WEG S.A. (WEGE3) Earnings Call Transcript & Summary

Welcome to WEG's Conference Call to Discuss The Acquisition of Industrial Engines and Generators Business of Regal Rexnord. We would like to inform you that we are broadcasting this conference call accompanied by the slides on our Investor Relations website at ri.weg.net. [Operator Instructions] Any estimates contained in this document or any forward-looking statements made during this conference call related to future events, business perspective, the operational and financial projections and goals and the potential for future growth of WEG constitutes mere beliefs and expectations from the management based on information currently available. These involve risks and uncertainties as 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 operating factors could affect WEG's future performance and could lead to result that differ materially from those expressed in such forward-looking statements. We would like to remind you that this conference call is being conducted in Portugeese with simultaneous translation into English. With us today are Mr. Andre Luis Rodrigues; Financial Administrative Superintendent Director; and Andre Menegueti Salgueiro, Finance and Investor Relations Director, Alberto Yoshikazu Kuba Superintendent Director of WEG Industrial; and João Paulo Gualberto da Silva, Superintendent Director of WEG Energia. Mr. Andre Rodrigues, you may proceed, sir.

It's an honor to be here with you for this conference to talk about this important acquisition that we disclosed to the market today. I will start the presentation providing some general information, and then I'll give the floor to Kuba and João Paulo, for them to speak about the business under their responsibility. And at the end of return to bring the financial details of the transaction. Finally, I would like to go to Page 4 to briefly discuss about the scope of this purchase. We are acquiring through our indirect subsidiaries abroad, the Industrial Engines and Generator businesses of Regal Rexnord, which reported revenues of USD 541.5 million in 2022 with an adjusted EBITDA margin of 9.5% and includes 10 factories located in 7 countries, in addition to commercial operations in a total of 11 countries with a workforce of 2,800 employees around the world. Of this revenue, 75% come from Industrial Engines, which will be included in our Industrial Electronic Equipment business areas. The remaining 25% refers to Generators and will be incorporated into our Energy Generation, Transmission and Distribution area. It is also important to mention that the distribution of this revenue were 55% refers to revenues in the Americas, mostly the U.S.A., Mexico and Canada, 32% in Asia Pacific, with China and India in the main markets and 13% in Europe, the Middle East and Africa. On next slide, we can see the operations and how they are distributed around the world with factories in the United States, Mexico, Canada, Italy, the Netherlands, China and India. It is important to highlight that the operations were independently and the geographic distribution is aligned with our current strategy, which will facilitate the integration of the business into WEG's existing operations and will help to obtain greater scale and efficiency in reducing costs as we integrate the new operations. Another highlight is that the operations are in good condition and have available capacity in several product lines, which will support our growth in the coming years without the need for significant investments in the short term. Before going into more details about the acquired businesses, on Page 6, I would like to highlight the main strategic rationales and motivation behind this acquisition. [indiscernible] while in the business of generators, we are increasing our presence outside Brazil, accelerating our growth and positioning the company among the main players in this market at a global level. This transaction is part of the company's continuous and sustainable growth strategy, which has incorporated acquisitions of new businesses for many years, always on the lookout for opportunities in the market and aligned with our strategic directions, allows us to grow and offer our customers more complete and efficient solutions. With this acquisition, we seek to boost growth in important markets, reinforcing our presence where we have a good share and expanding access to markets where we do not operate or where we have low penetration. And finally, we point out that this investment is very much aligned with the company's strong global industry strategy present in both acquisitions and greenfield projects, seeking to make the best of our industrial model also outside Brazil. I now turn the floor over to Kuba to provide more details about the strategy related to the Industrial Electric Motor business.

