Investor Presentation Q2 2009 Motors | Automation | Energy | Paints
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Investor Presentation Q2 2009 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 Q2 2009 Investor Presentation 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 Q2 2009 Investor Presentation Business Areas Electro-Electronic Industrial Equipments Generation, Transmission and Distribution Motors for Domestic Use Industrial Paints and Varnishes Global Americas Latin America Brazil Products Low and medium tension electric motors, industrial automation equipments, electroelectronic components and services Hydro, thermal (natural gas, biomass and other) and wind generators, transformers, control panels and automation services Single phase electric motors Liquid and powdered paints, electro-isolating varnishes Consumer Markets Capital goods OEMs (pumps, compressors, machines) and endusers (steel, mining, pulp & paper, oil & gas, ethanol) Generation, transmission and distribution concessionaries, small hydro power plants (PCH), co-generation, 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 * Heating, Ventilation and Air Conditioning 4 Q2 2009 Investor Presentation Revenues Breakdown 5.471 5% 2.603 6% 21% 10% 63% 2.978 6% 3.527 6% 15% 18% 14% 62% 4.551 6% 14% 12% 27% 23% 18% 61% 57% 55% 2004 2005 2006 2007 2008 Industrial Equipment GTD Domestic Use 5 Q2 2009 Investor Presentation 2.431 5% 13% 2.521 26% 34% 56% 50% 6% 10% 06M08 06M09 Paints & Varnishes Consistent and Profitable Growth Gross Revenues (R$) 4.551 31% 37% 23% 33% 37% 44% 38% 38% 31% 33% 22% 16% 14% 47% 560 575 503 379 403 308 220 176 125 82 98 58 41 31 1.026 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Return on Equity CAGR 25% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 6 487 435 327 207 146 135 106 291 Net Earnings (R$) 84 80 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 504 666 CAGR 22% 3.527 2.978 2.603 2.015 1.535 1.269 963 753 632 574 458 CAGR 20% 430 923 5.471 EBITDA (R$) Q2 2009 Investor Presentation 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Shareholding Structure Voigt 33.3% Founders’ Families (directly) 14.5% Silva 33.3% WEG Participações e Serviços S/A Werninghaus 33.3% Management 3.0% 51.1% WEG S.A. 7 Q2 2009 Investor Presentation Controlling Shareholders Free Float 31.4% 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 2001 Adhesion to Bovespa’s “Nível 1” Corporate Governance Guidelines 8 2002 PN shares granted 80% Tag Along rights 2003 Change of Independent Auditor Q2 2009 Investor Presentation 2004 Secondary offering on PN shares to increase liquidity 2005 Creation of Investor Relations Department 2006 Bylaws make Fiscal Council permanent 2007 Adhesion to Bovespa’s “Novo Mercado” Corporate Governance Uniquely Positioned WEG is at the intersect of strong long-term trends Energy Energy efficiency efficiency 9 Q2 2009 Investor Presentation Cleaner Cleaner Energy Energy Sources Sources Sc u s ale to a m nd iz at io n en es Pr C va l ba lo ce Q2 2009 Investor Presentation no G 10 l ies ca l i t gi b i lo p a no C a ch n Te t i o In Sy Di ne ve rg r s i is fie t L i ic P d a ne r nd od uc t WEG is Uniquely Positioned Diversified and Synergetic Offering Product diversification increases competitiveness and added value… From the client’s perspective One Supplier, Several Products 3 3 3 11 Client Several Suppliers, one product each One-stop shop (largest electric motor line from a single manufacturer) Strong worldwide after sales support (services and parts) Product integration in systems and solutions Q2 2009 Investor Presentation Diversified and Synergetic Offering …while reduces costs and diversify risks From WEG’s perspective Several Products, One Salesperson Several Products, Markets, Industries and Clients 3 Greater synergy and efficiency of sales effort 3 Reduced risk exposure (product, segment and client) 12 Q2 2009 Investor Presentation Technological Innovation Capabilities Technology advances at fast pace, with WEG at the forefront Partnerships with best Consistent R&D spending 2,5% 2,5% 2,3% 2,4% 2,3% 2,0% 1,7% 1,6% 1,8% 1,5% 86 89 2007 2008 73 63 30 34 2003 2004 21 16 18 18 1999 2000 2001 2002 R&D Spending 2005 2006 engineering schools in Brazil and in the world Technical Committee meets semi-annually to review latest developments in electrical theory and applications % Net Revenues More than 800 engineers developing products, such as Wmagnet + 13 Q2 2009 Investor Presentation 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) Global Presence Gross Revenues Breakdown (1S09) 11% 10% Europe North America 5% 64% 5% 5% Brazil South & Central America 14 Q2 2009 Investor Presentation Asia & Oceania Africa Global Presence External Markets Revenues (US$ M) Production Facilities Service fast growing regional markets