Weg Sa S/Adr

Good morning and welcome to WEG's second quarter 2026 earnings conference call. I would like to highlight that simultaneous translation is available on the platform. To the end, click the interpretation button, globe icon, at the bottom of your screen. Please note that we are broadcasting this conference and a birthday of the author will be available on our investor relations website after the event. During the company's presentation, all participants will remain in listen-only mode. We will then open the floor to the question and answer session. If you would like to ask a question, please click raise hand icon at the bottom of your screen to join the queue. When your name is called, a prompt will appear asking you to unmute your microphone. If you have more than one question, we kindly ask you that you should ask them all at once. If we are unable to answer all questions during the live presentation, please feel free to send your questions to ri at tags.net and we will respond after the conference call has been concluded. We would like to remind you that any forward-looking statements contained in this presentation are made during this conference call regarding future events, business outlook, operating and financial projections and targets, and that future growth prospects are based on current beliefs and expectations of WEGS management and on information currently available to the company. Such statements involve risks and 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 may affect VAT's future performance and could cause actual results to differ materially from those expressed in such forward-looking statements. Joining us today from Guarajara-Guaduçu are Andre Luis Rodrigues, Vice President of Finance and Administration, Andre Menegueti Salgueiro, Finance and Investor Relations Officer, and Felipe Skopel Hoffman, Investor Relations Manager. Mr. Andre Rodrigues, you may proceed, sir. Good morning, everyone. It's a pleasure to be with you and this earning call to discuss WEGS results. I'll start with the key figures for the quarter on slide 3, showing a slight decrease in net operating revenue of 0.6% when compared to the second quarter of 2025. Although the same effects that impacted revenue performance in the first quarter of 2026 are still present this quarter, we have managed to virtually neutralize this impact with the continued growth of revenues abroad. And speaking of those effects, the first effect on Brazil relates to the fact that we already had a significant order booked for centralized solar generation deliveries in the second quarter of 2025. When compared to the absence of these deliveries in the second quarter of 2006, this had a negative impact on revenue in the domestic market. Despite this, other businesses contributed positively to the quarter's result, with continued deliveries of transmission and distribution projects coupled with improved industrial activity. The second effect was related to the impact of exchange rate fluctuations during this period. which, for conversion purposes, reduced the growth of BRL, despite another quarter of good growth in local currencies in the main region. Industrial activities remained positive in our main market, particularly in segments such as oil and gas and ventilation and refrigeration systems. Furthermore, we continue to see a good volume of deliveries from the T&V business in North America, The EBITDA margin remained healthy, in line with our expectations, with a slight adjustment compared to the same period last year, ending the quarter at 21.8%. Our EBITDA reached 2.2 billion BRL, a decrease of 2.1% compared to the second quarter of 2025. Throughout the presentation, Andre Salgueiro will give more details about this point. And the ROIC, one of our main financial indicators, showed growth of 0.7% and ended the quarter at 33.6%, as we can see in more detail on the next slide. Our OIC remains healthy, growing compared to the second quarter of 2025, reinforcing the quality of our investments, the discipline in capital allocation, and the consistency of our long-term strategy. I now send the floor over to André Salgueiro Santino. Thank you, André. Good morning, everyone. On slide 5, I present the evolution of revenues in our business areas. In Brazil, The positive industrial activity with growth in demand for short-cycle equipment, such as low-voltage electric motors and gearbox reducers, spread across various sectors. Long-cycle equipment, such as high-voltage motors and automation panels, also showed sales growth, particularly in the paper and pulp segment, a result of the strong-order backlog built up in the recent quarters. Revenue continues to be impacted by the decline in solar generation business, mainly due to the lack of centralized generation projects in 2016. We continue to see positive performance in the business, driven by deliveries of large transformers and substations. The commercial motors and appliance area showed sales growth linked to relevant market segments such as And in paint and varnishes, demand remains strong, spread across different segments, with the oil and gas segment standing out. In the external market, demand for short-cycle industrial equipment remains positive in several operating regions, with particular emphasis on the strong performance in Europe and in the US, especially in the oil and gas segment. and ventilation and cooling systems for data centers. Good results were also seen in long-cycle equipment, such as high-voltage motors and automation panels, in addition to a healthy order intake contributing to the building of an order backlog for the coming quarters. In the GTD area, the T&D business presented another quarter with a good volume of deliveries. In opportunities related to strengthening the electrical grid infrastructure in the United States. In the power generation business, the marathon generator business in the US continues to perform well, in addition to the contribution of its European operations. In commercial motors and appliances, demand remains healthy in key regions, particularly in US operations, Although revenue growth