Motors | Automation | Energy | T&D | Paints
Credit Suisse Equity Ideas
Conference 2012
January, 2012
WEGE3 / WEGZY
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.
1
Business Units
Motors
Page 2
Automation
Energy
Transmission
& Distribution
Coatings
Our business
Services
Speed Variation
Power
Generation
Motors
Transformers
Generators
Electrical
Components
Industrial Automation
Liquid and powder
Coatings and industrial
Varnishes
Page 3
Electric
Panels
Subestations
Business areas
Business
Units
Performance
Drivers
Page 4
ElectroElectronic
Industrial
Equipments
Generation,
Transmission
and
Distribution
Motors for
Domestic Use
Industrial
Paints and
Varnishes
Motors +
Automation
Energy + T&D +
Automation
Motors
Coatings
Industrial Production
growth and
Investments in
Fixed Capital
(capex)
Growth in
investments in
electric enrgy
infrastructure
Disposable income,
supply of credit and
level of interest
rates
Brazilian GDP
growth
Industrial segments
Today, WEG offers solutions for a
wide variety of segments
ƒ Oil & Gas
ƒ Shipbuilding
ƒ Mining, Cement and Aggregate
ƒ Sugar & Ethanol
ƒ Pulp & Paper
ƒ Steel
ƒ Infrastructure
ƒ Energy
ƒ Food & Beverage
Page 5
Revenues breakdown per
Production site
INDIA
2010
Manufactured
in Brazil, Sold
abroad; 32%
CHINA
MEXICO
Manufactured
& sold in Brazil;
61%
Manufactured
and sold
abroad; 7%
MEXICO
PORTUGAL
ARGENTINA
Revenues breakdown per distribution
channel
2010
OEM; 58%
Reseller;
14%
End user;
28%
Revenues by
Business Area
5.471
5%
4.551
12%
6%
3.527
2.978
6%
2.603
6%
15%
6%
18%
21%
10%
18%
14%
63%
2004
61%
57%
2005
2006
2007
7%
12%
15%
34%
48%
Energia Geração, Transmissão e Distribuição
4.405
7%
11%
26%
24%
59%
55%
2008
5.283
6%
27%
23%
62%
Equipamentos Eletro-eletrônicos Industrais
Page 8
14%
5.111
2009
54%
2010
Motores para Eletrodomésticos
9M2011
Tintas e Vernizes
Shareholding structure
Voigt
33.3%
Silva
33.3%
Werninghaus
33.3%
Members of
Control Group
WPA
Participações
e Serviços S/A
Treasury
Shares
14.4%
50.9%
0.1%
WEG S.A.
Page 9
Free Float
34.6%
Page 10
435
487
504
666
4.502
4.211
4.392
3.749
CAGR 17%
80
84
106
135
146
207
291
327
23%
26% 26%
23% 23%
27%
CAGR 16%
923
1.026
837
789
466
527
628
800
1.066
1.282
1.694
2.204
2.515
3.009
372
353
Net Revenues (R$)
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Consistent and profitable
growth
EBITDA (R$)
26%
25%
22% 22% 23%
20%
20%
18%
Highlights
Third Quarter, 2011
Gross Operating Revenue
Domestic Market
External Markets
External Markets in US$
Net Operating Revenue
Gross Operating Profit
Gross Margin
Net Income
Net Margin
EBITDA
EBITDA Margin
EPS
Page 11
Q3 2011
1.552.044
953.515
598.529
364.730
1.317.483
418.266
Q2 2011 Growth % Q3 2010 Growth %
1.510.276
2,8% 1.419.160
9,4%
936.061
906.954
1,9%
5,1%
574.215
512.207 16,9%
4,2%
360.639
298.020 22,4%
1,1%
1.277.258
3,1% 1.188.622 10,8%
381.437
377.227 10,9%
9,7%
31,7%
29,9%
154.567
154.557
11,7%
12,1%
243.743
215.579
18,5%
16,9%
0,2491
0,2491
31,7%
0,0%
142.106
8,8%
12,0%
13,1%
209.196
16,5%
17,6%
0,0%
0,2289
8,9%
Figures in R$ Thousands
Positioned to benefit
from mega trends
Renewable Energy
Energy Management
ƒ
ƒ
Industrial electricity consumption is the
largest portion of global consumption
Management systems (ISO 50.001)
already being implemented
ƒ
ƒ
Smart Infrastructure
ƒ
ƒ
Electricity distribution network has to
become “smarter”
More sensors, more automation, more
efficient generation and use of electricity
Page 12
Global need to diversify energy
sources and lower GHG emissions
Scale and technological development
increase viability
Mobility
ƒ
ƒ
Increasing urbanization adds to
congestions and need of new solutions
Hybrids, pure electric and alternative
fuels vehicles will become more
important
Energy Management
Electric motors has unique characteristics
Total Cos
t
of Owner
Acquisitio
n
Maintena
nce
ship of a
Electric M
o
ƒ
tor (*)
1,4%
ƒ
1,6%
Energy
Consump
tion
ƒ
97%
ƒ
(*) Consid
ering use
ful life of
10 years
Page 13
Specifications must be exact.
