Good morning, ladies and gentlemen. Welcome to Copasa's Earnings Conference Call for the First Quarter of 2024. This conference call is being recorded, and the replay can be accessed at the company's website, ri.copasa.com.br. The presentation is also available for download on the platform. Please be advised that all participants will be in listen-only mode during the presentation, and later we'll begin the question-and-answer session when further instructions will be given. This presentation is being recorded and translated simultaneously. Translation is available by clicking on the Interpretation button. For those listening to the conference call in English, there is the option to mute the original audio in Portuguese by clicking on Mute Original Audio. Before proceeding, I would like to take this opportunity to reinforce that forward-looking statements are based on the beliefs and assumptions of Copasa's management and on the information currently available to the company.
Such statements may involve risks and uncertainties as they refer to future events, and therefore depend on circumstances that may or may not occur. Investors, analysts, and journalists should take into account that events related to the macroeconomic environment, the industry, and other factors may cause results to differ materially from those expressed in such forward-looking statements. Now, I would like to give the floor to Mr. Carlos Augusto Botrel Berto, CFO and Investor Relations Officer, will begin the presentation. Mr. Berto, you can continue.
Good morning, Rodrigo. Good morning, everyone. Thank you for participating with us in this conference call. I'm accompanied by our CEO, Guilherme Duarte, our Technical and Development Officer, Pablo Andreão. I'll start with the part that addresses the company's performance in the first quarter of 2024.
Start we on slide two, talking about the results of the first quarter of 2024, which reflect the company's actions in the continuous search for increased efficiency. The next slides will also discuss in more detail the explanations for the main lines of the income statement. We present Copasa's financial highlights for the first quarter of 2024, and net revenue reached BRL 1.7 billion, a growth of 7.4% compared to the same period of 2023. In the costs and expenses line, the amount recorded in the first quarter of 2024 was BRL 1.15 billion, whereas in first quarter of 2023, the total amount was BRL 1.05 billion.
In relation to other net operating income and expenses in the first quarter of 2024, the value was negative by BRL 27 million, an increase of 22.4% compared to the negative amount of BRL 22 million in the first quarter of 2023. Now, EBITDA, the value reached BRL 701 million reals in the first quarter of 2024, representing a growth of 3.4% in relation to the comparative period. The financial result for the first quarter of 2024 was negative at BRL 49 million reals, in line with the result observed in the first quarter of 2023. As a consequence of the facts presented, net income reached BRL 352 million reals in the quarter, compared to BRL 338 million in the first quarter of 2023.
On slide three, we'll now detail the main variations in the accounts that make up the income statement. Starting with the net revenue from water, sewage, and solid waste, which in the first quarter of 2024 grew by 7.4% compared to the same period in the previous year. Our revenue in the first quarter of the current year was mainly impacted by the following factors: tariff adjustment applied on January first of this year, with an average tariff effect of 4.21%, as authorized by our Arsae-MG, and an increase of 1.3% in the measured volume of water, and 1.6% in the measured volume of sewage.
An important point to highlight is that this volume was affected by the shorter consumption period in this quarter, 88.2 days, whereas in the first Q of 2023, there were 90.4 days of consumption. If we adjusted the two comparative quarters to 90 days, the increase in volume would be around 4%. On slide 4, we have the evolution of manageable costs, which totaled BRL 769 million in the first quarter of 2024, corresponding to an increase of 9.5% in relation to the comparative period. Below, we detail a little more the variations.
Personnel costs showed an increase of 3% and amounted to BRL 398 million due to the effects on the payroll, resulting from the 2023 collective agreement, which base date is November, and the application of INPC inflation rate was applied of 4.14%. Salary increase of 2%, granted in February 2024, for around 65% of the workforce, and an increase of BRL 5.8 million related to the dismissal of employees due to the restructuring of the workforce that occurred in the first quarter of 2024. It's worth mentioning that in order to have greater cost control and improve its operational efficiency, the company continues to operate in the personnel line.
Compared to the first Q 2023, there was a 5% reduction in the number of employees due to the voluntary separation program implemented in the second quarter of 2023, covering the dismissal of 730 employees, of which 95% have already left the company. Third-party services grew 15.7% in the first Q for 2024, a growth mainly explained by an increase of BRL 6 million in advertising and publicity, mainly due to the rebranding of the company. The increase of BRL 5.7 million in cleaning, surveillance, messenger, and receptionist services, and the increase of BRL 4.7 million in expenditure on professional technical services, mainly due to the new contracts aimed at various commercial and operational improvements and call centers. We now have more operators with greater agility and better service to customers. We also formalized new contracts.
