Earnings Release
„
2010 fourth quarter shows consistent growth
„ Gross Revenues 15% higher than Q4 2009
„ EBITDA of R$ 224.1 million, for 17.8% margin
„ Net Income of R$ 141.5 million, for 11.2% net margin
Jaraguá do Sul (SC), February 23rd, 2011: WEG S.A. (Bovespa: WEGE3, OTC WEGZY), one of the world’s largest
manufacturers of electric motors and related equipment, announced today its results for the fourth quarter of 2010 (Q4 2010).
The following financial and operating data are presented in a consolidated basis, except when otherwise indicated, in thousands
of Brazilian Reais (R$) according to the current Brazilian generally accepted accounting principles, as put forward by the Brazilian
applicable laws. All growth rates comparisons, except when otherwise indicated, relate to the same period of the previous year.
Q4 2010
Highlights
„ Gross Operating Revenues reached R$ 1,504.6 million in the fourth quarter of 2010,
15.1% higher year-on-year and 6.0% higher quarter-on-quarter.
„ EBITDA reached R$ 224.1 million, 1.9% lower in relation to Q4 2009, but 7.1%
higher over the previous quarter. EBITDA margin reached 17.8%.
„ Net Income reached R$ 141.5 million (net margin of 11.2%) in Q4 2010, 3.2% higher
year-on-year and practically unchanged quarter-on-quarter.
„ Investments on fixed assets amounted to R$ 233 million in 2010. During this quarter
obtained debt facilities relating to the financing of investments in new plant in India
from IFC and BNDES
„ At the end of the quarter we announced the agreement for the acquisition of Equisul
Indústria e Comércio Ltda., a Brazilian developer and manufacturer of uninterruptible
power supply (UPS) systems.
Main Results
Gross Operating Revenue
Domestic Market
External Markets
External Markets in US$
Net Operating Revenue
Gross Operating Profit
Gross Margin
Quarterly Net Income
Net Margin
EBITDA
EBITDA Margin
Q4 2010
1,504,610
964,472
540,138
315,241
1,258,429
391,300
Q3 2010 Growth % Q4 2009 Growth %
1,419,160
6.0% 1,306,913 15.1% 5,282,737
906,953
6.3%
871,618 10.7%
3,503,934
512,207
5.5%
435,295 24.1%
1,778,803
298,020
5.8%
250,328 25.9%
1,015,532
5.9% 1,076,969 16.8% 4,391,973
1,188,622
3.7%
377,227
345,185 13.4% 1,386,952
31.1%
31.7%
141,508
142,107
11.2%
12.0%
224,149
209,196
17.8%
17.6%
32.1%
-0.4%
137,162
3.2%
12.7%
7.1%
228,547
21.2%
-1.9%
Growth %
5,110,596
3,371,627
1,738,969
3.4%
3.9%
2.3%
877,290
15.8%
4,210,620
1,356,401
4.3%
2.3%
31.6%
32.2%
519,782
550,543
11.8%
13.1%
789,110
837,424
18.0%
19.9%
-5.6%
-5.8%
Figures in R$ Thousands
Conference Calls
In Portuguese
In English
February 24th, Thursday - 10 AM (Brazil)
February 24th, Thursday – 11 AM (Brazil)
- from Brazil: (11) 4688-6361
- from Brazil: (11) 4688-6361
Code: WEG
- from USA: 1-888-700-0802
- other countries: 1-786-924-6977
Code: WEG
Comments from Laurence Beltrão Gomes,
WEG’s Investor Relations Officer
"The year 2010 was marked by the recovery of economic activity, which already shows consistent positive
signs in all our business segments and units. WEG offers a broad and diversified product portfolio and
operates in a wide variety of markets and end customers.
We always stress the importance that the analysis of WEG’s results considers the diversification of our
products and markets from the point of view of the dynamics of each business or segment cycle. In some
cases we have shorter business cycles, primarily those involving serial production, such as the electric
motors sold as components for white goods, for example. In other cases, such as in power generation
systems, the cycle is considerably longer as they involve engineered products that are specifically
designed for each application. This diversification is positive as it protects us from the cyclical swings in
demand from each of the various markets.
The recovery of the revenue growth, of 15% in 4Q10 in comparison to 4T0*, combined with the evolution
of rates of revenue growth over the quarters of 2010, shows that we regained the pace of growth, even in
an environment of great competition caused by the entrance of new players (mainly due to the fact that
their domestic markets, U.S. and Europe, continue be weak), by increased imports and the appreciation
of the Brazilian currency, which impacts the competitiveness of Brazilian-made products.
Nevertheless, we have noticed significant changes in our markets, with major impacts on our business. In
a short period we have seen the emergence of very clear trends, such as:
„ The emergence of new concepts of generation, distribution and consumption of energy, using more
advanced technologies, commonly referred to as smart grid;
„ The harmonization of energy efficiency standards for electric motors, already regulated in 15 countries
from various regions, and that has been fostering the replacement market and demand for high quality
products;
„ In Brazil, a new renewable energy generation segment, wind generation, has emerged from the
auctions held by the federal government. For WEG, which is already a prominent player in providing
solutions for energy generation from biomass and small hydropower, wind power emerges as an
additional opportunity.
