WEG S.A.
2nd Quarter 2012 Earnings Results Conference Call
July 26, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English CORPORATE PARTICIPANTS
Mr. Sérgio
President
Schwartz
–
Executive
Disclaimer
Vice
Mr. Laurence Beltrão Gomes – Finance and
Investor Relations Officer
Mr. Luís Fernando Oliveira – Investor
Relations Manager
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.
2Q12 Conference Call
Page 2
July 26, 2012
PRESENTATION
Operator: Good morning and welcome to WEG’s
conference call on the results of 2Q12.
2Q12 Conference Call
July 26th, 2012
We would like to inform you that this conference call
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 results of the quarter or the
presentation that we are going to use during this
conference call please go to WEG’s investor
relations page at www.weg.net/ri.
Before going on we would like to inform you that any
statements made during this conference call relative
to the company’s business outlook, projections and
operating and financial goals as well to the potential
future growth of WEG are based on the company's
management beliefs and assumptions and rely on
information currently available.
Forward-looking
statements
involve
risks,
uncertainties and assumptions since they refer to
future events and therefore depend on
circumstances that may or may not happen.
Investors should understand that general economic
conditions, industry conditions and other operating
factors may affect WEG’s future performance and
lead to results that materially differ from those in
such forward-looking statements.
We would like to remind you that this conference call
is being conducted in Portuguese with the
simultaneous translation into English.
Today with us in Jaraguá do Sul are Mr. Sérgio
Schwartz, CEO; Laurence Beltrão Gomes, Finance
and Investor Relations Officer; and Luís Fernando
Oliveira, Investor Relations Manager of WEG.
Please Mr. Schwartz you may go on.
Página 1 WEG S.A.
2nd Quarter 2012 Earnings Results Conference Call
July 26, 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
Q2 2012
1.528.791
729.235
799.556
Q1 2012
1.369.762
714.268
655.494
%
11,6%
2,1%
22,0%
406.915
370.825
9,7%
461.661
391.967
17,8%
381.437
-5,7%
154.557
30,2%
28,6%
Net Income
139.819
148.247
Net Margin
9,1%
10,8%
EBITDA
260.028
208.638
EBITDA Margin
17,0%
15,2%
EPS
0,2254
0,2390
Q2 2011
1.277.258
723.348
553.910
%
19,7%
0,8%
44,3%
-14%
347.886 17,0%
21,0%
29,9%
-9,5%
12,1%
24,6%
215.579
20,6%
702
16,9%
-5,7%
601
629
Q2 2009
Q2 2010
723
729
Q2 2011
Q2 2012
0,2491 -9,5%
Figures in R$ Thousand
Q2 2008
2Q12 Conference Call
1%
15%
5%
July 26, 2012
Page 3
2Q12 Conference Call
Page 4
July 26, 2012
_________________________________________
Mr. Sérgio
President
Schwartz
–
Executive
Vice
Well good morning everyone. It is a pleasure to
welcome all to this conference call on WEG’s results
for 2Q12 and we are going to start giving you details
on the company’s growth and revenues and then
Mr. Gomes is going to comment on costs,
expenses, Ebitda, cash flow and investments. We
will try to do that briefly so that we can open for your
questions.
On page 3 we have the main numbers of 2Q12. We
would like to highlight that this quarter we continue to
see a stronger growth in net revenues as we have
seen in previous quarters: our growth in net
operating revenue was 19.7% compared to 2Q11,
44.3% of which in the external market and stability in
the domestic market with an expansion of 0.8%. We
also observed a growth of 21% in our gross
operating profit and 20.6% in our Ebitda.
On slide 4 we have the comparison of net operating
revenues in the domestic market in 2Q of the last
five years. As you can see revenues in the domestic
market accounted for 48% of the net consolidated
revenues with a growth of 0.8% compared to 2Q11.
Industrial activity in Brazil continued to show a
negative picture for this quarter continuing the
slowdown of the economic production that started in
2011. Industrial production of capital goods
accumulated a drop of 12% in the first five months of
2012. The loss of pace was basically general in the
country. The areas of electronic equipment, paints
and furnishes had growth above the average and
GTD had a slight drop.
In the area of engines for domestic use the
incentives announced by the government in the end
of the year did not have a positive influence in the
production that, again, showed a drop.
