Companhia de Saneamento de Minas Gerais Copasa MG

BOVESPA:CSMG3

Earnings Call Analysis

COPASA's Solid Growth Amid Efficiency Gains

In Q2 2024, COPASA's net revenue rose 10.7% to BRL 1.7 billion, driven by tariff adjustments and a 7.2% increase in water and sewage volume. Expenses dropped 4.1%, leading to a 12.1% rise in adjusted EBITDA to BRL 726 million, with a margin of 41.4%. Despite a negative financial result of BRL 119 million due to exchange rates, net income increased by 3.4% to BRL 325 million. Investments surged 33.2% to BRL 901 million. COPASA remains focused on enhancing energy efficiency and expanding its free-market energy contracts, aiming for significant cost reductions.

Strong Revenue Growth Reflects Continued Efficiency Gains

In the second quarter of 2024, COPASA reported a net revenue of BRL 1.7 billion, marking a 10.7% increase from the same period in 2023. This growth can be attributed primarily to a tariff adjustment made on January 1, 2024, which was an average increase of 4.21%, alongside a 7.2% rise in measured water and sewage volumes. The company’s strategic measures to increase operational efficiency also contributed to these positive results.

Cost Management Leads to Improved Margins

Despite experiencing a slight increase in overall costs, COPASA effectively decreased its total expenses to BRL 1.17 billion, down from BRL 1.22 billion in Q2 2023. This resulted in an adjusted EBITDA of BRL 726 million for the quarter, up 12.1% year-on-year, and an EBITDA margin improvement to 41.4%, which is 1 percentage point higher than the previous year. The effective management of personnel costs and third-party services has contributed significantly to maintaining and improving these margins.

Net Income reflects Resilience Amid Challenges

COPASA's net income reached BRL 325 million, a 3.4% increase from BRL 249 million in the same quarter last year. This growth in net profit was achieved despite a negative financial result of BRL 119 million mainly attributed to unfavorable exchange rate variations. The company’s focus on cost control and operational efficiency helped bolster profitability in a challenging macroeconomic environment.

Investment Strategy and Future Projections

The company invested BRL 901 million in the first half of 2024, up by 33.2% compared to the same period last year. Significant allocations went toward water (BRL 420 million) and sewage (BRL 353 million) infrastructure projects. Over the next five years, COPASA is planning to invest BRL 9.8 billion, signaling its commitment to enhancing its operational capabilities and service delivery.

Debt Management and Financial Health Insights

As of June 2024, COPASA's gross debt totaled BRL 5.1 billion, with net debt increasing to BRL 4.5 billion, up from BRL 3.3 billion a year earlier. While the net debt to EBITDA ratio is currently at 1.6, reflecting an increase from the 1.5x ratio reported previously, the company maintains a healthy coverage against its operational earnings. The management expressed confidence in managing its leverage effectively, within the capped limit of 3x.

Positive Outlook Amid Regulatory Environment

The ongoing tariff review process, initiated by the regulatory agency, may further enhance COPASA’s financial position. The company is advocating for a more favorable assessment of its asset base, seeking to recover an estimated BRL 700 million not previously recognized. As a result, this could positively impact future rate adjustments according to the inflation rate, enhancing the company’s revenue streams.

Dividend Policy Indicates Shareholder Return Commitment

COPASA has maintained a consistent dividend policy, currently distributing 50% of its net profits. For the first half of 2024, BRL 318 million has been allocated for dividends, with an additional BRL 300 million proposed as extraordinary dividends due to the company’s positive financial performance. This consistent return to shareholders strengthens confidence in the company's robust financial health.

Operational Advancements and Future Volume Growth Prospects

The company reported a slight decrease in its loss index, reflecting ongoing efforts to improve operational efficiencies. With proactive measures in place and favorable weather conditions expected in the second half of the year, COPASA anticipates increased water volumes, resulting from enhanced customer acquisition strategies. The company remains optimistic about this growth trajectory, ensuring sustained revenue generation.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, ladies and gentlemen. Welcome to COPASA's earnings conference call for the second quarter of 2024. 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 our 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. [Operator Instructions].



Before proceeding, I would like to take this opportunity to enforce that forward-looking statements are based on the beliefs and assumptions of COPASA's management and 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. I now would like to give the floor to Mr. Carlos Augusto Botrel Berto, CFO and Investor Relations Officer; who will begin the presentation. Mr. Beto, you can continue.

