WEG S.A.
3rd Quarter 2012 Earnings Results Conference Call
October 25, 2012 – 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
Disclaimer
The statements that may eventually be made during this conference call
relating to WEG’s business perspectives, 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 to results that may differ materially from those
expressed in such future considerations.
PRESENTATION
Operator: Good morning ladies and gentlemen,
welcome to WEG’s conference call to announce the
results of 3Q12.
3Q12 Conference Call
October 25th, 2012
This conference call is being recorded and at this
time all participants are connected in listen-only
mode. Later we will conduct a questions and
answers session when further instructions will be
provided. If you need assistance during the call
please press star zero.
To obtain the quarterly results’ press release or the
presentation that we will be using during this
conference call please go to WEG’s investor
relations webpage at the address www.weg.net/ir.
3Q12 Conference Call
Page 2
October 25, 2012
Before proceeding we would like to clarify that any
statements during this conference call pertaining to
the business prospects, operational and financial
projections and goals and the potential of future
growth of WEG are mere assumptions and beliefs of
the company's management that are based on
information currently available.
Such statements involve risks, uncertainties and
assumptions because they refer to future events and
therefore depend on circumstances that may or may
not happen. Investors should be aware that general
economic conditions, industry conditions and other
operational factors may affect the future performance
of WEG and lead to results that are materially
different from those expressed in such forwardlooking statements. We would like to remind you that
this conference call is being held in Portuguese with
simultaneous translation into English.
Today with us in Jaraguá do Sul we have Mr.
Laurence Beltrão Gomes, Financial and Investor
Relations Officer and Mr. Luís Fernando Oliveira,
Investor Relations Manager.
Please Mr. Gomes you may start.
Page 1 WEG S.A.
3rd Quarter 2012 Earnings Results Conference Call
October 25, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English Highlights
Quarterly Figures
Net Operating Revenue
Domestic Market
in R$ million
Net Operating Revenue
Domestic Market
External Markets
External Markets in US$
Gross Operating Profit
Gross Margin
Q3 2012
1,613,067
798,626
814,441
Q2 2012
1,528,791
729,235
799,556
%
5.5%
9.5%
1.9%
401,460
406,915
-1.3%
498,587
461,661
30.9%
30.2%
Net Income
184,756
139,819
Net Margin
11.5%
9.1%
EBITDA
284,276
260,028
EBITDA Margin
17.6%
17.0%
EPS
0.2978
0.2254
3Q12 Conference Call
Page 3
Q3 2011
1,317,483
737,350
580,133
%
22.4%
8.3%
40.4%
8%
8.0%
418,266
32.1%
154,567
7%
2%
-6%
353,520 13.6%
19.2%
31.7%
19.5%
11.7%
9.3%
243,743
16.6%
18.5%
32.1%
717
676
690
737
799
Q3 2008
Q3 2009
Q3 2010
Q3 2011
Q3 2012
0.2491 19.5%
Figures in R$ Thousand
October 25, 2012
_________________________________________
Mr. Laurence Beltrão Gomes – Finance and
Investor Relations Officer
Good morning to everyone. It is a pleasure to receive
you for this conference call to announce the results
of 3Q12. I am going to show you some of the
highlights and then Luís Fernando Oliveira will talk
about costs, expenses, operational margins, cash
flow and investments, and then we will have some
time for questions and answers.
On page 3 of your presentation please, you can see
the highlights of 3Q12. Here I would like to highlight
the growth of 22.4% in net operating income as
compared to 3Q11. Two points are fundamental:
this quarter was a very clear step towards our
aspiration of obtaining R$ 20 billion revenues until
2020 as defined in our strategic plan for WEG 2020.
In addition to the growth in the net revenue there
was a 19.2% growth in gross operating profit and
16.6% growth in Ebitda and a 19.5% growth in net
profit. And these numbers are very good and you will
be able to see these numbers in more detail on the
next slide.
3Q12 Conference Call
October 25, 2012
Page 4
On the chart on page 4 you can see here the
comparison of the net operating revenue domestic
market in the 3Q of each one of the past five years.
There was an 8.3% growth as compared to 3Q11
and this is the result of a combination of the organic
growth of 2.6% and the consolidation of the revenue
of different operations. This drive in non-organic
growth is the result of WEG 2020 plan.