Mexico, Portugal, Argentina and China Sales Subsidiaries Own commercial and distribution structures in large and growing markets Local Reps and Distributors Develop market knowledge 1029 US, Chile, Colombia, Venezuela; England, France, Belgium, Germany, Italy, Spain, Sweden, Australia, India, Japan, Singapore, UAE and Russia Exports to more than 100 countries: Canada, South Africa 120 27 1980 15 1989 Q2 2009 Investor Presentation 1998 2008 2007 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% 1,4% 1,6% 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 Q2 2009 Investor Presentation Scale and Customization Customization is characteristic of the industry and specifications are very diverse Integrated and synergetic production Largest integrated motor site in the world Main Manufacturing Plant in Jaraguá do Sul, SC Foundry / Cast Machine Engineering Incoming Orders Wires Manufacturing Steel Shop Paints & Varnishes Tooling 17 Q2 2009 Investor Presentation allows for large scale of production, with: Lower costs Higher operating efficiency Vertical integration allows for: Customized products Fastest to the market Assembly Line More than 2,500 different types of electric motors monthly Second Quarter 2009 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 2T09 1.250.193 1T09 1.270.984 % -1,6% 2T08 1.331.012 % -6,1% 808.355 441.838 213.396 802.351 468.632 202.726 0,7% -5,7% 5,3% 924.701 406.311 245.822 -12,6% 8,7% -13,2% 1.029.945 294.175 28,6% 129.670 12,6% 172.925 16,8% 1.048.241 311.954 29,8% 122.193 11,7% 181.112 17,3% -1,7% -5,7% 1.095.815 392.025 35,8% 169.855 15,5% 253.729 23,2% -6,0% -25,0% 6,1% -4,5% -23,7% -31,8% Figures in R$ Thousands CASH & EQUIVALENT DEBT - Current - Long Term NET CASH (DEBT) 18 Q2 2009 Investor Presentation June 2009 1.806.997 1.811.906 1.044.633 767.273 (4.909) December 2008 1.849.477 2.161.216 1.314.098 847.118 (311.739) June 2008 1.802.142 1.634.459 1.009.095 625.364 167.683 Main impacts from financial crisis Sales and Revenues Late 2008 / early 2009: Demand weakness in all segments, but at different intensities Domestic use: swift slowdown Industrial use: took a while, but dales decrease was unprecedented around turn of year Energy: focus on backlog stability and client credit Mid 2009: Domestic use: responding to tax incentives Industrial use: no end of destocking in sight Energy: slower order intake (“consuming” backlog) 19 Q2 2009 Investor Presentation Costs and Expenses Late 2008 / early 2009: Costs suffered from Further price increases for some materials (late 2008) Weak demand prevents passthrough of FX and higher costs Lower occupancy affects productivity and economies of scale Logistic difficulties with heavy rains / flooding impacted expenses Mid 2009: Working out the impacts of higher costs under a weak demand environment Low occupancy continues to be a concern. Labor agreement to reduce working hours and wages. Profitability Net Earnings (R$ million) EBITDA (R$ million) 25% 23% 23% 22% 22% 23% 1026 20% 17% 923 18% 18% 17% 15% 15% 12% 575 15% 666 12% 560 487 504 503 403 375 394 Net Income Q2 2009 Investor Presentation EBITDA 09 M 08 06 M 06 08 20 20 07 06 20 05 20 04 20 03 20 M Net Margin 354 252 09 08 06 M 06 08 20 20 07 06 20 20 05 296 04 20 20 03 308 20 457 EBITDA Margin Scenario and Assumptions There is no predicting how long or deep the downturn will be No indication of a quick recovery around the corner Slowdown severe for the serial, less customized part of the product line Working hours and wage reduction agreement Hiring freeze Despite some good signals Material costs declining Destocking seems to be slowing Must plan and act under the following assumptions: Fairly long recession Followed by a slow recovery 21 Q2 2009 Investor Presentation Workforce Rightsizing Production Consolidation (closing 1 plant) Renewed focus on ROIC under conservative assumptions Reviewing all processes for cost cutting and expense reduction Continuous Improvement Program (PMC) Continuous Improvement Program Before 1968 Olympics, high jump record 1,73m Non linear improvement 1968 Olympics, the “Fosbury Flop” high jump record 2,24m 22 Q2 2009 Investor Presentation Capacity Expansion Program Capex and Depreciation (R$ million) 457 Capex Depreciation 306 206 206 157 146 126 96 56 2003 23 156 111 105 97 67 2004 Q2 2009 Investor Presentation 2005 2006 2007 2008 06M9 Dividend Pay-out Policy Net Earnings and Dividends (R$ million) 37% 35% 40% 39% 43% 52% 44% 54% 53% 45% 40% 575 560 503 403 375 308 299 229 220 176 173 125 82 29 252 165 133 124 46 301 89 68 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 6M09 Net Earnings 24 Q2 2009 Investor Presentation Dividends Pay-out (%) Contacts www.weg.net/ir Alidor Lueders CFO & 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 25 Q2 2009 Investor Presentation twitter.com/weg_ir
