U.S. Markets open in 8 hrs 48 mins

Edited Transcript of TIET11.SA earnings conference call or presentation 7-May-20 5:00pm GMT

Q1 2020 AES Tiete Energia SA Earnings Call

BARUERI May 18, 2020 (Thomson StreetEvents) -- Edited Transcript of AES Tiete Energia SA earnings conference call or presentation Thursday, May 7, 2020 at 5:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Clarissa Della Nina Sadock Accorsi

AES Tietê Energia S.A. - CFO, VP of IR & Member of Executive Board

* Italo Tadeu de Carvalho Freitas Filho

AES Tietê Energia S.A. - CEO, President & Member of Executive Board

* Rogério Pereira Jorge;Member, Sustainability Committee

================================================================================

Conference Call Participants

================================================================================

* Gabriel Fonseca Francisco

XP Investimentos Corretora de Câmbio, Títulos e Valores Mobiliários S.A., Research Division - Energy, Oil & Gas Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen, and welcome to the earnings call for AES Tietê Energia. During this conference call, we'll be discussing the results relative to the first quarter and the year 2019 and 2020. The IR team for AES Tietê Energia would also like to inform that the respective release and results presentation are also available at the company's website at ir.aestiete.com.br. (Operator Instructions) Once again, this audio conference is being recorded and it's also being broadcast over webcast at the following address. ir.aestiete.

On behalf of AES Tietê Energia, I would like to say that forward-looking statements made during this call concerning the company's business outlook, financial and operating forecasts and predictions for the company are assumptions based on the company's current expectations. Such expectations might alter due to several variables such as market conditions, the country's performance in economy and other international market factors. The presentation will be conducted by the company's CEO, Mr. Italo Freitas; and by the CFO and IRO, Ms. Clarissa Sadock. At the end, the executives would remain available to answer questions you may have.

Once again (technical difficulty) office personnel has been working remotely. And then to maintain the capacity to control internally and to produce reliable financial information. Given the uncertainty we are currently living, it is fundamental for us to have information to (technical difficulty) then everybody can be safe working from home. For that, we have the following scenarios: since the beginning of the new safety configuration adapted to ensure 100% of our sources. This way, we have fulfilled our role delivering essential services to society. That is electric energy. We are working on a (inaudible) format of 12 hours, we have a structure in place, should there be the need to operate it about to 15 days in a model similar to oil rigs, offshore oil rigs. Our actions are not only internal. In these 2 months, the company has made donations of PPEs to the hospitals as well. Hospital São Paulo is a case in point.

On Slide 5, we have a resilient portfolio of contracts in both the free and regulated environment. Since 2017, the company has been working to diversify its client portfolio. In that year, 2/3 of our portfolio was concentrated on only 5 clients, and we're keeping only contracts in the free market or in the free environment. Today, we have a diversified group of clients operating in different industries on top of a very strong presence in the regulated market. On top of an effort to diversify our portfolio, we have invested in improving our analysis method for risks. Also in the structure of our intelligence team and in technologies to automate processes to bring more safety to our contracts. Our indulgence area follows up on a daily basis, the portfolio's profile, products and possible impacts on our commercial margins. Our risk policy has limits or exposure and (inaudible) cover according to the profile of each counterparty has established global partnerships, which may now (inaudible) accompanies to share credit information. This investment constant in technology and information allows us to have a risk analysis process in place even when we have a difficult scenario. The final result of that is that now we have a more resilient portfolio to face the uncertainties of the current crisis. A 100% of our contracts are in the take-or-pay mode. Half of them have a flexibility of up to 10%. All our contracts have a guaranteed structure, which is quite robust. Given all that, even if all the flexibility be exercised by our clients then that the sectors identified as more critical. Count to reduce their total demand, we would still have a reduction of about 10% of our contracts and the impact will be up 7% in our yearly EBITDA, once a possible reduction in contracting of clients is settled in the short-term market. It's important to remember that AES Tietê has been operating in the Brazilian market for over 20 years and has a very close relationship with a lot of reliability with all clients in our portfolio. And because of that, we are working along with our clients through this difficult moments. We do not expect any impact in our PPAs, which are regulated, which add up to 18% of the total and 16% of our EBITDA for the first quarter 2020.