Throughout 2010 we have announced acquisitions, both in the Brazilian market and abroad, in line with a
characteristic feature of the WEG culture: the willingness to invest to capitalize on the opportunities. Brazil’s
infrastructure spending should continue at an accelerated pace over the coming years. Events like the
Olympic Games and Soccer World Cup, as well as the Growth Acceleration Plans (PAC) 1 and 2 should
continue to generate additional business. The exploration the Brazilian pre-salt oil is yet another clear
source of opportunities. Likewise, global economic growth, largely dependent on the performance of
emerging economies, should continue to increase demand for investment in infrastructure.
These trends make us confident that WEG, which has built over the years one of the most comprehensive
industrial structures in the sector and that has shown, at various moments, the ability to expand production
capacity in line with the market demand, can take advantage of this consistent investment cycle to grow in
a robust and sustainable way in the coming years."
2 | WEG S.A. | 2010 Fourth Quarter Results
Economic
Activity and
Industrial
Production
The year 2010 was marked by a gradual recovery in global economic activity after the
severe crisis that affected all segments of the market and virtually all regions of the globe
in 2009. This recovery was perceived differently in different markets Overall, emerging
markets were more dynamic and the ones that have contributed to the growth of world
economy. The more mature and developed economies continued to adjust the
imbalances accumulated and searching for regain new growth and employment
dynamics. In this context, we note that
„ According to the World Economic Outlook report from International Monetary Fund,
product growth of the emerging and developing economies should reach 7.1% in
2010, compared to only 2.7% for the developed economies;
„ In Brazil, GDP showed strong growth in 2010, reaching 7.5% expansion for the first
three quarters of the year over the same period previous year. The industrial sector
performance, showing growth of 10.2% in the period, and the expansion in gross fixed
capital formation, of 20.2%, are particularly noteworthy.
The analysis of industrial activity in Brazil, however, should consider some important
aspects. The growth rates mentioned above are averages for various industrial segments,
which have very different behaviors: some already growing fast, others still in the early
stages of recovery. This is important for interpreting the results of WEG, since we operate
in different market niches, each with different dynamics.
Industrial Indicators According to Categories of Use
December/2010
Change (%)
Categories of Use
Month/Month
Capital Goods
(0.50)
Intermediary Goods
Consumer Goods
(0.90)
Durable Goods
(0.60)
Semi-durable and non-durable
(0.40)
General Industry
(0.70)
Source: IBGE, Research office, Industry Coordination
(*) Series with seasonal adjustments
Monthly
6.20
2.70
1.50
6.00
0.40
2.70
Acummulated
On Year
12 months
20.80
20.80
11.40
11.40
6.40
6.40
10.30
10.30
5.20
5.20
10.50
10.50
Brazilian Institute of Geography and Statistics (IBGE in Portuguese) data showed 10.5%
growth in industrial production in 2010 compared to 2009. The numbers according to
categories of use, however, show variations ranging from 5.2% growth in consumer and
semi/nondurable goods up 20.8% growth in the production of capital goods;
Likewise, the Brazilian Association of Electrical and Electronics Industry (ABINEE)
preliminary data points to 11% growth in revenues for the electro-electronic sector in Brazil
over the previous year. Again, this growth was composed of very different performances
from each segment. In the most areas that are more closely related to WEG, performance
was positive in Industrial Equipment (22% growth) and Generation, Transmission and
Distribution (14% growth). Industrial Automation segment, however, showed growth of
only 7%, below the average headline growth.
In 2010, the Brazilian industrial sector continued to face the negative effects of currency
appreciation, which reduces the competitiveness of Brazilian products abroad and
promotes the import of manufactured goods. The decision of U.S. authorities to
implement measures to stimulate its economy based on policies that have produced
3 | WEG S.A. | 2010 Fourth Quarter Results
historically low interest rates, has produced, as an important side-effect, the depreciation
of U.S. dollar against virtually all major world currencies.
In Brazil, the relatively better economic performance, the significant inflows of foreign funds
for fixed income, portfolio and direct investments, and the relevant weight of primary
products in total exports, have caused an even more intense strengthening of currency.
Convergence of
Accounting
Standards
The financial statements for the year ended December 31, 2010 are first prepared and
presented by the Company in accordance with rules established by the Comitê de
Pronunciamentos Contábeis (accounting pronouncements committee or CPC) and IFRS.
The opening balance considered was the one at 1st of January 2009, the date of
transition to the CPCs. In all periods, including the year ended December 31, 2009, the
Company prepared its financial statements in accordance with accounting policies
adopted in Brazil (BRGAAP) in force hitherto.
The main differences between the accounting practices previously adopted in Brazil and
IFRS, including the reconciliation of shareholders' equity and comprehensive income, are
described in the footnotes to the complete financial statements released today.
The main adjustments made by the Company to restate the opening balance sheet after
adopting these new accounting standards, relate to the determination of fair value of fixed
assets and use of that value as the assigned cost of these assets on the date of
transition. As a result, the Company revised the estimated useful lives of fixed assets and
changed its annual depreciation rates. The net impact on depreciation expense, was,
however, of little relevance.
The main effects of these adjustments on the accounts statements can be seen below:
Reconciliation of Net Worth as of 12/31/2008
Net Worth
Consolidated balance as of 12/31/2008 according to BRGAAP
Adjustments related to the transition to IFRS:
- Participation of non-controlling shareholders of subsidiaries
- Net assigned cost
- Economic depreciation for comparison purposes (Initial adoption adjustments)
- Proposed additional dividend
Consolidated balance as of 01/01/2009 adjusted to IFRS
2,178,580
42,341
865,125
(54,016)
87,085
3,119,115
Similarly, we are refilling the quarterly financial statements for 2010. The differences of the
restated values and the previous ones, calculated under the previous accounting
standards, are presented in the following tables. We stress, once again, thatthe impacts
on the final results were of little relevance.
