Neoenergia S.A. (NEOE3) Earnings Call Transcript & Summary

Good morning, and welcome to the conference call regarding Neoenergia's First Quarter 2020 Results. The presentation will be led by Mr. Mario Ruiz-Tagle, CEO of the company; and Mr. Leonardo Gadelha, CFO of Neoenergia. I should remind you that this audio conference is being broadcast simultaneously over the Internet via webcast and can be accessed at ri.neoenergia.com, where the respective presentation is also available. [Operator Instructions] The audio conference is being held in Portuguese with simultaneous translation into English. [Operator Instructions] Additionally, this event is being recorded and will be later replayed and available on Neoenergia's Investor Relations website. This presentation was prepared by Neoenergia aiming to indicate the general situation and the progress of Neoenergia's business. Although the information contained in this document was prepared with the necessary care and diligence, the information provided herein accurately reflects the moment the information was consolidated, reflecting Neoenergia's current conditions at its point and its point of view. Therefore, the information is subject to change. This presentation should be seen only together with the oral presentation made by Neoenergia and its financial statements. Neoenergia cannot be held liable for any laws directly or indirectly arising from the use of this presentation or its content. The presentation is a property of Neoenergia and should not be reproduced, distributed or disclosed to third parties or even used for any other purpose without prior written consent of Neoenergia. The company points out that this presentation may contain statements that represent expectations and projections of Neoenergia about future events. These expectations involve risks and uncertainties. And therefore, there might be different results or consequences than those presented and anticipated hereby. I will now give the floor to Mr. Mario Ruiz-Tagle. You have the floor, sir.

