WEG S.A. 4th Quarter 2014 Earnings Results Conference Call

WEG S.A.

4th Quarter 2014 Earnings Results Conference Call

February 26, 2015 – 11:00 a.m. (Brasilia time)

Transcript of the simultaneous translation from Portuguese into English

CORPORATE PARTICIPANTS

Mr. Sérgio Schwartz – Executive Vice

President and Investor Relations Officer

Disclaimer

Mr. Wilson Watzko – Controller Officer

Mr. Paulo Polezi – Finance Officer

The statements that may eventually be made during this conference call relating to WEG’s business perspectives, projections and operating and financial goals and to WEG’s potential future growth are management beliefs and expectations, as well information that are currently available.

as

These statements involve risks, uncertainties and the use of assumptions, as they relate to future events and, as such, depend on circumstances that may or may not be present.

Investors should understand that the general economic conditions, conditions of the industry and other operating factors may affect WEG’s future performance and lead to results that may differ materially from those expressed in such future considerations.

Mr. Luís Fernando Oliveira – Investor Relations

Manager

PRESENTATION

Operator: Good morning and welcome to the conference call of WEG to discuss the earnings of

4Q and the year 2014.

Conference Call

2014 and 4Q14

February 26, 2015

4Q14 Conference Call Page 3 February 26, 2015

Before going on we would like to let you know that any statements made during this conference call relative to the business outlooks, operating and financial goals and potential future growth of WEG are based on beliefs and assumptions of company's management and rely on information currently available. Forward-looking statements involve risks and uncertainties because they refer to future events and therefore depend on circumstances that may or may not occur.

Investors should understand that general economic conditions, industry conditions and other operational factors can affect the future performance of WEG and lead to results that materially differ from those expressed in such forward-looking statements.

We would like to remind you that this conference call is being conducted in Portuguese with simultaneous translation into English.

With us today in Jaraguá do Sul are Mr. Sérgio

Schwartz, Executive Vice-President and Investor

Relations Officer; Mr. Wilson Watzko, Controller

Officer; Mr. Paulo Polezi, Financial Officer and Mr.

Luís Fernando Oliveira, Investor Relations Manager.

Please Mr. Schwartz you may start.

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We would like to inform you that this conference call is being recorded and that right now all participants are in listen only mode. Later on we are going to start the Q&A session and further instructions will be provided. Should you need assistance during the conference call please reach the operator by pressing star zero.

To attain the release of the company's quarterly results or the presentation to be used during this conference call please go to WEG's investor relations page at www.weg.net/ri.

Good morning everyone. It is a great pleasure to have you to talk about the results of the year 2014 and 4Q14 as well. In this presentation Paulo is going to talk about our revenues performance and growth and then Wilson is going to talk about costs,

EBITDA, working capital and investments. After this brief presentation we are going to be available to answer your questions.

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I am going to turn the call then to Paulo to start this presentation.

Net Operating Revenue

Domestic Market

External Markets

External Markets in US$

Gross Operating Profit

Gross Margin

Net Income

Net Margin

EBITDA

EBITDA Margin

EPS (adjusted for splits)

Highlights

Quarterly Figures

Q4 2014 Q3 2014

2.179.695 2.055.972

1.086.902 994.061

1.092.793 1.061.912

429.332 466.737

698.218 638.533

32,0% 31,1%

263.285 258.569

12,1% 12,6%

382.987 350.699

17,6% 17,1%

0,32642 0,32056

% Q4 2013

6,0% 1.893.299

9,3% 913.388

2,9% 979.911

-8,0% 428.229

9,3% 615.953

32,5%

1,8% 237.439

12,5%

%

15,1%

19,0%

11,5%

0,3%

13,4%

10,9%

9,2% 341.653

18,0%

1,8% 0,29439

12,1%

10,9%

Figures in R$ Thousand


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In the foreign market we had a healthy growth rate maintained benefited by the exchange rate variation.

Still in the external market we had the consolation of acquisitions, especially WEG Yatong in China and also a more aggressive competitive positioning maintaining the continuous expansion of our products and applications portfolio.


