CS Equity Ideas Conference 2010 Presentation

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Presentation

CS Equity Ideas Conference 2010

Motors | Automation | Energy | Paints

Disclaimer

The information contained herein has been prepared by WEG S.A. (“WEG” or the “Company”) solely for meetings held with investors and/or potential investors. This material does not constitute offering material in whole or part, and you must obtain further information before making an investment decision in respect of the common shares of the Company.

This material has been prepared solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities and should not be treated as giving investment advice. It is not targeted to the specific investment objectives, financial situation or particular needs of any recipient. No representation or warranty, either express or implied, is made as to the accuracy, completeness or reliability of the information contained herein. It should not be regarded by recipients as a substitute for the exercise of their own judgment.

Any opinions expressed in this material are subject to change without notice and WEG is not under obligation to update or keep current the information contained herein. In addition, WEG has been informed that their affiliates, agents, directors, partners and employees may make purchases and/or sales as principals or may act as market makers or provide investment banking or other services to the Company.

The Company and their respective affiliates, agents, directors, partners and employees accept no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material.

You should consult your own legal, regulatory, tax, business, investment, financial and accounting advisers to the extent that you deem necessary, and you must make your own investment, hedging or trading decision based upon your own judgment and advice from such advisers as you deem necessary and not upon any view expressed in this material.

This material includes forward-looking statements subject to risks and uncertainties, which are based on current expectations and projections about future events and trends that may affect the Company’s business. These statements include projections of economic growth and energy demand and supply, as well as information about competitive position, the regulatory environment, potential opportunities for growth and other matters. Several factors may adversely affect the estimates and assumptions on which these statements are based, many of which are beyond our control.

2 CS Equity Ideas Conference January 2010

Diversification as Core Value

Services

Energy

Generation

Electronic

Components

Energy

Substations

Electric

Components

Motor Transformer

Distribution

Panel

Generator

Industrial Process

Automation

Motor

Control

Panel

3 CS Equity Ideas Conference

Industrial Application

Paints and Varnishes

January 2010

Business areas

Electro-Electronic

Industrial

Equipments

Generation,

Transmission and Distribution

Motors for

Domestic Use

Industrial

Paints and

Varnishes

Focus

Products

Consumer

Markets

Performance

Drivers

Global Americas Latin America Brazil

Low and medium tension electric motors, industrial automation equipments and services

Capital goods OEMs

(pumps, compressors, machines) and endusers (steel, mining, pulp & paper, oil & gas, ethanol)

Industrial Production growth and

Investments in Fixed

Capital (capex)

Hydro, thermal

(natural gas, biomass and other) and wind generators, transformers, control panels, automation services

Single phase electric motors

Generation, transmission and distribution concessionaries, cogeneration, industrial clients

Liquid and powdered paints, electroisolating varnishes

“White goods” OEMs

(washing machines,

HVAC*), water pumps, lawn mowers, etc

General industrial and specialty applications

(shipbuilding, aggressive environments)

Growing investments in energy generation

Disposable income, supply of credit and level of interest rates

Brazilian GDP growth

4 CS Equity Ideas Conference January 2010

Revenues breakdown

2.603

6%

21%

10%

63%

2.978

6%

18%

14%

62%

3.527

6%

15%

18%

61%

4.551

6%

14%

23%

5.471

5%

12%

27%

57%

55%

3.920

5%

13%

25%

3.804

6%

11%

34%

57% 49%

5

2004 2005 2006 2007 2008

Industrial Equipment GTD Domestic Use

CS Equity Ideas Conference

09M08 09M09

Paints & Varnishes

January 2010

Consistent and profitable growth

Gross Revenues (R$) EBITDA (R$)

CAGR 22%

CAGR 20%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Net Earnings (R$)

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Return on Equity

CAGR 25%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

6 CS Equity Ideas Conference

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

January 2010

Shareholding

structure

Voigt

33.3%

Founders’

Families

(directly)

14.5%

Silva

33.3%

Werninghaus

33.3%

WEG

Participações e Serviços S/A

51.1%

Management

2.7%

Controlling

Shareholders

Free Float

31.7%

WEG S.A.

