Conference Call 2014 and 4Q14

Transcription

1 CORPORATE PARTICIPANTS Disclaimer Mr. Wilson Watzko Controller Officer Mr. Paulo Polezi Finance Officer Mr. Luís Fernando Oliveira Investor Relations The statements that may eventually be made during this conference call relating to WEG s business perspectives, projections and operating and financial goals and to WEG s potential future growth are management beliefs and expectations, as well as information that are currently available. These statements involve risks, uncertainties and the use of assumptions, as they relate to future events and, as such, depend on circumstances that may or may not be present. Investors should understand that the general economic conditions, conditions of the industry and other operating factors may affect WEG s future performance and lead to results that may differ materially from those expressed in such future considerations. 4Q14 Conference Call Page 3 PRESENTATION Operator: Good morning and welcome to the conference call of WEG to discuss the earnings of 4Q and the year Conference Call 2014 and 4Q14 We would like to inform you that this conference call is being recorded and that right now all participants are in listen only mode. Later on we are going to start the Q&A session and further instructions will be provided. Should you need assistance during the conference call please reach the operator by pressing star zero. To attain the release of the company's quarterly results or the presentation to be used during this conference call please go to WEG's investor relations page at Before going on we would like to let you know that any statements made during this conference call relative to the business outlooks, operating and financial goals and potential future growth of WEG are based on beliefs and assumptions of company's management and rely on information currently available. Forward-looking statements involve risks and uncertainties because they refer to future events and therefore depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operational factors can affect the future performance of WEG and lead to results that materially differ from those expressed in such forward-looking statements. We would like to remind you that this conference call is being conducted in Portuguese with simultaneous translation into English. With us today in Jaraguá do Sul are Mr. Sérgio Schwartz, Executive Vice-President and Investor Relations Officer; Mr. Wilson Watzko, Controller Officer; Mr. Paulo Polezi, Financial Officer and Mr. Luís Fernando Oliveira, Investor Relations. Please Mr. Schwartz you may start. Good morning everyone. It is a great pleasure to have you to talk about the results of the year 2014 and 4Q14 as well. In this presentation Paulo is going to talk about our revenues performance and growth and then Wilson is going to talk about costs, EBITDA, working capital and investments. After this brief presentation we are going to be available to answer your questions. Page 1

2 I am going to turn the call then to Paulo to start this presentation. Highlights Quarterly Figures Q Q % Q % Net Operating Revenue ,0% ,1% Domestic Market ,3% ,0% External Markets ,9% ,5% External Markets in US$ ,0% ,3% Gross Operating Profit ,3% ,4% Gross Margin 32,0% 31,1% 32,5% Net Income ,8% ,9% Net Margin 12,1% 12,6% 12,5% EBITDA ,2% ,1% EBITDA Margin 17,6% 17,1% 18,0% EPS (adjusted for splits) 0, , ,8% 0, ,9% Figures in R$ Thousand 4Q14 Conference Call Page 5 Mr. Paulo Polezi Finance Officer Good morning. We will start on page 3 with a table that summarizes the main numbers for the quarter. I would like to draw your attention to two aspects: first the growth of our net revenues of 15.1% in 4Q14 compared to the previous year. The domestic market outstood and exceeded the foreign market for the first time in 2014 in the year on year growth rates with a growth in our business of GTD and domestic-use motors; and second the recovery of margins compared to the previous quarter, both in net... gross margin sorry and EBITDA margin. In the foreign market we had a healthy growth rate maintained benefited by the exchange rate variation. Still in the external market we had the consolation of acquisitions, especially WEG Yatong in China and also a more aggressive competitive positioning maintaining the continuous expansion of our products and applications portfolio. Highlights Yearly Figures % 2012 % Net Operating Revenue ,8% ,6% Domestic Market ,0% ,8% External Markets ,7% ,6% External Markets in US$ ,3% ,5% Gross Operating Profit ,1% ,9% Gross Margin 31,7% 32,8% 30,5% Quarterly Net Income ,2% ,6% Net Margin 12,2% 12,4% 10,6% EBITDA ,3% ,0% EBITDA Margin 17,2% 18,0% 16,5% EPS (adjusted for splits) 1, , ,2% 0, ,6% 4Q14 Conference Call Page 9 Figures in R$ Thousands Going to page 5 we can see the main numbers of the year: in a nutshell we closed the year of 2014 with good growth if we compare our performance to the performance of the industry in Brazil. That reflects the robustness of our business model that enables us to offer a vast range of products for several sectors in the economy in addition to our share in the foreign market that accounts for 51% of the total net revenues. In R$ million % 52% % Net Operating Revenue Quarterly Evolution % 52% 50% 51% % % 51% 50% 48% 50% 49% 48% 50% In R$ million 18% % 61% % Net Operating Revenue Yearly Evolution 19% % 56% 49% 11% % 15% % 50% 49% Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Brazilian Market External Market Brazilian Market External Market 4Q14 Conference Call Page 11 4Q14 Conference Call Page 7 On page 4 we can see the evolution of our net operating revenues quarter on quarter along 2013 and Growth in the domestic market was 19% over the same period last year. Here we have some positive events that are worth mentioning: in the domestic market we had the first revenues coming from the sales of wind generation equipment; also we have the regular seasonality of short cycle products combined with some recomposition of our stocks. On page 6 we have the evolution of our net operating revenues year on year along the five years showing growth of 15% in 2014 compared to the previous year. It is possible to observe a growing share in the foreign market in recent years because of the expansion of our industrial plants overseas and the strengthening of WEG brand. Here is important to mention that we were able to have very good growth rates in a period in which the main global economies were showing retraction many industry segments. Page 2