Good morning, everyone. Thank you very much, operator. I would like to thank everyone for attending this conference call to present the results of the first quarter of the year 2020 of Neoenergia. At this very special moment for all of us, but life must go on. We are here today with Mr. Solange Ribeiro, Deputy CEO; Leonardo Gadelha, CFO of Neoenergia; Eduardo Capelastegui, the Executive Director of Equity Control and Planning; and Renato Rocha, the IRO of the company. I will begin with the presentation on how we are tackling the COVID-19 crisis. I will then move on to the main highlights of the results over the period. Leonardo will then make a detailed presentation of the consolidated earnings and by business segments, and we will then open for questions and final conclusion. The year 2020 began quite promising and had a shift in its trajectory with measures that were adopted to prevent the spread of COVID-19. This new scenario has proven to be extremely challenging to all and it has not been different to Neoenergia. In the latest day of March, there have been impacts on the results we are going to present now on Slide 4. We will discuss the actions that we have implemented in order to reinforce the safety of our personnel and our businesses, in terms of our employees, our clients, suppliers and civil supply team. We are aware we have a responsibility to provide essential services to society. And we are very proud of how our collaborators in the field have been facing the challenge to provide effective and quality service, observing the sanitary and safety measures that have been adopted, so 34 million people can enjoy the comfort of receiving energy supply in their households. Similarly, we have adopted health measures in the workplace and construction site, so that our operations and expansion projects are not actually affected. I would also like to congratulate our IT team, which has played a key role. And today, we have 4,600 employees working remotely, almost 40% of our workforce at Neoenergia. In terms of our customers, this crisis has become an opportunity to accelerate our digital transformation project, particularly our digital connection, connectivity project, which seeks to facilitate customer access through our services remotely. It has allowed us to enhance the level of service we provide. We will soon reach 1 million customer service through -- on WhatsApp -- interactions on WhatsApp since we launched this channel in late March as a result. We have created an exclusive service channel for hospitals and health centers as well as strategic companies and their production of goods in our concession areas. And it's important to mention that we are working very closely with NAL, the regulator and the government to design urgent solutions for our industry that will ensure the liquidity and financial wellness of our concessionaires and distributors without necessarily generating a higher tariffs for consumers, and also seeking to restore financial economic balance in our distributors who are convinced that Brazil has sound regulatory framework for the electricity sector, which has been tested. And has therefore -- and therefore, be guaranteed by the legislation that will have the financial balance to address the current scenario. Our distributors are the gateway for the results and equity of the electricity sector. We have always shown confidence in the capability of government agents and regulatory agencies to find solutions that will help us overcome this crisis. The electricity sector plays a key role in the recovery of the connectivity, and will need support to overcome these extraordinary circumstances. In terms of our suppliers, we have closely monitored the health status of our third parties, our contractors and also the financial situation of our partners. We have also proactively sought to anticipate the equipments that we have been receiving and which are critical to our processes to avoid any possible future bottlenecks we might have due to the pandemic. And as a signal to strengthen our commitment towards suppliers, we are anticipating acquisition and decisions that we have planned for the second half of 2020 and early 2021. And similarly, Neoenergia has also collaborated with various social activities by supporting several institutions among which we highlight Transforma Brazil, which together with our volunteers will deliver basic food baskets and hygiene kits to 125,000 families. And we have also donated together with other corporations BRL 1.5 million and 100,000 rapid tests for detecting COVID-19. We have also through the energy efficiency program, have donated refrigeration equipment to 5 hospitals in Bahia, in Pernambuco. We're also working to do to take similar actions in Rio Grande do Norte and São Paulo states. Managing this crisis requires commonsense and plausibility. Crises will always bring about an opportunity for improvement, and we are going to seize these opportunities at Neoenergia. And now on Slide 6, we have the highlights for the results of the first quarter 2020. Driven by a larger customer base, we have over 244,000 new consumers, which correspond to a 1.8% growth compared to the first quarter in 2019. The positive effects of the annual readjustments and tariff reviews of Elektro last year and a sound performance of the liberalized segment of Termopernambuco and Neoenergia trader. We had a growth of 11.3% in gross margin compared to the first quarter 2019. We remain firm with our cost discipline and seeking to become more efficient. Day by day, we deliver a level of operating expenses that is 2% below that of the last period in 2019, absorbing the period -- the inflation of the