Engie Brasil Energia SA
BOVESPA:EGIE3
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
38.19
47.07
|
| Price Target |
|
We'll email you a reminder when the closing price reaches BRL.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Engie Brasil Energia SA
You don't have any saved screeners yet
Good morning. And at this point, we would like to welcome you to the ENGIE Brasil Energia's conference call where we will discuss the results of the first quarter 2020. [Operator Instructions] We would like to remind you that this conference call is being recorded. This presentation followed by slides will be simultaneously transmitted through Internet through the site www.engieenergia.com.br/investorssection. A slide presentation and the company's earnings release are also available on that website.
Before proceeding, we would like to clarify that forward-looking statements made during this conference call regarding the business outlook of the company should be treated as forecasts that depend on the country's macroeconomic conditions, on the regulation of the electric sector besides other variables. They are therefore due to changes.
With us today, we have Mr. Eduardo Sattamini, the CEO and IRO Officer (sic) [ IR Officer ]; Marcelo Malta, the company's CFO; and Rafael Bósio, Investor Relations Manager; who will speak about the company's performance in the first quarter 2020. Ensuing this, we will go on to the question-and-answer session. We would like to remind journalists who wish to ask questions that they can do so by e-mail, sending them to the company's press office.
It is now a pleasure to turn the call over to Mr. Eduardo Sattamini. You may proceed, sir.
A good day to all of you. It's a pleasure once again to be with you, with our CFO, Marcelo Malta; and our Investor Relations Manager, Rafael Bósio, to speak about the results of the first quarter 2020 and our expectation. We're going to speak about financial indicators. Marcelo Malta will speak in greater detail about our growth and perhaps in more detail about our numbers and our decision to have a somewhat more robust growth compared to the previous 3 years. Of course, this will have an impact on the growth of our business. And we will speak about our leverage and try to speak about a more adequate capital structure for the company at this point in time.
Our EBITDA has increased almost 2% (sic) [ by 9.8% ]. And our net income still does not reflect this growth of 19% (sic) [ 9.8% ] because of the coming into operation of some of our projects, especially Pampa that has a natural curve in an electric plant. And once again, this is something that has been tailor-made and of course, we need revenues for this. We are making adjustments. And at present, we're going to be changing one of our lines, and this is due to the undesirable emission of particulates and other things.
And because of all of these reasons, of course, we have not presented the results that we expected. The impact has not been greater on impact as it should. And of course, this is also happening. The expectation is that once we make these adjustments, this asset will go into normal operation as of the second semester of this year and perhaps the end of the third quarter. And the net revenues and EBITDA, of course, will go through the necessary changes.
We have in terms of production, 3 million and some for the first quarter '20. We had the acquisition and the participation of TAG, of course, as part of our net debt and a reduction in production in this first quarter, once again due to a decrease of energy in the South because of difficult hydrological conditions.
Our sales increased, of course. Our sales increased volumes, 3.5%. And the average net sales price increased 2.2%, as you can see. And once again, our assets are doing very well. At the end of the first quarter, we had, of course, the very strong impact of COVID-19 where we had to adopt several measures, which are still underway. And this morning, we celebrated one more meeting to see what is happening in the different regions of the country. And of course, this has an impact on several of our units, and we have to be very attentive to the movement and the situation in each specific site to be able to adopt specific measures. We're, of course, at present having 70% of our employees in home office for the nonoperational activities.
And this is thanks to the digitation (sic) [ digitization ] process that has been underway during the last 6 years. We were somewhat surprised with the ability of working remotely through the use of software, of course, and other technology. What has made it possible for our employees to work with specific applications. And we have been able to have a very satisfactory interaction with a very high productivity rate. We don't believe that this will be permanent in the future because the interaction among employees is of the utmost importance. But for the time being, we're using this mixed-work system obviously to provide greater comfort to people, greater security without a significant impact on the company, but reducing the mobility of people.
We're acting with rapid tests with our employees. We have purchased more than 36,000 rapid tests that we're working -- we're using on our work sites to be able to work with prevention and control. We have had several cases, which is natural because of the environment. But once again we have carried out these tests, and we're using the IgM, an antibody that has been possible to isolate, and this is what we're using on our work sites. 90% of our employees have been asymptomatic thanks to these continuous efforts. And of course, we want to make sure that at our work sites and in our operation sites, we continue to work with the utmost prevention. And this is very important because we are extremely concerned with public health, we have a great deal of interaction with public health authorities for this.