PPP Rio Manso recorded an increase of 5.6% due to a contractual adjustment that took place in April 2023. Loss due to reduction in recoverable value of accounts receivable was 23% higher than the previous period, mainly due to the increase of BRL 57.9 million in the accounts receivable base in the two comparative periods, resulting from the increase in revenue, partially offset by the reduction in default rate, which went from 3.15% - 3.03%. It's worth mentioning, in the first quarter of 2023, we had a greater recovery of accounts written off, which affected a comparison between the two periods.
Finally, the tariff transfer to municipalities increased by 30.6%, followed the increase in revenue in the comparative periods and the increase in number of municipalities qualified to receive such transfers, as defined by the regulatory authority. Slide 5, we show the evolution of non-manageable costs, which showed an increase of 15.2% in the first quarter of 2024, amounting to BRL 193 million. Now, let's go into more detail about the main accounts that make up this group. Cost of electricity increased by 12.7%, mainly due to the 8.6% increase in the company's electricity consumption, as well as the 13.3 adjustment applied by Cemig to energy tariffs effective from June 2023.
We emphasize that the company had a 22.9% reduction in electrical energy of the units that migrated to the free market during 2023, with a savings of around BRL 30 million. Also, as of January 2024, we started using photovoltaic energy with a 16% discount compared to the cost of the captive market. Despite external and non-manageable effects occurred in 2023, such as tariff adjustments above inflation, ICMS, and the end of tax subsidy, we see that in the last three years, we had a reduction in energy expenses in the company. This is due mainly to the actions developed by the company to optimize such expenses, with a highlight to the acquisition of energy in the free market in 2023, and more recently, with the buying from photovoltaic sources.
Next, we have studies to have more energy efficiency, which will allow energy savings in kilowatt hours per cubic meter. So lower energy expenses for each meter of distributed water and collected and treated sewage. Spending on treatment and laboratory materials decreased by 9.5%, caused by the lower use of treatment products due to the lower turbidity of raw water in the main sources used. There was also a change in the booking of tax credits related to depreciation, and as of the first quarter of 2024, this account started to show a 0 balance due to the completion of the automatic accounting process of PIS and COFINS tax credits for depreciation amortization expenses that began to be accounted for directly in each expense account, with a corresponding entry in the credits receivable account.
Therefore, all inputs used in the company's production process began to be accounted for at their net values of these credits. The total costs and expenses of Copasa in the analyzed period reached BRL 1.15 billion, corresponding to an increase of 9.2%. On Slide 6, we present other revenues, other expenses, equity pick-up, and financial result. In relation to other operating revenues, there was a 52% drop in the first quarter of 2024. This variation was largely explained by the reduction in reversals of non-deductible provisions, which are now classified as reducing the corresponding cost. Other operating expenses showed a 10% reduction in the comparative period, mainly due to the reduction in expenses with environmental preservation.
The financial result was negative and amounted to BRL 48.5 million in the first quarter of 2024, in line with the value observed in the first quarter of 2023. Financial revenues fell by 9.4% due to the reduction in real gains in financial investments compared to the first quarter of 2023, due to lower available cash balance associated with the reduction in the economy's basic interest rates in the reference periods. Financial expenses also decreased by 6.2% when compared to the first quarter of 2023, mainly due to the reduction in the CDI and IPCA. Moving to slide 7, we present the data for EBITDA, EBITDA margin and net income.
EBITDA reached BRL 700 million in the first quarter of 2024, and in the first quarter of 2023, it amounted to BRL 678 million. The change in the way tax credits are accounted for, as mentioned earlier, affected a comparative basis, since the value recorded in this account contributed to the formation of EBITDA, which no longer applies as of this quarter. The EBITDA margin in the first quarter of 2024 was 41.1%. The net income in the first quarter of 2024 amounted to BRL 352 million, due to the facts already mentioned in the previous slides. On slide eight, we present the data from the investment program of the company. In the first quarter of 2024, Copasa invested BRL 372 million, an increase of 39.2% compared to the same period of twenty-three.