period with a larger number of employees through the primarization process in our distributors and by serving a growing number of customers. Our EBITDA, in turn, has reached BRL 1.5 billion in the first quarter of 2020 with a 14% growth when compared to the same period in 2019, whereas the net income has reamounted to BRL 577 million, 17% higher than the first quarter 2019. These results indicate once again how solid our growth strategy is and how we can create value to our shareholders. More than ever before, and considering the current scenario, we are strongly focusing on liquidity and cash. And this has allowed us to take one more step further towards leveraging, reducing from 3x the net debt-to-EBITDA ratio in 2019 to 2.98x by the end of the first quarter 2020. Finally, we have executed a CapEx of BRL 964.5 million in the first quarter this year, 9.8% more than in the same period last year. Moving on to Slide 7. We can see an evolution of our transmission project. I would like to highlight that progress of our projects remains within budget and with good prospects for anticipating the deadlines put out in the business plan, thus guaranteeing the expected returns. In relation to the April 2017 Lots, we have proceeded with the lifting of towers and launching of cables for a Lot 4 anticipating our business plan. Lots 20 and 27, as reported during the quarter were delivered before the deadline upfront and CapEx was below that provided by ANEEL as Lots. As for Lot 22, we will soon announce its entry in operation. In relation to Lot 4, December 2017, we have awarded a substation equipment and have already renewed the [indiscernible] Installation License for the lines and substations that were owned by Abengoa and that will be used in the execution of this project. The construction [indiscernible] are working on the construction of this lot, and it has an important perspective to also anticipate the business plan. Lot 6 in the same auction has already obtained installation licenses. And according to our expectations, it should also come ahead of this schedule of the business plan. [indiscernible] is working on the construction lot and the mobilization of construction was started in March, anticipating our schedule by a few months. The December 2018 lots, I would highlight the delivery of basic projects for all the ANEEL lots 3 months ahead of the schedule, which has allowed us to obtain the DUPs for all lots as well as the installation licenses for the substations. In 2019, the substations, well, constructions began. The projects for the last auction have already obtained 70% of the CapEx. And I should also mention Lot 9, which comprises new substations and 210 kilometers of line, and estimated annual CapEx is BRL 3 million and located in Bahia, and has strategic relevance for Coelba in this lot, we have already hired a towers contractor to begin the civil works. We have been asked many questions about the possible impacts of the COVID-19 pandemic and the execution of our projects. Transmission projects will continue, and they will be not compromising their return rates. We are not exposed to bottlenecks of any sort. And as I said we are closely monitoring our partner contractors in terms of the execution of the projects and also following our suppliers closely in terms of the equipment delivery. I should also point out we have implemented sanitary measures in all of our construction sites and have been agile in places where municipalities -- isolated municipalities have prohibited nonessential economic activities, thus reducing activities on our construction sites. We have almost 2,000 people working in the implementation of our projects without any cases -- any COVID-19 cases, official cases. Now on Slide 8. We will review the status of our wind projects. I would also like to mention that the implementation works of our 15 wind farms in Paraíba and the Chafariz complex are going ahead, and we are therefore also ahead of our business plan. This wind farm will add 471.2 megawatts, has 98% of our CapEx already awarded. And construction contractors are already working [indiscernible] are contractors with great experience in building wind farms. We have 600 people working in the construction sites advancing with excavations and also foundations, laying the foundations. The wind farms are expected to begin operating in January 2022, reinforcing our commitment to battling climate change. In 2019, we approved the construction of 12 wind farms in the Oitis complex, which will start operating in mid-2022 with 566.5 megawatts, and which will have 96% of their energy dedicated to commercialization, to trading and liberalized market, aiming to serve final consumer -- consumer does ensuring Neoenergia's participation in the liberalization movement of the Brazilian energy market. It is with great satisfaction that we have GE as a supplier of turbines with a GE158 model of 5.5-megawatt turbine. It is top quality for the Oitis' complex. Moreover, it is worth mentioning that part of the project funding is with the European Investment Bank with EUR 250 million with the entry into operation of the Oitis and Chafariz wind farms. Neoenergia Group will have half of its wind energy destined to the free market from which 29.8% has already been traded between 2022-2024, at average prices of BRL 190 per megawatt. Implementation of the wind farms continues within the schedule and within the budget contemplated in our business plan. We do not have any bottlenecks with the return rates caused by the COVID-19 pandemic. I will now give the floor to our CFO, Leonardo Gadelha, who will provide more details on our results for the first quarter of 2020.

