Companhia Energética de Minas Gerais (CIG) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for waiting. Welcome to the Conference Call for the Results of the First Quarter 2020 Press Release. All participants will be in a listen-only mode during the Company's presentation. After that we'll start the Q&A session when further instructions will begin. [Operator Instructions]Now, I would like to turn the floor over to Mr. Antônio Carlos Vélez Braga. Please Mr. Velez, you may proceed. Antônio Carlos Vélez Braga: Good afternoon, everyone. I am Antonio Velez, Cemig's Investor Relations Superintendent. We are now starting Cemig's first quarter 2020 earnings conference call and webcast with the following executives, CEO, Reynaldo Passanezi Filho; CFO and IRO, Leonardo George De Magalhaes.This broadcast can be followed by the following phone numbers, 55-11-2188-0155 or 55-11-2188-0188 as well as on our website, http://ri.cemig.com.br.I'll now turn the floor to our CEO, Reynaldo Passanezi Filho for the initial remarks.

Good afternoon, everyone. It's a pleasure once again to be here with you guys. I think it does 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 over to Leonardo Magalhaes that he 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 our sourced ones as well.And we're very happy to say that about health and safety of our employees and we are talking about over 20,000 of them, if we had our own employees and to outsource, we only have two confirmed COVID cases, one in the South of Minas Gerais and one in Brasilia, so we are very proud about that.And it shows that our protection measures have been efficient, because if they are throughout on the streets providing services. And there -- that's where we have our main objective, which is the quality and service providing we are showing positive indicators for the service continuity and everything that Leonardo is going to talk about later on about contingencies and are everything protection measures that we are taking for our clients, hospital, generators, and we do have positive results in terms of quality of our service continuity.I think the results might seem negative. Basically, here we have our continuous restatement because there was a issue about life and also the FX depreciation you are aware of that. When we make the adjustments, you see that the results are positive for EBITDA in that profit, and that shows the effort that this company's clearing houses to have greater extensive controls as well as focusing in the strategic businesses.And of course, we have two huge challenges with this pandemic. First, we have a challenge of lower volume and then the increase of delinquency. And so, I believe that we are now working on it, we are analyzing, in our COVID committee, we have our top management focus in trying to intimidate ourselves and work in the distribution lines to see how we can recover and bring down actually delinquency and recover what is best.And also, in terms of the drop in the loads, obviously, I'm sure that we will need to have judgment made by the granting power as well as our honors judgment and in terms of opportunities, and we don't have only challenges but we have opportunities as well. There's 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 clients, specifically in the distribution areas and also considering the current situation we also have, some things that are working for us, lower traffic, and that allows us to move faster. And these are the topics that really concerned 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 are also are working to reduce or a PMSO. And in term of opportunities, really I think there are some -- there on the table, specifically on digital channels as well as in the guarantees of the investment programs. And that's very positive, because at the end, the country will come out to strengthen. 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 I will now turn floor now to Leonardo.

