Earnings Release
WEG’s 2010 second quarter results show recovery trend
„ Gross Revenues 2% lower than Q2 2009
„ EBITDA of R$ 174 million, stable year-on-year
„ Net Income of R$ 116 million, for 11.5% net margin
Jaraguá do Sul (SC), July 28th, 2010: WEG S.A. (Bovespa: WEGE3), one of the largest manufacturers of electric
motors and related equipment in the world, announced today its results for the second quarter of 2010 (Q2 2010).
The following financial and operating data are, except when otherwise indicated, presented in a consolidated basis,
in thousands of Brazilian Reais (R$) according to the general accepted accounting principles in Brazil (BRGAAP) and
as put forward by the Brazilian applicable laws. All growth rates and other comparisons, except when otherwise
indicated, relate to the same period of the previous year.
Q2 2010
Highlights
„ Gross Operating Revenues reached R$ 1,227.4 million in the second
quarter of 2010, 2% lower year-on-year and 8.5% higher quarter-onquarter.
„ EBITDA reached R$ 174.0 million, stable in relation to Q2 2009 but
declining 4.3% in relation to the previous quarter. EBITDA margin
stood at 17.2%.
„ Net Income reached R$ 116.1 million (net margin of 11.5%) in the
second quarter of 2010, 10.4% lower year-on-year and 2.5% lower
quarter-on-quarter.
„ Investments on fixed assets amounted to R$ 135.1 million during the
first half of 2010.
Throughout the quarter were announced the following acquisitions:
„ ZEST Group, the leading distributor of electric motors in South Africa
and a specialist in electrical systems integration;
„ Voltran, a Mexican transformer manufacturer, where WEG increased
its stake to 60% of capital;
„ Instrutech Ltda., a company that develops and manufactures
electronic sensors for industrial and commercial automation and for
Conference Calls
In Portuguese
In English
July 29th, Thursday - 01 PM (Brazil)
- from Brazil: (11) 4688-6361
Code: WEG
July 29th, Thursday - 11 AM (Brazil)
- from Brazil: (11) 4688-6361
- from USA: 1-888-700-0802
- other countries: 1-786-924-6977
Code: WEG
Earnings Release
human protection.
Conference Calls
In Portuguese
In English
July 29th, Thursday - 01 PM (Brazil)
- from Brazil: (11) 4688-6361
Code: WEG
July 29th, Thursday - 11 AM (Brazil)
- from Brazil: (11) 4688-6361
- from USA: 1-888-700-0802
- other countries: 1-786-924-6977
Code: WEG
Comments from Laurence Beltrão Gomes,
WEG’s Investor Relations Officer
"This quarter was marked by the progress in our internationalization strategy with two major
transactions:
„ The acquisition of additional share capital of Voltran, in Mexico, reaching 60% stake and
gaining control of one of the leaders of the Mexican market, as well as strengthen our position
to access the U.S. market for T&D.
„ The acquisition of ZEST Group, the leading distributor of industrial electronic equipment in
South África. With this acquisition, South Africa becomes the base for WEG’s expansion in
Africa.
In Brazil, we acquired Instrutech, a manufacturer of electronic sensors and integrated systems
used in extreme working conditions. This acquisition complements our high added value product
line.
From an operational perspective, this was a quarter where we could still see the impacts of the
2009 international crisis in long cycle products. However, we also observed following positive
aspects:
„ The Brazilian consumer products market was still heated, favored by improving
employment and income conditions and continued consumer credit expansion;
„ Some industrial sectors entering into new capacity of expansion investment cycle.
Brazilian credit conditions are benign for these investments, with the extension of the
Investment Support Program (ISP) of BNDES until December 2010, and are becoming
gradually more normalized in several international markets.
„ In the GTD area we are observing a more dynamic market in Brazil and in others emerging
markets, with investors reassessing projects and increasing the volume of requests for
proposals and price quotations. The recovery of investments in this segment is in its early
stages and should become more evident in coming quarters.
We believe the attractiveness of electric power generation with renewable sources, as well as
the growing demand for energy efficient products in the industry provide us with relevant
business opportunities. In the international market, from the vantage point of a market position
that is stable and strategically located in the five continents, we focus on expanding market
share via organic growth or acquisitions.
Main Highlights
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
Q2 2010
1,227,421
Q1 2010
1,131,546
Growth %
8.5%
831,200
396,200
221,100
801,299
330,247
181,170
3.7%
20.0%
22.0%
808,355
441,838
213,396
2.8%
-10.3%
3.6%
1,013,015
309,158
30.5%
116,138
11.5%
174,015
17.2%
931,907
307,454
33.0%
119,074
12.8%
181,750
19.5%
8.7%
0.6%
1,029,945
294,175
28.6%
129,670
12.6%
172,925
16.8%
-1.6%
5.1%
-2.5%
-4.3%
Q2 2009 Growth %
1,250,193
-1.8%
-10.4%
0.6%
Figures in R$ Thousands
3 | WEG S.A. | 2nd Quarter 2010 Results
4 | WEG S.A. | 2nd Quarter 2010 Results
ZEST Group
Acquisition
On May 25th we announced acquisition of a controlling stake (51%) of ZEST
Group, a company based in South Africa formed by the leading distributor of
electric motors in that market and by companies specializing in assembling
industrial electrical panels, in integrating products for the assembly of gensets
and in providing electrical commissioning services.