Thank you, Mario. Good morning to all. So moving on to Slide 10. Despite the stable demand in the quarter, our gross margin grew 11.3%, [ BRL 2.4 ] billion for the quarter. And this was driven mainly by the growing customer base, the Elektro tariff review in August, the readjustment of the remaining distributors and a higher generation rate in Termopernambuco considering the [ 2.3 ] we have with VNR and IFRS effect when comparing the quarters, you have an offset because the VNR presented a reduction of BRL 56 million quarter-over-quarter because out of all the ratio the IFRS had a BRL 61 million increase. It's a BRL 5 million differential match between quarters, quarter-over-quarter. On the right-hand side of the slide, we have the costs. Looking at consolidated costs, highlights this quarter with a strong performance as we will see in the upcoming slides, with a 2% reduction in sales despite our goal to absorb the effects of the inflation and growth of our customer base. So this has been our target. And in this quarter, particularly, we were far beyond the target. So we have obtained results and reached our target despite the primarization of electricians and with 150 employees that have been added to the Neoenergia Group. As we can see, this growth has been offset -- more than offset by savings in other lines, especially contractor services. On Slide 11, we have on the right-hand side, the EBITDA that we have been reporting, so EBITDA -- [indiscernible] comprises the VNR and IFRS reaching BRL [ 1.25 ] billion in the first quarter, a 14% growth compared to the first quarter in -- on the right-hand side, we are presenting for the first time the EBITDA without the VNR, without the IFRS -- with combined effects of BRL [ 157 ] million in the first quarter with VNR and IFRS total. And in the first quarter 2021, 353 million with the noncash effects, the EBITDA growth is 15.7%, therefore, slightly above what is reported in our complete EBITDA. And still on this slide [indiscernible] from the EBITDA 87% was generated by networks, the network business, BRL 1.5 billion 6.4 from renewables and 6% from liberalized market and our income reached BRL [ 537 ] in the quarter with a 17.3% growth compared to the same quarter in 2019. Net income on Slide 12. We have details on CapEx. We have by the end of the quarter, BRL [ 964 ] million and it's mostly concentrated in Network segment with 94% there and also [indiscernible] distribution, including CapEx for network expansion, asset new network quality, lost [indiscernible] actions and 235 in transmission line construction. Renewables principle of total BRL 40 million, from which BRL 5 million in hydro power plants, CapEx for maintenance because there are no hydro power plant in construction [ 35 ] million in wind power. Projects under [indiscernible] with the Chafariz construction -- construction site, Paraíba [indiscernible] and the liberalized segment with BRL 20 million will be -- with the anticipation of equipment acquisition for maintenance for Termopernambuco in June and July this year. And while considering the current scenario -- the current situation, we actually anticipated BRL 20 million CapEx for maintenance that will happen later this year. And now looking at the different business segments. On Slide 14, we have the injected energy evolution in our 4 distributors. This is not new data. We have disclosed this information a few days ago to the market. So we observed that overall in this quarter, we did not have the robust growth that we have had historically. And for 2 main reasons: first, because first quarter 2019 was a very strong quarter because of the very warm climate or weather last year. And the first quarter of 2020, well, was not a very hot weather, and it was a very rainy season, especially in the region where [indiscernible] is located in that actually [indiscernible] this different Mario has also pointed out that starting March '20, of course, we observed the clear effect of the pandemic COVID-19, impacting our distributors. And with this in mind, I'll move on to Slide 15, where we have data that we like there, breaking down the behavior of our distributors still -- well, the onset of the pandemic and after the pandemic though have [indiscernible] between 1st January -- January 1, March '20, we had a slight decline in the injected energy of 1.4%, compared to the same period last year. And this filing, as explained, as I mentioned through the comparison with 2019, hot, dry climate in the first quarter 2019 and after the announcement around March '20 with the COVID-19 and the cut downs the scenario changed clearly. And over the [indiscernible] steeper decline in injected energy and [indiscernible] compared to the same period March 2019. And still in Coelba to the far right, we see a comparison for March, last 10 days with the average -- 1st day of March. And there is a deeper decline of minus 13% Coelba. And the other discos had a similar behavior, Celpe, well, had higher growth, and therefore, the decline was steeper, was stronger. And then in March, we went out with the same Cosern and Elektro had slightly positive performance in injected energy and that, of course, changed over the last days -- on the last days of March, as a result of the pandemic, with the onset of the pandemic here on around March '20. So here is a quarter, so to speak, that we deemed important to share with all of you. On Slide 16, we have an overview of distributed energy with a 0.3% decline in the quarter compared to the first quarter [indiscernible] factors come into play as Mario mentioned, we have a growing customer base, 244,000 with 14.1% consumers. And also in injected energy, we were acted of course, by the first quarter 2019 and the last days of March, with COVID-19 Distributed energy in the quarter, considering the free captive market as we can see at bottom left, have 35% of energy demand came from