WEGZY - Earnings call transcript Q4 2021

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Operator

Good morning and welcome to the WEG Conference Call for the Earnings of the Fourth Quarter of 2021. We inform you that we are transmitting this conference call accompanied by the slides on our Investor Relations website at ir.weg.net. And after it finishes the audio will be available on our Investor Relations website. [Operator Instructions] Any predictions contained in this document or any statements that may be made during this conference call about future events, business prospects, projections and operating and financial goals of the company and the potential future growth of WEG are based on beliefs and expectations from company’s management based on the information currently available. Such statements involve risks, uncertainties and therefore, depend on circumstances which may or may not occur. materially general affect industry WEG the to that that operating and and understand in results may expressed factors future differ should economic statements. conditions conditions, other conduct such Investors forward-looking those from performance of remind simultaneous We the conference call Portuguese into English. that is would you this conducted being like in to translation with Finance Officer. Wilson are General Director, Rodrigues, us here Watzko, and With Controlling Luís today Relations at André Jaragua and André Salgueiro, Administrative do Officer; Investor Sul Financial Mr. André continue. may Rodrigues you

André Rodrigues

increase Good the of be the of a the the again, let's of morning, XX.X% when pleasure with here worldwide by results to compared material wind recovery to fact contributed regions operate Brazil, and where power we several of presented when economic for with for in grew where quarter when everyone. significant compared It's had quarter period significantly, earnings with generation ‘XX. a solutions to the The growth in international last performance an the you once industrial has revenue fourth was to a equipment solar also net important highlights start WEG. continuation energy Good equipment for same providing of the year. in the call in especially demand operating conference Well, the businesses market. renewable related

with quarter Salgueiro when mix the XX.X% cost to was performance. grew details the which points R$X.X Another in materials of and presentation last will at EBITDA drop of due about more sold. points, EBITDA close the the to by this XX.X%, reaching products movement This give Throughout highlight expected the was and to quarter of André billion, year. the also of increases compared margin percentage a X.X

when the XX.X% of quarter than reaching the points increase by in see Finally, by It revenue to the improvement we period the development compared combination next for year, margin, XXXX last performance to the fixed investments in we'll more fourth the working in when and quarter operating assets offset need grown five of compared same shown growth percentage better EBITDA the of period. higher in as in of ROIC slide. our and another of had has capital

André Now the floor turn I over to Salgueiro.

André Salgueiro

Andre. you, Thank

large washing agribusiness segment sales of presented motors this performance transformers transformers volume food a the such with gradual Sales and growth of water for with machinery for generators automation levels, also On in transmission cycle operate. good auctions, segments zero of such short also in development business a driven motors industrial sales products and in machines energy to segments have Paper along and the T&D positive electric the equipment, presented electric quarters. networks. as distribution the sales I automation X slide equipment, the of for despite solar our In for and where motors the in related industries. we quarter, show and activity GTD, Commercial in wind substations beverage good equipment areas electronic kits, markets products with reducers the cycle and low electrical business delivered and to of the agricultural such the for we and these destined Brazil, by other area mining Starting for and we impacted applies virtually distributed all and in motors, turbines, especially medium for for this and of and the industrial panels a continued appliances sources, Pulp had especially generation high return demand leveling highlights sanitation. of with projects businesses, as as demand grown, long voltage, voltage

gas, XXXX. industrial noticed signs of short segments. of a resumption and tools. segments order with in presented In quarter with strong portfolio strategic after an second agricultural the in industrial of the of projects In quarter. hard and quarter the As varnishes, quarters, influenced equipment general, new for commercial this in several American recovery, demand and the important of areas projects demand electronic with tools expected the equipment oil and gain of we of by with Compressors water in sales WEG we've acceleration increase in growth we and and United quarters, the Mexico. such highlights recovery the confirming the mining this the the and our last the increased seen movement and market, improving sales our sanitation. appliance sales, as Pumps States segments Africa. positive important for the manufacturers, T&D have for reported equipment in and anticipated economic pulverize continuation road among happening highlights seen was In the investments demand of motors, the circuit the In of the by international was cycle paints products the the and TTD, North of in for recovery Long and were remain in OEMs in of industrial performance last equipment in in electric the explained also of share the orders another market