Once again we would like to talk about the context in
which growth was attained with Brazilian industrial
production at a very slow pace and continuity in the
environment of uncertainties in the foreign market,
especially the developed countries. In this manner,
as we have already mentioned before we have a
very robust business model that can find
opportunities for growth in difficult economic
environments. We can see the numbers in more
details on the next slides.
Página 2 WEG S.A.
2nd Quarter 2012 Earnings Results Conference Call
July 26, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English Net Operating Revenue
External Market
in US$ million
External Market in US$
2,0705
1,6529
1,7920
Quarterly Average FX
1,9649
1,5922
presence in the external market is most important,
such as industrial equipment, electromechanical and
in areas where we had a consolidation of
acquisitions such as GTD.
17%
62%
-13%
3%
407
348
238
207
214
Q2 2008
Q2 2009
Q2 2010
2Q12 Conference Call
Q2 2011
Q2 2012
July 26, 2012
Page 5
On page 5 we can see the performance of net
operating revenues in the external market. This was
the first quarter in which WEG’s sales in the external
market were above those of the domestic market
with a growth of 44.3% against the previous year in
the comparison in Brazilian Reals. This comparison
was benefited by the devaluation of the real in the
period. Still growth in revenues in dollars was 17%.
Our strategy for the external market includes among
other actions the introduction of new products and
services in the markets in which we already have a
consolidated presence, leveraging WEG’s brands
and its competitive advantages in terms of
customization, production flexibility and provision of
services to clients to increase our market share and
also the development of products with higher
technological content, innovative products with high
level of energy efficiency but always adapted to the
characteristics of the local demands of each market.
In GTD I would like to remind you that prices in
transmission and distribution businesses are under
pressure as we have mentioned in previous quarters
and in the area of generation the recovery of
demand is still very slow. Our strategy to keep our
competitiveness is to seek for continuous growth.
Our experience shows that the strategy of keeping
investments and being close to clients results along
the time in a stronger positioning in the market.
Thus, for example, we are still investing and focusing
on the investment of optimized solutions for the
different sources of energy generation.
Now I would like to ask Laurence to give you other
information on the quarter numbers. Please
Laurence, you may go on.
Cost of Goods Sold
Other Costs
9%
Materials
64%
Labor
23%
2Q11
2Q12
Labor
22%
Materials
64%
2Q12 Conference Call
Business Areas
Net Revenue breakdown
Other Costs
9%
Depreciation
5%
Depreciation
4%
Page 7
July 26, 2012
_________________________________________
in R$ million
1.529
1.277
5%
7%
7%
1.011
6%
10%
6%
0,2%
2,8%
0,2%
5%
5%
8%
0,6%
2,4%
2,4%
13%
15%
Good day everyone. Please I would like you to turn
to slide number 7 where you have the breakdown of
costs and the comparison with 2Q11. I would like to
highlight our growth of 19.1% in the cost of goods
sold, lower than the 19.7% growth in net revenues
and like happened in the last quarter resulted in the
expansion of the gross margin that reached 30.2%.
41%
19%
34%
7%
29%
29%
27%
2Q 2010
2Q 2011
Industrial Equipment DM
GTD DM
Domestic Use DM
Paints & Varnishes DM
2Q12 Conference Call
Page 6
Mr. Laurence Beltrão Gomes – Finance and
Investor Relations Officer
25%
2Q 2012
Industrial Equipment EM
GTD EM
Domestic Use EM
Paints & Varnishes EM
July 26, 2012
Now on page 6 we can also see a faster growth in
the external market comparing our mix of products
sold along the quarters. We continue to see an
increase of share in the business areas where the
The main positive factor for the increase in the gross
margin was the growth of sales and revenues; the
devaluation of the Brazilian Real with an impact in the
Página 3 WEG S.A.
2nd Quarter 2012 Earnings Results Conference Call
July 26, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English external market; stability of average costs of copper
and steel, which are our main raw materials; the
expansion of activities and the consequent
improvement and dilution of transformation costs,
especially in greenfield units such as India and
Linhares.
It is important to highlight that the expansion of
margin is being achieved in an unfavorable
macroeconomic environment with pressure of costs
and prices as mentioned by Sérgio.
