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

Well, welcome back. Let's carry on with the presentation with Andre Rodrigues presentation, our CFO, that is going to update us on the financial part of the business. Please Andre, the floor is yours.

Hi. Good morning, everyone. It's a pleasure for us to have you here to have an opportunity to talk about the financial performance of WEG and to update you also on the evolution of our businesses in general. Okay. So this is a summary of WEG. This is a slide that I like to present to you every day. Every year, we have an update on these figures. It's a positive update. And nowadays, we have a bit over over 45,000 employees that develop a solution and products in 64 plants around the world in 17 countries. In order for us to compete in a global market that is a very competitive one, we need to innovate. And we do that with support of over 4,700 engineers around the world that, just to mention here in terms of capacity, 60,000 electric motors we have commercial, high voltage, low voltage. We altogether make over 60,000 motors per day. And thanks to this engineering team that is all over the continents in the world, we are able to attain 59% of our revenues with products that were launched in the last 5 years. If we make a longer-term average, we possibly are going still to have above 50%. And thanks to this performance. This continuous and sustainable process of growth. And last September, we reached a market value of BRL 228 billion. So that's a 50% growth in the last 12 years. Let's talk a little bit about the performance of the company. It's still positive in terms of revenues. In terms of net operating revenue, we increased -- we grew 9.1%. And when we see how this is split, we see a 45% in the domestic market and 54% in the external market. And I'm going to dwell into each of these markets. But at a glance, with this slide, we can realize that the diversification of it with the possibility of being in several different geography -- geographical places and segments allow us to find opportunities for growth in different cycles of the market. And when we talk about our 4 units of business, let's start with industrial electro-electronic Equipment, which is most -- almost half of the company, 48% is allocated to this business unit. And here, we are talking about motors, electric motors, high, low, mid-voltage, automation products, drives. And when we see the growth in this first semester of the year, both in the domestic and external market, this is the fruit of the constant participation gain in the market. The market share gain as Fumo showed in the motors, we are gaining market and also in the participation in the sectors that is growing for WEG as oil, gas, mining, water and water waste. Let's talk about the distribution and transmission, which is an area that is -- the world is going through, thanks of investment for the energy transition, energy efficiency and also a growth in the use of artificial intelligence that demand a lot of energy. So we are here talking about of areas that encompass all the transformers and substations, but also our complete solution for the generation, be it wind, hydraulic, thermal. And when we talk about the domestic market, the good performance for the transform area. This demand is not only restricted to one geography, but wherever WEG is present, but also because of a very positive order book for wind turbines this year, and we can see a recovery in the volumes for solar photovoltaic energy. And unfortunately, we cannot see a reflex of that in the revenue because the price of the solar panels have gone down a lot, but at least in volume, we can see this recovery. And in the external market that predominantly, we're talking about transmission and generation. We are talking about 26% increase. And without any doubts, the demand for our products and especially in the North American market. Talking about Commercial and Appliance Motors, it's a business unit that is going through a recovery area, especially in the domestic market. I think that this growth in these 2 last quarters is very pulverized, optimized, but pumps is what is pushing the sales. And in the external market, despite the good performance of industrial motors, we had a reduction in the revenues above all because of the performance of our South American plants. Coates, paints and varnishes, a bit below. It started kind of slow, but it's recovering. In Brazil, this growth is optimized, but with a lot of use in the domestic -- in the appliance areas. In the external market, in spite of the low growth because of the drop in the South America, but was somehow compensated in our -- by our Mexican operation. As for the operational results, I can show you that we are presenting a consistent performance with the growth of the company along the years. Here, without a doubt, the main the outline here is EBITDA plus, when we see the results that we delivered in the first quarter of the year, is the biggest in this historic series, and that is the result of the constant work of the company in reducing cost, optimizing expenses, very good use of our capacity in all our industrial operations, but also a good result from the margins on the long cycle products and of the mix of the products that has contributed to this. Speaking a little bit about the main indicator of performance, the return on invested capital, we have an exceptional result in our capacity to invest in business with good returns, the good use of the capital and the use of the CapEx program and it has helped a lot in this process. And our main objective here is to go on delivering good margins and returns above the average of the market. The cash conversion, the company through its business model and management has a model that allows for cash flow generation. And when you see here the conversion, we can see that we are above 90% above the historical average of 79%, but this historical average we had in the year 2022 that brought this average a little lower. But with the pandamic, we had to have a higher use of working capital, especially in inventory. And the company took a strategical decision to increase the inventory so that it could go on developing what it was. And so it was an outlier in 2022 and what we are doing in 2024 is aligned with the historical average of the company. The dividend flow, this generation of cash, generation of EBITDA and cash we distribute, we remunerate our shareholders through the dividend payment. And along our historic average, we have a distribution, about 50% of our net revenue. And here is -- we have an increase of about 6% in the dividend per share from 2014 to 2023. Fumo and João Paulo represented the integration with Marathon and we can see that we have a very positive movement here, but this is not because of the business area. The management areas have a very important role here. And I think that our concern here since the beginning was to make this integration process at the right speed. Some of you may ask, but what is the right speed? Is that the faster one? But we consider that the right speed is that allow us to guarantee the continuation -- continuing of the business, the continuation of our operations without any break. And from the beginning, our focus was in regards to our customers, the former customers of Marathon so that it could go on being well served. And also our professionals are collaborators that from May onwards, started to be part of WEG as well. So how is -- and that was a question that rose in the first session. How was this integration process in