Everything affects energy
efficiency
“Similar” motors are not
economical, even if much
cheaper to acquire
Differences become more
evident when energy prices go
up
Return on energy efficiency
investments are very attractive
Conversion of energy (efficiency)
Energy Management
Harmonization of energy efficiency
regulations
Page 14
IE 4
(Super premium)
IE 3
(Premium)
IE 2
(High)
IE 1
(Standard)
(NEMA Premium
efficiency)
No regulatory obligation as of today
(effective 2015)
NEMA Energy
Efficiency
Most developing markets
Renewable Energy
Brazil’s electricity is already clean,
but it can get cleaner
180.000 160.000 8% CAGR
140.000 120.000 Biomass - 5% CAGR
Small Hydro – 6% CAGR
Wind - 17% CAGR
100.000 80.000 60.000 4% CAGR
40.000 20.000 5% CAGR
‐
2010
2011
2012
Fossil Fuels
2013
2014
Large Hydro
2015
2016
Renewables
2017
2018
2019
Nuclear
Source: EPE - PDE 2019
Page 15
Power grid must evolve
and become smart
SMART GRID: Applying sensing,
measurement and control devices with twoway communications to dynamically
respond to changes in grid conditions
Smart apliances
Can shut off in response
to frequency fluctuations
Demand management
Use can be shifted to off
peak times to save money
Sensors
Detected fluctuations and
disturbances, and can signal
for areas to be isolated
Solar
panels
Houses
Storages
Offices
Disturbance
In the grid
Energy generated at off
peak times could be
stored in batteries for later
uses
Storage
Isolated
microgrid
Wind farm
Processors
Execute special protection
schemes in microseconds
Central power
plant
Generators
Industrial
plant
Energy from small generators
and solar panels can reduce
overall demand on the grid
16
Solutions for electric &
hybrid vehicles
Complete power train solution
ƒ Electric motor (power train)
ƒ Auxiliary Genset (ethanol,
biodiesel or natural gas)
ƒ Frequency inverter and
components (system
automation)
ƒ Batteries
Page 17
WEG solutions for
marine automation
Thrusters motors
Automation
Generators
Page 18
Transformers
Motors
Strategic Positioning
Appliance
Industrial
High Voltage
Power
Generators
Biomass Systems
Small Hydro
Wind
T&D
Power
Dry
Distribution
Automotion
Substations
Drives
Controls
Panels
New Biz
Gearbox
Gensets
Turbines
Portfolio Strategy
Market
Access
May 2010
November 2011
October 2011
November 2011
May 2010
May 2011
March 2011
June 2010
December 2010
Technology
Page 20
EM gives WEG to key technologies
2 pole turbo generator technology allows WEG to
increase the power range:
ƒ
ƒ
Previously, up to 65 MVA, 4 poles
technology
Now, up 120 MVA,
ƒAmerican Petroleum Institute (API) compliant machinery
ƒNew opportunities in supplying for:
ƒGas turbines
ƒSteam turbines
21
EM also allows WEG to increase
presence in two important segments
ƒ
ƒ
Oil & gas
ƒ Crude and natural gas exploration
(up and downstream)
ƒ Oil-prices driven growth, both in
new opportunities (i.e. pre-salt) as
improving existing equipment
Power generation
ƒ Generators and electric motors for
fans, water pumps, etc.