Main effects on EBITDA
165,8
172,2
FX Impact
on
Revenues
32,0
COGS (ex
depreciation)
215,6
Volumes,
Prices &
Product Mix
Changes
EBITDA Q2 11
2Q12 Conference Call
in R$ million
Long-term investments
2%
New Financing
34%
Sources
Decrease in Cash
18%
11,3
Selling
Expenses
General and
Administrative
Expenses
2,0
260,0
Profit Sharing
Program
EBITDA Q2 12
Page 8
Dividends/interest on
equity capital
10%
Amortization of
Financing
46%
Increase in Accounts
Payable
9%
Uses
Profit Sharing Paid
4%
Increase in Accounts
Receivable
10%
Other / Adjustments
4%
R$ 1,694
million
R$ 1,694
million
Increase in Inventories
6%
Other accounts payable
5%
Capex
7%
Depreciation and
amortization
6%
Pre-tax income
23%
2Q12 Conference Call
in R$ million
79,4
Sources and Uses of Cash
Acquisition
12%
Income Taxes Paid
6%
July 26, 2012
Page 9
On page 9 we have the graphic representation of
the sources and uses of cash in the first semester of
2012. We see that the main uses of cash totaled
1694 million basically with the amortization of
financing, 46%; investments in expansion, 12%; in
the expansion of capacity, 7%; an increase in
accounts receivable of 16%; payment of interest on
equity relative to the second semester of 2011; and
payment of profit-sharing, which happened in the
same day of the payment of dividends; and also
social contribution and taxes.
July 26, 2012
On page 8 we have the analysis of the variations of
each of the components of the Ebitda. As it
happened in the previous quarter the exchange
variation had a positive effect of 70.4 million that
adds to the variation of revenues related to the
change of prices, volumes and mix of R$ 172
million. The cost of products sold excluding
depreciation grew by R$ 165.8 million. Operating
and selling expenses followed the same behavior
that we had seen in the previous quarters. General
and administrative expenses had a slight growth of
11.3%. The net effect was a growth of 20.6 of
Ebitda with an absolute variation of 44.4 million
reaching R$ 260 million with Ebitda margin of 17%.
The main sources of cash were operating activities
represented by profit before tax, 23%; new
financing, 34%; and the result was a decrease of
304 million in the cash in the semester. In the end of
June 2012 the net debt was R$ 382 million.
Capex Program
Outside Brazil
Brazil
63,1
33,8
8,2
49,9
41,1
2,4
25,6
38,8
Q1
Q2
1,0
42,6
Q3
2011
55,5
58,7
5,0
3,7
62,1
53,7
51,9
Q4
Q1
7,3
Q2
2012
in R$ million
2Q12 Conference Call
Page 10
July 26, 2012
In slide number 10 we have the evolution of our
Capex program investment in fixed assets along the
quarters. In this quarter investments in expansion of
capacity reached 55.5 million, which does not
include the assets incorporated in acquisitions, only
the so-called investments in organic expansion.
Página 4 WEG S.A.
2nd Quarter 2012 Earnings Results Conference Call
July 26, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English Our budget for investments estimates an
acceleration of investments in 2012 reaching 294
million in the year. The execution of such plan
obviously depends on demand because we have
great flexibility to manage the pace of investments
according to the performance of the market.
Well, with that we are going to close our
presentation and will now open for the Q&A session.
I would ask the operator to please go on.
And my final question is about T&D prices. What do
you think is the average discount that the industry
has been practicing in this business? Just for me to
have an idea of what you have in terms of idle
capacity. Thank you very much.
_________________________________________
Mr. Sérgio
President
Contacts
ƒLaurence Beltrão Gomes
Schwartz
–
Executive
Vice
Cassio this is Sérgio. I am going to invert the order of
your questions and so I am going to start answering
your question number three which regards T&D. Of
course prices are still pressured in the market. If you
take a look at the prices that we had in 1Q this year
compared to the peak of prices in 2008, 2009 in
terms of orders that were placed in 2008, I would
say that in some markets prices had a decrease of
up to 25%, even 30% average sale prices in the
market.
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
2Q12 Conference Call
Was it a specific account or is it an improvement in
some kind of product?