WEG. I think WEG, along this year as we had the opportunity to learn to make integration process and to make it in a very organized way in the company for the management areas and obviously, for the business areas, they also have their own processes. We have a guideline for the integration. And this guideline has 5 main stages in which each person from the financial area, controller area or IT know exactly what their role is in this integration, and they have their sort of recipe in order to make -- if they followed all the guidelines. What are those 5 stages. The first one is what we call the preparation. So right after the signing of merging, we structured ourselves in a working group in which we established a very high-level working plan. The second is the pre-closing, so very, very near to closing, we already have all the action plans in details. And the third stage is the first day, first day is the -- the professionals that are going to take care of this integration, know exactly where their role is and the fourth day stage is the plan of integration where we establish the actions and guidelines for the first week of integration, the first 30 days, the first 90 days in this process of integration. And the fifth stage is where we find ourselves right now after 90 days is the synergy gains. Is the longer term stages that we are working on in order to gain efficiency. And in regards to this at this fifth stage, we're already seeing opportunities to consolidate some activities and to standardize and simplify certain operations that are going to bring us certain gains. And what is the implementation of the WAG business service, which is our shared service model that takes care of the transactions through a process conveyor belt. All North America everything that is transitional service agreement, your supply services to us and up to the moment -- up to the beginning of next year when we present our business model, we are going to have significant cost reductions from 9 -- from the next year on with the use of the integrated WEG services. Another thing that's very important is the role of tech -- information technology in this process. We find ourselves in a separation of system station. What is a carve-out that is being carried out at this very moment in a very complex operation as -- we have 10 operating units in 7 different countries, and we are executing a separation of over 130 systems that came with the acquisition. So it's a very complex operation, very technical one in terms of being carried out. We updated our data center for our sometime in the first semesters to receive the other companies' services. And after this stage, we have a very important phase in which is to advance and implement our ERP. And from the moment that we -- well, we have one single ERP for the whole organization regardless independent -- regardless of Marathon Systems. And at the moment that we are able to integrate this, we will advance faster in these gains. Important information here WEG, an important index key performance index that you have is to get the IT expenses and divide by the revenue. The perimeter that was acquired from Marathon that came to us, has this indicator that is 2.5% higher than WEG. And let be no doubt we are going to bring this down when we incorporate this. It's going to take us a little time, but it's going to be done. So in the world that is even more exposed to information technology when you have more control of this was fundamental. So that was what concerned of the IT, since before the integration to make sure that from the first moment we would put all the protection barriers that such an integration requires. Well, let me talk a little bit about investments. The first 2 quarters, we invested [ BRL 6 million ], average of the company is 6% to 7%. The focus of our investment is always being geared towards the increase of our capacity, the internationalization of our products and also automation and modernization of our plans. Rodrigo, Fumo, João Paulo have spoken a little bit about investments in their respective business area. I'm going to give you a little bit more detail on investments in other areas. First, let me start with the liquid paints and using our plot of land, 600 square meters area that we acquired last year in Mexico. So it's another very important investment for the company. The liquid paint -- industrial liquid paint is 100 billion market and of which market had a very regional share. So we made a decision to make -- put together this plant in Mexico. We already have a powder paint and now we're going to invest in the liquid paint. It's a very near gigantic market of the U.S. and with a very competitive labor in place that is going to help us in this expansion. We are talking about BRL 100 million in investments for an area of 5,300 square meters. And when we get all the permits and licenses that is going to start in the second quarter and by the second or third quarter of 2026, is going to have this plant ready. 2 important announcements were made in terms of investment, the transmission and distribution is a very, very hot nowadays and demands new capacities. And here, we have the Betim plant in which we announced a BRL 370 million last year. I'm not sure whether you can see in this presentation in this slide, we have 2 shades of blues and the clear one is the investments that -- that was shown in the last year and our additional expansion is going to add 24,000 square meters in this darker shade of blue. And we intend to start operations in the second quarter of '26, the second semester actually of '26 and thanks to this expansions that are going on. We are going to have 75,000 square meters of built area. Once again, everything that the world is going through energy transition with renewables, electrification of the world, demands increasingly, solutions in transformers and digitalization, digital solution for the optimization of net of the grid. So WEG is going to work and participate in this. And the second investment that was announced in conjunction was the amplification of the transformer factory in Gravataí BRL 128 million investment for Transformer up to 230 kV and starting operation possibly in the second semester of '26. And to end up my presentation, not to take much of your time and pass the stage. Pass the floor to Kuba, the main Key messages is that we are going to maintain our consistent cash generation. That is the model of the company. And through this cash generation, this consistent cash generation is going to make possible our investment plans. And the second point is to improvement in the integration process. We already started as Fumo and João Paulo have presented, we started it very well. And in the next phase, in the next periods, we are going to witness the gains. And there are no doubts that we will be able a long time to bring the margins of Marathon's operations very closer to the margins of WEG's operations all over the world. And we are going still to have a healthy EBITDA margins and ROIC. And our aim is to deliver better than average results in our competitive advantages, such as the verticalization for those of you who have an opportunity to visit our plant, we'll see that. The industrial scale and also an industrial strategy that is very well developed in the company, which is a differential of the company and other cost reduction plans. Well, thank you very much. I now pass the floor to Alberto Kuba to carry on with our investor WEG Day.

Thank you, Andre. We will call you back for Q&A later on and now invite Kuba to show us the strategy update.