Over its 30 years of existence, ZEST Group became WEG’s partner in South
Africa, importing and distributing WEG‘s products. During this period, the
group gained significant market share in all business lines, particularly in
electric motors, in which it leads the South African market. The customer
base includes major companies operating in South Africa, in segments such as
mining, oil & gas and energy.
From this acquisition, South Africa, which is already an important market with
growth perspectives above the world average, will become the base of WEG's
expansion across the continent. This expansion will occur both by leveraging
ZEST team’s rich market knowledge and with WEG's extensive experience in
key segments.
The ZEST Group became WEG’s twenty-fourth subsidiary abroad and its
operations will impact the WEG´s consolidated revenue from the third quarter
of 2010 onwards. In 2009 the Group revenues were approximately US$ 200
million, while WEG’s sales to ZEST during this period were around US$ 60
million.
Voltran
Acquisition
On may 25th we announced the acquisition of an additional stake in the capital
of Voltran SA de CV, a Mexican transformer manufacturer, increasing our stake
to 60 % of capital. The partnership between the two companies began in 2006,
when WEG acquired a 30% stake in the Mexican company from the controlling
shareholders, the Jimenez family.
The partnership expands in a moment when the perspectives for the
consolidation of our share of the Mexican market are positive. The Voltran
brand is strong in the Mexican market and the company has garnered positive
results with high quality products and delivery capability. With the good
results obtained, the expansion of the partnership was a natural decision, with
a view towards increasing local production of new lines, such as dry
transformers, and more complex systems, as power substations, both in
Mexico and in the U.S.A.
The synergies with other WEG’s operations in Mexico are significant as Voltran
services in the distribution and power transformers segments, ranging up to 30
MVA / 138 kV, while WEG Mexico Transformers begins its line of products in
this power/voltage range, going up to 300 MVA / 550 kV. Voltran gross
revenues was of US$ 70 million in 2009 and also in this case, these revenues
will impact WEG`s consolidated revenues from the third quarter of 2010
onwards.
Instrutech
Acquisition
On June 09th we announced the agreement for the acquisition by our
subsidiary WEG Equipamentos Elétricos S.A., of Instrutech Ltda., a company
that develops and manufactures electronic sensors for industrial and
commercial automation and for human protection.
The acquisition will complement WEG‘s product line in the automation
segment, bringing added value products that WEG did not previously offered.
Instrutech is only Brazilian company that manufactures specific man/machine
safety automation equipment.
5 | WEG S.A. | 2nd Quarter 2010 Results
The products and integrated electronic sensoring systems are widely used in
extreme conditions, in such applications as machine tools, plastic injection
molding machines, woodworking machines, packaging, conveyor lines, etc.
Instrutech was a family-owned business founded in 1985 and has production
facilities located in Sao Paulo (SP), Brazil. In 2009 Instrutech earned gross
revenues of approximately R$ 10 million.
Economic
Activity and
Industrial
Production
During the second quarter of 2010, economic activity continued recovering
from the recession of 2009. According to the analysis of composite leading
indicators (CLI) from the Organization for Economic Cooperation and
Development (OECD), 2Q09 was the lowest point of economic activity in most
major global economies.
This expansion has been preserved, even if it now happening at a slower pace,
with signs of peak in the activity in several economies.
For WEG, it is important that the expansion keeps its pace, extending beyond
occupation of idle capacity created by the recession of 2009 and becoming a
new investment in expansion of production capacity cycle.
This seems to be the case in Brazil, as it can be observed in the results for the
1Q10 Gross Domestic Product. GDP growth compared to 1Q09 was of 9%, with
the highlight being the processing industry, which grew 17.2%. Another way to
identify the same trend is observing the growth of 26% of the gross fixed
capital formation compared to 1Q09.
Recent data on industrial Brazilian production, released by IBGE, point to the
continued economic expansion and investment. On May 2010, industrial
production has grown 14.8% over May 2009. The accumulated indicator of the
first five months of 2010 shows 17.3% growth over the same period of 2009.
The last twelve months comparison became positive, with 4.5% expansion.
