WEG S.A.
3rd Quarter 2011 Earnings Results Conference Call
October 26, 2011 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English Disclaimer
CORPORATE PARTICIPANTS
Mr. Laurence Beltrão Gomes – Finance and
Investor Relations Officer
Mr. Luís Fernando
Relations Manager
Oliveira
–
Investor
The statements that may 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.
3Q11 Results Conference Call
PRESENTATION
Operator: Good morning. Welcome to WEG's
conference call to announce the results of 3Q11.
We would like to inform you that this conference
call is being recorded and at this time all
participants are connected in listen-only mode.
Later on we will start a Q&A session when further
instructions will be given for you to participate.
Should you need assistance during the call please
request the help of an operator by pressing the
start key followed by zero.
Motors | Energy | Transmission & Distribution | Automation | Caotings
Page 2
October 26, 2011
Before proceeding we would like to testify that any
forward-looking statements made during this
conference call pertaining to WEG's business
prospects; projections; operating and financial
goals and to WEG's potential future growth are
mere beliefs and assumptions of WEG's
management, as well as information currently
available. These statements involve risks,
uncertainties and the use of assumptions
because they relate to future events and therefore
depend on circumstances that may or may not
happen.
Investors should understand that general
economic conditions, conditions of the industry
and other operating factors may affect WEG's
future performance and may lead to results that
will differ materially from those expressed in such
forward-looking statements.
3Q11 Results Conference Call
We would also like to remind you that this
conference call is being conducted in Portuguese
with simultaneous translation in English.
October 26, 2011
3Q11 Results Conference Call
October 26, 2011
To obtain the quarter results press release or the
presentation that we will be using during this
conference call please go to WEG's investor
relations page at www.weg.net/ir.
With us today in Jaraguá do Sul we have Mr.
Laurence Beltrão Gomes, Finance and Investor
Relations Officer and Mr. Luis Fernando Oliveira,
Investor Relations Manager. Please Mr. Laurence
Beltrão Gomes, you may proceed.
Mr. Laurence Beltrão Gomes – Finance and
Investor Relations Officer
Good morning everyone. It is a pleasure to have
you here attending this conference call to
announce the results of 3Q of WEG.
Page 1 WEG S.A.
3rd Quarter 2011 Earnings Results Conference Call
October 26, 2011 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English Gross Operating Revenues
Domestic Market
Highlights
Third Quarter, 2011
in R$million
Gross Operating Revenue
Domestic Market
External Markets
External Markets in US$
Net Operating Revenue
Gross Operating Profit
Q3 2011
1.552.044
953.515
598.529
364.730
1.317.483
418.266
Q2 2011 Growth %
1.510.276
2,8%
936.061
1,9%
574.215
4,2%
360.639
1,1%
1.277.258
3,1%
381.437
9,7%
Gross Margin
31,7%
29,9%
Net Income
154.567
154.557
Net Margin
11,7%
12,1%
243.743
215.579
EBITDA Margin
18,5%
16,9%
EPS
0,2491
0,2491
EBITDA
31,7%
0,0%
142.106
13,1%
209.196
8,8%
968
785
889
907
954
Q3 2009
Q3 2010
Q3 2011
16,5%
17,6%
0,0%
0,2289
8,9%
Figures in R$ Thousands
Q3 2007
Page 3
5%
2%
12,0%
3Q11 Results Conference Call
3Q11 Results Conference Call
-8%
23%
Q3 2010 Growth %
1.419.160
9,4%
906.954
5,1%
512.207 16,9%
298.020 22,4%
1.188.622 10,8%
377.227 10,9%
Q3 2008
Page 4
October 26, 2011
October 26, 2011
We may start on slide number 3. We would like to
highlight the growth of 10.8% in the net revenue in
3Q as compared to 2010, showing that we are
still growing and very healthy rates. It is important
to note that as of this quarter comparisons will
include the consolidation of revenues of the
acquisitions that we have recently made and
therefore you do not need to make adjustments,
comparison will be direct.
