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Q1 2014 Investor Presentation
This document provides an investor presentation for WEG, a Brazilian company that produces electric motors and automation equipment. Some key points: - WEG has a history of 18% annual growth through organic expansion and acquisitions. It aims to reach R$20 billion in revenues by 2020 with a 17% CAGR through international expansion and new product lines. - It has unique vertical integration and production flexibility advantages that allow for customized solutions and growth across market cycles. - Megatrends around energy efficiency, renewables, electric vehicles, and smart grids are driving changes in demand and new opportunities in generation, transmission, distribution, and industrial/commercial applications. - WEG aims to provide "end
Q1 2014 Investor Presentation
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- 2. June 2014 Best wayto invest in fast growing global energy efficiency and renewable energy generation businesses 1BM&F Bovespa: WEGE3 / OTC: WEGZY n One of the highest growth capital goods companies; number one or number two in all product lines in Latin America n Unique business model is based on vertical integration, production flexibility and technological innovation n Diversified product lines allows strong growth across different market cycles n We have a history of achieving CAGR of 18% over past 17 years through organic growth and accretive acquisitions n WEG 2020 Strategic Plan aims for R$ 20 billion / 17% CAGR through international and product line expansion 1 2 3 4 5
- 3. June 2014 19,3% 23,1% 9,1% 11,3% 6,3% 5,2% 4,0% 6,6% 4,9% 3,7% 3,0% 1,7% -0,1% -3,0% AWEG B C D E F CAGR 2005-2009 CAGR 2009-2013 Sustainable growth WEG’s revenue growth and margins are among the highest in the industry 2BM&F Bovespa: WEGE3 / OTC: WEGZY Revenues Growth (US$) Profitability (EBITDA Margins) WEG B F E C A D 8,0% 10,0% 12,0% 14,0% 16,0% 18,0% 20,0% 22,0% 24,0% 2009 2010 2011 2012 2013
- 4. June 2014 Energy and industrialefficiency Renewable energy Smart grid Electrical mobility Electric motors represent around 70% of all industrial consumption of electricity, or 25% of worldwide general electricity consumption; Electricity consumption is by far the largest component of total cost of ownership of electric motors (may exceed 95%) for industrial clients; Clear regulatory trend towards minimum levels of electric motor energy efficiency (lower needs to expand generation); Industrial productivity and energy management drives investments. Global drive to lower GHG emissions; Renewables allow distributed generation, closer to consumption and requiring lower T&D infrastructure; Economic viability is highly dependent on scale. With correct price incentives, technology catches up with economics; Diversity of sources increases systems stability and energy availability. No energy is the most expensive energy of all. Increasing urbanization adds to congestions and need of alternatives; GHG and other pollutants emitted by internal combustion engines powered vehicles are well above sustainable levels; Electricity is clearly a more efficient use of energy to power vehicles. Pure electric, hybrids and alternative fuels will grow faster than the market; Powertrain solutions are scalable to all vehicle types and sizes and to other transportation modes (WEG has commercially available solutions in maritime powertrains) Electricity distribution grid is evolving and becoming ”smarter”; All nodes of the system, from generation to consumptions (and everything in between) must be aware of conditions and able to respond to changes; Every existing electric product must evolve. There will be more sensors, more automation, more efficient generation and use of electricity; New products are being developed and change is just now starting. Our industry is undergoing major shifts Megatrends are creating changes in demand patterns and new business opportunities 3BM&F Bovespa: WEGE3 / OTC: WEGZY