[Carlos Augusto Berto, executive]

Thank you, Rodrigo. Good morning, everyone. Thank you for participating with us in this conference call. I'm accompanied here by our CFO, Guilherme Duarte, Cleyson Jacomini, Officer Relations with customers; and Pablo Andreão, IT environment Officer. Let's now start the company's performance the second quarter of 2024 on Slide 2. Talking about the results in the second quarter of '22, which reflects the company's actions and the continued search for increased efficiency. In the next slides, we will also discuss in more detail the explanations for the main lines of the income statement. We present COPASA's financial highlights for the second quarter of 2024, and net revenue reached BRL 1.7 billion, a growth of 10.7% compared to the same period of 2023.



In the cost and expenses line, the amount recorded second Q 24 was BRL 1.17 billion, whereas in second Q '23, it was BRL 1.22 billion. In relation to other net operating income and expenses, in the second quarter of '24, the value was negative by BRL 30 million, an increase of 17.2% compared to the negative amount of BRL 26 million in the second quarter of '23. Turning to adjusted EBITDA, it reached BRL 726 million in second Q '24, a growth of 12.1% in relation to comparative period. The margin in the second quarter '24 was 41.4%, 1 percentage point above the margin recorded in second quarter '23. As for the financial result, the amount for the second quarter '24 was negative at BRL 119 million due to unfavorable exchange rate variation. As a consequence of the facts presented, net income reached BRL 325 million in the second quarter of this year, 3.4% higher than in the second Q '23, which amounted to BRL 249 million.



We will now detail the main variations in the accounts that made up -- that make up the income statement on Slide 3. Starting with the net revenue from water sewage and solid waste, which in the second quarter '24 grew by 10.7% compared to the same period of the previous year. The revenue in the second quarter of the current year was mainly impacted by the following factors. Tariff adjustment applied on January 1 of this year with an average tariff effect of 4.21% as approved by RSI Mg, and an increase of 7.2% in the measured volume of water and sewage, 7.7% in the sewage. On Slide 4, we show the evolution of manageable costs, which totaled BRL 781 million in the second quarter, corresponding to a decrease of 7.8% in relation to the comparative period.



We'll detail a little more of the variations recorded. Personnel costs showed an increase of 1.8% and amounted to BRL 407 million with a salary adjustment of 4.14% applied in November 23 due to the collective labor agreement, plus a sale increase of 2% granted in February 2024 for around 65% of the workforce, which was offset by a reduction of around 4.5% in the number of employees due to the voluntary separation program implemented in second quarter '23. This program ended in the first half of this year and involved a dismiss of around 730 employees. The third-party services grew by 17.6% in the second quarter, a growth explained by the increase of BRL 7.4 million in expenses with maintenance of assets and systems, an increase of BRL 4.9 million in services of cleaning, surveillance, courier and receptionists. An increase of BRL 4.5 million in IT services, an increase of BRL 4.2 million in water truck services.



PPP Rio Manso recorded an increase of 2.6% due to a contractual adjustment that took place in April 2024. The amount of impairment of accounts receivable was 8.5% higher than the previous period, mainly due to the tariff adjustments that occurred and positive variations in build volumes. The tariff transfer to municipalities increased by 15.4% following the increase in revenue in the comparative period. And the increase in the number of municipalities qualified to receive such transfers as defined by the regulatory body. On Slide 5, we show the evolution of non-manageable costs, which increased by 20.3% in the second quarter '24, amounting to BRL 199 million. Let's go into detail about the main accounts that make up this growth. Cost of electricity increased by 11.1% due to a 5.4% increase in the company's electricity consumption, as well as 13.3% adjustment applied by Cemig to energy tariffs effective from June 2023.



On the other hand, we had a reduction in expenses related to electrical energy due to the increase in the number of units migrated to Mercado Libre, the free market. In June 2023, there were 8 units, and in June 2024, there were 21 units. And the beginning of the purchase of energy from photovoltaic sources as of January 2024, reducing such expenses. Despite non-manageable and exogenous effects incurred in 2023, such as the adjustment of tariffs to levels higher than inflation, return of ICMS tax charges and the end of the tariff subsidy, a downward trend in energy expenses at the company has been observed in the last 3 years. That's mainly due to actions taken by the company to optimize such expenses, especially the purchase of energy from the free market in 2023. And more recently, in 2024, the upsetting of energy from photovoltaic sources.