was impacted by currency fluctuation when compared to the same period of the previous year. And lastly, in paints and varnishes, demand continues to grow, mainly due to the strong performance of operations in Mexico, as well as the contribution of heresy business. On slide 6, we show the evolution of EBITDA. The EBITDA margin remains positive, ending the quarter at 21.8%, supported by a favorable product mix, despite the challenges brought about by the rising cost of some raw materials, the effect of import tariffs in the United States, and the increase in personal expenses, mainly related to the execution of our strategy to expand our production capacity. On slide 7, We show the evolution of investments, which total 795 million ERL, out of which 45% were in Brazil and 55% abroad. In Brazil, we continue making investments to expand production capacity in T&T and the constant modernization of low-voltage electric motor factories. In addition to investments to increase the production capacity of large equipment in Jaraguá do Sul and abroad, there was a progress in investments in transformer factories in Mexico, Colombia and the United States, in addition to investments in expanding production capacity in China. With that, I finish my part and I give the floor back to Andre. On slide 8, and before we move on to the Q&A session, I would like to point out the following. At the end of April, FEG presented its 2025 Integrated Annual Report, highlighting advances in sustainability and showcasing the company's continued evolution in innovation and social environmental responsibility. Finally, I would like to talk a little about the outlook for the year. Demand remains positive abroad, coupled with strong orders for long cycle equipment, Both in the industrial segment and in the T&D business. Despite the challenges of the first half of the year, we remain confident in a more favorable scenario for the return of revenue growth for the remainder of the year, thanks to the strong performance of our businesses and also due to the normalization of the comparison base related to 2025. And finally, we are continuing to execute our investment package for the modernization and expansion of production capacity in 2026, supporting the company's strategy and continuous and sustainable growth. I end our presentation here. Now let's move to the Q&A session. We are now going to start the Q&A session. As a reminder, If you would like to ask a question, please click the raise hand icon at the bottom of your screen to join the queue. When your name is called, a prompt will appear asking you to unmute your microphone. Please unmute your microphone before asking your questions. We kindly ask that if you have multiple questions, you should ask them all at once. Starting our question session, our first question comes from Lucas from XP Investments. You may proceed, sir. Hello, good morning. Thank you very much for the space and questions. I have two topics I would like to approach, one for the short term and the other for longer term. Now, think about the tariff effects. Everything has been quite fluid, but I would like you to try to explain what was the difference of impact of the first and the second quarter, so that we understand the differences, and if the base scenario continues as it is today, And how can we think about the impact of the curve along the year? And I have a second question, thinking about the ramp-up of the new plants. How do you assess the timing of such investment maturation, especially talking about transformer plants? And how can we think about the profitability of those units? as they move on along its maturation process. Considering the production maturities, thinking about PROC methodology, how can we think about the leverage impacts? And also considering the beginning of the operations, how can we think about the margin during the maturation of the investments that are likely to bring this significant increase in revenues along 2026? These are the two points. Thank you. Lucas, Andre Rodrigues here. Thank you very much for the question. Let me start talking about the tariffs, thinking about the expectations and the comparison of the first and the second quarter. It's worth devoting some time to explain all the changes that happened and what this can cause to VEG. As of yesterday, On July 22nd, the Session 301 started to be valid at 25%. They are not cumulative. When we consider the 232 sessions, which were more specifically applied, that would affect the content of iron and copper on the products. And now it's applied to all the products. The scenario therapy and the products are vague. Well, how do they stand now? Brazil. In a simple way. Mexico is the section 231 for large transformers, and there is a differentiation above 10 MVA, 50% is applied in smaller companies, 10 MVA of 25%, and large-size motors, 25% in carriers. When we talk about large motors, we are talking about more than 200 HPs. It's important to remember that the overtax of 12.5% is being considered, also based on the Section 301. This is caused by allegations of forced labor and covers more than 60 countries, including Brazil. Brazil is included in the group, together with Japan, China, India, among other countries as well. The tariff is not likely to impact the products produced in Mexico, because this is according to MSCA in Mexico, and those products are produced there. And it's not clear yet if those tariffs, if the new tariffs will be cumulative to the others of the 2-3-2 session. If so, if this tariff is applied in a cumulative way The total tariff may reach 37%. But it's important to remember that, now answering part of your question, when we make the comparisons of the quarters, first and second quarter, then up to February this year, the tariff supply to Vargas products coming from Brazil stood at 50%. And we adopted several mitigation measures So, from 50, we moved to 10, but then we had the 2-3-2 that impacted the major light-sizer machines and equipment, and then it became 25%. Now, considering the constant changes in the tariff scenario, it's really hard to estimate now the impact