households, residential, which stands for 88% of our consumers. Therefore, we have our exposure on average to the residential segment. On the next slide, we have slide -- on Slide 17, losses, total loss [indiscernible] 12 months, and we had [indiscernible] performance in the quarter. In terms of losses, 2 of our distributors where we remained in the regulatory limit, Cosern and Elektro. So they were within the regulatory limits, and they remained within the regulatory limits over the quarter. In the case of Coelba, although it is outside the regulatory limit. It was under the impact of the rainfall. We had rainy quarter explain why we had to displace some of our team to specific sites. We also had improvement in the losses at Coelba in the fourth comparing the first quarter now, there is a slight decline. We do not see the number -- the figures here, but it's [ 15.29% ] versus [ 15.23% ]. So a slight improvement at Coelba. And at Celpe, continued to be our key challenge when it comes to fighting [indiscernible] losses, addressing losses with a slight decline in the first quarter, [ 17.30% ] to [ 17.34% ]. And we are, of course, still focusing on tackling losses and have initiatives in place, actions in place to manage -- to better manage this index, this rate. On Slide 18 now, this is a new slide that we have included in the presentation. It is, of course, it's always been included in the lease, but it is about our loan loss provision, PECLD in Portuguese. So looking at last year, we have a 12-month overview. And starting in the third quarter last year, we adopted a more conservative position when [indiscernible] visioning. Of course, enhance our provision levels in our distributors, actually starting in the third quarter when we began to review our methodology and standardization process and have adopted technology across all of our distribution companies. And you can see Coelba and Cosern are within the regulatory limit, they need to be in Celpe and Elektro are not with the regulatory limit. Far right, we see how we closed the first quarter 2020 [indiscernible] incidents, we have the same figures of fourth quarter in 2019, BRL 108 million. This is the provision we had -- loan loss provision for the quarter, PECLD. And also important to mention that [indiscernible] criteria, the conservative criteria that we have adopted as a result of the growing number of overdue, installments or payments because -- caused by the pandemic, and we believe also that the communication at that time was not clear. Some places were shutting down. And there were, of course, traders that had challenges with making payments. Therefore, we decided to enter this provision. In this quarter, we have BRL 19.7 billion provision for the 4 distribution companies, more concentrated at Celpe as we can see broken down on the right side, but this was conservative looking at the late March. So we've closed with the same levels as fourth quarter of 2019. And then moving on to Slide 20, or 19 rather, we have the quality indicators for SAIDI in hours, availability with very good results despite the rainfall and with, of course produced results for Coelba, but still were far below the regulatory limits and it's the same for all the other distribution companies that are within the regulatory limit. On Slide 20, we see SAIFI, we have also improved these results in the 4 distribution companies. And I should highlight that we have proved the quality index and our performance as well as costs. As a result of the process review [indiscernible] in terms of cost reduction and upgrading standards. On the next slide, we have results, the impact of the performance on our gross margin with a 10% growth quarter-over-quarter, was again driven by the Elektro reviews and tariff reviews and by the customer base growth. Even though we did see higher volumes. And once again, we have the [indiscernible] IFRS 15 effect, VNR was BRL 71 million in the first quarter 2020 and BRL 127 million in the first quarter 2019. The reduction I mentioned earlier was the result of the inflation in IFRS 15 had an increase of BRL 40 million in the first quarter '19 to BRL 101 million in the first quarter 2020. So there is also an offset last year with a delta of BRL 5 million, an increase in the first quarter [indiscernible] noncash effect is BRL 5 million. And still on the slide, we are still focusing on the primarization process for operational activities. And once again, offsetting these results in our other line services and replacing contractors by our own employees and excellent performance in the first quarter with a 5.2% reduction in operational expenses compared to the first quarter. So we went far beyond the inflation -- absorbing the inflation and growth in customer base. And these are 2 important factors and still had a 5.2% expense reduction compared to the first quarter of 2019 and our [indiscernible] of course, growing below inflation, but this was a particularly positive quarter. On the next slide, Slide 22. We have EBITDA in terms of what has been reported of [indiscernible] growth expediting without the VNR and IFRS 15 effects, we have a higher growth still because the delta totals BRL 5 million [indiscernible]. There is a 17.4% growth actually in EBITDA despite having a -- the volume that I presented [indiscernible] and net income also grew 28% in net growth with BRL [ 28 ] million by the end of the first quarter. Now on Slide 24. I will talk about results analysis in Renewables. Renewables segment, where we had a decline in EBITDA to BRL 99 million in the first quarter '20. Here, you look at the EBITDA, looking at hydros, wind. Wind, first quarter had a negative impact and 25% -- of winds compared to the first quarter, despite having the ability beyond 97% as programmed. And in turn, the results of the hydros were -- had a negative impact with Belo Monte the first Q '19, we had a positive impact on our base from