such with EBITDA of operations and the of costs X, a when the XXXX, and a the we the see the points compared say XX.X%, at last of Brazil, chain, confirming consequent percentage close global end to On paints fourth supply in compared the to of increase from XXXX. of American growth quarter. of Latin those of in in new development we quarter in year. operating presenting same quarter XX.X% movement, in when with through ‘XX, of from raw products, of EBITDA margin margin, fourth reduction of the expectations slide where reduction of along our revenue in our power, quarter of the in the paints this of of to a this countries Mexico, a regarding especially Chile, with wind plant the exports materials, X.X started the mix due we varnishes, as change margins Finally, grew projects in our resulted period challenges

the floor to our and Andre. year. of plants investments acceleration the United my Finally, X, and in XX% in we reached projects With Sul on show processes half expected increase our China higher ’XX, development the capacity, I do at two the XQ, investments of Brazil, to this, in XX% second Mexico, part, the improve concentration million, and R$XXX.X investments, I continuing over in units of States, India, the increase for slide Jaragua abroad, turn investments in plan gains end with productivity confirming and

André Rodrigues

remainder the commercial [Indiscernible] executed XXth to the investment first, BX. of of and on in dedicated important the business. the be results regards adjusted responsibility chain selected would margin an it of In to level low motors, the Portugal is million to very which and manufacture the investments on the to indicator XX.X%, in net of challenging fins, of investment R$XXX by basis of Before industrial our an efforts to reached I achievements of consolidated credit we on scenario, we and In and be we for Despite raw company. the it EBITDA of up record with prospects speak constant index materials and We XX of expect capacity. in center of the special high a the company's a achievements, we the in the cost announced regarding acknowledgement net the of and to important in Brazil, on state motors move global session, in our the despite of electric non-recurring XX.X%, voltage to challenges profitability sustainability effects medium and XXXX positive XX.X%. electric same and and the we XXXX, of like closed I new ROIC expansion increases for XXXX. With following of completed for Q&A like culture a new calculation when throughout supply to managed XXXX, to were growth is the fitted very about to EUR our focusing of plant part fiscal last be million annual year, plant would rather the recorded things, or estimated consecutive to in Central to maintain the at recently increase with That's year. of some -- of XX.X% year highlight comment revenue an ISE [Indiscernible] reached ICMS by

rates have prospects of year, of industrial both impact positive the cycles cycle demand the expect revenue, to and electric new short businesses GTD, year that of good development the It's the we to and external of the market to prospects the Finally, in especially we throughout and the of GDP products prospects in interest in important cycle and equipment globally, lower due for the can long Brazil portfolio growth another highlight of new of the short equipment remainder growth electronic year. on of for the areas entered. for higher

I budget is should dynamic the session. in Portugal to due the postponement be Mexico, and support of growth, which of due some Q&A WEG. approve the production the billion, significantly United healthy, conducted India, of for some will presentation to Our To to business capital XXXX. increase we the Brazil, realized can R$X.X we now years operating remain due end And please, move the the of margins that one than with possibly in capacity but the the States, projects higher of the volatility of levels to latest current China. on

Operator

Credit from Daniel Instructions] comes Gasparete Suisse. Our from question [Operator first

Daniel Gasparete

see is we Good see the in bit would to except two most morning, XXXX consolidated understand like you the the everyone. non-recurring a we a lower. conversations recurring, events, I EBITDA how question, the for In to had, XXXX? call. and the margin quarter first similar Thanks for usually I margin have do

activity. see I do whether composition of supply of a bit the slower talk where GD, and of would if That's changes? would regulatory market affects dynamic XXXX the it like to we price fourth throughout margin quarter So to the I first in second change question. was see do change you. some And that. the understand bit the that that see from Thank come or sales the there how would in and the a reflex how year? a the some in you chain fourth about domestic adjustments be framework, of the you will the like of quarter