Domestic Market

External Markets

External Markets in US$

Gross Operating Profit

Gross Margin

Quarterly Net Income

Net Margin

EBITDA

EBITDA Margin

EPS (adjusted for splits)

Highlights

Yearly Figures

2014 2013 % 2012 %

7.840.757 6.828.896 14,8% 6.173.878 10,6%

3.876.757 3.432.040 13,0% 3.016.662 13,8%

3.964.000 3.396.856 16,7% 3.157.216 7,6%

1.684.894 1.569.891 7,3% 1.610.330 -2,5%

2.484.497 2.236.766 11,1% 1.880.687 18,9%

31,7% 32,8% 30,5%

954.726 843.467 13,2% 655.979 28,6%

12,2% 12,4%

1.344.829 1.230.032

17,2% 18,0%

1,18365

10,6%

9,3% 1.016.748 21,0%

16,5%

1,04577 13,2% 0,81334 28,6%

Figures in R$ Thousands

Good morning. We will start on page 3 with a table that summarizes the main numbers for the quarter. I would like to draw your attention to two aspects: first the growth of our net revenues of 15.1% in 4Q14 compared to the previous year. The domestic market outstood and exceeded the foreign market for the first time in 2014 in the year on year growth rates with a growth in our business of GTD and domestic-use motors; and second the recovery of margins compared to the previous quarter, both in net... gross margin sorry and EBITDA margin.


Going to page 5 we can see the main numbers of the year: in a nutshell we closed the year of 2014 with good growth if we compare our performance to the performance of the industry in Brazil. That reflects the robustness of our business model that enables us to offer a vast range of products for several sectors in the economy in addition to our share in the foreign market that accounts for 51% of the total net revenues.


Yearly Evolution


Quarterly Evolution

In R$ million 7.841

6.829

15%

In R$ million

6.174

11%

1.478

48%

1.700

49%

1.758

50%

1.893

52%

1.784

50%

1.822

51%

2.056

52%

2.180

50%

4.392

39%

18%

5.189

19%

44%

56%

51%

49%

50%

50%

51%

49%

51% 50% 48% 50% 49% 48%

50% 61%

52%

Q1 13 Q2 13 Q3 13 Q4 13

Brazilian Market

Q1 14 Q2 14

External Market

Q3 14 Q4 14


On page 4 we can see the evolution of our net operating revenues quarter on quarter along 2013 and 2014. Growth in the domestic market was 19% over the same period last year. Here we have some positive events that are worth mentioning: in the domestic market we had the first revenues coming from the sales of wind generation equipment; also we have the regular seasonality of short cycle products combined with some recomposition of our stocks.

2010 2011 2012 2013 2014

Brazilian Market External Market


On page 6 we have the evolution of our net operating revenues year on year along the five years showing growth of 15% in 2014 compared to the previous year. It is possible to observe a growing share in the foreign market in recent years because of the expansion of our industrial plants overseas and the strengthening of WEG brand. Here is important to mention that we were able to have very good growth rates in a period in which the main global economies were showing retraction many industry segments.

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6%

12%

25%

57%

5%

9%

Business Area

Revenue breakdown

6%

9%

6%

11%

22%

28%

23%

64%

57%

60%

5%

14%

22%

59%

4Q10 4Q11

Industrial Equipment GTD

4Q12

Domestic Use

4Q13 4Q14

Paints & Varnishes


Now we are going to slide 7 bringing the breakout of our revenues in the different business areas. In this chart we can observe the influence of the lower industrial activity in Brazil decreasing the relative importance of equipment for industrial use and paints and varnishes.

You see that projects in the process industry and infrastructure industry in the Brazilian market are in a wait or on hold period; however GTD has been showing improvement because of the businesses in generation of energy with execution of orders in small hydroelectric plants, wind and solar power plants. The expansion will be even clearer in the near future with the acceleration of deliveries.

Finally the growth in motors for domestic use is basically due to the consolidation of WEG Yatong acquired in 1H14 that really set the internationalization of this business for WEG.

Now I am going to turn the call to Wilson to continue the presentation.

Good morning everyone. We will then go to page 8 where we have the breakdown of costs for 4Q14.