Good morning, good afternoon, good evening for those who are online with us. It's always a pleasure to welcome you here at our WEG Day. I would like to start, and this is the first time I welcome you here as the CEO of this company is also at the same time, as a salesperson, I'll be selling things that do not belong to WEG motor. So this is something really new. I'd like to start by especially thanking the Board of Directors for all the support. I am really fortunate because over the time -- after I came back to Brazil, I had a chance of working with Harry. He's a great CEO. And now I have the chance of working with Décio, who was the second WEG CEO. So this has been a very good time. Almost a weekly coaching. I have had the opportunity to have with Décio, Harry carried out a very smooth assertive transition process. We worked for 3 months together earlier this year, and I had time enough to be -- or to go to all business units. So I would like to thank all the managing directors and all the board members because I had a chance of talking to all of them over these 3 months to understand our business and particularly be able to understand the strategy we are designing for every business unit. So it was a very smooth transition process. And the idea today is to talk a little bit about the world scenario. Talk a little bit about what we see looking forward. And then, I'll talk to you about the strategy for all WEG products. Are you okay with that? So today, we provided a strategic view of the acquisitions. Now I'm going to show you how this is going to work, look at all businesses. But in general, to warm up 2024, we see that many WEG customers this is accelerated. In general, there was a bit of a slowdown in the growth of the North American market, which has already happened in the past, the PMI in the last 3 months showed decrease in industrial activity accelerated by the elections. And there is a more pessimistic view of American OEMs. In Europe things were a little worse. If you compare first half of this year with last year's indicators show that Europe decreased in 2%, 2.1% decrease in industrial production, very much related to weak internal consumption in our customers. Well, many of them are global OEMs had orders, purchase orders that were less than last year. So challenging scenarios, both in U.S. and Europe and China, and you have been following the news until the beginning of this year until recently, there was a crisis that was becoming more and more serious that was also impacting the industry and now with this package by the Chinese government that we hope we will accelerate things there. This is the scenario. But regardless of the scenario, WEG could advance, could move forward. Andre show that we increased our consolidated revenue by 9%, and there is a major highlight in our motion drive strategy. It has been a strategy. We grow more in gear and more in motor drive. And we also have a very interesting growth with the strategy we have to associate medium voltage motor with drives. And more and more, we understand that customers, who buy are the same and we have a lot of synergy when we are able to sell them. And a few manufacturers in the world have both motor and drive to sell together. In the domestic market, we saw a very strong recovery of shorter cycle products -- but industrial motor -- smaller industrial motor plants also had favorable results in the first half of this year. And our big result in the first half of this year comes from the TD unit, particularly Transformer. But when turbines, we also had many deliveries earlier this year that really drove our revenue and our results as well. So what do we see looking forward now, there is a topic that is increasingly part of the agenda. Back in 2015, when we had the Paris agreement, when very clear goals were established to reduce CO2 emissions, many things were established, and we see that there is an acceleration in more energy-efficient product. So WEG has positioned itself to really be a major player with products with new efficient energy efficiency. For instance, our W+ line, which is the most efficient in the world. We have applications with integrated drive. We have all the new drive line. So when you associate driving motors, we have the parabolic, which are the biggest industrial applications with reduction in energy consumption. And WEG is part of that. To give you an example, recently, we made a -- we worked in the Brazilian poultry house with embedded electronics. It's a new motor ACM, commercial and industrial motors is launched, we replaced a node motor where new with electronic, and we could reduce energy consumption by 55%. So there are many things to be done here, and WEG wants to be a major player, renewable energies, electric mobility which is also part of the WEG Day meeting last year. And I would like to talk about operational excellence. We used to call it digitalization, but we decided to expand the range a little bit, because we are looking here at electrification of the industry, the remaining industrial processes today that are based on gas that end up emitting CO2, and we are in the journey of helping our customers become better operationally, electrifying and digitalizing their plants. And looking at something João Paulo has already mentioned and expanding it to other businesses, energy transition regardless of having a crisis or not, will ultimately happen. Do we agree? AI is the same. Those who have already used generative AI realize that there is no going back. We will just use it more and more. So there's no turning back. Every consultation we make or a search in Google versus one that we do in ChatGPT or copilot, spends 15 to 20x more power. So there is a huge demand here that will grow, a growing power demand and WEG is ready to provide not only the alternators, João Paulo showed, but we can also supply a number of products, for instance, cooling motors, all the panels, the e-houses. We have experience with that, where all those plates will be store. So WEG can become a major player here as well. And here, we have another important vector for growth looking forward. I would like to talk a little bit about energy transition, which is something that is always discussed. So this is a research Bloomberg conducted and recently published saying that last year's investments reached USD 1.7 trillion. But in order to achieve the goals established in the Paris agreement, 3x more should be invested. So this is not an important indicator. There is an acceleration in the energy transition that has already happened. We see that in our businesses, but there is more to happen in the future if the world really tries to achieve these goals by 2030. And then there is another very important point. We had -- we have had many discussions here regarding growth. And then we read many reports. This one is by McKinsey, saying that the transformer market will probably continue to grow fast, 5% a year by 2030. And a while ago, this market would grow just 2% or 2.5%. So again, everything we are investing in the T&D business is exactly to be able to continue to take advantage of this favorable situation. And another very important point, which is also helping us grow this year is that the electrified transportation segment was the biggest driver of investments in energy transition. So WEG sees that in practice, we have had a good growth this year in electric mobility or related to powertrain and the recharge station business is growing even faster because EVs the first 5 or 6 months of this year grew more than 130%. So there is a very significant need for the installation of charges. Now I'd like to talk about growth strategies. Let's take a look at the traditional businesses because WEG has a wide range of products. Here, we have the main businesses. We would like to be a world benchmark, which are motors, alternators, transformers, automation, drive systems and digitalization. WEG wants to be a branchmark. Our vision is to be a benchmark in these businesses. And this is how we organize our strategy to go to the market, all these traditional products here have a very big internationalization drives or motion drives, medium voltage motor and drives and TD, transmission and distribution. And in order for you to understand all these products I showed you, they are sold all over the world. We are talking here about 120 countries and we have 41 sales organizations in different countries. That started back in the 1990s. So Décio, when he was the CEO, he made this movement of opening unit in the U.S. We opened 6 units in Europe. And from there on, WEG today is now in 41 countries. And we are not counting here what the so-called sub offices. There are many others, isn't it out there, places where we have 2 or 3 guys working, which is like a branch of a branch. And these 2 WEG people operating there. So we could say that WEG is everywhere with their own team. And why is that important? When you have your own team, you run less risk, you are able to align strategies. Can you get