André Rodrigues

of André is margins beginning expectations first Rodrigues talk is highlight speaking. analysis that the about for This looking periods. margin always Daniel. Hello, at longer the this year. our Well, I'll to point

quarters. careful that be are say among may there enough We variations to

still what Since is have The things remain to on has mind. in longer do we same we pressure have margins the in make throughout nothing return could is in from year, So last could said the year. margins right the that of that wind and analysis increase more products, pressure periods significance especially the in changed. has mix of to costs with thing exert a the exert the pressure turbines revenues on

to be was above to margin international to reduced, continue aspects the will the market the of the On to side, the of we could other market, what regarding did to of the the acceleration the beginning that prices the And you but in now in positive don't and tell average. addition are not that guidance margins help also the right provide can deliver recompose margins. demand expect XXXX. year, the in in We margins, seen sales I work composition year

André Salgueiro

Salgueiro André Good you is morning, thank the this speaking, questions. for

harbor way of the quarter, the back the closing the November. in impacts, and fourth especially has energy quarter that in chain more and we now. normal. solar in supply in in a in December, for time grown the of port November, look that like caused when some beginning in specifically, the and to on effect But to fact, we it. question business some your there around As October, crisis of at that fourth GD, went And would for I October evolved of generation, the the was But China, remind you had back

established, we of the months specific chain anymore. happened that first was few thing with have don't a very XXXX concern Today, the in we enter the it we so quarter. And that

was XXXX. law according As part throughout beginning to project's continue was in the the the of for year, the XXXX, of until law, question. the benefit full implemented the with the second your Yes, there to new enacted

So people of were to anticipate some these projects. trying really

of buy in expect these these purchases. So we do started pre the because in some purchases But regulation of larger end the some of anticipation changes XXXX.

made of already people expectation many their So the in purchases of the enactment law.

don't we some exactly how much. have but year, could during this this know So effect yet

Operator

Araujo Rogerio from UBS. The next question from comes

Rogerio Araujo

potential? Good your during morning, the in India, acceleration see we've everyone, may we can division electronic market, industrial international by revenue this high wind come growth we forgotten the bit that an to finally, the like of update potential seen especially on other mainly based vehicles, niches. the do if outside and André you. share States, with driven still acceleration portfolio, a about understand to are segment Salgueiro. Europe, has so in United would level have And comparable If sales of especially you or transformer orders the Thank from acceleration opportunity. has in be within I incremental detail it this And in high And any any that what us outside have would give delivered revenues could such about as to have segments growth does Brazil, is for to electrical low more if comparable next when can some the it so reached level give basis? you basis? how mention? again, in WEG quarters growth -- growth segment, electric an these will high industrial you explore could So that. we like I a a could remain which and the it Brazil understand equipment still the the I close solar just Thank when

André Rodrigues

Thank Hello, question. the you Rogerio. for

of start market. dynamics talking foreign the Let's about the

additional said to this we to In market better I with XXXX. some that it the slide to of revenues and was pandemic, think better has pandemic same had that talk it's of market reasons. may during compared what presentation due We said an as surprisingly, than now. the external early have that performance half the we we about too XXXX, in after And we expected. the had the acceleration have post XXXX performance as international in next was was we second

for long WEG, of cycles, in external But that long recover, for that machines our look the our among other in We a said portfolio cycles. XXXX we and very to equipment. may areas manufacturers I business industrial high example, equipment vehicles started areas scattered and start say voltage the our as in with as at our market the demand First, important industrial of United and we for such this is year when Europe, short of I'm in good States sorry, T&D. continuing products we very

such see So, segments gas it's But internationally, and company abroad, we've out at in point segments growing different plant is new transmission itself when Kazakhstan, TD, demand we the has companies commercial to the development working helped voltage the We which is India, an capacity more. are positioned long and India. the low where we explaining positive have industry North organization increase abroad, in we to as the our oil solutions, and know Europe finishing performance what cycles and and important is mining motors opening in other disclosed good products This of as generation Holland, with in a is grow started to in such and countries. we of and sanitation American also to see high especially we and production that and water in you internationally. a has that demand the

André Salgueiro

speaking is This Salgueiro Rogerio.

the it's with of said to second that an at a the we XXXX that starting Allianz. important third continued the part contract revenues increased. would disclose returned the sales quarter wind end and first was we in for in the year. bit last quarter the And market quarter And past As fourth of better, then have of grow, the to be

to XXXX, the year, XXXX. term. have will the to for For and wind of backlog the medium business expectation this currently for complete to years, demand continue for and that's of half portfolio XXXX. future the is the throughout Due up positive believe announced a that goes have in we Even the high projects we market short develop we

see of many, avenues your main topics. many last can address But We in we three growth. for explain. question, separate addressed if let As you I me

international, the United capacity Brazil opportunity TD for motors the first have Andre The going are we to in and abroad, business is such plant India. low of We some the growth that States, mature in as industrial mentioned in voltage WEG commercial of internationalization grow and of expanded examples the activities.