The main point to highlight here is that market conditions have not been favorable to recompose our margins. The volatility of the exchange rate poses difficulty to realign sales prices, which does not happen in the necessary speed to reflect costs.

In addition 2014 was the year with a mix of products with the lowest value-added. So in the last quarter of

2014 gross margin shows a slight pickup compared to the previous quarter: gross margin of 32% although 0.5 p.p. lower than 4Q13 was already almost 1 p.p. higher than the previous quarter.

In R$ million

341,7

110,4 (193,5)

176,0

Volumes,

Prices &

Product Mix

Changes

FX Impact on

Revenues

COGS (ex depreciation)

(27,1)

Selling

Expenses

(13,9)

General and

Administrative

Expenses

(12,7)

Profit Sharing

Program

2,1

Other

Expenses

EBITDA Q4 13

In % of Net Revenue

50,0%

Main impacts on EBITDA

Working Capital

383,0

EBITDA Q4 14


On page 9 we see the main variations in the lines that compose our EBITDA. In this quarter EBITDA had the growth of 12.1% compared to the previous year and EBITDA margin reached 16.4%, 0.4 p.p. lower than 3Q 13 and 0.5 p.p. higher than 3Q 14.

Costs of Goods Sold

40,0%

Materials

65%

Materials

64%

30,0%

Working Capital

Clients

Inventories

20,0%

4Q14 4Q13

Other Costs

9%

Depreciation

4%

Labor

22%

Other Costs

10%

Depreciation

4%

Labor

22%


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Mr. Wilson Watzko – Controller Officer

10,0%

Advances

Suppliers

0,0%

4Q06 4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14


On page 10 we have the evolution of working capital as a percentage of net revenues along the last years. We can observe an increase in the lines of clients and decrease the lines of suppliers resulting in a higher need for working capital that reflects the market retraction. We have restricted credit for clients and with that WEG has taken up partially the

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Transcript of the simultaneous translation from Portuguese into English financing of this fluctuation either by increasing credit limits or extending payment terms. This is one of the reasons why WEG is capable to keep growth rates along time, because we are able to seize interesting opportunities when the remainder of the market is retracted.

In R$ million

56,8

6,0

50,7

Outside Brazil

Brazil

61,3

11,8

49,5

63,9

15,6

48,3

Capex Program

Quarterly Evolution

61,1

13,1

48,0

64,3

8,4

55,9

94,0

23,5

70,6

Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14

132,3 134,1

47,9

60,5

71,8

86,2

Investments were below our initial estimate of 592 million for 2014. It was an ambitious program and we already counted on the possibility of not making all these disbursements expected; on the other hand important projects such as the expansion of capacity in the electric motors in China and Mexico continue to be executed at full speed.

With that we close our brief presentation and I turn the call back to Sérgio.

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5,4%

5,3%

Q3 14


On slide 11 we show organic investments with the expansion of capacity along the years of 2013 and

2014. In 2013 we announced a program to expand our production capacity of electric motors in Mexico and China along 5 years together totaling US$ 345 million. The increase of investments can be observed as of 2Q14. We have been managing disbursements with caution avoiding the accumulation of idle production capacity and the addition of assets in businesses that are more affected by the lower industrial activity.

In R$ million

5,8%

8,1%

Capex Program

Yearly Evolution

10,2% Capex

% of Net Revenues

Q4 14

5,4%

Before we start the Q&A session I would like to reinforce some very important points: 2014 was a very challenging year with strong deceleration of the

Brazilian industry and low growth of the Brazilian

GDP.

So WEG was able to present good results, a reflex of a good time in our businesses in energy generation and our presence overseas. We have been finding good opportunities which has been enabling us to reach satisfactory performance. We continue confident in the opportunities of growth for

WEG and continue to conduct all the necessary actions to seize new opportunities.

We announced along the year of 2014 acquisitions in Brazil, Colombia, Germany and China all with the objective of increasing our share in specific markets or increase our offer of products.

That closes our presentation. We will now start the

Q&A session. Please operator you may go on.