for the long term, but it's It is correct to say that, maintaining the current territory, we are going to have an impact on the consolidated base of the company. Everybody here at WEG continues working to mitigate all those impacts, using the diversification of the footprint global of the company, re-evaluating the commercial strategy as necessary in order to have the mitigation. The major message is that we are going to continue evaluating the impact and During the battle to mitigate the effect, always in the search for maintaining the competitiveness of the egg. This is Salgueiro speaking now. In relation to rent-up of the factory, the question was more focused on T&D. And now going back a little in order to remember the history track, we announce the next And now, with the anticipation of Beijing in the middle of the year, we are likely to add more 10 or 15%, so that will amount to 25% of the original announced capacity. Now, in the middle of the year, we are going to have the available capacity already in the middle of the year, which is important to say, and the other 75% will be operational at the beginning of next year with a new factory in Mexico and another factory in Colombia. We'd like to remind you that those days are when the factories are going to be ready, and not necessarily is when we are going to be running 100%. or generating 100% of revenues. So we estimate that we will need a little bit longer in order to make the factory fully operational and be close to the optimized level of 100%. How long is it going to take? It will depend on each of the operations. And also, since the margin, how the margin is going to behave, it will depend on each operation. In practice, When we look at the T&D segment, which is running at a positive profitability, and the portfolio does not show any important downsides or downturn in this scenario. Of course, when we're in the process of ramp-up of the factory, it's just natural that you should have some costs, as we have already seen. And we even mentioned this in the previous call, there was an increase of personnel expense, because we are hiring more people. So there is a ramp-up. We may have some impact on the profitability. And why is it difficult to estimate? Because it depends on each individual plant. So methi is a factory that is being planted. So the process is likely to happen more quickly. When we talk about Mexico and Colombia, we're talking about a new factory. And the ramp-up should be quicker depending on the size of the transformer. Depending on the characteristics of each plant, we are going to have a different effect. We estimate that along 2027, and especially in 2028, we are going to be running those factories at very optimized capacity and profitability level as similar to the operations we run, T&D operations nowadays. Okay, thank you. That's very clear. Our next question comes from João Frisa. and Goldman Sachs. So, please, you may proceed.

Good morning, everyone.

Thank you very much for taking my question. My question is related to the tariffs still. Last year, you said that you increased price twice, one in the beginning of the year and the end of the year. The one in the last year was to reflect the tariffs. Since then, there has been a lot of fluctuations in the tariffs, so it may become 37%. But how have you been negotiating with your clients in terms of price adjustment abroad? This is the first question. And the second question is in relation to electronic equipment in Brazil, who have had a very good performance in this quarter, growing 60% year on year. So, I would like to understand if this was a result of the project that we had in the first quarter that is usually stronger but was weaker and then it moved the performance to the second quarter or is it an advance from the third quarter? Just for me to understand the dynamics down the road. So, let me go back and talk about tariffs. I have already entered the first part. In reality, it is a very complex exercise. When we approach this topic at value, because in fact it involves the production platform in the United States, a production platform in Mexico, and a production platform in Brazil and other countries as well. We also export others at a lower level. We also export products to the United States. Each case is evaluated with the client and we try to understand what happens with the variations of the price of commodities, for example, such as the case of inflation, as we mentioned in the previous call. All this is evaluated and we define our strategy according to the need, according to what's happening today in relation to the tariffs and also other points that cause variations, such as the price of commodities. So, in relation to the performance of equipment in Brazil, we saw an acceleration of the revenues in the second quarter, second half of the year, by the way. We saw an improvement spread across all the industry, especially for the demand of short-cycle equipment. But I would say that the effect, which is important to mention, and which is not usual is that we had the contribution from the long cycle equipment as we mentioned in the release. We saw a very positive performance of open paper in Brazil. So we have some projects in our portfolio, and in the second quarter we started the delivery of a very important project. And this is going to continue along the next quarters, and this is a project that will take some quarters for us to complete all the deliveries, and this contributes to the performance of the second quarter. In addition, there is another factor that we always keep in mind. We have the part of new businesses such as electric mobility. In spite of the fact that it is a small share when we compare it to the total revenues, when we compare it to the industrial equipment, we see that this is something that has been growing a lot, such as powertrain and also the recharge station. And this has been contributing to the stronger growth in industrial equipment in the second quarter. Okay, wonderful. That's very clear. Thank you. Our next question comes from Luisa Mussi, Banco Safra. Luisa, you may proceed.