Main figures according to IFRS
Gross Operating Revenue
Domestic Market
External Markets
External Markets in US$
Net Operating Revenue
Gross Operating Profit
Gross Margin
Quarterly Net Income
Net Margin
EBITDA
EBITDA Margin
Q4 2010
1,504,610
964,472
540,138
Q3 2010
1,419,160
906,955
512,207
Q2 2010
1,227,421
831,210
396,211
Q1 2010
1,131,546
801,299
330,247
Q4 2009
1,306,913
871,618
435,295
Q3 2009
1,282,506
889,302
393,204
Q2 2009
1,250,193
808,355
441,838
Q1 2009
1,270,984
802,352
468,632
315,241
298,020
221,100
181,170
250,328
210,840
213,396
202,726
1,258,429
391,300
1,188,622
377,227
1,013,015
309,812
931,907
308,613
1,076,969
345,185
1,055,465
403,169
1,029,945
295,134
1,048,241
312,913
31.1%
31.7%
30.6%
33.1%
32.1%
38.2%
28.7%
29.9%
141,508
142,107
116,522
119,645
137,162
160,575
130,140
122,666
11.2%
12.0%
11.5%
12.8%
12.7%
15.2%
12.6%
11.7%
224,149
209,196
174,015
181,750
228,547
254,840
172,925
181,112
17.8%
17.6%
17.2%
19.5%
21.2%
24.1%
16.8%
17.3%
Figures in R$ Thousands
4 | WEG S.A. | 2010 Fourth Quarter Results
Main figures according to BR GAAP
Gross Operating Revenue
Domestic Market
External Markets
External Markets in US$
Net Operating Revenue
Gross Operating Profit
Gross Margin
Quarterly Net Income
Net Margin
EBITDA
EBITDA Margin
Q4 2010
1,504,609
964,472
540,138
Q3 2010
1,419,161
906,955
512,207
Q2 2010
1,227,421
831,210
396,211
Q1 2010
1,131,546
801,299
330,247
Q4 2009
1,306,913
871,618
435,295
Q3 2009
1,282,506
889,302
393,204
Q2 2009
1,250,193
808,355
441,838
Q1 2009
1,270,984
802,352
468,632
315,241
298,020
221,100
181,170
250,328
210,840
213,396
202,726
1,258,429
394,191
1,188,622
373,497
1,013,015
309,158
931,907
307,454
1,076,969
344,226
1,055,465
402,210
1,029,945
294,175
1,048,241
311,954
31.3%
31.4%
30.5%
33.0%
32.0%
38.1%
28.6%
29.8%
143,031
141,952
116,138
119,074
136,426
160,103
129,670
122,193
11.4%
11.9%
11.5%
12.8%
12.7%
15.2%
12.6%
11.7%
224,149
209,196
174,015
181,750
228,548
254,840
172,925
181,112
17.8%
17.6%
17.2%
19.5%
21.2%
24.1%
16.8%
17.3%
Figures in R$ Thousands
Receita
Operacional
Bruta e Líquida
In the fourth quarter of 2010 (4Q10), Gross Operating Revenues reached R$ 1,504.6
million, 15.1% higher than the fourth quarter of 2009 (4Q09) and 6.0% higher than the
third quarter of 2010 (3Q10). The expansion of 15.1% in Gross Operating Revenues was
net result of two events:
„ Increase of 15.7% as result of the changes in mix of products sold, volumes and selling
prices, the consolidation of revenues from the business acquired throughout this year;
and,
„ Decline of 0.6% due to the 1.5% appreciation of the average Brazilian Real / U.S. Dollar
exchange rate in the 4Q10 compared to the same period of 2009.
According to the destination market, 4Q10 Gross Operating Revenues breaks down as
follows:
„ Domestic Market: R$ 964.5 million, representing 64% of Gross Operating Revenues,
for a 10.7increase in relation to 4Q09 and 6.3% compared to 3Q10;
„ External Markets: R$ 540.1 million, representing 36% of Gross Operating Revenues.
The comparison in Brazilian Reais is 24.1% higher than the 4Q09, and 5.5% higher
quarter over quarter. Considering gross revenues measured in U.S. Dollars, converted
by using average exchange rates, shows increases of 25.9% when compared to the
4Q09 and of 5.8% in relation to the 3Q10.
