WEG S.A.
1st Quarter 2013 Earnings Results Conference Call
April 25, 2013 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English
CORPORATE PARTICIPANTS
Mr. Laurence Beltrão Gomes – Finance and
Investor Relations Officer
Mr. Luís Fernando Oliveira – Investor
Relations Manager
Disclamer
The statements that may eventually be made during this conference c all
relating to WEG’s business perspec tives, projections and operating and
financial goals and to WEG’s potential future growth are management
beliefs and expectations, as well as information that are currently available.
These statements involve risks, uncertainties and the use of assumptions,
as they relate to future events and, as such, depend on circumstances
that may or may not be present.
Investors should understand that the general economic conditions,
conditions of the industry and other operating factors may affect WEG’s
future performance and lead t o results that may differ materially from those
expressed in such future considerations.
PRESENTATION
Operator: Good morning and welcome to WEG's
conference call on its earnings for 1Q13.
Conference Ca ll
1Q13
1Q13 Conference Call
Page 2
April 25, 2013
Before we go on you would like to clarify that
any statements made during this conference call
relative to WEG's business outlook, projections
and operating and financial goals as well as to
WEG's potential future growth are management's
beliefs and assumptions and rely on information
currently available. These forward -looking
statements involve risks, uncertainties and
assumptions as they relate to future events and
therefore depend on circumstances that may or
may not occur.
April 25th , 2013
We would like to inform you that this
conference is being recorded and that at this
point all participants are in listen -only mode.
Later on we are going to start the Q&A session
when further instructions will be provided.
Should you need any help during the conference
call please reach the operator by pressing star
zero. To attain the quarterly results press
release or the presentation that we will be using
during this conference please go to WEG's
investor relations page at www.weg.net/ir.
Investors should understand that general
economic conditions, industry conditions and
other operating factors may affect WEG's
performance in the future and lead to results
that may differ materially from those expressed
in such forward -looking statements.
We would like to remind you that this
conference call will be made in Portuguese with
simultaneous translation into English. Today
with us in Jaraguá do Sul are Laurence Beltrão
Gomes, Finance a nd Investor Relations Officer;
Wilson Watzko, Controller Officer and Luís
Fernando Oliveira, Investor Relations Manager.
Please Mr. Gomes you may go on.
Page 1
WEG S.A.
1st Quarter 2013 Earnings Results Conference Call
April 25, 2013 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English
Highlights
Quarterly Figures
Net Operati ng Revenue
Quarterly Evolut ion
In R$ million
Net Operating Revenue
Domestic Market
External Markets
External Marketsi n US$
Gross Operating Profit
Gross Margin
Net Income
Net Margin
EBITDA
EBITDA Margin
EPS
Q12013
Q4 2012
1,477,577
772,935
704,642
353,077
463,635
31.4%
172,299
11.7%
248,898
16.8%
0.2777
1,662,258 -11.1%
1,369,762 7.9%
774,533
-0.2%
714,268 8.2%
887,725 -20.6%
655,494 7.5%
431,141 -18.1%
370,825 -4.8%
528,641 -12.3%
391,967 18.3%
31.8%
28.6%
183,157
-5.9%
148,247 16.2%
11.0%
10.8%
289,786 -14.1%
198,251 25.5%
17.4%
14.5%
0.2952
-5.9%
0.2390 16.2%
Figures in R$ Thousand
%
Q1 2012
%
Domestic Market
External Market
1,613
1,662
48%
50%
47%
52%
50%
53%
Q3
Q4
1,529
1,478
1,370
48%
Q1
Q2
2012
1Q13 Conference Call
Page 3
April 25, 2013
Mr. Laurence Beltrão Gomes – Finance
and Investor Relations Officer
Well good morning everyone. It is a pleasure to
have you in our conference call on the earnings
of 1Q13. We are going to follow a very objective
agenda and as always I am going to highlight
some important figures of 1Q, which in our
assessment was a very positive quarter. I am
going to talk about operating growth and
financial evolution and then we are going to talk
about Ebitda, investments and later on we are
going to answer your questions.
52%
52%
1Q13 Conference Call
48%
Q1
2013
Page 4
April 25, 2013
On page 4 we bring the comparison of our net
operating revenue quarter on quarter along the
past quarter. This is what we established in
WEG's 2020 plan, which is to reach revenues of
20 billion until the end of this period, and we
are taking important steps there. In this quarter
despite the lower economic activity in Brazil
and in other developed countries we had a very
satisfactory growth rate of 8%. In Brazil
economic activity and industry activity more
particularly are starting to resp ond to
production stimuli with the lower interest rates,
a more interesting exchange rate and the
incentives by the Brasil Maior Plan.
