International Conference Call
WEG S.A.
nd
2 Quarter 2010 Results
July 29, 2010
Operator: Good morning ladies and gentlemen and welcome to the audio
conference call of WEG S.A. 2010 2nd Quarter Results.
Thank you for standing by. As a reminder, this conference is being recorded and at
this time all participants are in a listen-only mode. Later we will conduct a question
and answer session and instructions to participate will be given at that time. If you
should require assistance during the call, please press the star key followed by
zero (*0).
To obtain the quarterly results press release or the presentation that we will be
using during this conference, please go to WEG’s investor relations page at
www.weg.net/ir.
Before we proceed we would like to clarify that 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.
With us today in Jaraguá do Sul we have Mr. Laurence Beltrão Gomes, Finance
and Investor Relations Officer and Mr. Luís Fernando Oliveira, Investor Relations
Manager. Please go ahead sir.
Mr. Laurence Beltrão Gomes: Good morning everyone. It is a pleasure to have
you at this conference on the results of 2Q10. We will follow our usual procedure in
this call. I will start up by making some general comments on the quarter and our
strategy; then Luís Fernando will present the numbers of 2Q in greater detail. The
presentation should be brief, leaving plenty of time for questions and answers later.
Starting up with the slide number 3 please, I would like to highlight the acquisitions
that we announced this quarter: the acquisition of an additional stake in Voltran
reaching the control with 60% of capital. We consider it to be a natural step in a
very successful partnership in a very important and strategic market for our future
growth in transmission and distribution in North America; the acquisition of control
of ZEST, ZEST Group, opening up many possibilities for growth in the African
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market, both expanding geographically in the continent as by intensifying our
presence in industries such as oil and gas, mining and energy; the acquisition of
Instrutech, which complements our line of high added-value automation products.
Looking longer-term we are confident that the teams of energy efficiency and
distributed renewable energy continue to be sources of extremely attractive growth
opportunities.
On slide 4 please we have the key numbers of 2Q10. I would like to highlight that
operationally we had the continuation of a gradual recovery, much in line with what
we have said in recent quarters, but with a positive reading. Consumer goods
continued showing strong performance even after the end of the IPI tax reduction
responding now to favorable credit, employment level and income conditions in
Brazil.
More industrial segments are investing in capacity expansion. The actions of the
Brazilian Development Bank (BNDES) extending favorable credit terms for
investment has been very important, but also we have more clear recovery in other
markets as well.
GTD segment, which are typically longer-cycle products, are still in the early stages
of recovery. Although there is more movement and dynamism in requests for
quotations and proposals, the conversion into firm orders is still going at a slower
pace.
Now I would like to call Luís Fernando Oliveira to present the details of the quarter.
Please Luís Fernando, go ahead.
Mr. Luís Fernando Oliveira: Hi good morning everyone and thank you once again
for joining us today. We are still in slide number 4 where we can see the highlights
of the quarter, 2Q10. We can see that we are gradually overcoming the slowdown
of last year. We have to remember that in 1Q10 we experienced a drop of 13%
against 2009, so this quarter clearly is an improvement.
In terms of margin recovery, however, we are having a hard time, harder time
especially as growth has been driven by short-cycle products, which has a
negative impact on product mix. This is very clear in the gross Ebitda and net
margin comparisons.
Turning to slide number 5 I would like to draw attention to the Brazilian industrial
production data released by IBGE, which helps put those results into perspective.
Brazil is going through a rather robust recovery in industrial production, with a
commutative growth of 17.3% in the first five months of this year compared to the
last year, which is the data that is available up to now. This recovery already goes
beyond the simple inventory restocking edited and is clear in the industrial
production of capital goods, which accumulates more than 30% cumulative growth
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in 2010. The adjustment in 2009 was very strong, but it is definitely being
overcome.
Outside Brazil the signs are also very optimistic. The OECD, the leading indicator,
shows a consistent recovery, albeit gradual throughout the world. The two
movements that might be noted in this slide are the domestic market growth, which
shows a growth of 3% compared to 2009; and the foreign market, the external
market shows the growth of 4% in US dollar terms. Unfortunately the exchange
rate appreciation of 15% produces a drop of the consolidated net … gross
revenues of almost 2% when measured in reais terms.
Moving to slide number 6 we can see the distribution of sales among the various
regional markets. The growing importance of the internal market, the Brazilian
market, both because of the appreciation of the real and because of the better
relative performance is no different from what have seen on recent quarters; but
we can see a clear recovery in North America, which is great news, since this is
the main external market for WEG. We believe that we are gaining additional
market share there, especially in the USA.
