© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for waiting. Welcome to the conference call for the results of the first quarter of 2020 for Cemig. [Operator Instructions]
Now I would like to turn the floor over to Mr. Antônio Carlos Vélez Braga. Please, Mr. Vélez, you may proceed.
Good afternoon, everyone. I am Antônio Vélez, Cemig's Investor Relations Superintendent. We now will start Cemig's first quarter 2020 earnings conference call and webcast with the following executives, CEO; Reynaldo Passanezi Filho, CFO; and IR Officer, Leonardo George De Magalhaes. This broadcast can be followed at here -- the following phone numbers, 55-11-2188-0155 or to 55-11-2188-0188 as well as on our website, http://ri.cemig.com.br.
I now turn the floor to our CEO, Reynaldo Passanezi Filho for the initial remarks.
Good afternoon, everyone, and 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 Vélez 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 2 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 they are still out in the streets, providing services.
And there -- that's where we have our main objective, which is the quality in 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 our everything protection measures that we are taking for our clients, our hospital generators and we do have positive results in terms of quality for our service continuity, I think the results might seem negative.
Basically, here, we have accounting restatements because there was -- the issue about Light and also the FX 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 expenses control as well as focusing in its strategic businesses.
Of course, we have 2 huge challenges with this pandemic. First, we have a challenge of 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 focus 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 loans, 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 -- and here you -- 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 area.
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. So these are the topics that really concern me on a daily basis. These are the challenges of a lower load, 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 and strengthened. And I do believe that one of the consequences of the 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, CEO, for your comments and such important remarks about how Cemig is tackling the pandemic and is dealing with all the problems. And this is such a critical moment for the Brazilian society.
So in 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 and how Cemig is dealing with this 3 topics. So we'll talk about these main pillars. First, we are ensuring the service continuity, also the employees' health and safety relationship with clients' 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 have -- we know that electric energy activity is essential. And right now, the company has a social duty, a 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.
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 through the distributing the company is 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. Reynaldo also mentioned that we only have 2 cases among our employees where -- 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 own employees and 1,300 outsourced, and that involves the availability of also protection equipment for those that are out on the streets. In terms of social responsibility, our next slide, we have already donated BRL 5 million public and charity hospitals so that they can buy ventilators and other important equipments so that they can tackle the crisis and fight the pandemic.
Also, we have established special rules for installments and -- installment payments for public hospitals so that these essential services are not suspended at all.
In addition, to the encouragement to 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 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 economic sustainability of the company.
But we believe that in the short term, these actions are important. They evolve the reduction of our CapEx program of 13%, but maintaining the program close to BRL 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 BRL 100 million. So we believe that here, we have an efficiency opportunity that can be tapped into and the company is keeping this opportunity to discuss our budget so that we already have approximately BRL 100 million to be reducing our PMSO in the approved program.
As far as dividends are concerned, we are paying BRL 0.50 of dividend this year, that's per share. And we understand that right now. It's very important to have this reduction 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 a special to deal with this COVID-19 crisis.
About the government measures, some of them have been implemented -- one of them is the fund of reserve of BRL 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, the labor, taxes and charges deferred. We also have an emergency COVID account financing that is being distributed dissed between Aneel and the Ministry of Mines and Energy. And we understand that, that by the end of May, these funds are already available 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, Cemig 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 [indiscernible ]. That refers to distributing company sustainability as well as the transfer of funds to generating company.
In the next slide, we have our investment program revision. What was approved was BRL 2 billion for distributing company was almost BRL 1.7 billion, and we have postponed part of that 2021 and 2022. But as our CEO already mentioned, we maintained the program for the tariff cycle. So the postponement for this year of BRL 266 million, and that's strengthened the company's cash, but the program is close to BRL 1.746 billion for of 2020. Up to March of 2020, we have already executed BRL 285 million. That corresponds to 16% of our total invested amount.
And the next slide is important to show you a little bit the effect of COVID-19 on our revenue and on our energy [ node ]. You can see that our provision for -- of our doubtful accounts was of an average of BRL 32 million a month. And the provision amount for April of 2020 in the next quarter, that will be -- it was higher than that. It was BRL 39 million and, in fact, that was already forecasted by us because we did expect higher losses because of the crisis economic impact on our consumer wages 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 vis-à-vis what we bill. 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-à-vis our forecasted 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 April.
We believe it's important to show you load in the system. You'll see that Minas Gerais 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 distribution in average in April 11, we 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 resolution, March 21, had a drop of 11.4% and some cities already going back in a very controlled fashion to their operating activities. They are 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, there was a drop of 12%. It was 15.8%, now it's at 12.0%.