The third and last pillar of our management -- crisis management plan, I'd like to call your attention to Slide #6, facing a drop in energy load estimated by ONES and approximately 1% and the retraction of the economy estimated by (inaudible) basin, the Central Bank, at 3.3% in 2020, AES Tietê has anticipated its moves to guarantee a robust cash position to face the needs of the year. The main objective is to maintain a robust cash even in a scenario which might look to be worse than the one we expect. In April, last week, we structured the emission of promissory notes, totaling BRL 500 million. That shows the credibility the company involved to access capital markets in a very expedited manner, even once again in unfavorable moment. With this new emission, our cash position currently sits at about BRL 1.9 billion, which will cover BRL 440 million of debt amortization in this year. And here, I'd like to call your attention to the fact that we do not have relevant amortizations for the coming years. And BRL 225 million in CapEx allocated to the maintenance and modernization of our plants and for the development of new projects. It's also important to remember that the company currently is awaiting for voting by the Brazilian Senate of a law about the GSF agreement. And in a conservative sense, we are maintaining our net balance of default -- for default in BRL 1 billion in cash. In the past few days, we could witness an effort of the rupture of the project, Senator, (inaudible) who has prioritized the topic in the Senate. That is very important for us to be able to bring more liquidity to the agents and closing or settling this liability and focusing on the future of the sector.

Before moving on to the highlights of the quarter. On Slide #8, we have an update on the hostile proposal for a business combination we received early in March. On April 19, our Board of Directors in unanimous decision turned down the original proposal offered by Eneva. I think it's possible to observe on the slide, there are several points grounding the Board as it took this decision. The 3 main pillars are the following for that argument: Number one, the strategic fit. It is clear for the market that AES Tietê has and forwards, on a day-to-day basis, a strategy focused on adding key sources of management to its portfolio. I'd like to say that AES Tietê is a company that executes in the present, but with an eye at the future, a future that might enter (inaudible) to many, but it is a reality in the way we operate. Expansion of the free market with the empowering of clients, the migration of our energetic or energy matrix to clean sources and the digitalization of process is already part of our everyday work.

Having said that, the Board of Directors considered the combination of (inaudible) to be not attractive for as AES Tietê's shareholders, which would eventually bring coal assets on top of other risks related to the production and acceleration of gas. On top of that, the view of our financial aids and advisers who supported the Board in their decision, the proposal made or offered would imply leveraging of the company -- of the combined business of about 4 to 5x EBITDA. That same vision was confirmed by a report published by the rating agency Fitch with this high level of leverage, the new company would not allow Tietê to continue delivering. (inaudible) with shareholders through its 2 different fronts for value creation, growth and dividend distribution. Number two is the exchange ratio, which was proposed from the financial standpoint. The proposal we received makes no sense from their opinion of the Board of Directors. The value attributed to the company was undervalued, and the proposal was made at a very important moment for the price of Eneva's shares, which was close to the historical maximum. Besides the proposed synergies were overestimated. This way, the exchange ratio was not the least attractive to us. And third, the merger terms, which were proposed. All legal terms, the proposal were very favorable only to Eneva's shareholders. So we consider that to be a (inaudible) contract and our legal aid (inaudible). There is another [main value] important point, which has to be mentioned. If the proposal was not that attractive for the reasons I mentioned above before the crisis, it becomes even less attractive at the present moment where uncertainties about. Eneva decided to withdraw their proposal on April 21. As you'll see in the remainder of the presentation, we continue to work around our growth strategy based on renewable energy sources as we try to lead the free market and try to generate value to our shareholders and clients.

And now move on to Slide #10, where we have the highlights of the quarter, which will be explained in detail throughout this presentation. Number one is growth. Well, we're talking in detail about the new purchase agreement in our pipeline done by the company in this quarter. After that, we move on to the topics of portfolio management, where I'll show the advances in the contracting level in the mid-run and the gains brought by a more active profile in terms of energy sales to our operation. After that, Clarissa, my colleague, will show you the results which were positive for this quarter, and we'll close the presentation with a brief overview of what we expect for the year ahead of us here at AES Tietê.