We are co-responsible with our employees, and we're doing whatever we can. Our voice perhaps is not very clear, but we're strictly complying with our security protocols. Well, these communities, of course, are undergoing a great deal of difficulties. Many of them are not able to continue with their normal activities. And because of this, we're offering psychological and medical support to all of our employees. And we took the decision of suspending trips or to maintain trips that are strictly necessary and urgent for the operation.
We're preserving our cash. Simply to give you an idea, we ended the first quarter with BRL 4.2 billion, approximately 40% of the net revenues of the year 2019. In terms of the dividend payout, we made a decision at the extraordinary assembly to reverse the decision that had been taken of paying out 100%. We were still unaware of which would be the impact of this pandemic on our activities, and what we are doing is preserving our cash.
We have taken some financing from the BNDES for some of our subsidiaries because of the inability of offering resources to the controlling company, and we wanted to ensure that we would have resources because of our low profitability. And because of this, we have worked with a financing from BNDES. We have worked very selectively on this for the financing of the BNDES. We closed financing for Campo Largo and Gralha Azul. And we're in the process of obtaining greater funding that has been obtained [ for ] BNDES, and we will be able to disclose greater details once the financing has materialized. Of course, we know that there have been more critical problems, and it's always important to think about financing. And this is what we have decided to do to preserve our revenues to the utmost.
On Page #7. We entered the quarter with the acquisition of Novo Estado Transmissora de Energia. It is for the transmission segment. And once again, we're not proceeding at the speed that we expected because of all of the care and precaution that we are taking, and we have had a problem with stoppages in several regions because of this crisis. Now you can see that we obtained a Fitch Rating of AAA for the long-term credit. And these international ratings were reaffirmed respectively at BB and BBB (sic) [ BBB- ] although with a revision in sovereign rating in April, downgraded in terms of a negative outlook.
We already referred to our loan agreements with the BNDES with a highlight for Gralha Azul transmission. We had a stoppage once again at one of our units, all of this due to the pandemic. And the first impact was to massively test employees and third-party contractors in a region where tests were simply not available. Now the totality of our active cases of contamination were due to our work sites, of course. And once the employees were tested, they presented the virus. And of course, the contagion for others becomes a threat. This was a learning curve for us. And what we are doing presently is to work much more closely with the health authority, the public ministry and have come to agreement so that we no longer need to completely stop our work. Campo Largo works will start its work again the beginning of next week with a more stringent protocol because that entire region has been affected. The -- and those that were contaminated, well, we discovered this through our testing structure in May. The Board has created an Audit Committee made up of 3 independent members, once again to have a better risk management and control and to carry out internal audits.
We're now going on to Slide #10. At the bottom right of the slide, you can see that we have included very important information. And we refer to some of the actions that we have in terms of our shareholding market this last year.
In Slide #11, simply to show you where we are active, there is no relevant update here.
On the next slide, #12, once again no modification vis-à-vis the first quarter 219 (sic) [ 2019 ], and no other relevant change in terms of our energy generation and installed capacity.
Well, when it comes to natural gas, we acquired TAG in June of last year. And the international gas area, the group participated in this process. And the results are being attained gradually thanks to this. As mentioned, we acquired natural gas, and this has given us a greater representation in this market. And we hope to be able to proceed very profitably. And this is the process that has been underway since 2017. We were not able to achieve this. And at present, we know that this is a highly competitive market. And we have decided to preserve our resources as we're working on a more complex activity. This is a process that happens more speedily, has greater complexity when it comes to structuring. And what we are doing is being very careful in the definition. We are coming to a breakeven point, and we're reassessing our commercial activities and our impact in this type of activity.
The energy market on Slide #18. We of course already had a drop in the coming years, and this will become ever more critical because of the impact of COVID-19. What we hope, of course, is to have a growth cycle in the market so that we can decrease this surplus. And as you know, hydrology plays a very important role in this. And of course, this leads to the intermittency that you can see on these curves.
We're going on to Slide #20 to show you our very diversified and balanced portfolio. This year, we have 40% in the regulated market, the rest in the free energy market. And because of the situation we're undergoing now in the regulated market, what we are striving for is respect to our contracts and in the free market, we're structuring contracts with warranty and very high levels of security.