Now moving forward in this slide, we have the effects 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 weeks it happened, it's 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 Cemig GT, we are also are negotiating with these consumers that have financial difficulties in a way that we can maintain the present value of the contract and making prepayments or providing energy to these consumers from 2021, 2022. And just as our energy purchase contract, we are also looking for payment deferrals in a way that we can maintain that cash flow for Cemig's Generation, 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 slow to 2018. But in 2020, we already have a reduction -- an improvement of almost 10% in those indicators, when compared to 2019. And what we expect for 2020, considering all 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 Vélez. Let me just start with these initial results. Here we have the main effects on the results for the first quarter of 2020. We did have some relevant events that are non-cash event. They only have an accounting effect on our financial statements, but we believe that they're important to mention, of course, because they are still related to a higher risk perception that we have right now because of the pandemic and in this Brazilian scenario. And we had to make a restatement at market value for Light so there was a reduction of BRL 609 million. They were at [ BRL 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 quarter the share was at BRL 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 Light's shares to see if we will be able to revert part of that amount in the next quarters. But this is a noncash effect, [ one-time off ], and that is related this situation.
Centroeste is a company where we had 51% of that with Furnas -- and because of accounting procedures, we had to do a restatement at fair value in the accounting amount. And here we have an accounting gain of BRL 52 million into our balance sheet, for Cemig distribution, we had a drop of 2% and the volume of electricity sold. We understand that the social resolution period is 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 lower -- 2% lower of the volume of the 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 BRL 33 million.
About Cemig G and T (sic) [ Cemig GT ] our EBITDA was very robust, and that improves the selling of Cemig's Energy on energy and also resold energy that is up around BRL 700 million and Vélez is going to mention that, but last year was even before because of the scenario that we had last year high [ indiscernible] and the stock price, very high as well, BRL 290 vis-à-vis BRL 187 million in the first quarter of 2020 and that combination brought made -- sorry, the EBITDA of last year, much higher than this year. So these are specific effects that ended up having additional effects of BRL 434 million. And now we have BRL 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 the Eurobonds that Cemig has for 2024 and because of the real depreciation last year. They had a [ positive impact ] last year of BRL 119 million, and that was the effect of foreign exchange variations with the hedge effect. But this year, we have BRL 438 million negative impact. It's also noncash, but it's also impacting our consolidated results.
Here is 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. They have full swap, 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 FX variation on increases that we are monthly paying to -- or quarterly paying to our bondholders.
About the principle the dollar today is close to BRL 5.70. There was a drop when compared to the prior year, but we have a protection with spread of BRL 3.45, up to BRL 5. So up to BRL 5, Cemig is going to pay BRL 3.45. And above BRL 5, Cemig would pay the difference. So right now, where the risk perception is very high and that amount above BRL 5, it's 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 being [ indiscernible ] or so that we can see the real impact 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 perception in this new environment, we'll be able to see what is the new dollar rate and adjusted to our currencies. So we understand that this is the practical effect here, which would be only by 2024 and the maturity of the bond, but that doesn't mean that Cemig is going to be exposed up to 2024 in this -- to 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 alerted to the situation. And after the pandemic, Cemig will take all needed actions to reduce the FX 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 FX variation up to 2024. So we have to be patient and understand that this is an acute crisis moment.
But all -- as all economic crises, 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 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 weather 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 vis-à-vis Cemig.
Now about the energy market. I'll now will turn the floor to Vélez, our IR Superintendent and he's going to go into the energy market results in details.
Hello, we are on Slide 16. We have prepared some charts to explain the behavior of the energy consumption in Cemig Distribution.
In general, transmission and total distributed energy had a reduction of 2%, the total distribution. And when we see the variation of transmission, had an increase of 1%, the total energy carried. This is the consumption of customers or billing in concessionaires, 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 concessionaire, 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 have 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 name figures for EBITDA and net profit. As Leonardo mentioned, we had some events in this year, Light, Centroeste and the FX hedge. But we had an adjustment to show the exceptional gain, thanks to the strategy that we had coming from energy allocation that we decided to do last year. And because of the GSF that was around 1.5 and the spot price that was very high in 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 was much better.
So when we carry out these adjustments, just for a 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 almost 36%.
And the next slide, #18, we have EBITDA and net profit for Cemig GT. Cemig GT had an adjusted EBITDA this year that was very strong of the BRL 685 million. But in the adjustment, also, we see an exceptional gain of BRL 20 million. And the gain that I would say that is recurring of this allocation strategy and this BRL 20 million. And we also this is much lower than a gain that we had last year. Thanks to this allocation. So with that, we had an improvement in the EBITDA of Cemig GT of 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 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 BRL 33 million in our [ PCLD ] or our ADA that impacted the results in the first quarter, even then the financial results was much better than last year's, especially because of a lower interest rate. Therefore, the net profit for Cemig distribution went from BRL 188 million to BRL 197 million in the first quarter of '20 with an increase of almost 5%.