Industrial Indicators According to Categories of Use
May/2010
Change (%)
Categories of Use
Month/Month
Capital Goods
Intermediary Goods
Consumer Goods
Durable Goods
Semi-durable and non-durable
General Industry
1.20
0.10
(0.50)
0.10
(0.90)
-
Monthly
38.50
15.80
7.50
15.40
5.10
14.80
Acummulated
On Year
12 months
30.60
0.80
18.50
4.80
11.30
4.60
23.80
11.60
7.80
2.60
17.30
4.50
Source: IBGE (www.ibge.gov.br)
The previous data shows that the growth of Brazilian industrial production,
which started with the recovery in durable consumer goods production,
appears to have achieved its own dynamism, with the beginning of a process
of investment in capacity expansion.
The industrial production of capital goods shows significant growth of 38.5%
compared to May 2009 and 30.6% in comparison with the accumulated index of
the first five months of each year. Still, the accumulated index of the past 12
months for the industrial production of capital goods grew just 0.8%. This
result is evidence of the depth of adjustment triggered by the international
6 | WEG S.A. | 2nd Quarter 2010 Results
crisis of 2009.
Confirming the previous data, the survey conducted in May 2010 by the
Brazilian Association of Electrical and Electronics Industry (ABINEE) shows the
majority of the responding companies grew when compared to May 2009 and
over 80% are still expecting sales growth for 2010 in relation to the previous
year.
7 | WEG S.A. | 2nd Quarter 2010 Results
Gross
Operating
Revenues
Gross Operating Revenues came to R$ 1,227.4 million during the second
quarter of 2010 (Q2 2010), 1.8% lower than the second quarter of 2009 (Q2
2009) and 8.5% higher than the first quarter of 2010 (Q1 2010). The decline of
1.8% in Gross Operating Revenues breaks down as follows:
„ Increase of 3.1% as a result of the changes in mix of products sold, volumes
and selling prices;
„ Decline of 4.9% due to the 15.5% appreciation of the average Brazilian Real
/ U.S. Dollar exchange rate in the Q2 2010 compared to the same period of
2009.
According to the destination market, Q2 2010 Gross Operating Revenues break
down as follows:
„ Domestic Market: R$ 831.2 million, representing 68% of Gross Operating
Revenues, increasing 2.8% in relation to Q2 2009 and 3.7% compared to the
Q1 2010;
„ External Markets: R$ 396.2 million, representing 32% of Gross Operating
Revenues. The comparison in Brazilian Reais is 10.3% lower than the Q2
2009, and 20% higher than the Q1 2010, showing that the recovery process
has began. Considering gross revenues measured in U.S. Dollars, using
average exchange rates for the conversion, it increased 22% when compared
to the Q1 2010 and 3.6% in relation to the Q2 2009.
Gross Revenues per Market (R$ million)
External Market
Domestic Market
1.307
1.250
1.283
37%
35%
31%
33%
63%
65%
69%
Q1
Q2
Q3
1.271
1.227
1.132
2009
8 | WEG S.A. | 2nd Quarter 2010 Results
29%
32%
67%
71%
68%
Q4
Q1
Q2
2010
Evolution and Distribution of Consolidated Gross Revenues per
Geographic Market (R$ Million)
Gross Operating Revenues
- Domestic Market
- External Markets
In US$
North America
South and Central America
Europe
Africa
Australasia
Q2 2010
1,227.4
831.2
396.2
221.1
39%
17%
24%
8%
11%
Q1 2010
1,131.5
801.3
330.2
181.2
35%
19%
30%
8%
9%
Change
8.5%
3.7%
20.0%
22.0%
4 pp
-1 pp
-6 pp
1 pp
1 pp
Q2 2009
1,250.2
808.4
441.8
213.4
29%
15%
36%
8%
12%
Change
-1.8%
2.8%
-10.3%
3.6%
10 pp
2 pp
-12 pp
1 pp
-1 pp
Distribution of Consolidated Gross Revenues per Business Area
ingles
Q2 2010 Q1 2010
%
Electro-electronic Industrial Equipments
51.5%
45.6%
5,9 pp
Energy Generation , Transmission and Distribution
24.5%
29.9% -5,4 pp
Electric Motors for Domestic Use
17.1%
16.8%
0,4 pp
Paints and Varnishes
6.9%
7.7% -0,8 pp
Industrial
ElectricalElectronic
Equipment
Q2 2009
%
48.4%
3,1 pp
34.6% -10,1 pp
11.0%
6,1 pp
6.0%
0,9 pp
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 better performance in this business area has been possible mainly due to
the Brazilian market, favored by the industrial production growth and the
increased investments in production capacity expansion. The capacity
expansion and modernization investment cycle is recovering from the
consumer goods oriented segments. The Investment Support Program (ISP),
from BNDES, that offers advantageous credit conditions, has been important
for this investment expansion.
Outside Brazil, this movement is less apparent or in earlier stages. Noteworthy
are the North American Markets, where we have gained additional market
positions, and Asia, mainly due to the expansion of our production plant in
China.