So starting on page 3 we have the main figures
of the quarter and its comparison to 1Q12. I
would like to draw your attention to three
points here: the first is our growth in revenues.
We are going to go into detail on this but I
would like to remind you that 1Q is a period of
slower seasonal growth; but we still could grow
based on what we had in 2012.
The speed of this response, however, could be
faster; in the external market the environment
is
more
complex
and
surroun ded by
uncertainties. We are being able to expand our
presence going into new markets, introducing
new businesses and projects in consolidated
markets as well.
The second point is our recovery of profitability
that can be seen in margins and growth of our
net income, Ebitda and net profit. Along 2012
we drew your attention to the recovery of
margins and now this is very clear. Finally I
would like to remind you that we continue to
grow our recovery in margins without
proportional increase of Capex and working
capital. So the impact on return on capital
investment is really relevant.
Along the past years we have been able to
accomplish additional market share overseas.
We expec ted a toughening of competitive
conditions which indeed took place; but our
expectations for the remainder of the year are
still positive because we have strong structural
advantages: we really set ourselves apart from
the competition because we are faster ; we are
closer to clients; they recognize our brands; we
can invest in commercial capacity, engineering
and mass customization.
Page 2
WEG S.A.
1st Quarter 2013 Earnings Results Conference Call
April 25, 2013 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English
Business Areas
Revenue breakdo wn
5%
Costs of Goods Sold
8%
9%
17%
33%
7%
7%
7%
13%
9%
11%
23%
20%
24%
30%
52%
Materials
64%
Materials
64%
1Q13
61%
57%
62%
1Q12
Other Costs
9%
Labor
23%
Depreciation
4%
46%
Labor
23%
1Q09
Industrial Equipment
1Q13 Conference Call
1Q10
1Q11
GTD
1Q12
Domestic Use
Page 5
Other Costs
8%
Depreciation
5%
1Q13
Paints & Varnishes
April 25, 2013
On page 5 if you please go to this page we have
our revenue breakdown based on the main
business areas. Here you see equipment,
industrial
equipment
with
very
good
performance benefiting from the pickup in
growth in the domestic market. However, this is
still concentrated in short -cycle products; what
we call engineered products in long cycles we
are still not being able to convert our
investment into orders.
In the GTD area we can still see the continuity
of a positive trend in the process and the
products of transmission and distribution,
although we are just starting to see better
results. The g eneration businesses are still slow.
As for domestic motors we have an improvement
of conditions although in the white line products
we still have distortions in the benefit of
incentives for the consumption for imported
products.
Finally in paints and var nishes we have had a
very strong performance.
Now I am going to turn the call over to Luís
Fernando to continue the presentation.
1Q13 Conference Call
April 25, 2013
Page 6
Mr. Luís Fernando Oliveira – Investor
Relations Manager
Well good day everyone. We are going to page 6
of our presentation with the breakdown of our
production costs and the comparison to 1Q12.
We highlight an increase of 2.8 p.p. in our gross
margin reaching 31.4%. It is important to
observe that the gain of m argin was achieved in
all costs components since we really did not
change our breakdown in the cost of goods sold.
The main factors for that were a relative
stability and materials prices; the effects of a
devaluation of 13% in export revenues; the
lower cost of transformation gains with
products, engineering and processes with gains
in material consumption and labor; reduction in
payroll taxes which led to a substantial decrease
of prices in 1Q13 and the price dynamics and
the mix of products that are mor e favorable.
Main impac ts on EBITDA
Q1 2013
Net Operating Revenues
Consolidated Net Income for the Period
Net Margin
(+) Incometaxes & Contributions
(+/ -) Financial income (expenses)
(+) Depreciation & Amortization
EBITDA
EBITDAMargin
Q42012
1.477,6
173,1
11,7%
48,3
(24,7)
52,1
248,9
16,8%
1.662,3
184,8
11,1%
53,7
(2,7)
54,0
289,8
17,4%
%
Q12012
%
-11,1%
1.369,8
7,9%
-6,4%
151,3
11,0%
43,3
(45,9)
49,6
198,3
14,5%
14,4%
-9,9%
826,4%
-3,4%
-14,1%
11,7%
-46,3%
5,2%
25,5%
Figuresi n R$t housands
1Q13 Conference Call
Page 7
April 25, 2013
Page 3
WEG S.A.