Good morning, everyone. It's an honor to be here with you, taking part in this call. So talking about Industrial Motors, we can see major opportunities in the portfolio of products we're acquiring today. This operation has a wide range of products, including motors for general use, who -- where they have a very important market share, motors for the operation [indiscernible] by Italy, motors for maritime use and with a plant that's located in the Netherlands. As for Industrial, we have 3 very important brands, Marathon, rotor and cemp. These are very, very traditional brands in the industrial area with a lot of value. And we are also addressing some markets which are complementary where already operate such as the market of Food & Beverage, Mining, Marine and Oil and Gas. On Slide 9, we have the rationale of our industrial strategy. We understand that we are going to have an interesting growth in the industrial footprint of motors outside Brazil and integrating with the operation already existing Mexico, China, India and Europe. With this movement, we are making some interesting progress in the market share in China. This is something where we has been investing quite a while, but we do not have high penetration. And this is another step into this Chinese market. We opened plants -- industrial plant last year with an acquisition that reinforce considering the fact that we have 2 other units completing our local portfolio in the Indian market. We are also acquiring an interesting production capacity of special motors. And specifically, we're talking about the plants in the United States and Europe, the 2 plants that are located in Lebanon and [indiscernible], are operators which are very interesting. These are niche special motors, and we understand that they can help us to achieve more space in the American market. We also have plants in Europe, in Italy, [indiscernible], and rotor plant in the Netherlands. And will help us get into very important niches but whose penetration is a bit more difficult, especially in the area of Oil and Gas in the Marine and mine segment. They will have very interesting capacity available. And this available capacity will help us to increase the speed at a much faster pace in order to meet the needs of those specific markets. Another important point is that those brands that we are acquiring are traditional brands, renowned brand with a very qualified team as to the technical area and also of market knowledge. On Slide 10, we are going to talk about the business strategy. We are going to make headway in a very interesting way in the strategic segment, as I mentioned before. This headwind in China and -- its internal market is very important. Some years ago, we have invested in the Chinese market with aim of growing ever more. And this acquisition will bring us a very significant market share gain for our establishment in the local market share. Another point I would like to mention is that the markets that grew the fastest in the world, the Indian market and Regal Rexnord had already 2 local plants. And these 2 plants in addition to the plant that we inaugurated will complete our portfolio of products for the domestic market and will also help us to accelerate the growth in the local market. And then we have a focus, very interesting on the strategic positioning of those operations. And after COVID, we see a trend of having plants close to the client. So that's why we are establishing presences where our clients already have a plant. China, India and also the countries of Europe, where we also have major operations of oil and gas and marine, and it's difficult to provide the services and products from our operations in Brazil. So we have in Italy plant and also plant in the Netherlands will help us acquire those niche spaces. It's also important to mention the good positioning of the brand in North America and the rotor and cemp brands in Europe. And with this movement, WEG has 2 plants in the United States, which is important for the domestic advance, especially niche and special motors. And also there is a law that encourages local production. And it's the year that encourages the business in the local market, and this is going to be very important in our American market. I turn the floor over to João Paulo who is responsible for WEG Energy. So over to you.

Can you hear me, Kuba?

Yes. Yes, we can hear you.

Okay. I just wanted to make sure you could hear me. I'm in India so I'm just checking the connection. It's an honor to be here with you to talk about generators. Basically, WEG has a very limited share. In Brazil, we have a leading position but outside Brazil, generators have limited share. We have a few clients outside Brazil. And we have Marathon, which is an acquisition in the area of generators and it's a leader in the North American and Canadian markets. We have important European competitors, maybe 3 or 4, together with Marathon that has a very important share in this market in the world and other smaller players. WEG has a very limited share in this market. And now we are going to be positioned in the new level. especially in the Chinese and North American markets. So Marathon and Marathon are 2 brands are well positioned in the world. And in China, Marathon Gexin is the one used as a joint venture with another company. These are products used for the construction, telecommunications, which is a very important market, oil and gas, food and beverage. Of course, with this share and the 2 plants in Mexico and in the United States, we're going to have a very important footprint in the industrial segment. And I visited the plant in China, whose idle capacity is very important. So there's a possibility of growth without the need for significant investments. Of course, we're going to have an excellent integration when it comes to supply chain and availability of products. And we also see important gains in logistics. As I mentioned in the beginning, this is going to be a game changer as to the generator segment. It's going to be a very important player in the world. With a very well established position in North America and OEM, which is segment that it was hard for us to enter such as Caterpillar and other brands that WEG was not able to penetrate so far. And of course, our participant in the Asian market for generators was 0, absolutely 0. And with this new joint venture, we'll be able now to have a growth strategy, which will be strong not only in China but also across Asia. Now I turn back the floor to Andre for him to discuss the financial items.