Move on to Slide 12. The opening of the free market. Today, AES Tietê is a place (inaudible) free market, and we are ready. We have important competitive advantages that will help us around 2 different blocks: market intelligence and a renewable portfolio, which is increasingly more diversified. But they're only sustainable by our platform, which includes an optimized capital structure and excellence in the management of our assets. The [average] of new and with the change in regulation and the opening of the free market can be faced into different ways by generation companies, a challenge -- either a challenge or an opportunity. We chose the latter as an opportunity for the past 3 years and have been getting ready to take the lead and to be qualified to meet our clients' current demands. We're talking about another 12 new clients looking for companies that offer customization of sustainable products, highlighting the 24/7 renewable sources, a product that very few companies are able to offer in the Brazilian market. And also a company that is able to lead with modulation issues, submarket risk and the certification of renewable energy of a very competitive price.

As for product customization, let's move on to Slide 13, where we show that it's not enough to have sources of energy that complement each other. Other characteristics are also necessary including being close, geographically speaking, to the main consuming markets and also having a good modulation capacity. This is the only way we can ensure the best possible experience to our clients in the most customized way. And all of that in a very scalable model. This portfolio, which is quite diversified and has a very good capacity of storage, will be extremely valuable in a scenario where we have to separate energy and our spot price.

Moving on to Slide 14. We show that all the theory is now being put in practice. We have strong demand in the market, which has been mapped, and our commercial team has been working to close contract of long term with clients from both commercial and industrial segments. We're talking about more than 2.8 gigawatts of demand, part of it already in advanced negotiations. Once those contracts are signed, we'll start implementation of those projects. Just as we did last year with those 322 megawatts, which were sold out of the 2 kind of wind complex. To meet those 2.8 gigawatts of demand, we already have 1.4 gigawatts in our pipeline projects, which are ready to be sold. We start the year, taking another important step in our growth strategy, which is based on the addition of new clean sources to our portfolio. We have signed an agreement that ensures a period of exclusivity for the acquisition of 1.1 gigawatts of capacity for the wind projects, the windfield projects. The project is located in the state of Rio Grande do Norte, which has an elevated capacity and is at a stage of advanced development. On top of the complementarity brought on by the source of the portfolio, we also have a negative correlation between -- negative wind provided by the localization of the projects. Once concluded, we'll have different complexes with wind profiles, which will be proposed to the free market, which, as we have explored before, it's a big competitive advantage as it allows us to strengthen our renewable portfolio. This way, we are negotiating the acquisition of another 2.9 gigawatts in our pipeline of wind and solar projects, in line with our strategy to restructure clusters with a focus on operating synergies. All those steps and the diligence that we haven't shown, illustrate the company's commitment in delivering increasingly more customized solutions to meet the needs of our clients and to generate return to our shareholders.

On Slide 15, we will briefly go over the advances for the start of construction of the 2 (inaudible) wind complex to start in January of next year 2021. In February, we officialized the purchase of the project. And with that, we received all the rights retained to it, such as property, environmental licenses, wind measurement instruments, and in March, we took other important steps with the signature of the contract with (inaudible), the giant of the sector for the supply of 52 turbines. As it is the main component of a wind plant, the purchase of that equipment accounts for over 70% of the CapEx of the project and was the result of hard work conducted in conjunction across several areas of the company. Still in March, we issued the previous environmental license or preliminary environmental license, an important step to change the project's layout. The preliminary license was the first of 3 phases of environmental licenses that need to be established by the Environmental Agency, (inaudible), which still contemplates the installation license; and lastly, the operation license or permit.

On top of that, the company is now in the process of hiring suppliers for the activities of electrical installations. A substation and transmission lines and of civil construction, the foundations for the turbines and internal access. Moving on, all our activities will be followed by you and as you witness investment of each stage of the project.

On Slide 17, we show the advance of our level of contracting. We started the year with a portfolio just higher and close to the level considered optimum by the company. The hydro scenario, which was atypical last year, generated opportunities for the company to move ahead in the sale of Energia for the next years, but we haven't stopped there. In this quarter, 122 megawatts were sold for 2021 through 2024 at prices above those already present in our portfolio. Another important highlight is that we have already opened the sale of our portfolio for 2025 with 20% of hydro energy already contracted, which added to the PPAs total 37% of our portfolio already ensured. This way, the company continues to increase the predictability of its results.