ƒ Modernization of aging infrastructure
ƒ Recertification of nuclear power
plants
Technology, reputation and relationships can be transferred to other
markets / geographies
22
WEG can leverage EM’s assets
ƒ
Sinergies from combining EM’s and WEG’s strenghts
ƒ Brand recognition and reputation in
ƒ Complete line of products, offering
high-power rotating machines
(HPRM)
ƒ Deep and long standing key
customer relationships
ƒ Oil and gas (in the vendor lists
of all majors)
ƒ Power generation
ƒ Large installed base of more than
5,500 units in operation
one stop shop solutions;
ƒ Large commercial network across
the world
ƒ Strong market presence in fast
growing emerging economies, such
as Latin America
23
Power Transmission fits
into efficiency theme
ƒ
ƒ
Integration of different products and expertise
Growing demand for integrated solutions
ƒ Energy efficiency
ƒ Operating performance
Electric motor
(electrical)
Gearbox
(mechanical)
Drives
(electronics)
Page 24
Gearboxes market can be divided in
niches
ƒ
ƒ
ƒ
Commoditized
ƒ Large volume, low margins
ƒ Simple applications (conveyor belts, lathes, etc.)
ƒ Up to 50 hp, with low efficiency and relatively simple engineering
Customized
ƒ Similar to WEG’s core industrial motors business (mass
customization)
ƒ More complex applications (mixers, extruders)
ƒ All power ranges, higher efficiency and relatively higher
engineering complexity
Innovations
ƒ One of a kind, similar to WEG’s HV core
ƒ Highly complex applications (wind energy, mining)
ƒ High efficiency, high engineering complexity
Page 25
Capex
457
349
226
233
206
146
126
2003
125
111
2004
2005
2006
2007
2008
2009
2010 9M2011
(R$ million)
Page 26
Dividend Pay-out Policy
Net Earnings and Dividends (R$ million)
52%
35%
37%
39%
40%
40%
43%
44%
560
548
375
308
299
176
173
68
301
300
306
276
229
220
46
54%
520
503
125
59%
45%
575
403
82 29
54%
55%
89
165
150
124
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 6M2011
Net Earnings
Page 27
Dividends
Pay-out (%)
Growth Drivers &
Opportunities
ƒ New and improved products, focusing efficiency,
reliability and features
ƒ More integrated systems / complete solutions
ƒ New markets / products, R&D and acquisitions
and new geographies.
Page 28
Key takeaways
ƒ Global growth driven by emerging economies, with
massive infrastructure spending
ƒ Energy management will become more important, with
minimum performance standards (MEPS) regulations
and standardization
ƒ Growing importance of renewable sources of energy
ƒ Smart infrastructure systems will demand smarter
equipment
ƒ Brazilian pre-salt oil development will demand significant
investment
Page 29
Contacts
§Laurence Beltrão Gomes
Investor Relations Officer
laurence@weg.net
§ Luís Fernando M. Oliveira
Investor Relations Manager
+55 (47) 3276-6973
luisfernando@weg.net
twitter.com/weg_ir
www.weg.net/ri
Highlights
Nine months of 2011
Gross Operating Revenue
Domestic Market
External Markets
External Markets in US$
Net Operating Revenue
Gross Operating Profit
Gross Margin
Quarterly Net Income
Net Margin
EPS
EBITDA
EBITDA Margin
09M11
09M10
4.405.457
2.752.439
1.653.018
3.778.127
%
16,6%
2.539.463
1.238.665
8,4%
33,5%