Now turning to Slide #20. We have operating costs and expenses, that are consolidated results, of course, that we have expenses with buying gas, transportation, buying energy. So that's what we consider to be manageable distribution in generation, and we are always looking for margins, of course. And here, we highlighted the reduction in 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 BRL 100 million 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 8 months, that is because of 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 our operating efficiency.
And on Slide #21, comparing 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 BRL 33 million, our OpEx would have been within the regulatory OpEx. So the real OpEx in the first quarter was BRL 25 million higher than the regulatory level. And in addition to this OpEx impact, our nontechnical loss -- I'm sorry, losses over the tariff coverage, we're a little bit over BRL 75 million. So that we have a gap vis-à-vis the regulatory of BRL 75 million. And as you know, we are continuing working on those losses, we're fighting them and trying to reach this regulatory OpEx and regulatory EBITDA as soon as possible.
Talking about our debt profile. We have Slide #22 in terms of maturities for this year. We are at a comfortable position. After March, investments add up to BRL 1.9 billion. And remember that [ Cemig ] has a gap that is due in the fourth quarter of BRL 900 million and the remaining is for Cemig D and Cemig GT. And [indiscernible] 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 debt, 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 over adjusted EBITDA. And there is an increase in the hedge that was contracted to protect us against this FX variation.
On the next slide, we have a chart with the performance of our covenants of the Eurobond. Here, it's calculated according to Eurobonds description. So considering here -- and what's important is to see the amount of the derivative hedge that was contracted to protect us against the FX variation and the hedge in December of '19 was BRL 1.691 billion. And right now, in the first quarter, it was almost $3 billion. So if we discount the amount of the credit that we have, our debt and the holding goes from BRL 13.4 billion is a net debt of BRL 11.9 billion, and Cemig GT more or less stable. In a way that the covenant, net 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're here now to take your questions, questions that you might have. Thank you.
[Operator Instructions] First question from Carolina Carneiro from Crédit Suisse.
I have a question. You mentioned several measures for cost reduction and to prepare for a possible impact 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, too, or just so that more challenging environment. But if you can comment 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 [ fast ] and focus on any possible divestments?
Carolina, thank you for your question. We have 3 main issues, the costs, the sale of assets. And well, let's just start by the costs. If we compare costs in the first quarter, we already see significant reduction when compared to prior quarters. And the company sees in these opportunities to re-analyze many of its process -- cost reduction for this year we mentioned, we're trying to be -- it's already closed BRL 100 million as I mentioned.
But we are reviewing all our processes. There are topics and of course that we are phasing because of pandemic as well, because we have some places that are close these help us [indiscernible]. But regardless these topics we understand that -- and we are under the leadership of our CEO, Reynaldo, the biggest -- Reynaldo to review processing to the operating efficiency and right now we have an aggressive proposal to cost -- to reduce costs, but we are maintaining the quality service. So this is not a trade-off that we are going hurt the quality of our services to reduce costs, no. But we are reviewing costs and having greater operating efficiency. And 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'll improve our margins. About our leverage it's being reduced in an important fashion and even right now -- and we -- this is -- we'll see about our sales of assets because of the situation. So, our Light assets are 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 sales of assets right now. So we do have our investments program and divestment program. We know that this is line to our core and we know that now we are with BRL 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, this will help the distributing companies with liquidity. That's very important. And that liquidity which we already have to guaranteeing our cash, plus the support of the federal administration by the COVID Account, the [loan commission] COVID account, and other parts reducing issues. And as 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 then we have been announcing to the market that we wanted to dispose of them, and whenever the opportunity arises we do have this [ in future ]. 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.
Next question from Mr. Gabriel Francisco.
In the covenant calculation, 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 the -- from any of the players involved?
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, the contract, there, you have a [ clearance ] that the hedge must be considered for the calculation of the net debt, whether it's negative or positive, increasing if it is a company's [ bank ] or it's a -- the banks on the counterpart of derivatives, or reducing whether if this is a credit. And now that FX variation is more volatile, as we know, we decided to calculate in a way that it allows us to do this in order to better reflect the derivative as the 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 to complement on that, if we consider the real leverage of the company with the real indebtedness, you would have to use all the amount that we have in our accounting mind as 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 is -- better reflects the financial obligation of the company regarding its debt, whether it is real-denominated debt or dollar-denominated debt.