that management that back in the 1990s, WEG dependent on distributors. If the distributor decided to change brands, you would have lost the market in that country. So the more we go to this different market, the more we have access to customers and the better we understand what we have to do to win in every market with every -- and the sales branches all over the world, they are strategically supported by a very well distributed footprint. So our main businesses, they started in Brazil very strongly, where we have the largest volume today of concentration of our manufacturing units, but in Mexico today, too is a place where we have a very significant verticalization and now China, too, with an outstanding automation plant there. So we have 3 countries that are competitive to supply motor drives and gearboxes. So motors, Fumo, showed 23 plants all over the world. And when we look the way we are organized now with this Volt movement, one of the main markets that we had still to conquer are the Indian market. Asia market of the middle east and Eastern Europe market, which now -- and now with Volt, we will have this market because Volt is a leader in Turkey already. Since Volt is a leader in Turkey. And since we already have introduced motion drive, so we are selling there drives and gear boxes, the trend is that we will also accelerate our sales there in selling gearboxes and drivers in that area in Turkey and Eastern Europe. If you look how WEG automation business is structured. You will see that WEG automation has a very well restructured plant in Brazil, a well-structured plant in China for drives. So we can supply the world from Brazil, from China, same driveline. So that idea of always having 2 plants making the same kind of product with the strategic acquisition of Gefran. WEG automation now also has niche products. And also, I think that the main point in the acquisition of Gefran is to have an extremely skilled team in automation engineering, which is really key to advance in automation. And this team today has become WEG Automation Europe supporting our staff there in Europe for special products and automation engineering and niche products with Gefran. When we acquired it, it has a line of products that are complementary to WEG. So this is more for Brazil, China, series products and now Gefran in Europe in order for us to be able to tackle the whole world. Brazil supplies to North America, China supplies to China and Southeast Asia, and both plants supply to [ Europe ] but together with Gefran, all very well structured and with a very well-designed strategy. And as a key point. The key strategic point Gefran, when we acquired it, it already had a structure in India, which is the fastest-growing country in the world WEG Motors advanced a lot there in India with the plant and this is the first seat of WEG automation in 1 of the fastest-growing countries in the world. When we look at gearboxes, Brazil is very strong. We've acquired Watt-Drive around 10 years ago and now, we also strived to diversify our production footprint with manufacturer of components in Mexico as well to supply the North American market and verticalization in China for the Chinese and Southeast Asia market. If you look at motion drive, this is a global strategy, very well designed with plants that are well prepared. Any logistic issue will just shift plants gaining scale, competitiveness with very updated lines because when we enter into the gearbox area, there is no standardization. So there are many differences in lines. And back in the last 10 years is standardized at all. Now regarding Medium Voltage, which is also very strategic because those who sell Medium Voltage is a different team. It's different from the motion drive team. We are talking here about brown box products, short-cycle products and long engineered products that have to have engineering companies always involved, and this is a global game. For example, sometimes the engineering company is located in Korea. The OEM might be in Europe, in Germany, in France, in England, and the end user is in the Middle East. So if you don't have an integrated team to sell that, you will miss opportunities and WEG built. We have a how voltage solution system team in Europe. We have a similar structure in the U.S., and we have a similar strategy for Asia in order to coordinate the whole thing. And if you look, we manufacture medium voltage motor drive in Brazil and Medium Voltage motor and drive in China, we make -- that's wrong, we're making it in the U.S. as well. So U.S. is missing there. A medium-voltage drive in Mexico and also medium voltage drive in U.S., we are opening a plant in Portugal. Well, in 2 weeks, they will also make medium voltage, motor and drive will open a plant -- a state-of-art plant for medium voltage motors. And in India, we are finishing the expansion of our plant there, where we will also be making wind turbines with space for the future so that WEG automation also makes medium voltage drivers, so main markets, China, India, South America, including Brazil, North America, Mexico, U.S. and Europe, WEG's produces all motor and drives also a consolidated strategy, a well-structured strategy and WEG is one of the only manufacturers that can supply the whole package putting us on a very favorable position, talking with the same team. TD, the strategy is clear. I won't dwell a lot on this because Carlos presented that, but we will go on accelerating so that we have growing market share in the Americas and also in South Africa, which is a country that really needs infrastructure. So very briefly now on developing business strategy, wind energy. As I mentioned, we took one more step in India. India now has certified product. We are working now to install the machine. [indiscernible] from Paulo will should be ready to make the first deliveries starting in 2026. So WEG now, we'll also be able to participate in some auctions and also participate in the game there in India in the U.S.A. We recently started putting a structure in place, we are still in the beginning. It's a learning curve. And in the U.S., the idea is WEG to be export this X mega wind turbine, to export the 7 mega generator, we have to validate it in Brazil. We have a proto type, so things are working as we designed. And renewable energies, again, for solar, Latin America, we are working well. We are doing well with our expansions and Mexico have a surprise. We are also going well. South Africa, we are starting now increasingly within the same strategy as we have with transformers is to have this view of the renewable energy team because they need a lot of energy there. They have many outages. Electric mobility is something very important. Let's look first at the powertrain strategy, Brazil, powertrain a lot of Brazil, if consolidated in Brazil, we start exporting. But the focus for now is Brazil. When you talk about recharge stations in Latin America and Europe, a very important step to be taken. I'll show you later to update on recharge station and something I'll be talking about today is our best structure, which started in the U.S.A. but now it's time to do that in Brazil as well. Recharge station. So we had an interview publishing that there will be a growth in the stations of 300% or 400%. That's true. The market is accelerating WEG has a line of stations, first ones they are only in the market with recyclable maturity. So with the sustainability appeal, we reduce energy consumption by 42% when we make products using recyclable material. And there's a very important point here. In motors, WEG has the whole line from micro motor to medium voltage motor. In transformers, I think WEG is one of the only ones that has from the smallest to the biggest transformers. Drive, same thing from the smallest drive to medium-voltage drives, and we've reached the same level with chargers, something which 4 or 5 years ago didn't exist at WEG. It was just beginning, and now it's becoming one of the main drivers of growth. And why? I really want to show you this image, this picture because this is really changing a lot. WEG used to be a product company. Now WEG is working towards being increasingly a systems company. This is the picture of our HPC. It's an innovative product that will be launched next month. It has a bigger capacity of recharge, greater power. It has 4 -- you can recharge 4 cars at a time. And it's being -- so well, all these products are being adapted to the European product following European standards. That's why WEG is the first company that got the INMETRO certification. So the first product to be certified by INMETRO in our recharge stations, particularly this one has many functions, software functions that enable a much faster recharging. When I tell you that WEG is becoming a systems company, it is precisely because the software that comes with our systems in the end, they have more intelligence, more embedded technology. In an old station like this one, for example, we have 180 kilowatts. So every point here will charge 90. In