The revenue in the internal market accounted for
49.5% of the consolidated net income in 3Q.
Industrial activity in Brazil started to show the first
effects of the recent incentive measures to
production and so the numbers of industrial
production by IBGE until August, in spite of the
accumulated growth of 3.4%. August was the three
month in a row with growth, and we expect the
recent positive results to continue and to enable us
to reduce the drop until the rest of the year.
Net Operating Revenue
External Market
in US$ million
External Market in US$
1.6819
1.8649
1.7187
Quarterly Average FX
1.6410
2.0287
14%
22%
-32%
42%
301
290
354
401
204
Q3 2008
3Q12 Conference Call
Q3 2009
Q3 2010
Page 5
Q3 2011
Q3 2012
October 25, 2012
On page 5 you can see net operating revenue in the
foreign market and you can again see that WEG’s
sales in the foreign market exceeded the growth in
the Brazilian market. Naturally this high growth
suffered the benefit of devaluation of the Brazilian
Page 2 WEG S.A.
3rd Quarter 2012 Earnings Results Conference Call
October 25, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English currency in the period. Even so the growth in
revenue as measured in dollars was significant:
13.6%.
You know our successful strategy for the foreign
market and it is described in a simple way: to
expand our portfolio of products and services in the
markets where our presence is already consolidated,
seeking increase in market share and also through
the development of products that are more
technology intensive, innovative and with high level
of energy efficiency, always adapted to the features
and local demands of each market. When we
implement the strategy we leverage the brand and
the
competitive
advantages,
customization,
manufacturing flexibility and customer service.
equipment or when we had the acquisitions such as
GTD gained more relative importance.
Now I would like to turn it over to Luís Fernando
Oliveira to share with you other information about this
quarter.
Cost of Goods Sold
Other Costs
9%
Other Costs
9%
Depreciation
4%
Depreciation
4%
Labor
23%
3Q12
3Q11
Labor
22%
Materials
64%
Materials
65%
Business Areas
Net Revenue breakdown
in R$ million
1,613
0.8%
3Q12 Conference Call
Page 7
October 25, 2012
6%
1,317
1,189
5%
8%
0.3%
5%
0.1%
10%
16%
17%
37%
34%
34%
28%
3Q 2010
23%
27%
3Q 2011
Industrial Equipment DM
GTD DM
Domestic Use DM
Paints & Varnishes DM
3Q12 Conference Call
_________________________________________
Mr. Luís Fernando Oliveira – Investor Relations
Manager
14%
7%
4%
2%
2%
7%
3%
6%
3Q 2012
Industrial Equipment EM
GTD EM
Domestic Use EM
Paints & Varnishes EM
Page 6
October 25, 2012
Now on page 6 where you can see the mix between
the different business areas per market, both
domestic and foreign. On the whole there was no
major change in the dynamics of market in different
business areas; sometimes they have very unique
features for a specific market or industry,in other
cases macroeconomic factors have a more relevant
influence.
The strategy is to keep the investments in the
commercial structure and proximity with customers
thus strengthening our market position in the long
term. On this chart it is clear to show the faster
growth in the foreign market if we compare the
products, the mix of products we sold along the
quarter.
Good morning everyone. Now we can go straight to
page 7 and we can see the breakdown of the cost
of goods sold in comparison with 3Q11. This
comparison is difficult because 3Q11 was a
particularly strong quarter. In the gross margin we
had a drop of 0.9 p.p. comparing to the 3Q11 but
better in 7 p.p. as compared to the previous quarter.
So we had the exchange devaluation of the real, the
profitability of the raw material costs, the growth in
revenues and a better dilution of transformation
costs and the payroll that is now not so
cumbersome as of August.
But there are some negative aspects: the new units
in India and Linhares have not yet reached the ideal
production levels. We have suffered pressure on
prices in some specific segments.
The business areas where the presence… with a
more significant presence in the foreign market such
as electro electronic and in manufacturing
Page 3 WEG S.A.
3rd Quarter 2012 Earnings Results Conference Call
October 25, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English The main sources of cash are still financial activities
and new funds that we raised. The net balance of
663.4 million in cash in the first nine months of
2012. At the end of September the net debt was
348.4 million. Considering the accumulated Ebitda
over the past 12 months the Ebitda net ratio is 0.34.