In the so-called emerging countries (South America, Asia and Africa) we continue
to have good performance. Europe unfortunately follows as the less dynamic
region of all, as it indicates for a while.
Turning to slide number 7 and clearly observe the change in product mix as we
have been discussing. The recovery has been driven by the short-cycle products
and it is quite clear: the motors for domestic use are continuously showing strong
performance as a have noted; the electro-electronic industrial equipment area
shows recovery as well, growing in relative importance; and GTD loses some of its
relative importance with the slowdown in order intakes in 2009 becoming more and
more evident in revenues.
Moving to slide number 8 we have already described the effects of good results in
cost containment and operational improvement measures, despite the worsening
of the mix of products sold. We are still not having the ideal dilution of fixed costs,
which is still causing impact on the manufacturing costs and increase in the relative
importance of other costs which tend to be basically of fixed nature; but on the
positive side rising costs for raw materials have been neutralized by sales prices
increase.
In slide number 9 we have the margin analysis. As gross margin has recovered
compared to 2Q last year, even though there was … the growth in revenues did
not provide us a better dilution of fixed costs. We hope this will become more the
case in the near future with revenue growth becoming more evident.
Ebitda margin was stable compared to last year. Our efforts to control operating
expenses have not been as successful as it has been in containing costs. We are
still below the historical levels, the historical range that we are used to. The net
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margin has fallen when comparing to 2Q09 mainly as a reflection of the FX we
discussed especially in Ebitda margin.
On slide number 10 we have the analysis of the changes on Ebitda. Positive
change in gross revenues with higher prices and volumes of sales of 39 million is
being offset by the currency appreciation, which produced a negative impact R$ 62
million.
There is a positive impact on the cost of goods sold of R$ 30 million, the results of
those efforts that we target for in cost containment and operational improvement
which partially, actually, neutralize the exchange rate appreciation.
We have this strategy of having global procurement and trying to hedge our
exposure to the external market by importing more raw materials. So here you
have the plus side of the currency appreciation.
The negative effect on the net operating expenses and mainly on general and
administrative expenses, which has produced a negative impact of R$ 18 million
and a 5% million reduction in profit sharing. The net effect was an absolute positive
variation of around 1 million or 0.6% compared to last year and the small increase
in margin of less than 0.5 p.p. to 17.2%.
On slide number 11 we have the presentation of the cash flow. We can see that
the cash flow for operating activities remains very strong with good management of
the working capital. It has been the case for the past few quarters. Cash flow for
investing activity shows return of investment in capacity expansion and acquisitions
and the cash flow from financing activities shows the net balance of the process we
are undergoing of lengthening the debt profile. The variation of cash accumulated
in the last six months is largely positive.
On slide number 12 we have the debt and the net cash position. The operating
cash flow positive trend continues as we discussed, increasing the net cash
position. Important to note that the payout has risen over the past several years as
a reflection of that. The lengthening of the debt profile with the new borrowing from
BNDES at attractive rates give us comfort to continue with the investment program.
We should soon close our first financing facility with the IFC, the International
Finance Corporation, a branch of the World Bank. The initial values are quite low at
US$ 25 million. It should be used to words the plans of building up in India, but we
find it to be very significant for us because it is the first time WEG actually
accesses this source of financing.
On slide number 13 we have the evolution of the investment on fixed assets over
the past few quarters. We are resuming the speed of the investments and
anticipating better demand the near future. Of course we continue focusing on the
areas of greater demand. As we always mention, flexibility in the speed of
deployment is the main characteristic of the investment program that we have.
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The highlight of the Capex program are the new high-voltage, electric voltage and
generator plant in Hosur in India and the new commercial electric motors plant in
Linhares, northeastern part of Brazil. Both plants should start operating in late
2010, towards the end of 3Q, beginning of 4Q this year.
This concludes the presentation. We are now ready to entertain any questions that
you might have and I turn back to the operator to conduct a question and answer
session. Please go ahead.
Q&A Session
Operator: Thank you. Ladies and gentlemen we will now begin the Question and
Answer Session. If you have a question please press the star key followed by the
one key (*1) on your touch-tone phone now. If at any time you would like to remove
yourself from the questioning queue, press star two (*2).
Excuse me. Our first question comes from Ms. Verena Wachnitz with T Rowe
Price.
Ms. Verena Wachnitz: Hi good morning. I have a question on the acquisition. Can
you give us any more color on the valuation and how your balance sheet is going
to look after you integrate both Voltran and ZEST in 3Q?
