Companhia de Saneamento de Minas Gerais : 1Q24 Release

Earnings

Release

1Q24

Rio Manso Reservoir

Belo Horizonte, April 29th, 2024 - COPASA MG (B3: CSMG3) hereby announces today its results for the first quarter of 2024 (1Q24). The financial information, except where otherwise indicated, is presented in Brazilian Reais thousands (R$ thousand) and refers to the Parent Company. All tables in this report are available for download on the Company's Investor Relations website (ir.copasa.com.br).

OPERATIONAL AND FINANCIAL HIGHLIGHTS

• Net revenue of water, sewage, and solid waste totaled R$1.69 billion in 1Q24, up by 7.4% over 1Q23 (R$1.57 billion).
• Costs and expenses totaled R$1.15 billion in 1Q24 (against R$1.05 billion in 1Q23), up by 9.2%.
• The EBITDA totaled R$700.7 million in 1Q24, up by 3.4% over 1Q23 (R$677.5 million). The EBITDA Margin was 41.1% (42.1% in 1Q23).
• Net income was R$351.6 million in 1Q24, up by 4.1% over 1Q23, that was R$337.7 million.
• Payout for 2024 will be 50% of the adjusted Net Income
• Regular Dividends referred do 1Q24 totaled R$172.4 million: R$117.6 million as Interest on Equity (IoE) and R$54.8 million as Dividends.
• The Extraordinary Shareholders' Meeting held on April 26th, 2024, approved the distribution of R$300.0 million as Extraordinary Dividends.
• Net debt reached R$3.91 billion in March 2024 and the Net Debt/EBITDA ratio was 1.5x.
• Investments made by the Parent Company, from January to March 2024, including capitalizations, totaled R$372.4 million, increasing by 39.2% from the same period in 2023.
• In 1Q24, water volume measured reached 164.2 million m³, while sewage volume came to 112.9 million m³ (up by 1.3% and 1.6%, respectively, over 1Q23) (consolidated data).
• The delinquency rate (ratio between the balance of accounts receivable overdue between 90 and 359 days and the total amount billed in the last 12 months) reached 3.03% in March 2024, one of the lowest indexes in the last 7 years. In March 2023 it was 3.15%.
• The loss rate in COPASA MG's distribution reached 39.2% in March 2024 (39.0% in March 2023).
• The Parent Company's index of "employees per thousand water and sewage connections" fell by 5.8%, from 1.33 in March 2023 to 1.25 in March 2024.
• The capacity level of the reservoirs of the Paraopeba system is 89,2%.

Conference Call	Investor Relations
April 30th, 2024 (Tuesday)	Telephone [phone]
11 a.m. (Brasilia) 10 a.m. (New York) 3 p.m. (London)	[e-mail]
Link:Click here	ir.copasa.com.br

1

Index

1.		Operating Performance	3
1.1.	Operational data	3
1.2.	Customer Base	4
1.3.	Delinquency	5
1.4.	Coverage Ratios	5
1.5.	Staff Management	6
2.		Financial Performance	7
2.1.	Revenues	7
2.2.	Costs and Expenses	8
2.3.	Other Operating Revenues (Expenses)	11
2.4. Equity Pick-up (Subsidiary COPANOR)	11
2.5.	Financial Result	12
2.6.	Taxes on Income	12
2.7.	Net Income	13
2.8. EBITDA and EBITDA Margin	13
3.		Shareholder Compensation	15
3.1.	Dividend Policy Revision	15
3.2. Dividends and Interest on Equity Declared	15
4.		Indebtedness and Rating	17
4.1. Gross Debt and Net Debt	17
4.2.	Indexes and Average Coupon	2	18
4.3.	Corporate Ratings	2	18
5.	Investment Program and Fundraising	19
5.1.	Investment Program - 2024	19
5.2. Investment Program - 2025 to 2028	20
5.3.	Fundraising	20
5.4.	Debenture Issue	21
6.		Service Concessions	22
7.		Water Situation	24
7.1. Belo Horizonte Metropolitan Area (BHMA)	24
7.2. Other municipalities in the Minas Gerais State	25
8.		Material Fact	26
8.1. Adjustment of Excess Profit Reserve in relation to the Company's Share Capital	26
9.		Annexes	27
9.1.	Quarterly Income Statement	27
9.2. Balance Sheet - Assets	28
9.3.	Balance Sheet - Liabilities	29
9.4.	Cash Flow	30
9.5.	Debt	31