Main impacts on EBITDA
in R$ million
155.6
208.5
139.9
FX Impact
on
Revenues
26.3
COGS (ex
depreciation)
243.7
Volumes,
Prices &
Product Mix
Changes
16.1
Selling
Expenses
4.1
General and
Administrative
Expenses
284.3
Profit Sharing
Program
Capex Program
in R$ million
Outside Brazil
EBITDA Q3 11
EBITDA Q3 12
3Q12 Conference Call
On page 8 you can also see the analysis of the
variations of each component of Ebitda. As
Laurence has already mentioned, the new level in
the Brazilian currency plays an insignificant role in the
comparison with 3Q11. The foreign exchange had a
positive impact of 155.6 million added to other… to
139.9 as a result of volumes, prices, product mix
changes.
We had an increase of 208.5 million in terms of cost
of goods sold and it affects our cost too. We still see
a good performance in the control of administrative
expenses. The net effect was a growth of 16.6% in
Ebitda with R$ 40.5 million, thus reaching 284.3
million in the quarter with an Ebitda margin of 17.6%.
Sources and Uses of Cash
in R$ million
Sources
Decrease in Cash
25%
Other / Adjustments
3%
Increase in Accounts
Payable
5%
Long-term investments
1%
New Financing
32%
3Q12 Conference Call
Dividends/interest on
equity capital
12%
Uses
Profit Sharing Paid
4%
Increase in Accounts
Receivable
10%
Increase in Inventories
1%
Capex
6%
Other accounts payable
5%
Depreciation and
amortization
6%
Amortization of
Financing
54%
R$ 2,646
million
R$ 2,646
million
Brazil
63.1
October 25, 2012
Page 8
33.8
8.2
49.9
41.1
2.4
25.6
38.8
Q1 11
Q2 11
58.7
55.5
5.0
3.7
5.1
62.1
53.7
51.9
45.4
Q4 11
Q1 12
Q2 12
Q3 12
1.0
7.3
42.6
Q3 11
2011
3Q12 Conference Call
50.4
2012
Page 10
October 25, 2012
Now on the next slide you can see the evolution of
the Capex program over the past quarter. This
quarter investments in capacity reached R$ 50.4
million, thereby accruing 164.6 million until the end
of this quarter. We expected to invest 300 million in
2012 but we will not reach this amount.
We can still see an acceleration in the speed of
execution in the investment program in the past
quarter considering the favorable conditions for
funding that were implemented by BNDES in the
program of support to investment; but on the whole
the execution speed was lower than expected as a
result of market conditions.
In this manner we end our presentation and now we
may move on to our Q&A session. Could the
operator please continue? Thank you very much.
Acquisition
8%
Income Taxes Paid
6%
Pre-tax income
24%
Page 9
October 25, 2012
On page 9 you can see a chart of the sources and
uses of cash along 2012 until the end of 3Q. The
uses of cash totaled R$ 2.646 billion and the main
use was amortization of loans which consumed 54%
of the total. Other uses of cash are the payment of
dividends and interest on equity capital, investment
in working capital, Capex and acquisitions.
Page 4 WEG S.A.
3rd Quarter 2012 Earnings Results Conference Call
October 25, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English Well, as to Capex in the midterm and long term this
is very much diversified, very different sectors, so it
is difficult to identify one trend. It is very difficult to
realize that. There has not been any change as
compared to the past quarter. The dynamics that we
mentioned last quarter are still valid.
Contacts
ƒLaurence Beltrão Gomes
Finance and Investor Relations Officer
laurence@weg.net
ƒ Luís Fernando M. Oliveira
Investor Relations Manager
+55 (47) 3276-6973
luisfernando@weg.net
twitter.com/weg_ir
www.weg.net/ri
3Q12 Conference Call
Page 11
October 25, 2012
As to average prices, again, the issue that we say
and say again in terms of customization,
diversification between industrial segments that is
very broad ranging in WEG. It is hard to identify one
trend there, so it is difficult to have a clear answer to
you with that regard.
_________________________________________
_________________________________________
Mr. Cássio Lucin – JP Morgan
Q&A Session
Operator
Ladies and gentlemen we are now going to start our
Q&A session. We remind you once again that this
conference call is being conducted in Portuguese
with simultaneous translation into English. If you
would like to ask a question please press star one. If
you want to take your question from the list please
press star two.