3 25% 22% Business Area Revenue breakdown 6% 5% 6% 6% 5% 12% 9% 9% 11% 14% 28% 23% 22% Good morning everyone. We will then go to page 8 where we have the breakdown of costs for 4Q14. The main point to highlight here is that market conditions have not been favorable to recompose our margins. The volatility of the exchange rate poses difficulty to realign sales prices, which does not happen in the necessary speed to reflect costs. 57% 64% 4Q14 Conference Call Page 13 57% 60% 59% 4Q10 4Q11 4Q12 4Q13 4Q14 Industrial Equipment Varnishes GTD Domestic Use Paints & Now we are going to slide 7 bringing the breakout of our revenues in the different business areas. In this chart we can observe the influence of the lower industrial activity in Brazil decreasing the relative importance of equipment for industrial use and paints and varnishes. You see that projects in the process industry and infrastructure industry in the Brazilian market are in a wait or on hold period; however GTD has been showing improvement because of the businesses in generation of energy with execution of orders in small hydroelectric plants, wind and solar power plants. The expansion will be even clearer in the near future with the acceleration of deliveries. Finally the growth in motors for domestic use is basically due to the consolidation of WEG Yatong acquired in 1H14 that really set the internationalization of this business for WEG. In addition 2014 was the year with a mix of products with the lowest value-added. So in the last quarter of 2014 gross margin shows a slight pickup compared to the previous quarter: gross margin of 32% although 0.5 p.p. lower than 4Q13 was already almost 1 p.p. higher than the previous quarter. In R$ million 341,7 176,0 Volumes, Prices & Product Mix Changes Main impacts on EBITDA 110,4 (193,5) FX Impact on Revenues COGS (ex depreciation) (27,1) Selling Expenses 4Q14 Conference Call Page 17 (13,9) (12,7) 2,1 383,0 General and Administrative Expenses Profit Sharing Program Other Expenses EBITDA Q4 13 EBITDA Q4 14 On page 9 we see the main variations in the lines that compose our EBITDA. In this quarter EBITDA had the growth of 12.1% compared to the previous year and EBITDA margin reached 16.4%, 0.4 p.p. lower than 3Q 13 and 0.5 p.p. higher than 3Q 14. Now I am going to turn the call to Wilson to continue the presentation. Costs of Goods Sold In % of Net Revenue 50,0% 40,0% Working Capital Materials 65% Materials 64% 30,0% Working Capital Other Costs 9% Depreciation 4% 4Q14 Labor 22% 4Q14 Conference Call Page 15 Other Costs 10% 4Q13 Depreciation 4% Labor 22% Mr. Wilson Watzko Controller Officer 20,0% 10,0% 0,0% 4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q14 Conference Call Page 19 Clients Inventories Advances Suppliers On page 10 we have the evolution of working capital as a percentage of net revenues along the last years. We can observe an increase in the lines of clients and decrease the lines of suppliers resulting in a higher need for working capital that reflects the market retraction. We have restricted credit for clients and with that WEG has taken up partially the Page 3

