Good morning, ladies and gentlemen. Welcome to COPASA MG earnings conference call for the first quarter of 2026. This conference call is being recorded, and the replay can be accessed on 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 Q&A 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 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 hand the floor to the CEO, Marília Carvalho de Melo, who will begin the presentation. Please, Ms. Melo, the floor is yours.
Thank you. Good morning, everyone. I would like to say good morning to our investors, analysts, shareholders, and everyone attending the conference call for the earnings of COPASA for the first quarter of 2026. In our last conference, I shared the view that COPASA was in a decisive phase of execution, and the first quarter of 2026 confirms this path. It was a period marked by important advancements that we consider important for the long-term pathway of the company, investments, in addition to the continuation of the transformation agenda conducted by our controlling shareholder.
The main point that I would like to highlight is the execution of our investment plan. COPASA started the year with a strong CapEx rate, especially targeting the expansion and modernization of water and sewage treatment systems, improvement of qualities of services, and water safety. For shareholders and investors, this is an important message because it shows the conversion of the strategic planning into concrete deliveries based on assets that sustain the regulated growth of the company. We have also advanced in operational efficiency with one more reduction in the losses rate of distribution.
This deserves special attention because it connects the operational quality, conservation of water resources, productivity, and potential to generate value. The agenda to reduce losses will continue a priority of the management, supported by technology, modernization of networks, replacement of water meters, and continuous improvement of operational processes. Another important advance in the quarter was the predictability of regulations. The third regulatory review brought important advances for the cycle 2026/2029, including mechanisms that contribute to clarify the recognition of assets and in addition to the economic and financial sustainability of the business.
A predictable regulatory environment is key to perform well in one of the most significant investment cycles of COPASA. The municipality of Belo Horizonte, we renewed the concession up to 2073, which is an important factor to reduce risks. Belo Horizonte is a strategic concession, this advancement reinforces the company's capability to build institutional solutions and ensure continuation of investments in a key area for our operations.
I add also that we made efforts to negotiate with other cities. We conducted several meetings in addition to the articulation with the city authorities that ended at the last week's agreement to include the municipalities in which the company does not operate in sewage treatment. We also advanced for water safety and sustainability, which are topics directly connected to the resilience of our business model. The situation of the main reservoirs remains favorable, we remain prudent in treating, in a long-term view, the water condition, especially in a higher variability of climate conditions.
I would like to reinforce that the destatization process is conducted by the controlling shareholders. COPASA continues to contribute technically, observing the material effects disclosed to the market and maintaining absolute focus on the governance operational feasibility and compliance with its regulatory and contract obligations and execution of investment plan. The destatization plan continues according to the schedule defined by the controlling shareholder. As communicated to the market, we launched the previous step of qualification of reference investor. Naturally, the quarter also brought some points of attention on the short term that will be detailed soon by the presentation by the CFO, Adriano Moura. I would like to reinforce right now is that we are keeping track of these topics with discipline and a focus on efficiency.
We believe that the first quarter of 2026 should be understood as an execution quarter in which significant structural advances work hand-in-hand with the need for continuous attention to cost productivity and quality of revenues. The core message for shareholders and investors is that our strategy remains consistent. We continued to be focused on universalization, universal access to the sewage and water treatment, regulatory compliance, capital discipline, water safety, and sustained generation of value. These are the factors that sustain our management as well as the construction of the next cycle of COPASA. I thank you all again for your attendance and the dedication of our team. Now I turn the floor to our CFO, Adriano Moura, who will present the main financial and operational results of the period. Then later on, I'll be back to answer the questions from the audience. Thank you. Moura, go ahead.
Thank you, Marília. Good morning, everyone. Thank you for your presence in the conference call of COPASA regarding the first quarter of 2026. Let's look at the main highlights of the quarter. The water volume, both in water and sewage, remains stable compared to last year. 170 million cu m for water and then 118 million cu m for sewage. A volume that's below what is expected, considering that there was an increase in connections of water of 1.6, of 2.3 in sewage. The low temperatures ended up reducing the expected usage of water. We also had a tariff readjustment of 6.56%, effective as of January 2026. Net revenue reached BRL 1.9 billion. An average growth of 2.5%.