- 5. June 2014 WEG’s strategicvision is to provide complete and efficient solutions with a complete line of electrical machines, from the generation all the way to the consumption. This means that we want to continue to be a competitive supplier of electrical equipment for typical applications. For example, WEG is one the world's largest supplier of industrial electric motors used by OEM in the manufacturing pumps, compressors “End to end of the wire” The global solution in electric machines and automation for the industry and energy systems 4BM&F Bovespa: WEGE3 / OTC: WEGZY and industrial fans, the typical uses of such products. We also can use this production competitiveness and flexibility and our broad product line to integrate those products into a complete solutions. We can combine electric motors of several types and sizes with the drives and controls to create complex industry automation systems. Or complete solutions for electricity generation from renewable sources. Or complete energy substations for just about any use. Important to note that these systems are basically comprised of WEG manufactured products. This integrated approach based on competitive manufacturing capabilities has been the basis of our market presence and how we present ourselves to our clients and to the general market. Generation Transmission Distribution Industrial use Electric traction Building Automation
- 6. June 2014 Strategic Positioning WEGoffers a complete range of electric products and systems with an integrated one-stop solution 5BM&F Bovespa: WEGE3 / OTC: WEGZY Motors Fractional Industrial High Voltage Gear boxes Energy Alternators Thermal (Biomass) Small Hydro Wind Solar T&D Power Trafos Dry Trafos Distribution Trafos Substations Automation Drives Controls Panels
- 7. June 2014 Clear competitiveadvantages Unique business model creates important and defensible competitive advantages DiversificationVertical Integration Financial Flexibility Modular Expansion Global Presence Vertical integration allows production flexibility to competitively supply small batches of highly customized products that are matched to perfection to our customers’ needs. We do mass customization, not mass production. Our production flexibility allows us to target the markets (geographies, segments and products) that offer the best growth perspectives. It also allows us to target markets based on returns, not on our needs to occupy specialized production capacity. Financial flexibility allows WEG to pursue growth opportunities as they become available. These opportunities range from trivial, like raw materials procurement at attractive conditions, to strategic, like acquisitions . The diversity of our product offering also allows us to expand internationally, leveraging the expertizes we have developed into new markets and being a premier partner for our global customers Our production system is also based on modular expansion, avoiding idle capacity build up, maximizing returns on capital e lowering demand risks. 6BM&F Bovespa: WEGE3 / OTC: WEGZY
- 8. June 2014 WEG business Diversifiedproduct line allows for strong growth across different market cycles 7BM&F Bovespa: WEGE3 / OTC: WEGZY Automation Electric Motors Paints and Varnishes Industrial Electro- Electronic Equipment Motors for domestic use Coatings Automation Energy T&D Energy Generation, Transmission and Distribution (GTD) Electric Motors