Gross Revenues per Market (R$ million)
External Market
Domestic Market
1.271
1.250
1.283
1.307
37%
35%
31%
33%
63%
65%
69%
Q1
Q2
Q3
2009
5 | WEG S.A. | 2010 Fourth Quarter Results
1.419
1.132
1.505
1.227
36%
36%
68%
64%
64%
Q2
Q3
Q4
29%
32%
67%
71%
Q4
Q1
2010
Evolution and Distribution of Consolidated Gross Revenues per Geographic
Market (R$ Million)
Gross Operating Revenues
- Domestic Market
- External Markets
Q4 2010
1,504.6
964.5
540.2
Q3 2010
1,419.2
907.0
512.2
Change
6.0%
6.3%
5.5%
Q4 2009
1,306.9
871.6
435.3
Change
15.1%
10.7%
24.1%
315.3
298.0
5.8%
250.3
25.9%
31%
17%
22%
19%
10%
36%
15%
22%
17%
10%
-5 pp
2 pp
1 pp
2 pp
0 pp
33%
15%
24%
5%
23%
-2 pp
2 pp
-1 pp
14 pp
-13 pp
In US$
North America
South and Central America
Europe
Africa
Australasia
Distribution of Consolidated Gross Revenues per Business Area
ingles
Electro-electronic Industrial Equipments
Energy Generation , Transmission and Distribution
Electric Motors for Domestic Use
Paints and Varnishes
Q4 2010 Q3 2010
%
Q4 2009
54.2%
59.8% -5,6 pp 47.4%
25.4%
21.7%
3,7 pp 31.4%
13.6%
12.0%
1,7 pp 14.8%
6.8%
6.6%
0,2 pp 6.4%
%
6,7 pp
-6 pp
-1,2 pp
0,4 pp
Another change introduced by the adoption of IFRS was the disclosure of segment
information. The segmentation traditionally used by WEG in its communication with the
market considers the criterion of market dynamics and groups revenue in business areas
(electro-electronic industrial equipment, GTD, motors for domestic use and paints &
varnishes). This segmentation is not the same used by WEG internally, which considers
industrial aspects divides the company into five business units: motors, automation,
energy, transmission & distribution and paints & varnishes.
In order to preserve the historical information, we will continue to inform in our traditional
format of business areas. There reconciliation of the two formats of information can be
seen below:
Business Area
Business Unit
Industrial
ElectricalElectronic
Equipment
Electroelectronic
Industrial
Equipments
Motors +
Automation
Generation , Electric Motors
for Domestic
Transmission
Use
and Distribution
Paints and
Varnishes
Energy + T&D
+ Automation
Paints and
Varnishes
Motors
The industrial electrical-electronic equipment area includes low and medium voltage
electric motors, drives & controls, industrial automation equipment and services, and
maintenance services and parts. We compete in all the major world markets with our
products and solutions. Electric motors and other related equipment find applications in
practically all industrial segments, in equipment such as compressors, pumps and fans,
for example.
The performance of Brazilian industrial production, keeping the consistent expansion
pace, and the maintenance of BNDES’ Programa de Sustentação do Investimento
(investment support program or PSI), has continued to favor investments in increased
production capacity, and offer us interesting business opportunities.
6 | WEG S.A. | 2010 Fourth Quarter Results
We note that the expansion investment cycle, most clearly seen in the consumer goods
and general manufacturing industries, has started to given consistent indications in
process industries as well, specifically for the production of basic materials. This is
important for the WEG, as it usually means growth in demand for more elaborate and
complex products and systems, with higher value content.
In the external markets where WEG operates we find a great diversity of economic
environments, some as favorable as the Brazilian for the economic activity recovery and
the resumption of investment. But even in less dynamic markets, we have achieved good
performance by gaining additional the market share and by introducing new product lines.
Equipment for
Generation,
Transmission
and Distribution
This business area includes the following products and services: generators for hydro and
thermal power plants, water turbines, transformers, substations, control panels, and
system integration services. We have made investments in production capacity, as our
new units of transformers in Mexico and high voltage motors in India, to expand our
presence beyond the Brazilian market, where we have strong significant presence.
This business area is characterized by the long business cycle. The longer investments
time frame, which slows down the investment decision process, and the relatively long
lead times for design and manufacturing of such equipment, causes variations in demand
being reflected in revenues in a relatively slower and diluted in time way.
As such, this long cycle feature has allowed for much of 2009 we continued to display
revenue growth, fulfilling orders from our backlog, even with the drop in new orders intake.
The lower of demand was only reflected as decreasing revenue growth for this business
area in 2010.
Just as we noted earlier the resumption of business activity for more complex products in
the industrial equipment area, focused the process industries, the recovery in GTD is
increasingly apparent. The Transmission & Distribution (T & D) segment, which became an
autonomous business unit in early 2010, has managed, through diversification of clients
and markets, to obtain good performance. In Brazil we have expanded our presence in
the area of substations, both for industrial customers and for utility companies. Outside of
Brazil, we continue to execute our business plan in North America, expanding production
in our Mexican factories and increasing market penetration.
In the segment of power generation segment, where we have a very clear focus on
renewable energy and the Brazilian market, the recovery has occurred more slowly and
led by smaller sized equipment. The expectations, however, are positive for both our
traditional businesses in the small hydropower and biomass, and for new opportunities
presented by the emerging wind generation business.
Motors for
Domestic Use
In this business area, our operations are mainly focused in Brazil, where we hold a
significant share in the market of single-phase motors for durable consumer goods, such
as washing machines, air conditioners, water pumps, among others.
This business area has a characteristically shorter business cycle, i.e., changes in
consumer demand are quickly transferred by production chain and adjustments are made
rather quickly.
After the fast recovery during the second half of 2009, the sales performance of
consumer durables has maintained a more moderate growth. The economic conditions
are favorable, with growth of employment and disposable income and maintaining the
supply of consumer credit. Oscillations of production tend to track the seasonal nature of
retail promotional calendar.
Paints and
Varnishes
In this area, including liquid paints, powder paints and electro-insulating varnishes, we
have very clear focus on industrial applications in Brazil.
7 | WEG S.A. | 2010 Fourth Quarter Results
This is the area with greater diversity of markets and customers as we have adopted the
strategy of cross-selling to customers from other business areas, always with high value
added products. The target markets range from the shipbuilding industry to the
manufacturers of white goods. We seek to maximize the scale of production and our
efforts to develop new products and new segments.
