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

[Interpreted] Good morning, and welcome to WEG's Fourth Quarter 2024 Earnings Conference Call. [Operator Instructions] Again, this conference call is being streamed live. And after its conclusion, the audio will be available on our Investor Relations website. [Operator Instructions]. We would like to emphasize that any forward-looking statements contained in this document or any statements that may be made during the conference call regarding future events, business outlook, operational, and financial projections and goals and WEG's potential future growth are mere the beliefs and expectations of WEG's management based on currently available information. Forward-looking statements involve risks uncertainties 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 lead to results that will be materially different from those in the statements. Today with us in Jaraguá do Sul are André Luís Rodrigues, Chief Administrative and Financial Officer; André Menegueti Salgueiro, Finance and Investor Relations Officer; and Felipe Scopel Hoffmann, Investor Relations Manager. Please Mr. André Rodrigues, you may go on.

[Interpreted] Good morning, everyone. It's a pleasure to be with you once again for WEG's earnings conference call. I will start with the highlights of the quarter on Slide 3, where net operating revenue grew by 26.4% compared to 4Q '23. In Brazil, we had another quarter of growth with strong performance in long cycle equipment especially in transmission and distribution projects, along with the resumption of centralized solar central generation. For short-cycle equipment, we continue to see healthy demand in industrial electric and electronic equipment, and commercial motors and appliance. In the international market, we had yet another quarter with good liver volume in the power generation, transmission and distribution businesses. particularly in North America as well as the execution of generation projects in Europe. In Industrial segment activity remained strong in several important sectors with highlights in oil and gas and water and sanitation. Additionally, we would like to tell you that recent acquisitions also contributed to revenue growth in the quarter, EBITDA reached BRL 2.4 billion, a 30.5% increase compared to 4Q '23. EBITDA margin closed the quarter at 22.1%, an increase of 0.7 percentage points compared to the same period last year. Throughout the presentation, André Salgueiro will give you more color on these points. Meanwhile, return on invested capital, one of our main financial indicators remained at a high 34.2%, as we can see in more details on the next slide. Here we observed a reduction of 5 percentage points compared to 4Q '23 this is mainly explained by the nonrecurring effect in 4Q '23, related to the establishment of a new subsidiary in Switzerland and by the growth of invested capital, primarily due to investments in fixed assets and recent acquisitions despite revenue growth and the maintenance of healthy operating margins during the period. Now I'll turn it over to André Salgueiro.

[Interpreted] Thanks, André. Good morning, everyone. On Slide 5, we bring the revenue evolution of our business areas. In Brazil, industrial activity remained healthy with strong demand for short-cycle equipment such as low-voltage electric motors, and serial automation products in addition to solid performance in long-cycle equipment like high-voltage motors. GTD continued to show revenue growth with another quarter of growth in T&D, especially because of the delivery of large transformers and substations linked to transmission and distribution network projects. We also highlight the positive performance in solar generation. With the resumption of centralized projects, along with the continued strong demand in the distributed generation business, which helped offset the lower delivery of wind turbines. In commercial motors and appliances, we continue to perform well with sales growth in key segments such as air conditioners, washing machines, and compressors. In paints and varnishes, sales volume remained strong with diversified demand across different market segments. In the international market, we saw positive demand for short-cycle equipment such as low-voltage electric motors. Also good results for long-cycle equipment, including high-voltage motors, automation panels, especially in key segments, such as oil and gas, and water and sanitation. Remember that the integration of Marathon, Cemp and Rotor, and Volt Electric Motor businesses contributed to revenue growth in the quarter. In GTD, we continue to capitalize on opportunities in the T&D market in North America as well as solid performance in our power generation operation in Europe. Remember, the acquired the Marathon brand generator business also contributed to the revenue performance. In commercial motors and appliances a slowdown in sales in key markets such as North America and Argentina, impacted revenue growth compared to the previous year, despite the positive contribution from our operations in China. In paints and varnishes, we continue to see revenue growth, driven mainly by strong results from our operation in Mexico. Slide 6 shows EBITDA evolution with growth of while EBITDA margin ended the quarter at 22.1%, showing yet another quarter of improvement compared to the same period last year. This reflects primarily the margin improvement in long-cycle equipment and the continued positive momentum of short-cycle businesses. Important to note, this quarter, we had a change in the mix of product sold, particularly the increased relevance of the solar generation business, in addition to the nonrecurring adjustments related to the valuation report of the Marathon business. Finally on Slide 7, we show the evolution of our investments with a total of BRL 672 million, 65% in Brazil, 35% abroad. In Brazil, we continue to modernize and expand the production capacity of transformers at Betim and Blumenau units, in addition to increasing the production capacity of industrial motors in Jaraguá do Sul, and expanding the automation units operations in Itajaí. Abroad, we continue to invest in Mexico, advancing the construction of the new transformer plant enhancing the production capacity of the electric motor factory and expanding the automation units. In China, we are expanding low-voltage motor production capacity. With that, I conclude my part and hand it back to André.