the deferred tax of BRL 17 million, the deferred tax [indiscernible] an impact result. And in quarter, part of the Belo Monte Energy is not contracted. So we had LD Energy in the free market with the North PLD with lower available prices and the estimated impact was BRL 10 million in the first quarter. This difference in hydros can be explained by the Belo Monte effect. Therefore, but the other hydros had good performance in the quarter. Our net income was BRL 5 billion in this quarter, so a decline caused by the factors that I just explained. On Slide 26 now, we'll cover liberalized segment results with an impressive increase of 135% in EBITDA, BRL 92 million in the first quarter of the Termopernambuco, which had a higher generation volume in the first quarter and the performance of our trader with negative results in the first quarter 2019. But starting in the second quarter last year, 2019 it had adjusted -- it's a commercial approach aiming at the end customer. Therefore, we see this variation EBITDA of BRL 5 million in Termopernambuco and 48 million [indiscernible] Neoenergia Trader and the $53 million deferred in EBITDA. And therefore, net income went up from BRL 30 million to BRL 39 million, a 200% growth in the quarter. And now we'll see our capital structure, on Slide 28. We have actually there this slide on a regular basis, how we closed the quarter and the leverage fashion trajectory we had 2.98 -- closing at 2.98. And the trend going forward is to have a growing CapEx in projects, especially transmission, leveraging will be -- will have -- will reach a tipping point and then will go up. We closed the quarter in very good shape. And thanks to the liability management efforts, we have gradually reduced costs and increased the average maturity of our debts, which are more than 4 years now. We go beyond 4 years. Costs went from 6.4% down to 6.3%. That's the average cost of our [indiscernible] rate and our balance is robust. It's comfortable with 17% of our [indiscernible] I would also point out that we closed the quarter with cash business above BRL 4.6 billion, almost BRL 4.7 billion. And if we add up the lines, we have today, the loans we have taken that can be reversed. We will to almost BRL 11 billion in total availability. And these are loans from investment banks, like the BNDES, [indiscernible] We are now, yes, making disbursements and the clients and this is a very comfortable liquidity process. And at the bottom, in terms of debt amortization schedule since we're also increasing 30 in terms of principal and interest, BRL 3.3 million. And this is what we have in terms of principal and interest steps. And I will also mention the standstill of the BNDES investment bank, which also bring this down further in 2020. So we have a diversified debt portfolio with different funding sources as we see on the bottom left side. On Slide 29, now, we have also included this new slide in the presentation. We have an overview of our projects and how they're doing in terms of contracted funding. During contracted funding for transition and wind renewable projects, and we have also made progress last year with secured funding for most of the projects under favorable additions in terms of deadline, maturity and costs. I will not break down, but we see [indiscernible] diversification projects basis, we have the debentures that we captured [indiscernible] last year were used, fund the equity, so to speak, of these projects in the April '17 auction, we had an important leverage since the actual equity amounted to [indiscernible] because here, we look at the debenture that we obtained at Neoenergia, as many of this have actually presumed profit. So it doesn't make any sense [indiscernible]. Now we're focused on projects for December '18, and some of the lines we're looking, of course, [indiscernible] will depend on the ILI to obtain funding and renewables, I would also mention, as Mario earlier in Chafariz we have a 55% of our funding with this combination of Neoenergia [indiscernible] BNDES last year has already disbursed [indiscernible] funding, and we are now going to progress with the projects. And Oitis we have already using from EIB is secured by 2021. And therefore, we're also considering to disburse these funds this year now 2020. Neoenergia and of course, you have to have the project in place, and this would be a Neoenergia -- under Neoenergia. And to close on Slide 30, we have our cash management. Yes, we have been focusing strongly on cash since the onset of the crisis, the actions that we have already taken in seeking to preserve cash. Well, I [indiscernible] understand still of the BNDES. The BNDES is offering our industry and also all of the businesses that it funds. It is actually offering a standstill of -- and lower cash disbursements companies without cost. And we have adhered to that, and this will represent a reduction of [indiscernible] billion therefore. And we also have the sectorial funds that have been released by the regulatory agency [indiscernible] distribution companies, that amounts to BRL 240 million, [indiscernible] taxes and other charges and tax as well in our case, particularly there's a temporary [indiscernible] BRL 340 million. In fact quarter this will be postponed to the second quarter. And also interest on equity and for distribution. We have postponed distribution payments to December -- serve our cash, our distribution company. And finally, in terms of funding, by April this year, we disbursed BRL 2.2 billion in credit lines. From BRL 2.2 billion, BRL 1 billion was for distribution company [indiscernible] as a sign to distribution company as working capital for recurring activities, and we actually took this action before the crisis under favorable conditions. And 1.2 billion were assigned to transmission and wind projects. And we will continue focusing on these actions. And now I would like to open for questions.