4 financing of this fluctuation either by increasing credit limits or extending payment terms. This is one of the reasons why WEG is capable to keep growth rates along time, because we are able to seize interesting opportunities when the remainder of the market is retracted. In R$ million Outside Brazil Brazil Capex Program Quarterly Evolution 56,8 61,3 63,9 61,1 64,3 6,0 11,8 15,6 13,1 8,4 50,7 49,5 48,3 48,0 55,9 4Q14 Conference Call Page 21 94,0 23,5 60,5 70,6 71,8 132,3 134,1 47,9 86,2 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 On slide 11 we show organic investments with the expansion of capacity along the years of 2013 and In 2013 we announced a program to expand our production capacity of electric motors in Mexico and China along 5 years together totaling US$ 345 million. The increase of investments can be observed as of 2Q14. We have been managing disbursements with caution avoiding the accumulation of idle production capacity and the addition of assets in businesses that are more affected by the lower industrial activity. In R$ million 8,1% Capex Program Yearly Evolution 10,2% Capex % of Net Revenues Investments were below our initial estimate of 592 million for It was an ambitious program and we already counted on the possibility of not making all these disbursements expected; on the other hand important projects such as the expansion of capacity in the electric motors in China and Mexico continue to be executed at full speed. With that we close our brief presentation and I turn the call back to Sérgio. Before we start the Q&A session I would like to reinforce some very important points: 2014 was a very challenging year with strong deceleration of the Brazilian industry and low growth of the Brazilian GDP. So WEG was able to present good results, a reflex of a good time in our businesses in energy generation and our presence overseas. We have been finding good opportunities which has been enabling us to reach satisfactory performance. We continue confident in the opportunities of growth for WEG and continue to conduct all the necessary actions to seize new opportunities. We announced along the year of 2014 acquisitions in Brazil, Colombia, Germany and China all with the objective of increasing our share in specific markets or increase our offer of products. That closes our presentation. We will now start the Q&A session. Please operator you may go on. 5,8% 146 3,7% ,4% 5,3% ,6% 188 3,9% 3,6% 5,4% Investor Relations Contacts 4Q14 Conference Call Page 23 Sérgio Schwartz CFO +55 (47) schwartz@weg.net Paulo Polezi Finance Officer +55 (47) ppolezi@weg.net Luis Fernando Oliveira Investor Relations +55 (47) luisfernando@weg.net Finally on slide 12 we have the organic investments in expansion of capacity in the past 10 years. It added to 425 million in the year of 2014 accounting for 5.4% of net operating revenues. The year 2014 was an important step for our production process overseas. We started the implementation of the same structure of verticalized production of Jaraguá do Sul in our units in Mexico and China. 4Q14 Conference Call Q&A Session Page 4

5 Operator Ladies and gentlemen we will now start the Q&A session. We would like to remind you once again that this conference call is being conducted in Portuguese with simultaneous translation into English. If you want to ask a question press star one and to remove your question from the list just press star two. Our first question comes from Alexandre Falcão from HSBC. Mr. Alexandre Falcão HSBC Good morning everyone. I have two questions, the first I would like you to talk a bit on solar energy and if that can contribute to your revenues in 2015 or if it is something for 2016 and how much How close we are to that. And the second question is in the event of an energy rationing it seems clear what would happen to the industry in Brazil as a whole. I would like to understand what happens or what you see in terms of GTD, in terms of investments and what is the time for this to happen. Thank you very much. Mr. Luis Fernando Oliveira Investor Relations Good morning Falcão this is Luis Fernando, thank you for your questions. Well let us start with the energy rationing. What we have been observing and we did say that during this presentation and we have been saying that along the year, in fact the GTD segment has been already responding to this need: the law is better; the auctions are being more appealing; renewable sources which are our specialty are becoming more competitive and this somehow is showing. So it is not something for the future; this is something for now. Even in those segments that are more connected to emergency: energy, alternators that are important components of generating groups - that is for you to generate emergency energy when there is an unexpected lack of energy or even to plan you need generating groups to plan alternatives. So we see that the businesses is taking off and will improve along time. So in this fashion we are not talking about rationing; rationing is one of the possibilities to solve the situation of a lack of energy by an organized rationing - if it is to be implemented - is a possible response to be given. Now this outlook of lack of energy for growth has been generating good opportunities for us in the segments of renewable sources. Of course we have a product that was recently introduced and is performing well which is wind energy. We are performing very well with this energy. A traditional product of ours is also having better performance and is doing better in auctions, which are the small hydroelectric plants. Solar energy going to your second question in December we had a specific auction in alternative sources of energy and solar had good performance. We do not have anything to announce right now but it is an opportunity for us to continue to pursue. Probably it is not something that you are going to see in our revenues for 2015, a bit more for the future to have a higher importance. We may have something but not really bulky so far. We are leaders in the market in Brazil, almost all the facilities in solar energy today use somehow our solutions; but we have a much bigger market in the future and this is going to happen I believe as of So what we see basically is that performance is improving and will probably continue to improve. We still have sources that are still not showing, that have not picked that yet and eventually as time goes by we will also see them popping up, for example biomass energy which has had a relatively modest performance in auctions but we believe that it has a place in this industry. So most of the opportunities that we see in this industry are related to renewable sources of energy. Mr. Alexandre Falcão HSBC Okay thank you very much. Just to understand: have you changed somehow the exchange rate in your strategic planning? Are you planning to do that and if you do so has anything changed? Page 5