Operating Results (R$ Thousands)
(EBITDA according to methodology established by CVM’s Ofício Circular 01/07)
Net Operating Revenues
Cost of Goods Sold
Gross Operating Profit
EBITDA Margin
(-) Selling Expenses
(-) General & Administrative
(-) Profit Sharing
Result from Activities
(+) Depreciation & Amortization
EBITDA
EBITDA Margin
Cost of Goods
Sold
Q4 2010
1,258,429
(867,129)
391,300
Q3 2010
1,188,622
(811,395)
377,227
31.1%
31.7%
(119,335)
(68,677)
(27,209)
176,080
48,069
224,149
(121,602)
(71,111)
(22,242)
162,273
46,924
209,196
17.8%
17.6%
Change
5.9%
6.9%
3.7%
Q4 2009
1,076,969
(731,784)
345,186
-1.9%
-3.4%
22.3%
8.5%
2.4%
7.1%
(103,326)
(45,771)
(16,594)
179,496
49,051
228,547
Change
16.8%
18.5%
13.4%
32.1%
15.5%
50.0%
64.0%
-1.9%
-2.0%
-1.9%
21.2%
Cost of Goods Sold (COGS) totaled R$ 867.1 million in 4Q10, 18.5% higher year on year
and 6.9% higher quarter on quarter. Gross margin was 31.1%, decreasing one
percentage point compared to 4Q09 and 0.6 percentage point in relation to the previous
quarter.
During 2010 the changes of mix of products sold from quarter to quarter was the main
explanatory factor for the changes in gross margin. This factor was still presenting during
the 4Q10, even if its impact was not as pronounced as it has been in the previous
quarters.
This is a natural evolution of the recovery of the markets: it starts on the short cycle
product lines, which typically command lower unitary gross margins, and, through time,
reaches the long cycle products, which normally are more customized and have greater
value added and, as such, tend to have better margins.
Furthermore, our efforts to control costs, the continuous improvement program and the
adequacy and gradual recovery in capacity utilization, continued to deliver good results,
with greater dilution of fixed costs and productivity gains.
Costs of Raw
Materials
The average prices for copper at the spot market of the London Metal Exchange (LME)
were up by 30% in relation to average of the 4Q09 and by 19% in relation to average of
the 3Q10. Steel prices in the international market, according to the index CRUspiGlobal,
increased 17% over the 4Q09 and showed relative stability when compared to the 3Q10.
Selling, General
& Administrative
Expenses
Consolidated selling, general and administrative expenses (SG&A) represented 14.9% of
Net Operating Revenues in the 4Q10, 1.1 percentage points higher in relation to the
4Q09 and 1.3% lower in relation to the 3Q10. In absolute terms operating expenses were
up by 26% over 4Q10 and down by 2.4% over the previous quarter.
8 | WEG S.A. | 2010 Fourth Quarter Results
Main impacts on EBITDA
205,7
8,0
FX Impact on
Gross
Revenues
Impacto Cambial sobre receita bruta
16,2
139,4
Deduction
on Gross
Revenues
14,8
COGS
228,5
Volumes,
Aumento Prices &
de volumes Product Mix
& preços e Changes
mix de produtos CPV (ex depreciação)
Selling
Expenses
21,1
10,6
General and
Administrative
Expenses
224,1
EBITDA Q4 10
EBITDA Q4 09
EBITDA
As a result of the previously mentioned effects, EBITDA in the 4Q10 (calculated in
accordance to the methodology established by the CVM Ofício Circular 01/07) reached
R$ 224.1 million, a decrease of 1.9% over 4Q09 and an increase of 7.1% in relation to
the previous quarter. EBITDA margin stood at 17.8%, 3.5 percentage points lower yearon-year and 0.2 percentage point higher quarter on quarter.
Net Financial
Results
Financial income reached R$ 97.7 million during the 4Q10 (R$ 103.4 million during 4Q09
and R$ 92.0 million during 3Q10). Financial Expenses, net of interest on stockholders
capital declared in the period, reached R$ 61.5 million (R$ 71.8 million during the 4Q09
and R$ 51.9 million during the 3Q10).
In this quarter, Net Financial Results were positive in R$ 36.2 million (positive in R$ 31.6
million during the 4Q09 and R$ 40.2 million during the 3Q10).
Income Tax and
Social
Contribution
Provision for Income Tax and Social Contribution on Net Income for the 4Q10 reached R$
16.5 million (R$ 61.8 million on 4Q09 and R$ 50.4 million in 3Q10). Additionally, we also
accounted for R$ 39.7 million in Deferred Income Taxes.
Net Income
As a result of the previously mentioned effects, Net Earnings during the 4Q10 amounted
to R$ 141.5 million, 3.2% higher year-on-year and practically at the same level quarter on
quarter. Net margin for the quarter stood at 11.2%.
9 | WEG S.A. | 2010 Fourth Quarter Results
Debt and Cash Position (R$ Thousands)
CASH & EQUIVALENT
- Current
DEBT
- Current
- Long Term
NET CASH (DEBT)
Net Cash
December 2010
2,552,996
2,552,996
2,418,943
1,018,995
1,399,948
134,053
December 2009
2,127,117
2,127,117
1,872,533
895,885
976,648
254,584
On December 31st, 2010, cash and cash equivalents totaled R$ 2,553.0 million and
gross financial debt amounted to R$ 2,418.9 million, resulting in a net cash position of R$
134.1 million (net cash of R$ 254.6 million on December 31st, 2009). Cash funds are
invested mostly in Brazilian currency denominated instruments, such as certificates of
deposit (CBD), at interbank deposit rates, in first-tier banks.