this one, we have 380 kilowatts, for example. But you can vary the recharge capacity in each terminal depending on the vehicle that is being charged. So it's not fixed. The software makes this analysis and distributes the charge so that we have the best recharging optimization. And the nice thing about all this here, the great thing about this is that it's developed by someone who knows about the Brazilian market. For example, we have many condos. If you live in a building, you know how hard it is sometimes to install one recharge station. Imagine if we continue with this speed of growth, buildings will not be able to have a structure in place and WEG prepared a whole charging system with the condominium administration system. And at the end of the month, the building administrator will know how much to charge and whom to charge. And there will also be no transformer issues. So everything we are doing here is to get to know how the market works in Brazil, and we are taking this expertise and taking to the world. The first little recharge station you see there that was launched together with Volvo EX30. That recharge station is the only one in Brazil where you can plug in into a 20 amps plug. And if you have a 10 amps and not a 20 amps cable, it will not catch fire. It will regulate the charging speed according to the installed capacity of the system. Focus -- full focus on protection, bringing the best in management technology for the product and for the fleet. And now I'd like to touch on something else, which is BESS. BESS, we think it's only about batteries. That guy on top that should account for around 5% of the cost of BESS installation is responsible for 40% or 50% of field issues when BESS is installed. Back in 2018, when WEG made this movement of acquiring NPS, we started to learn. This is a journey, ladies and gentlemen, a year's long journey. We were learning. There was no market at that time. We sold very little in Brazil, but groups and teams studied. So today, WEG has a PCS, which is power control system that is pretty good, and we will be launching one early next year, which has a state-of-the-art technology, voltage management, operation frequency and much more reliable. So WEG will have one of the best products in the world and automation and control MS, which makes the management intelligence bet on the battery, all made in-house and customized for every customer. WEG today has over 750 programmers working in the company, and we don't sell software. Just for you to see that we really want to develop systems to embed into our products, transformers and panels with CC and -- DC/AC systems, and it's all part of the storage system, auxiliary systems and anti-fire systems and so on and so forth. So this is just to show you that the only thing that WEG doesn't have in BESS is the cell. All the rest, the WDS system and WEG automation team, they were able to develop and learn. And today, WEG has, in my humble opinion, the best system and the best -- more complete BESS line in the market. Again, as I talked about recharge station. So we have from the smallest BESS, which is residential and integrated skids, we have everything ready to be delivered next year when we will start with this. So we've built another business case again, which may, in a few years, become a great business for our company. And I'd like to show you this. For those of you who do not know, my time is almost up. Where is BESS because BESS and the last S, battery energy storage, so the last S stands for system. It's a very complex system, and WEG is ready to supply the whole system. And BESS, I think the best synonym for it is like a Swiss pocket knife, which can be used for many different things. For instance, you can put the BESS for generation. We even made a joke the system in the future instead of GTD can be GATD generation, storage, transmission and distribution because not always, obviously, always actually. You don't put together your generation with the need for power in wind and solar and BESS regulates that. In transmission, often, when you have power, you don't have the capacity to distribute this power. So you may store in BESS both in the entry of a transmission line or output in order to regulate that. The user who buys a specific PPA that is there buying energy, they may have also a BESS to displace the curve in order to pass less power. So there are many different situations now for small towns. And there's a very nice application, which I'll talk about. The biggest problem today in Sao Paulo's recharge station is the capacity of the transformer, the capacity of the substation. If you have a garage there that needs 50 megawatts to charge buses at night. But the substation can only 20 -- get only 20. So you may, during the day, charge a battery pack in order to meet the [ 40-50 ]. And then when buses get there, the system will charge the buses, right? So you solve an infrastructure problem in order not to install a bigger substation or a bigger transformer. So there are many different choices here. And I'm absolutely sure that many different applications will be deployed from there because the cost of the cell went down. So now what we see is that with the battery cell costs that decreased over 90% in the past 10 years, projects will become feasible in Brazil as well. Brazil was lagging behind because power cost in Brazil is cheap. But now we see feasibility in many different projects. Now I'd like to talk a little bit about acquisitions. We were much faster in acquisitions in the past few years because we look access to the market. WEG Motors already had a team all over the world prepared to absorb them. As Fumo mentioned, the Mexican team is negotiating with Mexico, the Chinese team is negotiating with the Chinese team. So WEG is much more global and better prepared to acquire a company such as Marathon. But a very strategic movement is Volt. We didn't talk much about it. And Volt is a totally vertical company with foundry, including foundry, and is really prepared to serve the Turkish market. They don't export much. So WEG can drive sales. It brings a commercial motor factory we didn't have. So we can export single-phase motors from the Turkey operation so bringing resilience also in terms of supply. And we see that, that journey is this. Our journey will be like this. First looking at access to the market with mature products. We had many acquisitions of transformers, gearboxes last year or technologies as well as were the start-ups when we started WEG Digital in order to complement the portfolio know-how that WEG doesn't have. Very briefly, just to update you, we made many movements regarding ESG in 2023. We had over 610 projects approved, and we improved by 15% our reduction in emissions vis-a-vis 2022 of the 52% target, we've reached 25% reduction in 2 years. And this has an impact on our ESG achievements. Ecovadis last year, it's been assessed again. But we upgraded from bronze to gold, placing us among the 5% best companies of many assessed. Our customers used to make many audits to check our process. And now they know that we are certified or that WEG is recognized, making things much easier. We improved our CDP score. This is all related to carbon emissions. So we went from B to A. We are at a leadership level and Sustainalytics, there too, we improved our grade, but we are still on the same range being low risk. So WEG is also recognized one of the leaders company also in ESG. Take-home messages. And everything you saw here in terms of traditional progress, we are really speeding up our internationalization and my role as CEO, since I've lived abroad for so long, having worked so long with international market and WEG's Board today, well, many of lived abroad for a long time, and we will take this moment. And then we have many opportunities that will continue with this energy transition, and they are being accelerated with the use of generative AI. We have now a full portfolio for electric mobility. So I think that electric mobility and recharge station have reached an outstanding level so that we can also take our products abroad. And we have a BESS plant being completed. And BESS, as you could see, we have everything home, fully verticalized product except for battery cells with a software team and BESS requires OEM. It requires maintenance operation, and we have a lot of expertise in wind energy, and this will make a lot of difference for BESS. Additionally, we have a fully dedicated team dedicated to the sales of transformers and this team will also help us sell BESS. And I think that we have to go on advancing in our ESG projects. There are many things still to be done in Brazil and in the world. This year, we are reaching 75% of the energy we use comes from renewable energy. That's a great step in Brazil with 2 self-production projects. We have exceeded 90% in the world. We have solar almost in all operations, and that will lead us on average to 75%, which places us among the best averages in the market. That's it. Thank you, Andre.