Our first question comes from Cassio Lucin from
J.P. Morgan.
_________________________________________
Mr. Cássio Lucin – JP Morgan
Good morning Luís and Laurence. I have two
questions, the first one regards customers. In your
relationship with them we see an expectation in
reduction of Capex in future quarters or are you
going to keep the same level of investment that you
expected?
Thank you very much. One last question: as to the
acquisitions, integration and everything; is there
anything different, any upside or downside? Anything
different from what you had expected at first?
_________________________________________
Mr. Laurence Beltrão Gomes – Finance
and Investor Relations Officer
Well, integration is going on normally, there was no
effect. Naturally in the beginning of integration is
more difficult, this is normal, natural; but everything is
as planned: all the necessary adjustments, the
change of some parts and the adaptation of the
operations. This is normal and it takes a while for us
to adjust in the beginning. But there is no factor that
stands out in terms of being positive or negative.
_________________________________________
Mr. Cássio Lucin – JP Morgan
Thank you very much.
The second question, really, pertains more to
average prices of products especially in the industrial
aspect and there was a significant drop for a while.
Could you provide us an average of the drop in the
prices of your products? These two questions, thank
you very much.
_________________________________________
Mr. Laurence Beltrão Gomes – Finance
and Investor Relations Officer
_________________________________________
Operator
Excuse me. Our next question comes from Ms.
Verena Wachnitz from T Rowe Price.
_________________________________________
Ms. Verena Wachnitz – T Rowe Price
I have two questions, the first could you talk about
the evolution of the margin and what you expect in
future quarters from now on?
Page 5 WEG S.A.
3rd Quarter 2012 Earnings Results Conference Call
October 25, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English And the second question is in terms of your foreign
sales. There was an increase, a significant increase
in the share of North America and a drop in sales to
Europe. Could you give us more detail about that?
Thank you very much.
_________________________________________
Mr. Luís Fernando Oliveira – Investor Relations
Manager
Hi Verena, thank you for attending. Well, actually as
to the variations between one quarter and the other
they are relatively normal. It is the natural variation
depending on deliveries that we make to one market
or the other and there are some variations that
sometimes are more or less significant depending
on the quarter. There is nothing that really gets our
attention; there is no drastic change in trends and
the trend that we see in terms of the foreign market.
It is all basically the same: in the markets where we
had a better performance we are still having a better
performance, we kept our strategies; and in the
markets where our situation was more difficult or that
were not so warmed up they are still kind of the
same.
As to margins we repeat what we have been saying:
we have been working strongly to increase
competitiveness. All our work is to preserve WEG's
competitiveness as compared to other players in the
market.This means the following: it means that at the
end we must have margins that are superior to those
of our main competitors.
Final margins depend on many different factors: on
the market, pricing, the evolution of prices, the
speed of recovery of markets, and these are a few
things that are completely out of our control in some
cases. What I can say is that we are working
strongly in that sense and along this year we
managed to show a trend of recovery.
Normally the second part of the year is slightly
stronger than the first half of the year, which gives us
some indication in terms of the end of the year and
our work now is to continue with additional work to
go on increasing our competitiveness.
_________________________________________
Thank you very much; but the trend for the next year
is to improve?
_________________________________________
Mr. Luís Fernando Oliveira – Investor
Relations Manager
Well, it is hard to say now, Verena. Right now we
have just started designing the budget for next year.
This is a process that has already started and it is a
bottom-up process; it starts with the areas of sales
preparing their sales budgets and estimating market
conditions that we will find. We are kind of accurate
in this type of exercise but only more towards the
end of the year we will be able to say anything with
more accuracy.
We see a cooling down on some markets, others
are doing well; but we try to be careful now. We are
trying to be careful now in terms of the outlook for
next year. We will only know more about that more
towards the end of the year.
_________________________________________
Operator
Excuse me. Our next question comes from Mr.
Lucas Bendler from Geração Futuro Corretora.
_________________________________________
Mr. Lucas Bendler – Geração Futuro Corretora
Good morning Luís and Laurence. I have three
questions if you allow me, the first question pertains
the vision of your revenue between foreign and
domestic market. As you say in the past quarters and this quarter was no different - the growth in the
foreign market is stronger than the growth in the
domestic market, not considering variations in the
foreign exchange rate.