So we're as such generation. working on businesses area, mature industrial automation

opportunity Brazil the in digital is businesses, to is of yes, So we here the United recharge this power now. development electric When move there's It a mobility. new vehicles also developments stations. storage of terms There business. always business, focusing Brazil be main three electric businesses the in mature for mentioned, and energy pursued which ones we trains in large the where right States Brazil, The concentrate and are our we and duty lot to in in growing here a is and heavy of is company. which

are these we opportunities. renewables in area that established are also just area an Brazil. the to So well the is complement And main here

looking countries. for they go of We're year. end in trying turbines an international then we're being And certified. start the sales finished the then it and the So starting now area. example, India energy And wind to process. opportunities the is solar to this we And with be are until Latin we'll American expect abroad,

Operator

first from from question The is Laghi XP Lucas Investimentos.

Lucas Laghi

when Have would XXXX? do What André we for when first the to look highest I morning, be to it recent would you appliances? a may the in So you to utilization point at price understand any of capacity. maybe of this the Good positioning the motors made indicates like expect half which to in second level in good segments Salgueiro. understand at capital, prices of XXXX? turnover years, is invested pricing. revenue I the In compared what second And increase in like Rodrigues is and the do half segment.

to especially CapEx Brazil. So necessary increase to If material XX% this its you're at in higher here prices. close increase the capacity level ‘XX in capacity, despite is raw limit, for the

up capital So and thank on the margin, you. follow investments,

André Rodrigues

question. know on for Lucas. plans XXX% including what if don't so But I we I is asked. first voice good point everyone this follow the Hello, coming that. same chopping. sure morning. uses talk a the of not can about was one if capacity the up had your your if Please understood We're margin problem. us, the is for so, CapEx you about years. price second composition. for and If confirm the expansion And and is in seeing But

Lucas Laghi

margins CapEx budget limit close the Yes, the today. to and

André Rodrigues

Okay, we address let's do points. still you. have a time those hard understanding But

re-composition especially Okay, margins, in obviously, that materials. we which costs, short and always price of cycle what products short in is is for industry regarding say pass-through usually cycle, terms some of we list. have price, a the a And

And So XXXX. been needed, longer. we've we of try from when The time are there costs. to that time to we because involved, long prices. also projects adjust it prices speak then doing readjust cycle, we and when takes since projects, But

update pipeline the projects is with time and we being equalization delivered and So costs of prices. you the new for the have

from So of check also looking that can of on materials breakdown the total of cost you over costs. of that view point the

the normal theory, that in quarters. So along should levels resume next

question. As your for second

are the goal, abroad. for the was given can Brazil we is in level the If continue see order operating not R$X.X we the now, XXXX, the capital had that at fact, with of grown level that's in XXX% have – ‘XX, to approved we meet growth in revenue, in high, say we that in year we end, investments deliver to will capacity growth we and we to and had utilization for a of capex the a the But of need of we've able high historical high that budget. We've capacity investments, today to and million happen R$XXX demand may are be a exchange rate we consider always high ‘XX, the this they we our growth most. approved that million, XXXX. both the increase capacity almost for In and budget see a with highs is in

Operator

next The Lucas question from Santander. from Barbosa comes

Lucas Barbosa

on increases. for the in -- a working of products in morning, been Good large Thank large inventory capital. of everyone, is congratulations have you progress My the And a it earnings. production work There is about an and question. question portion exports.

increase import or could accommodation that in you that high levels. products a in levels, production has global what leveling expect been of then inventory any for if are that normalization, and year? in happened if you things, productions are specific about has there talk the Any in thing So explain this and affected any in inventory process

André Rodrigues

good Lucas, morning.

