2Q09 Investor Presentation

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  • 1. Investor Presentation Q2 2009 Motors | Automation | Energy | Paints
  • 2. 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
  • 3. Diversification as Core Value Services Energy Electronic Energy Generation Components Substations Motor Transformer Electric Distribution Components Panel Generator Motor Control Panel Industrial Process Automation Industrial Application Paints and Varnishes 3 Q2 2009 Investor Presentation
  • 4. Business Areas Electro-Electronic Generation, Motors for Domestic Industrial Paints Industrial Equipments Transmission and Use and Varnishes Distribution Focus Global Americas Latin America Brazil Low and medium Hydro, thermal (natural tension electric motors, gas, biomass and other) Liquid and industrial automation and wind generators, Single phase electric powdered paints, Products equipments, electro- transformers, control motors electro-isolating electronic components panels and automation varnishes and services services Capital goods OEMs Generation, General industrial (pumps, compressors, transmission and “White goods” OEMs and specialty Consumer machines) and end- distribution (washing machines, applications users (steel, mining, concessionaries, small HVAC*), water pumps, (shipbuilding, Markets hydro power plants pulp & paper, oil & gas, (PCH), co-generation, lawn mowers, etc aggressive ethanol) industrial clients environments) Performance Industrial Production Growing investments in Disposable income, Brazilian GDP growth and Investments energy generation supply of credit and growth Drivers in Fixed Capital (capex) level of interest rates * Heating, Ventilation and Air Conditioning 4 Q2 2009 Investor Presentation
  • 5. Revenues Breakdown 5.471 5% 4.551 12% 6% 3.527 14% 27% 2.978 6% 15% 23% 2.521 2.603 6% 2.431 6% 18% 18% 5% 6% 21% 14% 13% 10% 10% 34% 55% 26% 61% 57% 63% 62% 56% 50% 2004 2005 2006 2007 2008 06M08 06M09 Industrial Equipment GTD Domestic Use Paints & Varnishes 5 Q2 2009 Investor Presentation
  • 6. Consistent and Profitable Growth Gross Revenues (R$) EBITDA (R$) 1.026 5.471 923 4.551 CAGR 22% CAGR 20% 666 3.527 2.978 504 487 2.603 435 2.015 327 291 1.535 1.269 207 963 146 135 753 106 632 430 458 574 80 84 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Net Earnings (R$) 575 Return on Equity 560 47% 503 44% 38% 38% 37% 37% 403 CAGR 25% 379 33% 33% 31% 31% 308 23% 22% 220 16% 176 14% 125 98 82 58 41 31 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 6 Q2 2009 Investor Presentation
  • 7. Shareholding Structure Voigt Silva Werninghaus Controlling 33.3% 33.3% 33.3% Shareholders Founders’ WEG Families Participações Management Free Float (directly) e Serviços S/A 14.5% 51.1% 3.0% 31.4% WEG S.A. 7 Q2 2009 Investor Presentation
  • 8. 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 2002 2003 2004 2005 2006 2007 Adhesion to PN shares Change of Secondary Creation of Bylaws make Adhesion to Bovespa’s granted 80% Independent offering on PN Investor Fiscal Council Bovespa’s “Nível 1” Tag Along Auditor shares to Relations permanent “Novo Corporate rights increase Department Mercado” Governance liquidity Corporate Guidelines Governance 8 Q2 2009 Investor Presentation
  • 9. Uniquely Positioned WEG is at the intersect of strong long-term trends Energy Energy Cleaner Energy Cleaner Energy efficiency efficiency Sources Sources 9 Q2 2009 Investor Presentation
  • 10. 10 G lo Sy Di ba l ne ve Pr rg r s i is fie t es Q2 2009 Investor Presentation en L i ic P d a ce ne r nd od uc t In no va WEG is Uniquely Positioned Sc C Te t i o u s ale ch n to a no C a m nd lo p a iz gi b i at io ca l i t n l ies
  • 11. Diversified and Synergetic Offering Product diversification increases competitiveness and added value… From the client’s perspective One Supplier, Several Several Client Suppliers, one Products 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 11 Q2 2009 Investor Presentation
  • 12. Diversified and Synergetic Offering …while reduces costs and diversify risks From WEG’s perspective Several Several Products, Products, One Markets, Salesperson Industries and Clients Greater synergy and efficiency of sales effort Reduced risk exposure (product, segment and client) 12 Q2 2009 Investor Presentation
  • 13. Technological Innovation Capabilities Technology advances at fast pace, with WEG at the forefront Consistent R&D spending Partnerships with best 2,5% 2,3% 2,5% 2,4% 2,3% engineering schools in Brazil 1,7% 1,6% 1,8% 2,0% and in the world 1,5% 89 86 73 Technical Committee meets 63 semi-annually to review latest 34 developments in electrical 30 16 18 18 21 theory and applications 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 R&D Spending % Net Revenues More than 800 engineers developing products, such as Wmagnet 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) 13 Q2 2009 Investor Presentation