Earnings Release 1Q24

1. Operating Performance

1.1. Operational data

The main operational data of the parent company (COPASA MG) comparing 1Q24 with the other reference periods is as follows:

	COPASA MG Data (Parent							1Q24				1Q24					1Q23
		1Q24		1Q23			vs.		4Q23		vs.			1Q22		vs.
	Company)
							1Q23				4Q23					1Q22
	Water
	Connections (1,000 units)	4,564	4,534	0.7%	4,566	-0.1%	4,491	0.9%
	Units (1,000 units)	5,525	5,487	0.7%	5,526	0.0%		5,431	1.0%
	Population Served (1,000 inhabitants)	11,514	11,622	-0.9%	11,566	-0.5%	11,606	0.1%
	Distributed Volume (1,000 m³)	278,502	263,766	5.6%	285,822	-2.6%	256,390	2.9%
	Measured Volume (1,000 m³)	161,549	159,501	1.3%	178,164	-9.3%	150,973	5.6%
	Network Extension (km)	63,406	62,299	1.8%	63,063	0.5%		61,650	1.1%
	Water Metering Index (%)	100.0	99.9		0.1 p.p.	99.9	0.1 p.p.	99.9	0 p.p.
	Loss Index¹ (%)	39.2	39.0		0.2 p.p.	38.6	0.6 p.p.	40.6	-1.6 p.p.
	Loss Index² (L/connectionsxday)	260.0	249.4	4.2%	252.2	3.1%		256.7	-2.8%
	Sewage
	Connections (1,000 units)	3,149	3,088	2.0%	3,140	0.3%		3,025	2.1%
	Units (1,000 units)	4,016	3,933	2.1%	3,996	0.5%		3,854	2.1%
	Population Served (1,000 inhabitants)	8,480	8,463	0.2%	8,496	-0.2%	8,362	1.2%
	Measured Volume (1,000 m³)	111,636	109,913		1.6%	122,507		-8.9%	104,495		5.2%
	Treated Volume (1,000 m³)	97,475	85,368		14.2%	103,210		-5.6%	80,143		6.5%
	Network Extension (km)	32,283	31,509		2.5%	32,107		0.5%		30,921		1.9%

1. Difference between the distributed volume and the measured volume, divided by the distributed volume in the last twelve months.
2. Difference between the volume distributed and the volume measured, divided by the number of served connections and the number of days in the period in the last twelve months.

The main operational data of the subsidiary COPANOR comparing 1Q24 with the other reference periods is as follows:

			1Q24		1Q24		1Q23
COPANOR Data	1Q24	1Q23	vs.	4Q23	vs.	1Q22	vs.
			1Q23		4Q23		1Q22
Water
Connections (1,000 units)	115	112	2.3%	114	0.3%	110	2.2%
Units (1,000 units)	118	115	2.1%	118	0.3%	113	2.1%
Population Served (1,000 inhabitants)	223	226	-1.2%	223	0.1%	223	1.5%
Distributed Volume (1,000 m³)	4,098	4,062	0.9%	4,182	-2.0%	4,246	-4.3%
Measured Volume (1,000 m³)	2,679	2,559	4.7%	2,980	-10.1%	2,326	10.0%
Network Extension (km)	2,899	2,774	4.5%	2,882	0.6%	2,708	2.4%
Sewage
Connections (1,000 units)	54	54	1.6%	54	0.3%	52	2.7%
Units (1,000 units)	56	55	1.3%	56	0.3%	54	2.6%
Population Served (1,000 inhabitants)	107	107	-0.5%	106	0.5%	105	2.0%
Measured Volume (1,000 m³)	1,235	1,200	3.0%	1,350	-8.5%	1,109	8.2%
Network Extension (km)	1,577	1,579	-0.1%	1,559	1.2%	1,578	0.1%

3

Earnings Release 1Q24

The main operational data of the parent company (COPASA MG) and the subsidiary (COPANOR) comparing

1Q24 with the other reference periods is as follows:

	Consolidated Data (COPASA MG +							1Q24				1Q24					1Q23
		1Q24		1Q23			vs.		4Q23		vs.			1Q22		vs.
	COPANOR)
							1Q23				4Q23					1Q22
	Water
	Connections (1,000 units)	4,679	4,646	0.7%	4,681	0.0%		4,601	1.0%
	Units (1,000 units)	5,643	5,602	0.7%	5,644	0.0%		5,544	1.0%
	Population Served (1,000 inhabitants)	11,737	11,847		-0.9%	11,789		-0.4%	11,828		0.2%
	Distributed Volume (1,000 m³)	282,600	267,827		5.5%	290,004		-2.6%	260,636		2.8%
	Measured Volume (1,000 m³)	164,227	162,060		1.3%	181,144		-9.3%	153,299		5.7%
	Network Extension (km)	66,305	65,072		1.9%	65,946		0.5%		64,357		1.1%
	Sewage
	Connections (1,000 units)	3,204	3,142	2.0%	3,194	0.3%		3,077	2.1%
	Units (1,000 units)	4,072	3,989	2.1%	4,052	0.5%		3,908	2.1%
	Population Served (1,000 inhabitants)	8,587	8,570	0.2%	8,603	-0.2%	8,468	1.2%
	Measured Volume (1,000 m³)	112,872	111,113		1.6%	123,857		-8.9%	105,604		5.2%
	Network Extension (km)	33,860	33,089		2.3%	33,666		0.6%		32,499		1.8%

1.1.1.Consumption Period and Measured Volume - Based on 90 days

The changes in measured volume deserve a more detailed analysis given that, because of the billing scheduled for 1Q24, the consumption period recorded this quarter (88.2 days) was shorter than the one reported in 1Q23 (90.4 days) and the other reference periods. To allow for a comparative analysis between the periods, when adjusting the measures volume for a 90-day billing period, the volume measured would:

	Consumption Period and Volume							1Q24				1Q24					1Q23
		1Q24		1Q23			vs.		4Q23		vs.			1Q22		vs.
	COPASA MG
							1Q23				4Q23					1Q22
	Consumption Period
	Consumption Days (quarter)	88.2		90.4		-2.4%	93.1		-5.3%	90.5		-0.1%
	Water Volume (1,000 m³)
	Measured Volume - Real¹	161,549	159,501	1.3%	178,164	-9.3%	150,973	5.6%
	Measured Volume - Adjusted²	164,846	158,884	3.8%	172,232	-4.3%	150,222	5.8%
	Sewage Volume (1,000 m³)
	Measured Volume - Real¹	111,636	109,913	1.6%	122,507	-8.9%	104,495	5.2%
	Measured Volume - Adjusted²	113,914	109,487	4.0%	118,428	-3.8%	103,975	5.3%

1. Represent the volume actually measured, considering the real billing schedule for each period.
2. Represent the adjusted volume, considering a theoretical 90-day schedule for all comparative periods.

1.2. Customer Base

The quarterly information about the customer base, measured volume and billing by consumer category (Residential, Social Residential, Commercial, Industrial and Public) are highlighted in the following table:

Consolidated Data

(COPASA MG + COPANOR)

Water and Sewage (Quarterly Average)

Residential

Residential Social

Commercial

Industrial

Public

Total

Units per Category

(%)

1Q24 1Q23 1Q22

79.2% 79.8% 78.0%

10.4% 9.8% 11.5%

9.2% 8.6% 8.6%

0.6% 0.6% 0.6%

0.6% 1.2% 1.3%

100.0% 100.0% 100.0%

Measures Volume per Category	Billings per Category
	(%)			(%)
1Q24	1Q23	1Q22	1Q24	1Q23	1Q22
74.8%	75.7%	74.1%	69.1%	69.8%	69.1%
10.8%	10.0%	11.9%	5.3%	4.9%	5.9%
8.9%	8.2%	7.9%	15.4%	14.1%	13.7%
2.0%	2.0%	2.1%	3.8%	3.8%	4.0%
3.5%	4.1%	4.0%	6.4%	7.4%	7.3%
100.0%	100.0%	100.0%	100.0%	100.0%	100.0%

4

Earnings Release 1Q24

1.3. Delinquency

According to the following chart, the delinquency rate, i.e., the ratio between the balance of accounts receivable overdue between 90 and 359 days and the total billed amount in the last 12 months, of 3.15% in March 2023, reached 3.03% in March 2024. This result is due to the resumption and intensification of collection actions and debt renegotiation campaigns.

1.4. Coverage Ratios

In March 2024, the coverage ratio of COPASA MG's water services, within its coverage area, is above 99%, as also verified in previous years, being higher, therefore, than that required by the New Sanitation Sector Framework, showing that the Company has already reached universalization before the deadline set for 2033.

As for sewage, in March 2024 the Company reported global coverage ratio for collected and treated sewage of 75.6% (75.0% in December 2023). COPASA MG's robust 2024-2028 Investment Program of R$9.8 billion, as detailed in item 5 of this Release, aims to make the investments necessary to maintain quality, regularity and monitoring of population growth referring to the already universalized water services, and expand investments focused on increasing collection networks and sewage treatment, with the goal of universalizing sewage services, as established by the New Sanitation Sector Framework, that is, 90% of the population supplied with collection network and sewage treatment by 2033.