The next ongoing step is the planning for preparation of studies to have energy efficiency from a quantitative perspective, which will allow significant reductions in the specific consumption of electrical energy in kilowatts per cubic meter, that is lower energy costs per cubic meter of water distributed and sewage collected and treated. Spending on treatment and laboratory materials decreased by 1.1%, mainly due to the reduction in the price of treatment materials in the second quarter '24 compared to the second quarter '23, despite the greater consumption of products in some locations due to the rain in the period. We also had a change in the accounting of tax credits related to depreciation, and as of the first quarter '24, this account started to show a 0-balance due to the completion of the process of automatic accounting of PIS and COFINS tax credits, and depreciation and amortization expenses that are now recorded directly in each expense account with the corresponding entry in the credit receivable account.



Therefore, all inputs used in the company's production process began to be accounted for at the net values of these credits. Thus, total cost and expenses of COPASA in the analyzed period reached BRL 1.17 billion, corresponding to a decrease of 3.6% compared to the second quarter of '23. On Slide 6, we present other revenues, other expenses, equity pickup and financial results. In relation to other operating income, there was a 33% drop in second quarter '24. This variation being explained by the reduction in the reversal of nondeductible provisions. The financial result was negative at BRL 18.7 million in the second quarter '24 mainly due to exchange variance expenses resulting from the 10% rise in euro compared to real in this quarter.



We now move to Slide 7 and present data from adjusted EBITDA, adjusted EBITDA margin and net income. Adjusted EBITDA for nonrecurring expenses related to DSP, reached BRL 726 million in second quarter '24, whereas the second quarter '23, the value was BRL 648 million. The adjusted EBITDA margin in the second quarter '24 was 41.4%. Net income in the second quarter of '24 amounted to BRL 325 million due to the facts already mentioned in the previous slides. On Slide 8, we present the data from the investment program of the company. In the first half of 2024, COPASA invested BRL 901 million, an increase of 33.2% compared to the same period in '23. Of the total invested in the semester, BRL 420 million were allocated to water and BRL 353 million to sewage. Capitalizations amounted to BRL 210 million. Under the subsidiary, COPANOR, BRL 22.1 million were invested in the first half of '24. On this slide, we also present the value of investments scheduled for the 5-year period, 2024 to 2028 totaling BRL 9.8 billion for the period.



Let's go to Slide 9, where I discuss the evolution of the company's debt, including data from gross debt, net debt and leverage. Gross debt reached BRL 5.1 billion in June 2024, of which 14% is short-term debt. On the other hand, the net debt increased to BRL 4.5 billion in June 2024, while in June 2023, it amounted to BRL 3.3 billion. Finally, net debt over EBITDA ratio is 1.6. Going to Slide 10. We address the weight of indexes in our funding, the average coupon, debt to equity and ratings. The CDI accounted for 29% of COPASA debt, a reduction of 16 percentage points in relation to the comparative period. This drop in CDI share was mainly due to amortization scared out throughout the year. The debt linked to IPCA increase, now accounting for 28% of our debt. The increase of 9 percentage points compared to the reference period was mainly due to the raising of funds through the 18-debenture issue, which took place in September 2023, in a total amount of BRL 900 million, of which BRL 786.4 million under IPCA.



The debt in foreign currency refers to the German backed KfW European Investment Bank and the French Development Agency, and has increased, now representing around 23% of the total debt, as a result of the release of loans in the last 12 months. In relation to average coupon, the percentage went to 7.9% due to the drop in the interest rates. The debt-to-equity ratio measured by net debt over shareholders' equity went from 43.9% in June '23 to 59.4% in June '24. As for ratings in June this year, Fitch published a report in which the outlook for corporate rating was revised from stable to positive. The company's long-term domestic rating and its debenture issues were maintained at AA, AA+. On Slide 11 of this presentation, 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 for 25% to 50%. Payments are made within 60 days of approval. With the exception of amounts for the last quarter, these payments are the final shareholders meeting.