Page 11
July 26, 2012
_________________________________________
Q&A Session
Operator
Ladies and gentlemen we will now start the Q&A
session. We would like to remind you once more
that this conference call is being conducted in
Portuguese with simultaneous translation into
English. To ask a question please press star one
and to remove your question from the queue please
press star two.
Our first question comes from Cassio Lucin from
J.P. Morgan.
_________________________________________
Mr. Cássio Lucin – JP Morgan
Well good morning everyone. I have three questions,
the first is more with relation to the macro scenario.
What changed in the mindset of management today
compared to what you had in the beginning of
2012?
The second question is with regards to your
increase of 13% or 14% in your customer account.
What we see right now is that there is a slight
recovery of volumes in some markets; but the prices
are still not changing significantly and what the
company does to be able to have a better result in
this environment is continuously reducing costs.
Engineered products, because they are specific
orders, they allow for some kind of optimization
because of the development of new technologies.
But if we are to be objective right now we do not see
an improvement in price.
With regards to the clients account when we
increase the volume of sales to the external market especially sales through WEG’s own subsidiaries then we have a slight expansion of this flow and
more than that: generally clients in different markets
they have slightly different payment terms compared
to the domestic market with less advanced pays.
And the third question with regards to the macro
scenario we have not changed our plans to tell the
truth. Our plans encompass actions in the long term
and we are going to continue focusing on expansion
in the foreign market capturing opportunities in the
market niches with the launch of new products and
expansion of our product and service mix. And we
Página 5 WEG S.A.
2nd Quarter 2012 Earnings Results Conference Call
July 26, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English have not changed anything with regards to our plans
for 2012.
labor and other costs can be slightly better in other
countries, cannot they?
_________________________________________
_________________________________________
Mr. Cássio Lucin – JP Morgan
Mr. Laurence Beltrão Gomes – Finance
and Investor Relations Officer
Ok thank you very much. Just for a follow-up then
on question number two: the improvement that you
had in your clients account was basically due to a
payment flow and not because of a specific order or
any…
_________________________________________
Mr. Sérgio
President
Schwartz
–
Executive
Vice
No, just because of our regular business. We always
have some variations depending on the origin of
business. So sometimes it has more to do with a
change in mix of products than policies.
Well yes Nicolai. It is true that WEG is already talking
about that. Today of our total production 10% is
outside Brazil and we believe that in five-year time
this percentage may get to 20% at least. So there is
a trend of improving production overseas, we have
already taken some steps towards that.
With regards to costs, copper, steel, well, they
account for approximately 45% of our total cost of
production.
_________________________________________
Mr. Nicolai Sebrell – Morgan Stanley
Thank you.
_________________________________________
_________________________________________
Mr. Cássio Lucin – JP Morgan
Operator
Ok thank you very much, have a nice day.
_________________________________________
Mr. Sérgio
President
Schwartz
–
Executive
Vice
Ok you too.
_________________________________________
Operator
Our next question comes from Nicolai Sebrell from
Morgan Stanley.
_________________________________________
Mr. Nicolai Sebrell – Morgan Stanley
Well, first I have a very quick question: what is the
percentage of your costs in copper?
And
second
is
about
the
company's
internationalization, because half of your revenues is
outside Brazil now; but the Capex I saw is just a
small portion outside Brazil. Does not it make sense
for you to expand the segment in the company and
buy or build something outside Brazil? Because
Our next question comes from Fernando Leitão from
Hoya Corretora.
_________________________________________
Mr. Fernando Leitão – Hoya Corretora
Well good morning everyone, Luís Fernando,
congratulations on your results. It is always a nice
surprise to wait for WEG’s releases, but I would like
to make a comment: this growth that you have been
able to get in a very effective way in the external
market is very interesting; but is not there a
possibility of finding niches in the internal market, in
the domestic market?
You are so competent to find new markets, new
opportunities outside Brazil; why is that that in a
certain way you are not able to replicate that for
Brazil?
_________________________________________
Mr. Luís Fernando Oliveira – Investor
Relations Manager
Well thanks for your question Fernando. What you
said is very true and it is happening someway. We
Página 6 WEG S.A.
2nd Quarter 2012 Earnings Results Conference Call
July 26, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English are focusing a lot in context. If you think of the
production of capital goods it has been growing in
the periods we are comparing. So in this sense our
stability comes from that. We have been able of
finding growth niches in Brazil as well and this is
what we have been doing.