[Operator Instructions] The first question is from Carolina Carneiro, Crédit Suisse.

I would like to ask 2 questions. First, you mentioned earlier on and also in the repeat that for [indiscernible] you have not actually we cannot assess a full impact of COVID-19 on businesses. Of course, as seen in March, the volumes had a decline or negative levels. And maybe you could comment what you have observed in terms of volumes? And year-to-date, more or less 1 month is sampling? And also in terms of delinquency, we have read that the delinquency could reach 20% or maybe a decline in settlement. So could you please comment on what you have observed on your viewpoint? And if [indiscernible] has disclosed the figures, I would [indiscernible] is in line with what you are forecasting?

Carolina, would you like to ask both questions?

Yes, certainly. The second question has to do with personnel costs and however, you said you had a primarization of 800 employees. And throughout the release, there was one single comment about nonrecurring, which impacted the holding, just to make sure the PMSO figures, the loan loss provision -- the PMSO did not include any other nonrecurring besides the BRL 25 million that may be you did not mention? And which other measures for primarization were implemented in this quarter?

Thank you, Carolina, for your questions. Well, let me give you a review, and I'll then turn it over to Eduardo Capelastegui for more details. As for the impacts of COVID-19, in fact, the first quarter, well, there were 10 days where we had really the shutdowns and the federal government and municipal governments actually enacted executive orders or shutdowns and being home. And you have malls and retailers had to shut down. And therefore, the impacts were stronger over that period. And remained over month of April. But now it has been relaxing in terms of defining transaction and payments. And now with Eduardo Capelastegui.

Carolina, as Mario mentioned, you answering your question on COVID-19, [indiscernible] last 10 days of March and 10 first days of April, we have been under the impacts -- in terms of demand and collection. In terms of demand, we are at a 12% level considering our 4 distribution companies, some 3 -- some 11 or 9, but on average, the injected energy has dropped 12%. In terms of collection, that's more volatile, but we have -- we're looking at the 30-day sample. So 30-day period, we might have a more stable overview, maybe at around 12%. So -- you have an offset here. First, a decline -- a 12% decline and then the other 12%. So in total, we're looking at 24% in terms of market and collection decline. I should also mention that, yes, we will continue observing the market behavior, the last days of March, like March did a little bit worse. And now we expect for collection through credit cards to come back and to improve -- increase again. And the measures -- the government measures to support the low income brackets will be very helpful because NEO has increased a limit to 220 kilowatts per hour, which will tackle delinquency and will be very positive for us, but we have to wait a few more weeks and see this is -- yes, we will keep a close eye to scenario going forward. In relation to your second question, as mentioned in the release. In the first quarter, we had 2 nonrecurring events, extraordinary events, and we had one, which was positive, one was negative. We do arbitrations with the Neoenergia Holdings, plus BRL 50 million. And so when you look at networks, you don't have recurring networks in the quarter because we had the holdings, and we had a review of 5% in OpEx compared to the first quarter '19. And mainly -- well, the main reason being the different operating model that was adopted in the distribution company, the primarization is very successful producing positive results and in-sourcing primarization and the operation has also produced more quality results. We won't have to spend as much with network arrangements. In terms of safety and security, we're also doing better. And we have an overall improvement of the operation and distribution companies are grateful to that, and OpEx actually indicates this important efficiency gain in networks. We have no nonrecurrent results, 5%. Here is looking at what was attained in the quarter.

Our next question is from [indiscernible]

I would like to -- along the lines of -- with this question. I'd like to ask -- you mentioned there was a minor impact 10 days that you have a conservative outlook here. I would ask you how you think the market will behave during the pandemic? Maybe you can give us an estimate of the duration of how it will take to -- for things to get back to normal? And if I may ask a second question. For distribution companies may COVID-19 impact -- construction of the size in this first term, and then maybe it will pick up again in the second term? And how is CapEx going to be?

Thank you, in terms of delinquency, as Eduardo mentioned, we actually observed a stronger impact, a stronger effect early on, mainly 2 different reasons are collection stores in lottery houses, which had to shut down for a few days. Fortunately, the government soon decided they could open up again because they're ranked as essential services, and that was key for us. And also considering the track record of our customers, we have a sound behavior in the Northeast. Of course, we are looking at -- we don't want to reach negative levels or have negative delinquency. And we do not think that COVID-19 is going to change our culture. We, of course, are concerned with the income of the lower brackets. And the faster the economy comes back to normal, the better for this region. And we are looking at, of course, official data and executive orders for 3 months. We believe there will be a stronger impact in the second quarter, and we expect to have an important recovery through the economy activation programs that are being designed by the Brazilian government. Right now, we expect to come back to normal after COVID-19 is under control. As far as investments, we have obtained our investment program, and we are also accelerating our investment program. We are a key player with the investments that we make in the [indiscernible] areas. the Neoenergia Group, well, there are 100,000 people that depend directly and indirectly on our activities. And the contractors and our primary employees and we want to continue with our investment plans. Evidently, if we receive stronger decline, longer down turn for a longer period of time and is lower recovery curve. We might, yes, review part of our investment plan. However, we believe as we have repeated time and again that it will not be relevant or significant or impactful considering that we have high investment demands to promote network expansion to 144,000 new customers in 1 year compared to the first quarter in 2020 through the first Q 2019. And this, in our view, is not going to change. People will, of course, continue building households and working and using electricity to conduct their daily activities.

[Operator Instructions] The next question is from Carolina Carneiro, Crédit Suisse.