Also a little bit below what we expected because in addition to the volume, there was a unfavorable or less favorable mix, considering an higher increase of the social category that pays the lower price. Costs and expenses, BRL 1.06 billion, 4.7% higher. Mainly due to the increase in PCLD and other judicial topics, which will be explained later. EBITDA margin close to 41% at BRL 787 million, followed by robust cash from operations amounting to BRL 675 million . Net income of BRL 368 million, a reduction of 14%. That, in addition to the depreciation due to more investments, was also impacted by the reduction in EBITDA.
Dividends in the first Q of 2026 amounted to BRL 278 million, paid in May, in addition to remaining dividends of 2026, or 2025 rather, that will be paid approximately BRL 140 million. As Marília mentioned, we highlight the high level of CapEx, 30% higher than 2025, BRL 695 million, which is a new record for the first quarter of the year. Leverage of 2.4 x on March 31st, which grew because of higher investments compared to 1.8 x on March 31st, 2025. The other highlight mentioned by Marília is the recognition of BH amendment that extends the term for 2073. That affected the balance sheet on intangible assets as well as obligations to the granting authority. In addition to a credit, referring to the reduction of financial debts and adjustment of the debt to present value.
The last highlight mentioned by Marília is the recovery in reservoir levels of the Paraopeba system that operated 83.5% of its capacity, which provides safety for the system. Continuing. The operational efficiency, as Marília highlighted, is one of our strategic priorities, and we are advancing considerably in this agenda. We are reducing a structuring program focused on the centralization of the operating model, productivity and cost discipline, capturing permanent efficiency gains. In the latest months, just to give a few examples, we structured the new operations model with more centralization. With a complete review of processes, we will start shortly optimization investments.
Since August last year, we have in operations our shared services center with more than 150 services centralized, with a lot of improvement opportunities identified. We are also using the zero-based budgeting model. As I mentioned the last call, we have 100 initiatives mapped. Many of them will be executed in 2026. Recently, we created a very important area with the strategic negotiation of procurement. We have mapped 600 suppliers. The goal is to improve efficiency and quality in contracts. Continuing with the next slide, we see the development of EBITDA. The positive area is the tariff increase implemented in January. There was a decrease [earn] in mix, which was an increase in social tariffs and a volume below expected, considering the extra connections we made both in sewage and water.
In personnel, regarding, although the adjustment, there was a reduction of costs, which reflects its lower cost with overtime and reduction of 170 employees. Third-party services, outsourced services have grown because we need more people for metering because we need bigger coverage in for that. Maintenance and operational logistics costs have increased a bit. There were important reduction in other costs, such as materials. In addition to the tariff adjustment, which affect the cost of electricity and also fees for electricity are higher this quarter. In PDA, is a very important item, and it was affected because there was an atypical reduction occurred in that quarter due to a special renegotiations. We went back to a level that's considered normal regarding the amount of bills to fall due or accounts payable.
There's also an impact on the provision for doubtful accounts. Considering next slide, the net income ended the quarter at BRL 168 million, a reduction at BRL 368 million, a reduction of 14% compared to the last first quarter of 2025. The first impact rate came from financial results, appreciation amortizations. In the financial results, there was a significant impact of mark- to- market, of hedged and foreign exchange securities because we have debts in euro, and that reflected in the appreciation of real compared to euro with impact on financial results. It's important to highlight that this is an effect that's mainly on the books of the company. It doesn't affect our strategy or operations.
On the taxes side, we continue to have a very efficient tax rate, a close to 20%, reflecting also any incentives and a maximum optimization of interest on equity to plan for taxes. Next slide, we see operating cash generation, which was strong. Net generation amounted to BRL 675 million, which is in line with the same period of last year, despite the acceleration of CapEx, the growth of investments funds, and the growth in operational efficiency. We ended the quarter with robust cash, we also raised funds of BRL 2 billion, which will meet our demands for the next investment period.