The Company's coverage ratios for water and sewage are much superior that those verified for the national average. According to data disclosed by the National Sanitation Information System (SNIS), in January 2024, the ratio of global service with water network, at a national level, was 84.9%, for the reference year 2022, and the percentage of sewage treatment reached 52.2%, showing the superiority of COPASA's indicators.

5

Earnings Release 1Q24

1.5. Staff Management

1.5.1. Employees and Employees per Connection

The number of employees in the Parent Company fell by 5.0% from March 2023, to 9,674 employees in March 2024. This reduction allowed for an improvement in the rate "number of employees per thousand connections", as shown in the chart below:

Employees and Employees per Thousand Connection
				12000.0
		1.25	1.60	11000.0
1.33	1.33	1.40
			10000.0
		-5.0%	1.20	9000.0
			1.00	8000.0
			0.80	7000.0
10,095	10,183	9,674	0.60	6000.0
			5000.0
			0.40	4000.0
			0.20	3000.0
			0.00	2000.0
Mar/22	Mar/23	Mar/24
	Number of Employees	Employees per Thousand Connection

The reduction in the headcount was due to the Voluntary Separation Program (PDVI) implemented by the Company in May 2023, for which 736 employees applied, with 706 being dismissed util March 2024, and 8 (eight) applications cancelled. It is also worth noting that the estimated indemnification - fully accounted for in 2Q23 - totaled R$115.1 million, R$84.1 million of which written off until March 2024.

As for COPANOR, the headcount was 458 in March 2024, and the rate of employees per thousand connections was 2.67.

6

Earnings Release 1Q24

2. Financial Performance

2.1. Revenues

The table below shows gross revenue, deductions (PIS/Cofins), and net revenue from water, sewage, and solid waste in the comparative periods:

	Gross Revenue, Deductions and Net						1Q24				1Q24					1Q23
		1Q24		1Q23		vs.		4Q23		vs.			1Q22		vs.
	Revenue
						1Q23				4Q23					1Q22
	Gross Revenue - Water	1,220,292		1,148,368	6.3%	1,274,996		-4.3%	923,682		24.3%
	Gross Revenue - Sewage	641,013		585,696	9.4%	662,063		-3.2%	474,161		23.5%
	Gross Revenue - Solid Waste	1,457	1,037	40.5%	1,404	3.8%		676		53.4%
	Gross Revenue - Water, Sewage and		1,862,762		1,735,101		7.4%		1,938,463		-3.9%			1,398,519		24.1%
	Solid Waste
	PIS/Cofins	(172,386)	(160,564)	7.4%	(179,399)	-3.9%	(129,666)	23.8%
	Net Revenue - Water, Sewage and		1,690,376		1,574,537		7.4%		1,759,064		-3.9%			1,268,853		24.1%
	Solid Waste

Net revenue from water, sewage and solid waste totaled R$1.69 billion in 1Q24, as shown below:

								1Q24				1Q24					1Q23
	Net Revenue		1Q24		1Q23			vs.		4Q23		vs.			1Q22		vs.
								1Q23				4Q23					1Q22
	Net Direct Revenue - Water	1,090,351		1,015,179		7.4%	1,142,516		-4.6%	817,279		24.2%
	Net Direct Revenue - Sewage	578,373		529,680		9.2%	598,138		-3.3%	428,314		23.7%
	Net Direct Revenue - Water and		1,668,724		1,544,859			8.0%		1,740,654		-4.1%			1,245,593		24.0%
	Sewage
	Net Indirect Revenue - Water	17,030		26,934		-36.8%	14,500		17.4%	20,756		29.8%
	Net Indirect Revenue - Sewage	3,344	1,834	82.3%	2,679	24.8%	1,911	-4.0%
	Net Indirect Revenue - Water and		20,374		28,768			-29.2%		17,179		18.6%			22,667		26.9%
	Sewage
	Net Revenue - Solid Waste		1,278		910			40.4%		1,231		3.8%			593		53.5%
	Net Revenue - Water, Sewage and		1,690,376		1,574,537			7.4%		1,759,064		-3.9%			1,268,853		24.1%
	Solid Waste

Next, the Company's comments on the main factors that influenced net revenue from water supply and sewage services, year on year in 1Q24:

• impacts of the tariff increase applied on January 1st, 2024, with an average tariff effect of 4.21%, as authorized by Arsae-MG;
• an increase of 0.7% in water units and 2.1% in sewage units; and
• an increase of 1.3% in water volumes and 1.6% in sewage volume. Despite the temperatures observed in 1Q24 being higher than those observed in 1Q23, volume was impacted by a shorter consumption period in 1Q24 (88.2 days) compared to 1Q23 (90.4 days), consequently impacting 1Q24 revenues. As detailed in item 1.1.1 of this Release, taking into consideration the period adjusted for 90 days of billing for both comparative periods, the increase (1Q24 vs. 1Q23) would be 3.8% (water) and 4.0% (sewage).

7

Earnings Release 1Q24

2.2. Costs and Expenses

The costs of sales and services rendered, sales expenses, and administrative expenses totaled R$1.15 billion in 1Q24, compared to the R$1.05 billion reported in 1Q23, or an increase of 9.2%, as shown in the table below:

								1Q24				1Q24					1Q23
	Costs and Expenses		1Q24		1Q23			vs.		4Q23		vs.			1Q22		vs.
								1Q23				4Q23					1Q22
	Manageable Costs		769,154		702,441			9.5%		809,995		-5.0%			654,472		7.3%
	Personnel¹	398,360		386,441		3.1%	436,328		-8.7%	374,401		3.2%
	Outsourced Services	191,003		165,056		15.7%	181,919		5.0%		129,508		27.4%
	Rio Manso PPP	22,914		21,697		5.6%	23,715		-3.4%	23,281		-6.8%
	Materials	14,564		15,724		-7.4%	18,735		-22.3%	16,524		-4.8%
	Provision for Doubtful Accounts (PDA)	63,365		51,469		23.1%	47,309		33.9%	58,556		-12.1%
	Tariff Transfers to Municipalities	68,410		52,363		30.6%	79,241		-13.7%	43,594		20.1%
	Sundry Operational Costs	10,538		9,691	8.7%	22,748		-53.7%	8,608	12.6%
	Non-Manageable Costs		192,778		167,283			15.2%		192,868		-			174,421		-4.1%
	Electricity	143,542		127,390		12.7%	159,418		-10.0%	149,236		-14.6%
	Telecommunication	4,999	4,449	12.4%	5,122	-2.4%	3,008	47.9%
	Treatment and Laboratory Materials	36,846		40,724		-9.5%	33,047		11.5%	30,088		35.3%
	Fuels and Lubricants	7,391	8,539	-13.4%	12,059		-38.7%	8,537	-
	Tax Credits	-		(13,819)	-100.0%	(16,778)	-100.0%		(16,448)	-16.0%
	Capital Costs		188,553		184,191			2.4%		196,581		-4.1%			182,346		1.0%
	Depreciation and Amortization	188,553		184,191		2.4%	196,581		-4.1%	182,346		1.0%
	Charge for Usage of Water Resources	-		118		-100.0%		(19,239)	-100.0%		-		n.m.
	Total Costs and Expenses		1,150,485		1,054,033			9.2%		1,180,205		-2.5%			1,011,239		4.2%
	Total Costs and Expenses (without		961,932		869,842			10.6%		983,624		-2.2%			828,893		4.9%
	Depreciation and Amortization)

(1) Includes pension plan obligations.

Below, the Company presents the comments on the items that make up the costs and expenses that presented the most significant variations, year on year in 1Q24:

2.2.1. Manageable Costs

2.2.1.1. Personnel

The rise seen in this unit was 3.1%, mainly due to the following factors:

• impacts in salaries, vacation pay, and Christmas bonuses, among other benefits arising from the 2023 Collective Bargaining Agreement (ACT), whose reference date is November, based on the INPC (4.14%);
• salary increase of 2% in February 2024, corresponding to one salary range granted to about 65% of the total workforce, as a result of the aforementioned ACT;
• effect of R$5.8 million in expenses related to employee termination, resulting from the structuring of the staff in 1Q24;
• an increase of R$3.1 million in capitalizable expenses referring to employees assigned to the Company's expansion areas and who are classified as contract assets; and
• a reduction of 5.0% in the number of employees, comparing March 2024 to March 2023, mainly due to terminations under the Voluntary Separation Program (PDVI) implemented in 2023.

