Companhia Energética de Minas Gerais

Ladies and gentlemen, thank you for waiting. Welcome to the conference call for the results of the first quarter of 2020 of the Navy. All participants will be in listen-only mode during the company's presentation. After that, we will start a Q&A session when further instructions will be given. If you need assistance during this call, please press star zero to reach the operator. Now, I would like to turn the floor over to Mr. Antonio Carlos Velez-Praga. Please, Mr. Velez, you may proceed. Good afternoon, everyone. I am Antonio Velez, CEMIG's Investor Relations Superintendent. We now start CEMIG's first quarter 2020 earnings conference call and webcast with the following executives. CEO, Reynaldo Pazanese, CFO and IR officer, Leonardo Georges de Magalhães. This broadcast can be followed via the following phone numbers, 5511-188-0155 or 5511-188-0188, as well as on our website, http://ri.canada.com.br. I now turn the floor to our CO for the initial remarks. Good afternoon, everyone. It's a pleasure once again to be here with you guys. I think we've got a little bit of an echo, right? But it's a pleasure to be here with you for the results of the second quarter. I will have a brief introduction before I turn the floor to Leonardo and Valerie so that they can move on with the presentation. I believe that we are at the level of our main objectives. Obviously, the main objective right now is to guarantee the health and safety of the population as well as our employees, our own employees and outsourced ones as well. And we are very happy to say that about health and safety of our employees, and we are talking about over 20,000 of them if we add our own employees and to outsource. We only have two confirmed COVID cases, one in the south of Minnesota and one in Virginia. So we are very proud about that and it shows that our protection measures have been efficient because they are still out on the streets providing services and that's where we have our main objective, which is the quality in service providing. We are showing positive indicators for service continuity and everything that Leonardo is going to talk about later on about contingencies and our everything protection measures that we are taking for our clients or hospital generators and we do have positive results in terms of quality of our service continuity I think the results of might seem negative Basically, here we have accounting restatements. Because there was an issue about light and also the effects of depreciation, you are aware of that. But when we make the adjustments, we see that the results are positive, both for EBITDA and net profit. And that shows the efforts that this company is carrying out to have greater expensive control, as well as focusing in its strategic businesses. And, of course, we have two huge challenges with this pandemic. First, we have the challenge of a lower volume and then increase of delinquency. And so I believe that we are now working on it. We are analyzing in our COVID committee. We have all top management focused in trying to anticipate ourselves and work in the distribution line to see how we can recover and bring down, actually, delinquency and recover what is past due. And also, in terms of the drop in the load, obviously, I'm sure that we will need to have adjustments made by the granting power as well as our own adjustments. And in terms of opportunities, we don't have only challenges, but we have opportunities as well. There is a single opportunity, which is to improve the use of our digital channels. I think here we have a major topic for improvement in the company. And I would like to say and to stress our commitment in our investment plan. specifically in the distribution areas. And also, considering the current situation, we also have, you know, some things that are working for us, lower traffic, and that allows us to move factors. These are the topics that really concern me on a daily basis. These are the challenges of a lower load and higher delinquency. Part of that has to be tackled by the support of the granting power and we ourselves are working to reduce our PMSO and in terms of opportunities really I think there are some there on the table specifically on digital channels as well as in the guarantee of the investment program and that's very positive because at the end the country will come out strengthened and I do believe that one of the consequences of this crisis is a re-incentive to industrialization in countries in general, and that might be very positive to Brazil and specifically for our state, Minas Gerais. These were my initial remarks, and now I turn the floor to Leonardo. Thank you, Phil, for your comments. and such important remarks about how CUNY is tackling the pandemics and is dealing with all the problems. And this is such a critical moment for the Brazilian society. So on the first slide, we have the main pillars established by this committee to manage the crisis. And here we have the top management gathering every morning for many hours to discuss several issues involving The problem right now in the Hong Kong Navy is dealing with this same topic. So we'll talk about these main pillars. First, we are ensuring the service continuity. Also, the employee's health and safety, relationship with the client, social responsibility, as well as our financial sustainability. And in the next slide, we are going to go into the details about the service continuity. We know that electrics energy activity is essential, and right now the company has a social duty responsibility to maintain the essential services. They should be up and running, and that's very important. Thus, the company has several