Next question from Mr. Marcelo Sá from Itaú.
I have 2 questions. First about this of pillar, the profit sharing program. And you ended up recognizing a lower amount, BRL 20 million, an amount that you having posted last year, I would like to understand which are the criterions are you based on an expectation? Or if this is the -- just the profit of this year a nonrecurring adjustment?
The second question about the ADA, you have shown the performance and the year-to-date of March and a 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 ADA, it's 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 -- this was not a change in the calculation criteria. We did have an agreement, a collective agreement last year establishing 4% of the [ last ] 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 in that allocation. And just adding to that last year we did not have any adjustments that were extraordinary and nothing that was nonrecurring. So we did have a step-up and the profit was above debt and that did 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 a new negotiation with our employees, now the collective [ bargaining ] agreement for profit sharing is of only 4%. And if there is any nonrecurring impact coming from sales of assets or anything else or any legal judicial claims that we are awarded, at least all of those would not a big part of this calculation. So from now on starting this quarter, 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 is a little bit higher than last year because of the possibilities in the beginning of the year of the connection, in the beginning of the year, it was because of the [ rains ]. 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 delinquency will be because we need to wait the bill to be overdue so that we can understand what is going to be this ratio, delinquency and ADA. And as it has been explained, the collection had a deterioration of 8% vis-à-vis what we expected. So this 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, this will also allow a reversal.
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 and your ADA, right, stemming from the crisis as well?
Marcelo, well, I might know the details, but I would say 70% is electronic means and 30% would be the other branches.
[Operator Instructions] Next question from Mr. Francisco Navarrete from Bradesco.
I have 2 questions. You mentioned the performance of delinquency in April, can you comment anything about May? It looks like you already saw an improvement, right, on the sales volume for April, it was more the delinquency was also worse. But you -- it looks like you already see an improvement in volume for May, right? What do you see for delinquency and the also low-income consumers, those that will have federal funds being paid your bills, how much of your revenues that low-income consumers represent?
About low income, they represent today more or less BRL 25 million a month. ICMS is not included there because it's exempt. So it's not a significant amount, it's BRL 25 million a month. So we are talking about 1/4 and it's a fact that would be paid and covered by the new federal legislation, that would be BRL 75 million.
Well, 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 effect, 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 2 weeks of May, what we see as a trend is that these figures have improved vis-à-vis April. So this is a positive aspect 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 from Lilyanna 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 return among clients? Or 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?
Lilyanna, thank you very much for your question. The free consumers or free clients are not easy negotiations. These are complex environments because we have a mix. In 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, more difficult.
For instance, one of our clients, a shopping mall, for instance that you really have a hard time there. And we are negotiating so that we can work with them and process sometimes involve the return of energy. And that's where -- 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 does it take -- then the energy is a surplus and then it's negotiated at the 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 we always thought this was a very challenging process and still it is, but we are being successful in these negotiations with our clients. But in some cases, because of the consumption is at the low range of the take, we are really selling a spot price.
In this case, this will have an impact for GT -- Cemig 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 onetime off impact in Cemig GT's results.
Just a follow-up. Can I understand that the regulated market, maybe the demand is a little bit lighter, but the free market may be 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? BRL 140, BRL 130, what do you see on that issue -- on that topic, please?
Well, yes. First is, that's true. There is a higher pressure in 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 onetime 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 just [ indication ] prices. We are not negotiating anything because of the uncertainties of this moment and the uncertainties that are related to the 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 switch the figures about the collection. Actually, electronic means address 40% of bills paid and branches, bank branches and others represent 60% of bills paid.
Next question from Marcelo Sá.
If you allow me a final question. More recently, it has been announced a change in Taesa's top management, the CEO and CFO left the company. And earlier [indiscernible] dismissal the also was announced. 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 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.
[Operator Instructions] Mr. Guilherme Lima from Santander.
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 can -- 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 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 fun decree. We know that distributors and with -- 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 discretionary period is 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 pandemic and everything that is involving not being able to disconnect residential consumers' connection. So we believe that there is going to be an impact in delinquency, and 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 that 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 these rebalances. So we will wait and right now, what is important for us is to tackle the short-term problem, which is the liquidity of the company because that's very important when you have a lower revenue coming from the market. And what is -- 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 regulating agencies of these effects and take it from there.
We now end the Q&A session. I would like to turn the floor to Mr. Leonardo George Magalhaes 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 effect 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 we are taking and about our Eurobond, 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 are -- do not have that exposure further on. So the company is alert and we'll 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.