Moving on to Slide 18. We show the front one which the company is working to deliver superior results every year. First, we have the complementary sources. In 3 years, we added around 700 megawatts in renewable capacity to our portfolio, moving from a portfolio of 100% hydro to report with less than 20% of complementary capacity and regulated contracts. That combination allows the company to heal itself (inaudible) brought by a loss of hydro resources. On the chart on the left, it's possible to see how generation complements itself in each period. Number two, we have commercial strategies, which were defined by our intelligence team, which predicts that -- the predicted the main effects of the market, the definition of allocation of energy and the level of contracting are key to optimize our operating margin this year.

In the chart shown here, you -- we can see the level of contracting of the company by quarter and the expectation -- or the most recent expectation coming from the CCE for the GSF this year. We have a short position, relatively small in the second half, which is positive for the company. Given the expectations of spot prices, which are quite below for 2020, as mentioned before.

On Slide 19, I show another big delivery for the quarter has established at the end of the year. Our trading desk, where we operate in the purchase and sale in the short run of our decontracted portfolio, the management of that hydrologic position is -- has become more dynamic. And now we count on this too, to absorb whatever impacts come from the GSF. And in the future, by the hour price to our portfolio. This year, we have already realized market twice as much in terms of operations as compared to 2019, which was the result of this active stand as we have taken. This higher volume also brings higher margins when compared the training operations conducted by the company with the market as a whole and with a very passive scenario, we have margins that are above BRL 10.9 million and BRL 11.4 million, respectively. And this result is only the beginning.

With the precision pricing brought by our desk, we can mitigate hydrological risk, and we can also acquire advantages as we negotiate contracts with more attractive prices in the (inaudible) that will help during our portfolio in a more competitive one.

I now turn the floor over to Clarissa Sadock, who will be talking about the company's financial results.

--------------------------------------------------------------------------------

Clarissa Della Nina Sadock Accorsi, AES Tietê Energia S.A. - CFO, VP of IR & Member of Executive Board [2]

--------------------------------------------------------------------------------

Thank you, Italo. Good afternoon, everyone. On Slide 21, we show operating margin of the company and the behavior of natural results. In this quarter, rainfall in the country was 83.6% of the historical average, 10 percentage points above what we saw in the first quarter of last year, increasing rainfall to a reservoir level, which was also higher, reaching 55% at the end of March. Reservoir levels currently is even higher than usual for this period, close to 6% early -- in early May. More rain in more quarter in the reservoirs take to a drop in the spot market. In the first quarter 2019, spot price was at BRL 2.85 per megawatt hour. At the end of March of this year, it reached the level of BRL 1.89. More rain also generated less wind, and we had the lowest average for the period in the last 6 years. On the right-hand side of the slide, we show our net margin -- net margin of BRL 403 million in the quarter, 60% above what we had last year. The main contribution for that was the growth in our (inaudible) results, reflecting a new strategy in our contracting level, this is anality of energy and also operations coming from our trading desk. Those 3 factors put together resulted in an increase of BRL 52 million in our hydro margin. Another important highlight is the increase of BRL 13.5 million in the results coming from our solar assets. Once -- now we have 294 megawatts in operation. For 2020, CCE estimates a GSF of 19% and a hydrology close to 81%. That is quite close to our internal view. Even with a high GSF, the expected (inaudible) price is slight inferior to (inaudible) 2019. And that happens because the level of reservoirs is now much higher, and the lot of the (inaudible) should remain below what we saw in 2019. That -- all of that will lead to an expectation of thermal dispatch, quite below what we had last year, close to half of all we had (inaudible) dispatch in 2019.

Moving on to Slide #22. We have a view of a breakdown of the company's operating expenses. Total cost was BRL 91 million in the quarter. Of that amount, BRL 10 million refer to maintenance of markets that we do every other year. On top of that, inflation in the period generated a cost of BRL 3 million. Excluding those 2 factors, real base cost dropped by 6% when compared with the last -- the same quarter last year. The drop in costs is due, mainly, to gains in tax efficiency and a drop in growth expenses, in line with our strategy and maintain our commitment with expense and of having an efficient cost structure, have added 630 megawatts in new capacity to our portfolio in the past 3 years.

All of that has made us even more competitive when we analyze that from the standpoint of the PMSO indicator when compared to our peers.