Equipment
for
Generation,
Transmissio
n 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 area has a characteristically long business cycle, i.e., there is a relatively
longer period of time from the moment a firm order is closed and the
effective conversion of this order into revenues. This characteristic is due to,
9 | WEG S.A. | 2nd Quarter 2010 Results
among other reasons, the longer maturation period of investments in GTD,
which leads to a slower investment decision process. Additionally, equipment
design and manufacturing lead times are also typically longer in this area.
This characteristic of long cycle products allowed this business area to
continue to show revenue growth throughout 2009, even in a moment when
the new investments in energy projects were declining and the pace of the
orders intake was decreasing.
With the backlog not being replenished with new orders at the same pace as
the existing orders were fulfilled, the effect of smoothing out demand
variations started to weaken at the end of 2009, becoming more evident in
the Q1 2010 and, again, during this quarter.
However, the recovery of the business dynamism in GTD is happening
gradually. We have observed more activity in request for proposals and
investment intentions from customers and the pace of incoming orders is
starting to increase. Our backlog, which fell consistently throughout 2009,has
started to show signs of recovery.
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.
In this business area business cycle is characteristically short, with fast
adjustments to production following changes of consumer demand levels. This
was the first business area negatively impacted by the economic crisis,
starting at the end of 2008. It was also the first area to show clear signs of the
recovery of demand, as early as mid-2009, with the incentives of temporary
reductions of the IPI federal excise tax on “white goods” appliances.
After the significant growth period observed during the second half of 2009,
the segment started to show the usual seasonal variations in demand,
responding to retail promotional calendar. Still, consumer durables goods
sales performance, for example, has remained at normal levels. The segment
now is benefiting from favorable economic conditions, with the improvements
on employment and disposable income and expansion of consumer credit.
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.
In business segment our approach is to cross-sell to customers from other
business areas. By doing so, we maximize the development of new products
and of scale of production, including new client segments. Examples of such
an approach include initiatives to service the shipbuilding and industrial
maintenance industries.
Operating Results (R$ Thousands)
(EBITDA according to methodology established by CVM’s Ofício Circular 01/07)
10 | WEG S.A. | 2nd Quarter 2010 Results
Net Operating Revenues
Cost of Goods Sold
Gross Operating Profit
(-) Selling Expenses
(-) General & Administrative
(-) Profit Sharing
Result from Activities
(+) Depreciation & Amortization
EBITDA
EBITDA Margin
Cost of
Goods Sold
Q2 2010
1,013,015
(703,857)
309,158
(100,298)
(65,313)
(15,315)
128,232
45,783
174,015
17.2%
Q1 2009
931,907
(624,453)
307,454
(93,098)
(58,097)
(20,094)
136,166
45,584
181,750
19.5%
Change
8.7%
12.7%
0.6%
7.7%
12.4%
-23.8%
-5.8%
0.4%
-4.3%
Q2 2009
1,029,946
(735,770)
294,176
(101,583)
(48,596)
(20,388)
123,609
49,316
172,925
16.8%
Change
-1.6%
-4.3%
5.1%
-1.3%
34.4%
-24.9%
3.7%
-7.2%
0.6%
Cost of Goods Sold (COGS) totaled R$ 703.9 million in Q2 2010, down 4.3%
compared to Q2 2009 and up by 12.7% compared to Q1 2010. Gross margin was
33.5%, increasing by 2 percentage points compared to Q2 2009, but 2.5
percentage points lower than the previous quarter.
The trend of gradual recovery of gross margin in relation to Q2 2009 results
from the positive effects of costs containment measures, the continuous
improvement and production capacity adequacy programs and of higher usage
of production capacity. However, revenue recovery has been driven by short
cycle products and, as these products typically command lower unit gross
margins, the result is a lower consolidated gross margin when compared to the
previous quarter.
Costs of
Raw
Materials
We observed, in this quarter, rising costs for copper, steel and related
products. Average prices of copper at London Metal Exchange (LME),
considering the spot quote, increased by 50% and 26% compared to Q2 2009
and Q1 2010 respectively. Steel prices in the international markets, according
to CRU Steel Price Index, increased 51% and 20% compared to Q2 2009 and Q1
2010, respectively.
The price dynamics of these metal commodities are global, which results in
cost increases being felt by all manufacturers worldwide. Thus, sales prices
established under competitive market conditions reflect the relevant costs
conditions.
Additionally, most of our products and systems are built to order and priced
according to cost conditions at the time of sale.
A feature of the vertically integrated production system adopted by the WEG
is the ability to meet a wide spectrum of technical specifications set by our
customers. This capability of customization is important to meet the ever
more fragmented demand caused by concerns over product energy efficiency.
Along with this operational flexibility, we always seek to increase our cost
efficiency with gains in production scale and embracing global procurement of
several components and materials.