[Interpreted] On Slide 8, and before we move to the Q&A session, I would like to talk about some of our recent accomplishments and share our outlook for the year. Accomplishments, I would like to highlight that in November, we announced an investment of $62 million to expand production capacity at the Rugao industrial complex in China. The investment involves increasing component manufacturing capacity and constructing a 30,000 square meters building for high-voltage motor production. We also announced the acquisition of REIVAX, a Brazilian company in the power generation control system sector, a well-established company with presence in both domestic and international markets. In December, we completed the acquisition of Volt Electric Motors, a Turkish manufacturer of industrial and commercial electric motors. The acquisition diversifies WEG's industrial footprint to serve not only Turkey, but also other strategic nearby markets. Also in December, we announced the construction of a new gearbox factory in Turkey, aiming to increase our component manufacturing capacity outside Brazil. The new factory will be established in a 12,000 square meters building in the Izmir region, with an investment of approximately EUR 28 million and completion expected by 2027. Finally, I'd like to share a bit about our outlook for the year. We maintain a healthy operational dynamic, constantly seeking operational efficiency and productivity gains, which should continue to support strong operating margins and return on invested capital. Continue with a solid order book for long-cycle projects, particularly in the T&D area along with the resumption of centralized solar generation projects, which should contribute to revenue growth. However, it's always important to remain vigilant about global macroeconomic scenario and potential risk and volatility, both locally and international. Even so, we maintain our growth expectations with positive demand in most of our businesses and pursuing opportunities in new businesses and international diversification. That concludes our presentation. Please, operator, let's start our Q&A session.

[Interpreted] [Operator Instructions] We are going to start our first question comes from Lucas Marquiori from BTG Pactual.

[Interpreted] I would like your help to try and understand the recurrence, let's put it this way, of some demand factors and revenue that we saw in your results release. I saw that you had a large delivery in generation in Europe. I think it's turbines. If you could say if your backlog is long, if you should phase out in the next months and year and also solar. This is a topic that I suppose many people talked about the phaseout. You talked about the resumption of some centralized contracts. Is it a long backlog, more contracts coming, what's the average profitability of these orders? So a bit more color on these 2 topics.

[Interpreted] Lucas. This is André Salgueiro speaking. Okay. The 2 questions that you asked, recurrent demand, the first part generation in Europe is connected to our joint venture with [ GD Cummins ]. And what happened is that we had a concentration of deliveries in the fourth quarter and that made revenue to be slightly above than what we were delivering in previous quarters. And because of the nature of the products there, this happen sometimes. I don't know if you remember, but some years ago, I think in the third quarter, we had a relatively similar impact. So I would say it was a concentration. It will not necessarily be recurrent for the future, but every now and then for the future, we might have some other concentration because of the nature and the type of product that we produce and deliver. As for solar, indeed, we had a very positive quarter in the fourth quarter reasons. G&T, especially retail, the kits are showing, again, growth in revenues. They were growing volume and now they are growing revenues. But I think the novelty was centralized generation. So large solar farms that we started deliveries in the fourth quarter. There is this project that we announced to the market that we have others in our backlog. So I could say that centralized generation has a good backlog for the first half of this year. Of course, we can have something for the second half. But for now, it is until the end of half of this year, beginning of the second half.

[Interpreted] Our next question comes from Rogério Araújo from Bank of America.