Speaking of investments, on the next slide, we see the highlights of a historical history of investments since 2021. With the important investments made in the last two years, we continue to prioritize sewage universalization, also reduction of losses, water security, and retrofit of wastewater treatment plants. Talking about capital structure and indebtedness on the next slide, indebtedness has grown due to higher investments. We've grown by BRL 1.7 billion compared to the previous quarter. Despite that, our leverage is quite comfortable, and we continue with the good capacity to invest and continue with the continuous improvement of our EBITDA. Closing the presentation, we highlight the consistent evolution of our main indicators. We continue to see a structural path of reduction of losses given by modernization of our systems, in addition to initiatives to reduce losses.
In delinquency, this increase of 3.09% is going back to regular levels in April, so we see a positive trend towards the next months. Finally, the indicator of employees per connection, which reached 1.16, which reflects a decrease in the number of employees, but also more efficiency. This ends the presentation of the financial and operational results of the first quarter. We remain confident in the execution of the strategy of the company, expanding investments, and we will maintain the financial discipline and continue with our capacity to generate sustainable growth in the long run. Let's now go to the Q&A session. Thank you.
We'll now start the question-and-answer session. To ask a question, please click on Raise Hand. If your question is answered, you can leave the queue by clicking Lower Hand. To ask a question by text, simply send it using the Q&A icon, telling your name and company name. Please wait while we collect the questions. The first question comes from Ricardo from Safra.
Thank you. Thank you for the opportunity to ask questions. I have two questions. First, about delinquency. If you could talk about this increase we had in this quarter and highlight what's the quarter to expect in the next quarter, and what has been the most recurring profile regarding delinquency? If you could give us some more color on the destatization or privatization process and about the discussions you've made with the municipalities. I don't know how much you can talk about that, but if you could give us some more color about the process and schedule. Thank you.
This is Jacomini speaking. I am the officer, Sales and Commercial Officer of COPASA. Regarding delinquency, we're putting more pressure on the residential users, and there has been a lot of indebtedness in the families, and that impacted our revenues. Some lower levels of delinquency are already established for April, and we have some projects to reduce that by improving collection processes. We just signed a new agreement with Serasa, our credit bureau, and also using WhatsApp to talk to debtors, and that will improve the performance.
Oh, thank you, Cleyson. Continue with your question. This is Marília speaking. We have constantly talked to the cities, city authorities since we started in the concession agreements. As I said, we signed the agreement with Belo Horizonte. Recently, based on communication to the market, we started a renegotiation tool, which is the advances on the Sanitation Municipality Fund. It's important to highlight the recent publication of the decree that regulates the regional water and sanitation units, gives a term, a deadline for June 23 for the municipalities to adhere to that. That's an important tool for the conversion of the contracts with municipalities.
In addition, we're working with the MInas Association of Municipalities . We had a meeting, a general meeting with all the authorities of the municipalities where we could show the advantages in the conversion of these contracts. We continue with the negotiation to increase the number of municipalities that will convert their contracts to concession agreements.
As I said, the destatization process is conducted by the controlling shareholders of the company. We follow all the phases that are established in law. The Court of Accounts is analyzing it. There's no pending issues regarding the data on the side of the company. According to the plan, by the, we enter the previous qualification phase for the reference investor, we'll then move on to the following steps in the process.
Thank you for the explanations.
I would like to remind you that to ask a question by audio, please click on Raise Hand. If you want to write your question, send it through the Q&A link by, or button, by sending your name and company name. Please hold while we collect the questions. There's a question from Maria Carolina Carneiro. She asks something that's similar to Ricardo's question. I believe that question was answered. Once again, I would like to remind you that to ask questions using the microphone, just click on Raise Hand. If you want to write your question, use the Q&A icon and send your name and company name. There's questions about the level of unitization of assets in 2026.
We are accelerating this conversion to the greatest extent possible, so as of 2027, we have the highest level of investments. We are progressing well. Last year, in the first quarter of 2025, we were able to attain a record high in that regard. That was included in the asset base of 2026, the same is being made now for 2027.
Everything that we invest and we are able to include in the bases until June of this year will have the impact on tariff starting on January 1st, 2027. We're working for that conversion to be as high as possible, and the process is going well. I don't know if you want to make any comments, but feel free if you want to. The... Moura, if you wanna make.