3,7%

457

3,6%

3,9%

3,6%

425

Investor Relations Contacts

305

226 233

188

238 244

146

111


Finally on slide 12 we have the organic investments in expansion of capacity in the past 10 years. It added to 425 million in the year of 2014 accounting for 5.4% of net operating revenues. The year 2014 was an important step for our production process overseas. We started the implementation of the same structure of verticalized production of Jaraguá do Sul in our units in Mexico and China.

Sérgio Schwartz

CFO

+55 (47) 3276-4533 schwartz@weg.net

Paulo Polezi

Finance Officer

+55 (47) 3276-6354 ppolezi@weg.net

Luis Fernando

Oliveira

Investor Relations

+55 (47) 3276-6367 luisfernando@weg.net

4Q14 Conference Call February 26, 2015

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Q&A Session

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Operator alternatives. So we see that the businesses is taking off and will improve along time.

Ladies and gentlemen we will now start the Q&A session. We would like to remind you once again that this conference call is being conducted in

Portuguese with simultaneous translation into

English. If you want to ask a question press star one and to remove your question from the list just press star two.

Our first question comes from Alexandre Falcão from

HSBC.

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Mr. Alexandre Falcão – HSBC

So in this fashion we are not talking about rationing; rationing is one of the possibilities to solve the situation of a lack of energy by an organized rationing - if it is to be implemented - is a possible response to be given.

Now this outlook of lack of energy for growth has been generating good opportunities for us in the segments of renewable sources. Of course we have a product that was recently introduced and is performing well which is wind energy. We are performing very well with this energy. A traditional product of ours is also having better performance and is doing better in auctions, which are the small hydroelectric plants.

Good morning everyone. I have two questions, the first I would like you to talk a bit on solar energy and if that can contribute to your revenues in 2015 or if it is something for 2016 and how much… How close we are to that.

And the second question is in the event of an energy rationing it seems clear what would happen to the industry in Brazil as a whole. I would like to understand what happens or what you see in terms of GTD, in terms of investments and what is the time for this to happen. Thank you very much.

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Solar energy going to your second question in

December we had a specific auction in alternative sources of energy and solar had good performance.

We do not have anything to announce right now but it is an opportunity for us to continue to pursue.

Probably it is not something that you are going to see in our revenues for 2015, a bit more for the future to have a higher importance. We may have something but not really bulky so far. We are leaders in the market in Brazil, almost all the facilities in solar energy today use somehow our solutions; but we have a much bigger market in the future and this is going to happen I believe as of 2016.

Mr. Luis Fernando Oliveira – Investor Relations

Manager

Good morning Falcão this is Luis Fernando, thank you for your questions. Well let us start with the energy rationing. What we have been observing and we did say that during this presentation and we have been saying that along the year, in fact the GTD segment has been already responding to this need: the law is better; the auctions are being more appealing; renewable sources which are our specialty are becoming more competitive and this somehow is showing.

So what we see basically is that performance is improving and will probably continue to improve. We still have sources that are still not showing, that have not picked that yet and eventually as time goes by we will also see them popping up, for example biomass energy which has had a relatively modest performance in auctions but we believe that it has a place in this industry. So most of the opportunities that we see in this industry are related to renewable sources of energy.

So it is not something for the future; this is something for now. Even in those segments that are more connected to emergency: energy, alternators that are important components of generating groups

- that is for you to generate emergency energy when there is an unexpected lack of energy or even to plan you need generating groups to plan

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Okay thank you very much. Just to understand: have you changed somehow the exchange rate in your strategic planning? Are you planning to do that and if you do so has anything changed?

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_________________________________________ increase in our working capital and so altogether

Capex should be close to 550 million BRL.


Manager

The strategic plan is not based on exchange rates, not on macroeconomic variables but rather in the analysis of business opportunities. So in this regard business opportunities are concrete, they exist. In some cases for example the exchange rate devaluation of the BRL not having the GDP growth that we were expected all these things do affect more or less the opportunities; but the opportunities are still there. They do not change the general direction of our strategic plan.

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A note of advance: our main projects in terms of industrial investment are those in China and Mexico that are ongoing and that are investments that aim at increasing verticalization and extending product lines in these plants optimizing… Addressing of the market by WEG. But all these investments are managed thinking on the size of the market so as to avoid idle capacity and trying to maximize the return of the capital invested.