And on margins these new plants are starting up with theoretically low levels of
capacity utilization; should we expect a temporary hit on your margins and in
general how do you see the evolution of gross and Ebitda margins in the second
half of the year? Thank you.
Mr. Oliveira: Well, thank you for the questions Verena. Basically starting from the
second question the new plants they should start quite small, I mean, we always
adopt this modular approach in the plants. We never built up in advance. So in
terms of the use of capacity that should not be a concern really.
We have little bit more difficulty when we do have the capacity that actually has
been optimized for a certain size of market and we have a major disruption in the
size of the market as it was the case in 2009 and we are still recovering from that.
But building up capacity in new plants, especially, is a much easier proposition. We
can do that in a much easier way, we should not have any major impact in terms of
the utilization from that sense.
In terms of what we are expecting for the second half we expect a better second
half. In terms of revenues especially we should see some result in the growth. We
are definitely seeing more and more movement as we have been describing, more
and more segments are joining the investment cycle and that should continue
towards the second half of the year and the comparisons are going to be easier for
us as well.
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So we do not have any formal guidance at this point, but as we have faster growth
in terms of the top line that should help us throughout the P&L in terms of
increasing margins and fixed-cost dilution, like all those effect would have been
describing this quarter.
Ms. Wachnitz: Ok and in terms of the mix of revenues, which has also played
against you in the first half of the year?
Mr. Oliveira: It should be gradually improving, but to tell you the truth in terms of
the longer-cycle products we tend to an above-average margin. We probably will
not see much improvement from that side. Still it is going to be gradually improving
going towards longer-cycle products, but still going to be dominated by the shortercycle products.
Ms. Wachnitz: Ok thank you.
Mr. Oliveira: Ok. In terms of the acquisitions, your first question, we are still
finalizing the acquisitions. We can definitely say for certain that both acquisitions,
the largest ones (ZEST and Voltran) have been highly accretive. We should be
disclosing a little bit more color later on, but we are quite certain they are very
accretive from the point of view of both the multiples that we are attaining an
especially in terms of the synergies we should be enjoying going into the future.
Ms. Wachnitz: And in terms of the balance sheet how would change your
leverage, I mean, was the leverage of these companies similar to you at net cash
position or are they more leveraged?
Mr. Oliveira: Actually in terms of the balance sheet they have been incorporated
already. They are consolidated in the balance sheet. The impact they did not have
yet was in terms of revenues in the income statement; but in the balance sheet
they have already been consolidated. So the balance sheet you are looking right
now already includes Voltran, ZEST and Instrutech as well. All the three
acquisitions of this quarter are already consolidated for balance sheet point of
view. We should start to enjoy the benefit, the revenue side of those acquisitions
as well.
Ms. Wachnitz: But not the payment that you are making.
Mr. Oliveira: We should have some payments to make especially in ZEST, but it
should be marginal. It would not change major the cash position that we have right
now. From the point of view of financing those acquisitions we are quite
comfortable.
Ms. Wachnitz: All right, thank you.
Mr. Oliveira: Thank you.
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Operator: Excuse me. Our next question comes from Mr. Augusto Ensiki with
Morgan Stanley.
Mr. Augusto Ensiki: Hi, good morning gentlemen. Just a follow up to Verena’s
question regarding the acquisitions. Is there any sense you can give us to the
revenue contribution from these guys and maybe talking about ZEST, that seems
to be the largest one, but is it right thinking that as a distributor it has lower margins
than the rest of your businesses? Thank you.
Mr. Oliveira: Thank you Augusto, thank you for your question. I would say that not
necessarily in terms of being the distributor; definitely ZEST the distribution
business would be lower margin, for example, than manufacturing per se.
But from the point of view of the revenue contribution if we consider last year we
are talking about revenues of around US$ 200 million for ZEST, of which we sold
to them around 60 million, so a very simple back of envelope calculation would add
around R$ 140 million in revenues … I am sorry, US$ 140 million in revenues for
the full year considering the last year revenues.
In terms of the margins not that different; they are little bit below, but not that
different and you have to remember ZEST is not a pure distributor. Part of the
attractiveness of ZEST is that you have a pretty significant business of integration,
for example assembling gen sets is something that is brand-new for us; new
systems commissioning. So they do have this differentiation, it is not a pure
distribution in terms of electric rooms it is very attractive and we can add to that.
We feel very strongly that it is a business that we can further improve going
forward.