Selling,
General &
Administrati
ve Expenses
Consolidated selling, general and administrative expenses (SG&A) represented
16.3% of Net Operating Revenues in the Q2 2010, 1.8 percentage points higher
in relation to the Q2 2009 and practically unchanged in relation to the Q1
2010.
The comparison of operating expenses in absolute terms shows an increase of
11 | WEG S.A. | 2nd Quarter 2010 Results
10.3% over Q2 2009 and 9.5% over the previous quarter.
The relative growth of operating expenses, especially in general and
administrative expenses, is also a reflection of the relative worsening of the
mix of products sold in comparison to the previous year, with faster recovery
of revenue in the short cycle product lines.
12 | WEG S.A. | 2nd Quarter 2010 Results
Main changes on EBITDA
38,8
172,9
Volumes,
Prices &
Product Mix
changes
1,2
- 61,6
5,8
FXimpact on
Gross
Revenues
Deduction on
Gross
Revenues
Salling
Expoenses
(1)
29,9
COGS (1)
-18,2
General &
Administr.
Expenses (1)
5,1
174,0
Profit
Sharing
Program
EBITDA 2T10
EBITDA 2T09
(1) Ex depreciation
EBITDA
As a result of the previously mentioned effects, EBITDA in the Q2 2010
(calculated according to the methodology established by the CVM Ofício
Circular 01/07) reached R$ 174.0 million, an increase of 0.6% over Q2 2009
and a decrease of 4.3% in relation to the previous quarter. EBITDA margin
stood at 17.2%, 0.4 percentage point higher year-on-year and 2.3 percentage
points lower quarter on quarter.
Financial
Revenues
and
Expenses
In the Q2 2010 financial income reached R$ 87.4 million (R$ 101.9 million in
Q2 2009 and R$ 71.3 million in Q1 2010). Financial Expenses, net of interest
on stockholders capital declared in the period, reached R$ 59.3 million (R$
63.7 million in Q2 2009 and R$ 52.7 million in Q1 2010).
In this quarter, Net Financial Income was positive in R$ 28.1 million (positive
in R$ 38.2 million during Q2 2009 and R$ 18.6 million on Q1 2010).
Income Tax
and Social
Contribution
Provision for Income Tax and Social Contribution on Net Income in the Q2 2010
reached R$ 40.8 million (R$ 43.7 million on Q2 2009 and R$ 25.5 million on Q1
2010). Additionally, we also accounted for R$ 0.4 million in Deferred Income
Taxes.
Net Income
As a result of the previously mentioned effects, Net Earnings during the Q2
2010 amounted to R$ 116.1 million, 10.4% lower year-on-year and 2.5% lower
quarter on quarter. Net margin for the quarter stood at 11.5%.
Debt and Cash Position (R$ Thousands)
CASH & EQUIVALENT
DEBT
- Current
- Long Term
NET CASH (DEBT)
June 2010
2,463,531
2,187,124
741,233
1,445,891
276,407
December 2009
2,127,117
1,872,533
895,885
976,648
254,584
13 | WEG S.A. | 2nd Quarter 2010 Results
June 2009
1,806,997
1,811,906
1,044,633
767,273
(4,909)
Net Cash
On June 30th, 2010, cash and cash equivalents totaled R$ 2,463.5 million and
gross financial debt amounted to R$ 2,187.1 million, resulting in a net cash
position of R$ 276.4 million (net debt of R$ 4.9 million on June 30th, 2009).
Cash funds are invested mostly in Brazilian currency denominated instruments,
such as repurchasing agreements and banks certificates of deposit (CBD), at
interbank deposit rates, in first-tier banks.
The gross debt is divided in:
„ Short-term debt to the total of R$ 741.2 million (34% of total debt),
represented by the current portion of short-term debt with the Brazilian
National Development Bank (BNDES) and other development agencies,
largely in domestic currency, and by the foreign-currency denominated
trade finance related debt;
„ Long-term debt to the total of R$ 1,445.9 million (66% of total debt),
mainly represented by loans contracted with BNDES and other development
institutions, mostly in domestic currency, and by the long-term portion of
working capital financing of overseas subsidiaries in their respective
domestic currencies.
According to the currency of denomination, the breakdown of total debt is as
follows:
„ In Brazilian Reais, totaling R$ 1.608,8 million (accounting for 74% of total
debt) represented by loans with BNDES and development agencies. The
average cost of debt denominated in Brazilian Reais is around 4.7% for the
fixed rate portion and 2.0% for floating rate portion. Floating rate contracts
are indexed mainly to TLJP, implying current costs around 8% per year;
„ In other currencies, totaling R$ 578.3 million (accounting for 26% of total
debt) mainly represented by trade finance operations (Advances on Foreign
Exchange Contracts or ACC) and working capital financing contracted by
overseas-based subsidiaries in their respective domestic currencies.