[Interpreted] I have 2. The first is try and explore a bit T&D outside of Brazil. We saw GTD growing well, abroad 26% in dollars and already leaving the M&A out. However, when we see the results of a WEG Transformers U.S., it was with a share of 14%, 15% of the profit and this quarter, it came to 12%. Is it anything recurrent below or above the EBITDA line? This is my first question, and then I'll ask the second question.

[Interpreted] Rogério, this is André Rodrigues. Thanks for your first question. I think there is nothing much new when we talk about the performance of T&D in North America. It continues quite positive. And a variation when we talk about margins results, is common depending on the type of product you sold, the type of transformers. So fluctuations between quarters is business as usual. I think the message is demand continues heated, orders are more and more robust and WEG is more and more ready to meet customer needs.

[Interpreted] Very good. My second question is about 2 lines that helps to profit: One is the income tax bracket of 18% this quarter, and then you have later in financial expenses. It was BRL 30 million to BRL 40 million, and now it is BRL 6 million. Any particular effect that is nonrecurrent, the result of the rising Selic rate in Brazil. What could you talk about this tax bracket? And just for us to understand if this will contribute to profit in the coming quarters.

[Interpreted] Rogério, this is Salgueiro speaking. As for tax bracket, there were some fluctuations, some fluctuations may happen in between quarters, depending on incentives, subsidies that we may have along the quarters. So it's natural to have this kind of fluctuation. Of course, you have the much you export, the much you bring from outside. So this can provoke some variation on the effective tax bracket. I think the most important point here is that we did have a concern in the end of '23, because of changes in pricing and taxation in Europe, we had the expectation of being between 20%, 21% and we closed the year more or less so. As for financial results, we did the main impact in the quarter are related to exchange rate fluctuations that we had because of the dollar fluctuations and the hedging that we have. And it's important also to remember that in the fourth quarter '23, we did have a negative impact. So the comparison base was very low. There was a strong exchange variation in Argentina at the time, and that provoked the change in the financial results. So when you see differences quarter-on-quarter, fluctuations are normal, but compared to the fourth quarter '23, we have these 2 factors that help explain the variance.

[Interpreted] Our next question comes from João Frizo from Goldman Sachs.

[Interpreted] I have some questions with regards to margin. First, I would like to hear from you. What is the expected margin for '25? I think that things change quarter-on-quarter depending on your mix of deliveries. But you did say in your release that the cost of raw material had an impact on margins in the fourth quarter. And even if you adjust to the purchase price allocation, the margin did go down. So for 2025, is that going to be the new margin, way above pre-pandemic, but with not much room for expansion or contraction. That is both ways. This is the first question. And the second question about mix. When you take a look at WEG's revenues, the international segment gained relevance in recent years. I know that you don't break down margins segment or region. But I would like to hear if this margin that deteriorated quarter-on-quarter can be because of a mix of more exports where you naturally have a lower margin because you're not so verticalized as you are in Brazil, and you're not as relevant as you are in Brazil. And the third question is about CapEx for '25, '26. What should we expect in terms of percentage of revenues? So 3 questions.