measures that have been implemented that involve the reduction of planned disconnection, increment in live wire to avoid outages, and also We prioritize essential services, hospital units, medical units, and areas that treat and that receive the population. And so far, we are working so that we have no risks or reduce a lot of the risks for any hospitals or hospital units, anything that is related to electric energy supply. And as our CEO has mentioned, we are maintaining the investment program for the distributing the company, that in order to maintain cash, any investments that are from 2020 that might be postponed to 2021 or 2022, but we are making sure that we are going to make the basic investment in our concession that are going to improve our service and are not going to compromise the quality of our service. So we are continuously improving the quality of customer service to our clients. On the next slide, Dr. Reynold also mentioned that we only have two cases among our employees that have been diagnosed with COVID-19. So these people are being taken care of and they are recovering. So we have many people in home office, over 3,200 people in home office. 1,900 of those are owned, 1,300 outsourced. And that involves the availability of also protection equipment for those that are on the streets. In terms of social responsibility, our next slide, we have already donated $5 million to public and charity hospitals so that they can buy ventilators and other important equipment so that they can tackle the crisis and fight the pandemic. Also, we have established special rules for installment payments for public hospitals so that the essential services are not suspended at all. In addition to the encouragement or the incentive to the low-income residential users, they are encouraged to register for bill exemptions. So we know how important it is to maintain the liquidity in the companies. And for that, the company has taken several measures that we consider to be important, and they do not compromise our quality or our service, neither the continuity of our operations or in the financial economic sustainability of the company. But we believe that in the short term, these actions are important. They involve the reduction of our CAPEX program, 13%, but maintaining the program close to $1.5 billion. We understand this is a robust program. Just in distribution activities, we will see it in more detail shortly. Efforts to reduce material and service contracts, OPEX, our OPEX reduction has already guaranteed for 2020 is in around 100 million, so we believe that this year we have an efficiency opportunity that can be tapped into, and the companies are keeping this opportunity to discuss our budget so that we already have approximately 100 million to be reduced in our PMSO in the approved program. As far as dividends are concerned, we are paying 50 cents of dividends this year, that's per share, and we understand that right now it's very important to have this reduced in dividends in order to maintain the cash of the company, and we understand that it's also converging with our shareholders. because the idea here is to preserve cash. And also, there was a deferral of payment on labor taxes and charges, and that is essential to deal with this COVID-19 crisis. About the government measures, some of them have been implemented. One of them is a fund of reserve of $122 million that's already in the cash. Some of the measures are related to energy disconnections for some low-income consumers. And another one also has to do with low-income consumers. And federal funds will pay for those electricity bills because economic difficulties will be greater there. And also issues related to, as we already said, labor, taxes and charges discharging. We also have an emergency COVID account financing that is being distributed between UNL and the Ministry of Mines and Energy. And we understand that by the end of May, these funds are already – and addressed to companies in a way to allow us to deal with lower revenues and lower liquidity and lower load in the market. So this emergency COVID account is going to be very important for us. Therefore, Cenevi and other companies are discussing this topic with the regulating agency and the ministry in a way that we can conclude this process And these funds can come to the company in order for us to maintain the system's liquidity. So that refers to the distributing company sustainability as well as the transfer of funds to the generating company. The next slide, we have our investment program revisions. What was approved was billion for distributing company was almost 1.7 billion and we are postponed part of that to 2021 and 2022 but as Rocio already mentioned we maintain the program for the tariff cycle so the postponement for this year of 266 million reals and that's going to strengthen the company's cash but the program is close to 1 billion 746 million or Up to March of 2020, we have already executed 285 need, and that corresponds to 16% of our total invested amount. In the next slide, it's important to show you a little bit the effects of COVID-19 on our revenue and on our energy load. You can see that our provision for allow doubtful accounts was of an average of $32 million a month. And the provision amount for April 2020 and the next quarter, it was higher than that. It was $39 million, an impact that was already forecasted by us because we did expect higher losses because of the crisis economic impact on our consumer basis. About Now, about collection, and we are comparing that to what was estimated. We already estimate a delinquency, actually, in collection on a monthly basis because of what we billed. But here it shows that in March, according to what we already estimated, we had 10.5% higher than a drop in revenue. And in April, it improved a little bit. But even then, we had a drop of 8% vis-a-vis our forecast. That was already considering 4% to 5% delinquency. So in April, a total drop in payments of 13%. 