Brazil Opportunities Conference J.P.Morgan on Motors | Automation | Energy | Paints
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J.P.Morgan on Brazil Opportunities Conference Motors | Automation | Energy | Paints Disclaimer The information contained herein has been prepared by WEG S.A. (“WEG” or the “Company”) solely for meetings held with investors and/or potential investors. This material does not constitute offering material in whole or part, and you must obtain further information before making an investment decision in respect of the common shares of the Company. This material has been prepared solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities and should not be treated as giving investment advice. It is not targeted to the specific investment objectives, financial situation or particular needs of any recipient. No representation or warranty, either express or implied, is made as to the accuracy, completeness or reliability of the information contained herein. It should not be regarded by recipients as a substitute for the exercise of their own judgment. Any opinions expressed in this material are subject to change without notice and WEG is not under obligation to update or keep current the information contained herein. In addition, WEG has been informed that their affiliates, agents, directors, partners and employees may make purchases and/or sales as principals or may act as market makers or provide investment banking or other services to the Company. The Company and their respective affiliates, agents, directors, partners and employees accept no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material. You should consult your own legal, regulatory, tax, business, investment, financial and accounting advisers to the extent that you deem necessary, and you must make your own investment, hedging or trading decision based upon your own judgment and advice from such advisers as you deem necessary and not upon any view expressed in this material. This material includes forward-looking statements subject to risks and uncertainties, which are based on current expectations and projections about future events and trends that may affect the Company’s business. These statements include projections of economic growth and energy demand and supply, as well as information about competitive position, the regulatory environment, potential opportunities for growth and other matters. Several factors may adversely affect the estimates and assumptions on which these statements are based, many of which are beyond our control. 2 J.P. Morgan - Brazil Opportunities Conference April 2010 Diversification as Core Value Services Electronic Components Energy Generation Motor Energy Substations Transformer Electric Components Distribution Panel Generator Motor Control Panel Industrial Process Automation Industrial Application Paints and Varnishes 3 J.P. Morgan - Brazil Opportunities Conference April 2010 Business areas Electro-Electronic Industrial Equipments Generation, Transmission and Distribution Motors for Domestic Use Industrial Paints and Varnishes Global Americas Latin America Brazil Low and medium tension electric motors, industrial automation equipments and services Hydro, thermal (natural gas, biomass and other) and wind generators, transformers, control panels, automation services Single phase electric motors Liquid and powdered paints, electroisolating varnishes Consumer Markets Capital goods OEMs (pumps, compressors, machines) and endusers (steel, mining, pulp & paper, oil & gas, ethanol) Generation, transmission and distribution concessionaries, cogeneration, industrial clients “White goods” OEMs (washing machines, HVAC*), water pumps, lawn mowers, etc General industrial and specialty applications (shipbuilding, aggressive environments) Performance Drivers Industrial Production growth and Investments in Fixed Capital (capex) Growing investments in energy generation Disposable income, supply of credit and level of interest rates Brazilian GDP growth Focus Products 4 J.P. Morgan - Brazil Opportunities Conference April 2010 Revenues breakdown 5.471 5% 2.603 6% 21% 10% 2.978 6% 18% 14% 12% 