1st Quarter 2013 Earnings Results Conference Call
April 25, 2013 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English
Going to page 7 we have our calculation of
Ebitda. We see the expansion of gross margin
was basically all reflected on the Ebitda margin
that reached 16.8%; admin expenses were
slightly higher with more increase in sales
expenses and with that we had 25.5% growth in
our Ebitda reaching 248.9 million with the
margin that we already mentioned of 16.8.
What is important to remind you here is that we
are adopting the methodology of CVM's
instruction 527. This is dif ferent from what we
used before, which goes into Ebitda margins
between 0.5 to 1 p.p. lower than what we had.
Using the previous methodology the Ebitda
margin would not have been 16.8 but rather
17.4%, 0.8 p.p. higher.
Working Capital
In % of Net Revenue
50,0%
40,0%
Workin g Capital
30,0%
Clients
Inventories
20,0%
10,0%
Capex Program
In R$ million
Outside B razil
Brazil
73.7
58.7
55.5
5.0
3.7
5.1
53.7
51.9
45.4
Q1
Q2
50.4
Q3
2012
1Q13 Conference Call
56.8
9.3
6.0
64.5
Q4
50.8
Q1
2013
Page 9
April 25, 2013
So it is capacity to grow with low investment as
we can see in slide 9, which shows organic
growth and expansion of capacity along the
quarters. Although we are with most plants in
natural levels of capacity we still have facilities
that can expand use without major additional
investment, but rather with some additional
resources. Lower intensity in the use of capital
has an important role in the re turn of capital
investment that is going up faster than our
operating margins.
With that I turn the call back to Mr. Gomes for
his final considerations.
Suppli ers
Advances
0,0%
1Q06
1Q07
1Q13 Conference Call
1Q08
1Q09
1Q10
Page 8
1Q11
1Q12
Contacts
1Q13
April 25, 2013
On page 8 we see the evolution of our working
capital as a percentage of net revenue along the
years. This is a point that we have also been
highlighting along the past quarters with a clear
trend of relative reduction of working capital as
of mid-2011. So we are keeping a high growth of
revenue without a proportion of high
investments.
§Laurence BeltrãoG omes
Finance and Investor Relations Officer
laurence@weg.net
§ Luís FernandoM . Oliveira
Investor Relations Manager
+55 (47) 3276-6973
luisfernando@weg.net
twitter.com/weg_ir
1Q13 Conference Call
Page 10
April 25, 2013
Mr. Laurence Beltrão Gomes – Finance and
Investor Relations Officer
Well, before opening for the Q&A I would like to
reinforce some aspects of the results showing
that we are on the path to meet our
expectations as set by the WEG 2020 plan. We
have clear opportunities for growth both in
Page 4
WEG S.A.
1st Quarter 2013 Earnings Results Conference Call
April 25, 2013 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English
organic growth and also by means of
transactions that can bring us new products,
markets and technologies. We still are seeking
for competitiveness in any condition. Results are
encouraging but we still have more to do to
improve our productivity, such as r educing and
rationalizing costs and expenses.
With that I will close our presentation and open
then for the Q&A session. Please operator you
may go on.
Q&A Session
Operator
Well ladies and gentlemen we will now start t he
Q&A session. We would like to remind you once
again that this conference call is being made in
Portuguese with simultaneous translation into
English. If you want to ask a question just press
star one and if you want to remove your
question from the queu e you have to press star
two.
Mr. Luís Fernando Oliveira – Investor
Relations Manager
We have a question that we collected on the
web by Sérgio Martins: what is the product of
WEG that is being most successful in the
market?
Mr. Laurence Beltrão Gomes – Finance and
Investor Relations Officer
Well, WEG has a very broad portfolio of
products by means of five business units; but in
the foreign market I would say that industrial,
electro electronic equipment, industrial engines
this is very strong. Really the WEG brand gained
reputation and is known in the international
market by means of its industrial, electric
engines and motors and we have been investing
a lot in innovation.
We have been pioneering in the development of
specific applications and products for some
market niches and therefore I would say that
perhaps the product that most stands out today
is our W22 Line Super Premium with the highest
level of energy efficiency alread y ranked in IE4
that is the minimum standard of electric
efficiency.