8% of that are the effects of the pandemic regarding April. It's important to show you the load in this system. You see it back. according to other units of the country, and we cannot guarantee the future, but we see that so far our concession load is being less impacted by the pandemic, and the load for semi-distribution in average in April 11th had a reduction of 12.4%, and now it's at 7.9%. And our own load In the case of our captive consumers, in the beginning of the social isolation, March 21st, had a drop of 11.4% in some cities already going back in a very controlled fashion to their operating activities, their opening the stores and some activities. Obviously, they are following the right protocols of restriction in a way that today the drop is of minus 5.2%. So there was around a 6% improvement when compared to a lower consumption moment. This is not a future guarantee, but it shows a trend in the load recovery, at least so far. And the load of free clients, here we have a transmission drop of 12%. It was 15.8%. Now it's at 12.0%. Now moving forward, and this is like, We have the effect on 10xGT. We see that the drop in consumption is higher for free clients of 16.8% up to the moment. This is a drop that in the first weeks it happened in a steeper fashion, and we see that the second half of April, the figures are more or less stable, close to a 17% reduction. about consumers of San Diego GT, we are also negotiating with these consumers that have financial difficulties in a way that we can maintain the present value of the contract and make increased payments or providing energy to these consumers from 2021-2022 and just have our energy purchase contract. We are also looking for payment referrals in a way that we can maintain that the cash flow for funding generation and transmission maintain the liquidity of the company. both by deferral of the sale contracts as well as looking for deferrals in purchasing contracts, energy purchasing contracts. In the next slide, we have the quality indicators for sending distribution. And here we can see that the company is continuously improving its quality indicators. For 2019, we have the indicator very close to 2018, but in 2020, we already have a reduction, an improvement of almost 10% in this indicator when compared to 2019. And what we expect for 2020, considering all of our investments and the budget that is guaranteed for our corrective maintenance activity as well as planned maintenance, we understand that we will be able to meet the established indicators, established by the regulating agency. I'll start talking about the results, and then I'll turn the floor to Valley. Let me just start with these initial results. Here we have the main effects and the results for the first quarter of 2020. We did have some relevant events that are not cash events. they only have an accounting effect on our financial statements. But we believe that they're important to mention, of course, because they're still related to a higher risk perception that we have right now because of the pandemic and this resilient scenario. And we had to make a restatement at market value for life. So there was a reduction of $690 million They were at $18.75. This was the amount of December of 2019. When we had the sale of part of it, we lost the controlling interest of light, and when we closed the order, the share was at $9.75, so there was a loss in market value, and we had to restate that. Let's follow that up and see how the performance of the stock exchange will be, specifically like shares to see if we will be able to revert part of that amount in the next quarter. But this is a non-cash effect, one time off, and that is related to this situation. Central West is a company where we had 51% of that with foreigners, and because of accounting procedures, we had to do a restatement at fair value in the accounting amounts. And here we have an accounting gain of $52 million into our balance sheet. For 10-day distribution, we had a drop of 2% in the volume of electricity sold. We understand that the social isolation period started, especially in the second half of March, with already a huge impact in our market. And at the end of the day, that represented... a lower, 2% lower of the volume of electricity sold. And that's also part of this process, the increase in delinquency, because of the economic impact on the families because of COVID. So, and that was the ADA of, that was up to $30 billion. About the G&T, our EBITDA was very robust, and that proved the selling of the means energy, on energy, and also resold energy. That is around 700 million, and Beliz is going to mention that. But last year was even before, because of the scenario that we had last year, a high GSF, and a spot price very high as well, 290 real, so it's going to be 187 in the first quarter of 2020. And that combination brought legit a of last year much higher than this year. So these are specific effects that ended up having additional effects of $434 million, and now we have $20 million effect. And we will explain why we had such a good result last year, but we should say that the result for this year also was very positive. And then we have foreign exchange variations. That's going to be explained more in the next slide. Because this has to do with Eurobonds that Finnegan has for 2024. And because of the rail depreciation last year, they had a factor effect last year