We would also like to remind you that 3Q10 is a
very strong comparison basis; but anyhow we
managed to keep it as a two-digit growth in
3Q11. Following a very clear trend presence in
the previous quarters there was more growth in
the foreign market then in the domestic market (in
Brazil). So we have been having a sequential
improvement in our margin, Ebitda margin from
18.5%. It is a result of the main factors of the
gradual improvement in our product mix; of the
repricing of our profits for new cost conditions and
the better occupation of the capacity of our new
units and our focus on the management of costs
and expenses. The depreciation of the real has
had a negative account the impact on the financial
results and so we took advantage of the time of
greatest devaluation of the real this quarter to
constitute additional protection positions for our
exports.
On slide number 4 please you can see
comparison of the gross operating revenues for
the domestic market in 3Q along the past five
years. You can see that with a 5% growth as
compared to 3Q10 we have reached actively the
same level of gross revenue as we had in 3Q08,
the highest quarterly revenue ever recorded by
WEG. If it is similar to the mix of products sold it is
quite broad ranging because extension takes
place at different paces in different businesses,
like we have seen on the year the growth of the
internal market taking place in electro and
electronic equipment for the industrial market in
transmission and distribution. Energy generation is
still going through a slow recovery. It is important
to note that even though the Brazilian industrial
production has slowed down in its growth, the
expansion of capital goods is still going on. We
believe that the industrial capacity in Brazil is going
through a consistent long-term movement of
growth.
Gross Operating Revenues
External Market
In US$ million
3Q11 Results Conference Call
Page 5
October 26, 2011
On slide number 5 you can see our numbers from
overseas revenue, so here you have the gross
operating revenue for the foreign market, it is still
expressive: gross revenue as measured in dollars
is the highest ever in any quarter of WEG's history
Page 2 WEG S.A.
3rd Quarter 2011 Earnings Results Conference Call
October 26, 2011 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English and is second only to 4Q08 as measured in reals.
This is not different from what we had seen in the
first quarters of this year and we are still growing in
spite of the microeconomic difficulties in many
different markets.
In the foreign market our strategy for growth is well
known: we have one market share with our sales
efforts, we have incorporated new products and
services to our portfolio thus leveraging the brand
WEG
with
competitive
advantages
of
customization, production flexibility and customer
service.
Now I would like to turn it over to Luís Fernando
Oliveira to share with you the details about the
numbers of this quarter. Please Luís Fernando.
Cost of Goods Sold
3rd quarter of 2011
Depreciation
4%
Other Costs
33%
Steel &
Coper
45%
Other Costs
31%
3Q11
Depreciation
5%
Other
Materials
18%
Other
Materials
21%
3Q10
Steel &
Coper
44%
Business Areas
Gross Revenues Breakdown
in R$ million
3Q11 Results Conference Call
Page 7
October 26, 2011
1.552
1.219
6%
13%
25%
7%
1.489
5%
13%
1.419
1.283
6%
14%
25%
7%
12%
6%
11%
25%
22%
58%
56%
60%
58%
46%
3Q 2007
3Q 2008
Industrial Equipment
3Q11 Results Conference Call
Mr. Luís Fernando Oliveira – Investor Relations
Manager
35%
3Q 2009
GTD
3Q 2010
Domestic Use
Page 6
3Q 2011
Paints & Varnishes
October 26, 2011
On slide number 6 you can see the mix of our
products sold. Electro-electronic and industrial
equipment are still growing in their relative
importance and also in absolute growth. In this
manner we took advantage of investments in
expansion of industrial capacity in Brazil and the
expansion of our capacity overseas as we have
discussed before.
In terms of transmission and distribution you can
see an improvement in the orders placed among
the past few months already converting in an
increase in revenue: in power generation we are
working with a joint venture between WEG and
MTOI to produce generators with the first delivery
schedule for 2012; in terms of consumer goods
we are operating at a new level - higher than
before - and our organic growth is superior to the
Brazilian economy as a whole, but we went
through a moment of accommodation of growth in
terms of paints and varnishes we have cross
sales and we kept... and it has kept its consistent
growth.
Good morning everyone. I am going straight to
slide number 7. You can see the breakdown of
the cost of goods sold in this quarter. It is
important to highlight that we are still taking
advantage of the gradual improvement in margins
in the previous quarters. It has gone 1.9 p.p.
compared to the previous quarter and has gone
back to the same level we had in 3Q10.