Thank you, João Paulo. So let's move on to Page 16 showing some important numbers from this transaction. As I already mentioned, the portion of the business that we are acquiring posted revenues of USD 541.5 million in 2022 equivalent to BRL 2.8 billion. If we consider the average exchange rate back in 2022. The operations adjusted EBITDA was USD 51.6 million, which gives us an EBITDA margin of 9.5% for the period. The enterprise value stood at USD 400 million and is a cash and that free transaction with a cash payment expected to occur upon the completion of the deal, resulting in an EV/EBITDA multiple of 7.7x based on 2022 figures. On Slide 17, we bring the proforma numbers of the business combination. As you can see in 2022, combined revenue would be BRL 32.7 billion with adjusted EBITDA margin of 18%. These are numbers that represent an important increase in the company's revenue, still delivering a healthy consolidated margin, although we understand that the part of the recent improvement in the margin of the purchased operations may not be sustainable in the short term, an assumption that was considered in our analysis. It's important to highlight that we came into being as an electric motor company back in 1961. And in the first years of existence, we also started manufacturing generators. We have an efficient and competitive production process. We have mastered this technology, and we know both markets very well which will be fundamental to ensure efficient integration, seeking to improve the profitability of these operations in the coming years, mainly through actions that I will discuss on the next slide. Firstly, we will provide support to the new operations using the previously consolidated verticalization model of our factory. We also see potential in the integration of WEG supply structure. Not only in economies of scale, but also in the access to our global network of qualified suppliers. We will expand our sales channel, increasing access to markets that currently have a low penetration. And we will have the opportunity to present a large portfolio of products to a broader customer base, always seeking to improve back office activities, optimizing the combined administrative structure and operations. Before moving on to the question-and-answer session, I would like to talk about the next steps in this operation. First, we need to wait for the approval from regulatory entities in the countries where the operations are located, which we hope will happen in the beginning of next year. After these approvals, we will make the payments, both completely in the acquisition process. Once the payment has been made, we'll then begin the process of transition and consolidation of the new business, integrating it into WEG structure. I end the presentation here. Please, operator, we can proceed to the question-and-answer session.

[Operator Instructions] Our first question comes from Lucas Marquiori with BTG Pactual.

Congratulations on the event, a very important step for WEG. I have 2 questions on my side. The first, I don't know if it was Kuba who discussed it, but I would like to understand what's the overlap of clients. I think it was clear on the page of energy. And we understand that this is going to unlock WEG entering into some markets. So if you could make this comment reaching the motor segment and what will unlock -- which business will be unlocked? We understood that Regal was not growing at the same pace as WEG. So I would like to understand this. So how getting into new channels of sales can also accelerate Regal's business? And the second question is simpler. It's in relation to the plan for the ramp-up of margin. I think Andre mentioned something about the synergies. But I would like to understand, Andre, if you could provide some color on the plan? You mentioned that it's not sustainable in the short term. But are you going to bring the margin into WEG's level? And you also mentioned the [indiscernible] plants. So we would like to understand what will be important for the operations to take off so that we can understand it all.