We're going on to Slide #21. And an important characteristic that we have is not to have a concentration on a specific segment. We have a rather diversified portfolio. And this is very important in present-day times, especially because we have fluctuations in consumption. So we are in agriculture and food, in pulp and paper. In the first quarter, we had growth in the pulp and paper when it comes to consumption. But we had a significant reduction in the automotive sector, more specifically, with a significant reduction. And of course, this has been quite extensive.
We go on to Slide #22. At the lower left, you can see that our portfolio is practically sold out until the year 2022. Well, people will say "It's sold? You have 12% or 15% contracted energy here." But this is a theoretical capacity, and we have decided to set aside a sort of reserve to be able to manage this situation and the hydrological uncertainty that we have in the market until we have greater security and greater guarantee of what will happen. This is the work that we are doing presently. And because of this, we have made adjustments such as in pulp and paper.
We go on to energy balance, which is an important tool that we use as modeling, and this is simply to give you an idea when we do our accounts. In the last quarter, we sold about 130, 140 average megawatts. So our sales activity in the first quarter was proceeding normally. And surprisingly, we have had quite a bit of surge for this, and we're closing some important contracts in this postpandemic situation. This should continue in the second semester.
There has been no change regarding the Jirau project. At some point in time, this project will increase our energy. And we're now disclosing information to the market. We have had some problems with the BNDES, but we continue to present this information because at some point in time, this project will continue on. What is important is that Jirau is a very large plant in the country. It had a record of generation now in January of 2020, 60% above its guaranteed level. And the operational potential of this plant is very high. It enables us to know that in the case of a transfer, we will be receiving an asset with an extremely good performance.
We go on to Slide #27, the wind project under construction. The first machine was foreseen for 2020. And we're working, trying to adjust to this new environment, and this is why we have a delay here. And of course, we want to ensure that we have a good energy balance in case we have some sort of a restriction and to make sure that we will not have an impact on our SG&A.
On Slide #28, the transmission line under construction, Gralha Azul Transmission System. We are in a situation of readiness, as you can see. Perhaps you will not be able to notice this, but we have purchased quite a bit of equipment and the work site per se is doing very well.
And in terms of Novo Estado Transmissora de Energia, the project's installation license has already been issued by IBAMA, but we're proceeding somewhat more slowly than usual and it's just simply entering into operations in April 2022. And at the appropriate moment, of course, we are going to use this portfolio and adhere to our new capacity of development in the projects that have already been put in place.
I would now like to give the floor to Marcelo to speak to us about our financial performance during this quarter.
Good morning to all of you. On Slide #32, we show you our solid financial performance with a significant growth of net operating revenue, EBITDA and net income. As you can observe in the first quarter of 2020, we also had significant growth in net operating revenue and EBITDA and a reduction in the net income because of impacts in our financial results, and these will be mentioned in a few moments.
In Slide #33, the net operating revenue change in the first graph. You can see the share in each of the quarters. And we have a very consistent distribution among the quarters. And in the last quarter, we see a greater part in the fourth quarter due to the Electrical Energy Trade Board (sic) [ Electrical Energy Trading Board ]. In the graph below, you see the net operating revenue and the difference between quarters. We had an increase in our sales volume. This represents approximately 3.5% of evolution. And this evolution is due to the coming into operation of Umburanas and Pampa Sul that happened at the end of June '19. On the other hand, we had a reduction in the consumption of distributors due to the use of that compensation mechanism of surplus and deficits, which reduced part of our sales volume to distributors.
We had an impact of BRL 30 million in the average price of sales. We stood at 2.2%, and basically this represents the evolution of inflation during the period. BRL 14 million in deficit, this is the recognition of a fine for the availability of our wind assets in Trairi. The BRL 35 million of impact on the Electrical Trading Board (sic) [ Electrical Energy Trading Board ] and a negative impact of BRL 35 million and a negative impact of BRL 16 million. This is because of the transactions with the Electrical Trade Board (sic) [ Electrical Energy Trading Board ] semester after semester.
And there are some factors that led to this reduction. The first is a significant increase in secondary energy in the first quarter of 2 19 (sic) [ 2019 ] due to an allocation that electrical agents carried out during that period. As a counterpart nevertheless, we also had significant exposure due to an allocation that the company carried out in that same quarter in 2020 and a significant effect of [ GSC ] and a long position that shows these effects partially. Now the positive effects of secondary energy and a negative GSF and the long and short differences in the first quarter ended up being offset, partially at least. We also had an increase of our costs with the MRE mechanism, and this happened mainly due to the significant reduction in generation in our plants in the south of the country, once again due to hydrological issues. As was mentioned, the southern region of the country in the first quarter went through a severe hydrological situation, a very difficult one, leading to a reduction in accounts with the MRE. And finally, we had a greater thermoelectric generation, generating a positive impact.