Of the total invested in the quarter, one hundred and seventy-one million were allocated to water and one hundred and forty-six million to sewage. Capitalizations amounted to forty-eight million. Within the scope of Copanor subsidiary, 8.6 million reais were invested in the first quarter of 2024. On this slide, we also present the values of investments scheduled for the five-year period, 2024 to 2028, whose expected values total 9.8 billion reais for the period. Now, moving to slide nine, we discuss the evolution of the company's debt, including data from gross debt, net debt, and leverage. Gross debt reached 4.7 billion reais in March 2024, of which 15% is short-term debt.
On the other hand, the net debt increased to BRL 3.9 billion in March 2024, while in March 2023, it amounted to BRL 3.1 billion. Finally, the net debt over EBITDA ratio is 1.5 times. Going to slide 10, we address the weight of indexes in our funding, average coupon, debt to equity, and rating. CDI accounted for 32% of Copasa's debt, a reduction of 12 percentage points in relation to the comparative period. This drop in CDI share was mainly due to amortizations carried out throughout the year. The debt linked to IPCA increased, now accounting for 30% of our debt.
The increase of 11 percentage points compared to the reference period was mainly due to the raising of funds through the 18th debenture issue, which took place in September 2023, in a total amount of BRL 900 million, of which BRL 678.4 million reais under IPCA series. The reference rate, TR, in turn, fell 2 percentage points compared to the first quarter of 2023, reaching 19%. The debt in foreign currency refers to the German bank, KfW, European Investment Bank, and the French Development Agency increased, now representing 15% of the total debt as a result of the release of loans in the last twelve months. In relation to the average coupon, the percentage went to 8.3% due to the drop in interest rates.
The net debt to equity ratio, measured by net debt over shareholders' equity, went from 41.6% in March 2023 to 50.4% in March 2024. On Slide 11, we talk about shareholders' compensation. The current dividend policy was approved at the special general meeting held on April 28, 2023. With regard to regular dividends, the percentage of net income distributed varies from 25%-50%, and payments are made within 60 days of approval, with the exception of amounts from the last quarter. This payment is defined in the shareholders' meeting. As for extraordinary dividends, dividends may be distributed as resolved by the board of directors and in compliance with the guidelines provided for in the dividend policy.
For the year 2024, as disclosed in the notice to the market of December 15, 2023, the payout will be 50% of adjusted net income. With the declaration of regular dividends on March 20 of this year, the total amount to be paid in relation to the first quarter of 2024 is BRL 172 million, of which BRL 117.6 million in the form of interest on equity and BRL 54.8 million in dividends. As for extraordinary dividends, the special meeting held on April 26, 2024, distribution of BRL 300 million was approved, using part of the retained earnings reserve account balance existing in the balance sheet for the year ended December 31, 2023. Payment will be made on May 10th.
After the presentation of financial data, now on slide 12, we talk about concession agreements at the closing date for the first quarter of 2024. Copasa and Copanor jointly own 637 water concessions, of which 632 are in operation. As for sewage, there are 308 concessions, 272 in operation. As a result, the company serves 11.7 million inhabitants with water and 8.6 million with sewage. In the table on the right, we show the 10 main Copasa concessions, which together account for 50% of the company's total revenue, approximately. In March 2024, Copasa had 36 expired concessions and one concession whose contract is considered void in court. All these concessions together account for 4.7% of revenues. Slide 13 shows some of our operational data.
The ratio between the number of employees per thousand water and sewage connections was reduced from 1.33 to 1.25 in the first quarter of 2024. In turn, the last index, measured by the difference between the volume distributed and the measured volume, divided by the volume distributed in the last twelve months, was 39.2% in the first quarter of 2024. Delinquency rates corresponding to the ratio between the balance of accounts receivable overdue between 90 and 359 days, and the total amount invoiced in the last twelve months, continued to decrease compared to previous periods, reaching 3.03% in March 2024. Closing our presentation on Slide 15, we show the robustness of our water sources used in the metropolitan region of Belo Horizonte.