  • 14. Global Presence Gross Revenues Breakdown (1S09) 11% 10% Europe North America 5% 64% Asia & Oceania 5% 5% Brazil Africa South & Central America 14 Q2 2009 Investor Presentation
  • 15. Global Presence External Markets Revenues (US$ M) Production Facilities Service fast growing regional markets Mexico, Portugal, Argentina 1029 Sales Subsidiaries and China Own commercial and distribution structures in large and growing markets US, Chile, Colombia, Local Reps and Venezuela; England, France, Distributors Belgium, Germany, Italy, Develop market Spain, Sweden, Australia, knowledge India, Japan, Singapore, UAE and Russia Exports to more than 100 120 countries: Canada, South Africa 27 1980 1989 1998 2008 2007 15 Q2 2009 Investor Presentation
  • 16. Unique Product Characteristics Hours of Daily Use 12 16 24 24 Costs during useful life Days of Monthly Use 22 22 22 30 Nominal Power Hp 50,0 50,0 50,0 50,0 97,0% 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 1,4% 1,6% Price / Operating Cost Ratio Months 3,36 2,52 1,68 1,23 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
  • 17. Scale and Customization Customization is characteristic of the industry and specifications are very diverse Largest integrated motor site in the world Integrated and synergetic production allows for large scale of production, with: Lower costs Higher operating efficiency Vertical integration allows for: Customized products Main Manufacturing Plant in Jaraguá do Sul, SC Fastest to the market Incoming Foundry / Orders Cast Machine More than 2,500 Engineering Wires Manufacturing Assembly different types Line of electric Steel Shop Paints & Varnishes motors monthly Tooling 17 Q2 2009 Investor Presentation
  • 18. 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 2008 CASH & 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 18 Q2 2009 Investor Presentation
  • 19. Main impacts from financial crisis Sales and Revenues Costs and Expenses Late 2008 / early 2009: Late 2008 / early 2009: Demand weakness in all segments, but at Costs suffered from different intensities Further price increases for some Domestic use: swift slowdown materials (late 2008) Industrial use: took a while, but dales Weak demand prevents pass- decrease was unprecedented around through of FX and higher costs turn of year Lower occupancy affects productivity Energy: focus on backlog stability and economies of scale and client credit Logistic difficulties with heavy rains / Mid 2009: flooding impacted expenses Domestic use: responding to tax Mid 2009: incentives Working out the impacts of higher costs Industrial use: no end of destocking under a weak demand environment in sight Low occupancy continues to be a Energy: slower order intake (“consuming” backlog) concern. Labor agreement to reduce working hours and wages. 19 Q2 2009 Investor Presentation
  • 20. Profitability Net Earnings (R$ million) EBITDA (R$ million) 25% 23% 23% 23% 22% 22% 1026 20% 923 17% 18% 18% 17% 15% 15% 15% 12% 666 575 560 12% 503 487 504 457 403 375 394 354 308 296 252 08 09 03 04 05 06 07 08 08 09 05 06 07 08 03 04 M M 20 20 20 20 20 20 M M 20 20 20 20 20 20 06 06 06 06 Net Income Net Margin EBITDA EBITDA Margin 20 Q2 2009 Investor Presentation
  • 21. Scenario and Assumptions There is no predicting how long or deep Renewed focus on the downturn will be ROIC under Working hours and conservative No indication of a quick recovery wage reduction assumptions around the corner agreement Reviewing all Slowdown severe for the serial, less Hiring freeze processes for cost customized part of the product line cutting and expense reduction Despite some good signals Material costs declining Destocking seems to be slowing Workforce Rightsizing Continuous Must plan and act under the following Improvement assumptions: Production Program Fairly long recession Consolidation (PMC) (closing 1 plant) Followed by a slow recovery 21 Q2 2009 Investor Presentation
  • 22. 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
  • 23. Capacity Expansion Program Capex and Depreciation (R$ million) 457 Capex Depreciation 306 206 206 146 157 156 126 111 105 96 97 56 67 2003 2004 2005 2006 2007 2008 06M9 23 Q2 2009 Investor Presentation
  • 24. Dividend Pay-out Policy Net Earnings and Dividends (R$ million) 54% 53% 52% 45% 43% 44% 40% 40% 39% 37% 575 560 35% 503 403 375 308 299 301 252 220 229 176 173 165 125 124 133 82 29 89 46 68 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 6M09 Net Earnings Dividends Pay-out (%) 24 Q2 2009 Investor Presentation
  • 25. 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 twitter.com/weg_ir ri@weg.net MSN Messenger luisfernando@weg.com.br 25 Q2 2009 Investor Presentation