According to the maturity of the lines, gross debt is divided in:
„ Short-term debt, to the total of R$ 1,019.0 million (42% of total debt), represented by
the current portion of short-term debt with the Brazilian National Development Bank
(BNDES) and other development agencies, largely denominated in Brazilian Reais, and
by trade finance related debt denominated in currencies other than the Brazilian Real.
„ Long-term debt, to the total of R$ 1,399.9 million (58% of total debt), mainly
represented by loans contracted with BNDES and other development institutions,
mostly denominated in Brazilian Reais, and by the long-term portion of working capital
financing of overseas subsidiaries, denominated in their respective domestic
currencies.
According to the currency of denomination, the breakdown of total debt is as follows:
„ In Brazilian Reais, totaling R$ 1.686.3 million (accounting for 70% of total debt)
represented mainly by loans with BNDES and development agencies. The weighted
average cost of debt denominated in Brazilian Reais is of aproximateely 6.4% per year.
Floating rate contracts are indexed mainly to the Brazilian long term interest rate TLJP.
„ In other currencies, totaling R$ 732.7 million (accounting for 30% of total debt) mainly
represented by trade finance operations (Advances on Foreign Exchange Contracts or
ACC) and working capital financing contracted by overseas subsidiaries in their
respective domestic currencies.
Investments
Investments in fixed assets for modernization and expansion of production capacity totaled
R$ 233.0 in 2010, 60% of which allocated to industrial complexes and other facilities in
Brazil and 40% to production units abroad. We highlight the investments in the commercial
motors plant in Linhares, ES (Northeast of Brazil) and the medium voltage motors and
generators plant in Hosur, India, both of which have recently started operations.
10 | WEG S.A. | 2010 Fourth Quarter Results
Investments in Fixed Assets (R$ million)
Outside Brazil
Brazil
91,9
20,1
73,8
63,5
61,4
15,7
32,7
71,8
47,8
Q1
Share Price
Performance
Q2
13,7
38,2
34,2
43,7
53,7
13,0
44,1
2,0
13,8
19,1
24,3
27,2
30,1
Q3
2009
Q4
Q1
Q2
40,7
42,1
Q3
2010
Q4
The common shares issued by WEG, negotiated at BM&F Bovespa under the ticker
WEGE3, closed on the last trading section of the 2010 quoted at R$ 21.80, an 18.8%
nominal increase in share price for the year. Considering dividends and interest on
stockholders’ equity declared during the period, the total return reached 22.4%.
The average daily traded volume during the 4Q10 reached R$ 10.8 million, 72% above
the average of the 4Q09. During the quarter, 53,835 trades took place (33,314 during the
4Q09) involving 29.5 million shares (21.2 million shares during 4Q09), to a total amount of
R$ 661.0 million (R$ 382.8 million during 4Q09).
Share Price Performance and Traded Volume
30,00
3.000
Shares Traded (thousands)
WEGE3
25,00
WEGE3 share prices
2.000
15,00
10,00
1.000
5,00
0,00
TRaded shares (thousands)
20,00
0
Total return (adjusted by dividends))
11 | WEG S.A. | 2010 Fourth Quarter Results
Dividends
Management will propose during the annual General Shareholders’ Meeting to allocate, as
compensation to shareholders on the results for the year 2010, the amount of R$ 306.4
million for the payment of dividends and interest on stockholders equity, which
corresponds to approximately R$ 0.49352941 per share before tax deductions. This
amount represents 59% of net income before statutory adjustments.
From August 11th onwards, we paid the dividends that were declared during the first half
of 2010, as below:
„ On March 23rd, as interest on stockholders’ equity, to the shareholders of record on
that date, to the total amount of R$ 31.0 million
„ On June 29th, as interest on stockholders’ equity, to the shareholders of record on that
date, to the total amount of R$ 36.5 million
„ On July 27th, as intermediate dividends related to the first half of 2010, to the
shareholders of record on that date, to the total amount of R$ 66.4 million.
The dividends referring to the second half of 2010, as described below according to the
date of record, will be paid from March 16th, 2011 onwards:
„ On September 21st, as interest on stockholders’ equity, to the shareholders of record
on that date, to the total amount of R$ 34.3 million;
„ On December 21st, as interest on stockholders’ equity, to the shareholders of record
on that date, to the total amount of R$ 36.5 million;
„ On February 23rd, 2011, as complementary dividends referring to the results of 2010,
to the total amount of R$ 101.2 million.
Event
Board Meeting Date
Payment Date
Gross amount per share Net amount per share
Interest on Stockholders’ Equity
Interest on Stockholders’ Equity
3/23/2010
6/29/2010
8/11/2010
8/11/2010
R$ 0.05058824
R$ 0.05882353
R$ 0.04300000
R$ 0.05000000
Dividends
7/27/2010
8/11/2010
R$ 0.10700000
R$ 0.10700000
Interest on Stockholders’ Equity
9/21/2010
3/16/2011
R$ 0.05529412
R$ 0.04700000
Interest on Stockholders’ Equity
12/21/2010
3/16/2011
R$ 0.05882353
R$ 0.05000000
Dividends
Total
2/22/2011
3/16/2011
R$ 0.16300000
R$ 0.49352941
R$ 0.16300000
R$ 0.46000000
Acquisition of
Equisul
On December 6, 2010 we announced the signing of an agreement to acquire Equisul
Indústria e Comércio Ltda., a company specializing in developing and manufacturing
uninterruptible power supply (UPS) systems and products such as rectifiers, chargers,
battery banks and inverters.