The levels of the reservoirs that make up the Paraopeba system, that is, Rio Manso, Vargem das Flores, and Serra Azul, which are responsible for supplying 52% of the metropolitan area, are in aggregate at 89.2%. In the Rio das Velhas system, responsible for 43% of the region's supply, this information is highlighted at the bottom of the slide. The average flow in the last 15 days prior to April 20, 2024, was 28 cubic meters per second, therefore, showing a significant surplus in relation to the volume captured, which is approximately 7.5 cubic meters per second. With that, we conclude our presentation of the operating and financial results for the first quarter of 2024. I now turn the floor over to Rodrigo, the operator, so we can start the Q&A session. Thank you, Mr. Berto.
We're now starting the Q&A session. To ask a question, please click on Raise Hand. If your question has been answered, you can leave the queue by clicking Lower Hand. To ask a question by text, send it using the Q&A icon, informing name and company. The first question comes from Daniel Travitzky from Safra Bank. Your mic is open, Daniel.
Hello, everyone. Good morning. Thank you for the opportunity. My question is to trying to understand the cost dynamics. We saw a significant increase in rebranding expenses year-over-year, but would like to understand how this should evolve from now on, looking at some recurring levels for these lines. For personnel expenses, I've seen that you've done some voluntary dismissal programs lately. Should we expect more initiatives like this from now on?
We would like to understand what is the overall strategy of the company regarding manageable costs for coming years. Thank you. Good morning, Daniel. This is Guilherme speaking. Thank you for your question and for attending the call. As for the cost line, first, we should emphasize that the company's been working intensely for cost to evolve according to the development of revenues, and preferably lower than that, because when cost increase with increase of the depreciation in the company's assets, costs would evolve, below the growth in revenue, with increase in depreciation, is directly related to the increase in the asset base of the company and the increase of the speed of investments. But we remain steady in our efforts to reduce costs.... especially those that are manageable or that can be sent to court, for example, personnel, as you mentioned.
It is worth mentioning that the collective bargaining agreement of the company that adjusted wages according to INPC also has a provision of adjustment of 2% to a certain part of the company's staff in February, which meant the correct application of our jobs and compensations plan, with the evolution of some employees that had evolved in their career and whose salaries had not been adjusted. But all of that is accounted for. We don't foresee any future dismissal programs for the company. We have a consulting firm working with us to better understand the total workforce of the company, to make a complete restructuring of our staff, not only in-house, but also when compared, having of our own employees, as well as outsourcing, where we could work with outsourced services to better have a better performance.
We've had a lower monthly expenses with overtime because we readapted all the schedules and working times. So in parallel, we don't have any tender process to hire new employees. Another line that causes attention, which is outsourcing the technical service, third-party services. There was a significant increase of 15% when compared to the previous quarter, but that was accompanied by the migration of some activities that were outsourced and higher demand from operation and maintenance services, and some services to improve our daily activities, which reflect positively on Factor X of the company. Not only maintenance, we increased our call center to improve services provided to our users. We have twice as many call center operators now, with investment and financial cost of lower than 50% of the previous contract.
Just for you to have an idea, in the previous contract, we had a low rate of positive completion in services at the call center of 60%. In December, with the new contract, we are reaching rates above 90% of the adequate completion of the service. That is, that is reflected not only in the greater satisfaction of our customers, but also positive indicators of Factor X, which translates into positive gains to shareholders, similar to 2023, in which we had a positive gain of BRL 100 million. So we've been very careful with our costs, especially manageable costs. We always pay attention to our non-manageable costs. Transfers, for example, there is regulatory enforced, but all that is returns to the company.
More efficient financial costs, not only to capture gains between cycles, but also to have more efficient costs in the next tariff review. And that protects the company from negative creativity by the regulator regarding assets, the WACC rate, and other significant aspects for the tariff review. In our point of view, the company has evolved positively in its cost control, and we are very strict in that aspect, especially looking accompanying the development of revenues. Excellent. Thank you. If I could ask a follow-up question. Oh, just, adding to the answer to your question. Actually, in the cost of advertising, we had a non-recurring event, a one-off event, which is the rebranding of the company.
This is a one-off event, and because of the new brand of the company now, the resulting advertising costs, and we believe that will have a positive effect in intangible assets. Excellent. That's very clear. I would like to ask another question to understand the dividend policy. As you mentioned, the dividend policy provides for the payment of extraordinary dividends. I would like to understand about the resolution process for this decision to pay extraordinary dividends. Because the leverage of the companies become quite low, so I would like to understand the decision-making process regarding that. This is Guilherme speaking again, Daniel. It's worth remembering that in the past, the dividend policy regarding extraordinary dividends was directly linked to the leverage ratio of the company.