[Interpreted] This is André Rodrigues. Let's talk about margins. I think that it's nice to have some time to talk about that. So when we talk about future, you have to analyze the quarter. The first thing in our view is that we showed another quarter with excellent margins. We closed the year with margins above what we had in '23, and growth compared to the fourth quarter of '23. And to justify that, when I say that nothing has changed in terms of T&D in North America, that has to do with the behavior of the margin, which is positive and with the demand that we have for this type of equipment. We also had a quarter keeping the good dynamics of short-cycle equipment that do have an impact on margin. And the reduction can be explained by 3 factors. I would like to give you a bit more color first to understand it well. The first thing is that we have in the explanatory note, the nonrecurrent adjustments because of the purchase price allocation of Marathon. This is a noncash nonrecurrent event that impacted the margin by 0.3 percentage points. Another thing that Salgueiro mentioned, is the recovery of the solar business. Solar has a margin behavior that is lower compared to the group's average margin. When you're talking about centralized generation, you have margins that are below distributed generation. And the concentration of sales of solar on the last quarter '24, compared to the whole of the year was 35% of the total volume that was sold in solar revenues in the quarter, which also has an impact on margin. And the concentration of deliveries that Salgueiro also mentioned of generation projects in Europe. If you do not take this effect into account, the margin would be even higher than the third quarter '24. So it's always good to remember that we are exposed to different markets, different segments, and we do have these fluctuations. They are the nature of the business. And therefore, you have an impact of our margins quarter after quarter. And we always like to point out that in the case of WEG, we like to follow the margin for a longer period, at least 1 year. And if you see the margin of '24, compared to '23, we had growth of 0.6 percentage points. So what is the expectation for this year? It's a positive expectation, especially because the good performance of long-cycle business, T&D. So WEG's objective is always try and deliver margins above the market. In the last 2 years, we had very healthy margins, and we do not expect for '25 margins to be very different than we had in the 2 last years, but it's always good to follow what's going on in the market. There are things that may impact the margin, exchange fluctuations. We are in a period of volatility and that can impact margins in the short term, changes in commodity flows for longer periods, which also may show a higher volatility and we cannot forget that volatility deceleration of the global macroeconomic scenario may affect margins. So once again, we always like to highlight that our analysis of margins has to be over a longer period of time. And finally, you talked about the mix of products that could impact the margins. That is for sure that can always happen. I'll give you an example: The recently acquired businesses of Marathon. These are businesses that today have margins that are lower than WEG's and that's why we are going to work with a verticalization process to implement our processes and then during integration start improving margins. You talked about the external market. We have to remember that even in the domestic market, we can have variations compared to product mix. Solar, for instance, Salgueiro said, we have a very good backlog for centralized generation in this first quarter. So the takeaway message is that variations in between quarters is normal in the behavior of WEG's margins because we are exposed to several different products, segments and fluctuations are common and happen usually. And as for CapEx, your question for '25, '26, we did announce yesterday a proposal for a capital budget that was approved by the Board, and we are planning to invest in '25, BRL 2.6 billion, so investments significantly higher than previous years. Most are projects that were already announced to the market, so the expansion of the wire plant, increasing production capacity, and verticalization in automation in Itajaí, expansion of plant in Guaramirim, new investments in T&D, both in Bettim and Gravataí in Brazil. And abroad, we have a lot happening in Mexico, expansion of T&D plants, the new paints plant, some investment in verticalization in addition to high-voltage motors in China that we announced last year, and the new gearbox plant at Turkey. So because of all these investments, CapEx is going to be higher than average, a bit of a peak compared to what we do perhaps for this year, '26, we still do not have a number, but probably all these projects are -- some are going to continue to '26. But then in the mid, long term, we should go back to our average historical.

[Interpreted] Our next question comes from Jens Spiess from Morgan Stanley.

Sorry, I was on mute. I'll do the question in English. So I want to ask on FX on the point you just mentioned, I guess, given the BRL depreciation you had in the fourth quarter, it was probably a positive impact for that quarter. So assuming, for example, that the BRL remains relatively stable from here on, how do you expect the FX to have an impact in the first quarter and the second quarter? Will it be a tailwind or a headwind, considering that also probably some of those raw materials are purchased in U.S. dollars. Any color on that would be much appreciated. And also, I want to ask on any other financial considerations we have to consider maybe for the like post-Marathon acquisition, for example, earnouts? Anything you could highlight that's relevant would be appreciated.

[Interpreted] Jens, thanks for your question. Just to follow the call dynamics, we are going to answer in Portuguese, and you follow to the simultaneous translation. I think it's always important to say that FX fluctuations and the impact on WEG along the time is not that much. Why? Because we have a chain of products that are also sold in dollars, and that's somehow the impact is corrected. In the short term, generally at the higher devaluation movements can have an impact. FX was above [ 6 ] for a period of time, then it was a bit down. So we thought that it would have a higher impact, but with the reduction, the expectation was adjusted. As and whenever we have an impact on raw materials, we try to pass it on to prices. So with a stable rate. We really don't think that FX is really going to be something that can impact margins for the following quarters. I think what we have to pay attention to our product mix, that I think that in the long run -- mid and long run, I think FX is not really something that has a huge impact on our markets. We never expected a BRL devaluation to have better margins. So when we talk about FX, when we talk about margin, -- the only thing that concerns us is volatility in the short term. I think this is our greatest concern. But if you think of something for the mid, long term, I don't think that happens, especially when you're talking about a higher devaluation impacting our margins. Jens, I don't know if I got the second question about Marathon, if you're asking if there is a change in the profile of our results in the dividend payout. I don't know if that's what you asked, but for now, we don't have anything. Sorry, go ahead.