Equisul manufacturing plant is located in São José, state of Santa Catarina, Brazil,
employs around 50 people and its 2010 operating revenues should reach approximately
R$ 15 million. The company was founded in 1995 and manufactured small and medium
sized systems up until 2004, when it expanded its product line into large three-phase
systems, with the addition of GPL Eletroeletrônica S.A., a traditional player in this segment.
With the acquisition of Equisul, WEG increases its portfolio of products and complete
solutions for energy systems, incorporating solutions known as critical power,
incorporating solutions known as critical power, equipments with a wide range of
applications in segments like information technology, financial and industrial critical
process like, for example, in oil and gas exploration platforms, where a production
interruption is potentially very costly. With the increasing automation of industrial
processes, the technological and commercial synergies of the UPS area with our other
businesses are increasingly important.
12 | WEG S.A. | 2010 Fourth Quarter Results
WEG listed as
one of BCG’s
Global
Challengers
WEG was highlighted in The Boston Consulting Group (BCG) report as one of the thirteen
Brazilian representatives in the list 2011 BCG Global Challengers. The USA based
consulting firm listed companies that, due to the rapid annual growth, are challenging the
established rivals in the markets they serve.
###
13 | WEG S.A. | 2010 Fourth Quarter Results
Áudio
Conferências
WEG will hold conference calls, when Management will present the results.
Conference in English:
Date: February 24, 2011 - Thursday
Schedule:
09 AM – EST (NYC)
11 AM – BRST (Brasilia)
02 PM – BST (London)
Connection Numbers:
„ Calling from Brazil: (11) 4688-6361
„ Calling from USA: 1-888-700-0802
„ Calling from Other Countries: 1-786-924-6977
Code: WEG
Conference in Portuguese:
Date: February 24, 2011 - Thursday
Schedule: 10AM – BRST (Brasilia)
Connection Numbers:
„ Calling from Brazil: (11) 4688-6361
Code: WEG
The presentation will be available in the Investor Relations page of WEG website
www.weg.net/ir. Please call approximately 10 minutes before the call is scheduled to
start.
The information contained in this report relating to the Company business perspectives, projections
and results and Company growing potential should be considered as only forecasts and were based
on the management expectations relating to the future of the Company. These expectations are
highly influenced by the market conditions and the general economic performance of the country and
of the foreign markets which may change suddenly.
14 | WEG S.A. | 2010 Fourth Quarter Results
Annex I
Consolidated Income Statement - Quarterly
in R$ thousands
GROSS REVENUES
Taxes and Deductions
NET REVENUES
COST OF GOODS SOLD
GROSS PROFIT
Sales Expenses
Administrative Expenses
Financial Revenues
Financial Expenses
Other Operating Income
Other Operating Expenses
Earnings from Subs (Equity Method)
EARNINGS BEFORE TAXES
Participations
Income Taxes & Contributions
Cash Dividends Reversal
Deferred Taxes
Minorities
NET EARNINGS
EBITDA
4th Quarter
2010
R$
AV%
3rd Quarter
2010
R$
AV%
4th Quarter
2009
R$
AV%
120%
1,504,610
-20%
-246,181
100%
1,258,429
-867,129 -68.9%
391,300 31.1%
-119,335 -9.5%
-68,677 -5.5%
97,739
7.8%
-98,053 -7.8%
0.3%
3,926
-38,724 -3.1%
0.0%
403
168,579 13.4%
-2,186 -0.2%
-16,477 -1.3%
2.9%
36,537
-39,653 -3.2%
-5,292 -0.4%
141,508 11.2%
119%
1,419,160
-19%
-230,538
100%
1,188,622
-811,395 -68.3%
377,227 31.7%
-121,602 -10.2%
-71,111 -6.0%
92,081
7.7%
-86,274 -7.3%
0.5%
5,541
-23,041 -1.9%
0.0%
483
173,304 14.6%
-860 -0.1%
-50,430 -4.2%
2.9%
34,347
-6,942 -0.6%
-7,312 -0.6%
142,107 12.0%
121%
1,306,913
-21%
-229,944
100%
1,076,969
-731,784 -67.9%
345,185 32.1%
-103,326 -9.6%
-45,770 -4.2%
103,434
9.6%
-83,548 -7.8%
-2,495 -0.2%
-30,683 -2.8%
0.1%
1,186
183,983 17.1%
-1,151 -0.1%
-61,772 -5.7%
1.1%
11,739
0.8%
8,153
-3,790 -0.4%
137,162 12.7%
224,149
15 | WEG S.A. | 2010 Fourth Quarter Results
17.8%
209,196
17.6%
228,547
21.2%
Changes %
Q4 10
Q4 10
Q3 10
Q4 09
6.0%
15.1%
6.8%
7.1%
5.9%
6.9%
16.8%