7 CS Equity Ideas Conference January 2010

Corporate Governance Practices

„

„

„

„

„

Strong accountability and transparency culture

Ingrained into Company’s core values, beliefs and mission

Practices are “all that matter.” Formalization comes afterwards

Early adopter of best practices formalizations and codes

“Novo Mercado” conversion of PN shares at 1:1 ratio

8 CS Equity Ideas Conference January 2010

Strong fundamental trends

Energy efficiency

„ Industrial electric motors represent around 25% of global electricity consumption

„ Most efficiency

“bang” for the

Capex “buck”

„ Lower CO

2 emissions

„ Economic viable alternatives fuels

Cleaner Energy Sources

9 CS Equity Ideas Conference January 2010

Opportunity: Installed Base

SEGMENT

# of Motors

Up to 10 Hp 10 – 40 Hp

596 695

40 – 100

Hp

297

100 – 250

Hp

Above 250

Hp

194 64

Average Load

(%)

31,1% 43,0% 63,5% 54,2% 67,6%

Food

Average hours of use (%)

86,7% 82,0% 81,3% 88,4% 86,8%

Average Age

(years)

# of Motors

19

563

15

210

22

154

17

57

12

5

15,2% 47,2% 53,5% 61,8% 73,1% Average Load

Petro

Chemicals

Average hours of use (yearly)

Average Age

(years)

95,5% 94,5% 95,5% 96,9% 100,0%

24 23 24 25 31

Source: WEG Service database

10 CS Equity Ideas Conference January 2010

WEG is Uniquely Positioned

11 CS Equity Ideas Conference January 2010

Diversified and Synergistic Offering

Product diversification increases competitiveness and added value…

…while reduces costs and diversify risks

From the client’s perspective From WEG’s perspective

One Supplier,

Several

Products

Client

Several Suppliers, one product each

3 One-stop shop (largest electric motor line from a single manufacturer)

3 Strong worldwide after sales support

(services and parts)

3

Product integration in systems and solutions

3

Several

Products, One

Salesperson

Several Products,

Markets, Industries and

Clients

Greater synergy and efficiency of sales effort

3 Reduced risk exposure (product, segment and client)

12 CS Equity Ideas Conference January 2010

Technological Innovation Capabilities

Technology advances at fast pace, with WEG at the forefront

Consistent R&D spending

2,5% 2,5%

2,4%

2,3% 2,3%

1,8%

1,7%

1,6%

1,5%

86

73

63

2,0%

89

ƒ

Partnerships with best engineering schools in Brazil and in the world

ƒ

Technical Committee meets semiannually to review latest developments in electrical theory and applications

18 18

21

30

34

16

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

R&D Spending % Net Revenues

More than 1.000 engineers developing products, such as Wmagnet

+

ƒ

Innovative use of technology for general purpose motors

ƒ

Higher energy efficiency (lower consumption per output)

ƒ

Lower working temperature and noise levels

ƒ

Smaller size (lower material consumption)

13 CS Equity Ideas Conference January 2010

Global Presence

Gross Revenues Breakdown (9M09)

12%

10%

América do Norte

Europa

5%

América do Sul e Central

66%

Brasil

14 CS Equity Ideas Conference

3%

África

5%

Ásia e Oceania

January 2010

Global Presence

External Markets Revenues (US$ M)