The strategies that have been using outside Brazil
are also used in Brazil. We are always launching new
products in Brazil. The gearboxes for instance now
we have a complete solution in terms of power
transmission: we have the electric engine,
automation and the gearboxes and that has allowed
us to grow in the domestic market as well.
Basically we have a mix where some things are
going very well and sometimes cyclically some
things are not as good. But we have that, it is
happening; but it is a matter of math: in Brazil we
already have a very good share, our presence in
Brazil is very large and outside Brazil as a whole we
are relatively small compared to our position in Brazil.
So mathematically it seems that we are growing
more outside Brazil than in Brazil. But basically we
are using the same strategy, the overall strategy is
the same: to find opportunities for growth in all
markets.
_________________________________________
Mr. Fernando Leitão – Hoya Corretora
Ok thank you very much.
________________________________________
Operator
Our next question comes from Lucas Brandler from
Geração Futuro.
_________________________________________
Mr. Lucas Brendler – Geração Futuro
Well good morning everyone. First of all I would like
to congratulate you on your results, very good
results compared to last years and I have three
questions if you allow me: the first is with regards to
the improvement in your product mix and this being
one of the factors that encouraged the results of this
quarter. I would like you to comment a bit more on
the quality of this mix and the changes that you had
in the product mix in this quarter. So this would be
the first question.
The second question is what really encouraged this
increase in your inventory? Was it the exchange
effect on inventory? I would like to have a bit more
color on the increase of your inventory levels.
And you mentioned more proportionally, more… a
higher direction of Capex to the external market; how
would that be invested? Would that be more
acquisitions? Would that be the implementation of
distribution centers, commercial offices? And in
which regions would you be focused? Thank you
very much.
_________________________________________
Mr. Sérgio
President
Schwartz
–
Executive
Vice
Well, your first question about product mix the
growth in the external market has been attained by
means of identifying niches for specific applications.
So when we identify an opportunity for a product
with more value added in terms of technology and
where we can add not only technology but also
services well, that allows us to have better results.
So I think it is to work in market niches.
As for inventory levels as a whole we have to
consider the following: as we increase our share of
exports in the company’s total amount we need
more inventory levels because the business flow is a
bit longer, especially when sales take place through
WEG’s subsidiaries abroad instead of through
dealers. That demands more inventory in our
logistics flow.
And what we are seeing as well as an impact is that
in a more competitive environment in some
businesses we have to make available inventory to
be able to get the business based on product
availability, especially overseas. So this inventory is
used as a sales tool.
And for acquisitions and the investments of Capex
basically we have a very well-defined strategy of
expansion in foreign markets by means of
acquisitions, but not only acquisitions, expansion of
our current distribution business. So we do not have
today a specific market that is our target. The
Página 7 WEG S.A.
2nd Quarter 2012 Earnings Results Conference Call
July 26, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English markets WEG… actions in the foreign market are
well distributed.
So you are negotiating to perhaps close something
for this auction?
We are growing in North America; Western Europe,
despite the local crisis; Asia; Africa. Each one of our
units overseas has a growth strategy that responds
to the Group’s growth demands and this Capex is
distributed according to the opportunities that may
come up in each one of these markets.
_________________________________________
_________________________________________
Mr. Lucas Brendler – Geração Futuro
Mr. Laurence Beltrão Gomes – Finance
and Investor Relations Officer
Well, the auction will depend on the results; but we
are doing business and negotiating with several
parties and we are very optimistic about the results
of the two auctions that we are going to have in
October.
Ok thank you very much.
_________________________________________
_________________________________________
Mr. Luciano Costa – Jornal da Energia
Operator
Ok thank you very much.
We would like to remind you that to ask a question
press star one.
_________________________________________
Our next question comes from Luciano Costa from
Jornal da Energia.
_________________________________________
Mr. Luciano Costa – Jornal da Energia
Well good morning. I would like you to give us an
outlook of businesses in the wind energy area, if you
have signed any contracts. That is it.
