Good afternoon, ladies and gentlemen. Welcome to Copasa MG's conference call to discuss the company's results for the second quarter of 2026. This conference call is being recorded, and the replay can be accessed on the company's website at ri.copasa.com.br. The presentation is also available for download on the platform. Please note that all participants will be in listen-only mode during the presentation. We will then begin the Q&A session, when further instructions will then be provided. Please note that the presentation is being recorded and simultaneously interpreted. Interpretation is available by clicking on the interpretation button. For those listening to the conference call in English, you can mute the original Portuguese audio by clicking on mute original audio. Before proceeding, I would like to remind you that forward-looking statements are based on Copasa's management and their beliefs and assumptions, and also on information currently available to the company.
These statements may involve risks and uncertainties as they relate to future events and therefore depend on circumstances that may or may not occur. Investors, analysts, and journalists should bear in mind that events related to the macroeconomic environment, the industry, and other factors may cause actual results to differ materially from those expressed in the respective forward-looking statements. I would now like to turn the call over to Copasa CEO, Marília Carvalho de Melo. Please, you may proceed, Ms. Marília de Melo.
Thank you very much. Good afternoon, everyone. Welcome to the web conference to discuss the results of Copasa related to the second quarter of 2026. I would like to thank all shareholders, investors, analysts, and representatives of financial institutes and other participants that monitor the evolution of the company. In this presentation, we have the financial director and CFO, Adriano Moura, and the other executives.
This was a quarter, which was very important for Copasa history. After completing the share offer that marked the privatization, we effectively started another cycle for the company. It's a cycle where the focus is no longer the preparation to this transformation and is now, ever more, the execution of the strategy, the capture of gains in efficiency, and the sustainable generation of value for all our stakeholders. As we have mentioned previously, since the completion of the public bid of all the shares, the privatization has never been a purpose in itself. It rather represents an instrument to broaden our investment capacity, accelerate the universalization of sanitation, strengthen our governance, and build a company ever more efficient, competitive, and also prepared for the future. Throughout this quarter, we continued the implementation of this agenda. We made advances in the modernization of the company.
We maintained a high level of investment, and we continue evolving in the updating of our contracting base with the municipalities of the state of Minas Gerais. Up to the moment, we celebrated 49 agreements related to the new regulatory model, which is responsible for about 37.6% of net revenue of 2025. In addition, the conversion of the new agreements to provide services of sewage services. As a consequence, we broadened significantly the average duration of the concessions of the company from approximately 13 years to about 29 years, strengthening our predictability of the cash flow and also creating more solid basis for the execution of our investment plan in the long term. In relation to operating expectations, we make advances in indicators for the creation of value.
We recorded a growth of net revenue of almost 9%, expansion of volumes that have been invoiced, reduction of loss to 35%, acceleration of CapEx, and continuation of the strategy of modernization at the operational level. We also expanded the share of energy coming from the free market and from renewable sources. These are initiatives that constitute, at the same time, result of a better operating efficiency and also related to our ESG commitments. As we have shared in our release, part of the economic performance of the quarter was impacted by specific events, non-recurring, one-off events, including obligations related to the self-composition, together with the Court of Accounts of the State of Minas Gerais, and other extraordinary expenses recognized in the period. Moura, our CFO, will present the financial and operating results in detail, especially the main factors that would explain the variations that occurred along the period.
Those, in fact, influence some of the metrics of our results, but they do not change the strategic foundations of the company, nor our conviction of the potential of generating value coming from the new cycle we are just starting. This is a reading that we have also observed after we disclose the results. Even though the analysts have recognized that some operating indicators were below expectations in the short term, we have a constructive view of the company. The market consensus continue showing that the main variable for the value creation will be the capacity of executing the agenda that started after the privatization, especially related to operational efficiency, contractual evolution, incorporation of the investments in the regulatory base, and discipline in the way we allocate capital. This is also how we see it.
We are conducting this cycle with responsibility, financial discipline, and absolute focus on its execution. We are going to continue working in order to transform investments in regulatory assets, broaden productivity, reduce losses, modernize processes, strengthen the quality of the services provided, and generate sustainable values to our clients, employees, municipalities, and shareholders. Our commitment remains the same: deliver a company ever more efficient, transparent, and prepared to meet the universalization targets, and capable to generate, in a consistent manner, all the values in the long term. I reiterate my thank for the confidence and trust, and I turn the floor to my colleague, Adriano Moura, who will present the details of the financial results and also operating results for the quarter. Thank you.
Thank you, Marília. Thank you very much for attending this conference and this results call. Now, let's move on to slide four.