What is the structure that you expect for this level of
revenue? Do you expect a further acceleration in
sales to the domestic market or to reduce the sales
in the foreign market for the current structure, for you
to keep the current structure? Or do you have a
structure that is different from what we are seeing
today? And this is my first question.
_________________________________________
Ms. Verena Wachnitz – T Rowe Price
Page 6 WEG S.A.
3rd Quarter 2012 Earnings Results Conference Call
October 25, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English _________________________________________
Mr. Luís Fernando Oliveira – Investor Relations
Manager
Mr. Lucas Bendler – Geração Futuro Corretora
Hi Lucas, thank you for your question. Basically what
will happen is a little bit of the two things you are
mentioning. It is hard to imagine, and even
mathematically it is hard to imagine. The trend is for
things to be more well-balanced. The two rates will
be closer to each other and naturally the Brazilian
market will grow faster because we have interesting
and good prospects in Brazil.
And my last question, a part of your company's
strategy has been based on the acquisition of other
companies not just to win market share but also to
buy technology and even larger acquisitions. What is
the scenario today in terms of acquisitions? Do you
have any plans? Is there any business? Are you
preparing anything? So what do you have to say in
terms of future acquisitions?
But we have been growing intensely abroad, we are
gaining market share in other markets and this type
of growth finds barriers as time goes by. So maybe
these two growth rates are likely to converge in the
future and we might keep participations between
internal and foreign markets that are relatively close
to what we have today, close to 50 - 50.
_________________________________________
_________________________________________
Mr. Lucas Bendler – Geração Futuro Corretora
Thank you. My second question regards the issue of
regulation of the electric power industry. You said
something about this in the press release; but what
is your perception of this interference of the
governments to reduce tariffs and to change slightly
the renewal of concessions and the contracts that
they have with concessionaires of electric power
suppliers? Does this affect the issue of investments
and purchase of your equipment considering the
different issues of operation of your company?
_________________________________________
Mr. Laurence Beltrão Gomes – Finance
and Investor Relations Officer
Well Lucas, I think it is still kind of early for us to feel
the impact. We have not yet identified any change in
the market as a result of that, but it is because it is
too early; we believe it is still too early because they
have more than 500 amendments in this regulation,
but this is a structural relationship because of the
lack of upgrading in the transmission and distribution
infrastructure and the issue of power generation and
it is inevitable that a country needs investments to
grow in this area, it needs to increase power
generation and also needs to adapt its power matrix
in a better balanced way. So I believe it is still too
early to talk about impact on demand.
Mr. Laurence Beltrão Gomes – Finance
and Investor Relations Officer
Our program continues and it was the strategic
planning that we had last year, the 2020 strategic
planning that we designed last year that contributed
to make this program clearer especially for each
business unit. So today each business unit has its
own aspirations and opportunities and market
niches, products that are mapped in the market and
business units already know what to look for.
So the prospection work is clearer, we have more
visibility of that and so it continues. This process is a
continuing process, this process of assessment and
prospection of companies both in Brazil and
overseas continues and today WEG has a portfolio
of opportunities and companies that we have already
mapped. Some of them are at advanced stages,
others at more initial stages but they are still going
on.
But these are slow processes, sometimes very slow,
sometimes they are complicated and sometimes
there are some setbacks in terms of the level where
they are and we reaffirm what we have already said
before as part of WEG’s 2020 strategic plan: that
one third of WEG’s future growth will come from the
acquisition of other companies.
_________________________________________
Mr. Lucas Bendler – Geração Futuro Corretora
Thank you very much and congratulation for the
result of 3Q.
________________________________________
Operator
Page 7 WEG S.A.
3rd Quarter 2012 Earnings Results Conference Call
October 25, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English Our next question comes from Mr. Bruno Giardino
from Banco Santander.
_________________________________________
Mr. Bruno Giardino – Banco Santander
Good morning everyone. I have two questions, the
first one: did you see an increase of more placement
of new orders for heavier engines… considering the
new exchange rate and incentives by the
government?
And a second question is: what is the difference
between the margins of the operations in the foreign
and domestic markets?
_________________________________________
Mr. Laurence Beltrão Gomes – Finance
and Investor Relations Officer
Well, we have not yet felt the effect or any clear
signs of a resumption because of the 2.5% interest
rate. Our area of marketing and commercial has
already conducted a quite strong campaign with our
customers telling them about this great opportunity
which is an opportunity to finance, to upgrade their
plants, to buy new equipment at a negative real
interest rate. But to be very objective we have not
yet felt the effect of this new program with the new
interest rate of 2.5%.