So even when we say we are going to invest 470…

480 million in the year everything will depend on the dynamics of each of the markets that will possibly receive the investments.

Okay thank you very much.

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Operadora

Our next question comes from Cássio Lucin from

J.P. Morgan.

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Mr. Cássio Lucin – JP Morgan

As for the impact of the exchange devaluation in our competitiveness that does happen in the short term: when you have an appreciation of the dollar we get more competitive; but that does not mean it will have an impact in results in the short term because when you are more competitive you can carry out actions that are a bit more aggressive, a bit bolder to get a better positioning in the market and also a devaluated BRL helps us in terms of the competitiveness of our clients to protect against imported products in the domestic market and also to increase the volumes of exports.

Good morning everyone. I have two quick questions, the first if you could give us a bit more color on your

Capex plan for 2015.

And the other is basically a clarification I would like: when you are talking about the exchange rate if you are going to gain more market share overseas does that affect your needs for more working capital giving better payment terms for clients? How does it work?

So in the short term it is advantageous to WEG but also there is a trend for things to get balanced in the medium and long-term because the results in an impact in the level of inflation and that somehow neutralizes this advantage in the short term.

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Good morning Cássio this is Sérgio, thanks for your questions. Well let us talk about investments. We released for 2015 an estimate of investments of close to 480 million BRL in the expansion and renovation of our industrial facilities; then we have an

So just in terms of a follow-up my question is: as mentioned the appreciation of the dollar helps increase your market share overseas. I remember that in the past you needed more working capital to win share; now when you are selling this product at a lower price does it offset the need for more working capital overseas or there is no change there?

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Well the thing is the following: we also have a change of our production profile. In fact we are expanding our production capacity overseas. We said in the past that an increase in exports demands a bit more working capital because you need a longer cycle; but it is also true that we are increasing our production capacity overseas and that somehow neutralizes this higher demand for working capital.

And along the same line talking about energy but if you really cannot talk about the whole of WEG's businesses if you could give us an idea about the volume of your backlog and how is your backlog evolving long this year. Thank you very much.

_________________________________________


Manager

Hi Ricardo. Backlog you are you talking about GTD?

In a way it offsets because while I am exporting to new geographies where WEG still does not have relevant share I am replacing some exports that I have to Mexico to North America for example because I am expanding my production capacity and therefore I reduce my working capital.

_________________________________________

Mr. Ricardo Schweitzer – Banco Votorantim

Basically GTD but if you want to make a broader comment.....

_________________________________________


_________________________________________


Manager

Okay thank you very much I understand.

_________________________________________

Operadora

Our next question comes from Ricardo Schweitzer from Banco Votorantim.

_________________________________________


Well that is the thing: GTD is where we have the most difference there. I would say that wind energy is a relatively new product for us; we are just introducing it now. As we mentioned we are having the first deliveries along this year and so we are being a bit cautious even to be more comfortable with the product right now. We have a certain limitation of our production capacity and so we are studying alternatives. So right now we do not have a plan to increase production capacity in this industry.

It has some specificities that make this decision a bit different than with other sources.

Good morning gentlemen thanks for the opportunity.

I have two questions and they are somehow related to the energy industry. The first is about wind energy.

You mentioned that you are starting to receive revenues from the first orders in the segment and I would like to have some color about how much this represents in the business of energy and how much you want to get with this business in the next two years.

And along the same line every now and then clients are asking us about the sales of alternators and other components that you sell to the emergency industry and how much that represents in your business - even if you do not give me clear numbers just an idea.

All that is to say that we have a backlog for wind energy that is basically closed for some years now:

2015, 2016 and 2017 we are practically full. How much this will represent of the whole GTD portfolio that will depend on other sources; what we can tell you if you take a look at the expansion of the energy segment in Brazil for the future most probably wind energy will have a relevant share - so we are talking about 3, 4, 5 GW/year so perhaps 30%, 30 something percent will come from wind energy and there is no reason for WEG not to have a share that big. So I think it is very close to that.