Sure. I was asking, do you have any earn-out structure for the Marathon acquisition or not?

[Interpreted] No, no earnout with regards to marathon whatsoever.

Perfect. And if I may, just one last question. On your raw materials, would you say that most of them are sourced locally or do you have a significant portion of that sort from abroad. So for example, like you the copper you use for your copper wires. Is that sourced from mines in Brazil -- sorry, from smelters in Brazil? Or is it sourced from somewhere else? Just curious.

[Interpreted] Jens, this is Salgueiro speaking. What we try and do is to have a mix of suppliers. We generally have an option of local suppliers in Brazil, but we also have the option of buying abroad. I just think what's important to say is that regardless of buying in Brazil or abroad, you might have fluctuations, but they are global commodities. So prices tend to behave similarly, even we buy them in Brazil or elsewhere.

[Interpreted] Our next question comes from Lucas Laghi from XP.

[Interpreted] I have two that I would like to explore with you. The first is a follow-up to your profitability demand. When we see the contraction quarter-on-quarter, we see that's mostly because the impact of raw material, which is very much in line with what you mentioned about the mix effect and the increase in the price of inputs. The mix effect is clearly up after what André mentioned in the 3 points. But thinking of the price of inputs, prices going up, aluminum, copper, so try and understand how you see the possibility of passing on to your end prices. And so try to understand the dynamics of raw materials and prices. And the second question is about the revenues. The U.S. had relatively worse performance than other regions, especially quarter-on-quarter. So was there any specific effect in the fourth quarter about the U.S. specifically, any pre-election uncertainty that had an impact on your results? And if you could comment a bit on your backlog for the U.S., and what you have today compared to the fourth quarter, I think that would really help us understand the dynamics of the region.

[Interpreted] This is Salgueiro speaking. Okay. Margins. I think André did, I think, answer very well the reasons and movements for the margin of the fourth quarter being lower than the third quarter. So you have the effects that we mentioned, the PPA and the mix effect that is very much connected to the resumption of solar projects. And when you see different products in the sales mix, you have an impact on the cost structure and the company's gross margin. So I think this is the main effect. Now when you think of price variations of the main inputs, we did have important fluctuation in copper but more year-on-year. Quarter-on-quarter, the movement was less relevant. What was relevant in the quarter was the exchange rates. As for passing on prices, I think that we work to try and passing on costs regularly to the market, especially with short-cycle products. We have price lists, and we try to adjust them at least once a year. And remember that we did say that in the third quarter, for some equipment, some products like motors and paints. We had already had an adjustment in the end of the third quarter, beginning of first quarter '24, and other product lines we adjusted prices in the beginning of the year of automation. So I would say that we did adjust prices recently. And obviously, we are following fluctuations to see if we need to make further adjustments. As for the U.S., T&D continues, as André mentioned in the previous answer, quite positive. We might eventually have because of the nature of the business, some fluctuation especially because of the concentration of project deliveries, depending on the project when the project is being delivered. And in short cycle, I would say that we are with low growth compared to historic levels. I think here we do see some uncertainties about economic activities, the election itself. But I think the expectation for '25, is to pick up this and growth in the U.S., especially in short-cycle products: motors, automation, gearboxes, everything that we have in our portfolio in the American market.

[Interpreted] Our next question comes from Daniel Gasparete from Itau BBA.

[Interpreted] I have 2 questions as well. The first is to try to understand the [ ruble ] effect. We saw a drop in demand, about 20%. So I would like to understand the dynamics behind price volumes and if that changes your margin expectation for that? So to try and understand the behavior for the short term, if it's now down, but it will pick up. And second question, I understand the behavior of centralized solar projects. Salgueiro mentioned that you have visibility until the end of the half year. But how do you see the demand for this segment specifically? Are orders being placed? We thought that was going to weaken as a segment. But as you mentioned on WEG Day, it is growing. So just for us to know where it's going to when we consider '25 and '26.