Thank you, Lucas, for the question. This is Kuba speaking. When we started doing an analysis, when we're about to acquire the industrial area of Regal Rexnord, we look at the clients in order to understand the level of overlap. To our surprise, we noticed that Regal Rexnord had never been our main competitors in the segments or in the markets we operated. Except for some clients, I would say compressors, client where Regal Rexnord arrived before. So there's a lot of new markets that we are going to go into with this new acquisition. The market of [indiscernible] application, oil and gas application in Europe, that is used with Rotor and cemps. We have part of the portfolio there. But considering that we need a lot of local licenses and approvals by the end users. Our growth in this market niche is very low. And Regal did this movement years ago by purchasing Cemp and Rotor and they gain this important market, which is hard to penetrate. So I'm talking about the operations in Europe. In India, for example, it's a market where we have just arrived, we had a line of general used motors. But India, for example, with the acquisition of those operations, the operations that they have there, we are then going to have a complete portfolio of motors. Applications internals, breaks. So the acquisition in India is also expanding our portfolio with complementary products with more clients that we used to have in the past. It's a different market. Of course, when we talk about distribution network, the network of distribution will include all that Regal Rexnord will offer. That the competition is very limited. There are not many distributors that work with both brands. So we are not going to see a lot of overlap. When we go to oil and gas, we see that because they are in the United States. So they were focused on dramatic products. And if WEG wants to develop those products, it would take many years to get close to OEM to develop a special product. And we would have to have a local plan to meet the lead time required. So I would say that the overlap of clients is very small and we see this as a great opportunity to make advances using those 2 lines of products. And we'd like to make clear that we see a lot of value in this 3 brands that were acquired our idea is to continue operating with those brands and also take advantage of the market share they have already acquired. In relation to gain in margin, I think Andres should answer your question.

Thank you for the question, Lucas, when we talk about what's going to happen to the margin, we have to go back to synergy. The first point is the following. Acquisition, we acquired businesses we know well. And therefore, we expect that all the process after the integration process is completed, we will then be able to capture several synergies such as the example that I mentioned during my presentation. Of course, they will come from the support of the operations, the mode of use that's already consolidated in our plans. As João Paulo mentioned some of this aspect, and we'll be able to integrate all those synergies and the integration of the structure of supply which also will lead to gaining scale, and we'll also be able to access the global network of qualified suppliers. And also, we are going to make the best of the channels of sales, increasing the penetration as described by Kuba and João Paulo in their presentations. We have the opportunity to have a broader portfolio. The customer base will also be broader. And we also improved the activities of back office using the combined administrative structure. Our expectation is that during this integration period, the margins of each location will reach the margins as we currently see and considering the place where each of those units are operating.

Our next question comes from Daniel Gasparete with Itaú Corretora.

Congratulations on the transaction. It's very symbolic. I have one question. I would like to check my understanding that this operation, we will have the numbers reflected only after 2024. We are not going to see any effect on the third and fourth quarters of this year. And I would like to understand the movements in the market as a whole. We have seen Siemens doing some things, divesting some motor segments, ABB also with spin-offs. I would like to understand how you see the dynamics of the market, the movement of the players coming out of the motor segment. And if you see the potential or if you see that it's something that happened that time there needs now the company and [indiscernible] our CapEx plan.