Thank you, the CEO for your comments, and such an important remark about your company is tackling the pandemics and dealing with all the problems, and this is such a critical moment for the Brazilian society. On the first line, we have the main pillar 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, and how committee is dealing with this topic. So, we'll talk about these main pillars. The first we are ensuring the service continues, also the employees' health and safety, relationship with the clients, and social responsibility, as well as our financial sustainability.In the next slide, we are going to go into the details about the service continuity. We know that electric energy activity is essential, when right now the Company has a social duty responsibility to maintain the essential services that they should be up and running and that's very important. Thus, the Company has several measures that have been implemented that involved the reduction of supply and the disconnection increments in live wire to avoid outages. And also we prioritize essential services, hospital units, medical units and areas that treat the population. And so far we are working so that we have no risk or reduced a lot of the risks for any hospital or hospital unit, anything that is related to electric energy supplies.And as our CEO has mentioned, we are maintaining the investment program for the distributing, the Company is that in order to maintain cash, any investments that are from 2020 that might be postpone to 2021, 2022 but we are making sure that we are going to make a base investment in our concessions that are going to improve our service and are not going to compromise the quality of our service. So, we are continually improving the quality of customer service to our clients.On the next slide, after Reynaldo also mentioned that we only have two cases among our employees who were -- 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, 1900 of those are our own employees and 1,300 outsource. And that involves availability of also protection equipment for those that are out on the street.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 installments and some repayments for public hospitals so that these essential services are not suspended at all. In addition to the encouragement to all the incentive to low income residential users, they are encouraged to register for due to this detention.So, we know how important it is to maintain liquidity in the Company, 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 the financial and economical sustainability of the Company, but we believe that in the short-term these actions are important. They involve the reduction of our CapEx program of 13% but maintaining the programs close to 1.5 billion. We understand that 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 around 100 million, so we believe that the year we have an efficiency opportunities that can be tapped into and the companies are taking this opportunity to discuss our budget. So, that we already have approximately 100 meters to the reducing our P&L so in their prudent programs, as far as dividends are concerned we are paying $0.50 of dividend this year that's per share, and we understand that right now it's very important to have this reducing in dividends in order to maintain the cash of the Company, and we understand that is also converging with our shareholders because the idea here is to preserve cash.And also, there was a deferral of statement on payments on labor taxes and charges and that is essential to deal with this COVID-19 prices. About the government measures, some of them have been implemented. One of them is a fund of reserves of 122 million, that's already in the cash. Some of the measures are related to energy disconnection 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 deferred. We also have an emergence COVID account financing that is being distributed between [indiscernible] of mines and energy, and we understand that by the end of May these funds are already available and addressed to the Company in ways 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, Cemig D and other companies are discussing this topic with the regulating agency and the ministry in a way that we can conclude the process and these funds can come to the Company in order for us to maintain liquidity so that refers to distributing company, sustainability as well as the transfer of funds to the generating company.The next slide, we have our investment program revisions is what was approved was 2 billion for distributing company was almost 1.7 billion and we are also part of the 2021 and 2022. But as our CEO already mentioned, we maintained the program for the tariff cycle. So, the postponement for this year BRL266 million and that's going to strengthen the Company's cash, but the program is close to 1.746 billion rose 2020, up to March of 2020. We have already executed 185 million records funds to 16% of our total invested amount.And the next slide is important to show you a little bit, the impact COVID-19 on our revenue and our energy though. You can see that our provision for allow doubtful accounts was an average of 32 million a month and the provision amount for April 2020 in the next quarter, that will be it was higher than that it was 39 million. And in fact, that was already forecasted volumes, because we did expect higher losses, because of the crisis economic impact on our consumer base is about collection.And we are comparing that to what was estimated we already estimate and as you can see, actually in collection on a monthly basis, these are the words we build. But here it shows that in March, according to what we already estimated, we had 10.5% higher then drop in revenue and in April, it improved a little bit, but even then we had a drop of 8% vis-à-vis our forecast that was already considering 4% to 5% delinquency.So in April total drop and payments of 13%, 8% of that are the effects of the pandemic regarding A group. We believe, it's important to show you the load in the system you see is that miniaturize 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 Cemig D distribution in average, in April 11, we had a reduction of 12.4% and I said 7.9% in our own load.In the case of our captive consumers, in the beginning of the socialization March 21st, had a drop of 11.4% in some serious already going back in a very controlled fashion to their operating activities, they are opening their stores and in some activities. Obviously, they're following the right protocols or restrictions. In a way that today the drop is of minus 5.23. 