of 119 million. And that was the effect of foreign exchange variations with a hedge effect. but this year we have 438 median negative impacts also on cash, but it's also impacting our consolidated results. Here it's important to explain that issue regarding the company's exposure. It's important to make it clear that the interest that we have to pay up to 2024. They have full slots. So the interest that we are paying to our bondholders, they are equivalent to 142% of the CDI. We do not have any effect of the effects variation on interest that we are monthly paying to or quarterly paying to our bondholders. About the principal, the dollar today is close to 570. there was a drop when compared to the prior day but we have a protection spread of 345 up to five so up to five the need is going to pay 345 and above five rails and it would pay the difference so right now where the risk perception is very high and that amount above five rails is not covered by our hedge, but we also understand that we are in a moment with a high-risk situation, and in the long term, we'll have to follow up the dollar behaviors so that we can see the real impacts in the company. We understand that right now this dollar rate is very much impacted by the situation, and after the pandemics, we will be able to see the best perceptions in this new environment, we'll be able to see what is the new dollar rate and adjust it to our currency. So we understand that this is the practical effect here, which would be only by 2024 in the maturity of the bond, but that doesn't mean that the money is going to be exposed up to 2024 to this situation because we might have a much higher dollar rate in the future. So I want to make it clear that cynics management is tuned, is alert to the situation, and after the pandemic, cynics will take all needed actions to reduce the effect exposure, whether by swapping the foreign debt by local debt or rolling out the coverage or extending the hedge coverage. But we are going to take all needed measures to make sure that the company is not exposed to the defect variation up to 2024. So we have to be patient and understand that this is an acute crisis moment, but as all economic crisis, this is cyclic and we'll have a new scenario in the future. We don't know exactly how this is going to be, but in this new environment, the risk perception is significant. you know, in the future will be better and more adequate for other measures and measures that we understand that can generate other values and more values to the company, whether exchanging that for a cheaper one or reducing our leverage. And we'll see the risk perception in the market about the company or whether the issues that involve the right risk perception piece of the pandemic. Now, about the energy market, I will turn the floor to Alex, our IR superintendent, and he's going to go into the energy market results and details. Hello. We are on slide 16. We have prepared some charts to explain the behavior of the energy consumption and the mega distribution. In general, transmission and total distributed energy had a reduction of 2%, the total distribution. And when we see the variation of transmission have an increase of 1%, the total energy carried, this is the consumption of customers or billing in concession areas. And consumers, there was a reduction of 4%. The reduction happened because of the economic activity that is not favorable in the concession area with a reduction of 3% of industrial clients and also a significant reduction of the rural clients. That was because of the rain. Remember that last year there was a drought and this year we had a lot of rain. So basically the rural consumer varies a lot, the consumption, because of the electric energy that they use for irrigation. So that was the variation in the period. Now turning to the next slide, the main figures for EBITDA and Acrofit. As Leonard mentioned, we had some events in this year live, Central SC and the FX hedge. But we had an adjustment to two showed exceptional gains thanks to the strategy that we had coming from energy allocation that we decided to do last year. And because of the GFS that was around 1.5 and spot price that was very high prior quarters, we did have an exceptional result. This year it was very good as well. This was the right strategy. We have a very robust EBITDA, as I have mentioned, but last year's was much better. So when we carry out these adjustments just for comparison basis, we see that there was a growth in our EBITDA of 31%, while our net profit also considering the effects that have impacted the financial results. Both last year as well as this year, we had an increase in the consolidated net profit of of almost 36%. And the next slide, number 18, we have EBITDA and a profit for Saniga G&T. Saniga G&T had an adjusted EBITDA this year that was very strong of 685 million RELs, but in the adjustment also we see an exceptional gain of $20 million, a gain that I would say that is recurring of this allocation strategy, and it's $20 million. And he also, this is much lower than the gain that we had last year, thanks to this allocation. So with that, we had an improvement in the EBITDA of CMEG-GT of 38%, while the net profit had an increase of 25%. We had an increase in our, oh, I'm sorry, a reduction of 2% in our EBITDA. That is more or less in line with the results of last year. So in despite of the efforts of reducing expenses, as you have already seen, and we'll talk more about that, there was an increase of 33 million in our PCLD. or our ADA, that impacted the results in the first quarter. Even then, the financial result was much better than last year, especially because of a lower interest