I lower let's sure, but capital, volatility there increase ensure of has inventories. which that inventory, helped increase concentrated order for offset despite chain the -- many and for implicit with So talk in the Also our advances of our working the and in happened levels shortly, in is was last components of that and would some long that quarter, was about in This quarter's the And given which in had talk of dynamics capital pandemic, supply inflation purchase problems that. in is in receiving capital. freight highly somewhat anticipated inventories. in the the in receivables last that no global have to cycle trade has the term WEG And deliveries. about improvement on will the the there to the increase to working historical products, difficulties always our reason increase the In due average than client costs presented. customers an from the we we delayed cases, an

the and arrived the at end So they of year. concentrated

areas led an some in inputs, our So inventory as increase working levels of which to capital. the to increased I said, ensure needs manufacturing safety we in

chain. the we the get comfortable we and of for conservative, have long have there that And supplies, to products the a specific high the But pandemic have moments very the more had values the difficulties supply of inventory is inventory cycle increase this the levels. but that regarding more deliveries when we clients the had to we being and of and our ourselves as the supply you low the be when of soon taken chain, of be throughout the reliability you course, supply actions at trend as are and Of levels chain reduced you visibility safety year, at of to increases ensure had high in our position as with situation demand of is would without to products to produced after production. to compromising main continue we with villain commodities, operate, said, the some Salgueiro capacity receiving that

Operator

is The from Marcelo from next question Motta JPMorgan.

Marcelo Motta

have I morning. Good two questions.

If year-on-year an level what million domestic at at seen looking of remained at dynamics? about quarter, historical of compared Should a that maintain in it CapEx equipment, like you CapEx some that growth the be lower doesn't we've understand could should sense on this XXXX industrial forward? to mean, we of is last might anything make comment X%. And Thank to have R$X.X for slightly ’XX has comment just CapEx, caused course, due recovery? the this does years XXXX, going decrease? Because that or like levels some that would from to this say average with you. to year, but expect market three last when I I understand it

André Salgueiro

This good is Salgueiro morning. speaking, Motta,

we is see and industrial the for in well, good positive, electronic Brazil, As equipment activity still end still demand. in the

quarter also some from be long in The that projects, could seasonality has that can effect. is December, no So And some one we cycle there to have the only mismatches. new the the thing for year some see been other, may there effects. at end,

of but a from demand point the the So view demand two But the these to we longer end. company these understand attention. of it's are good important effects, see to in timeframe at still look points from in very a order

that, around over course, had don't happened X% any high, the revenue we end appliances, for the year. example. But leaps, in the last of Of said, that the as X% slightly of we CapEx usually growth to R$XXX XXXX. XXXX such carryover first do million operating signs as important from that see half as will those year, commercial on as a imagine don't invests in it view, we to term a for in we of Salgueiro in long slightly large above remember CapEx it's Motta, company in this be came net because the

to that a in making in long use So see which that will you plants construction don't five, so and we certain our this in of the decisions we compared what increase acquisition this for see at. CapEx, aggressive it's of the less cash going in regarding of performance in that doing at segment, operate to change behavior But of level And usually on any were terms terms in we're order strategic new percentage year. or depend could we as products us reduce the be the to and of to capacity develop if the run, this be percentage make an if to causes be to three some able company closer more it us investment.

Operator

The Victor is next from Mizusaki from BBI. question Bradesco

Victor Mizusaki

regarding investment quick is comment an the have rate for plan in of capacity growth. could process the the this this segment orders. on in entry two question, lately, completed Does million Congratulation performance. WTU. on XXXX. second a year, new morning. And power in investment Last know wind the question I the of for include it usage if offshore turbines? wind and of you don't development I Good in seen you Brazil, the R$X.X projects we've

André Salgueiro

morning. Victor, Hello, good

our currently. And this we study technology wind do that any direction. Regarding do moment, not have to that have in in not we offshore power, portfolio

We are now of generation second the in onshore wind turbines.