New Funding We highlight the new financing obtained with BNDES Exim ("Pre Shipment"
line) totaling R $ 469 million, with maturities from 24 to 36 months and rates
ranging from TJLP+2.15%, floating rate, to 4.5%, fixed rate (under Investment
Support Program);
Investments
Investments in fixed assets for modernization and production capacity
expansion totaled R$ 135.1 million during the first six months of 2010, of
which 42% were allocated to industrial complexes and other facilities in Brazil
and 58% 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.
WEG
Linhares
The construction of the new manufacturing park of WEG in Linhares (ES)
continues on schedule to start up production of commercial motors during the
last quarter of 2010. The new industrial park has a total area of 530 thousand
square meters and will follow the same modular concept used in other WEG
units, allowing for the gradual and continuous increase in capacity, in line
with the expansion needs.
In this initial phase, some new 180 jobs are being created, both at the
technical and operational level. All considered, around 1,000 direct jobs
should be created by WEG throughout the project over the next four years.
The investment projected during this first phase of the project is
approximately $ 180 million.
14 | WEG S.A. | 2nd Quarter 2010 Results
WEG India
WEG India manufacturing park, in Hosur, also continues apace. The start up of
production in this new unit, specialized in medium and high voltage motors
and generators, is scheduled for the fourth quarter of 2010. Similarly to
Linhares, the India plant has the same modular design that allows the gradual
and continuous increase in productive capacity. The planned investment for
the first phase of the project is approximately US$ 65 million.
Investments in Fixed Assets (R$ million)
Outside Brazil
Brazil
91,9
20,1
73,8
63,5
15,7
61,4
71,8
47,8
Q1
Q2
38,2
13,8
34,2
24,3
27,2
30,1
Q3
Q4
Q1
Q2
2009
Share Price
Performance
43,7
32,7
13,7
19,1
2010
WEG’s common share price went from R$ 13.80 on the last trading section of
the Q2 2009 to R$ 16.70 on June 30th, 2010, for a nominal increase of 21%.
Considering dividends and interest on stockholders’ equity declared during the
period, the total return was 23.6%.
The average daily traded volume during the Q2 2010 reached R$ 4.3 million,
44% below the average of the Q2 2009. During the quarter, 25,976 trades took
place (30,540 during the Q2 2009) involving 15.3 million shares (35.3 million
shares during Q2 2009), to a total amount of R$ 266.4 million (R$ 469.7 million
during Q2 2009).
Share Price Performance and Traded Volume
15 | WEG S.A. | 2nd Quarter 2010 Results
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
Performance adjusted by dividends and interest on stockholders’ equity
Dividends
During the first half of 2010, WEG’s Board of Directors approved the following
events as dividends:
„ On March 23rd, the Board of Directors approved interest on
stockholders’ equity to the total amount of R$ 31.0 million
„ On June 29th, the Board of Directors approved interest on
stockholders’ equity to the total amount of R$ 36.5 million
Additionally, on July 27th, the Board of Directors approved dividends, related
to the first half of 2010 results, to the total amount of R$ 66.4 million to the
shareholders of record on this date. These events will be paid from August
11th, 2010, onwards
Event
Board Meeting Date
Payment Date
Interest on Stockholders’ Equity
Interest on Stockholders’ Equity
3/23/2010
6/29/2010
8/11/2010
8/11/2010
R$ 0.050588235
R$ 0.058823529
R$ 0.043000000
R$ 0.050000000
Dividends
7/27/2010
8/11/2010
R$ 0.107000000
R$ 0.107000000
R$ 0.216411765
R$ 0.200000000
Total
Gross amount per share Net amount per share
We maintain our policy of declaring interest on shareholders’ equity quarterly
and dividends half-yearly, based on the profit for the period. The amounts
reported as compensation for the shareholders on the first half of 2010
represent 57.1% of net income in the period.
1H10
66.4
67.9
134.4
1H09
71.0
61.8
132.8
Per Share
0.2164
0.2150
Net Earnings
Total Dividends / Net Earnings
235.2
57.1%
251.9
52.7%
Dividends
Interest on Stockholders' Equity
Gross Total
16 | WEG S.A. | 2nd Quarter 2010 Results
%
1.2%
0.7%
Changes on
the Board of
Directors
WEG´s Board of Directors members have changed as a result of the election
held at the Annual Shareholder’s Meeting on April 27th, 2010. Mr. Gerd Edgar
Baumer and Ms. Ana Teresa Amaral Meirelles leave the Board of Directors,
being replaced by Mr. Douglas Conrado Strange and Mr. Wilson Ferreira Jr.
Douglas Conrado Stange has a bachelor degree in business administration by
ESAG. He joined WEG in 1966, where he served as Controlling Officer,
Superintendent Officer WEG Motors and WEX (WEG Exportadora).