12% 27% 34% 23% 18% 63% 62% 61% 57% 2004 2005 2006 2007 Industrial Equipment 5 3.527 6% 15% 4.551 6% 14% 5.111 6% GTD J.P. Morgan - Brazil Opportunities Conference Domestic Use 55% 2008 48% 2009 Paints & Varnishes April 2010 Consistent and profitable growth Gross Revenues (R$) Net Earnings (R$) 504 487 23% 25% 31% 37% 37% 47% 33% 38% 31% 33% 22% 16% 14% 38% 44% 548 560 575 503 379 308 220 176 125 82 98 58 41 31 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 6 327 207 146 135 106 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Return on Equity 403 CAGR 23% 1.026 923 837 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 84 80 291 435 666 CAGR 18% 3.527 2.978 2.603 2.015 1.535 1.269 963 753 632 574 458 430 CAGR 19% 5.111 4.551 5.471 EBITDA (R$) J.P. Morgan - Brazil Opportunities Conference 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 April 2010 Shareholding structure Voigt 33.3% Founders’ Families (directly) 14.5% Silva 33.3% WEG Participações e Serviços S/A Werninghaus 33.3% Management 2.7% 51.1% Controlling Shareholders Free Float 31.7% WEG S.A. 7 J.P. Morgan - Brazil Opportunities Conference April 2010 Corporate Governance Practices Strong accountability and transparency culture Ingrained into Company’s core values, beliefs and mission Practices are “all that matter.” Formalization comes afterwards Early adopter of best practices formalizations and codes “Novo Mercado” conversion of PN shares at 1:1 ratio 8 J.P. Morgan - Brazil Opportunities Conference April 2010 Strong fundamental trends Energy efficiency Industrial electric motors represent around 25% of global electricity consumption Most efficiency “bang” for the Capex “buck” Lower CO2 emissions Economic viable alternatives fuels Cleaner Energy Sources 9 J.P. Morgan - Brazil Opportunities Conference April 2010 The Energy Efficiency Opportunity SEGMENT Food # of Motors Average Load (%) Average hours of use (%) Average Age (years) Up to 10 Hp 10 – 40 Hp 40 – 100 Hp 100 – 250 Hp Above 250 Hp 596 695 297 194 64 31,10% 43,00% 63,50% 54,20% 67,60% 86,70% 82,00% 81,30% 88,40% 86,80% 19 15 22 17 12 # of Motors Petro Average Load (%) Chemicals Average hours of use (yearly) Average Age (years) 563 15,50% 95,50% 24 210 47,20% 94,50% 23 154 53,50% 95,50% 24 57 61,80% 96,90% 25 Source: WEG Service database 10 J.P. Morgan - Brazil Opportunities Conference April 2010 5 73,10% 100% 31 WEG is Uniquely Positioned 11 J.P. Morgan - Brazil Opportunities Conference April 2010 Diversified and Synergistic Offering Product diversification increases competitiveness and added value… …while reduces costs and diversify risks From the client’s perspective From WEG’s perspective One Supplier, Several Products Client Several Suppliers, one product each Several Products, One Salesperson Several Products, Markets, Industries and Clients 3 One-stop shop (largest electric motor line from a single manufacturer) 3 Greater synergy and efficiency of sales effort 3 Strong worldwide after sales support (services and parts) 3 Reduced risk exposure (product, segment and client) 3 Product integration in systems and solutions 12 J.P. Morgan - Brazil Opportunities Conference April 2010 Technological Innovation Capabilities Technology advances at fast pace, with WEG at the forefront Consistent R&D spending 2,5% 2,5% 2,3% 2,4% 2,3% 2,0% 1,7% 1,6% 2,0% 1,8% 1,5% 86 89 2007 2008 83 73 63 30 16 18 18 21 1999 2000 2001 2002 2003 R&D Spending 34 2004 2005 2006 Partnerships with best engineering schools in Brazil and in the world Technical Committee meets semiannually to review latest developments in electrical theory and applications 2009 % Net Revenues More than 1.000 engineers developing products, such as Wmagnet + 13 J.P. Morgan - Brazil Opportunities Conference Innovative use of technology for general purpose motors Higher energy efficiency (lower consumption per output) Lower working temperature and noise levels Smaller size (lower material consumption) April 2010 Global Presence Gross Revenues Breakdown (12M09) 8% 11% Europe North America 8% Asia & Oceania 67% 2% 5% South & Central America 14 Brazil J.P. Morgan - Brazil Opportunities Conference Africa April 2010 Global