In the beginning of 2023, we changed or amended the policy for dividends to make it not only linked to leverage, because we understand that this is not the only indicator of the company that should be looked at for the correct resolution, whether or not to pay extraordinary dividends. This, we believed, created an expectation that was biased or, you know, not correct from our shareho- on our shareholders, and so they got frustrated. Today, we assess the possibility of paying extraordinary dividends, not only based on the company's leverage ratio, but also looking at other parameters, financial parameters, such as maintenance of minimum cash balance at adequate levels and the progress of the investment program of the company so that it could attain its goals.
The company has had a very robust investment plan last year, and this year, we are with the same goal. Quarter on quarter, we have a 30% of investments when compared to the previous quarter. A way to use extraordinary dividends is to balance or to solve the excess of retained earnings when compared to the capital stock of the company. The Article 199 of the corporate law in Brazil says that the corporate retained earnings should not exceed the capital stock. Any excess surplus should be solved by payment of extraordinary dividends or by including this into the company's share capital. Last year, we did that by paying extraordinary dividends. Every year, we look at the company's parameters to see the best moment to do this. It was made in the end of the year, last year.
This year, we recommended the board of directors to pay BRL 300 million as extraordinary dividends, and the remaining surplus will be integrated into the capital stock of the company. This tends to be a recurring issue in the company, and it's a positive issue because today, our capital stock is adjusted to the retained earnings reserve, looking at the end of 2023. But keeping a payout of 50% will reach the end of 2024 with a new retained earnings that will be higher than the capital stock of the company, so that in 2025, we can again resolve on the amount to be paid as extraordinary dividends, capitalization or a mix of both.
Any new extraordinary dividends in the year of 2024, remembering that now we do no longer have a surplus of retained earnings regarding 2023, will result from the analysis of the financial parameters of the company. And this will be a resolution of the board of directors during the year 2024.
Okay, excellent. That's very clear.
Thank you. Our next question comes from Henrique Peretti from J.P. Morgan.
Hello, good morning, everyone. I have a question about volumes for the year. We've seen a very heavy growth in the fourth quarter of 2023, and in the first quarter of 2024, a decrease in the growth of water and sewage. Taking into account some La Niña projections for the second half of the year, and do you have any expectation of how much water and sewage will grow in the year?
Because we had record high temperatures in 2023. Good morning. This is Guilherme speaking. Thank you for your question and for attending. Hennrique, when comparing the first quarter of 2024 with the fourth quarter of 2023, in fact, in the last quarter of last year, there was a substantial increase in temperatures, and in the first quarter of 2024, we had more rainfall, which contributed to volumes growing less when comparing this quarter to the first quarter of last year. But if we adjust the period of the first quarter of 2024 when compared to 2023, we would have a growth in volume of around 4%. For the year of 2024, new heat waves are expected, especially in the third and fourth quarters of 2024, which, if confirmed, could give rise to a new accelerated growth in volumes.
But volumes have been according to our predictions so far. Okay, thank you. I would like to remind you that to ask a question, please click on Raise Hand. Please hold while we collect the questions.
Next question is by Marcelo Gonzalez from Versa, in writing: When should the tariff review happen for Copasa? When will the process start, and when the tariff increase will be announced? What do you expect for such tariff review?
Good morning, Marcelo. This is Guilherme speaking. Thank you for your question and participation. The tariff review is expected to happen throughout the year of 2025, with being effective as of 2026.
First, we expect to enter new tariff cycles with an asset base significantly higher than the current tariff cycle, which would correspond to a portion of the tariff, corresponding to these tariff and therefore compensation to shareholders. In terms of costs, we'll have an important discussion with the regulatory agency for recognition of some costs that today do not match the reality of the last base year for the last tariff review, such as expenses with third parties, telecommunications. Given the increased, the better customer service provided by the company, we seek recognition of these costs. On the other hand, we understand in the next tariff review, the company will also provide efficiency gains to the market in terms of a reduction of tariffs, especially reduction of levels of some costs, such as personnel expenses, electric energy expenses, as foreseen for...