I will start answering the question, then I turn the floor to João Paulo and he will answer your -- the second part of your question. Yes, the impact will be felt only in 2024. We also had some processes that is coming into play in some of the areas that we are operating. And so we expect the results to be seen only in the beginning of next year. Daniel, I'm going to answer the second part of your question, and then I'll turn to João Paulo. Totally speaking, it's important to understand that the car business of WEG has always been electric motors. And we were scaling the business into new markets and WEG has been investing in the internationalization of our business. So if we observe for 3 or 4 years ago before the COVID we have reinforced our presence in China with more plans with investments in robotization and automation. We also invested in a new plant in India, which is the market that grows fastest in the world. Last year, we have an assembly line in Turkey. In other words, WEG motors are going to areas where our shares are limited, considering that we have a very complete portfolio and considering the level of competitiveness that we had longer years operating in China, India and Mexico. We understand that we have the main basis, the main pillars to continue growing with a lot of consistency and sustainability longer time. So this is the movement we are going to have, and WEG has industrial motors, alternators, and we're inverters when we're going to continue this movement different from our competitors. What is important to understand about the moment we are experiencing. Our motor business is living a moment of strong internationalization. This movement in China is for us to be helped in the domestic market, which is a large market. WEG has grown a lot in China in the past few years, but still it's very limited our presence. So we have an operation with using the total possibility to grow. And using this Regal Rexnord operation, we will be able to grow our position with the structure that Rexnord already has. We are going to take advantage of the idle capacity. And there are areas we can no longer continue expanding. [indiscernible] operation, for example, is an operation that may be integrated by WEG, and we can also integrate it into the domestic market. Generally speaking, we want to increase our share in the international market. We also want to increase our share in niche products and take this opportunity and have a pool of factories, which is very interesting. so that we can continue growing in the next few years. This is the rationale behind the motors -- industrial motors. Could you mention something about generator, João Paulo?

Yes. Thank you for the question. At first I would only like to mention that generators/alternators which is also referred to generated by the Americans. We are, in other words, talking about 3 major groups of generators with general application of small size, general applications of large-sized applications and energy generation in large size, and we are more focused on specific applications of small and medium-sized when we consider the group of generators. So we have some more players in the world. But to that you mentioned do not operate in this type of project that we are discussing. Generators especially for emergency telecommunications, hospitals and this type of application, industrial area, food and beverages, these are businesses that have been growing quite a lot, especially telecommunications. Servers for the Internet, cloud technology, so this is a market that continues to grow, and it's likely to continue with this upward trend. And it also closed that use green hydrogen and natural gas. So we see that this acquisition puts us in a position where the approvals are very expensive complex and this is something that we have not been seeing. Those companies operating with those kind of products. They may be coming out of this market. And there are not many operating in the global market. As far as just to add in relation to CapEx, I think this was related to the end of your question. Andre mentioned some of this during his presentation, and we say the CapEx is in good condition and is at the level of capacity that can also withstand the level of growth at least in the short term. So we do not see any need of short-term investments. And because of this, we should continue investing at the same level at the same historical level that WEG has been investing. That percentage of revenue from 3%, 4%, 5%, this is not likely to change because of this acquisition, okay?

Our next question comes from Victor Mizusaki with Banco Bradesco BBI.

Congratulations on the transaction. I have other questions on my side. The first, if you could confirm about your brand strategy that you're going to adopt? Do you intend to maintain the brands of Rexord. And the second question is in relation to the size of the transaction. I think this is the largest transaction ever made by WEG, as you mentioned. And there will going to -- there's going to be some transformational aspects in the business of WEG. So I can see the strategy of M&A by WEG has changed little because the acquisitions were at a smaller size. And I would like you to talk about this transformational aspect.

Thanks, Victor. I'm going to start, and then you can add. Yes, you're right. When I mentioned during my call that we are going to maintain the brand [indiscernible] in the markets where they operate. So these are brands that operate different from the methods of operation of WEG. For example, Marathon, which is the brand that we are purchasing and its higher volume in the United States, and they use different brands, a broad range of clients. So food and beverage, oil and gas, automotive, all those lines of products are highly approved, and they represent a very important market of aftermarket or aftersales. The American market, for those who don't know it, is -- has a very strong aftermarket and aftersales product and distribution is very important because this area is very important and Marathon is a brand that has been operating in the market for more than 100 years. And it's very important for any users. So the idea is to maintain the brand and the commercial names of the lines associated to those brands, cemps and rotors, needless to say, we are talking about 2 top companies in the niche market. So cemp because is a company focused on explosion proof of motors will add sources with our factory in Portugal to have a complete portfolio of oil and gas in the European market. So we are going to maintain the cemp brand and rotor is very important as well because rotor works in the marine market in a very complex way, much more WEG. So Rotor can be a driver in the commercial area to sell more products of WEG brand. I think this is it. João Paulo over to you about alternators and inverters without ado.