6 Mr. Luis Fernando Oliveira Investor Relations The strategic plan is not based on exchange rates, not on macroeconomic variables but rather in the analysis of business opportunities. So in this regard business opportunities are concrete, they exist. In some cases for example the exchange rate devaluation of the BRL not having the GDP growth that we were expected all these things do affect more or less the opportunities; but the opportunities are still there. They do not change the general direction of our strategic plan. Mr. Alexandre Falcão HSBC Okay thank you very much. Our next question comes from Cássio Lucin from J.P. Morgan. Mr. Cássio Lucin JP Morgan Good morning everyone. I have two quick questions, the first if you could give us a bit more color on your Capex plan for And the other is basically a clarification I would like: when you are talking about the exchange rate if you are going to gain more market share overseas does that affect your needs for more working capital giving better payment terms for clients? How does it work? Good morning Cássio this is Sérgio, thanks for your questions. Well let us talk about investments. We released for 2015 an estimate of investments of close to 480 million BRL in the expansion and renovation of our industrial facilities; then we have an increase in our working capital and so altogether Capex should be close to 550 million BRL. A note of advance: our main projects in terms of industrial investment are those in China and Mexico that are ongoing and that are investments that aim at increasing verticalization and extending product lines in these plants optimizing Addressing of the market by WEG. But all these investments are managed thinking on the size of the market so as to avoid idle capacity and trying to maximize the return of the capital invested. So even when we say we are going to invest million in the year everything will depend on the dynamics of each of the markets that will possibly receive the investments. As for the impact of the exchange devaluation in our competitiveness that does happen in the short term: when you have an appreciation of the dollar we get more competitive; but that does not mean it will have an impact in results in the short term because when you are more competitive you can carry out actions that are a bit more aggressive, a bit bolder to get a better positioning in the market and also a devaluated BRL helps us in terms of the competitiveness of our clients to protect against imported products in the domestic market and also to increase the volumes of exports. So in the short term it is advantageous to WEG but also there is a trend for things to get balanced in the medium and long-term because the results in an impact in the level of inflation and that somehow neutralizes this advantage in the short term. Mr. Cássio Lucin JP Morgan So just in terms of a follow-up my question is: as mentioned the appreciation of the dollar helps increase your market share overseas. I remember that in the past you needed more working capital to win share; now when you are selling this product at a lower price does it offset the need for more working capital overseas or there is no change there? Page 6

