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Although The Outlook Is Positive In Wind, High Interest Rates And Fall In GDP May Hinder The Internal Market For Weg
On February 17th, André Rodrigues, the administrative and financial superintendent director of Weg (WEGE3), stated in a teleconference with analysts that the increase in interest rates and the slower growth of the Brazilian GDP may affect short-cycle products throughout the year, even though the outlook for the internal market is good, especially in the wind sector. However, the best forecasts for Weg are in the global market. “We should present another year of revenue due to the positive portfolio in long-cycle equipment,” said the director.
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The site InfoMoney explained that long-cycle products are industrial electrical and electronic equipment and energy generation and distribution devices. Meanwhile, short-cycle products are electric motors, reducers, and automation equipment manufactured by Weg.
According to André Rodrigues, it is still early to discuss the acceleration of the external market, which is performing better than expected. He mentioned the mining and gas sectors with high international demand for high-cycle products. Additionally, there are negotiations for transmission and distribution equipment for energy, wind, and others in North America, as well as generation in Europe and India.
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In one year, investments total R$ 1.5 billion. According to the superintendent director, the funds will be used for production expansion projects in countries such as Brazil, China, the United States, India, Mexico, and Portugal.
Weg Invests In Electric Powertrain Development
Other Weg executives stated at the event with analysts that they see business opportunities in energy storage (wind or other sources), digital businesses, and electric mobility, such as powertrains for heavy vehicles and charging stations.
In the internal market, the generation, transmission, and distribution of energy (GTD) sector saw an increase of over 60% between Q4 2020 and Q4 2021. In the external market, the growth in Q4 2021 was 33.1% compared to the same period in 2020.
The important area of wind turbines and other wind energy devices at Weg is in the GTD. According to Weg’s Finance and Investor Relations Director, André Salgueiro, wind energy revenues returned at the end of Q3 2021 and have been growing since then. He stated that orders for 2022 are nearly complete.
In the international context, Salgueiro said that the supply of wind turbines in India is in the certification process. This country has great potential for wind energy use in the coming years.
Regarding solar energy equipment, which has also advanced, Weg will begin marketing this sector from Latin American countries.
Pressure On Product Margins
According to Weg’s report, the global supply chain faces challenges and rising raw material prices, which have resulted in decreased operational margins in the last quarter.
Thus, the obtained margin fell by 1.3 percentage points in Q4 2021 compared to Q3 2021 and 2.9 percentage points compared to Q4 2020.
Regarding the margins, Rodrigues stated that Weg operates with a long-term perspective, but the issues that bring pressure on the margins remain the same: “Cost increases and the product mix, with the return of wind having more relevance in revenue.” He noted that the positive point is the acceleration in external trade and the restoration of selling values.
“We don’t give guidance on margins, but we continue to deliver (the margin) above the market average. And from what we have seen at the beginning of 2022, we do not expect that the margin for the year will show additional reduction compared to what was presented at the end of 2021,” he concluded.
Weg Balance Sheet Study
According to Credit Suisse, a further contraction of margins is impossible. The pressure matrix remains the resource chain and the product mix.
However, the strong demand in external markets, along with rising prices, may balance these effects. The growth process continues, with the company expanding internationally.
In addition, Bradesco BBI analyzed that the company started the year with large GTD projects. They also highlighted the expectation of recovery in the external market, which makes it a good decision to accelerate Capex in 2022 to accommodate capacity according to demand.
“We expect the company to continue successfully exploring its growth opportunities in both domestic and international markets, although we note that the lack of Weg’s investment in offshore wind technology may become a bottleneck in the medium and long term,” says BBI.
Learn more about Weg: WEG – Institutional Video
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