This is a reflex of our continuous effort in product
repricing, first of all, with the transfer of costs
along time. In this quarter the behavior of the cost
of the raw material is a kind of stable at least until
the beginning of September. So our strategy for
exposure worked better.
Secondly, the new manufacturing units in Linhares
and in India have a better occupation of the
production capacity and they are almost getting to
a level of equilibrium in the operational use. And
also we improved the mix of products sold.
Page 3 WEG S.A.
3rd Quarter 2011 Earnings Results Conference Call
October 26, 2011 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English slowdown in investment in the growth of
production capacity.
Main impacts on EBITDA
in R$ million
161,2
28,3
4,0
FX Impact on
Gross
Revenues
88,3
Deductions on
Gross
Revenues
COGS (ex
depreciation)
209,2
Volumes, Prices
& Product Mix
Changes
8,0
4,4
2,4
Selling
Expenses
General and
Administrative
Expenses
Profit Sharing
Program
243,7
We took advantage of the times of the greatest
devaluation of our currency to increase trade
finance and protect our positions. This reflected in
cash flow for financing as you can see. The cash
variation in the nine for his months of 2011 was
positive by R$ 247.7 million.
Capacity Expansion Program
EBITDA Q3 10
EBITDA Q3 11
3Q11 Results Conference Call
in R$ million
Outside Brazil
October 26, 2011
Page 8
Brazil
On slide number 8 you can see our main impacts
on Ebitda. The positive variations in gross revenue
as a result of an increase in volume and price
(volume of sales and prices of goods) and mix of
products and it was set off by the depreciation of
the foreign exchange producing a negative impact
of R$ 28 million and then the cost of goods sold
excluding depreciation (88) and we had to
increase... reduce costs and produce more
overseas.
We have been successful in curbing operational
expenses as you can see in the small absolute
variations in sales expenses, general and
administrative expenses. The net effect was a
growth of 16.5% in Ebitda within absolute variation
of R$ 34 million reaching R$ 243.7 million with an
Ebitda margin of 18.5% in the quarter.
Cash Flows
In R$ million
2.553,0
290,8
Operating
319,7
Investing
Cash 4Q10
562,4
3.086,6
Financing
Cash 3Q11
(*) Long term financial investments are considered under cash flows from investing
activities.
3Q11 Results Conference Call
Page 9
61,4
34,2
73,8
53,7
43,7
13,0
44,1
2,0
27,2
30,1
40,7
42,1
Q1
Q2
Q3
Q4
2010
3Q11 Results Conference Call
Page 10
33,8
8,2
25,6
Q1
41,1
2,4
49,9
7,3
38,8
42,6
Q2
2011
Q3
October 26, 2011
Now on slide number 10 you can see here our
investment capacity in fixed assets along quarters.
As we have mentioned before - and this has
become a reality - we expected a relative
slowdown in the investments in the capacity
expansion program along 2011. The production
of newly opened units in Linhares and especially
in India are still growing and we believe we will
close 2011 close to operational breakeven in
these units.
We also remind you of speed and implementation
in our investment program, which is the main
feature of our investment program. We can
respond promptly to any increase in demand that
may arise.
This concludes our presentation and we can now
start our Q&A session and then we turn it back
over to our operator to start the question-andanswer session.
October 26, 2011
And then on the slide you can see this graphic
representation of cash flow. We are still producing
cash in our operating activities in spite of all our
revenue and more investment in working capital.
Our investments include financial investments for
the long-term, which is a feature of IFRS. If we
discounted the effect 2011 is likely to be a year of
Page 4 WEG S.A.
3rd Quarter 2011 Earnings Results Conference Call
October 26, 2011 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English Contacts
www.weg.net/ri
ƒLaurence Beltrão Gomes
Do you have any ideas, any numbers or sizes?