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 low recovery at least so far, and the load of free clients here we have a transmission also drop of 12%, it was 16.8%. Now it's 12.0%.Now moving forward in this is like, we have the effect on Cemig GT. 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 week, it happened in steeper fashion. And it seems that the second half of April figures are more or less disabled, close to 17% reduction.About consumers of Cemig GT, we are also are negotiating with the consumers that have financial difficulties in a way that we can maintain the present value of the contract, making prepayments or providing energy to the consumers from 2021 to 2022. And just as our energy purchase contract, we are also looking for payment of hurdles in the way that we can maintain that cash flow for sending 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 quality indicators for Cemig distribution. And here, we can see that the Company is continuously improving its quality indicators. For 2019, we have indicator very close to 2018. But in 2020, we already have reduction in 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 client maintenance. We understand that we'll 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 [indiscernible]. 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 higher risk perception that we have right now because of the pandemics and in this Brazilian scenario, we had to make it a restatement of market value for life. So there was a reduction of BRL609 million, they were at 18.75 this was the amount of December of 2019. When we had the sale as part of it, we lost the controlling interest of light. And when we close the order, the share was at 9.75, so there was a loss in market value. And we have to restate that.Let's follow that up. And see how the performance of the stock exchange will be specifically like to share to see if will be able to report 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. Centroeste is a company where we had 51% of that with foreigners. And because of accounting, 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 Cemig D distribution, we have a drop of 2% and the volume of electricity sold. We understand that the social isolation here is started, especially in the second half of March with already huge impact in our markets. And at the end of the day, that represented a lower -- 2% lower of the automatic electricity. And that's also part of this process, increase in delinquency because of the economic impact on the families because of COVID. And that was the ABA, that was up to 33 million.About Cemig GT, our EBITDA was very robust and to approve the selling of Cemig's energy, own energy and also restores energy that is of around 700 million. And list is going to mention that was, last year or even before because of the scenario that we had last year, high sales the stock price very high as close to BRL190 vis-à-vis 187 in the first quarter of 2020, and that's combination brought -- I'm sorry the EBITDA of last year much higher than this year.So, these are specifically sites that ended up having an additional factor of BRL 434 million. And now we have BRL 20 million in fact and we will explain why we had such a good result last year, but we should say that the results for this year also were very positive. And then we have foreign exchange variation that's going to explain more in the next few slides.Because this has to do with robust that Cemig has for 2024 and because of the real depreciation. Last year, they had a factor assigned last year of BRL119 million and that was a fact of foreign exchange variations with a hedge effect, but this year we have 438 million negative impact also on our cash, but it's also impacting our consolidated results.Here's important to explain that issue regarding the Company's exposure. It's important to make it clear that interest that we have to pay up to 2024 for they have full swap. So, the interest that we are paying to our bondholders, they are going on -- 442% of the CDI, we do not have any time policy effects variation on increases that we are monthly paying to or quarterly paying to our bondholders.About the principle, the dollar today is close to $5.70. There was a drop when compared to the prior day, but we have a protectionist spread of 3.45, up to 5. So up to 5, Cemig is going to pay 3.45. And above BRL5, Cemig would pay the difference. So right now, where the risk perception is very high, and that amounts to above BRL5 is not covered by our hedge, but we also understand that we are in the moment with a high risk situation.And in the long term, we will 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 pandemic, we will be able to see the best perceptions in this new environment. We'll be able to see what, is the new dollar's rate and adjust to our currency. So, we understand that this is the practical effects here, which would be only by 2024 and the maturity of the bond, but that doesn't mean that it is going to be exposed up to 2024 in this situation because we might have a much higher dollar rate in the future.So, I want to make it clear that Cemig management is tuned is lower to the situation and after the pandemic. Cemg 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 this effect variation up to 2024. So, we have to be patient and understand that this is an acute crisis moment but it's all economic crises.This is a 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 in the future will be better and more adequate for other measures and measures that we understand that can generate other values and more value to the Company whether exchanging them for a cheaper one or reducing our leverage then we'll see the risk perception and the market about the Company or whether the issues that involve the right risk perception vis-à-vis Cemig.Now about the energy market, and I would hand the floor to Vélez, our IR Superintendent, and