market work are where we are of the domestic onshore India far. This focused also market. So we will And highly with. with And X.X lot in of we're announced has that's working a to potential we market why be this that on developed the and we machine is the have projects. Indian so

year. we It's the of United to that in the now And plants of in the well in which orders third have the increase reported last not one of of doing was construction with led changed. dynamics, the States. As number last United capacity States coming, for to good open quarters investing are the has plant WTU, the we very the

areas because segment first the opportunity providing distribution large develop the and the increased the concessionaires increase of have there that States in United an to and of explored invest industrial well. secondly, with opportunities, exposure. supply some United have in with wind because solar low we in capacity in high capacity All WTU the transformers is renewables, that United we synergy equipment And the are capacity, And energy These leaders which in makes new are transformers in important WEG be is has increasing for and which States. these us doing segments. where we'll Mexico, very States, in

said, going as I are of nothing dynamics things So terms and fine. in has changed

Operator

question from next is Recchia from Fernanda BTG Pactual. The

Fernanda Recchia

you the questions. everyone. Hello, for I question. have two having Thank

That's or to I it increased the and the in of reduced? was cash of like us terms there rate? any flow. or was There in on First, to in Also, on we should it impact change was expect the income reduction explore a IPI the second statement rate. was question the there – why help potential benefit? with about of issue was modeling. would terms geography last more tax there What X% is XX% tax year And of

give Or having how are be? would we Thank on these So that reduction light big some us you. questions here.

André Rodrigues

good morning. Fernanda, Hello,

that be you a due the to you from income percentages period, over only there trend actual to our annual other, like there we of the quarter-on-quarter XXXX. has reinforce it may credit theory, account changed year quarter that the the point to levels or quarter take rate, compared it change in look the variation in there not which mismatches, one one have a raised some to into at the was at to ’XX, and much, no Regarding was should when would that tax the fins but ICMS of remain earnings XXXX second the within change, bit. fiscal It basis looking

that there on see been major So is once indicator no an normalized, has this on would you that basis. annual change

is that the due in didn't had we the -- that that benefits So they benefits period. to change

for hard to As on. IPIs, comment

in some published and studies the feasibility are these news media. First,

detailed any analysis. make don't So we

to see how it develops. wait Let's

We some passes, a beneficial. discussion And there our the some And could are we this broader let's we that interested portfolio, not about the possible in products, future, but are a for can reduction But products in wait impacts. do. then be all if in have discussions.

Operator

from next is question Cabrera Citibank. Hinata The

Unidentified Analyst

Hello, everybody. for you question. the Thank

on First, the would a plant like generation. on to second up mentioned was its starting quarter a beginning follow of you should have Second year. would of the it ROIC XXXX prototype year? that question, some XX%. wind the I give revenue update development the could us we sent to by half Last And you in expect And the India. operations or increased year the year-on-year, of in start and

you. So to what to what expect? know Thank would like

André Rodrigues

Hinata. morning, Good

test projects in will tests, simultaneous weeks turbine the we'll the India certifying and in India, As ago. now connecting start turbine, we're plant we're take in then turbine. the arrived now has months. installed for of some some this And some months the the wind process ago, it of certification we're the was And

happen during to that expect the XXXX. we year So

to to active commercial a effort. turbine after on have start work XXXX. approved through And half second We more during of that, the expect we'll the

timing certification, be Looking won't for advance not on But depend year contract, we a certainly efforts and have this the portfolio our know would first as the increase. working our the to we of timing, on some say don't now, precise generate for we're still commercial I we because will this turbine will certification. the contract type do will in supply. in the business start When revenue

the exceptional after an and be dynamics several whether to future. make some in consistent at in oscillations expect ROIC As before above levels may deliver fact different for the exchange operates of also margins, in pandemic. changes with to capital or it's levels Oscillations we terms of that hard projections volatility ROIC allocation, countries but attractive there could the stabilization delivering the time. company rate in levels because expect do some But the CapEx we ROIC bring and with XX.X%

Operator

turn I Mr. floor the remarks. This to Rodrigues for session end over André final we his now and Q&A the

André Rodrigues

you Thank the of we'll much Have conference soon for good in day. And our very call for next everyone attending you see call. earnings a our XXXX.

Operator

a all release of We day. have WEG now has ended. thank attending earnings good for call and The conference you

WEG (WEGZY) 17 Feb 222021 Q4 Earnings call transcript