7 Well the thing is the following: we also have a change of our production profile. In fact we are expanding our production capacity overseas. We said in the past that an increase in exports demands a bit more working capital because you need a longer cycle; but it is also true that we are increasing our production capacity overseas and that somehow neutralizes this higher demand for working capital. In a way it offsets because while I am exporting to new geographies where WEG still does not have relevant share I am replacing some exports that I have to Mexico to North America for example because I am expanding my production capacity and therefore I reduce my working capital. Mr. Cássio Lucin JP Morgan Okay thank you very much I understand. Our next question comes from Ricardo Schweitzer from Banco Votorantim. Mr. Ricardo Schweitzer Banco Votorantim Good morning gentlemen thanks for the opportunity. I have two questions and they are somehow related to the energy industry. The first is about wind energy. You mentioned that you are starting to receive revenues from the first orders in the segment and I would like to have some color about how much this represents in the business of energy and how much you want to get with this business in the next two years. And along the same line every now and then clients are asking us about the sales of alternators and other components that you sell to the emergency industry and how much that represents in your business - even if you do not give me clear numbers just an idea. And along the same line talking about energy but if you really cannot talk about the whole of WEG's businesses if you could give us an idea about the volume of your backlog and how is your backlog evolving long this year. Thank you very much. Mr. Luis Fernando Oliveira Investor Relations Hi Ricardo. Backlog you are you talking about GTD? Mr. Ricardo Schweitzer Banco Votorantim Basically GTD but if you want to make a broader comment... Mr. Luis Fernando Oliveira Investor Relations Well that is the thing: GTD is where we have the most difference there. I would say that wind energy is a relatively new product for us; we are just introducing it now. As we mentioned we are having the first deliveries along this year and so we are being a bit cautious even to be more comfortable with the product right now. We have a certain limitation of our production capacity and so we are studying alternatives. So right now we do not have a plan to increase production capacity in this industry. It has some specificities that make this decision a bit different than with other sources. All that is to say that we have a backlog for wind energy that is basically closed for some years now: 2015, 2016 and 2017 we are practically full. How much this will represent of the whole GTD portfolio that will depend on other sources; what we can tell you if you take a look at the expansion of the energy segment in Brazil for the future most probably wind energy will have a relevant share - so we are talking about 3, 4, 5 GW/year so perhaps 30%, 30 something percent will come from wind energy and there is no reason for WEG not to have a share that big. So I think it is very close to that. As for alternators this is the third year in a row that we have been discussing the difficulties in energy Page 7

8 supply. So it is not a situation that is new; we have been seeing that the market of alternators, of generating groups is heated. Lots of people are prepared for that and want to have this insurance that a generating group can offer. So it is a heated market. We are engaging efforts to improve our production capacity. So we can grow more but it does not represent as much as it represented for WEG's revenues in So this is a segment that we have. We have ways of increasing performance and production if necessary but it is not going to be as representative as it was in 2001 when we had the energy rationing at the time. But it is an interesting segment; it is a product with high value-added and most probably if we have the more critical situation we are going to count on our production capacity and probably we are going to have other challenges that will increase demand and it will open room for us to increase production of this product more specifically Mr. Ricardo Schweitzer Banco Votorantim Thank you very much. Our next question comes from Marquiori from Banco Safra. Mr. Lucas Marquiori Banco Safra Hello everyone good morning. I have two quick questions as well: we see in 4Q that external revenue in dollar is a bit better quarter on quarter. We know that you are using the exchange rate situation to be a bit more competitive and gain market share; but I would like to know if there was anything weaker in terms of market demand overseas, any places specifically? And the second question going back to the domestic energy sector this the main focus we see in the newspapers over time. We see a growing interest of other players as well, and so we see a possibility for an increase in competition, even large players on wind energy and so I would like to know how you are preparing to face competition. Thank you very much. Hi Lucas this is Sérgio, thanks for your two questions. First with regards to revenues in the foreign market here you have to consider two factors that should be taken into consideration and do impact revenues: the first is with regard to market, a loss of acceleration in mining and oil and gas in some specific markets. This happened: mining in South Africa, Australia, and South America (Chile, Peru) and also some businesses in Canada have been impacted by a loss of pace in the segment; and also the consolidation of WEG's balance sheet in dollars has been impacted by the valuation of other currencies in specific countries where we have specific important operations, for instance the devaluation of the RAND in South Africa; the devaluation of other currencies in Latin America; in Australia also somehow and so when we consolidate all that in our balance sheet in Brazil we bring the impact of the devaluation of these local currencies and that does not necessarily mean a loss of market share in these specific geographies. We have been monitoring that very cautiously and our sales volumes have been growing. The thing is when you consolidate all that to Brazil we do carry this impact. As for competition or the coming of new entrants in the Brazilian market this is something that we see as regular business. This is something we have witnessed along time in a lower or higher degree. I remember very well when WEG Máquinas at the time started to work in the market of large sized electric machines and we had the competition of the main international players in the country, which are the same still today overseas. And our competition with these companies takes place today at a global level. So we know our strengths, our capacities in Brazil and I believe that we are quite well-prepared to face competition. Mr. Lucas Marquiori Banco Safra Thank you Sérgio. Page 8