Mr. Ensiki: Understood and so when you say similar margins you mean maybe an
Ebitda margin in the range of 15 to 20%?
Mr. Oliveira: Yes sure, they are around those numbers. Those numbers are …
Mr. Ensiki: Ok and one more question regarding the GTD segment. You were
saying that you are seeing a lot more demand in proposals and price quotes; but
assuming you were to get a significant order today when would that be converted
into revenue that we would see in the financials?
Mr. Oliveira: That is a difficult question because it depends on what kind of
equipment you are talking about. We have been working very hard and that is
something I have to make a very important point: we are not and we definitely do
not want to have a similar backlog that we had towards the end of 2008. Much the
contrary, we are working very hard to have a lot of speed in converting orders into
revenues. We do not extract any value of having a large backorder; the extract
value having a lot of revenues.
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So would have been working very hard towards converting orders as fast as we
can. Having said that, your question is difficult because it depends. You have
different lead times of projects and manufacturing for different equipment. I would
say that in general terms probably it would not have any impact in 2010. If a new
order comes in today we would have an impact mostly in 2011. But let me tell you
what: we are seeing more movement … you have to remember, we split the GTD
segment in two towards the beginning of this year, you remember that?
Mr. Ensiki: Right.
Mr. Oliveira: We have seen a lot more movement, we are seeing a lot more
activity in the T&D part of the business. T&D has been very dynamic, more so than
the generation part of the business. We are seeing a lot of new investments in the
new substations. So in this part of the business we should see more contribution
even in 2010, even towards the end of 2010 we are a little bit more optimistic in
this part of the GTD segment than the G part in general.
Mr. Ensiki: Understood, thank you very much.
Mr. Oliveira: Thank you.
Operator: Excuse me. Our next question comes from Mr. Timothy Hay with
Somerset Capital.
Mr. Timothy Hay: Hi, I just wondered if you could give us little bit more of color on
synergies that you expect from these acquisitions, I mean, if you could maybe
comment further on your Indian plant, how the development, how the Capex is
developing there.
Mr. Oliveira: Sure. Starting from the Indian plant we do have - and that is
something we are quite fond of - we do have on our website, if you do go to our
website at WEG you have there a large flicker logo; if you click on the flicker you
go to our flicker page where you can see several pictures actually how the plant,
the construction of the plant in India has been progressing overtime. We try to
make sure that we include new pictures every other month, or at least every
month.
So the Capex plan in India has been progressing very well. We are now starting to
have orders for that plant. We should start up the plant towards the end of this year
and for this first phase of the plant we are talking about around US$ 50 million or
so, a little bit more, a little bit less depending if you include working capital or not;
but in terms of fixed assets we are talking about around that number and we can
increase this investment going forward depending on the kind of demand that we
face there.
We are fairly optimistic about the prospects we have in India. We think that there is
a very attractive market and we have been able to find this very attractive niche in
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infrastructure, high value-added kind of products. So we are quite happy how this
investment has been progressing.
In terms of the synergies we expect ... you have different synergies from the two
largest acquisitions: in Instrutech it is quite clear: it fits right in the middle of the
product line, it adds a new product we did not have before. It is fairly small in terms
of WEG, but allows us to provide a better system, in a way a more complete
solution. So it goes towards something we have been working for several years
now.
Voltran is a very interesting on, because now we have a more … we do not have
any problems in terms of trying to figure out where we are going to be producing
something in Mexico; we have a similar position in all the assets we have in
Mexico. We have a similar position in WEG Transformadores in Mexico and in
Voltran, so there is no more conflict, so we can bring those two things together and
extract especially cost synergies from that. We do not have to duplicate the
administrative structure for example, we can extract this kind of synergies from this
acquisition on top of all the other manufacturing synergies that you would normally
expect … sorry?
Mr. Hay: … and in revenues point of view, what are we talking?
Mr. Oliveira: We do not have a number to you at this point unfortunately, but you
can expect in terms of the cost that we have in this operation, the transformer
operation in Mexico, we now have a duplicated structure that we can use just one.
So that is a fairly significant synergy just from that.
And in terms of ZEST that probably is less clear, but they are more attractive in
terms of we are penetrating a new market. You have to remember we did not have
any direct position in Africa, this is the first time we are in Africa ourselves not
through a distributor.
So we can leverage several objectives we have in Brazil, which tend to be quite
similar to the South African market in terms of for example mining, energy, oil and
gas; and at the same time enjoy the knowledge that ZEST has of that market.