- 9. June 2014 10,4% 13,5% 14,7% 15,9% 12,1% 10,0% 10,3% 11,8% 14,3% 353 372 466 527 628 800 1.066 1.282 1.694 2.204 2.515 3.009 3.749 4.502 4.211 4.392 5.189 6.174 6.829 30 41 58 98 82 125 176 220 308 403 375 503 575 560 549 519 587 656 843 10,9% 12,6% 18,5% 13,1% 15,7% 16,5% 17,2% 18,2% 18,3% 14,9% 16,7% 15,3% 12,4%13,0% 11,8% 11,3% 10,6% 12,4% 59 67 96 119 133 188 256 293 381 475 462 617 839 1.021 812 789 851 1.017 1.230 18,1% 20,7% 22,5% 21,2% 23,5% 24,1% 22,8% 22,5% 21,5% 18,4% 20,5% 22,4% 22,7% 19,3% 18,0% 16,4% 16,5% 18,0% Revenues (R$ million) Solid growth track record Business model allows us to find and explore growth opportunities, even under unfavorable macroeconomic conditions 8BM&F Bovespa: WEGE3 / OTC: WEGZY EBITDA (R$ million) and EBITDA Margin CAGR 20.4% Net Income (R$ million) and Net Margin ROIC CAGR 17,9% CAGR 18.4%
- 10. June 2014 WEG Strategicplanning process We adopted a bottom–up approach, selecting the individual opportunities that offered the best fit to clear strategic guidelines 9BM&F Bovespa: WEGE3 / OTC: WEGZY Opportunities Discovery Business analysis The process started with the involvement of management at all levels, from market-facing mid-level managers to senior C-level officers, that discussed recent evolution, trends and growth opportunities, current and future, in all our core and adjacent markets. The ideas were developed into business plans, including market assumptions, earnings and cash flow projection models, so each opportunity could be assessed in terms of its expected results and margins. Capital Requirement analysis The analysis then considered the capital intensity of each opportunity. The results and margins are not necessarily good or bad, they must be considered within the context of the capital required to pursue the growth opportunity. The net result is ROIC. Risk adjusted ROIC analysis Finally, each opportunity was assessed in terms of identifiable, business-related, non-systemic risks. This was then used to adjust the ROIC, or ROIC’
- 11. June 2014 4.392 5.189 6.174 6.829 20.000 18% 19% 11% 2010 20112012 2013 2014 2015 2016 2017 2018 2019 2020 WEG Strategic Plan 2020 Corporate aspiration of R$ 20 billion by 2020. Growth comes from diverse base, with a disciplined approach to organic and non-organic expansion 10BM&F Bovespa: WEGE3 / OTC: WEGZY 1/3 Non Organic 2/3 Organic CAGR 17.9% CAGR 17% 20.000 Base
- 12. June 2014 Our products/ markets enjoy fairly healthy organic growth trends. For example, the global market for industrial use electric motors is independently estimated to grow 5% to 10% per year. If we are able to maintain our market positions, either leadership and / or strong brand recognition, we will be in position that advantage of this healthy growth dynamics; Growth drivers The growth opportunities identified can be separated into three distinct categories/growth strategies 11BM&F Bovespa: WEGE3 / OTC: WEGZY We will continue to expand into new geographies, initially with industrial electric motors. As we have established market positions and/or recognized brands, we will leverage those to synergistically expand the product line. We will also continue to expand the product line into business / products that complement the offering and allows us to offer our clients more complete and efficient solutions. International Expansion International Expansion New Businesses New Businesses “More and Better” “More and Better”
- 13. June 2014 Technology MarketAccess 2010 2010 2010 2010 2011 20112011 2011 2012 2012 2012 PortfolioStrategy Clear vision of attractiveness of opportunities and of the strategic fit 12BM&F Bovespa: WEGE3 / OTC: WEGZY March 2014 February 2014 September 2013
- 14. June 2014 Revenue profile 13BM&FBovespa: WEGE3 / OTC: WEGZY 2013 2008
- 15. June 2014 50% 35% 15% 2013 Global productionplatform 14BM&F Bovespa: WEGE3 / OTC: WEGZY Produced and sold in Brazil Produced in Brazil and exported Produced and sold abroad 65% 31% 4% 2008