2.2.1.2. Outsourced Services

8

Earnings Release 1Q24

This line increased by 15.7%. The items with the most significant variations in the period were:

• an increase of R$6.0 million in advertising and propaganda services, mainly as a result of the rebranding process conducted in 1Q24;
• an increase of R$5.7 million in cleaning, surveillance, messenger, and receptionist services;
• an increase of R$4.7 million in expenditure on professional technical services, with emphasis on the hiring of a new company providing call center services, with an increase in the number of operators, allowing greater agility and improved customer service. It was also observed the formalization of new contracts aimed at various commercial and operational improvements;
• an increase of R$3.1 million in water truck services;
• an increase of R$2.4 million in movable asset rentals.
• an increase of R$1.9 million in maintenance, cut, and reconnection services;
• an increase of R$1.7 million in generator rental costs.; and
• a decrease of R$6.2 million in vehicle rental costs.

2.2.1.3. Rio Manso PPP

The 5.6% increase in this account refers to the contractual adjustment that occurred in April 2023, whose adjustment index is the IPCA

2.2.1.4. Materials

This item fell by 7.4%, mainly due to lower expenses related to conservation and maintenance materials for operational systems.

2.2.1.5. Provision for Doubtful Accounts (PDA)

The 23.1% increase in this item was mainly due to the R$57.9 million increase in accounts receivable over the 2 (two) comparative periods, partially offset by the reduction in delinquency, from 3.15% to 3.03%. Furthermore, there was a higher recovery of written-off accounts in 1Q23, due to the campaigns carried out in that period.

2.2.1.6. Tariff Transfers to Municipalities

The 30.6% increase in this item was mainly due to higher tariff transfer values, due to the 7.4% increase in revenue and the increase in the number of municipal sanitation funds qualified to receive the transfer.

According to Technical Note GRT 06/2023issued by Arsae-MG, within the scope of the tariff increase applied in January 2024, 13 new municipal sanitation funds were included with the right to the transfers, totaling 307 qualified municipalities (294 in the same period in 2023). It is worth noting that the amounts transferred to the municipal sanitation funds are recognized in the tariff.

2.2.1.7. Sundry Operating Costs

The 8.7% YoY increase in sundry operating costs in 1Q24, was mainly due to the provision for material losses, self-consumption of water and travel and accommodation.

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Earnings Release 1Q24

2.2.2. Non-Manageable Costs

2.2.2.1. Electricity

The 12.7% YoY increase in electricity expenses in 1Q24 was mainly due to the net effect of the following factors:

• an increase of 8.6% in the Company's electricity consumption;
• an increase of 13.27% applied by Cemig to the electricity tariffs, levied on the captive market, effective from June 2023;
• elimination in the 3% subsidy applied to the electricity tariffs of the concessionaires providing public water supply and sewage services, levied on the captive market, effective from June 2023;
• exclusion of ICMS from the PIS/Cofins credit tax base, effective from May 2023;
• resumption of collection of the ICMS tax on the Tariff for the Use of the Electricity Transmission System (TUST) and the Tariff for the Use of the Electricity Distribution System (TUSD), effective from February 2023;
• start of energy acquisition from photovoltaic sources from January 2024 (modality in which there is no incidence of ICMS), with 793 installations benefitting from a discount of around 16% on the captive market cost by March 31st, 2024; and
• a reduction of 22.9% in electricity expenses from the units that migrated to the Free Market in 2023. We underscore that such units account for about 47% of the Company's total energy consumption.

2.2.2.2. Telecommunications

The 12.4% rise was mainly due to the expansion and upgrade of data transmission services, the contracting of redundant links, lines, and data services, as well as the annual increase in service costs.

2.2.2.3. Treatment and Laboratory Materials

The 9.5 YoY decrease in this item was mainly due to reduced use of chemicals in 1Q24, given that raw water turbidity reduced in the main water sources used.

2.2.2.4. Fuels and Lubricants

The 13.4% reduction was mainly due to a decrease in vehicle fleet.

2.2.2.5. Tax Credits

Starting from 1Q24, the Tax Credit account has recorded a zero balance due to the completion of the automatic accounting process of PIS/Cofins tax credits from depreciation and amortization expenses, which began to be accounted for directly in each expense account, with a corresponding entry in the credits receivable account. Thus, all inputs used in the Company's production process (materials, services, electricity, fuels, depreciations and amortizations, among others) began to be accounted for at the net values of these credits.

2.2.3. Depreciation and Amortization

The 2.4% YoY increase in the depreciation and amortization line in 1Q24 was due to incorporations in PP&E and intangible assets, partially offset by changes in the accounting of tax credits, as described in item 2.2.2.5 of this report.

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