Regarding extraordinary dividends, policy provides that there may be distribution subject to the guidelines provided, and as analyzed by the Board of Directors and approved by a special shareholders' meeting. For the current fiscal year of 2024, the paywall will be 50% of adjusted net income. With the declaration of regular dividends on June '25 this year, the total amount approved for the first half of '24 totaled BRL 318 million, of which 75% in the form of interest on equity and the remainder in dividends. It should be noted that at the special meeting held on April 26, BRL 300 million were approved as extraordinary dividends. After the presentation, now we talk on Slide 12 about concession agreements and the closing date for 2024. COPASA and COPANOR jointly owned 637 water concessions, of which 632 are in operation. Sewage, there are 38 concessions, 273 in operation. As a result, the company serves 11.7 million inhabitants with water and 8.6 million with sewage.



On the table on the right, we show 10 main COPASA concessions, which together account for 49% of the company's total revenue. In June 2024, COPASA had 38 expired concessions, and 1 concession whose contract is considered void in court. All these concessions together account for 4.8% of revenues. On Slide 13, we show some of our operational data. The ratio between the number of employees per thousand water and switch connections was reduced from 1.32 in the second Q '23 to 1.25 in the second Q '24 due to the voluntary separation program implemented in 2023, in which 730 employees were terminated, the VSP. In turn, the loss index measured by the difference between the volume distributed and the measured volume divided by the volume distributed in the last 12 months, slightly dropped and went from 38.9% in the second Q '23 to 38.7% in second Q '24.



Finally, the delinquency rate corresponding to the ratio between the balance of accounts receivable overdue between 90 and 359 days. And the total volume build in the last 12 months continued to decrease compared to previous periods, reaching 2.97% in June 2024. Closing our presentation, we show the robustness of our water sources used in the metropolitan region of Belo disc. The levels of the reservoirs that make up the Paraopeba system, that is Rio Manso, Vargem das Flores and Serra Azul, which jointly are responsible for supplying 52% of the metropolitan area are in aggregate at 75.1%. With that, we conclude the presentation of the operating financial results for the second quarter 2024. I turn the floor over to the operator, Rodrigo.

[Operator]

Thank you, Carlos. We now will start the Q&A session for investors and analysts. [Operator Instructions]. The first question comes from [Luca Benaderom from MA Partners.] Your microphone is open.

[Unknown Analyst]

Good morning, everyone. I have a question regarding the company's debt in foreign currency. We noticed that year-on-year, there has been large percentage variation. My question is whether the company intends to take more loans in foreign currency. In reading the releases, the company did not have hedge contracts for this type of loans. I would like to understand it from you.

[Carlos Augusto Berto, executive]

Good morning, Lucas. Actually, the company doesn't have any new plan to take loans in foreign currency. This exposure regarding foreign that currency will be decreased when we get the funds from BRL 1.3 billion from the 19th debenture issue. So, we believe that this exposure is small when compared to the total gross debt. And confirming, we do not have any debt in foreign currency hedged. We are assessing the market for the next months to have a more detailed study about hedge contracts. Thank you.

[Operator]

[Operator Instructions]. Our next question comes from Ryan Kazagrengi.

[Unknown Analyst]

Good morning, everyone. My question is about indebtedness. In the release, we see that there's still BRL 1.5 billion to be released to the company, which corresponds to 33% of the current net debt amount. What are the plans of the company to maintain this indebtedness and the control since we noticed an increase in the leverage?

[Carlos Augusto Berto, executive]

Leverage went from 1.5 to 1.6x. And there's still room, if you consider the cap, which is 3 and can reach even 4. And this indebtedness is fully aligned with the company's investment plan for future years.

[Operator]

[Operator Instructions]. Managers will now read the questions in writing and answer them.

[Unknown Executive]

Okay. So, we have received a question from Rafael Kohei from Ibiona Investor. Congratulations on the results. I would like to have an update on the negotiation processes with municipalities along the negotiation made with Pato Jimenez. What is the regulatory impact you expect for OpEx coverage for the municipalities that are under discretionary regulation.