ZEST is the dominant player in that market, they have a very large market share in
that market. We definitely have a lot to gain by having those people working with
us more closely.
Mr. Hay: Ok thank you.
Mr. Oliveira: Thank you Tim.
Operator: Excuse me. Our next question comes from Mr. Larry Demaria with
Sternage.
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Mr. Larry Demaria: Good morning Luís, how are you doing? A couple of
questions: given the level of increase you are talking about on T&D side what is
your confidence that 2011 should be up to 5 or 10 or a double-digit year for
Energy, T&D segment?
And also you mentioned that revenue would come up in the second half; are you
saying also that Generation, T&D will come up as well or just overall revenue?
Mr. Oliveira: Well, thank you Larry for the questions. We are confident that 2010
on a consolidated basis is going to be growth year. It is definitely not going to be a
double-digit growth like we grew in these two (like 15 to 20%); this is more like a
recovery year.
Actually … 2009, 2009 we did not go down as much as you would expect from
such a good manufacturer like ourselves basically because we have this diversity
of segments, short cycle, long cycle. So now for 2010 we have the drag of the
long-cycle products, which was beneficial for us in 2009. So we are quite
comfortable on a consolidated basis we should have some growth.
Having said that, the contribution that GTD is going to have for that growth is going
to be very small, if any. So when we are talking about a better second half
especially in the case of the longer-cycle products - GTD in particular - we are
talking about order intake. If we have better order intake in the second half of this
year, if we start to see a conversion of those requests for proposals and quotations
and that kind of thing into firm orders we are going to be in a very good position for
2011. 2011 tends to be more normal year.
Mr. Demaria: Ok, so we you are hopeful and confident that 2011 will be a more
normal year than 2010, but the orders really have not come in yet; you are hoping
they will come in the second half for 2011?
Mr. Oliveira: Actually orders are coming in, but not in the levels we would need or
they are not being converted as fast as one would expect an especially in the G
side. In the T&D sides we have a better environment. Just as an example, talking
specifically about Brazil: if you see the numbers we are seeing for example in
terms of energy consumption in Brazil we are talking about high 8%, around 9%
increase year over year.
Brazil is using up whatever margin of safety it had in terms of its capacity to
generate energy and to fuel this kind of growth we have been having very quickly,
so there is no doubt about it: there is need for new investments not only on T&D,
which we are seeing already, but also in G, in generation as well.
So probably as we move on – for example there is a new auction next month for
renewable sources of energy the Government is going to hold in August - those
events should start to unlock this market a little bit making those events convert
into reality.
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Mr. Demaria: Ok and then – thanks, I appreciated that - moving over the US you
mentioned a couple of things, first of all you said you guys could take some market
share; can you give us maybe a … elaborate a bit on where are you taking share,
maybe where you are taking it from, what kind of products, what are their markets
and what companies were you getting the share? And also in the US on the
acquisition front are you still targeting acquisitions in the US or still are you looking
to grow organically and if you are targeting acquisitions what is your threshold for
size and scope at this point?
Mr. Oliveira: I am starting from the more … not easier, but the more enjoyable part
of your question. We are seeing a very diverse movement. It is one thing when you
have for example, when you have one large client in a market and to gain more
market share you have to enter a new client … you have to grab new market, a
new business from somebody that you previously did not sell to.
The other thing is when you have, for example, 20% of five large clients and
increase your share in those clients; so we were selling more to more clients, but
still not exclusive. That is the case, that is exactly what is happening in the US. We
are displacing … for all we know - we cannot tell you for sure who we are
displacing - we are displacing different people in different segments; but at the end
of the day we are presently displacing other players in clients that we already have.
So we are having deeper relationships with existing customers and plus we are
going at new markets as well, that is something we always do. But the United
States has been growing a lot for us and when we say we are probably grabbing
market share that is because the overall market in the United States is not growing
as fast as we are. So it is more like the end result that we have.
In terms of the acquisition, part of your question, we have a pipeline of
opportunities, we are always looking at opportunities. We do not have anything
concrete. At this point in time we are looking for opportunities in Brazil and outside
Brazil. It is always a process, you know how those things are. Even if we had
anything more attractive at this point in time we would not be able to discuss with
you, but basically we are looking for geographic expansion in products that we
already have and we are also looking for a complementation of the product line
that we have.
Mr. Demaria: So for the right price a couple of million dollars acquisition would not
be out of question.
Mr. Oliveira: No, no, absolutely not. Voltran and ZEST were quite large for
previous standards and we are quite sure that we can … we are looking at
anything, we do not have any limitations at this point.