As predicted for our compensation, which is based on assets used. So these gains are then repositioned for the next tariff cycles, and that has a positive it's positively reflected in the reduction of tariffs, because this helps us or helps to prevent the regulatory agency from being creative and acting on components that are more significant for shareholders, such as maintaining adequate criteria to recognize the asset base. We want to recognize in construction works, because in the last tariff review, they were not recognized, but we believe there is a possibility to recognize them in the next tariff review, and also protection of the WACC rate. If we can have gains of efficiency and reduction of costs and protecting costs that are perennial and maintained by the company.
So when protecting those components that actually compensate on the investor's capital, which are the WACC rate and the asset base, will have a positive effect on our results.
The next question from Adolfo Fraga, individual investor:
Do-does the company has good prospects of acquiring new concessions in Minas Gerais state? Good morning, Adolfo, this is Guilherme speaking. Thank you for your question. Adolfo, the company is attentive to all bidding processes in progress at the state. There is no bidding or invitation to bid in the municipalities that we do not serve. There are some invitations to bid in municipalities whose contracts have ended, in which the company is either participating or intends to participate. This is part of the guidelines of the management to strengthen its presence in current concessions and look for other opportunities in the state of Minas Gerais.
So any invitations to bid in the state, whether served or not, areas that are served or not, will be always studied carefully by the company, because we intend to participate and be as competitive as possible to be granted these concessions. A question from Andrea Sampaio: Good morning, could you comment on the potential for additional cut in the default rates? Good morning, Andrea, this is Guilherme speaking. Thank you for your question and for attending the call. What we've seen lately in the last months and quarters of the company, there has been a gradual reduction of the default rates. The guideline and the goal of the commercial area of the company is to attain the regulatory default rate, which was 2.86%, and we are confident that this is possible.
I cannot say exactly when, but we are adjusting the collection process of the company, the mechanisms to increase revenue so that we can attain that. For example, we have started using instruments to have debt bad debtors. We are talking, negotiating with major customers in the public service, using legal tools so that we can protect the revenue stream of the company and reach the regulatory level of default. I also thank Mr. Rafael Correa for his question about the PDD of the company. About that provision, yes, it is something we paid attention to on a comparative basis, it has increased.
But that is explained not only by the increase in revenue of the company, so proportionally, the absolute value of the bad debt provision tends to increase, but that was also affected by a reduction in default rates. Cleyson, our commercial director, unfortunately, is not here with us, but I was talking to him about strategy this morning, about strategy, to minimize the provisions resulting from loss of credit, especially focused on large customers, so that we can recover these credits from large customers to minimize the impact on this line in our balance sheet and income statement.
The next question is from Leandro Morin, from Colina Investimentos.
The company increased the in-purchase of energy from the free market. In this type of the guidance for 2024 was 50%.
Is this guidance maintained, given the increase of 12.7% when compared to the previous period?
Good morning, Leandro. This is Guilherme speaking. Thank you for the question. Overall, the company has an average demand of 100-110 MW average of energy. Almost the entire potential of medium and high voltage that could migrate to the free market has been done, so our guidance is maintained. Right now, we're migrating the low voltage for the distributed generation with photovoltaic plants, with a cost reduction of around 16%. We are talking about 20 average megawatts, approximately, of low voltage. And the next focus will be to migrate the retail market, that are the units in medium voltage that are connected below 500 kV, that are not potential consumers for the free market.
We're negotiating with the self-production of power, with the potential to reduce this cost of around 30%. We expect to sign these agreements soon, so that in this next quarter, we'll have a reduction on the power costs with the contracts that are more and more not dependent on the captive market, and therefore, on their tariff adjustments. A question from Everton Souza: How is the collection of company for these municipalities? Everton, this accounts for 4.7% of revenue. The company is operating and collecting in those municipalities normally. To ask questions, please click on Raise Hand. If you want to send your question in writing, use the Q&A area, informing your name and company. Please wait while we collect the questions.
The Q&A session has now ended. I would now like to turn the floor to Mr. Carlos Augusto Berto for his final comments.
Thank you, Rodrigo, and thank you everyone for attending the first quarter of 2024 earnings conference call. We remain at your disposal for clarifications through our Financial Investor Relations Department and Copasa's Investment Relations area. Thank you all, and have a good day. The conference call of Copasa has now ended. Thank you for attending, and have a good day.