he's going to go into the energy market, the results in detail. Antônio Carlos Vélez Braga: Hello, we are on Slide 16. We have prepared some charts to explain the behavior of the energy consumption and Cemig distribution. In general transmission and total distributed energy had a reduction of 2%, total distribution. And when we see the variation of transmission had an increase of 1%, the total energy carriers, this is the consumption of customers and or building in concession areas. And for -- and consumers, there was a reduction of 4%.Basically, 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 significant reduction of the rural clients. That was because of the rain, remember that last year, there was a drought and this year we have a lot of rain. So, basically the rural consumers have very a lot of the consumption because of the electric energy that they use for irrigation. So, that was a variation in this period.Now turning to the next slide, the main figures for EBITDA and profit, as Reynaldo mentioned, we had some events in this year wise Centroeste and the FX hedge, but we had an adjustment to show the exceptional gain, thanks to the treasury that we had attending from energy allocation, that we decided to the last year. And because of the GFS, that was around 1.5 and the spot price that was very high prior quarters, we didn't have an exceptional result.This year, it was very good as well, this was the right strategy. We have a very robust every day as I have mentioned, the last two years was much better. So when we carry out these adjustments, just for comparison days, we see that there was a growth in our EBITDA of 31%, while our net profit also considering the effects that happen, in fact as a financial results. Both last year so this year, we had an increase in the consolidated net profit of almost 36%.And then, next Slide number 18. We have EBITDA and net profit for Cemig GT. Cemig GT had an adjusted EBITDA since year-end very strong, of BRL685 million, but in the adjustment also we see an exceptional gain of BRL20 million. So at the end that I will say that, recurring of this allocation strategies and the BRL20 million, and we also -- this it 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 Cemig GT to 38% while the net profit had an increase of 25%.For Cemig distribution, we had an increase in -- I'm sorry, a reduction of 2% in our EBITDA that is more or less in line with the result of last year. So, in this part 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 PTLD or our ABA that impacted the results in the first quarter. Even then the financial result was much better than last year, especially, because of the lower interest rates. Therefore, the net profit for distribution went from 188 million to 197 million in the first quarter of '20 with an increase of almost 5%.Now turning to Slide number 20, we have operating costs and expenses are consolidated results, of course. That we have expenses with buying gas, transportation buying. So that's what we consider to be manageable and distribution in generations. And we are always looking for margins, of course. And here we highlighted the reduction and manageable cost. Basically our PMSO again, other expenses provision, and so on.And with that we had a reduction of 8.2% and the expenses that we have, from the expenses right here to these 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 programs. And as we already said, we are still committed to bringing down expenses this year. We already have a contracted reduction of BRL100 million in materials and services contracts.And this reduction is going to be even higher, because of the effort that we are dedicating ourselves to this topic. And also it's important to mention that we just announced another voluntary redundancy program so our employee 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 this, the cost that this program has the average cost per employee and the cost per employees that can enroll in the program. So, this is our continuous commitment to operating efficiency.And on Slide number 21, comparing the regulatory OpEx and EBITDA for Cemig 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 higher than the regulatory level. And in addition to this OpEx impact, our non-technical -- on sorry, losses over the tariff coverage were a little bit over BRL75 million so that we have a gap because being the regulatory of BRL75 million. And as you know, we are continuing working on those losses fighting them and trying to reach the regulatory OpEx and regulatory get bigger, as soon as possible.Talking about our debt profile, we have Slide number 22. In terms of maturity for this year, we are in a comfortable position. After March, investments add up to BRL1.9 billion. And remember that Cemig has a gap that is below the fourth quarter of a BRL900 million and the remaining is for Cemig D and Cemig GT and as we loan must be rolled out and probably will be rolled out, we don't see problems and rolling that out not at least issue right now.So, we have a reduction in the cost of debt both nominal in real terms. That is because of our debt is adjusted by the CDI, as you see on the pie chart. And in the spite of having that dollar denominated debt a 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 and total net debt over adjusted EBITDA, and there is an increasing demand that was contracted to protest us against those FX variations.On the next slide, we have a chart with the performance of our covenants of the euro bond. Here is calculated according to euro bonds description. So, considering here, and what's important is to see the amount of the derivative as that was contracted to protect us against this FX variation and the hedge in December of '19 was of BRL1,691,000,000. And right now at the first quarter, it was almost BRL3 billion.Som if we just count the amount of credit that we have, our debt and the holding goes from BRL13,400 million is a net debt of BRL11,800 million and Cemig GT is more or less stable in a way that the covenants match that over EBITDA of the bond is within the limits 2.29, much lower than 4.5 in the case of the holding. The covenant is below the limit of 3.50 at 2.38, that is the net debt 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.