rate. Therefore, the net profit for some distributions went from $188 million to $197 million in the first quarter, with an increase of almost 5%. Now turning to slide number 20, we have operating costs and expenses that are consolidated with those, of course, that we have expenses with buying gas, transportation, buying energy. So that's what we consider to be manageable distribution in generations, and we are always looking for margins, of course. And here we highlighted the reduction in cost. Manageable costs, basically our PMSO and other expenses, provisions, and so on. And with that, we had a reduction of 8.2% in the expenses that we have from the expenses last year to the expenses of this year, and that is thanks to a reduction in our personnel expenses and provision that we had last year for our profit-sharing program. And as we already said, we are still committed to bringing down expenses this year. We already have a contracted reduction of 100 million reals in materials and services contracts. And this reduction is going to be even higher because of the efforts that we are dedicating ourselves to this topic. And also it's important to mention that we just announced another voluntary redundancy program, our employees can enroll up to the end of the month. And it's important to say that we expect a payback within eight months. That is because of the cost that this program has, the average cost per employee and the cost per employee that can enroll in the program. This is our continuous commitment to operating efficiency. And on slide number 21, comparing the regulatory OPEX and EBITDA for community distribution and the realized, the realized OPEX is very close to the regulatory one. If it were not by those $33 million, our OPEX would have been within the regulatory OPEX. So the real OPEX in the first quarter was 25 million or higher than the regulatory level. And in addition to this OPEX impact, our non-technical loss, I'm sorry, our losses over the tariff coverage were a little bit over 75 million so that we have a gap because of the regulatory of 75 million rounds. And as you know, we are continuing working on those losses, fighting them, and trying to reach this regulatory apex and regulatory EBITDA as soon as possible. Talking about our debt profile, we have slide number 22 in terms of maturity for this year. We are at a comfortable position. After March, investments add up to 1.9 billion reals. And remember that because Navy has a gap that is due on the fourth quarter of 900 million, and the remaining is for 1080 and 1080. The revenue loan must be rolled out and probably will be rolled out. We don't see problems in rolling that out, not at least right now. So we have a reduction in the cost of gas, both nominal and real terms, that is, because of our debt is indexed by the CDI as you see on the pie chart. And in spite of having the dollar-denominated debt of 51%, as we already mentioned, this is also attached to CDI at a cost of 141%. In terms of leverage, we also see an improvement in the total net debt and over-adjusted EBITDA. and there is an increase in the hedge that was contracted to protect us against this effect variation. On the next slide, we have a chart with the performance of our covenants of the Eurobond. Here is calculated according to Eurobond's description, so considering here And what's important is to see the amount of the derivative hedge that was contracted to protect us against this effect variation. And the hedge in December of 19 was of $1,691,000,000. And right now, in the first quarter, it was almost $3,000,000,000. So if we discount the amount of the credit that we have, our debt and the holdings, goes from $13.4 billion, is a net debt of $11.8 billion, and it's more or less stable. In a way that the covenant net debt over EBITDA of the bond is within the limits, 2.9, much lower than 4.5 in the case of the holding. The covenant is below the limit of 350 at 238. That is the over EBITDA. Well, these were the slides that we have prepared to bring to you about what is happening about the results in the first quarter. And we are here now to take your questions, questions that you might have. Thank you. Ladies and gentlemen, we will now start the Q&A session. To ask a question, please press star 1. To remove your question from the queue, please press star 2. First question is from Carolina from . Hello, everyone. Thank you very much for the call. I have a question. you mentioned several measures for cost reduction and to prepare for possible impacts coming from the crisis. And the company has announced a new investment plan with some reduction in the amount to adjust to cash generation, I would say, to adjust to this more challenging environment. But if you can comment, And one of the pillars that the company had a few years ago to reduce leverage was to sell assets, the divestment program. And clearly, in this more difficult scenario, it's very complex to talk about divestment, right? But the company still has several non-core assets. So if you can give us an idea... If you do have divestment plans or what kind of assets could in fact be available in case you need to prepare yourself to a more complex environment because of the crisis or if the idea this year in fact is really to improve costs and postpone any possible divestments. Catalina, thank you for your question. Well, you have three main issues, the cost, the sale of assets, and, well, let's start by the cost. If we compare costs in the first quarter, we already see a significant reduction when compared to prior quarters, and the company sees in this opportunity to reanalyze many of its costs. Our cost reduction for this year we mentioned is going to be It's