talking about 92 cities that need to embrace the project as a whole. As of now, no prediction, no final date to finalize. That project involves individual conversations, negotiations with each city, but we are on track following along all the steps that have been established in the planning phase.
Any increase in leverage will imply a reduction in dividend payout? No, we want to strike a balance between good investments and dividend payout. As I said before, the company will improve the regulatory base. This will generate more revenues. We will also reduce costs. That combination will give us more ability to invest more and to pay out dividends. That's the combination. That's the balance we're going for as we move forward.
Once again, to ask a question, please click on the raise your hand icon. If your question has been answered, you can remove yourself from the queue by clicking on the lower your hand icon. For written questions, send them through the Q&A icon. Please state your name and the company you work for. Please stand by as we pull for questions.
The Q&A session is now over. I'd like to turn the floor back over to the company's CFO and IRO, Mr. Adriano Rudek de Moura, for his final comments. Over to you, sir.
I'd like to once again thank you all for coming and participating in our earnings call today. I'd like to emphasize that we are quite optimistic about all the achievements we've obtained so far and the ones to come. We're also glad and satisfied with the record-breaking results we presented this quarter. We know that's not a guarantee for good results coming forward, but I reinforce our commitment to continue delivering consistent results, results that are always sustainable, quality, safety for all stakeholders: consumers, employees, shareholders, and so on. Thank you once again.
Copasa's audio conference is now over. Thank you all for participating, and have a nice day everyone.