Thank you, Kuba. I invite you to stay on stage. Because we are now starting the second session -- second Q&A session. So please ask Kuba and Andre. Please, if you can now stand up at the time of asking your question because it's better for the camera to show your image for those of us who are watching from remote areas.

André Mazini from Citibank. The first is the capacity, the transformer capacity. I think at the last WEG Day, you have been doubling the capacity in transformers. I'd like to understand when this full capacity is getting online and what are the risks in taking a bit longer to become online? And the second, if you allow me, Kuba was in a great press vehicle saying that 70% of the revenue is coming from external markets in the midterm. And I think that the external markets, the margin is lower than in Brazil because they are more competitive markets. and because you're not so verticalized out abroad as you are here. The question is, can you still maintain the margin even getting to 80%, 90% of revenues being generated in external markets?

Well, first, in terms of the capacity of transformer, Carlos, please correct me if I'm wrong. We have been working in a very strong manner in all these projects that Carlos has approved December last year are under phase of dealing with the contractors. We took a while to make all the license, get all the permits and all this capacity is going to start operating in '26, '27, '28. And later on, we'll add a full capacity. '26, '27 would double in comparison to 2030. And all is done, will double in the projected for this year. So it's not a ramp. And each plant will enter at a different specific moment, and this capacity will start operating until we double the capacity we have today in about 5 years. So in terms of internationalization is a journey that is going to take a long time. And what WEG has been doing is that we're working in the verticalization of our operations abroad. And this verticalization will also make those plans very competitive. The WEG motors are with outstanding performance in the foreign market. So what is going to happen is that naturally WEG will grow in the foreign markets. I was just reflecting the other day. When I joined WEG, it had BRL 1 million in revenue and 70% was from domestic market. And nowadays, it's BRL 32 billion, and the external market was -- had more than 22x growth. But the external market went from BRL 300 million to BRL 17 billion. So it's natural that external market will increase more in proportion. For motor, 75% of the growth comes from the external markets. Transmission and distribution is even more stronger outside of Brazil than inside of Brazil, 70% medium voltage drivers 80% is from external market. So it's natural. It's not because that's a target of ours, but because Brazil represents 3% of the addressable market for WEG. So it's natural that you will make actions towards growing in external markets where we have a lot of opportunities. And naturally, our challenge as a manufacturer is to guarantee that the foreign plans gaining competitiveness so that our margins remain the same. Let's make the following reflection. What was the margin of WEG in 2014, 10 years ago, what was its margin in 2004. See how much we have geared towards more internationalized businesses, we are reaching now historical margins. So I don't see that trend. Obviously, there is a higher challenge in becoming more competitive in foreign markets. But history shows that we were able to made good in our promise to make those operations very good in the foreign markets.