Investor Relations Officer
laurence@weg.net
ƒ Luís Fernando M. Oliveira
Mr. Luís Fernando Oliveira – Investor Relations
Investor Relations Manager
+55 (47) 3276-6973
luisfernando@weg.net
twitter.com/weg_ir
3Q11 Results Conference Call
Manager
Page 11
October 26, 2011
Q&A Session
Well, it depends on market conditions; but we are
already seeing a gradual improvement in our
product mix and so we believe that as the product
mix recovers in terms of products for, long-cycle
products this would go up and this recovery will
take place gradually. So yes, we do expect a
recovery next year.
Operator
Mr. Bruno Savaris – Credit Suisse
Thank you very much. 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 want to ask the question please press the
start key followed by the one key in your touch
phone. To take your question from the list please
press star two.
Our first question comes from Mr. Bruno Savaris
from Credit Suisse.
Mr. Bruno Savaris – Credit Suisse
Good morning everyone, thank you for the call. I
have just one question about your top line.
Considering that 2011 is almost over for 2012
you have any clarity in terms of your potential
growth? Will it indeed be 15% or 20%? Do you
think the guidance can be kept and basically what
time of margin recovery can you see for next
year? Thank you very much.
Mr. Luís Fernando Oliveira – Investor Relations
Manager
Bruno thank you for your question. Yes, I think that
we can envisage that. We will close the year
between 15% and 20% of topline growth and yes,
we do expect a recovery in margins next year.
Mr. Bruno Savaris – Credit Suisse
Thank you very much.
Operator
Our next question comes from Mr. Nicolai Sebrell
from Morgan Stanley.
Mr. Nicolai Sebrell – Morgan Stanley
Good morning. There have been many
acquisitions in the manufacturing sector I think;
what are the opportunities for you in terms of
acquisitions - overseas, not in Brazil, outside
Brazil? Question number one.
Question number two Capex. In the future do you
need to expand anywhere inside or outside Brazil?
Could you share more with us about Capex next
year?
Mr. Luís Fernando Oliveira – Investor Relations
Manager
Well, WEG and our strategy, our growth strategy
through acquisitions overseas - and WEG has
many
opportunities
for
growth
through
acquisitions overseas, especially in Asia - but it is
based on two pillars, two drivers I would say: the
first one is winning and obtaining new
technologies
through
acquisitions,
new
technologies for our products or new products especially
more
technology,
differentiated
technology that we might add to our products.
Page 5 WEG S.A.
3rd Quarter 2011 Earnings Results Conference Call
October 26, 2011 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English And secondly winning market share; winning
brands in markets for us to rapid win market share
through a consolidated brand.
So these are the main drivers or the main factors
driving our acquisitions overseas and as
everything, Nick, we are increasingly more likely...
as it has been happening in Brazil we are likely to
expand our product portfolio going beyond our
core in terms of electrical motors and electrical
generators.
This movement which is already taking place in
Brazil will gradually also happen overseas. So all
the equipment, all the machines or types of
equipment around these core products will make
sense for WEG.
Mr. Nicolai Sebrell – Morgan Stanley
Thank you. In terms of technology which are the
technologies that you want? In the area of
engines, but not just engines...
Mr. Luís Fernando Oliveira – Investor Relations
Manager
Well Nick from the standpoint of technology what
we want are things that are close to our core
products that we already have and so it might
be... for example there is a major effort for internal
development
And for some projects it would make sense for us
that instead of developing it internally it is a
relatively well-established technology there might
be an acquisition or a joint venture and in this
manner we would be able to win that technology
more rapidly.
We already have some examples, we do not
need to speak in hypotheses; so a concrete case
is Instrutech last year, late last year, early this year
IFSUL... so these are all segments where we
already have technology that might... maybe were
not fully established but that were mature enough.
And would make more sense for us to evolve in
this manner: through joint ventures, acquisitions;
for example aero generators we have a
partnership. So it is this type of technological
evolution that we are talking about.
Obviously technological evolution in more core
products such as engines we have a major
capacity for projects development and in these
cases our needs is much smaller. Does it make
any sense?
Mr. Nicolai Sebrell – Morgan Stanley
And in terms of Capex?
Mr. Luís Fernando Oliveira – Investor Relations
Manager
Well, the Capex... well in Capex and this growth
through the portfolio, an increase in portfolio, joint
ventures, partnerships they work in an analogous
way, in a similar way; we might expand production
capacity or we might have a partnership or an
acquisition that will provide that advantage to us.