Local Reps and

Distributors

„ Develop market knowledge

Sales Subsidiaries

„ Own commercial and distribution structures in large and growing markets

„ US, Chile, Colombia,

Venezuela; England, France,

Belgium, Germany, Italy,

Spain, Sweden, Australia,

India, Japan, Singapore,

UAE and Russia

Production Facilities

„ Service fast growing regional markets

„ Mexico, Portugal, Argentina and China

1029

„ Exports to more than 100 countries: Canada, South

Africa

120

27

1980

15 CS Equity Ideas Conference

1989 1998

January 2010

Unique Product Characteristics

Hours of Daily Use 12 16 24 24

Costs during useful life

Days of Monthly Use

Nominal Power

Nominal Power

Energy Efficiency

Energy Consumption

Monthly Use

Hp kilowatts

%

Kilowatts

Hours

Monthly Energy Consumption kW/h / month

Cost of Electricity R$ / kW/h

Energy Operating Cost R$ per Month

22

50,0

37,3

92,5%

40,3

264

22

50,0

37,3

92,5%

40,3

352

22

50,0

37,3

30

50,0

37,3

92,5% 92,5%

40,3

528

40,3

720

10.641 14.188 21.283

29.022

0,15 0,15 0,15 0,15

1.596 2.128 3.192 4.353

97,0%

1,6% List Price R$ 5.358 5.358 5.358 5.358 1,4%

Price / Operating Cost Ratio Months 3,36 2,52 1,68 1,23

Acquisition Maintenance Energy

Consuption

Specifications must be exact. Everything affects energy efficiency

“Similar” motors are not economical, even if much cheaper

Becomes more evident when energy prices go up

Returns on energy efficiency investments are very attractive

16 CS Equity Ideas Conference January 2010

Scale and Customization

Customization is characteristic of the industry and specifications are very diverse

Largest integrated motor site in the world

Main Manufacturing Plant in Jaraguá do Sul, SC

ƒ

Integrated and synergetic production allows for large scale of production, with:

ƒ

Lower costs

ƒ

Higher operating efficiency

ƒ

Vertical integration allows for:

ƒ

Customized products

ƒ

Fastest to the market

Incoming

Orders

Foundry /

Cast Machine

Wires

Manufacturing

Steel Shop

Paints & Varnishes

Tooling

Assembly

Line

More than 2,500 different types of electric motors monthly

17 CS Equity Ideas Conference January 2010

Third Quarter 2009 Highlights

Gross Operating Revenue

Domestic Market

External Markets

External Markets in US$

Net Operating Revenue

Gross Operating Profit

Gross Margin

Quarterly Net Income

Net Margin

EBITDA

EBITDA Margin

3Q09 2Q09

1.282.506

1.250.193

889.302

393.200

808.355

441.838

210.840

213.396

Growth % 3Q08 Growth %

2,6% 1.488.671

-13,8%

10,0%

-11,0%

967.507

-8,1%

521.164

-24,6%

-1,2% 309.874

-32,0%

1.055.465

1.029.945

402.210

38,1%

160.103

2,5% 1.223.272

-13,7%

294.175

36,7%

28,6%

129.670

23,5%

435.670

-7,7%

35,6%

167.130

-4,2%

15,2%

254.840

24,1%

12,6%

172.925

47,4%

16,8%

13,7%

300.150

-15,1%

24,5%

Figures in R$ Thousands

CASH & EQUIVALENT

DEBT

- Current

- Long Term

NET CASH (DEBT)

September 2009

2.003.241

1.932.624

943.532

989.092

70.617

December 2008

1.849.477

2.161.216

1.314.098

847.118

(311.739)

September 2008

1.820.203

1.883.178

1.238.442

644.736

(62.975)

18 CS Equity Ideas Conference January 2010

Profitability

Net Earnings (R$ million)

18% 18%

17%

15%

15%

503

575

12%

560

403

375

308

14%

13%

463

412

EBITDA (R$ million)

23%

22%

20%

22%

25%

23%

1026

923

24%

19%

666

757

609

394

487 504

20

03

200

4

200

5

200

6

Net Income

200

7

200

8

19 CS Equity Ideas Conference

08

09

M

09

09

M

Net Margin

2003 2004 2005 2006 20

07

EBITDA

20

08 08

09M

EBITDA Margin

09M

09

January 2010

Capacity Expansion Program

Capex and Depreciation (R$ million)

457

Capex

Depreciation

318

126

56

206

67

146

96

111

105

157

206

188

146

20

2003 2004

CS Equity Ideas Conference

2005 2006 2007 2008 09M09

January 2010

Dividend Pay-out Policy

Net Earnings and Dividends (R$ million)

54% 53%

52%

45%

44%

43%

40% 40%

39%

37%

575

560

35%

503

403

375

308

299 301

252

82

29

125

46

176

68

220

89

124

173

165

229

133

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 06M09

21

Net Earnings

CS Equity Ideas Conference

Dividends Pay-out (%)

January 2010

Contacts

ƒ

Alidor Lueders

CFO & IRO alidor@weg.net

ƒ

Luís Fernando M. Oliveira

Investor Relations Manager

+55 (47) 3276-6973 luisfernando@weg.net

ri@weg.net

MSN Messenger luisfernando@weg.com.br

www.weg.net/ir twitter.com/weg_ir

22 CS Equity Ideas Conference January 2010

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