18.5%
3.7%
13.4%
-1.9%
15.5%
-3.4%
50.0%
6.1%
-5.5%
13.7%
17.4%
-29.1%
n.m
68.1%
26.2%
-16.6%
-2.7%
154.2%
-66.0%
-8.4%
89.9%
-67.3%
-73.3%
6.4%
211.2%
471.2%
n.m
-27.6%
39.6%
-0.4%
3.2%
7.1%
-1.9%
Annex II
Consolidated Income Statement
Figures in R$ Thousands
12 Months
2010
R$
AV%
GROSS REVENUES
Taxes and Deductions
NET REVENUES
COST OF GOODS SOLD
GROSS PROFIT
Selling Expenses
Administrative Expenses
Financial Revenues
Financial Expenses
Other Operating Income
Other Operating Expenses
Earnings from Subs (Equity Method)
EARNINGS BEFORE TAXES
Participations
Income Taxes & Contributions
Cash Dividends Reversal
Deferred Taxes
Minorities
NET EARNINGS
EBITDA
5.282.737
-890.764
4.391.973
-3.005.021
1.386.952
-434.249
-262.724
348.471
-364.204
20.098
-105.317
2.090
591.117
-4.213
-133.196
138.848
-58.922
-13.852
519.782
789.110
12 Months
2009
R$
AV%
12%
5.110.596
-899.976
4.210.620
-2.854.219
1.356.401
-408.179
-225.288
383.468
-374.767
12.388
-114.565
6.449
635.907
-4.639
-194.274
102.618
20.325
-9.394
550.543
18%
837.424
120%
-20%
100%
-68%
32%
-9,9%
-6,0%
8%
-8%
0%
-2%
0%
13%
0%
-3%
3%
-1%
0%
16 | WEG S.A. | 2010 Fourth Quarter Results
2010
2009
121%
3,4%
-21%
-1,0%
100%
-68%
4,3%
5,3%
32%
2,3%
-9,7%
6,4%
-5,4%
16,6%
9%
-9,1%
-9%
-2,8%
0%
62,2%
-3%
-8,1%
0%
15%
0%
-67,6%
-7,0%
-9,2%
-5%
-31,4%
2%
35,3%
0%
n.m
0%
47,5%
13%
-5,6%
20%
-5,8%
Annex III
Consolidated Balance Sheet
Figures in R$ Thousands
CURRENT ASSETS
Cash & Cash Equivalents
Receivables
Inventories
Other Current Assets
LONG TERM ASSETS
Lawsuits Receivables
Deferred Taxes
Recoverable Taxes
Other Long Term Assets
FIXED ASSETS
Investment in Subs
Property, Plant & Equipment
Intangibles
TOTAL ASSETS
CURRENT LIABILITIES
Suppliers
Taxes & Contributions
Short Term Debt
Dividends Payable
Advances from Clients
Profit Sharing
Other Current Liabilities
LONG TERM LIABILITIES
Long Term Debt
Provisions
Other Long Term Liabilities
MINORITIES
NET WORTH
TOTAL LIABILITIES
December 2010
R$
AV%
13
64%
4,794,009
34%
2,552,996
14%
1,044,712
13%
1,008,952
2%
187,349
2%
136,984
0%
21,697
1%
78,810
0%
31,661
0%
4,816
34%
2,580,171
0%
601
32%
2,395,575
2%
183,995
December 2009
R$
AV%
4
60%
3,973,158
32%
2,127,117
14%
910,136
12%
758,116
3%
177,789
3%
193,814
0%
30,739
2%
101,739
1%
44,499
0%
16,837
37%
2,416,094
0%
16,041
35%
2,271,193
2%
128,860
7,511,164
100%
6,583,066
100%
1,938,803
242,300
214,001
1,018,995
63,440
271,949
23,583
104,535
2,028,525
1,399,948
126,384
502,193
89,229
3,454,607
26%
26%
46%
1,698,561
188,779
165,331
895,885
36,849
254,864
54,088
102,765
1,557,219
976,648
99,434
481,137
27,547
3,299,739
7,511,164
100%
6,583,066
100%
17 | WEG S.A. | 2010 Fourth Quarter Results
3%
3%
14%
1%
4%
0%
1%
27%
19%
2%
7%
1%
3%
3%
14%
1%
4%
1%
2%
24%
15%
2%
7%
0%
50%
Annex IV
Consolidated Cash Flow Statement
Figures in R$ Thousands
12 Months
2010
9
12 Months
2009
5
Operating Activities
Net Earnings before Taxes
Depreciation and Amortization
Earnings from Subs (Equity Method)
Provisions:
Profit Sharing
Other Provisions
(Increase) / Reduction of Accounts Receivable
Increase / (Reduction) of Accounts Payable
(Increase) / Reduction of Investories
Income Tax and Social Contribution on Net Earnings
Profit Sharing Paid
729,965
183,990
(2,090)
738,525
191,130
(6,449)
84,859
34,737
(96,268)
196,623
(254,945)
(152,808)
(109,470)
76,640
12,974
396,686
(384,135)
350,557
(152,945)
(72,251)
Cash Flow from Operating Activities
614,593
1,150,732
Investment Activities
Investments
Fixed Assets
Intagible Assets
Asset Write Downs
Incorporation of Shares - Trafo Equip.Eletricos S.A.
Accumulated Conversion Adjustment
(293,012)
(84,357)
18,929
(34,008)
(226,248)
(40,762)
7,997
57,224
(121,714)
(392,449)
(323,503)
Financing Activities
Working Capital Financing
Long Term Financing
Dividends & Intesrest on Stockholders Equity Paid
100,548
442,059
(338,872)
(445,286)
156,602
(260,906)
Cash Flow From Financing Activities
203,735
(549,590)
Change in Cash Position
425,880
277,639
2,127,117
2,552,996
1,849,477
2,127,117
Cash Flow From Investment Activities
Cash & Cash Equivalents
Beginning of Period
End of Period
18 | WEG S.A. | 2010 Fourth Quarter Results