9 Our next question comes from Murillo Freiberger from Bank of America. Mr. Murilo Freiberger Bank of America Good morning gentlemen, Sérgio, Wilson, Paulo. I have two questions, first you think that of the reduction of investments in wind energy for WEG in terms of the sales volumes and growth. And the second question in addition to the Petrobrás issue is there any problem coming from construction companies that comes from the Lava Jato police investigation that will affect your cycle of receivables or some kind of problem for WEG? Hi Murilo this is Sérgio, again thanks for your question. Well the oil and gas sector is important for the Brazilian industry and for WEG as well. We already noticed a kind of loss of speed, a deceleration in this industry for some time now and we have been monitoring that from close and in fact we have already adopted the measures to control credit exposure in this sector. An important factor which should be considered however is that usually products for this industry are engineered products, long time products which means that we work with advanced payments from clients and that decreases our exposure a lot. Therefore we do not foresee that an additional deterioration of the industry will cause a huge impact in terms of defaults, payments or that would need any additional provisioning. But we cannot deny that this loss of speed will demand us to redirect to other markets; other product lines; other segments; other clients in a way to counterbalance the frustration in terms of sales to this industry, both by the company and the market as a whole. Oil and gas is important but it does not have a share that we could say that it is something that WEG highly depends on. We have a quite well Diversification in the lines of products and segments in which we operate and therefore we have to work more, seek new opportunities in other segments. But we do not foresee any highly significant impact because of the problems generated by police investigations in the segment. Mr. Murilo Freiberger Bank of America Thanks very much. Our next question comes from Lucas Brendler from GF Gestão de Recursos. Mr. Lucas Brendler GF Gestão de Recursos Good morning everyone. My question is a bit more directed to your strategy. We have been following WEG along the years and we see that along time the company is trying to adapt to new scenarios in terms of the world economy and also that means some changes in the company's executive management and board. And also we see the change that was announced yesterday in new positions. So once again you are changing names and positions. If possible I would like to hear a bit more about how WEG thinks today its management structure. Have you made all the changes that were necessary or should we expect a bit more structural changes in terms of the organization chart? I would like to know WEG's mindset for the coming years with this regard. Hi Lucas this is Sérgio thanks for your question. Well indeed when you have a group that has a dynamic of growth and expansion you need also to have Page 9

10 continuous change. Right now we are bringing a new officer to WEG and we have been doing that quite frequently because the idea is to complement the expertises and skills that we need to continue with our growth plan. Specifically now André Luis Rodrigues has a relevant international experience. He has experience of finance and management in international companies. He worked overseas and this is very important for WEG globally today. Since we are expanding our units overseas we have to seek expertise in managing businesses not only overseas but at a global level and we believe that André Luis Rodrigues will fill a small gap that the company had until then in this area if we can say that. As for changes in investor relations Paulo Polezi is taken over this position, a position he is fully qualified to take over. And with regards to changes in the administrative financial area that reported to me directly basically the thing is the following: I am part of the company's controlling holder and I continue in the position as vice president. I have been with the company for 30 years so am going to continue working with the company and contributing to the company regardless of the position I have in the company's organization chart because I am still in the company as a member of the controlling group. As for the future certainly the past is not going to be like the future. As WEG expands its businesses it seeks for new talents and repositions its talents. I am going to make a comment although I am not part of this change I would like to share some thoughts with you: we recently transferred Siegfried Kreutzfeld that was the superintendent director of the master unit in Brazil to China and why did we take this executive to China? Because we have a very ambitious plans to expand and the geography. We had the recent acquisition there, we have an ongoing greenfield project and we have other opportunities for acquisition in the future and so we kind of move around our executives to take over positions that we believe are strategic for the company. So changes tend to take place in the future as well. Mr. Lucas Brendler GF Gestão de Recursos Okay excellent, thank you very much and thank you for your explanation. Thank you. Our next question comes from Felipe Koh from Citigroup. Mr. Felipe Koh Citigroup Good morning Sérgio, Luis Fernando, Paulo. I missed the beginning of your presentation but my question is a bit of context. You have a very interesting portfolio of wind energy for 2015, the rationing is also very positive for the electric motors and as a counterpart you have the issue of the Lava Jato police investigation, oil and gas also overseas and the devaluation of the exchange rate. So putting all together in context what should we expect for 2015? Should we expect a growth in revenues close to last year - that is close to 15%? And if you expect the domestic market to contribute more than the foreign market or the other way around? And also in the same line only about the Lava Jato police investigation not only in oil and gas; how about the construction companies that are involved? Are you feeling any decrease in demand because of the police investigation? Mr. Luis Fernando Oliveira Investor Relations Hi Felipe thanks for your question. Well, just to answer the end of your question the huge exposure that we would have would be oil and gas because we are quite diversified. Any demand of this type of Page 10