Marathon is a highly consolidated brand, especially in the United States and North America. Your product line is complete, varied when compared to WEG. So our brand in the United States is now going to be Marathon. And we also intend to take these products to other markets where WEG has capillarity and has presence. So we were going to take those products into other markets. So it's very important to maintain the brand and their line of product. Victor, I'm going to answer the second part of your question, okay? Now you asked if we changed our acquisition profile. First, it's important to mention that acquisition has always been a part of the inorganic strategy of WEG. And this has been accompanied our growth process of WEG. It's not the first time we analyze the integration of this size or even larger than this acquisition. But those that we had in the past did not materialize. The thing is that we did not change our positioning, and we did not change towards those acquisitions that we consider to be transformational. And of course, this has also an effect to our culture. And now without a doubt, this is a large acquisition, the largest ever of WEG, but we feel comfortable because we feel ready considering the businesses included. Motors is an area where we have -- where we master the operations. As to the financial area and acquisition that will not affect our balance sheet. So as I said before, the businesses we acquired is -- business where we have global exposure and WEG is already present in some of those countries. We would also like to say that the inorganic growth strategy is based on two pillars, new markets and new technologies. And this technology will provide us with access to new markets, as mentioned by [indiscernible] during the presentation.

Our next question comes from Marcelo Motta [indiscernible].

I would like to mention what would be the idle capacity of those plants per country or per category so that we can understand the order of magnitude, 10% or 20% maybe? And the second part, when we look at taxes or is there any laws, anything that could help reduce the effective and auto in the short term, anything related to this?

Marcelo, thank you for the question. This is Kuba. In the visits we made, we saw that most of the operations are operating at 50% of their production capacity. We're WEG continuously work in all our operations. And so theoretically, we would be able to double the volume produced using the structure, which is already there. Another important point now answering your question and introducing the new topic, we have operations which are important that involve large CapEx, such as our operation in Mexico. So our operations can provide components to the structures we are acquiring. So as mentioned, we have a very important synergy behind the acquisition and the design of the operations that we are acquiring has a level of outsourcing activities of components, which is very important. And WEG has a verticalization segment, which is very important. So we can have a mix to improve the capacity of our operations and also help their operations should we be able to operate in their market in the future. As to the alternators, any comment?

No Kuba. The same comments you made are applicable to alternators, the supply chain and the recognition of WEG, we have enough capacity to -- either capacity to use. In China, we are completing some initiatives, and we'll be able to supply components to the operations in China as well. Okay. That's it. Could you answer the next question, Andres?

Yes, of course. Motta, I would like to say that most of the operations from the fiscal benefit. We analyze all the process. We didn't find anything that could give us an advantage or could help us reduce as to tech. So in the short run, at least, we do not see any changes in relation to tax.

Our next question comes from André Mazini, Citibank.

Hello, everyone. Thank you for the call. My question is related to antitrust authorities. You're working -- you're going to be working in 7 different countries. So is -- are those authorities considered country by country. Have you stated all of them? Or is there any concentration in terms of antitrust authorities more focused on some products and the other is the mix of employees. Every company has important people and key persons and sometimes, there are clauses of the companies. So this is more related to synergy of the workforce. And what about those people who are coming from those new acquisitions?

Andre, this is -- the antitrust process starts just now, after the execution of the document. And this is done country by country. It's a process that is going to take place at each country individually. And all our analysis considering those units we are acquiring. We did not find any complex situation for those approvals. So those approvals are going to depend on the challenges coming from the -- each country. And we are getting ready so that they can have all the necessary information so that we can complete the process in the first quarter of 2024.

And what about the employees, the key people, Andre?