As for alternators this is the third year in a row that we have been discussing the difficulties in energy

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Transcript of the simultaneous translation from Portuguese into English supply. So it is not a situation that is new; we have been seeing that the market of alternators, of generating groups is heated. Lots of people are prepared for that and want to have this insurance that a generating group can offer. players on wind energy and so I would like to know how you are preparing to face competition. Thank you very much.

So it is a heated market. We are engaging efforts to improve our production capacity. So we can grow more but it does not represent as much as it represented for WEG's revenues in 2001. So this is a segment that we have. We have ways of increasing performance and production if necessary but it is not going to be as representative as it was in

2001 when we had the energy rationing at the time.

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Hi Lucas this is Sérgio, thanks for your two questions. First with regards to revenues in the foreign market here you have to consider two factors that should be taken into consideration and do impact revenues: the first is with regard to market, a loss of acceleration in mining and oil and gas in some specific markets.

But it is an interesting segment; it is a product with high value-added and most probably if we have the more critical situation we are going to count on our production capacity and probably we are going to have other challenges that will increase demand and it will open room for us to increase production of this product more specifically

_________________________________________


Thank you very much.

_________________________________________

Operadora

Our next question comes from Marquiori from Banco

Safra.

_________________________________________

Mr. Lucas Marquiori – Banco Safra

Hello everyone good morning. I have two quick questions as well: we see in 4Q that external revenue in dollar is a bit better quarter on quarter.

We know that you are using the exchange rate situation to be a bit more competitive and gain market share; but I would like to know if there was anything weaker in terms of market demand overseas, any places specifically?

This happened: mining in South Africa, Australia, and

South America (Chile, Peru) and also some businesses in Canada have been impacted by a loss of pace in the segment; and also the consolidation of WEG's balance sheet in dollars has been impacted by the valuation of other currencies in specific countries where we have specific important operations, for instance the devaluation of the RAND in South Africa; the devaluation of other currencies in Latin America; in Australia also somehow and so when we consolidate all that in our balance sheet in Brazil we bring the impact of the devaluation of these local currencies and that does not necessarily mean a loss of market share in these specific geographies. We have been monitoring that very cautiously and our sales volumes have been growing. The thing is when you consolidate all that to

Brazil we do carry this impact.

As for competition or the coming of new entrants in the Brazilian market this is something that we see as regular business. This is something we have witnessed along time in a lower or higher degree. I remember very well when WEG Máquinas at the time started to work in the market of large sized electric machines and we had the competition of the main international players in the country, which are the same still today overseas.

And our competition with these companies takes place today at a global level. So we know our strengths, our capacities in Brazil and I believe that we are quite well-prepared to face competition .

And the second question going back to the domestic energy sector this the main focus we see in the newspapers over time. We see a growing interest of other players as well, and so we see a possibility for an increase in competition, even large

_________________________________________

Mr. Lucas Marquiori – Banco Safra

Thank you Sérgio.

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_________________________________________

Operadora

Our next question comes from Murillo Freiberger from Bank of America.

_________________________________________

Mr. Murilo Freiberger – Bank of America

Oil and gas is important but it does not have a share that we could say that it is something that WEG highly depends on. We have a quite well…

Diversification in the lines of products and segments in which we operate and therefore we have to work more, seek new opportunities in other segments.

But we do not foresee any highly significant impact because of the problems generated by police investigations in the segment.

Good morning gentlemen, Sérgio, Wilson, Paulo. I have two questions, first you think that of the reduction of investments in wind energy for WEG in terms of the sales volumes and growth.

_________________________________________

Mr. Murilo Freiberger – Bank of America

Thanks very much.

And the second question in addition to the Petrobrás issue is there any problem coming from construction companies that comes from the Lava Jato police investigation that will affect your cycle of receivables or some kind of problem for WEG?

Our next question comes from Lucas Brendler from

GF Gestão de Recursos.