- 16. June 2014 0,0% 10,0% 20,0% 30,0% 40,0% 50,0% 1Q06 1Q071Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 Working Capital Inventories Clients Suppliers Advances Capex (R$ million) Use of cash 15BM&F Bovespa: WEGE3 / OTC: WEGZY Research & Development (R$ million) Net Earnings and Dividends (R$ million) 42 38 49 73 83 126 206 146 111 305 457 226 233 188 238 244 8,0% 6,1%6,1% 6,8% 6,5% 7,4% 9,3% 5,8% 3,7% 8,1% 10,2% 5,4% 5,3% 3,6% 3,9% 3,6% % of Net Revenues 16 18 18 21 30 34 63 73 86 89 83 101 131 148 183 2,5% 2,3% 1,7% 1,6% 1,8% 1,5% 2,5% 2,4% 2,3% 2,0% 2,0% 2,3% 2,5% 2,4% 2,7% % of Net Revenues Working Capital (% of Net Revenues)
- 17. June 2014 Issuer Ticker Number ofShares Share price Market value WEG S.A. WEGE3 (BM&Fbovespa) / WEGZY (OTC – ADR Level 1). Listing Segment Novo Mercado (since 2007) Issued: 807,176,538 In treasury: 615,564 Ex-treasury: 806,560,974 On Dec 30, 2013: R$ 23.97 On May 30, 2014 : R$ 26.01 On Dec 30, 2013: R$ 19.3 billion On May 30, 2014 : R$ 21.0 billion Liquidity (average daily volume) In 2013: R$ 15,193 thousand / day In 2014: R$ 15,896 thousand / day Composition of Free Float 56% - Foreign institutions 03% - Brazilian institutions 41% - Others (individuals, etc.) Capital markets information 16BM&F Bovespa: WEGE3 / OTC: WEGZY
- 18. June 2014 35%50%14% WEG S.A.WEGS.A. Voigt 33.3% Voigt 33.3% Silva 33.3% Silva 33.3% Werninghaus 33.3% Werninghaus 33.3% Treasury and Management Treasury and Management WPA Participações e Serviços S/A WPA Participações e Serviços S/A Founders’ Families (directly) Founders’ Families (directly) Free FloatFree Float 1% Shareholding structure 17BM&F Bovespa: WEGE3 / OTC: WEGZY
- 19. June 2014 6,00 8,00 10,00 12,00 14,00 16,00 18,00 20,00 22,00 24,00 26,00 28,00 WEGE3shareprices(R$) 18 WEGE3 performance 18BM&FBovespa: WEGE3 / OTC: WEGZY Inclusion MSCI Brazil Inclusion Ibrx-100 Selected for ISE 2013 Selected for ISE 2014
- 20. Highlights Yearly Figures 19BM&F Bovespa:WEGE3 / OTC: WEGZY 2013 2012 % 2011 % Net Operating Revenue 6.828.896 6.173.878 10,6% 5.189.409 19,0% Domestic Market 3.432.040 3.016.662 13,8% 2.902.958 3,9% External Markets 3.396.856 3.157.216 7,6% 2.286.451 38,1% External Markets in US$ 1.569.891 1.610.330 -2,5% 1.361.689 18,3% Gross Operating Profit 2.236.766 1.880.856 18,9% 1.556.051 20,9% Gross Margin 32,8% 30,5% 30,0% Quarterly Net Income 843.467 655.979 28,6% 586.936 11,8% Net Margin 12,4% 10,6% 11,3% EBITDA 1.230.032 1.016.748 21,0% 851.155 19,5% EBITDA Margin 18,0% 16,5% 16,4% EPS 1,35950 1,05730 28,6% 0,94605 11,8% Figures in R$ Thousands
- 21. Highlights Quarterly Figures 20BM&F Bovespa:WEGE3 / OTC: WEGZY Q1 2014 Q4 2013 % Q1 2013 % Net Operating Revenue 1.783.543 1.893.299 -5,8% 1.477.577 20,7% Domestic Market 895.446 913.388 -2,0% 772.935 15,9% External Markets 888.097 979.911 -9,4% 704.642 26,0% External Markets in US$ 375.677 428.229 -12,3% 353.077 6,4% Gross Operating Profit 570.421 615.847 -7,4% 463.604 23,0% Gross Margin 32,0% 32,5% 31,4% Net Income 204.887 237.439 -13,7% 172.299 18,9% Net Margin 11,5% 12,5% 11,7% EBITDA 299.643 341.653 -12,3% 248.898 20,4% EBITDA Margin 16,8% 18,0% 16,8% EPS 0,33023 0,38270 -13,7% 0,27772 18,9% Figures in R$ Thousand
- 22. Highlights Balance sheet –Assets 21BM&F Bovespa: WEGE3 / OTC: WEGZY (R$ thousands) R$ % R$ % R$ % (A)/(B) (A)/(C) CURRENT ASSETS 6.602.879 67% 6.851.787 68% 6.310.741 66% -4% 5% Cash & cash equivalents 3.247.375 33% 3.373.799 33% 3.279.518 35% -4% -1% Receivables 1.576.829 16% 1.658.806 16% 1.347.331 14% -5% 17% Inventories 1.461.766 15% 1.445.927 14% 1.316.606 14% 1% 11% Other current assets 316.909 3% 373.255 4% 367.286 4% -15% -14% LONG TERM ASSETS 134.326 1% 123.866 1% 107.528 1% 8% 25% Long term securities 2.097 0% 2.230 0% 2.059 0% - 2% Deferred taxes 68.870 1% 60.376 1% 43.337 0% 14% 59% Other non-current assets 63.359 1% 61.260 1% 62.132 1% 3% 2% FIXED ASSETS 3.161.488 32% 3.165.640 31% 3.078.166 32% 0% 3% Investment in Subs 8.091 0% 7.264 0% 7.577 0% 11% 7% Property, Plant & Equipment 2.605.834 26% 2.614.556 26% 2.544.242 27% 0% 2% Intangibles 547.563 6% 543.820 5% 526.347 6% 1% 4% TOTAL ASSETS 9.898.693 100% 10.141.293 100% 9.496.435 100% -2% 4% March 2013 (C) March 2014 (A) December 2013 (B)
