2Q09 Investor Presentation
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Transcript of 2Q09 Investor Presentation
Motors | Automation | Energy | Paints
Investor PresentationQ2 2009
2 Q2 2009 Investor Presentation
DisclaimerThe 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.
3 Q2 2009 Investor Presentation
Diversification as Core Value
Motor
Generator
Transformer
Electronic Components
Electric Components
Motor Control Panel
Distribution Panel
Energy Generation
Energy Substations
Industrial Process Automation
Services
Industrial Application Paints and Varnishes
4 Q2 2009 Investor Presentation
Industrial Paints and Varnishes
Motors for Domestic Use
Generation, Transmission and
Distribution
Electro-Electronic Industrial Equipments
Products
ConsumerMarkets
Focus
PerformanceDrivers
Business Areas
* Heating, Ventilation and Air Conditioning
Industrial Production growth and Investments in Fixed Capital (capex)
Americas
Low and medium tension electric motors, industrial automation equipments, electro-
electronic 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
Capital goods OEMs (pumps, compressors, machines) and end-
users (steel, mining,
pulp & paper, oil & gas, ethanol)
Global
Generation, transmission and
distribution concessionaries, small
hydro power plants (PCH), co-generation,
industrial clients
Growing investments in energy generation
“White goods”
OEMs (washing machines,
HVAC*), water pumps, lawn mowers, etc
Disposable income, supply of credit and level of interest rates
Latin America
General industrial and specialty applications
(shipbuilding, aggressive
environments)
Brazilian GDP growth
Brazil
5 Q2 2009 Investor Presentation
Revenues Breakdown
2.6032.978
3.527
4.551
5.471
50%56%
55%57%61%
63% 62%
34%26%
27%
23%
18%14%
10%10%13%
12%
14%
15%
18%21%
6%5%
5%
6%
6%
6%6%
2.5212.431
2004 2005 2006 2007 2008 06M08 06M09Industrial Equipment GTD Domestic Use Paints & Varnishes
6 Q2 2009 Investor Presentation
Consistent and Profitable Growth
Net Earnings (R$)
Gross Revenues (R$) EBITDA (R$)
Return on Equity
41 58
98
82
125
176
220
308
403
379
503
575
31
560
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
CAGR 25%80 84 10
6
135
146 20
7 291 32
7
435 48
7
666
1.02
6
504
923
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
CAGR 22%
14% 16
%
22%
33%
23%
31%
38%
38%
44% 47
%
37%
31%33
%
37%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
430
458
574
632 753 96
3
1.26
9
1.53
5 2.01
5 2.60
3 2.97
8 3.52
7
4.55
1
5.47
1
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
CAGR 20%
7 Q2 2009 Investor Presentation
ControllingShareholders
31.4%51.1%14.5% 3.0%
Free Float
WEG S.A.
Founders’
Families(directly)
WEG Participações e Serviços S/A
Management
Voigt33.3%
Silva33.3%
Werninghaus33.3%
Shareholding Structure
8 Q2 2009 Investor Presentation
2001 2002 2003 2004 2005 2006 2007
Adhesion to Bovespa’s “Nível
1”
Corporate
Governance Guidelines
PN shares granted 80%
Tag Along rights
Change of Independent
Auditor
Secondary offering on PN
shares to increase liquidity
Creation of Investor Relations
Department
Bylaws make Fiscal Council
permanent
Adhesion to Bovespa’s
“Novo Mercado”Corporate
Governance
Corporate Governance PracticesStrong 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
9 Q2 2009 Investor Presentation
Uniquely Positioned WEG is at the intersect of strong long-term trends
Cleaner Energy Sources
Cleaner Energy Sources
Energy efficiency
Energy efficiency
10 Q2 2009 Investor Presentation
WEG is Uniquely Positioned
Global Presence
Scale
and
Custo
miza
tion
Divers
ified a
nd
Syner
gistic
Produc
t
Line
Technological
Innovation Capabilities
11 Q2 2009 Investor Presentation
Diversified and Synergetic Offering
Product integration in systems and solutions
One Supplier, Several
ProductsClient
Several Suppliers, one product each
Product diversification increases competitiveness and added value…
Strong worldwide after sales support
(services and parts)
From the client’s perspective
One-stop shop (largest electric motor line from a single manufacturer)
12 Q2 2009 Investor Presentation
Several Products, Markets,
Industries and Clients
Several Products, One Salesperson
Diversified and Synergetic Offering
Greater synergy and efficiency of sales effort
Reduced risk exposure (product, segment and client)
…while reduces costs and diversify risks
From WEG’s perspective
13 Q2 2009 Investor Presentation
Technological Innovation Capabilities
Consistent R&D spending Partnerships with best engineering schools in Brazil and in the world
Technical Committee meets semi-annually to review latest developments in electrical theory and applications
+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)
Technology advances at fast pace, with WEG at the forefront