_________________________________________

_________________________________________

Operadora

_________________________________________


President and Investor Relations Officer Mr. Lucas Brendler – GF Gestão de Recursos

Hi Murilo this is Sérgio, again thanks for your question. Well the oil and gas sector is important for the Brazilian industry and for WEG as well. We already noticed a kind of loss of speed, a deceleration in this industry for some time now and we have been monitoring that from close and in fact we have already adopted the measures to control credit exposure in this sector.

Good morning everyone. My question is a bit more directed to your strategy. We have been following

WEG along the years and we see that along time the company is trying to adapt to new scenarios in terms of the world economy and also that means some changes in the company's executive management and board.

An important factor which should be considered however is that usually products for this industry are engineered products, long time products which means that we work with advanced payments from clients and that decreases our exposure a lot.

Therefore we do not foresee that an additional deterioration of the industry will cause a huge impact in terms of defaults, payments or that would need any additional provisioning. But we cannot deny that this loss of speed will demand us to redirect to other markets; other product lines; other segments; other clients in a way to counterbalance the frustration in terms of sales to this industry, both by the company and the market as a whole.

And also we see the change that was announced yesterday in new positions. So once again you are changing names and positions. If possible I would like to hear a bit more about how WEG thinks today its management structure. Have you made all the changes that were necessary or should we expect a bit more structural changes in terms of the organization chart? I would like to know WEG's mindset for the coming years with this regard.

_________________________________________



Hi Lucas this is Sérgio thanks for your question. Well indeed when you have a group that has a dynamic of growth and expansion you need also to have

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Transcript of the simultaneous translation from Portuguese into English continuous change. Right now we are bringing a new officer to WEG and we have been doing that quite frequently because the idea is to complement the expertises and skills that we need to continue with our growth plan.

Mr. Lucas Brendler – GF Gestão de Recursos

Okay excellent, thank you very much and thank you for your explanation.

Specifically now André Luis Rodrigues has a relevant international experience. He has experience of finance and management in international companies.

He worked overseas and this is very important for

WEG globally today. Since we are expanding our units overseas we have to seek expertise in managing businesses not only overseas but at a global level and we believe that André Luis

Rodrigues will fill a small gap that the company had until then in this area if we can say that.

Mr. Sérgio Schwartz –


Thank you.

_________________________________________

Operadora

Executive Vice

Our next question comes from Felipe Koh from

Citigroup.

As for changes in investor relations Paulo Polezi is taken over this position, a position he is fully qualified to take over.

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Mr. Felipe Koh – Citigroup

And with regards to changes in the administrative financial area that reported to me directly basically the thing is the following: I am part of the company's controlling holder and I continue in the position as vice president. I have been with the company for 30 years so am going to continue working with the company and contributing to the company regardless of the position I have in the company's organization chart because I am still in the company as a member of the controlling group.

As for the future certainly the past is not going to be like the future. As WEG expands its businesses it seeks for new talents and repositions its talents. I am going to make a comment although I am not part of this change I would like to share some thoughts with you: we recently transferred Siegfried Kreutzfeld that was the superintendent director of the master unit in

Brazil to China and why did we take this executive to

China?

Because we have a very ambitious plans to expand and the geography. We had the recent acquisition there, we have an ongoing greenfield project and we have other opportunities for acquisition in the future and so we kind of move around our executives to take over positions that we believe are strategic for the company. So changes tend to take place in the future as well.

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Good morning Sérgio, Luis Fernando, Paulo. I missed the beginning of your presentation but my question is a bit of context. You have a very interesting portfolio of wind energy for 2015, the rationing is also very positive for the electric motors and as a counterpart you have the issue of the Lava

Jato police investigation, oil and gas also overseas and the devaluation of the exchange rate.

So putting all together in context what should we expect for 2015? Should we expect a growth in revenues close to last year - that is close to 15%?

And if you expect the domestic market to contribute more than the foreign market or the other way around?

And also in the same line only about the Lava Jato police investigation not only in oil and gas; how about the construction companies that are involved?

Are you feeling any decrease in demand because of the police investigation?

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Manager

Hi Felipe thanks for your question. Well, just to answer the end of your question the huge exposure that we would have would be oil and gas because we are quite diversified. Any demand of this type of

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WEG S.A.