Presence External Markets Revenues (US$ M) Production Facilities Service fast growing regional markets Sales Subsidiaries Own commercial and distribution structures in large and growing markets Develop market knowledge Exports to more than 100 countries: Canada, South Africa 15 Mexico, Portugal, Argentina and China 880 US, Chile, Colombia, Venezuela; England, France, Belgium, Germany, Italy, Spain, Sweden, Australia, India, Japan, Singapore, UAE and Russia Local Reps and Distributors 1980 1029 120 27 1989 J.P. Morgan - Brazil Opportunities Conference 20072009 1998 April 2010 Unique Product Characteristics Hours of Daily Use 12 16 24 24 Days of Monthly Use 22 22 22 30 Nominal Power Hp 50,0 50,0 50,0 50,0 Nominal Power kilowatts 37,3 37,3 37,3 37,3 Energy Efficiency % 92,5% 92,5% 92,5% 92,5% Energy Consumption Kilowatts 40,3 40,3 40,3 40,3 Monthly Use Hours 264 352 528 720 Monthly Energy Consumption kW/h / month 10.641 14.188 21.283 29.022 Cost of Electricity R$ / kW/h 0,15 0,15 0,15 0,15 Energy Operating Cost R$ per Month 1.596 2.128 3.192 4.353 List Price R$ 5.358 5.358 5.358 5.358 Price / Operating Cost Ratio Months 3,36 2,52 1,68 1,23 Costs during useful life 97,0% 1,6% 1,4% Acquisition Maintenance Energy Consuption Specifications must be exact. Everything affects energy efficiency “Similar” motors are not economical, even if much cheaper Becomes more evident when energy prices go up Returns on energy efficiency investments are very attractive 16 J.P. Morgan - Brazil Opportunities Conference April 2010 Scale and Customization Customization is characteristic of the industry and specifications are very diverse Largest integrated motor site in the world Main Manufacturing Plant in Jaraguá do Sul, SC production allows for large scale of production, with: Lower costs Higher operating efficiency Vertical integration allows for: Customized products Fastest to the market Foundry / Cast Machine Engineering Incoming Orders Integrated and synergetic Wires Manufacturing Steel Shop Paints & Varnishes Assembly Line More than 2,500 different types of electric motors monthly Tooling 17 J.P. Morgan - Brazil Opportunities Conference April 2010 Fourth Quarter 2009 Highlights Q4 09 1,306,913 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 Q3 09 Growth % 1,282,506 1.9% Q4 08 Growth % 1,551,639 -15.8% 871,619 435,299 889,302 393,200 -2.0% 10.7% 917,041 634,598 -5.0% -31.4% 250,328 1,076,969 344,226 210,840 1,055,465 402,210 18.7% 2.0% -14.4% 277,605 1,295,630 420,669 -9.8% -16.9% -18.2% 32.0% 38.1% 136,426 160,103 12.7% 15.2% 228,548 254,840 21.2% 24.1% 32.5% -14.8% 97,658 39.7% 7.5% -10.3% 268,974 -15.0% 20.8% Figures in R$ Thousands CASH & EQUIVALENT DEBT - Current - Long Term NET CASH (DEBT) 18 December 2009 2.127.117 1.872.533 895.885 976.648 254.584 J.P. Morgan - Brazil Opportunities Conference December 2008 1.849.477 2.161.216 1.314.098 847.118 (311.739) December 2007 2.174.972 1.731.740 1.077.487 654.253 443.232 April 2010 Profitability Net Earnings (R$ million) EBITDA (R$ million) 25% 23% 23% 22% 22% 1026 20% 18% 18% 20% 923 837 17% 15% 15% 12% 575 560 13% 548 666 503 403 504 487 394 375 Net Income 19 Net Margin J.P. Morgan - Brazil Opportunities Conference EBITDA 20 09 08 20 07 20 20 06 05 20 04 20 03 20 09 20 08 20 07 20 06 20 05 20 04 20 20 03 308 EBITDA Margin April 2010 Capacity Expansion Program Capex and Depreciation (R$ million) 457 Capex Depreciation 318 206 206 96 56 2003 20 196 157 146 126 226 111 105 67 2004 2005 J.P. Morgan - Brazil Opportunities Conference 2006 2007 2008 April 2010 2009 Dividend Pay-out Policy Net Earnings and Dividends (R$ million) 52% 35% 37% 39% 40% 43% 44% 55% 54% 45% 40% 575 560 548 503 403 375 308 301 300 2007 2008 2009 229 220 176 125 173 165 2004 2005 124 82 29 46 68 1999 2000 2001 89 2002 2003 Net Earnings 21 299 J.P. Morgan - Brazil Opportunities Conference Dividends 2006 Pay-out (%) April 2010 Contacts www.weg.net/ir Alidor Lueders IRO alidor@weg.net Luís Fernando M. Oliveira Investor Relations Manager +55 (47) 3276-6973 luisfernando@weg.net ri@weg.net MSN Messenger luisfernando@weg.com.br 22 J.P. Morgan - Brazil Opportunities Conference twitter.com/weg_ir April 2010