Wilson Ferreira Junior has bachelor degrees in Electrical Engineering and
Business Administration issued by Mackenzie University, and a Masters in
Energy issued by the University of São Paulo (USP). Currently he is the CEO of
CPFL Energia, Chairman of the Board of Directors of CPFL Paulista, CPFL
Piratininga, CPFL Geração, and RGE.
The Shareholders’ Meeting also decided to maintain Mr. Decio da Silva as
Chairman of the Board, while Mr. Nildemar Secches, board member since
1998,becomes the vice-chairman, a position formerly occupied by Mr. Gerd
Edgar Baumer.
###
17 | WEG S.A. | 2nd Quarter 2010 Results
Conference
Calls
WEG will hold conference calls, when Management will present the results.
Conference in English:
Date: July 29th, 2010 - Thursday
Schedule:
11 AM – Brazil
10 AM – EDT (NYC)
3 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: July 29th, 2010 - Thursday
Schedule: 1PM – Brazil
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.
18 | WEG S.A. | 2nd Quarter 2010 Results
Annex I
Consolidated Income Statement - Quarterly
Figures in R$ Thousands
GROSS REVENUES
Domestic Market
External Market
Taxes and Deductions
NET REVENUES
COST OF GOODS SOLD
GROSS PROFIT
Sales Expenses
Administrative Expenses
Financial Expenses
Financial Revenues
Other Operating Results
Earnings from Subs (Equity Method)
EARNINGS BEFORETAXES
Participations
Income Taxes & Contributions
Cash Dividends Reversal
Deferred Taxes
Minorities
NET EARNINGS
EBITDA
2nd Quarter
2010
R$
AV%
1st Quarter
2010
R$
AV%
2nd Quarter
2009
R$
AV%
121%
1,227,421
831,200
82%
396,200
39%
-214,406
-21%
1,013,015
100%
-703,857 -69.5%
309,158 30.5%
-100,299 -9.9%
-65,312 -6.4%
-95,793 -9.5%
87,396
8.6%
-15,680 -1.5%
1,272
0.1%
120,742 11.9%
-383
0.0%
-40,817 -4.0%
36,540
3.6%
410
0.0%
-354
0.0%
116,138 11.5%
1,131,546
121%
801,299
86%
330,247
35%
-199,639
-21%
931,907
100%
-624,453 -67.0%
307,454 33.0%
-93,097 -10.0%
-58,097 -6.2%
-84,084 -9.0%
71,255
7.6%
-17,241 -1.9%
-68
0.0%
126,122 13.5%
-784 -0.1%
-25,472 -2.7%
31,424
3.4%
-11,486 -1.2%
-730 -0.1%
119,074 12.8%
1,250,193
121%
808,355
78%
441,838
43%
-220,248
-21%
1,029,945
100%
-735,770 -71.4%
294,175 28.6%
-101,583 -9.9%
-48,596 -4.7%
-92,748 -9.0%
101,905
9.9%
-20,827 -2.0%
2,694
0.3%
135,020 13.1%
-1,037 -0.1%
-43,709 -4.2%
29,083
2.8%
11,107
1.1%
-794 -0.1%
129,670 12.6%
174,015
19 | WEG S.A. | 2nd Quarter 2010 Results
17.2%
181,750
19.5%
172,925
16.8%
Changes %
2Q09
2Q09
1Q09
2Q09
8.5%
-1.8%
3.7%
2.8%
20.0%
-10.3%
7.4%
-2.7%
8.7%
12.7%
-1.6%
-4.3%
0.6%
5.1%
7.7%
-1.3%
12.4%
34.4%
13.9%
3.3%
22.7%
-14.2%
-9.1%
-24.7%
n.m
-4.3%
-51.1%
-52.8%
-10.6%
-63.1%
60.2%
-6.6%
16.3%
25.6%
n.m
-96.3%
-51.5%
-55.4%
-2.5%
-10.4%
-4.3%
0.6%
Annex II
Consolidated Income Statement
Figures in R$ Thousands
6 Months
2010
R$
AV%
GROSS REVENUES
Domestic Market
External Market
Taxes and Deductions
NET REVENUES
COST OF GOODS SOLD
GROSS PROFIT
Selling Expenses
Administrative Expenses
Financial Expenses
Financial Revenues
Other Operating Results
Earnings from Subs (Equity Method)
EARNINGS BEFORETAXES
Participations
Income Taxes & Contributions
Cash Dividends Reversal
Deferred Taxes
Minorities
NET EARNINGS
EBITDA
2,358,967
1,632,499
726,447
-414,045
1,944,922
-1,328,310
616,612
-193,396
-123,409
-179,877
158,651
-32,921
1,204
246,864
-1,167
-66,289
67,964
-11,076
-1,084
235,212
355,765
6 Months
2009
R$
AV%
12%
2,521,177
1,610,706
910,470
-442,991