Here, we show the main financial indicators. Some of them have already been mentioned by Marília, such as the case of the net operating revenue that increased 9% compared to the same period of last quarter. The adjusted EBITDA of BRL 762 million had a growth of approximately 12%, with a margin close to 40%, and this is equivalent to 100 basis points in comparison to the same period of last year. Net income of BRL 275 million, a reduction of 4.8% compared to the previous quarter, mainly impacted by the higher level of depreciation, obviously, as a result of the execution of our asset base, and also as a result of the increase of our financial expenses, about which we are going to provide more detail. In relation to operating cash generation, it continues to be consistent, BRL 670 million along the quarter.
A slight reduction when compared to the second quarter of 2025. Leverage is growing according to the expected parameters, basically as a result of higher investments, but still within a capital structure which can be considered to be reasonable. We are continuing our investment plan according to the plan, according to the financial and physical schedule, BRL 833 million in the quarter, a 27% growth when compared to the second quarter of 2025. Moving on to slide five. These are the key operational indicators. Water volume and sewage volume continue growing, accompany the expansion of our client base. However, this quarter was negatively affected by the temperatures, which are typically lower for the period. I would also draw your attention to the improvement in the evolution of losses, as already mentioned by Marília, 35%, a significant reduction in the past 12 months.
We can see some concrete operating result according to the plan defined for this topic. We installed more than 165,000 water readers, reducing the average age of the equipment to approximately five years. We continue advancing in replacing the networks, and the delinquency rate is in controlled levels, even though the population has become ever more indebted. We continue with efficient actions with disconnections so that we can maintain this delinquency level at a reasonable level. Generally speaking, operating results has a consistent trajectory moving towards improvement, and we have a work front focused on each of those indicators. Especially those who are part of the base incentive for the tariffs, such as losses. Moving on to slide six, we provide details of the main impacts on the adjusted EBITDA.
When we compare quarter-on-quarter of 2025 and 2026, year-on-year, there was a margin increase of 38%-39%. The main component, the positive component, was the increase of the ROL of almost 9%, as we have already mentioned, driven by the tariff adjustment that 656, as result of the improvement in the volume and in the mix. We would like also to point out that the total of cost and expenses, excluding regulatory and the lawsuits demands, were below the inflation rate of the period. In spite of the significant increases that we had with electricity, that increased by 11%, and also treatment materials that increased by more than 14%. Expenses with personnel followed what was in the collective bargaining decision. Even though we had higher expenses related to health, we had an impact of BRL 8 million in the second quarter.
However, there was an offset of nearly 3% in the number of headcount in the past 12 months. Our number of employees is 9,733 people, and we consider the reduction of 260 people less when compared to last year. We had a reduction of BRL 1.7 million related to extra hours. We are really focused on this item, and we believe we are going to be able to reduce it even further. Some news as of January this year is that the costs with water resources are being recognized as regulatory costs in the third tariff review, but it has no impact on the result. We can see a variation of BRL 16 million, but this is offset with revenue. It has no impact on the result, but it has impact when we compare the EBITDA year-on-year.
Lastly, the main detractor for the quarter were the costs with lawsuits. As you can see in the graph, there was a negative impact of BRL 20 million of legal claims because there was an increase in the number of legal claims that are scattered. They have lawsuits related to extra hours, bonuses, dangerous work, hazardous activities, and also demands for compensations. I believe the major impact was related to extra hours, especially. Because of this increase much higher than the average, we created a work front focused on finding the root cause of those demands, and that include the strengthening of internal controls, corrective and preventive measures, among other actions. One of them has already been addressed in the beginning of this year by means of the extraordinary collective bargaining that instituted and formalized the special regimes for continuous operations.
We believe this front is going to lead to a significant reduction of those costs, but we are still working on what we had from the past. We are going to continue monitoring this topic very closely due to its relevance, and we are going to adopt all the measures necessary in order to mitigate those results in the future outcomes. On slide seven, we have the main variation of net income when compare quarters. Just like we did with the prior slide, there was a reduction of BRL 40 million, 4.8%, when compared to last quarter.
Even though EBITDA was positive by BRL 80 million, there was an increase, which was expected in the depreciation and amortization as a result of the growth in investments, and also a negative financial result, which was also expected because of the growth of our gross debt in approximately BRL 3 billion in the last 12 months. We are going to provide more detail about it along the presentation. Moving on to slide eight, we have the moves in the quarter of the cash from 2.243 and ending in June the 3rd with BRL 1.2 billion, with a cash generation a bit below in the second quarter, as we mentioned. Still, the cash generation is robust for the quarter of 673. This is divided between CapEx and interests. Moving on to slide nine, we show details of our indebtedness and leverage.