Anyhow, for us to keep growing at 15%, 20% year
on year we need to keep a certain level of
investment in the expansion of production
capacity and we will continue doing that in the
future without any major changes; we might
change slightly the profile or to focus more
overseas. But on the whole this will not change
considerably the amounts or anything. We are
preparing our budget for 2012 now, we are going
to have more clarity about those numbers more
towards the end of the year.
Mr. Nicolai Sebrell – Morgan Stanley
Thank you very much.
Operator
Our next question comes from Ms. Sara Delfim
from Merrill Lynch.
Ms. Sara Delfim – Merrill Lych
Good morning. My question is about inventory.
Looking at your balance or financial statement it
went up 25% year on year; is this a strategy of
taking advantage of falling commodity prices to
build a cheaper inventory to make up for the
coming quarters or is it some other effect that I
Page 6 WEG S.A.
3rd Quarter 2011 Earnings Results Conference Call
October 26, 2011 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English have not yet been able to understand? Could you
share more with us about your inventories?
Mr. Luís Fernando Oliveira – Investor Relations
Manager
Well, actually this growth in inventories is a natural
consequence of the general increase in activity.
Yes, in activities, especially in longer-cycle
products we have a positive cash so to increase
revenue we need to make additional investment in
working capital and to control that very well,
especially because of the changes that would
have been making over the past few quarters to
import more raw materials to taking the production
more outside Brazil and everything. All of this has
an impact much so on inventory, but on the
whole... in terms of our suppliers and customers.
The main working capital accounts, suffers the
impact of our strategies.
If you look in the long term you will see that the
variation inventory is not so big. If you look at nine
months our additional investment in inventory is
similar to the investments we made last year, and
last year we had a smaller growth in terms of
revenues, the investment in other accounts was
even bigger. But on the whole this investment we
are not doing anything, speculation that from
materials, it is not physical inventory of metals.
That is not what we are doing, especially because
most of our inventory they are in inventory of inprocess inventory stop this is most of our
inventory.
Ms. Sara Delfim – Merrill Lych
Thank you very much for your answer.
Operator
Our next question comes from Mr. Cassio Lucin
from J Safra Bank.
Mr. Cássio Lucin – J Safra Bank
order book, how much it has grown year on year?
And technically is this average prices?
And
the
second
question
regards
competitiveness. Compared to your peers ABB,
Siemens, they have been more aggressive in
pricing. Have they been more aggressive in
pricing? How is this evolving?
Mr. Luís Fernando Oliveira – Investor Relations
Manager
Well, our order book... and this is something we
always talked about and we avoid talking about
the order book because we think our order book
does not create value with what creates value is
the conversion of orders into revenues, and this is
what we are seeing. We have been able to rapidly
convert orders into revenues. We have had more
orders and detest converts it into revenues this
quarter and this is already in our numbers,
reflected in our numbers. But on the whole we
see very good prospects in the sector of energy
in the future and this is likely to continue in the
future.
In terms of aggressiveness actually we need to
divide this very well into very distinct or different
moments. So I cannot give names to our
competitors; but those who have seen the auction
of energy, electric energy, but all the players in
this market they were being very aggressive in
terms of prices. The issue is... and the question is
how sustainable that type of thing was and on the
whole we are quite confident in our competitive
conditions. We are getting ready to be competitive
in many foreign exchange conditions and of
course they are all easier when the current foreign
exchange (1.80 foreign exchange) rates on shortterm will make our lives easier; but also will make
us... will give us conditions to operate with more
ease better to protect our positions on the whole,
what ends up having an impact in our
competitiveness too.
Mr. Cássio Lucin – J Safra Bank
Thank you very much.
Good morning everyone. I have two questions,
the first one could you give us an idea about your
Page 7 WEG S.A.
3rd Quarter 2011 Earnings Results Conference Call
October 26, 2011 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English Mr. Luís Fernando Oliveira – Investor Relations
Manager
We have a question through the web from Mr.