Alberto Valerio from UBS, Andre and Kuba. We have seen a lot of projects, very interesting ones that you showed us the details. I would like to know what is the criteria? Andre Rodrigues also mentioned the ROIC all-time high for 28%. What is the criteria for this investment in terms of rentability, especially for the organic ones in which I think that you have a forecast and a more precise estimate of how much they cost and how much in revenues we already have.

Well, may I get that one. Thank you, Alberto, for that question. I think that when we start a new investment, obviously, the return is very important, but that's not all. We know that gain in market participation are important for WEG. It's important to invest in new technology as well. And every time that a Managing Director goes and addresses the Board of Director and takes this into consideration, the return of this project is also considered. But most importantly, for WEG is the speed to make these investments good. So there are businesses that when we -- well, let's imagine that we always privilege the modular expansion. When we made the foundry in Mexico, it had a smaller return than the investment that Carlos is making in transformer. The market is heated up. The demand is high. We have a price differential, and we had to make that investment because in the longer run, it would be fundamental for the competitiveness of the company. And we have targeted in the growth of WEG and then came a merger along that fitted as a glove for that investment because they're going to bring further competitiveness when we make the die cast [ car cast ]. So there is a minimum established for each business unit, but the speed that we have in order to reach the historical values of the company.

Rogerio Araujo from Bank of America. Kuba, you spent almost a year analyzing what were the opportunities of each area. And I would like to understand a little bit better what were the bottlenecks that you have identified in the sustainable growth effect. What are you doing in order to address this points? And if I may bring one of the points that called my attention was the acquisition of a very big area in Mexico and I think it was kind of visionary because I remember you made here in Jaraguá do Sul. How much Jaraguá do Sul, for instance, still has for expansion area. Has that reached the limit. I think you still have a difficulty in hiring labor in the United States. So how have you identified in order to mitigate these problems, these bottlenecks.

Well, very well. I think that's a very important issue. And that's not only the challenge of one business unit, but WEG as a whole. WEG increased to 2,000 more employees. Our businesses today permeate a lot of different industries and segments. And in order for us to keep on growing, we have to develop a lot of leaders. We have about nearly 2,000 managers and up to 2027, WEG will need to make 500 more leaders. So basically, it's a 25% increase in the labor. So then you have technical management directors. And these people need to be educated, need to be trained. And the more WEG grows things get -- grow -- get a bigger proportion. So just for you to give you an idea from 53 plants, 43 are outside of Brazil. So it's natural to say that in 2027, perhaps the external market will no longer be 53, 54, maybe it will be 60, 68. So this external growth require a strong effort. And recently, we have nominated first director from a guy that was an intern and that shows you the cycle that WEG has all over the world. We have similar instances in India. We also have interns that are reaching the director position. So the role of Juliano, he is our Human Resources Director also has a story like that. Juliano joined us as an intern, and he moved around a lot. He implemented the SAP ERP system, and he got to know WEG as a whole. Later on, he was expatriated and he ran an operation as a director. He ran an operation in South Africa. Now he comes back exactly in order to make this internationalization of our human resources area, which is a very important area. One of our important drivers of our success is the team that leads our company. And recently, I met a director that worked with Eggon. And Eggon was already in the Board of Directors, and he was -- and he asked him, what was the success of WEG because it was a really successful at the time and that both got to the conclusion that it was the team. The capacity to retained talent, the capacity of retained value that WEG had in Brazil, and I think that Andre and Juliano consistently making that true also in the external market. That's why you see when we have the Marathon WEG integration that -- the key point was to establish trust because the first thing that they may think is that they are going to be replaced. So we have to bring these people here in order to understand what we have and potential to help them. And then we have the demands coming from these teams. It's not us going and telling them what we need to do is we have them come here, knowing our processes and then have this desire and motivation in taking that back to their operations. And when we talk about bottlenecks. I think that in a general way, our big challenge is to balance investments, rather complex to get an operation such as WEG's and say that we are going to grow. And how is that broken down? We start with the forecast for revenue. And then from there, you will open up in how many products and from how many products the quantity of plants. So we have a very good discipline to do that every year and adjust and balance the operation wherever it's needed. I think basically that's it. Is there something I'm missing?