Well, the investment rate has been growing 30%-35% a year, and likewise, we've tried to optimize and accelerate the process, and the conversion rate in the unitization is at the same level. Since the investments are growing, the trend is to grow at closing the cycle until the first half of this year.
Once again, to ask a question, please click on Raise Hand, or write your question using the Q&A button. There's a question about the expected publication for the reference investor to know who is authorized for the next stage.
We don't have the answer to that now. That was a question sent by Itaú Bank, if I'm not mistaken. Marília, would you like to add anything to that?
No, this is it. The step has been completed on Friday. We still don't have that information. As soon as we have it will be disclosed to the market.
I would like to remind you that if you want to ask a question by audio, please click on Raise Hand, or you can write your question on using the Q&A button, sending your name and company name. Please hold while we collect the questions.
About the question about the situation of municipalities in the integrated system, it's important to highlight that the adherence to the conversion of the agreement is a decision that's up to the municipality to make. As I said, we are negotiating and explaining to all the city authorities that are part of the metropolitan region, integrated region, as well as the state of Minas Gerais that are within the concession area of the company.
Once again, I would like to remind you that to ask a question by audio, click on Raise Hand, or write your question using the Q&A button. Once again, to ask a question, please click on Raise Hand or write it on the Q&A button, telling your name and company name. There's a question from [Taís Hirata] , whether there is an estimate of additional CapEx in the event all municipalities that only are served with water adhere to the sewage service.
We have some data based on secondary data because we don't operate in those municipalities. As soon as they adhere or sign the agreement, we'll make a diagnosis of all municipalities to understand what is the need for additional CapEx.
To ask a question using the microphone, please click on Raise Hand. If you want to write your question, use the Q&A button and tell your name and company name. There's a question from Flávio Okuno : Is there a chance of tariff deferment considering the large amount of investments?
Flávio, we do not control the price. The tariffs are defined by ARSAE. It's an independent regulatory agency. We do not have that information. The second question you asked, I'll turn the floor over to Marília to answer. Are you considering the possibility of contract unitization after all municipalities adhere to URAED?
Okay. Thank you, Moura. Flávio, yes, this is a possibility. We are studying it as the municipalities adhere to the proposal until the end of June.
To ask a question in writing, please click on the Q&A icon, tell your name and company name. If you want to ask a question using the microphone, click on Raise Hand. Please hold while we collect the questions. There are two questions that I'll ask Michelle , the Regulatory Officer, to answer. Just a second, please. From Gabriel Francisco: If the company starts rendering sewage treatment services in towns where it only provides water services, what will be the process with ARSAE to update the OpEx budget?
Well, good morning. As Moura mentioned, these topics are to be defined by ARSAE mainly. We understand that will be automatically taken into account in the tariffs, considering that if they, all the municipalities, start at the same time, we don't know their situation. We don't know if we would start a sewage collection. I believe it would be a regular process considering the regulatory processes. Continuing to answer the question that's also related about this one related to investments. Going back to what Moura said, the agency is independent and defines that, but it will analyze the payment capacity of users. There's no expected amount regarding that we can say on our side. Thank you.
The Q&A session has ended. We now turn the floor back to the CEO, Marília Carvalho de Melo, for her final remarks.
Thank you. Thank you all for attending this conference call. I would like to thank again the participation of all shareholders, investors who are here with us in this earnings conference call. COPASA remains committed to transparent, timely, and accessible communication to the market. We know how important it is to maintain permanent dialogue with stakeholders, especially in important moments for the company. We continue to advance with our investment agenda, operational efficiency, and preparation for the next growth cycle.
We would like to thank the work of our team who remains committed to executing the company's strategy, providing quality services to the population, and sustained generation of value for shareholders. Our Investor Relations team is fully available to answer any additional requests for information, clarifications, or requests of meetings with shareholders or investors. We thank you for your attention and continuous interest in COPASA. I wish you a good day.
The conference call of COPASA has now ended. We thank you all for attending. Have a good day.