_________________________________________
Mr. Laurence Beltrão Gomes – Finance
and Investor Relations Officer
We are developing our plan for this business
segment within the area of GTD. We have a very
important event that is going to take place in
October, which is the energy auction. We are
already looking into and taking part on negotiations
for the auctions but mainly WEG is focused on the
location of technology, the development of products,
of having a very robust product, updated; and we do
believe that gradually we are going to have a market
share that is compatible to what we have in the
energy market. So our plans are under control and
everything is within expected so far.
Mr. Luís Fernando Oliveira – Investor
Relations Manager
Just to add here we have a question here on our
webcast that is asking about possible products for
wind energy and maybe smaller applications.
This is not our focus; our focus are larger machines
or major applications. We are not focused on smaller
commercial or residential applications, the so-called
micro wind generation is not our focus.
_________________________________________
Operator
Our next question comes from Verena Wachnitz
from Price.
_________________________________________
Ms. Verena Wachnitz – Price
Good morning. I have two questions, the first is
about your domestic demand, if you see any
improvement based on the government incentive
measures or not yet and what do you expect,
because the growth was very weak in 2Q.
_________________________________________
And then improvement of margins, if we are going to
see an improvement in the next quarters or if we are
going to be at this level. Thank you.
Mr. Luciano Costa – Jornal da Energia
_________________________________________
Página 8 WEG S.A.
2nd Quarter 2012 Earnings Results Conference Call
July 26, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English Mr. Luís Fernando Oliveira – Investor
Relations Manager
Hi Verena, thanks for your questions. Well, as a
whole what we see in some cases is that some
measures, for instance measures in the white line
market, the measures did have an impact on
consumption; but this impact has not been felt in the
production chain yet. We have not received that as a
growth in production more specifically.
_________________________________________
Mr. Luís Fernando Oliveira – Investor
Relations Manager
Well, we expect for 2012 to have margins better
than 2011 and thus we believe that we are going to
continue moving on towards this direction in the next
quarters.
_________________________________________
Other incentives in terms of capital goods especially
directed to investment and expansion of production
capacity they generally take a bit longer to be felt.
There is a certain leg between the implementation of
measures and investments actually happen.
Ms. Verena Wachnitz – Price
Ok thank you very much.
_________________________________________
Operator
So as a whole we expect and salespeople expect
that with the Brasil Maior Program with decreased
interest rates, better exchange rates that are a bit
more favorable for exporters in Brazil, all this scenario
indicates that the second semester is going to be
better than the first one. So we are going to continue
to have a gradual improvement in the domestic
conditions in the second semester, which seasonally
is what happens, it has more working days and so it
is a better semester.
Our next question comes from César Teixeira, a
private investor.
_________________________________________
Mr. Cesar Teixeira – Private Investor
Good morning everyone. It is the first time I take part
in WEG’s releases. I have been investing in the
company for more than eight years now and I would
like to know how oil and gas expansion in Brazil is
positively affecting WEG’s results.
_________________________________________
Ms. Verena Wachnitz – Price
But you have not felt that in terms of orders.
_________________________________________
Mr. Luís Fernando Oliveira – Investor
Relations Manager
In some cases yes, others no, it varies a lot, we
have a high variability. In some markets, some
specific products, we are building our portfolio, our
backlog for 2013 - but it is not a general movement.
We cannot say that this is for the whole of the
company, that depends a lot.
_________________________________________
Ms. Verena Wachnitz – Price
And on top of that if local production gives us a
competitive advantage based on nationalization
rates, and with that if you get more funding from the
BNDES.
And also I would like to know if this advantage of
producing here in terms of wind equipment will give
you an advantage in the market because a few days
ago BNDES communicated or it hit the press that
some wind turbines producers were no longer going
to be certified by BNDES because they were not
reaching the nationalization level. So I see that as an
opportunity for you to expand this business in the
Brazilian market - but I am not sure if that will bring
results in the internal market that are positive. That is
it.
_________________________________________
Mr. Laurence Beltrão Gomes – Finance
and Investor Relations Officer
Ok thank you and margins?
Página 9 WEG S.A.
2nd Quarter 2012 Earnings Results Conference Call
July 26, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English Well, the oil and gas industry has always been very
important, it has been a good client for us not only in
Brazil but in the whole of the world. Today we have
several regions in the world with products for this
segment. Last year we had a very important
acquisition of Electric Machinery in the US and
through this acquisition we acquired a turbo
generation technology that complemented our
product portfolio for the oil and gas industry. So it
was a very important acquisition for the segment.