As to the margins, the domestic and foreign
margins, we repeat that there is a portfolio. The
portfolio that is sold overseas is different. It is a
portfolio of more customized, products different from
the portfolio of products that we sell in Brazil. So at
the end of the day the margins are not really
comparable because there are different portfolios,
because of the feature of the portfolios that we sell
abroad.
As to the mix, as was said here before we are still
executing our strategy of increasing our product
portfolio using, naturally, the strength of our portfolio,
especially low-voltage in electric engines that are
part of our product line. As we win more space with
these products we expand our product line.
It has been evolving. Of course, this is not a type of
strategy that we can say that are much different…
we do not see much difference from one quarter to
the other. We will see the difference after some
quarters or even some years. What we can say is
that we are still executing the strategy and we are
seeing results.
One thing that we have noticed is that, naturally, we
started to see that in some cases the main players in
the market where we are, market leaders, and the
companies that defend these markets they are
operating in a more defensive way.
We can see clearly that we are causing discomfort
to some other players and the can see that clearly in
some markets, the fact that our presence and the
share that we are winning is becoming significant in
addition to the presence that we already have with
the electrical engines. We were consolidated… we
had a consolidated presence in electrical engines
but now we are being seen as players in the
segments of industrial automation, related to the
automation of control of the products that we had
already been selling.
Now I think that the operator will go back to our Q&A
session.
_________________________________________
Operator
Excuse me. Our next question comes from Mr.
Ricardo Alves from Morgan Stanley.
_________________________________________
Mr. Luís Fernando Oliveira – Investor Relations
Manager
Thank you.Now taking advantage of Bruno’s
question, we have one question from Victor Uebe
and he is asking: what is the evolution of the product
mix overseas and what is the behavior of the
competition in terms of WEG’s products?
_________________________________________
Mr. Ricardo Alves – Morgan Stanley
Good morning everyone. Two fast questions: first as
to the impact of the payroll. I do not know if you said
anything about that in the presentation; could you
share with us a little bit more detail of the impacts for
2013 in absolute terms of margins, in terms of how
you are going to address the payroll?
Page 8 WEG S.A.
3rd Quarter 2012 Earnings Results Conference Call
October 25, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English And the second question: the contract that you won
in September for the supply of wind turbines. What
does it mean for you in terms of sales in the future or
is this only going to take place in 2015? Could you
remind us about that and give us more details about
this contract? Thank you.
_________________________________________
Mr. Luís Fernando Oliveira – Investor
Relations Manager
Thank you for the questions. Starting from the first
question, the impact of the reduction of the burden
of the payroll, now it started its effect in August. We
had two months… August was still a difficult month; I
do not know how this works but it is product
byproduct. It does not encompass all workers of a
given a factory.
It works differently for different products. So in some
cases some people calculate that in one way for one
product and it is different for a different product. So
there have been some changes in the tariffs for
different products and this quarter is probably not an
indication of recurring numbers. We think that the
impact of that will be close to 5% of our total payroll.
If we take the total expenses with the payroll it will be
about 5% - it can be a little bit more or less
depending on how we evolve in terms of
manufacturing of products outside Brazil - but it will
be a number more or less close to that.
_________________________________________
Mr. Ricardo Alves – Morgan Stanley
Thank you very much.
_________________________________________
Mr. Luís Fernando Oliveira – Investor
Relations Manager
As to your second question, the contract that we
announced in September, it is a contract that was
part of the A-5 auction and it will only go into
operation in 2016. So this is something that we will
do along this period. Of course, it will be more
intense more in the future; we will be delivering
especially in 2015. This is when we are going to see
the greatest impact of this contract.
We already have some numbers: overall it will be 90
MW of voltage and the main point is: this is the first
of the contracts showing that we managed to
develop an interesting offer of products that will
provide us, as this market grows, conditions to
gradually and with a lot of method - as we usually do
- but to increase and gradually we will be able to
increase our presence in this market.
This is a market that will continue to grow in Brazil,
there will be new auctions in the future, and this is an
indication that this is one of… a first contract for us
and we have a quite competitive offer for this
industry with good technology products, locally
manufactured and we can finance it in local currency
and this is very interesting for investors generally
speaking.