already closed, 100 million, as I mentioned. But we are reviewing all our processes. There are topics, of course, that we are saving because of pandemics as well, because we have some places that are closed, and these help us save. But regardless of these topics, we understand that, and we are under the leadership of the RTO right now, because in order to review costs and improve operating efficiency, and right now we have an aggressive proposal to reduce costs, but we are maintaining the quality of service. This is not a tradeoff that we are going to reverse the quality of our services to reduce costs. No, but we are reviewing costs and having greater operating efficiency. The management is committed to that, and we understand that the combination of the process review, also our voluntary redundancy program, all of that is going to generate positive results and will improve our margins. About our leverage, it's being reduced in an important fashion, and even right now, And we, you know, there is difficulty about sales of assets because of the situation. So our life assets is still available for sale. It's under our balance sheet. And we do understand and investors also understand that this is not the best moment to talk about sale of assets right now. So we do have our investment program and divestment program. We know that this is in line. to our core and we know that now we are with 2.4 billion of cash. It's very robust and we can go through this moment and of course that with the support of the federal government to help the distributing companies with liquidity. That's very important and that liquidity which we already have to guarantee your cash plus the support of the federal administration by the COVID accounts or the loans coming from COVID accounts and other costs. reducing issues and measures, we reduce the leverage of the company, even if we do not sell any assets right now. Although it's important to say that the non-core assets that we have been announcing to the market that we want to dispose of them, whenever the opportunity arises, we do have this interest. We do want to sell them. We are making many different – taking many different actions and making efforts in the market. So the sale of assets is going to happen in the right moment, but we understand that through all these other actions, we are going to generate a lot of value to our investors. Perfect. Thank you. Next question from Mr. Gabriel Francisco. Good afternoon, everyone. Thank you very much for the call. In the covenant calculation, I would like to understand that you had to work with the issuing bank, with the bondholders, those so this did not involve any questioning from the other from any of the players involved good afternoon Gabriel thank you for your question actually the covenant issue is something that is already included in the bond contract. But in the beginning, it didn't make much of a difference. And we ended up not taking into consideration, but in the definition of indebtedness in the bond contract, there you have it clear that the hedge must be considered for the calculation of the net debt. whether it's negative or positive, increasing if it is the company's debt, whether it's the banks on the counterpart of derivatives are reducing, whether if this is a credit. And now that effect variation is more volatile, as we know, we decided to calculate in the way that It allows us to do this in order to better reflect the river shift as a financial instrument that we contracted to protect us. So there is no controversy here. This is a legal matter. It's there on the bond agreement. Just a compliment on that. If we consider the real leverage of the company with the real investments, you would have to use all the amount that we have in our accounting minus the hedge that is also marked to market. And this would be net right now. That is, we understand that the calculation, the way it is now, better reflects the financial obligation of the company regarding its debt, whether it is real denominated debt or dollar denominated debt. I understood. Thank you very much. Next question from Mr. Marcelo from Itaú. Hello. Thank you for the call. I have two questions. The first is about this PLR, the profit sharing program. And you ended up recognizing a lower amount of $20 million, an amount that you hadn't posted last year. I would like to understand which are the criteria. Are you based on an expectation, or is this just the profit of this year, a non-recurring adjustment? The second question about the ADA, you have shown the performance in the year-to-date of March and the difference in April. but this seems to be very low considering COVID's impact. And in the explanation, you mentioned that you had ADA also because also you have ADAs also for the public customers, public clients. So what is your expectation for ADA this year and if you expect it to be higher in the second quarter's results? Hello, Marcelo. Thank you. About the profit-sharing program, what happened last year is that in the change in the, it was not a change in the calculation criteria. We did have an agreement, a collective agreement last year establishing 4% of the net profit, but also it had an additional in case the profit was higher than was budgeted. And like we showed last year, we had an additional gain of that allocation And just adding to that, like you were, we did not have any adjustments that were extraordinary and nothing that was non-recurring. So we did have a step-up if the profit was above budget and this didn't happen in the first quarter. So in addition to the 4%, there was an additional amount. So this year we won't have that. This year, according to the new negotiation with our