More than 800 engineers developing products, such as Wmagnet
16 18 18 21
63
73
86 89
30 34
2,4%2,3%
2,0%
2,5%2,3%
1,7% 1,6%1,8%
1,5%
2,5%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008R&D Spending % Net Revenues
14 Q2 2009 Investor Presentation
Global PresenceGross Revenues Breakdown (1S09)
64%
Brazil
10%
North America
5%
South & Central America
11%
Europe
5%
Asia & Oceania
5%
Africa
15 Q2 2009 Investor Presentation
External Markets Revenues (US$ M)
Develop market knowledge
Exports to more than 100 countries: Canada, South Africa
Own commercial and distribution structures in large and growing markets
US, Chile, Colombia, Venezuela; England, France, Belgium, Germany, Italy, Spain, Sweden, Australia, India, Japan, Singapore, UAE and Russia
Service fast growing regional markets
Mexico, Portugal, Argentina and China
Local Reps and Distributors
Sales Subsidiaries
Production Facilities
1029
27
120
1980 1989 1998 20072008
Global Presence
16 Q2 2009 Investor Presentation
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
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
1,4% 1,6%
97,0%
Acquisition Maintenance EnergyConsuption
Costs during useful life
17 Q2 2009 Investor Presentation
Customization is characteristic of the industry and specifications are very diverse
Main Manufacturing Plant in Jaraguá
do Sul, SC
Integrated and synergetic production allows for large scale of production, with:
Lower costsHigher operating efficiency
Vertical integration allows for:Customized productsFastest to the market
Paints & Varnishes
Steel Shop
Foundry / Cast Machine
Wires Manufacturing
More than 2,500 different types
of electric motors monthly
Tooling
En
gin
eeri
ng
Incoming Orders
Assembly Line
Largest integrated motor site in the world
Scale and Customization
18 Q2 2009 Investor Presentation
Second Quarter 2009 Highlights
2T09 1T09 % 2T08 %Gross Operating Revenue 1.250.193 1.270.984 -1,6% 1.331.012 -6,1% Domestic Market 808.355 802.351 0,7% 924.701 -12,6% External Markets 441.838 468.632 -5,7% 406.311 8,7%
External Markets in US$ 213.396 202.726 5,3% 245.822 -13,2%
Net Operating Revenue 1.029.945 1.048.241 -1,7% 1.095.815 -6,0%Gross Operating Profit 294.175 311.954 -5,7% 392.025 -25,0%Gross Margin 28,6% 29,8% 35,8%Quarterly Net Income 129.670 122.193 6,1% 169.855 -23,7%Net Margin 12,6% 11,7% 15,5%EBITDA 172.925 181.112 -4,5% 253.729 -31,8%EBITDA Margin 16,8% 17,3% 23,2%
Figures in R$ Thousands
June 2009 December 2008 June 2008CASH & EQUIVALENT 1.806.997 1.849.477 1.802.142 DEBT 1.811.906 2.161.216 1.634.459 - Current 1.044.633 1.314.098 1.009.095 - Long Term 767.273 847.118 625.364 NET CASH (DEBT) (4.909) (311.739) 167.683
19 Q2 2009 Investor Presentation
Main impacts from financial crisis
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 yearEnergy: focus on backlog stability and client credit
Mid 2009: Domestic use: responding to tax incentivesIndustrial use: no end of destocking in sightEnergy: slower order intake (“consuming” backlog)
Late 2008 / early 2009:Costs suffered from
Further price increases for some materials (late 2008)Weak demand prevents pass-through 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.
Sales and Revenues Costs and Expenses
20 Q2 2009 Investor Presentation
296252
560575503
375403
308
18%
15%
17%
12%12%
15%
18%
15%
2003
2004
2005
2006
2007
2008
06M
0806
M09
Net Income Net Margin
ProfitabilityNet Earnings (R$ million) EBITDA (R$ million)
1026
457
354
923
666
504487
394
23% 23%
17%
23%22%
20%
22%
25%
2003
2004
2005
2006
2007
2008
06M
0806
M09
EBITDA EBITDA Margin
21 Q2 2009 Investor Presentation
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
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
Scenario and Assumptions
Working hours and wage reduction
agreement
Hiring freeze
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)
22 Q2 2009 Investor Presentation
Continuous Improvement Program
Before 1968 Olympics, high jump record 1,73m
1968 Olympics, the “Fosbury
Flop”
high jump record 2,24m
Non linear improvement
23 Q2 2009 Investor Presentation
Capex and Depreciation (R$ million)
Capacity Expansion Program
126
206
146111
457
156
56 6796 105
157
206
97
306
2003 2004 2005 2006 2007 2008 06M9
CapexDepreciation
24 Q2 2009 Investor Presentation
Net Earnings and Dividends (R$ million)
Dividend Pay-out Policy
82125
176220
375
575 560
252
68 89124
173 165
229
299 301
133
503
403
308
29 46
45%
52%54% 53%
44%43%40%40%
39%37%
35%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 6M09
Net Earnings Dividends Pay-out (%)
25 Q2 2009 Investor Presentation
Alidor Lueders
CFO & IRO
Luís Fernando M. Oliveira
Investor Relations Manager
+55 (47) 3276-6973
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