_________________________________________
Mr. Ricardo Alves – Morgan Stanley
Thank you Luís.
_________________________________________
Operator
Excuse me. Our next question comes from Mr.
Fernando Leitão from Hoya Corretora.
_________________________________________
Mr. Fernando Leitão – Hoya Corretora
Good morning gentlemen, thank you very much for
the presentation, congratulations on your results. I
apologize if I ask a question whose answer you
already gave; but it is basically I heard, as you
answered questions, that the company sees good
prospects in Brazil as of 2013.
How does the company see that and what exactly
are these good prospects? I am talking in general
terms not in numbers; but the second question is
more numeric: what is today the idle capacity of
WEG? Thank you very much.
_________________________________________
Mr. Luís Fernando Oliveira – Investor
Relations Manager
Thank you Fernando for your question. Starting with
the second part of your question, WEG’s idle
capacity for those who know our manufacturing
Page 9 WEG S.A.
3rd Quarter 2012 Earnings Results Conference Call
October 25, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English system, it is a very vertical manufacturing system.
This number is very complex to calculate; what I can
say is the following: there are some areas that are
operating very close to ideal levels - some even
above - and others which are still… we still have lots
of room.
For example, the fact - and we said this clearly today
- the units of India and Linhares, they give us
additional room for growth for the products that…
these two units are more directly related to highvoltage engines and engines for domestic use, for
refrigerators. We have still room to grow with very
low additional investment.
The same thing is valid for transformers. We have a
unit in Mexico and we still have room to grow there.
These are the units where we have more
concentration of unused capacity, where we would
have more room for additional growth without any
significant investments.
Now the second part of your question, as we said
before we are right now preparing our budget for
2013. We are being very careful with our estimates,
but on the whole what we can say is the following:
we expect to keep the growth rates and our
aspiration is to keep our growth rates close to our
historical patterns. We have our WEG 2020 plan and
maybe in 2013 we might find that this year will be
more similar to 2012.
_________________________________________
Mr. Laurence Beltrão Gomes – Finance
and Investor Relations Officer
I would just like to add that all measures
implemented by the Brasil Maior Plan and the more
flexibility in economic policy with a more devalued
and managed exchange rate, the interest rate is the
smallest in history. So all this combination, the
combination of all these factors they are significant
and they have an impact on the Brazilian industry, a
direct impact on our customers so then we have
conditions, and maybe important and better
conditions for the economic activity next year.
On the other hand, the issue of foreign demand,
because we have fiercer competition overseas this
has an impact on the Brazilian industry that exports;
but the conditions in Brazil, I would say, are better
structurally speaking: the economic policy and
measures of tax release that have had an impact in
the whole manufacturing industry.
So there has to be investments, businessmen need
to feel confident to start investing. So I think that
these are the important points to highlight.
_________________________________________
Mr. Fernando Leitão – Hoya Corretora
Thank you very much Luís
Laurence.Have a good day.
Fernando
and
_________________________________________
Operator
Excuse me. Ladies and gentlemen just remind you, if
you want to ask a question please press star one.
Excuse me. This concludes today's question-andanswer session. I would now like to turn it over to
Mr. Laurence for his closing statements. Please Mr.
Gomes you may proceed.
_________________________________________
Mr. Laurence Beltrão Gomes – Finance and
Investor Relations Officer
Once again thank you all for your participation in our
conference call and now in closing I would just like to
stress some aspects: first of all, we are executing
the actions that were stated in WEG’s 2020 plan
and the results in this quarter show that we are on
the right track to reach our objectives and goals.
We are exploring opportunities for organic growth
and also by adding new products, markets and
technologies to our businesses, thus increasing the
pace of our growth. The focus has been on
increasing competitiveness and this is very important
to us.
The current market conditions continue challenging.
We continue conducting many different actions to
improve
productivity
with
cost-reductions,
rationalization of expenses and continuing process
innovation.
Thank you all very much and have a good day.
_________________________________________
Page 10 WEG S.A.
3rd Quarter 2012 Earnings Results Conference Call
October 25, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English Operator
This concludes WEG’s conference call today. We
thank you very much for your participation, have a
good day, and thank you for using Chorus Call.
_________________________________________
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