[Interpreted] I'm going to answer the first part, Daniel, and then Salgueiro is going to talk about centralized generation. When we talk about [ ruble ] and the variation that we have from quarter-to-quarter, in terms of revenues. I think Salgueiro answered part of that in the previous questions when he talked about the dynamics of the U.S. We did feel a less heated demand, especially in the last quarter, reflecting the numbers of WEGs and the industry peers. And also, when we have a change in control, you somehow expect some kind of movement because of the change. And in this case, I'm talking about the acquisition. So we are adjusting our sales strategy, reinforcing our positioning, especially with new clients. Together with the acquisition, we got a team of Marathon sales reps that are very experienced, that have very good relationship with local customers, and that are going to be very important for the recovery project. So I think it is within this context. It's an accommodation of the quarter, but it's also part of the context of integration where we're revisiting brand positioning, product positioning. So it's natural in the short time to feel some of that. On the other hand, we cannot forget, remember on WEG Day, when Joao Paulo talked about demand and generators, WEG is making investments to increase our capacity of generators to meet the strong American demand. And as for [ GC ], we indeed were able to build a very important order book. When I mentioned in the previous answer, one of the projects we did announce to the market last year, and we are delivering it today, but we have some next. So we have a very good visibility for this business along the first half, perhaps the beginning of the second half of this year. And the sales team is working. So eventually, we can have new orders for our backlog for the second half of the year. Remember, when I talk about this area, we are talking about long cycle, but they are not that long. We work with them between 6 to 8 months from the moment the order is placed and we deliver the project. So if we have some orders in the coming months, we will have time to deliver in the year of '25.

[Interpreted] Our next question comes from André Mazini from Citi.

[Interpreted] I have two questions. One, about storage. If you could give us an update on energy storage auctions for '25. And if in the future, the storage area can be as important as generation, transmission and distribution. So it would be GTD as storage, so as important as the other 3. And in terms of generators, the spot price now seems high. So my question is when this high spot price is going to hit margins? And does it make sense to focus on transformers that have shorter deliveries to benefit from these high prices?

[Interpreted] Mazini. This is a new storage is something that we have been investing. We have had important R&D projects in Brazil and in the U.S. As the potential of this market we do believe in its development in the mid and long term. So yes, we do see a possibility for it to be an important market in the future within some years, but we do have to see a more structured demand, a more recurrent demand. And a way for this to happen is through energy reserve auctions where the government itself has been already discussing saying that we are going to have something for the auction this year. But we do not have anything that is clear in terms of rules, size, volumes, data. So I think that, that would be very positive for the development of the segment, but we have been working in all other fronts as well. So we are developing the technology and preparing ourselves to address the market when opportunities come. And André, talking about transformers, I think it's very important to say that along last years, WEG has been investing heavily to more and more offer a complete portfolio of products to our customers. As we can see now, this is a very good time for the demand of transformers that leads to better prices and margins, but it's not our strategy to focus on one product with better margins, but rather gain market share and more offer a broader portfolio of products to our customers. Some years ago, we had the acquisition of Rotor, that is a very specific transformer that is completely different from the regular transformers that we see installed, but this is a market that has lots of opportunities to WEG. This company worked providing to the domestic market, but it had no capacity. And WEG just announced that it's going to double its capacity for us to also start operating in the international market. So our strategy is to develop a broader and broader portfolio to work with operating issues to deliver healthy margins.

[Interpreted] Our next question comes from Victor Mizusaki from Bradesco BBI.

[Interpreted] Congratulations on your results. We have a question with regard to the beginning of '25, you did already talk about that. But thinking in the short term, if you could talk about commercial motors and appliances orders for the market and also in the United States, if you could give us some color in terms of orders for transformers end of January and February, and how we can interpret your backlog for the American market. So how long is your backlog there?