I would like to ask one more question, if I may. It's about the regulatory framework and executive orders, the ordinances, for example, the COVID [indiscernible] that will be set up. And media has, of course, been talking about different possibilities, claiming that this account will operate in a similar fashion as to what has already been created in the past that it may be a sluggish process. So could you also tell us more about the account? Which costs this account will cover? And why the details have not been disclosed today?

Thank you, Carolina, for your question. Well, allow me to begin by presenting general analysis, and then I'll turn it over to our Vice CEO, Solange Ribeiro, who will talk about what's going on in the negotiations. As we said earlier, we are fully convinced and we rest assured that our distribution companies have their deals, they are regulated. They operate in Regulated segment, we have faced crisis in the past. We had the [ FGPS ] crisis in 2015 and social security crisis. And those, of course, led to new solutions. We have, of course, different alternatives over time that have been designed. We have seeking to work with the government authorities with NAL the regulator to obtain funding to continue supporting the electricity industry and of course this might come from the treasury or from BNDES. We might also bear in mind that the ICMS tax for lower income and at the state level is also providing subsidies with the treasury. And you have the [indiscernible] funds also for research and development that we can -- we might resort to are always seeking to reduce the impact on tariffs for consumers. And it is key to have a joint effort in the electricity industry. Those who are in the free market now or who will migrate in the future, it should all work together and contribute to tackling the extraordinary impacts this health crisis the pandemic COVID-19 is producing. I will turn it over to Solange Ribeiro now who can elaborate further on our time frame.

Thank you. Yes, what Mario has just said, I would particularly say that the solution will not stem from one single source. We will not have a silver bullet to tackle all of the issues that are at hand. But the executive order this ordinance has, well, made room for making things simple is something banks are familiar with. And this provisional measure of this executive order will allow for financial operations to support our cash, this happened before and the financial operations and happen to also to our charges as before. So we are looking at regulatory assets that might support this funding other regulatory assets, and it is a similar model to what has been adopted in the past. The timing, I believe that the timing will be defined as the -- the time line will be defined over the next week. It's overall prices and that we have the right conditions to move forward and the details of the executive order, the ordinance will, of course, lay out what the particular challenges will be. And all in all, on one hand, we have the delinquency rates. And we, on the other hand, we all have the assets, and we'll have to try in -- a ratio to have liquidity. So that is one action. Mario has also talked about the economic side of things, that's another discussion. But this is what I can share now in terms of loans something similar to what we have done in the past with a CR account. And by the next 2 weeks, it should be ready and disclosed. Thank you.

The Q&A session is adjourned. I will give the floor to Mr. Mario Ruiz-Tagle for his final considerations. You have the floor, sir.

I would like to thank you all once again. Thank you, operator. On Slide 20, I would like to leave you with positive that reaffirming, of course, the commitment we have with all of our shareholders and stakeholders, we will act together to rise to the challenge. We are an integrated solid company that is part of the Iberdrola Group. We have a workforce that is talented and fully committed and engaged through our growth and profitability goals, the electricity sector [indiscernible] for this prompt recovery of the economy and is acknowledged by solid regulatory frame, which will therefore ensure that the extraordinary circumstances we're living in right now fighting COVID, it will be duly acknowledged. And if necessary, we will rebalance the financial economic balance in our construction projects. These are hard times. No one was prepared for such a situation, but we are convinced that in line with our principal values and commitment with generating value for our shareholders, we will, of course, see solid growth. In -- with the regulatory framework in our industry, we will rise to the crisis. We will continue operating with transmission projects and wind projects with solid perspective to deliver ahead of the deadlines and below-cost -- cost that we will be building and expanding our network, improving our quality and growing digital in the way we interact with our customers. You may rest assure that we are focusing on cash, net income and cost discipline in something that is key for Neoenergia now more than ever, we will continue working together to produce a more effective, efficient group that will produce quality service to our customers. I would also like to express my gratitude to all of Neoenergia employees. Despite the challenges they have played their role -- a key role in helping Neoenergia reach the households of 244,000 people will serve every day. We believe in the future of self and of Neoenergia. Crisis bring opportunities, and we are certainly going to see some Neoenergia. Together, we will overcome crisis. Thank you very much. Stay home, and I wish you all an excellent day.

The earnings call of Neoenergia is now adjourned. Thank you all for participating. Thank you for using Chorus Call. [Statements in English on this transcript were spoken by an interpreter present on the live call.]