[Guilherme Duarte, executive]

This is Guilherme Duarte speaking. Rafael, thank you for your question. What happened in Pato Jimenez and that we have under advanced negotiations with other municipalities expected to be signed this week will be duly communicated to the market. But these were renegotiations with municipalities that did not agree to the permanence of the company in the municipality, and some including a takeover process, which was annulled. And the company started agreements, not only including a better agreement spoke with commitments and goals from both sides that especially changing the regulation of these municipalities from discretionary to a contractual regulation with a change in the regulatory agency. Now, these municipalities will have their tariff adjusted year-on-year according to IPCA inflation rate.



So, they are subject to the regular tariff adjustments as imposed by RCI. And the next one is for January 2026. So, the base date for implementation of tariff review are the costs and investments of 2025. So, these municipalities will be separate and will not suffer the effects of the tariff review. What we expected a total impact for municipalities under discretionary regulations is a positive for the company, because except for Pato Jimenez and a few others that will announce this week, these are very crowded municipalities that still in the discretionary regulation contributed in the composition of costs of the concession as a whole, especially those that are not self-sustainable. So, these municipalities now carry for them or for the company, the absorption of all the operational efficiency we've achieved. We do not return it to them in the next tariff review.



And for the remaining municipalities that remain under the discretionary regulation, they need the required revenue to be provided by the regulator assigned, the next tariff review to cover the exceeding costs that are under the discretionary law and there will no longer be offset by such municipalities. So, we see a double positive effect as these municipalities will leave, and we have a gain of efficiency and those that remain, that were not -- were under subsidy, the regulatory agency will have enough revenue to cover the costs that used to be subsidized by these municipalities. And this will have a lower residual impact on the tariff review. I hope I made myself clear, but this is the answer. So, just to complement, there are 2 municipalities that will announce this week, and that will make us with almost 4% of our revenue coming from discretionary regulation to contractual regulations.

[Unknown Executive]

A question from Adolfo Braga. Are there good prospects from new concessions in the state of Minas Gerais?

[Guilherme Duarte, executive]

This is Guilherme Duarte speaking. Thank you for your question and for attending the call. Adolfo yes, if we observe -- COPASA covers 638 municipalities out of 856 municipalities in the state of Minas Gerais. Approximately 12 million inhabitants in total, close to 21 million inhabitants. So, Minas Gerais provides a very good scenario so that municipalities can make the mutation to bid for their services and engage a service provider. The company is paying attention to such municipalities, not only in the bidding processes of the municipalities. We participated -- we don't have any answers, but we participated in an ongoing process. And the company is getting ready to be very competitive at future bidding processes that will soon be available.

[Unknown Executive]

The next question is from Joao Fagundes from Bradesco BBI. Could you comment on the dynamic of volume for the remainder of the year?

[Guilherme Duarte, executive]

This is Guilherme Duarte speaking. Thank you for attending and for your question. Yes, if we look on the previous year's historical data, the trend is for the company to have an improved in volume in the second half of the year, especially if we consider the paradigm of the year of 2023 parameter in which there was a high increase of temperature between October and November. If this is confirmed again this year, it's likely for the company to have higher volumes resulting from weather conditions. In addition, for this quarter, there has been an increase in volume of 7.7% that results from commercial actions improvement in metering and bringing new customers to our customer base, improvement of reconnection processes, and reduction of losses. Since this is a continuous improvement process in the company, this plus the weather conditions that are likely to take place in the second half of this year, we have a positive outlook for the second half of the year.

[Unknown Executive]

Question from Vladimir Pinto from XP. Could you talk about the tariff review process and the prospective investments that were not included in the last cycle?

[Guilherme Duarte, executive]

This is Guilherme Duarte speaking. Thank you for attending and for your question. Vladimir, the tariff review has been opened by the regulatory agency with its first public hearing, the company has a strategy and initiative to revert some points in which we felt that we were not -- our questions were not met, including a possible change in the criteria to analyze the asset base of the company. We'll send a suggestion in due time with the suggestion of a -- instead of a base that looks towards the past, but rather a basis that looks in the future cash flows of the company. With the recovery of BRL 700-some million that were not duly recognized in the last tariff review. This is some in-house work that the regulatory area of the company under Clayton Soza is working on.

[Unknown Executive]

The next question from Gustavo, Individual Investor. Has there been any advance regarding the federalization of the company?