Sergio Saraiva, shareholder, and he is asking
about the possibility of aero generators in the
industrial complex Pecém in Ceará, where there is
capacity for production of wind energy in Brazil.
Hi Bruno. First of all about the wind energy. Well,
obviously we are working on that and this is a joint
venture that they have just recently started, we are
working on technology transfer, there are people
from here and they are working together and I
think the first products will be delivered in the
beginning of the year and we are working with the
people who participated in the auction to see our
possibilities.
As I have been saying our competitiveness in T&D
is very strong and we are formatting our sales
team to work specifically in terms of generation of
wind energy. There is a sales team that is already
out on the street. It has some unique features, this
market equipment are sold and purchased in a
slightly unique way and this is what we are
working on now.
According to the terms of our joint venture for the
manufacturing of this type of product - and we are
going to have the first deliveries next year - we are
using our industrial complex here in Jaraguá do
Sul at least for the time being. We started here,
we had great industrial capacity already installed
here and it would not make much sense for us to
produce it anywhere else. So we already have the
capacity here, we are going to use it here
because it is existing and as our market evolves
and our presence in this market evolves we will
have other options of additional investment in
other industrial complexes that WEG owns in
Brazil.
Mr. Bruno Giardino – Santander
For example we have a newly opened industrial
complex in Linhares where we had 500,000 m²
and this is one of the options that they have to
expand our product line in Linhares. Thank you
very much for your question anyhow.
About the breakdown between generation,
transmission and distribution. You said that T&D
has been more dynamic recently, whereas in
generation you are a sort of lacking behind
slightly. Was it still like that?
Operator
Our next question comes from Mr. Bruno Giardino
from Santander.
Mr. Bruno Giardino – Santander
Good morning everyone. I have two questions,
the first one is about the wind energy market with
the auctions in August. Are you already getting
orders for wind energy?
And the second question regards generation.
Compared to the previous quarter do you see a
faster order book? Is it getting closer to the
dynamics of your other divisions?
Mr. Luís Fernando Oliveira – Investor Relations
Manager
Your second question I apologize; which division
were you talking about?
Mr. Luís Fernando Oliveira – Investor Relations
Manager
Yes, especially in terms of revenue this quarter
this trend was very clear. T&D had a greater
importance this quarter and generation
equipment... compared to generation equipment.
Just one thing Bruno: these divisions they are
more for accounting purposes than practical. So
when you are selling generation systems includes
transmission and distribution equipment. Naturally
there are projects that are specific, so it is just a
substation for new industrial unit and this is very
easily identifiable.
In other cases this division that we are making
here is much more for accounting purposes than
anything else. So you need to draw a line here.
But on the whole T&D have had a more dynamic
performance and we have been seeing that very
clearly. So the trend is that along time this
generation might improve slightly and T&D will
Page 8 WEG S.A.
3rd Quarter 2011 Earnings Results Conference Call
October 26, 2011 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English gradually moderate and things will again become
more well-balanced.
be some difficulties in visibility, this scenario is
slightly... is changing very fast; but we are very
confident with that estimate between 15 % and
20% for 2011 compared to 2010.
Mr. Bruno Giardino – Santander
Just about wind projects do you already have
orders to be delivered next year?
Mr. Luís Fernando Oliveira – Investor Relations
Mr. Wellian Wang – Quest
And for the market in Brazil our growth this quarter
was 5%; is that just because of the market or
have you also lost market share?
Manager
Yes we have orders that will be delivered next
year. We have the first deliveries for 2012.
Operator
Our next question comes from Mr. Wellian Wang
from Quest.
Mr. Wellian Wang – Quest
Good morning. I would like to go back to the
issue of growth. You have been growing at a level
of 20% in the first two quarters and this quarter
you slowed down to a level closer to 10%. How
do you see that for the future? In 4Q do you think
this growth will go back up to more like 20% or will
it slow down even further?
Mr. Luís Fernando Oliveira – Investor Relations
Manager
Thank you very much for your question. So that is
26%, 27... 20 something percent growth that we
had seen in 1H11 it had an important component
that was the consolidation of the acquisitions that
we made and which started to be consolidated
after the second half of last year. So the
comparison basis is very different. So this explains
most of this growth and so we had to growth, we
still had a two-digit growth; but much closer to
what we are seeing now, close to 15%, slightly
higher or something around that.