So yes, it is important. Petrobrás is a very important
client of ours and WEG is a relevant supplier to
Petrobrás - but investments are being postponed.
You see that investments are not being made as
expected in the past but they will happen.
And local content in addition to being important to
WEG in direct sales it is also important in indirect
sales for those buyers of compressors and pumps.
Our product is a component of the products that are
going to be sold to Petrobrás. So in investments in
the pre-salt layer WEG certainly will capture
opportunities, the company is getting ready for that
and this is going to be relevant. And obviously as
you mentioned local content is very important within
our investment program because we do have a law
of national content.
As for wind energy we see that the business
environment is better today than it was a year or two
years ago, and the fact that many companies lost
their certification with FINAME and BNDES was an
important change. Those investment projects that
had these companies can hurt the financing and
funding of these wind farms and perhaps we may
have greater opportunities with this measure taken
by BNDES. But as I told you today we have a better
environment in wind energy as compared to what
we had last year.
_________________________________________
Mr. Cesar Teixeira – Private Investor
Ok thank you very much.
_________________________________________
Operator
Our next question comes from webcast.
_________________________________________
Mr. Luís Fernando Oliveira – Investor
Relations Manager
We have three questions on the webcast: Victor
Uebe from Leblon Equities would like to know if in
our strategic planning of 2020 of R$ 20 billion there
is a return goal.
Well, Victor, the process is not exactly like this; it
starts with us surveying opportunities. Then we are
going to choose the return on capital invested that
we believe is attractive, above our average capital
cost and then based on the projects selected we
got to a target. So that is how the process follows
and then in this sense the expectations of strategic
returns are included in the plan.
The second question on the webcast comes from
Eduardo Laudares from XP Investments asking
about wind generation... energy generation auctions,
if the auction has already closed contracts or if there
is a pre-negotiation and we discuss after the
auction.
That is basically what happens: you have precontracts that are generally nonbinding agreements
and then we help the strategic investors during the
auction and then the terms are discussed later on
without any problem. That is generally what you do.
You have an indication from participants but the
contracts are effectively closed after the auction
takes place.
And finally the last question of Isabela Sabóia about
this expressive growth in the external market, how
much that has cost in terms of working capital and
how that influences the creation of value for the
company.
Well, our expectation is that this generates value
along time, Isabela. We are always thinking on return
of capital investment and so you have to know how
much you consume of investment and how much
return you have and our expectation is that along
time we are able to attain returns that are as
attractive as we would have in other markets.
Naturally we are not going to continue expanding
working capital forever. We do not have this need
and as time goes by we evolve, we add more value
to our external market. Our subsidiaries overseas
Página 10 WEG S.A.
2nd Quarter 2012 Earnings Results Conference Call
July 26, 2012 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English add value to the product, the product gets more
expert in the market with added value and the idea is
to improve margins as well.
WEG’s conference call is now closed. We would like
to thank you very much and have a nice day. Thank
you very much.
And there is another component which is production
outside Brazil. As we produce outside Brazil we
change this equation of working capital and so today
we produce 10% outside Brazil, we want to go to
20% and that also has an impact. So all these things
will help us to along time have a better return, as
attractive as we have inside the country.
_________________________________________
_________________________________________
Operator
Well, we are now closing our Q&A session. I am
going to turn the call over to Mr. Schwartz for his
final considerations. Please Mr. Schwartz.
_________________________________________
Mr. Sérgio
President
Schwartz
–
Executive
Vice
Well thank you very much. I would just like to
reinforce some important aspects: we are growing
as usual in a very healthy manner, exploring
opportunities for organic growth and in addition to
that we are adding, with transactions performed in
previous quarters, new products, markets and
technologies to our business increasing the pace of
growth.
And the current market conditions continue to be
challenging with important uncertainties in the
macroeconomics scenario; but our focus on
increasing competitiveness is very big. We want to
reduce costs, rationalize expenses and continuously
innovate our processes.
Finally I would like to remind you that on August 10
we are going to have our first WEG Day which is
going to be an excellent opportunity for you to get to
know our plans, aspirations for growth, as well as
our strategies and you are all invited.
Thank you very much and have all a very nice day.
_________________________________________
Operator
Página 11