11 client in another segment is very diluted so it is not really representative for us, it is barely noticed. Now in this environment of low growth that we are having in the Brazilian industrial segment it is very hard for us to tell what is the effect of the police investigation and what is not and so it is very hard to point our fingers at specific things. As for the overall scenario for 2015 we are not pessimistic at all. As we have been saying in this call we think there are several opportunities to continue growing, for example the clearest ones at the energy industry there is a huge expansion to take place and this is an investment that is absolutely necessary and that will continue to be made. Outside Brazil we have opportunities to continue to grow expanding the market, introducing new products. And even in the Brazilian industrial sector you are going to have opportunities in some specific segments where an economic situation like the one we are experiencing with a more devaluated exchange rate may bring the competitiveness of the sector as a whole increasing capacity. This is clearly the case of pulp and paper for instance. So you always have opportunities. What is important is that we are a diversified company with vast production capacity and we go after opportunities and when they come up we are ready to seize them. If we keep the capacity of seizing opportunities there is no reason to be pessimistic. Mr. Felipe Koh Citigroup So should we expect The same thing as last year. Last year was a difficult year as well and so the scenario for 2015 is similar to So we should have similar growth and how about mix? Should we expect anything better? Mr. Luis Fernando Oliveira Investor Relations Well Felipe we do not formally any guidance, I cannot give you guidance even in terms of regulation. We do not establish guidances. What we can say is that there are things that have worst margins than 2014 and some that are better as the economy regularly operates. We are not exposed to any cycle in particular and we are not dependent on any segment, product or client. We have capacity to seize opportunities and we do seek concrete opportunities for 2015 and for the future. This is what I can tell you, I mean this is as far as we can go. Mr. Felipe Koh Citigroup Okay thank you very much. Our next question comes from Alexandre Falcão from HSBC. Mr. Alexandre Falcão HSBC Well thank you very much for the follow-up. I just wanted to discuss what you are going to do with your debt management. For 2015 you have an extremely cheap debt in FINAME that is to mature in Do you have any plans to raise funds anywhere else or in other mechanisms that can mitigate an increase in your cost of debt? Or are you going to let your debt mature and you are going to settle it and be a bit less leveraged? And if there is any concern about that or it is a time that FINEP and BNDES are going through and these lines probably are going to come back in the past In the future sorry? Mr. Paulo Polezi Finance Officer This is Paulo thanks for your question. I am going to make your answer in two parts: first in terms of development banks (FINEP and BNDES). In this scenario starting with FINEP, FINEP lines are still available. We are working with the company, we have a strong balance in innovation and so Page 11

12 investments continue to be relevant historically made by WEG. So we have to renew new FINEP lines as we did in previous years. The financial terms changed a bit. We see a slight increase of credit spread but nothing that really concerns us much. And on the other hand the increase of Selic and CDI kind of offsets on the side of investment. So I think we are quite balanced and we do not see a risk. WEG's conference call is now closed. We thank you very much for joining us, wish you a good day and again thanks for using Chorus Call. BNDES is the same: we have investments in the local market that continue to generate balance for financing. We have a large project that is going to go past in 2015 and so we continue to make disbursements and we do not believe that the government is going to increase these credit lines much. So again it is no concern. And another thing that I would like to talk about with the other financial lines. As we are having more expensive incentives to export the company, giving it exporting characteristics, can access financing lines that we call trade finance at extremely competitive costs and we have been using those: for example lines for prepayment of exports that we can raise relatively easily with terms of five years and very appealing prices. So with all that we are quite comfortable in our financial management as we did in the past. Mr. Alexandre Falcão HSBC Okay thank you very much. We are now closing the Q&A session. I would like to turn the call back to Mr. Schwartz for his final considerations. Mr. Schwartz you may go on. Well thank you very much for attending and I wish you a good day. Page 12