Oh, yes. In the visits that we made, we visited the structures. And we noticed that the team is very committed senior management, middle management, they have been in the company for a long time. And the culture is very similar to ours. So we believe that wonderful people are coming into our structure. And this is something very important to mention. It's the discussion that we had at the beginning, we started negotiating with Regal Rexnord because we wanted to align the structures, and we were very happy with what we saw in terms of technical quality -- technical or quality management. Yes, and there's a clause on according to which, we are paying a bonus for the key people to be maintained in the company, which is natural in this kind of acquisition. And considering how everything was well designed, all those employees are going to join our team, and we believe that we are going to have a single team with more than 2,800 people. We are very happy with what we have seen so far and the synergy is likely to be very successful.

Our next question comes from Rogério Araújo, Bank of America.

Congratulations on the transaction. I have some questions in relation to market share. Can you give us an idea what's the market share at the global level or country per country, what would be WEG's share? And what will it be before and after the acquisition? And the other question is in relation to the margin -- a follow-up question. How much of those 9.5% of EBITDA margin of last year is not sustainable as you see it? And you also mentioned an expectation of margin catch up at the same level that you see in the countries. Is weighted average in the countries where they're operating, is the margin lower than the average margin of WEG not necessarily?

Rogério, thank you for the questions. So let's talk about market share. At present, WEG has an important share in the market of low-voltage motors, as you already know. And in our last WEG day, we had that -- this acquisition positions as the second larger manufacturer in the world. As to generated, this was something very well concentrated in the Brazilian market, and this acquisition increases our presence outside Brazil, making us as a relevant player and a global player, especially in China. In relation to the margins, the first question was if the margins are sustainable? I think Regal Rexnord is very cautious in the process and high-level advisers were hired, providing detailed explanations about the behavior of the margin. So in the first analysis of what had been studied for us to make the decision that the margins are supportable or sustainable along the time. Of course, there are market exposures in the market, and we may have fluctuations along the period. What can we say today about this integration process, which is likely to happen after we have all the approvals of the antitrust authorities, which will take place at the beginning of next year. So we are going to work so that we can have the margins which are closer to the operations that we have in each of the locations. Obviously, the margin of countries such as Mexico has to be higher than that of the United States. And so on and so forth, that this is WEG's expectation. And thanks to the list of the synergies that I described we have the expectation to bring them close to our current margins. And we will have better gains of scale by means of our verticalization strategy. So we are likely to have more gains along the process.

Our next question comes from [indiscernible].

Congratulations, WEG team, Kuba, Andres, João Paulo. A more strategic question, looking into the future, where usually has 2 types of expansion, organic by means of modules such as [indiscernible] in Mexico and China and also the inorganic growth, which relates to purchase market share. So what can we expect in the next 12 months? So WEG has just purchased the acquisition of some land and it has just purchased Regal Rexnord. So what can we expect in terms of expansion from this acquisition?