Now all of the factors that I have mentioned together had a negative impact of BRL 20 million in our EBITDA. BRL 16 million of negative impact in the remuneration of our financial assets, and this because of the accounting standard 112 that was applied to the assets that were acquired and now to Miranda. And the remuneration of the assets in this quarter was negative mainly due to a reduction of inflation between the 2 quarters. BRL 43 million as a positive result in revenues. Nevertheless, in the cost, a negative impact of BRL 2 million and BRL 31 million positive impact. And this due to the impact in -- positive impact in trading and mark to market of our contracts that were still open and that we had with a trading operation, and a reduction of the short-term energy price in the first quarter of 2020.
BRL 138 million increase in revenues thanks to transmission. And once again, we have applied the accounting standard. And I think all of you know our CapEx in the transmission assets. And on this cost, we apply a margin to come to our revenue. And the cost was BRL 127 million. And the net impact on our results was of BRL 11 million positive, a reduction of BRL 2 million due to a market retraction that was observed during this quarter.
On Slide #34, we show you the results of TAG that ended the first quarter with BRL 352 million, a very good result indeed. And our stake on this result was of BRL 103 million as equity income in our consolidated results, and this contributed directly to our EBITDA during this quarter.
On Slide #35, the evolution of EBITDA. In the first graph, we're showing you the evolution per quarter. Normally, we have a distribution behavior that is very comfortable among quarters. This is a nonrecurrent result as happened in the third quarter of 219 (sic) [ 2019 ]. And we had the indemnification and insurance of Largo [ IV ] because of a delay in the completion of the site of this asset.
In the graph below, the evolution of EBITDA between quarters once again. BRL 38 million -- I'm sorry, BRL 88 million positive because of an increase in sales volume. And average price, this was mentioned in the previous slide. BRL 21 million reduction in the cost of royalties because of reduction of hydroelectric generation in the plants in the south of the country because of the critical hydrological situation. Once again, the impact of the fine mentioned previously, the cost of fuel, and basically this is the cost of coal of Pampa Sul that came into operation last year. An increase in the cost of third-party services and personnel because of the coming into operation of Pampa Sul and Umburanas throughout the year 219 (sic) [ 2019 ]. BRL 20 million impact in the Electrical Energy Trading Board that we have already mentioned.
BRL 17 million for the coming into operation of Pampa Sul and Umburanas, charges for use. This was also mentioned in the previous slide, the purchases of energy for the portfolio, an increase in our purchase of energy to be able to supply insufficient generation from Pampa Sul. This was mentioned previously by Eduardo Sattamini. We do not have full generation due to the impacts of the pandemic. And on the other hand, we had a reduction in the short-term price, sales price. And the combination of these 2 factors led to this increase in the purchase of energy of BRL 12 million. We mentioned photovoltaic panel, transmission and trading previously, an impact of BRL 31 million in trading, and the equity income result with a very positive impact on our EBITDA for this quarter. As was mentioned by Mr. Sattamini, there were also impacts from generation on Pampa Sul. Were it not for this, our EBITDA would have grown significantly beyond what we are showing you here.
On Slide #36, the net income change, a drop of 9.5% with an impact on EBITDA of BRL 119 million, which was mentioned previously. A reduction in income taxes and social contribution due mainly to the increase of this financial result and depreciation, reducing our costs and financial results with an expressive impact. And there are 2 factors that will justify the net financial results. First of all, the increase in our leverage for the quarter of more than BRL 3 billion. This leverage financed a significant part of the equity of the projects that are under development. And another factor, perhaps the most important one, were the interest rates over debt that were being capitalized for the debt that financed our equity. All of this was being capitalized until the entry into operation of the asset in June of last year.
As was already mentioned, Pampa is still not generating its revenues fully. And of course, this has an impact. We do have the full financial structure of Pampa Sul in our results. But on the other hand, we don't have the full revenues as part of our results. What we expect is that in the coming quarters, this situation will improve once the revenues of Pampa Sul begin to come in. BRL 44 million in depreciation and amortization -- well, due to the depreciation of the assets in Pampa Sul that were mentioned. Now the depreciation is a full depreciation once the project came into operation. And as we don't have the full revenue from this asset, this also leads to fluctuations in depreciation. I think these are the 2 main components that would justify this reduction of 9.5% in our net income.