2,078,186
-1,472,057
606,129
-205,205
-105,992
-188,540
194,788
-41,196
3,370
263,354
-1,510
-75,869
61,799
5,984
-1,895
251,863
18%
354,037
121%
84%
37%
-21%
100%
-68%
32%
-9.9%
-6.3%
-9%
8%
-2%
0%
13%
0%
-3%
3%
-1%
0%
20 | WEG S.A. | 2nd Quarter 2010 Results
2010
2009
121%
-6.4%
78%
1.4%
44%
-20.2%
-21%
-6.5%
100%
-71%
-6.4%
-9.8%
29%
1.7%
-9.9%
-5.8%
-5.1%
16.4%
-9%
-4.6%
9%
-18.6%
-2%
-20.1%
0%
13%
0%
-64.3%
-6.3%
-22.7%
-4%
-12.6%
3%
10.0%
0%
n.m
0%
-42.8%
12%
-6.6%
17%
0.5%
Annex III
Consolidated Balance Sheet
Figures in R$ Thousands
CURRENT ASSETS
Cash & Cash Equivalents
Receivables
Inventories
Other Current Assets
LONGTERM ASSETS
Lawsuits Receivables
Deferred Taxes
Other Long Term Assets
FIXED ASSETS
Investment in Subs
Property, Plant & Equipment
Deferred Assets
TOTAL ASSETS
CURRENT LIABILITIES
Suppliers
Taxes & Contributions
Short Term Debt
Dividends Payable
Advances from Clients
Profit Sharing
Other Current Assets
LONGTERM LIABILITIES
Long Term Debt
Provisions
Other Long Term Liabilities
MINORITIES
NET WORTH
TOTAL LIABILITIES
June 2010
R$
73
4.591.996
2.463.531
960.353
971.196
196.916
163.413
20.276
97.859
45.278
1.376.671
6.923
1.176.810
192.938
75%
40%
16%
16%
3%
3%
0%
2%
1%
22%
0%
19%
3%
December 2009
R$
AV%
67
3.973.158
74%
2.127.117
40%
910.136
17%
758.116
14%
177.789
3%
193.814
4%
30.739
1%
101.739
2%
61.336
1%
1.206.635
22%
16.041
0%
1.061.734
20%
128.860
2%
6.132.080 100%
5.373.607 100%
1.949.862
289.674
199.751
741.233
126.410
259.979
39.955
292.860
1.659.635
1.445.891
109.556
104.188
77.178
2.445.405
AV%
32%
5%
3%
12%
2%
4%
1%
5%
27%
24%
2%
2%
1%
40%
6.132.080 100%
21 | WEG S.A. | 2nd Quarter 2010 Results
1.825.846
188.779
165.331
895.885
164.134
254.864
54.088
102.765
1.160.757
976.648
99.434
84.675
24.217
2.362.787
34%
4%
3%
17%
3%
5%
1%
2%
22%
18%
2%
2%
0%
44%
5.373.607 100%
June 2009
R$
61
3.829.841
1.806.997
910.048
853.688
259.108
214.139
53.093
92.606
68.440
1.215.855
15.517
1.091.588
108.750
AV%
73%
34%
17%
16%
5%
4%
1%
2%
1%
23%
0%
21%
2%
5.259.835 100%
2.047.161
214.205
178.406
1.044.633
125.763
356.822
38.173
89.159
953.052
767.273
146.679
39.100
43.460
2.216.162
39%
4%
3%
20%
2%
7%
1%
2%
18%
15%
3%
1%
1%
42%
5.259.835 100%
Annex IV
Consolidated Cash Flow Statement
Figures in R$ Thousands
6 Months
2010
13
6 Months
2009
9
Operating Activities
Net Earnings before Taxes
Depreciation and Amortization
Earnings from Subs (Equity Method)
Provisions:
Profit Sharing
Interest on Stockholders Equity
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
246,864
91,367
(1,204)
263,354
97,038
(3,370)
35,409
67,964
5,075
(78,336)
421,453
(220,205)
(92,862)
(43,643)
39,443
61,799
(2,175)
274,574
(186,573)
255,414
(69,509)
(49,459)
Cash Flow from Operating Activities
431,882
680,536
Investment Activities
Investments
Fixed Assets
Intagible Assets
Asset Write Downs
Accumulated Conversion Adjustment
(218,617)
(12,676)
2,022
(18,446)
81
(155,426)
(1,280)
3,085
(81,656)
(247,717)
(235,197)
Financing Activities
Working Capital Financing
Long Term Financing
Dividends & Intesrest on Stockholders Equity Paid
(139,120)
453,712
(162,343)
(258,887)
(90,423)
(138,510)
Cash Flow From Financing Activities
152,249
(487,819)
Change in Cash Position
336,414
(42,480)
2,127,117
2,463,531
1,849,477
1,806,997
Cash Flow From Investment Activities
Cash & Cash Equivalents
Beginning of Period
End of Period
22 | WEG S.A. | 2nd Quarter 2010 Results