The growth of the debt, net debt including, was increased. This when compared to the gross debt, and 2.8 x is the leverage at a controlled level. The amortization schedule is close to nine years. It's a bit better than what we saw in the second quarter of 2025. A bit below, close to 8.2 or 8.3, so there was a slight improvement with commitment of payment within capital structure, which is very well controlled. Very similar to what we saw in the last 12 months. The debt indexers are very diversified, 42% in IPCA. Euro is also related to IPA and the FX swap. Debt values nowadays in foreign currencies are backed by the IPCA+. We had a AAA classification by Moody's and also by Fitch Ratings. The expectations are to remain stable.
Moving on to the last slide of the presentation, slide 10, we can see the evolution of investments that continue with a very strong growth trajectory, aligned with the water safety strategies, reduction of losses, universalization of services, and modernization of treatment systems. We had growth of 27% as a coincidence when we compare quarter-on-quarter, which was also 27% in comparison to the first quarter of 2025. We still have BRL 2 billion to reach the target for 2026, and because this is what has been approved by the board at the end of last year, we are going to get close to BRL 3.5 billion, and the highest level in the company history.
Along the last years, it is important to mention that we expanded, in a consistent manner, the capacity of the company to make investments, not only from the viewpoint of capital structure, but especially by means of restructuring reviews of some operating processes. We improved the unitization of the process of construction as a result of the timely recognition of the regulatory base. What is important to mention is that if we consider the period between April 2025 and June 2026, which is the base period for the tariff readjustment, the addition of accounting and additions reached BRL 3.2 billion, and that would include the construction that were completed in the period. This was an absolute record in comparison to the past years. We also have the values that were assumed by BH agreement that would add BRL 1.5 billion to the present value, which is quite relevant.
This shows the accounting view and would integrate what will be submitted to ARSAE-MG next week, and this bank will make the evaluation for regulatory purposes. With this, I end my part of the presentation, and we are available for the Q&A session now.
We are going to start the Q&A session. To ask a question, please click on Raise Hand. If your question is answered, you can leave the queue by clicking in Lower Hand. To ask a question using a text, you can send a text using the Q&A icon informing your name and your company. Please wait while we collect your questions. Our first question comes from Mr. Lucas Guimarães with Itaú BBA. Your line is open, sir.
Good afternoon, everyone. Congratulations on your results.
Could you please provide more detail on the non-recurring event of the labor claims that you had in the quarter, and could you provide more color on the prospect of sewerage coverage for 2026, considering that in the last quarters it was very flat? What can we expect for the celebrations of contracts with municipalities for this year? Thank you.
I am going to start talking specifically about the labor claim costs, and then I am going to share the other answers. As I said, Lucas, unfortunately, we had a significant increase in the volume of labor claims, and this may be connected to the privatization process. We saw that there were very specific moments, and some employees entered with labor claims. In the same period last year, all the labor claims were related to third parties. 78% were related to third parties. For this quarter, we had the opposite.
More than 80% of all the labor claims have been generated by employees. We have been trying to solve the problem at the root cause, and a problem that was generating those claims were extra hours. We made an agreement with the union at the beginning of the year, and that was fundamental for us to move forward to find a definite solution to this point. We are already making final adjustments in the working hours that would involve those critical issues, and I believe we can solve this for the future. There are pending issues from the past that we have to control. We have a front which is very focused on this. We are going to try to mitigate all the consequences, and there are many negotiations that we are making.
We had some restrictions in the past, but now we have more freedom in order to negotiate before it becomes very burdensome and without any possibility to be reverted. I think this front is very well-addressed. I do not know how long it is going to last because, as I said, these are issues that come from the past, but these have all have, is already being addressed. I will turn the floor to Pablo now.
Good afternoon. In relation to the advance of sewage treatment, our projections would indicate the universalization is going to be reached according to the sanitation framework. At present, we are in line with our investment plan, as we have shown in the growth of our investment plan. The growth grows at 1.5% a year, and that would lead to the 90% until 2033.
We are referring to something in the level of 82.2 up to the end of the year. We estimated that we are going to incorporate something around 120 new economies or properties. This according to the coverage indicator, which is our regulatory indicator, and surpassing the target of the regulatory indicator. Lucas, in relation to the topic of negotiation and conversions of the agreement, as I mentioned, we have already converted 49 agreements, and out of those, 23, including sewage treatment, which is 37.6% of our revenue. We continue with the strategy of converting the agreements in the process of negotiation with municipalities. In addition to that, the state has been working on the implementation of the regional units and adhesion of the municipalities.