1.013.580
3.720.858
1.110.365
700.290
3.133.544
995.652
44,7%
18,7%
11,5%
29,8%
31,8%
430.688
378.273
11,6%
12,1%
624.130
564.961
16,8%
18,0%
13,9%
10,5%
Figures in R$ Thousands
Page 31
Highlights
Assets
Figures in R$ Thousands
CURRENT ASSETS
Cash & cash equivalents
Receivables
Inventories
Other current assets
LONG TERM ASSETS
Long term securities
Deferred taxes
Other non-current assets
FIXED ASSETS
Investment in Subs
Property, Plant & Equipment
Intangibles
TOTAL ASSETS
Page 32
September 2011
R$
AV%
20
5.742.007 66%
3.086.568 35%
1.162.056 13%
1.269.623 15%
223.760
3%
378.587
4%
233.266
3%
103.846
1%
41.475
0%
2.575.233 30%
933
0%
2.397.920 28%
176.380
2%
8.695.827 100%
December 2010
R$
AV%
13
4.794.009 64%
2.552.996 34%
1.044.712 14%
1.008.952 13%
187.349
2%
136.984
2%
0
0%
78.810
1%
58.174
1%
2.580.171 34%
601
0%
2.395.575 32%
183.995
2%
7.511.164 100%
September 2010
R$
AV%
11
4.628.280 63%
2.399.773 33%
1.026.652 14%
1.015.175 14%
186.680
3%
149.892
2%
0
0%
91.613
1%
58.279
1%
2.586.940 35%
222
0%
2.394.633 33%
192.085
3%
7.365.112 100%
Highlights
Liabilities
Figures in R$ Thousands
CURRENT LIABILITIES
Social and Labor Liabilities
Suppliers
Fiscal and Tax Liabilities
Short Term Debt
Dividends Payable
Advances from Clients
Profit Sharring
Other Short Term Liabilities
LONG TERM LIABILITIES
Long Term Debt
Other Long Term Liabilities
Deferred Taxes
Contingencies Provisions
MINORITIES
STOCKHOLDERS' EQUITY
TOTAL LIABILITIES
Page 33
September 2011
R$
AV%
20
2.818.379 32%
188.599
2%
317.125
4%
63.632
1%
1.797.222 21%
47.903
1%
239.143
3%
39.348
0%
125.407
1%
2.167.388 25%
1.491.765 17%
129.275
1%
411.545
5%
134.803
2%
98.709
1%
3.611.351 42%
8.695.827 100%
December 2010
R$
AV%
13
1.938.803 26%
141.797
2%
242.300
3%
72.204
1%
1.018.995 14%
63.440
1%
271.949
4%
23.583
0%
104.535
1%
2.028.525 27%
1.399.948 19%
86.875
1%
415.318
6%
126.384
2%
89.229
1%
3.454.607 46%
7.511.164 100%
September 2010
R$
AV%
11
1.795.005 24%
167.220
2%
273.823
4%
73.452
1%
841.311 11%
32.052
0%
233.844
3%
34.050
0%
139.253
2%
2.126.673 29%
1.503.836 20%
92.250
1%
417.304
6%
113.283
2%
85.991
1%
3.357.443 46%
7.365.112 100%
Highlights
Cash Flow Statement
9 Months
2011
12
Operating Activities
Net Earnings before Taxes
Depreciation and Amortization
Earnings from Subs (Equity Method)
Provisions:
Changes in Assets & Liabilities
554.075
139.393
92.160
(494.815)
524.849
135.920
(1.687)
73.387
(312.139)
Cash Flow from Operating Activities
290.813
420.330
Investment Activities
Fixed Assets
Intagible Assets
Asset Write Downs
Accumulated Conversion Adjustment
Long term securities bought
(124.813)
(2.462)
2.472
38.401
(233.266)
(248.847)
(81.274)
18.995
(25.050)
-
(319.668)
(336.176)
Financing Activities
Shares in Treasury
Working Capital Financing
Long Term Financing
Dividends & Intesrest on Stockholders Equity Paid
(10.055)
767.072
102.972
(297.562)
(44.289)
516.903
(284.112)
Cash Flow From Financing Activities
562.427
188.502
Change in Cash Position
Cash & Cash Equivalents
533.572
272.656
2.552.996
3.086.568
2.127.117
2.399.773
Cash Flow From Investment Activities
Beginning of Period
End of Period
Page 34
9 Months
2010
8
Our Business