[Guilherme Duarte, executive]

Good morning, Gustavo. Thank you for attending for your question. As for the company's management, we have information that were given to the market by communications sent to CVM and the market. The government of Minas Gerais has not informed the company formally about including COPASA in the federalization process. We don't have anything new other than the news that's been published. In the event there's anything new. The company will answer it on a timely basis, communicating the market by the proper ways in the -- as a material fact -- in a material fact or as an announcement made to the market.

[Unknown Executive]

A question from Renato Luis. What is the dividend policy for the next few years? Will investments increase?

[Guilherme Duarte, executive]

As I said, the payout of the company is currently at 50%. And for the next 5 years, '25 to '28, we estimate investments of around almost BRL 9 billion.

[Unknown Executive]

Question from Lissandro, an individual investor. Congratulations on the results of the quarter. I would like to know more about the outsourcing costs. Has this increased in the quarter been punctual? If you could clarify on what you expect for the next quarters, I would like to know. Thank you, and have a good week.

[Guilherme Duarte, executive]

Thank you for the question. This is Guilherme Duarte, again. It's important to clarify about outsourced services or third-party services. When you look at a comparison year-on-year, it seems a large percentage amount. But when you look at the absolute values, this is fully under control according to the company's budget plan because part of it corresponds to a migration of services that were in-house and now are provided by third parties. So, when you look at the decrease in -- or the cost that the company did not have in labor and decrease in these outsourced services, you see that there is no such high increase. But when you look at the absolute values that we saved in labor costs with the absolute value increase in third-party services, we see that it was positive for the company. And also, the third-party services has impacts that are not resulting from outsourcing, but other factors such as agreement adjustment values, and as I mentioned in the last conference call, the improvement of our call center, for example. We doubled the number of positions in the call center that we already have with improved customer service, with the resolution rate from 50% to more than 90% with an increase. There was not equivalent to the double efforts.



So, year-on-year, if you look at third-party amounts, it seems too high. But if you consider the quarters, you see a new dynamic in third-party services that is remaining at the same level. And we are keeping close control of that. And this is offset either by the improvement of the services provided with the Factor X that is a bonus for the company and our year factors, as well as for reduction in labor costs.

[Unknown Executive]

Next question from Mario Wobeto from Banco Safra. Could you talk about the contract profile of energy for the company? What percentage do you have in contracts in the free market, prices per megawatt, duration of such agreements, and how these profiles should evolve in the midterm?

[Guilherme Duarte, executive]

This is Guilherme, Mario. Thank you for your question. I'll try to translate your question by showing the company's energy scenario. We have an average demand of 110 to 115 megawatts average of energy that distributed, 50 average megawatts in high voltage that are covered by free market contracts. We have advanced considerably in migrating to the free market. There is an amount of low voltage at 20 average megawatts that we started migrating to distributed generation in the beginning of 2024 with a ramp-up to be finished in shortly. And going back to free market, our agreements with an average duration of 5 years, and the company is paying attention to new opportunities given the windows of opportunities brought in the migration to distributed generation with the reduction of expenses that is above the average observed by the market.



Our contracts estimate a reduction of 16% to 17% compared to the distribution company tariff. When you have distributed generation, since it's not a self-generation, there is a discount obtained as compared to the distribution company tariff. And we have 25 to 35 average megawatts in the retail market, which are units connected to average voltage or middle voltage, which are not eligible for the free market. And we are negotiating the migration of such units to a self-production system from the company with no equity because the regulator does not consider investment in energy for the asset base. So, it wouldn't be paid out for the company. So, we expect a significant reduction in the energy consumption in these lease when compared to the tariff of the distribution company. And we are in advanced negotiations. We expect to sign this agreement still in the second half of 2024. For the free market, the current ones will remain in place until the end of 2028.

[Unknown Executive]

Next question from Lucas Josh. Congratulations for the results of the company. About profit reserves. We expect that this year, the 2024, the reserves will exceed the capital. What do you plan to do?

[Guilherme Duarte, executive]

The answer is yes, Lucas. We estimate that the profit reserve will exceed the capital stock, and according to the rule, there are 2 possibilities. We can either capitalize reserves or pay out dividends. And we'll make the study towards the end of the year with an impact likely to happen in 2025.

[Operator]

Ladies and gentlemen, the conference call of COPASA has now ended. We thank you all for attending, and have a great day.



[Statements in English on this transcript were spoken by an interpreter present on the live call.]