- 23. Highlights Balance sheet –Liabilities 22BM&F Bovespa: WEGE3 / OTC: WEGZY (R$ thousands) R$ % R$ % R$ % (A)/(B) (A)/(C) CURRENT LIABILITIES 2.506.714 25% 2.578.048 25% 2.852.160 30% -3% -12% Social and Labor Liabilities 199.637 2% 216.553 2% 172.007 2% -8% 16% Suppliers 379.952 4% 420.250 4% 365.492 4% -10% 4% Fiscal and Tax Liabilities 137.847 1% 139.570 1% 103.069 1% -1% 34% Short Term Debt 914.246 9% 912.796 9% 1.526.274 16% 0% -40% Dividends Payable 47.016 0% 87.723 1% 36.718 0% -46% 28% Advances from Clients 469.261 5% 459.130 5% 306.889 3% 2% 53% Profit Sharring 44.201 0% 34.191 0% 38.260 0% 29% 16% Other Short Term Liabilities 314.554 3% 307.835 3% 303.451 3% 2% 4% LONG TERM LIABILITIES 2.822.456 29% 2.920.978 29% 2.528.789 27% -3% 12% Long Term Debt 2.192.311 22% 2.296.208 23% 1.878.432 20% -5% 17% Other Long Term Liabilities 98.307 1% 95.031 1% 123.063 1% 3% -20% Deferred Taxes 292.073 3% 294.405 3% 319.621 3% -1% -9% Contingencies Provisions 239.765 2% 235.334 2% 207.673 2% 2% 15% MINORITIES 77.959 1% 84.495 1% 80.931 1% -8% -4% STOCKHOLDERS' EQUITY 4.491.564 45% 4.557.772 45% 4.034.555 42% -1% 11% TOTAL LIABILITIES 9.898.693 100% 10.141.293 100% 9.496.435 100% -2% 4% March 2013 (C) March 2014 (A) December 2013 (B)
- 24. Highlights Balance sheet –Cash flow 23BM&F Bovespa: WEGE3 / OTC: WEGZY (R$ thousands) 3 Months 3 Months 2014 2013 Operating Activities Net Earnings before Taxes 269.317 221.413 Depreciation and Amortization 58.805 52.136 Provisions: 88.495 67.655 Changes in Assets & Liabilities (12.641) (6.294) (Increase) / Reduction of Accounts Receivable 118.511 91.360 Increase / (Reduction) of Accounts Payable 50.259 46.754 (Increase) / Reduction of Investories (10.915) (10.480) Income Tax and Social Contribution on Net Earnings (81.448) (71.190) Profit Sharing Paid (89.048) (62.738) Cash Flow from Operating Activities 403.976 334.910 Investment Activities Fixed Assets (64.284) (56.759) Intagible Assets (3.208) (811) Results of sales of fixed assets 490 903 Accumulated Conversion Adjustment (53.618) (25.135) Long term securities bought 132 (4.497) Goodwill in Capital Transactions (2.699) (5.169) Acquisition of Stakes of non-controlling shareholders (5.947) (6.268) Aquisition of Subsidiaries (13.229) - Cash Flow From Investment Activities (142.363) (97.736) Financing Activities Working Capital Financing 16.382 827.186 Long Term Financing (112.601) (136.811) Interest paid on loans and financing (43.588) (11.277) Treasury Shares - - Dividends & Intesrest on Stockholders Equity Paid (248.230) (204.724) Cash Flow From Financing Activities (388.037) 474.374 Change in Cash Position (126.424) 711.548 Cash & Cash Equivalents Beginning of Period 3.373.799 2.302.256 End of Period 3.247.375 3.013.804
- 25. Highlights Balance sheet –Debt and cash position 24BM&F Bovespa: WEGE3 / OTC: WEGZY (R$ thousands) Cash & Financial instruments 3.249.472 3.376.029 3.281.577 - Current 3.247.375 3.373.799 3.279.518 - Long Term 2.097 2.230 2.059 Debt 3.106.557 100% 3.209.004 100% 3.404.706 100% - Current 914.246 29% 912.796 28% 1.526.274 45% - In Brazilian Reais 503.749 16% 462.336 14% 1.077.205 32% - In other currencies 410.497 13% 450.460 14% 449.069 13% - Long Term 2.192.311 71% 2.296.208 72% 1.878.432 55% - In Brazilian Reais 1.976.524 64% 2.048.766 64% 1.646.899 48% - In other currencies 215.787 7% 247.442 8% 231.533 7% Net Cash (Debt) 142.915 167.025 (123.129) Março 2014 Dezembro 2013 Março 2013
- 26. June 2014 WEG InvestorRelations Contacts Sérgio Luiz Silva Schwartz Investor Relations Officer Luís Fernando M. Oliveira Investor Relations Manager +55 (47) 3276-6973 luisfernando@weg.net twitter.com/weg_ir 25