Our expectation, as the results have shown so far, we duplicated the number of municipalities that have been converted after the privatization process. We are moving forward to have the conventions and the agreements completed as soon as possible.
Thank you very much.
Our next question comes from Maria Carolina Carneiro with Banco Safra. Your line is open, ma'am.
Good afternoon, everyone. Thank you very much for the call. Could you discuss about the results? If you could go over, we have two questions related to the results. We were trying to understand what would be the next steps in the line of other expenses. We saw different provisions, several provisions. I do not know if you have been working on mapping the liabilities for the future.
Obviously, in this phase of the privatized company, maybe you have more margin for you to look terms of flexibilization and agreements that can be made in order to reduce the level of liability and risks, so that we can mitigate what we have seen in the line of other expenses. Could you provide more color and let us know if there has been any mapping that has already been done? PDA has been stable in relation to what we saw previously. I would like to know if you have any strategy, a commercial strategy, in order to try to work on the line of provision for bad debt. Because the scenario for this year is a bit more challenging.
Are you considering a strategy to optimize the strategy that you adopt with the client so that you can be more efficient and reduce this level of PDA in relation to revenues that you have presently?
Thank you, Carol, for the question. Going back to other expenses line, Cleyson will answer your question about PDA, but the composition is related to the water resources that had a variation of nearly BRL 16 million when compared to the previous quarter. This is a new concept. As of this year, this is going to be considered cost, but this has already been included in the revenue, so there is no impact in the result. We are just talking about the geography.
The amount is BRL 16 million, and the major detractor are the provisions of compensations, labor compensations that would include several labor claims that are being questioned and that are moving at the administrative and the legal spheres. Some of them we are already paying, and some of them we are provision according to the probable likelihood of being approved or being determined. This is something that we have been doing for some time, and we decided this after the collective bargaining that we made in the beginning of the year with the union that was likely to zero this problem for the future. We have this coming from the past, and it is something that we still have to monitor. We have a front of work which is focused on this so that we may be able to negotiate those cases in a more flexible manner.
I believe that with this, we are going to be able to decrease this level. In relation to provision for bad debt, I will turn the floor to Cleyson. But in relation to percentages, if you compare 2025 with the same quarter of 2026, there was even a reduction, a percentage reduction in relation to the PDA. As I showed, as an indicator of provision for bad debt, we are at the same level, even though we are facing a serious problem with the population in debt.
Carolina, thank you very much for the question. As you said, the challenge is big because of the families who are indebted. What we have been doing strategically is to change the way we make the collections, and we have also been adopting advanced mechanisms for collections. We are offering new opportunities for payment.
We even introduced the credit card that it is not in the list of payment solutions. In addition to Apple Pay and Google Pay, other solutions to expand the way we do it, and open the surveillance and the actions of collection, and to avoid the disconnection so that we can revert this growing trend of default rates in the country.
Okay, thank you.
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If you want to send your question in writing, click on the Q&A icon, inform your name and the company you work for. Thank you. The question-and-answer session has now been concluded. I would now like to turn the call over to Copasa CEO, Marília Carvalho de Melo, for her closing remarks.
Thank you. Before wrapping up, I would like to stress three messages that we consider to be essential. The first one, Copasa has started a new cycle in its history. Privatization broaden our capacity to accelerate investments, strengthen governance, and execute an agenda which is even more ambitious in value creation. Now our priority is to transform this into concrete results, maintaining discipline in the execution and permanent focus on operating efficiency. The second message is that we continue building solid basis for the long-term growth.
The evolution of our contracting bases, the expansion of the average duration of the concessions, the high level of investments, the expansion of sewerage services, and the modernization of the company, strengthen the predictability of the business and increase our capacity to comply with the quality and responsibility, the universalization targets in the state of Minas Gerais. We remain committed to the sustainable generation of value. Our commitment is to continue delivering an ever more efficient company, transparent and prepared to meet the expectations of our clients, employees, municipalities, investors, and all society at large. We know that the market will keep monitoring our capacity to execute this agenda. We trust the way we are following the quality of our assets and the competence of our teams, and in the potential that Copasa has to consolidate a position as one of the main companies of sanitation in the country.
I would like to thank our employees, whose commitment has been fundamental at this moment of transformation of the company. To our clients and business partners for the trust, for the municipalities, for the partnership we established along decades, and even more strengthened at this time. To our shareholders and investors for the confidence they have placed on us in our long-term strategy. Thank you very much for everybody's participation in this conference call, and we are available to answer all the questions you might have through our IR team. Have an excellent day, all of you.
This concludes Copasa's conference call. Thank you for your participation and have a great afternoon.