On Slide #37, our very consistent financial indicators. They have remained consistent through time. In the first quarter of 2020, a small reduction on return on equity. This is due to the lower profitability during the quarter. And on the other side, a reduction of return over invested capital due to the increase of our leverage.
In Slide #38, our debt and our indebtedness, and you can see a significant evolution during the last few years, once again due to the investment in the diverse projects that have been acquired during this period. Now despite the increase in our leverage, we are in a very comfortable situation. We ended the quarter with a net debt/EBITDA ratio of 3x -- I'm sorry, 2.1x. We also observed a reduction in the operating cash flow over debt. In 2017, this was 0.46, and we observed a consistent reduction. We ended the quarter (sic) [ first quarter of 2018 ] with a net debt of BRL 6 million (sic) [ BRL 6 billion ]. At the end of December, it was BRL 10 billion. And in the first quarter of 2020, we closed with BRL 8 billion (sic) [ BRL 11 billion ].
On Slide #39, a change in our net debt and operating cash generation. We also have the payment of dividends of BRL 40 million (sic) [ BRL 940 million ] during the period. You can observe our investments, acquisitions especially in Campo Largo II and Gralha Azul, and the impact of accrued interest. Well, these are the amounts that are linked to our results. They're not paid out so they generate cash and the other variations truly are not very expressive in this graph.
Our debt profile on Slide #40 where we see a concentration of debt with a maturity in the next 3 years. 3/4 of these debts are in the [ 4 3 ] modality that were contracted with an average term of 3 years. And the omission of debentures and the amortization of contracts and financing with the BNDES. We also see the composition of our debt, which is very balanced and pegged on the CDI and 3 other indicators that you can see in the graph to the right. We also have a significant reduction in the nominal cost of our debt, thanks to the contracting of debt at a very -- at a much lower cost.
On Slide #41, the evolution of our CapEx. And here, you can observe the expressive investments we have carried out throughout the years. And the outlook is to have pertinent investments until the year 2021. What we are showing you are in Campo Largo II and in the transmission projects, Novo Estado and Gralha Azul.
Well, our dividend policy during the last 3 years, we were paying out 100% of our net income. In 2019, we had the approval of the assembly of paying out 90%. But very prudently, as was mentioned by Mr. Sattamini, we proposed a reduction in dividends to 57% to give us greater breadth to be able to face perhaps more critical impacts resulting from the pandemic. The 57% that you see here corresponds to the income of the first quarter and interest on shareholders' capital. Now with this reduction, we ended up retaining BRL 970 million.
Basically, this is the presentation, and we are at your entire disposal for clarification. Thank you.
[Operator Instructions] Our first question comes from Gabriel Francisco from XP Investment (sic) [ XP Investimentos ].
I have 2 questions, if you could please answer them for me. The first refers to your commercial activities with a free contracting market. Once again in your relationship with the free contracting market, if you could speak about the cases more specifically, what happened with the contracts for the supply of energy? Were adjustments necessary? And will these have an impact in the second semester going forward and if you could quantify them in any way?
And the second question refers to your management of capital, debt, investments and your stake in the remaining part of TAG. What will happen with the capital in light of that potential disbursement that you will make? And of course, you have the right to acquire this preferential right.
This is Eduardo Sattamini. Thank you for the questions. In terms of the free contracting market clients, we did have a reduction of consumption. And of course, this had an impact on our flexibility on our negotiations with the clients. And in some of them, we have observed consumption that are much below what was contracted. This will have an impact on revenue and this situation was more critical in April. In May, we observed a -- an improvement. The situation was better. There will be an impact, but what we expect is that this impact will not be significant on our figures. We can't give you much more information, but you will observe that in the second semester of this year, we will observe a gain, and there will not be a very large gap.
Some of the clients, of course, have faced difficulties, and they have consumed below the lower limit of the contracts. And in some timely cases, what we have understood is that we have a very good relationship with the client and that we need to make some adjustments, which is what we have done. We have been able to do this. But with a large majority of the clients, we have reached an interesting agreement among the parties without causing any impact on either party. Of course, there are always those opportunists that are trying to gain benefits, advantages. But with these, we have stuck more to our contract and to legal provisions. But we have had a very good negotiation when it comes to renegotiating these contracts.