Transcript of the simultaneous translation from Portuguese into English client in another segment is very diluted so it is not really representative for us, it is barely noticed. margins than 2014 and some that are better as the economy regularly operates. We are not exposed to any cycle in particular and we are not dependent on any segment, product or client.

Now in this environment of low growth that we are having in the Brazilian industrial segment it is very hard for us to tell what is the effect of the police investigation and what is not and so it is very hard to point our fingers at specific things.

We have capacity to seize opportunities and we do seek concrete opportunities for 2015 and for the future. This is what I can tell you, I mean this is as far as we can go.

As for the overall scenario for 2015 we are not pessimistic at all. As we have been saying in this call we think there are several opportunities to continue growing, for example the clearest ones at the energy industry there is a huge expansion to take place and this is an investment that is absolutely necessary and that will continue to be made.

Outside Brazil we have opportunities to continue to grow expanding the market, introducing new products. And even in the Brazilian industrial sector you are going to have opportunities in some specific segments where an economic situation like the one we are experiencing with a more devaluated exchange rate may bring the competitiveness of the sector as a whole increasing capacity. This is clearly the case of pulp and paper for instance.

So you always have opportunities. What is important is that we are a diversified company with vast production capacity and we go after opportunities and when they come up we are ready to seize them.

If we keep the capacity of seizing opportunities there is no reason to be pessimistic.

_________________________________________


So should we expect… The same thing as last year.

Last year was a difficult year as well and so the scenario for 2015 is similar to 2014. So we should have similar growth and how about mix? Should we expect anything better?

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_________________________________________

Operadora from HSBC.

Our next question comes from Alexandre Falcão

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Well thank you very much for the follow-up. I just wanted to discuss what you are going to do with your debt management. For 2015 you have an extremely cheap debt in FINAME that is to mature in

2016.

Do you have any plans to raise funds anywhere else or in other mechanisms that can mitigate an increase in your cost of debt? Or are you going to let your debt mature and you are going to settle it and be a bit less leveraged? And if there is any concern about that or it is a time that FINEP and BNDES are going through and these lines probably are going to come back in the past… In the future sorry?

_________________________________________


_________________________________________


Manager

Well Felipe we do not formally any guidance, I cannot give you guidance even in terms of regulation. We do not establish guidances. What we can say is that there are things that have worst

This is Paulo thanks for your question. I am going to make your answer in two parts: first in terms of development banks (FINEP and BNDES). In this scenario starting with FINEP, FINEP lines are still available. We are working with the company, we have a strong balance in innovation and so

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Transcript of the simultaneous translation from Portuguese into English investments continue to be relevant historically made by WEG.

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Operadora

So we have to renew new FINEP lines as we did in previous years. The financial terms changed a bit.

We see a slight increase of credit spread but nothing that really concerns us much. And on the other hand the increase of Selic and CDI kind of offsets on the side of investment. So I think we are quite balanced and we do not see a risk.

WEG's conference call is now closed. We thank you very much for joining us, wish you a good day and again thanks for using Chorus Call.

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BNDES is the same: we have investments in the local market that continue to generate balance for financing. We have a large project that is going to go past in 2015 and so we continue to make disbursements and we do not believe that the government is going to increase these credit lines much. So again it is no concern.

And another thing that I would like to talk about with the other financial lines. As we are having more expensive incentives to export the company, giving it exporting characteristics, can access financing lines that we call trade finance at extremely competitive costs and we have been using those: for example lines for prepayment of exports that we can raise relatively easily with terms of five years and very appealing prices.

So with all that we are quite comfortable in our financial management as we did in the past.

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_________________________________________

Operadora

We are now closing the Q&A session. I would like to turn the call back to Mr. Schwartz for his final considerations. Mr. Schwartz you may go on.

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Well thank you very much for attending and I wish you a good day.

Page 12

WEG S.A. 4th Quarter 2014 Earnings Results Conference Call

CORPORATE PARTICIPANTS

PRESENTATION

Conference Call

2014 and 4Q14

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WEG S.A. 4th Quarter 2014 Earnings Results Conference Call

CORPORATE PARTICIPANTS

PRESENTATION

Conference Call

2014 and 4Q14

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