[Interpreted] Well, new orders as a whole, nothing -- no major changes. Short cycle because of its nature and because it's shorter time, we might see more fluctuations. Commercial motors and appliances, as you mentioned, the fourth quarter had good growth, but it was smaller than what we were delivering in previous quarters. So again, it is a natural fluctuation, but as a whole, short-cycle products and long-cycle products, are not really different from what we had in the fourth quarter. By geography, you can have some changes. We have been talking about Europe for some time, and it's showing some signs of deceleration. But other than Europe, I would say that the remainder of the business continues more or less similar to what we saw last year. Specifically talking about T&D and the U.S., which was the second part of your question this is a very heated market, as André mentioned in a previous answer. The backlog is relatively long. I would even say longer than usual. So I would say that we have basically the backlog completed for this year and already part of next year already guaranteed. And demand continues heated given the restrictions of capacity of the market to meet demand, this is a movement that continues to show. And that's why we announced all the investments that we announced along last year with the objective of increasing production capacity and then you have investments in T&D happening directly all geographies. the most important of which in Mexico for us to meet the demand of North America.

[Interpreted] Our next question comes from Marcelo Motta from JPMorgan.

[Interpreted] First, If you could give a bit more color on industrial equipment in the domestic market. It was the largest percentage growth that we saw in the last 6, 7 quarters. So if It was seasonal or if we should expect this higher level vis-a-vis the situation of the country not being at its best performance. And then Mexico, this is the largest plant that you have other than Brazil, lots of expansion, but tariffs are being discussed. We never know when they're going to be implemented. Does that create a pressure, should Mexico be your second largest production plant. How are you thinking of investments for the future? So these two questions.

[Interpreted] As for your first question, Indeed, the performance in Brazil for the fourth quarter in electric electronic industrial equipment was very positive growth of 14.3%. And what we see is good demand. for short-cycle, industrial motors, gearboxes, automation, everything performing relatively well. What's important to say, and I did mention that in an answer before, prices. We did have an adjustment for the motor business. In the end of the third quarter last year, so we do have those components that helps us with results, but also we have long cycle projects that are performing very well. Medium, high-voltage motors, automations, mainly connected to the commodities industry, oil and gas, mining, and even water and sanitation. And just to close, I would say that part of the new businesses are here, so electric, mobility, recharge stations, powertrain, and developments that we are having in terms of batteries are here. And these businesses are showing good growth, and they make up the better performance that we saw in the fourth quarter. As for Mexico motor, we are at a time that we still lack a lot of information. It's very hard to have a position with so much uncertainty going on, but clearly WEG in Mexico is important. That is Mexico in important for WEG, not only for exports and also the local market. So no change in position with regards to Mexico. The investments announced will go on I think we've already seen times that you can have higher taxation than there are adjustments to be made. So now we do not have enough information that would justify a change in our positioning. So investments in Mexico, the new transformer plants, liquid paints, gearboxes, verticalization. This is all extremely positive when you think of the assets we have in Monterrey and even in the U.S. So for now, nothing changes in terms of our positioning towards Mexico.

[Interpreted] Our next question comes from Alberto Valerio from UBS.

[Interpreted] It's a follow-up on Motta's questions. We have 2/3 of first quarter. Any deceleration you are noticing in the Brazilian market. We hear that GDP may holding things back, and also the U.S. you had an annual result that was very good. But quarter-on-quarter, our expectations were a bit frustrated compared to industrial motors and automation in the domestic market. Anything in the fourth quarter that can tell us that we are going to have a better result for the future.

[Interpreted] Alberto. As for the dynamics for the beginning of the year, as I mentioned before, no changes. So far, orders are being placed for the short cycle for the long cycle. Following more or less the same trend we saw in the past. As for the U.S., we already talked about some factors for the results this quarter. But what happens again, specifically for the fourth quarter, was that the demand for short-cycle products did show a deceleration. I don't even call it an impact. But probably a result or a consequence of the elections and a bit more uncertainty. And T&D continues very positive, continues very good. And eventually, we can have fluctuations quarter-on-quarter depending on deliveries and especially the type of projects that is being delivered in that quarter. So basically, these 2 factors, no major concern for the U.S. I think it's a very important market. The company's largest market outside of Brazil and expectations for '25 are very positive. So T&D should continue growing at a positive pace and do we expect a pickup of short-cycle products for this year.

[Interpreted] We are now closing our Q&A session. I'd like to turn the call back to André Rodrigues for his final considerations.

[Interpreted] Once again, I'd like to thank you all for attending, and I wish you an excellent day. Thank you very much.

[Interpreted] WEG's conference call is now closed. We thank you very much for joining us and wish you a good day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]