If there was any change in growth this quarter but
I can say to you is that we are relatively confident
that we are going to close the year close to 20%,
15% for 2011 over 2010. It will most likely be a
quarter that will be similar to this one. There might
Mr. Luís Fernando Oliveira – Investor Relations
Manager
No, we have not seen any loss in market share.
So there is different growth in different business
units; some business units are growing very
markedly, very healthy growing; but some other
business units are going through a slow down.
For example something that is essentially Brazilian
that we are going through some reduction in
growth with a major contribution in the past, which
are engined for the domestic market. So there is
no loss in market share; there is a slowdown in
the overall... a slowdown in the market because of
macro economic conditions.
So fundamentally speaking this still leaves a very
appealing market with an organic growth rate that
is superior to the economy as a whole and so
soonest economic conditions go back we are
going to have expansion of credit, increase in
employment and again it will have a higher growth
again that will contribute to the overall growth of
the Brazilian market. So there is no loss of market
share; what happens is that there are different
performances in different business areas.
Mr. Wellian Wang – Quest
Thank you very much.
Operator
Excuse me. We would like to remind you if you
want to ask a question please press star one.
Our next question comes from Mr. Luiz Adaime
from York.
Page 9 WEG S.A.
3rd Quarter 2011 Earnings Results Conference Call
October 26, 2011 – 11:00 a.m. (Brasilia time)
Transcript of the simultaneous translation from Portuguese into English Mr. Luiz Adaime – York
Good morning. I apologize if you have already
answered this question; but they can see an
increase in inventory over the nine months in
terms of inventory basis compared to last year; is
this something occasional, is it any effect of the
last day of the quarter or has there been indeed
an increase in structural inventory?
Mr. Luís Fernando Oliveira – Investor Relations
Manager
Well, that mix does have an impact on that; but I
would say that most likely this quarter most of the
variation that we have had is the effect of the
inventories that were in subsidiaries outside Brazil
or on the move, traveling until they got to the
customer and that were converted for a higher
foreign exchange.
Because changes in mix take place gradually.
They would not have such a marked impact from
one quarter to the other. I mean, the change in
this quarter was in the foreign exchange and the
main impact apart from this backdrop movement,
which is a natural increase in inventory.
Mr. Luiz Adaime – York
Thank you for the question. We have already
talked about this; not just about the inventory but
the whole investment in working capital. This is a
reflex of an overall increase in business volumes.
We are having a growth that is significant in terms
of revenue and it is natural. We are a company of
positive working capital, we need to make
investments and working capital whenever we
growth and you can see that now.
Just in terms of inventory. Inventory has just
become clearer now this quarter; that we have
been making investments in Accounts Payable,
Accounts Receivable, everything. So we have
made additional investments in working capital so
as to keep cash flow that is positive. There is
some positive impact in terms of the effects of the
foreign exchange in the inventory of products that
are outside Brazil and that are some changes
because of that - but it is not anything too
extraordinary; it is just as we would expect further
growth of the top line.
Mr. Luiz Adaime – York
Just about the inventory cycle is there any
difference in the more significant difference
between product lines? Could it be because of
the changing our product mix or not necessarily?
Is it indeed just a matter of growth and the
strategy of the company?
Thank you very much.
Operator
Excuse me. We are now closing our Q&A section.
We would like to turn it back over to Mr. Laurence
Beltrão Gomes for his final concentrations. Please
Mr. Gomes you may proceed.
Mr. Laurence Beltrão Gomes – Finance and
Investor Relations Officer
Once again we think your presence and
questions. This quarter you have seen a growth in
revenue and a gradual recovery of operating
margins. We are confident in WEG's strategic
position to keep on growing both in Brazil and
overseas with flexibility for customers as well as
with a product portfolio that is increasingly
broader. Have a good afternoon. Thank you.
Operator
WEG's conference call has ended for today. We
thank you very much for your participation and
have a nice day.
Mr. Luís Fernando Oliveira – Investor Relations
Manager
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