[Operator Instructions] First question is from Carolina Carneiro from Credit Suisse.

I have a question. You mentioned several measures for cost reduction and to prepare for possible and prices coming from the crisis and the Company has announced a new investment fund with some reduction in the amount to adjust to cash generation, I would say so we just build this more challenging environments. But if you can comment one of the pillars that the Company had a few years ago to reduce leverage was to sell assets 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 in need to prepare yourself to a more complex environment because of the crisis or if the idea is here, in fact, it's really to improve fast and postpone any possible divestment?

Carolina, thank you for your question. Well, you have three main issues the cost, the sale of assets, and well, let's just 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 seizing this opportunity to reanalyze many of its profits. Our cost reduction for this year we mentioned is going to be, it's already close to 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 close and help us to say. But regardless, these topics, we understand that and we are under the leadership of our CEO, Reynaldo. In order to review processing, operating efficiency, and right now we have an aggressive proposal to cost to reduce costs, but we are maintaining the quality service. This is not a trade off that we are going to improve the quality of our services to reduce costs.No, but we really thought that having greater operating efficiency. So -- 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 we will improve our margins. About our leverage it's being reduced in an important fashion and even right now, and we this -- there is difficulty about a sales event but because of the situation to our live assets is still available for sale.It's under our balance sheet, but 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 and very robust and we can go through this moment. And of course, that with a support of the federal government to help the distributing companies with liquidity that's very important.And then liquidity, which we already have to guarantee our cash plus to support us, the federal administration by the COVID accounts so the long coming from COVID account and other costs reducing issues and managers will reduce the leverage of the Company even if we do not sell any assets and right now, although it's important to say that the non-core assets that we have been announced into the market, but we want to disposal them and whenever the opportunity arises, we do have this interest and we do wanted to sell them, but 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 this is all in covered actions we're going to generate a lot of value to our investors.

Next question is from Mr. Gabriel Fonseca.

In the covenant calculations, I would like to understand that if that you had to work with the issuing bank with the bondholders or those -- so this did not involve any questioning from any of the players involved?

Actually, the covenants issue is something that it's already included in the bonds contracts, 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 and in the bond the contract, there you have a clear such a 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 with the banks on the counterpart of derivatives are reducing whether it's 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 there is a key as the financial instrument that we contracted to protect us. So, there is no controversy here, this is a legal matter there on the bond agreement. Just a compliment on that, if we can see the real leverage of the Company with a real investments you would have to use all the amount that we have in our count in line that is also market-to-market and this would be nice right now.That is we understand that the calculation the way it is now is better reflects the financial obligations of the Company regarding is debt whether it is real denominated debt or dollar denominated debt.

Next question is from Mr. Marcelo Sá from Itaú.

I have two questions. The first on this PLR, the profit sharing program, and it ended up recognizing a lower amount [indiscernible] an amount that you have any sorts of [indiscernible] would like to understand, which are the criteria based on an expectation or if this is just as a profit of this year and non-recurring adjustment? The second question about the ABA, you have shown the performance in year-to-date of margin the difference maker. But this seems to be very low considering COVID impact and explanation you mentioned that you had ABA also, because also, you have ABA also for the public customers, public clients. So, what is your expectation for ABA this year and if you expect it to be higher in the second quarter results?

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. If we didn't have an agreement, collective agreement, last year establishing 4% of the last profit, but also it had an additional in case profit was higher than was budgeted, and like we showed last year, we have an additional gain of that allocation. And just adding to that last year, we did not have any adjustments that we're extraordinary anymore, nothing that was non-recurring.So we did have a step up. The profit was about the debt that just did happen in the first quarter. 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, the collective employee agreement for profit sharing is up only 4%, and if there is any non-recurring effect coming from debts or assets or anything else, or any legal judicial claims that we are awarded, anything all those would not be part of this cancellation.So from now it's starting this quarter only 4%.About ABA, 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 domain. And 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 the connection. But in the beginning of the year, it was because of the rain.But right now, we cannot make any this connection because of COVID. So this was already high. So in a way it represents only ABA. It's difficult to say what the latency will be because we need to wait the bill to be overdue so that we can understand what is going to be situation the latency and ABA. And I think has been explained the collection had a deterioration of 8% since what we expecting. So, these 8% will become delinquencies 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 also allows regression. And if you allow me to add to the question about the collection of Cemig D, 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 in your ABA right is coming from the crisis itself. So Marcello.Well, I might know the details, but I would say 70% is electronic means and 30% would be other branches. Marcelo Sá: Okay, that's great. Thank you very much.

[Operator Instructions] Next question is from Mr. Francisco Navarrete from Bradesco.

Hello, everyone. Thank you for the call. I have two questions. You mentioned the performance of delinquency in April. Can you comment anything about May? It looks like you already saw an improvement n the sales volume for a group. It was more than that even she was the worst, but you -- it looks like you're already seeing improvement in volume for May, right. What do you see for delinquencies? And they also for low income consumers, those that will have federal funds being paid your bills. How much of your revenue that low income customer represent?