employees, now there is collective bargaining issues. agreement for profit sharing is of only 4%, and if there is any non-recurring expenses coming from sales of assets or anything else, or any legal judicial claims that we are awarded, all of those would not be part of this compilation. So from now on, it's only 4%. About ADA, I understand your question, but in our case here, this is an IFRS accounting criteria for us here. So as the bills are overdue, they are part of the delinquency. So what we already have, so we already mentioned what we had accumulated up to March. It was a little bit higher than last year because of the possibilities from the beginning of the year of disconnection. In the beginning of the year, it was because of the rain. But right now, we cannot make any disconnections because of the COVID. So this was already high. So in April, it represents only our ADA. It's difficult to say what the Lincoln fee will be because we need to wait the bill to be overdue so that we can understand what is going to be this ratio, the Lincoln fee and ADA. And as it has been explained, the collection has a deterioration of 8% of what we expected. So this 8% will become delinquency. It's difficult to say. We need to wait. and see how this curve will behave. So we'll go back, when we go back to the connections, this will also allow a reversal. And if you allow me to add to the question about the collection of 10D, how much is paid by electronic means or brick-and-mortar stores? because this is also a variable that is going to make a difference in your collection and your ADA, right, coming from the crisis as well. Marcelo? Well, I might know the details, but I would say 70% is electronic means and 30% would be other branches. Okay, that's great. Thank you very much. To ask a question, please press star one. Next question from Mr. Francisco Navarrete from . Hello, everyone. Thank you for the call. I have two questions. You mentioned the performance of delinquency in ACRO. Can you comment anything about May? It looks like you already saw an improvement, right? On the sales volume for April, it was worse. The delinquency was also worse. But it looks like you already see an improvement in volume for May, right? What do you see for delinquency in May? Also for low-income consumers, those that will have federal funds being paid with your bills, how much of your revenue that low-income consumers represent. Thank you very much for your questions. About low-income, they represent today more or less 25 million reals a month. ITMS is not included there because it's exempt, so it's not a significant amount. It's 25 million a month. So we are talking about one quarter, and it's a fact that would be paid and covered by the new federal legislation, that would be $75 million. Well, about delinquency, right now we can't say much. May collection has improved to visit April. We believe that we might have a seasonal daily factor, and we cannot say that this trend will last up to the end of the month. So we do not have a final figure. But in the first two weeks of May, What we see as a trend is that these figures have improved vis-a-vis April. So this is a positive aspect as well. But we'd rather wait a little bit because there is a seasonal effect, but right now we do see an upward trend. Thank you very much. Next question. From Lillian Young from HSBC. Hello. Thank you very much for this opportunity. My question is about your free client contract. You have 400 megawatts contract. How are you selling it? Is this a contract return among clients, or do you guarantee the revenue of these clients? And how much of that is being paid by the spot price? Or are you negotiating with free clients? Can you give us any color on that? Hello, Liliani. Thank you very much for your question. Free consumers or free clients are not easy negotiations. complex environments because we have a mix, and many of the cases we are able to renegotiate, and they say that the price difference that is pressuring our consumers now, we can extend that cost and actually increase the price further on so that they can have a cash relief now and maintaining the energy. So in a lot of the cases, that's what we do. In other cases, it's more difficult. For instance, one of our clients is shopping mall, for instance. that you really have a hard time there. And we are negotiating so that we can work with them. And the process sometimes involves the return of energy. And that's where, you know, they were able to get it lower than take. They have an effective energy that is higher. And actually then the discussion is just regarding on what is below the take. and that generates some negotiation. But then the energy is a surplus, and then it's negotiated as a spot price. So it's difficult to negotiate that energy right now because there's a lot of energy available in the market because of the economic deceleration of the market. But we understand that what we are negotiating by the spot price, that's not the most representative one, the most significant. So many of the Negotiations are successful, and we believe that by the end of March. And, you know, we always thought this was a very challenging process, and it still is. But we are being successful in these negotiations with our clients. But in some cases, because of the consumption is at a low range of the taste, we are really settling at a spot price. In this case, this will have an impact. for GT, CENIC GT revenue, but we understand the impact of the pandemic will be much concentrated on the second quarter. They might extend to the third quarter, and we understand that these are one-time-off impacts in CENIC GT's results. Just a follow-up. Can I understand that the regulated market may be The demand is a little bit lighter, but the free market, maybe the trend is to worsen in the second quarter to improve in the third quarter, to be confirmed. And what is the pressure on the sale price in the free market for the long-term contracts? 