Now moving on to Slide 23. We have a view of growth of our net profit in the quarter. The EBITDA for the first quarter was BRL 313 million, 18% above what we did in the first quarter of last year, whereas the profit in the year is now 21% higher. The main reason for the solid result was the contribution coming from the hydro sources, as I mentioned before.

In relation to dividends, we announced a distribution of BRL 89 million in the first quarter of 2020, which considers a payout of 118%, which will be paid out on May 20. To take the decision of paying dividends in this quarter, we assessed different hydrological scenarios and also our clients default level. We are comfortable, and we can pay the BRL 89 million dividends even we pay drop in consumption that might happen today. We have enough cash to honor all the expected CapEx for the year. And all the volume of debt that will mature in December and other obligations. That's why we can continue to honor our commitment to ensure return to our shareholders even in a very challenging year, which comes to confirm how robust our operation is.

On Slide 24, we will see our manageable cash generation. We have an operating cash generation, which is also quite robust and totaled BRL 241 million in the first quarter of the year, which will be enough to face all the needs going forward. As it's possible to see on the chart, investments in the first quarter were BRL 145 million to pay suppliers and to start the construction work at complex -- to kind of complex in January 2021. Our cash position for wind assets and solar assets account for BRL 270 million, taking to -- leading to a consolidated cash position of BRL 1.4 billion at the end of March. In the lower part of the slide, I'd like to highlight the importance of production we saw in the relationship between net debt over EBITDA, which moved from 2.93x in the first quarter of last year to 2.64x in the first quarter of 2020, with a solid cash position at BRL 1.9 billion currently, combined with a very robust cash generation driven by new projects in the portfolio, a good ratio, net debt to EBITDA, which dropped 0.3 points in a month and that natural fast deleveraging is one of the funds to finance our world with projects of renewable energy. I now turn the floor back to Italo for his final remarks.

--------------------------------------------------------------------------------

Italo Tadeu de Carvalho Freitas Filho, AES Tietê Energia S.A. - CEO, President & Member of Executive Board [3]

--------------------------------------------------------------------------------

Thank you, Clarissa. On Slide 25, a brief overview of the points which were highlighted during the presentation. We understand that we're going through a never-before-seen moment in our lives, and it is difficult to measure all the impacts. But the message I'd like to cross is that AES Tietê is working hard across all levels to ensure everyone's safety. On the slide, you can see the main highlights that allowed the company to present and produce a very positive quarter in different operating fronts. In our conference for the fourth quarter of 2019, I told you that we expected good news related to our strategy of growth in the short run. And today, I can show you the signature of an agreement that brings the 101-gigawatt pipeline of wind energy ready to be sold. Excluding the pipelines already signed, we have 2.9 gigawatts of wind projects and also solar projects in our portfolio. Besides, we have our M&A front that has over 1 gigawatt of assets operating and are under analysis and different stages of the process. We know that M&A and the energy sector is quite competitive. And because of that, we have a structure which is ready to absorb, as much as possible, potential synergies and increase the value of projects operated by the company.

That includes operating expertise, which allows the internalization of O&M at a lower cost and at a higher performance level. In the tax structure and cost efficiency is improved by the sharing of expenses. As an example, (inaudible), which was acquired with an availability of 90% in 2017. Now in April, the availability of that complex has already reached 98%. We have also evolved in the contracting level of our portfolio with increasingly attractive pricing, ensuring more predictability of our results. We're continuing to operate in a very active way to manage our portfolio.

Now with our commercial and the intelligence used in the decision-making process and the active management of our portfolio have allowed us to increase our EBITDA by 18% in the period.

In closing, I'd like to ask you to move to Slide 26, where we show the position of the AES Tietê. We are working to become giants of the free market. We know that the electric sector will go through a new reality very soon. And our operating structure allows us to take the lead. Opening the market will bring new opportunities for the business, and we are ready to embrace those opportunities. Innovation is in our DNA, besides being rebated for the changes that will come, we have made investments in a continuous way to evolve our processes. The focus on the client and the guarantee of returns for our shareholders continued to be instrumental in our operation and that can only work if we are able to maintain an optimal capital structure as we have today. As Clarissa mentioned, our balance sheet is ready to absorb that growth. On top of that, our diligence in using resources allows us to deliver increasingly higher value to our shareholders. We hope and work that -- and with all the challenges we have ahead and we are facing right now and a mix in our history, we know that this will be a year of great accomplishments for the company. So we close our presentation of results for the first quarter of 2020, and we now remain available for questions you may have. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from Gabriel Francisco from XP Investimentos.