Thank you very much for your questions. About low income, they represent today more or less BRL25 million a month. ICMS 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 in covered devices, no federal legislation that would be BRL75 million. About delinquency, right now, we can't say much. May collection has improved vis-à-vis April.We believe that we might have a seasonal daily cycle 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 is a trend is that, these figures having proved vis-à-vis April. So, this is a positive effect as well, but we rather wait a little bit because there is a seasonal effect and but right now we do see an upward trend.

Next question is from Ms. Liliana Yang from HSBC.

My question is about your free client contract. You have 400 megawatts contracts. How are you selling it? Is this a contract returned among clients? Or do you guarantee 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, Liliana, thank you very much for your question. Free consumers or free clients are not easy negotiations. These are complex environments because we have remix 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 release now in maintaining energy.So in our case, that's what we do in other cases more difficult. For instance, one of our clients, a shopping mall for instance, we 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, they were able to get lower than take they have an effective industry. That is higher. And actually then the discussion is just regarding on what is the low the chase, and that generates some negotiation. But what does it take, then the energy is a surplus, and then it's negotiated the stock 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 price that's not the most representative one most significant. So many of those negotiations are successful and I believe that by the end of March, and we always thought this was a very challenging process, and it still is -- but we are very successful in these negotiations with our clients.But in some cases, because of the consumption is at a low range of the tape here really selling as a spot price, and in this case, this will have an impact for GT, Cemig GT revenue. But we understand, the impact the pandemic will be much concentrated on the second quarter, they might be extend to the third quarter and we understand that that these are one-time off in time in any case results.

Just a follow-up. Can I understand that the regulated market maybe the demand is a little bit later, 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 and 130, what do you see on that each on that topic?

Well, yes. First, if that's true, there is a higher pressure and frequency rises pacifically in the incentive market, that 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 even companies and another.Now about the other question, the price for contract really has had a reduction. It's specifically starting next year because of the pandemic, but we rather not comment on it. Because these are syndication prices, we're not negotiating anything because of the uncertainty of this moment and the uncertainties that are related to the economic activity.But yes, I would say that there's 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 searched the figures about the collection. Actually, electronic means address 40% of deals fade and branches, bank branches and others represent 60% of these days.

Next question is from Marcelo Sá from Itaú. Marcelo Sá: If you allow me a final question, more recently it has been announced a change in top management and CEO and CFO left the Company and earlier was only and this was also was announced. So, I would like to know what was the reason for that if there is any change of strategy at [indiscernible]?

Marcelo, there is no specific reason for this change. This was an agreement we had with them. Some of them did have a proposal to leave the Company and others wanted to use, but there is no specific reason for that change, right.

[Operator Instructions] Mr. Guilherme Lima from Santander has a question.

Can you comment on some issues that are coming up about the COVID account specifically the ones that are the counterpart topics for distributing company, which are the 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 can, you should have further discussions for that?

Well about the final issues being distributed by distributors and the Ministry of Mines and Energy, and now they are all known by the publicly involve dividends restrictions, restrictions of other topics, 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 and within the discussions with the legal agencies, they have always stated that your expectations and so what we know now is that the decree should be published. And so we will now wait. We understand that the negotiation and period and discussion period. It's over, it was very clear of 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 evolving and not being able to disconnect, residential consumers disconnection. So we believe that there is going to be an impact in delinquencies. So this is an extraordinary in different moment and at a certain moment, we understand that we will be discussing that with the agency about that rebalance. We understand that this is going to be part of the future agenda of discussion.And then we will see if there's going to be a carry for you or any other mechanisms. But now we understand that we are able to use different ways to look for the three balances. So we will wait and right now what is important for us is to attract all the short-term problems, which is the liquidity of the Company, because that's a very important when you have a lower revenue is 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 agency these effects and take it from there.Thank you so much.

We now end the Q&A session. I would like to turn the floor Mr. [indiscernible] for his final remarks.

Very well. Once again, thank you very much for your participation on this call. We do believe in summary, we didn't 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 quarters with all the actions that we are taking. The leverage reduction will move on considering, again, the actions you're taking and about euro bond. 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 this time, we'll take the right measures, so that we do not have that exposure further on. So, the Company is alert and we will take the needed measures.Once again, thank you very much. And I'm sure that will keep the market updated about relevant events that might affect the Company in the next month. Everything related to the pandemic and how we're dealing 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.