140 rials, 130? What do you see on that issue, on that topic, please? Well, yes. First, that's true. There is a higher pressure on free consumers, specifically in the incentive market. That's where we have shopping malls, entertainment industry, and we believe this market is suffering more. So there is a one-time-off effect and more in one company than another. Now, about the other question. The price for contracts really has had a reduction, specifically starting next year because of the pandemic. But we rather not comment on it because these are the syndication prices. We are not negotiating anything because of the uncertainties of this moment and the uncertainties that are related to economic activities. But yes, I would say that there is a reduction of 20 to 30% regarding prices that we had up to the beginning of March. I would like to take this opportunity to correct an answer. I fixed the figures about the collection. Actually, electronic means address 40% of bills paid. branches, bank branches and others represent 60% of the bills paid. Next question from . If you allow me a final question, more recently it has been announced a change in the TAISA stock management. The CO and CFO left the company. And earlier, Ragoni's dismissal also was announced. I would like to know what was the reason for that, if there is any change of strategy at TAISA. Marcelo, there is no specific reason for this change. This was an agreement we held with them. Some of them did have a proposal to leave the company, and others wanted to leave, but there is no specific reason for that change. Sorry. Okay, great. Thank you. To ask a question? Please press star 1. Mr. Guilherme Lima from Santander has a question. Good afternoon, everyone. Can you comment on some issues that are coming up about the COVID account, specifically the ones that are the counterpart topics for distributing companies? Which are these counterparts? And do they make sense to you? And do you believe that financial economic rebalance can be addressed by a measure or provisional measure, or you should have further discussions for that. Guilherme, thank you for your question. Well, about the final issues being distributed by distributors and the Ministry of Mines and Energy and now they are all known by the public. They involve dividends and dividend restrictions, restrictions of other but I believe now the final negotiations have been made, and we have to wait for the decree to be published. We now expect for the final decree. We know that distributors in the discussions with the legal agencies, they have all stated their expectations, and so what we know now is that the decree should be published soon. And so we will now wait. We understand that the negotiation period and discussion period is over. It was very clear the concerns that we have. So now let's see what is going to be published. About the financial economic rebalance is also one of our concerns. We understand that because of the pandemics and everything that is involving not being able to disconnect, residential consumers disconnection. So we believe that there is going to be an impact in delinquency. So this is an extraordinary and different moment. And at a certain moment, we understand that we'll be discussing that with the agency about this rebalance. We understand that this is going to be part of the future agenda of discussion. And then we will see if there is going to be a tariff review or any other mechanism. But now we understand that we are able to use the different ways to look for those rebalances. So we will wait. And right now what is important for us is to tackle the short-term problem, which is the liquidity. because that's very important when you have a lower revenue coming from the market. And when we better know the effects of this pandemic and we have to know the extension of it, what is going to be the change in the market, then we'll be able to discuss with the regulating agencies these effects and take it from there. That's very clear. Thank you so much. We now end the Q&A session. I would like to turn the floor to Mr. Leonardo Jorge de Magalhães for his final remarks. Very well. Once again, thank you very much for your participation on this call. We do believe in summary, we did have accounting effects that posted losses on the quarter, but I think the foundations are there. We do have some effects of COVID-19 in our operations in the first quarter, and the company is very much focused in the improvement of operating efficiency as well as cost reduction. We expect to have better news and good news in the next quarter with all the actions that we are taking. The leverage reduction will move on considering, again, the actions we are taking and about our euro bondage. I believe our investors are concerned about that, remember that in the short term we are prepared and the company, and we are protected, and the company in due time will take the right measures so that we do not have that exposure further on. So the company is alert and will take the needed measures. Once again, thank you very much, and I'm sure that we'll keep the market updated about relevant events that might affect the company in the next month, everything related to the pandemic and how we are dealing with the situation. Thank you so much. This concludes CEMIG's first quarter 2020 earnings conference call. Thank you all for your participation, and have a good afternoon.