Well, about the size of the area in Mexico?

Well, about the plot of land in Mexico, that comes towards what Andre mentioned. It comes -- you don't have a return right away. You put in an enormous CapEx for your production capacity that you're going to take a long time to reach that. So perhaps we're going to take 10, 15 years to build everything that our area has to offer. But how do we think we, the executives, as we thought to build in Mexico, WEG automation, WEG plants, we all had a vision of need in area. And then we decided to buy 400 square meters. And then we show the Board the plan because this plot of land is in front of WEG and then the Board said, and what about this other area here? Well, this may become a housing area. And then they said, well, then buy everything. And that was the same case in China. China, we were going to acquire a plot of land and then Luis, he did not want to buy 100,000 meters. We bought 180,000 and nowadays is almost fully taken. So I think the long-term vision and we know we are going to need it someday. And the only problem is the speed that we're going to take to occupy this area. Everything is thought in the long term, but aligned with our vision of growth. And we wouldn't do -- it doesn't make sense to making this in Jaraguá because we are very big here already. But now we're going to Betim, to Gravatai, Linhares so that is all part of a long-term integrated strategy.

Marcelo Motta from JPMorgan. I'd like to ask about the systems. So you mentioned that WEG is a company that's increasingly dealing with systems. And in the long term, how do you see the growth of this segment and the revenues? How does it alter the strategy, how should you think about this business?

Well, thank you for this question. WEG is preparing itself for systems because last year, we made a decision for WEG automation to create WEG systems and another unit. And we thought that we needed a business unit to integrate everything. You can see that the BESS is part of WEG automation mix and there is a part that we develop a new. So there is a whole part of software. And imagine that when WEG decided to enter the digital business, we went after an AI company. We went after a communication company in order to communicate the plant with the cloud. We went after a company for BESS with eyes for automation and everything became integrated into our system. And Grillo, coming of Grillo for the digital and the transformation of the digital into a business unit brought this increasingly systems area that can be remunerated as software systems, software but basically, they are going to be integrated into the product. So what end up going -- what is going to happen in the end is increasingly WEG is going to integrate into system. Be it in BESS, be it in electrical mobility and included for the electrical mobility for the powertrain. And the powertrain for electric for EVs has the motor of WEG, has the WEG drivers. Drives has a WEG transmission and a WEG battery pack. So completely different things. That's why we have now this integration. And it is going to take more space. And from -- as WEG becomes a systems company, our revenue is going to change. We have to offer more services. And everything that we are speaking about, for instance, a wind farm has a recurrent maintenance need for about 20 years, BESS that's the same thing because you have the grading of the battery, you have to substitute, replace batteries to maintain the capacity. So that is the journey. WEG is going to remain very strong in product because a lot of share to be gained outside abroad in the foreign markets. But I think in the longer year, systems are becoming even more relevant in our revenues as well as services.

We still have time for one more question.

Andre Mazini. My question is for low-voltage motors, we are reaching very near the first player and perhaps you will overtake this first player. And these other major players, the European ones, they are increasingly losing share. Why do you think you're losing so much share of the market? Maybe a theory is that because they have lots of their manufacturing plants in Europe. And it's a very intensive and labor people in the plant floor. So perhaps they are in different places. Why do they bring more of this production to India, Latin America? Is that really what is taking place? Are they in the wrong place for this business? Or do you think there's something else at play here why they are losing share.

I think that in a general way, the world, the rich world, what happened in the United States, what happened in Europe, Western Europe is a deindustrialization process because you have a very high cost labor. And apart from this higher cost labor in these countries, you're not able to dismiss, see what is happening with some German automakers. They have a situation that they have the highest cost labor, the highest cost of transformation, and they are unable to make anything about it because they are bound by the structures of laws because they cannot dismiss people and the world is cyclical. These companies in Europe in order to maintain competitiveness and I'm talking about the customers that we visit. Nobody manufactures vertically, everyone supply themselves with components in Asia or -- but nowadays, it's in -- they supply themselves in India and assemble in Europe. And this model has not a long-term future because the supplier of components will increase their costs along the time. China, just for you to have an idea when Apple launched the iPhone, the cost of the -- our -- the labor cost per hour is $0.80. And I think that in 20 -- I saw a report that in 2028, it reached $8. We see that in our operation. 7% to 10% increase along the years. So in my view, it is very difficult if WEG also had big European factories in Europe to operate in a competitive way. That's why we have this mix between plants in more competitive places and niche in more competitive countries, Europe, United States, et cetera. And then the continuity of these businesses when we talk about our future vision, ends up having more -- makes more sense. And as these big companies have already ceased making their verticalization, it's very difficult now to make -- start verticalizing back again. So that's why things very difficult and why they are losing interest, are operating with lower margin and then having lower CapEx investments.

Well, thank you very much, Kuba and Andre, for participating in this Q&A session. We shall wrap up our event now, and I'd like to thank once again your attendance and the participation of all of our Executives and everyone that has attended presentially and for those of you out there who are remotely following us and for everyone else, that has supported us to make this event possible. Our suppliers, our partners that have worked a lot for making a great day for this WEG Day. An important message and announcement today for those of you who are remotely watching us, there is a link for a satisfaction survey. And for those of you also, it's going to be made available by e-mail so that we can improve for the coming years. That's it. Thank you very much, and see you next year. [Statements in English on this transcript were spoken by an interpreter present on the live call.]