--------------------------------------------------------------------------------

Gabriel Fonseca Francisco, XP Investimentos Corretora de Câmbio, Títulos e Valores Mobiliários S.A., Research Division - Energy, Oil & Gas Analyst [2]

--------------------------------------------------------------------------------

Congratulations on the results. I'd like to ask -- well, first of all, thank you for talking about the client profile. If you have a higher risk profile and you talked about the modulation of payments and the flexibilization. If there is anything going to court? And the second question is about the allocation of capital. For example, are you kind of conducting test such as if the situation gets worse, what are you going to do? Thinking in terms of maintenance, the dividend payout (inaudible) and also in the allocation of CapEx about time. That's basically it.

--------------------------------------------------------------------------------

Italo Tadeu de Carvalho Freitas Filho, AES Tietê Energia S.A. - CEO, President & Member of Executive Board [3]

--------------------------------------------------------------------------------

Thank you, Gabriel. Can you hear me?

--------------------------------------------------------------------------------

Gabriel Fonseca Francisco, XP Investimentos Corretora de Câmbio, Títulos e Valores Mobiliários S.A., Research Division - Energy, Oil & Gas Analyst [4]

--------------------------------------------------------------------------------

Yes, I can.

--------------------------------------------------------------------------------

Italo Tadeu de Carvalho Freitas Filho, AES Tietê Energia S.A. - CEO, President & Member of Executive Board [5]

--------------------------------------------------------------------------------

Well, I'll address the first question. I have Rogério here with me, and they can complement and then I'll move to Clarissa. As for the first question, Gabriel. We have been investing heavily on processes to assess counterparty risks. It begins for some time now. And I think at this moment we're going through with the virus situation, that's a very important item for this counterparty risk analysis, a very important component we have in the robust portfolio of clients, very resilient, and very diversified. As I said during the speech, we have several industrial and commercial sectors and segments. And some, as you mentioned, are more affected and others are less affected. We have not seen any litigation so far. There is a possibility of negotiation when a client knocks on our door looking for that. But so far, we haven't seen any major impact in terms of loss of revenue. And of course, we are taking care and charging, of course, interest rate and that's the case. And that's the positioning of a company that has respect for its clients. Our focus is quite -- it's quite converging on clients. So in any event, we are also trying -- we're always trying to negotiate and then provide the best deal to clients without affecting the company's bottom line. So Rogério would like to complement. Rogério, please.

--------------------------------------------------------------------------------

Clarissa Della Nina Sadock Accorsi, AES Tietê Energia S.A. - CFO, VP of IR & Member of Executive Board [6]

--------------------------------------------------------------------------------

I'll answer that. This is Clarissa speaking. Okay, I'll talk about the capital structure and then we can try to connect Rogério back on the call. Gabriel, every quarter when we prepare our decision-making process to pay out dividends, we also analyze in minute detail different scenarios. Usually, those scenarios are more linked to hydrology. What kind of impact -- different impacts of hydrology will have in the company's results. For this quarter, specifically, we were not only hydrology, but also, as you mentioned, we included macroeconomic scenario, demands, default possibly is on the part of our clients. We included all that. And when we test that across different scenarios, we continue to have a very comfortable cash position and leverage position. So that we can continue with our practice of paying out dividends. You will have observed our debt level has dropped significantly. So all of that helps us in our decision-making process and leaves us in a very comfortable situation, as I said.

--------------------------------------------------------------------------------

Italo Tadeu de Carvalho Freitas Filho, AES Tietê Energia S.A. - CEO, President & Member of Executive Board [7]

--------------------------------------------------------------------------------

Is Rogério with us? If I could give more detail. We see industries such as pulp and paper, chemical industries, those are not filling the brand of the impact right now. Actually, quite the contrary. The chemical industry is producing more, especially in the hygiene front. Other sectors are being more affected because of the COVID situation. But I'd like to highlight the following: Industries which have been affected, and we know that the government is looking at them, and the [BNDS] is playing an important role in other banks as well and they're trying to somehow provide some support to those industries. And the industries that we see that are more affected and that are part of our portfolio, they represent a lower portion of our portfolio. But even the others, the ones which are more affected, they are operating end sectors where the government is more active in providing aid and help.