So this is an important product, because as we
are having this trend of a higher demand for
industrial efficiency and increase in production
activity, energy efficiency that will have an
impact on the reduction of cost, so all that
leads to us having this very important project
for these companies that want to have energy
efficiency in their production processes.
Operator
Our next question comes from Renata Faber
from Itaú BBA.
Ms. Renata Faber – Itaú BBA
Hello, and good morning Laurence and Luís. I
have two questions: the first with regards to the
growth of revenues, if along the year we can
expect an acceleration of revenues.
And the second question well, looking at the
working capital especially if we take a look at
receivables and inventory levels in the foreign
market there was a steep drop in the end of the
quarter. I would like to know if that was
because of t he revenues of the foreign markets
which were lower or was it a policy to reduce
working capital that reduced or translated,
sorry, in a lower increase of revenues or if this
reduction in the working capital is connected to
a reduction in revenues or not. Thank you.
Mr. Laurence Beltrão Gomes – Finance and
Investor Relations Officer
Well thank you very much, Renata, for your
question. It is too early to tell the growth for
the whole of the year; but we have clear signs
of improvement in the domestic market.
In the foreign market we expected a reduction
in the pace of growth due to low activities in
the foreign market and also more peers'
competition. WEG grew a lot and gained market
Page 5
WEG S.A.
1st Quarter 2013 Earnings Results Conference Call
April 25, 2013 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English
share in the foreign market and so w hat is
important is that in this quarter the market did
not grow but we did not lose market share, and
we are so very confident that we are going to
pick up growth rates or better; we are going to
have a growth rate that is more, or closer to the
domestic market. I think that this will go more
hand in hand, growth rates in the foreign
market and in the domestic market. So we do
believe and we do have some signs - especially
from the domestic market - that lead us to think
that we may be able to recover grow th rates.
liquidity. We would like to have an update from
you. It seems that liquidity is very strong, if you
have any guideline or any policy different to
reduce debt balance and liquidity, what you are
thinking about in this field? Are you going to
work with lower liquidity? If carry costs can
increase a little? So I would like to know your
strategy for this year. Thank you very much.
In the foreign market expectations for the US,
for instance, are reasonably good. The US is an
important market. It was a weak quarter this
quarter; but we do expect also to pick up sales
in the States.
Well, we are implementing some actions to
improve the duration of our debt but with
regards to net debt, well, that will also depend
on the program and process of acquisitions, this
is going to be important. We have already
released our Capex numbers for 2013 but that is
going to be important from now on to really
complete possible processes of company
acquisition. As you all know WEG has constantly
analyzed and prospected companies in Brazil
and overseas, companies that can bring
technology, products, to complement WEG's
current portfolio and also mar ket share for WEG
overseas and in Brazil.
Ms. Renata Faber – Itaú BBA
Thank you very much.
Operator
Excuse me. If you want to ask the question just
press star one.
Mr. Laurence Beltrão Gomes – Finance and
Investor Relations Officer
We still have part of the answer to Renata about
working capital. Well, Renata, we did take some
actions to optimize inventory levels especially in
our subsidiaries and branches overseas and also
we took some actions in Brazil together with
suppliers and clients to try to reduce the need
for working capital. So this is a process that is
still ongoing; but yes, the company is taking
actions with this regard.
Operator
Mr. Laurence Beltrão Gomes – Finance and
Investor Relations Officer
So this is key and I would say that it is hard to
give you a forecast because these processes are
complex and they may take time to be
completed.
Mr. Fernando Mattos – Merrill Lynch
Thank you very much.
Operator
Once again if you want to ask a question just
press star one. We now close our Q&A session. I
would like again to turn the floor to Mr. Gomes
for his final considerations.
Once again, if you want to ask the question
press star one.
Our next question comes from Mr. Mattos from
Merrill Lynch.
Mr. Laurence Beltrão Gomes – Finance and
Investor Relations Officer
Well thank you very much for joining us today
and have a very nice day.
Mr. Fernando Mattos – Merrill Lynch
Well good morning, thank you very much for
your presentation. My question has to do with
Operator
Page 6
WEG S.A.
1st Quarter 2013 Earnings Results Conference Call
April 25, 2013 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English
WEG's conference call is now closed. We thank
you very much for joining us and have a nice
day. Thank you.
Page 7