Mr. Demaria: In taking market share you are competing more on price or why are
you getting a better share versus US competitors right now?
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Mr. Oliveira: Not necessarily a better price, but in terms of delivery, in terms of the
quality of the equipment, in terms of the speed of delivery, in terms of the
possibility we have to develop exactly the products the clients need. All those
things we have been saying that make up for the investment case that we have you have to remember that it is a very diverse product line, very fragmented
demand base. So we see ourselves as providers of high-quality, high reliability
type of products and that is very typical. We typically grow market share coming
out of recession. It has been the case in all other events that we had.
Mr. Demaria: Ok and then finally if I could ask one more: your expenses were up
again 1Q and 2Q I guess in the admin expenses; what is going on and what is the
moving parts in them, in those expenses that is higher?
Mr. Oliveira: Actually we said before; we have to recognize we have been more
able to control fixed costs than we have been able to control fixed expenses; for
the most part administrative expenses has this fixed part in them. The way we see
this is going to be … this is going to go as we have growth, top line growth again,
we should have better dilution of those things.
Especially at this time right now, this point of the recovery right now is not a time
for us to aggressively slash fixed expenses. We would hamper our opportunities to
further growth ahead of us. So we are thinking a more measured approach to
those things. We had a reduction before, but we were not able to maintain. So
going forward we should have to rely more on this dilution. That is actually a
reflection of a very … you have been here before, you know us quite well.
We are a fairly … how should I say … frugal company as it is. In terms of … it is
very hard to cut further our expenses, our fixed-expense base than we already
have. We are very careful not to increase expenses on the good times, so we do
not have to aggressively cut those expenses on hard times. So that makes a little
bit hard for us to obtain this kind of productivity in those senses.
We do not see much improvement in that sense in terms of absolute levels. In
relative terms yes.
Mr. Demaria: Ok thanks and the operating system you are putting in helps better
now.
Mr. Oliveira: Not necessarily in administrative expenses; it should help in costs, it
should help in working capital, inventories, but not necessarily in administrative
expenses. It is not a direct impact.
Mr. Demaria: Ok so specific things like expenses are obviously disproportionally
high and the idea is to grow through them as opposed to managing them down at
this point.
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Mr. Oliveira: That is right.
Mr. Demaria: Ebitda margin also at this point. Thanks Luís.
Mr. Oliveira: Thank you.
Mr. Demaria: See you soon.
Operator: Excuse me. Our next question comes from Ms. Verena Wachnitz with T
Rowe Price.
Ms. Verena Wachnitz: Hi, just one follow-up if I may on the GTD segment. Could
you say if you think that revenues have bottomed in this quarter and if not can you
just discussed a bit the composition of the revenues in 2Q? Was it mainly G or TD
and when were these orders taken or is this related to the backlog from last year?
Just if you can give us any sense of the direction of whether they have bottomed in
GTD.
And secondly the G versus TD split. Is there a difference in profitability between
those segments? Thank you.
Mr. Oliveira: Not necessarily starting from the second part of your question,
Verena, not necessarily a difference in profitability; there is always a difference in
profitability depending on how highly integrated systems are. The more complex
the system, the more engineering we have applied to the product of to whatever is
selling your margins tend to be better in that sense.
So you have very complex T&D systems as you have very complex G systems, so
there is no general rule. On average they tend to look quite similar.
Going to the first part of your question it is very hard say. We are past the bottom.
If we are not passed the bottom we are very close to that, so that would be as
comfortable as I would get answering your question. We should not see any further
worsening from that point of view. If we are not passed the bottom we are very
close to that.
Ms. Wachnitz: Very helpful, thank you.
Mr. Oliveira: Thank you.
Operator: Excuse me. This concludes today’s question and answer session. I
would like to invite Mr. Laurence to proceed with his closing statements. Please go
ahead, sir.
Mr. Gomes: Again we thank you for your presence and the questions in this
conference call. We are confident that the opportunities for WEG in the future are
very attractive. The central theme of growing importance of energy efficiency and
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increased competitiveness of distributed power generation from renewable sources
is still growing strong and the opportunities in electric motors for traction, for
example, or the exploration of the pre-salt oil in Brazil are very clear and finally we
invite everyone to visit us in Jaraguá do Sul and see our facilities here. This is the
best way to get to know WEG. Thanks and goodbye for everyone.
Operator: That does conclude the WEG audio conference for today. Thank you
very much for your participation and have a good day. Thank you.
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