--------------------------------------------------------------------------------

Rogério Pereira Jorge;Member, Sustainability Committee, [8]

--------------------------------------------------------------------------------

Good afternoon, Gabriel. This is Rogério speaking I had some difficulties in getting connected. I apologize. But just to complement the answer what Italo has already mentioned. I think the main point here, we have been in the situation for almost 2 months under the COVID situation. So we know what kind of impact you can expect and we are quite close to clients as we said. We have people here in the team who have been here for 20 years, so they are quite close to our clients. So we know the operation in detail for each client. So as at the onset of the crisis of the pandemic, we try to understand what their specific needs would be for the situation. And then on our side, how our portfolio would react. So we, very early on, started to structure negotiation frameworks to find a solution to meet both the cash positions of our clients and our cost and expense structure. And as it has been said, we have no litigations in place, no default. So our collection rate is fairly as usual, our credit policy is also limiting in terms of location and clients, which also helps us. And as I said, we are quite close to our clients, and that helps in a situation, in a moment like this.

--------------------------------------------------------------------------------

Operator [9]

--------------------------------------------------------------------------------

Next question comes from [Marcelo Sá from Itau Bank].

--------------------------------------------------------------------------------

Unidentified Analyst, [10]

--------------------------------------------------------------------------------

I have a question about the possible merger. With Eneva, I know Eneva has withdrawn their proposal because of a disagreement around the voting rights. But more recently, (inaudible), native, but B3 issued an official letter saying that in the case of a merger, preferred shareholders would have voting rights, just like ordinary or common shareholders. And so my question is, if Eneva comes back with a different proposal -- in the first proposal, yes, would have the obligation of calling a shareholders meeting. Are you going to do that? Should a second proposal knock on your door? Would you call a shareholders' meeting?

--------------------------------------------------------------------------------

Italo Tadeu de Carvalho Freitas Filho, AES Tietê Energia S.A. - CEO, President & Member of Executive Board [11]

--------------------------------------------------------------------------------

Thank you, [Marcelo]. That issue around official letter that has to do with the shareholders. We, as the company's executives, we are making every effort to meet our strategic planning. We always take the company towards a renewable technological future. As it was said earlier, next year, we'll have a more robust free market. That's what we are thinking about. That's what is in our mind as administrators.

--------------------------------------------------------------------------------

Unidentified Analyst, [12]

--------------------------------------------------------------------------------

Should a new proposal come to the table from Eneva?

--------------------------------------------------------------------------------

Italo Tadeu de Carvalho Freitas Filho, AES Tietê Energia S.A. - CEO, President & Member of Executive Board [13]

--------------------------------------------------------------------------------

We are here, the administration is here to analyze that, of course, and we have already expressed a material fact, which was recently published, that we would, of course, call a meeting. But if I can emphasize, [Marcelo], that the company needs to be shielded from shareholders' discussions. And we need to focus on the company's future in order to generate value to Tietê's shareholders.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

If there are no more questions, I'd like to turn the floor over to Mr. Freitas for his final comments. Please, Mr. Freitas.

--------------------------------------------------------------------------------

Italo Tadeu de Carvalho Freitas Filho, AES Tietê Energia S.A. - CEO, President & Member of Executive Board [15]

--------------------------------------------------------------------------------

Well, thank you all. Thank you, everyone. Once again, I'd like to emphasize, this has been repeated several times. I talked about the company's and this administration's commitment in ensuring a healthy future for the company in a market, which is not in the long -- in the short run, not 2, 3, 4 years. It's for now, for next year. This market is completely different from the one we've seen so far, right? We're talking about a much more robust free market, hourly prices and with a more customer-centric approach. And the company is committed with shareholders so that will be -- or becoming a giant in this new market, in this new structure of the Brazilian electrical sector, which is already happening. And I am sure that the upside of the current situation around the virus and everything, this will accelerate this energy transition around the world but in Brazil specifically. Thank you all for being here. I'd like to thank my team the AES Tietê's personnel to put this call together, and we remain available for other comments or questions you may have. Thank you, and have a nice day, everyone.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

AES Tietê's conference call is now over. We'd like to thank you all for participating. Have a nice day, everyone. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]