Thank you for the question. I believe that when we talk acquisition processes in the company, something that we always mention is that we analyze both opportunities. Each business opportunity has the own characteristics and there's a search for opportunities, and they happen. Depending on if we see fine company inside -- a company with the same technology, and we always try to make agreements with the other parts. This is something that is not likely to change. We do not have an objective to having a number -- a number of acquisitions per year. In the past, we had the purpose of reaching BRL 2 billion up to 2020, and we wanted to be more aggressive in the acquisitions. We did not follow that way back then because our commitment is to maintain the returns and operating margins at healthy levels. So we do not make an acquisition only looking at the top line and growth of revenues. So we do not have any expectation in this regard. We do not have an objective to making new acquisitions this year. Maybe if an opportunity comes up and will be aligned with our strategy growth we'll consider. When you mentioned the land in Mexico, that is completely aligned with our long-term strategy. Everything we do at the company is looking into the future. And in that specific case, we saw that was an excellent opportunity. Yes, we have a foundry business beside that land mentioned and other investments that are being made. So in the future, we are considering having new greenfield projects in order to strengthen our positioning so that we can use the opportunities of growth in the market. So we were -- we did not have in mind to make short-term investments when we purchase the land. So we are going to try to maintain our CapEx related project at the level of 3% to 5% of our revenue. Now talking about industrial market, industrial motors. Talking about the addressable market. What happened, [indiscernible] we consider the speed that we can tackle or go into those markets. WEG has plans practically in all those main countries where we are acquiring plans of Regal Rexnord. We already have operations there. So the thing is that our level of occupation is reaching its limit and the new plans give us possibilities to grow. And above all, it allows us to go into niche markets. It's not just installing a plant and approve approved brands and in new areas such as oil and gas and maritime segments. And that takes a long time because we need to build trust with those clients. So this takes a lot of time. So the rationale behind this acquisition is to accelerate the penetration of WEG in those markets, which are harder to penetrate. We need to carry the research on the addressable market of industrial motors, and which, according to the revenue -- the investigation reaches more than $40 million, and we are giving a very important steps such as India and China. But we still have a lot of room to grow and continue working in the years to come.

Our next question comes from Gabriel Rezende with Itaú BBA.

Thank you very much for answering our questions. We would like to have a quick follow-up of a comment during the call related to the occupation of the plant of Regal. If I understood right, we are talking about 50% occupation on average. So we would like to understand what explains this idle capacity of 50%. Did Regal made recent acquisition and is it the moment of the cycle and the occupations are likely to grow? So we would like to understand this idle capacity at present.

It's hard to say what happened, but we have been noticing the following. Rexnord was intending to focus on new businesses, and they did not give a lot of focus on industrial motors. Those are profitable operations, but the growth driver was not so high. When we established a plant, we won the areas to work in 2 shifts. And since Rexnord focused on assemblers and this allows more flexibility. I think this may be the point. If you look at the market share in the past few years, they were having more -- they have been difficulty to advance in their market share. So we see this as a big opportunity, especially considering the quality of the brand and the people who are in the team. And we saw this as a big opportunity and take advantage of those synergy and scale up.

Kuba, if I could add, in China is for generators. They had a very small operation. The fiscal space was very limited and the production layer out had lots of complexities and they moved to a much larger plant as they moved recently, a lot of idle space is still available at the plant, and they only work in one shift. And something recent also happened in Mexico in the new plant. And that will allow them to increase their capacity of production in that location.

Our next question comes from [indiscernible] with Bradesco BBI.

Thank you for taking my follow-up question from Bradesco. You mentioned some of this during the call. Now thinking about the verticalization of WEG and the new capacity that Rexnord will bring. Will you need to increase your foundry capacity in Mexico, for example?

In fact, this is a major opportunity. The CapEx investment in the foundry is very high to combining our operation in Mexico. We occupied [indiscernible] capacity. This is very good because we will be able to operate the second shift. And the operations that we're acquiring in Mexico and the United States can be aligned with the founder operations that we already have. As for components, we always make investments in components so that we can have a very well-balanced plan. As we notice that it will make sense to increase the verticalization and accelerate the business. We are going to observe the supply investments and the suppliers. The main gain of all this transaction is not to have to invest in a new foundry. We are going to use the idle capacity that we have available today in Mexico so that we can supply the components to the operations, both in the United States and Mexico. And when we talk about components, it's something simple. As we integrate, we see that the capacity, we see the opportunities of establishing the second and third shifts at the plants. And we see this as a major opportunity to balance our business, including the plants and bringing this verticalization strategy to all operations.

We close the question-and-answer session. I would like to give the floor back to Mr. Andre Rodrigues for his final remarks. Mr. Rodrigues, you can proceed.

Once again, thank you very much for attending the call and for the questions asked. I would like to say that our Investor Relations team is always available for any further clarifications you may need. Thank you.

WEG's conference call is now closed. We would like to thank you for your participation, and have a nice afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call]