When it comes to the management of cash and debt and the stake that we have in TAG, we had foreseen the possibility ever since we negotiated this with Petrobras. We have sufficient cash flow to be able to come up to our stake, which is 35%. And additionally, TAG itself also has the payout of dividends and this should help the company once again to honor its payments, the payments that are still pending. Now the final decision stands with Petrobras, of course. They are responsible for the definition of this. I hope that this responds to your questions.
Yes.
And the next question comes from Santander Bank, Andre.
If you allow me, I have 2 questions. The first refers to GSF and what is happening at the legislative level. And second question, what is going to happen during the rest of the year? If you could give us greater color of which could be the impact on the company in terms of spot prices and prices in general.
Well, the first question, which is easier, we're speaking about regulation and the hydrological risk, all of which compose the generation scaling factor. Now we did make a change, but in the final stage, we had to go back to our initial scenario. And this is a very difficult agenda because of what is happening with COVID-19. But it is our understanding that -- well, yesterday we had a sanitation framework that was adopted with a view towards attracting greater investment and recovery in the post-COVID phase, which is one of the great concerns of commercial activity. It is our understanding that this will reestablish regulatory confidence for investors that are very important for the electrical energy sector.
I would like to remind you that the prices have been impacted in generation, transmission and distribution. Now what is important is to reestablish regulatory security, and this will attract investors to the electrical sector that will make new investment in transmission and generation until the end of the year. And we want to make sure that this sector that is so important for the country can regain its investors and of course regain confidence. And of course, we have a great deal of maturity at present among the discussions in the Senate. And we think that very briefly, there will be a solution that will implement it even during the COVID-19 period.
Now we haven't observed any specific trends regarding your second question. At least we're not pointing towards any specific trend at this specific point in time. We have felt a very soft impact, and I haven't heard about any trends regarding the impact.
Now to explain this question, it's an expectation of something that could happen. So far, we haven't seen anything happening per se.
The next question comes from Carolina Carneiro from Credit Suisse.
I do have 2 questions referring to the market and commercialization. We observed that during this quarter, you signed significant contracts above 100 mega for the coming years, apparently maintaining good price levels. In the press, we have seen some announcements of new contracts being carried out in the free contracting market. These are small contracts that are pegged to the wind energy in the free market. And of course, you have a great deal of wind energy in some of the parks that you are constructing to take advantage of this demand from the free market.
Now which is the negotiation environment with COVID-19? Has anything changed? And if you could speak about the commercialization, if there's something very specific or if you observe a greater appetite in terms of closing new contracts.
Thank you for the question, Carol. These new sales truly have occurred with nonconventional renewable sources, especially wind energy. And our vision is that this is taking place because we have a continuity of the migration in the market generating opportunities for new plants. Now we ourselves have Santo Agostinho and all of this is based on these contracts. And of course, this process will have to continue on. And what is surprising for me personally is that we have seen a significantly higher demand in the second quarter vis-à-vis the first quarter. This does seem to be a trend. This trend arises from the migration. And well, all of this is a concern that we have because the financial health of this sector, of course, depends on the financial health of everybody else involved in the chain.
Now what will happen after the regulatory changes that we will observe, the changes in the free market that have been discussed with ANEEL are important to ensure that we don't de-structure the sector. We don't want to not honor the contracts, but we do know there will be an impact on the sector. We're following up on the regulatory part to ensure that we have a more liberal regulation, ever more liberal, so that we can eliminate the high number of restrictions. And we look upon this sector with a bit of anxiety, of course. They have taken away the obligation for distributors to work with energy. We have an environment which is evermore competitive with a supply of prices, and we need something more well defined. Now we're looking upon this with a positive view. There is a concern nevertheless in this market and its evolution. This will arise with a regulation of the law that should appear in the coming 2 or 3 months. But of course, this is part of the regulatory activity for a sector that has critical importance and with the characteristics that we have among the regulators.
[Operator Instructions] Thank you. At this point, we would like to end the question-and-answer session. We return the floor to Mr. Eduardo Sattamini for his closing remarks. You may proceed, sir.
I would like to thank you once again for your presence, and we appreciate this opportunity for clarification. We had several questions from Carol, Andre and several others and we appreciate the fact that you were able to see a very full presentation that did not generate doubts. We hope to see you in the coming quarter with greater clarification that we can understand this very uncommon year as it unfolds. Thank you very much.
The ENGIE Energia conference call ends here. We would like to thank all of you for your participation. Have a good afternoon, and thank you for using Voitel.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]