Motors | Automation | Energy | Transmission & Distribution | Paints
June 2010 J.P. Morgan LatAm Corporate Access Days
2 June 2010J.P. Morgan LatAm Corporate Access Days
DisclaimerThe 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.
3 June 2010J.P. Morgan LatAm Corporate Access Days
WEG key
facts
47%
34%
13%
6%
Industrial Equipment
GTD
Domestic Use
Paints & Varnishes
Revenue by business area
Employees
About WEG
Market leader in Latin America and among top 5 electric motor players in the world
Over 21thousands employees (2.5 thousands outside Brazil)
Around 35% of business outside Brazil
Revenues CAGR of 19% over past 15 years
2009
Revenues: US$ 2.8 billion
19.537 employees worldwide
EBITDA: US$ 465 million
Net earnings: US$ 305 million
Strong balance sheet, unaffected by financial crisis
4 June 2010J.P. Morgan LatAm Corporate Access Days
Global Presence
Distributors & Agents in over 85 countries
Over 1100 Service Centers covering all 5 continents
Sales to over 110 countries
Factories in 5 countries
Commercial branches in 22 countries
5 June 2010J.P. Morgan LatAm Corporate Access Days
Founded
on
September
16th, 1961
History of WEG
6 June 2010J.P. Morgan LatAm Corporate Access Days
Shareholding
structure
ControllingShareholders
34.7%50.9% 14.4%
WEG S.A.
Voigt33.3%
Silva33.3%
Werninghaus33.3%
Other (Float)
WEG
Participações e
Serviços S/A
Founders’
Families(directly)
Clear and strong control group that knows the business but is not directly involved on day to day operations
7 June 2010J.P. Morgan LatAm Corporate Access Days
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
Corporate Governance Practices
8 June 2010J.P. Morgan LatAm Corporate Access Days
Diversification as Core Value
Motor
Generator
Transformer
Electronic Components
Electric Components
Motor Control Panel
Distribution Panel
Energy Generation
Energy Substations
Industrial Process Automation
Services
Industrial Application Paints and Varnishes
Integration allows for synergy gains and reduces business cycle risk
9 June 2010J.P. Morgan LatAm Corporate Access Days
Products
ConsumerMarkets
Focus
PerformanceDrivers
Business areasIndustrial
Paints and Varnishes
Motors for Domestic Use
Generation, Transmission
and Distribution
Electro-Electronic Industrial
Equipments
Americas
Low and medium tension electric
motors, industrial automation
equipments and services
Hydro, thermal (natural gas, biomass and other) and wind
generators, transformers, control panels, automation
services
Single phase electric motors
Liquid and powdered
paints, electro-
isolating varnishes
Capital goods OEMs (pumps,
compressors, machines) and end-
users (steel, mining, pulp & paper, oil &
gas, ethanol)
Global
Generation, transmission and
distribution concessionaries, co-
generation, industrial
clients
Growing investments in energy generation
“White goods”
OEMs (washing machines,
HVAC*), water pumps, lawn mowers, etc
Disposable income, supply of credit and level of interest rates
Latin America
General industrial and
specialty applications
(shipbuilding, aggressive
environments)
Brazilian GDP growth
Brazil
Industrial Production growth and
Investments in Fixed Capital (capex)
10 June 2010J.P. Morgan LatAm Corporate Access Days
Business Units
MOTORS ENERGYAUTOMATION
COATINGSTRANSMISSION
& DISTRIBUTION
Complete solutions that increase perceived value by the client
11 June 2010J.P. Morgan LatAm Corporate Access Days
106
135
146 20
7 291 32
7
435 48
7
666
1.02
6
837
8480
504
923
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
CAGR 18%
430
458
574
632 753 96
3 1.26
9
1.53
5 2.01
5 2.60
3 2.97
8 3.52
7
5.11
1
4.55
1
5.47
11995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
CAGR 19%
41 58
98
82
125
176
220
308
403
379
503
575
548
31
560
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
CAGR 23%14
% 16%
22%
33%
23%
31%
38%
38%
44% 47
%
37%
31%
25%
33%
37%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Consistent and profitable growth
Net Earnings (R$)
Gross Revenues (R$) EBITDA (R$)
Return on Equity
Cycles are diversified away, allowing focus on profitable opportunities
12 June 2010J.P. Morgan LatAm Corporate Access Days
Strong fundamental trendsEnergy prices will continue to increase
Cheaper energies are becoming less available
Concerns about sustainability (climate change)
Cleaner energies are technologically intensive
Oil prices (US$)
‐
10
20
30
40
50
60
70
80
90
100
1970 1980 1990 2000 2010 Partial
13 June 2010J.P. Morgan LatAm Corporate Access Days
Strong fundamental trends
Energy efficiency
Cleaner Energy Sources
Industrial electric motors represent around 25% of global electricity consumption
Most efficiency “bang” for the Capex “buck”
Lower CO2emissions
Economic viable alternatives fuels
Secular trend of increasing energy prices is shifting industrial electric equipment environment
14 June 2010J.P. Morgan LatAm Corporate Access Days
Unique Product Characteristics
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
Cost of ownership of an electric motor throughout its useful life
15 June 2010J.P. Morgan LatAm Corporate Access Days
WEG is Uniquely Positioned
16 June 2010J.P. Morgan LatAm Corporate Access Days
Diversified and Synergistic Offering
Product integration in systems and solutions
ClientOne Supplier,
Several Products
Several Suppliers, one product each
Product diversification increases competitiveness and added value…
Strong worldwide after sales support
(services and parts)
From the client’s perspective
One-stop shop (largest electric motor line from a single manufacturer)
Several Products, Markets, Industries and
Clients
Several Products, One Salesperson
Greater synergy and efficiency of sales effort
Reduced risk exposure (product, segment and client)
…while reduces costs and diversify risks
From WEG’s perspective
17 June 2010J.P. Morgan LatAm Corporate Access Days
Technological Innovation Capabilities
Consistent R&D spending Partnerships with best engineering schools in Brazil and in the world Technical Committee meets semi-annually to review latest developments in electrical theory and applications
+Innovative use of technology for general purpose motorsHigher energy efficiency (lower consumption per output)Lower working temperature and noise levelsSmaller size (lower material consumption)
Technology advances at fast pace, with WEG at the forefront
More than 1.000 engineers developing products, such as Wmagnet
16 18 18 21
6373
86 8983
30 34
2,4%2,3%
2,0% 2,0%
2,5%2,3%
1,7% 1,6%1,8%
1,5%
2,5%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009R&D Spending % Net Revenues
18 June 2010J.P. Morgan LatAm Corporate Access Days
27
120
1980 1989 1998 20072009
Global PresenceExternal Markets Revenues (US$ M)
880
1029
19 June 2010J.P. Morgan LatAm Corporate Access Days
Global PresenceHigh-growth emerging markets represent almost 80% of business
66%
Brasil
10%
América do Norte
5%
América do Sul e Central
11%
Europa
5%
Ásia e Oceania
3%
África
Revenue breakdown by region (2009)
20 June 2010J.P. Morgan LatAm Corporate Access Days
Scale and CustomizationCustomization is characteristic of the industry and specifications are very diverse. Most production is built to order
Main Manufacturing Plant in Jaraguá do Sul, SC
Integrated and synergetic production allows for large scale of production, with:
Lower costsHigher operating efficiency
Vertical integration allows for:Customized productsFastest to the market
Paints & Varnishes
Steel Shop
Foundry / Cast Machine
Wires Manufacturing
More than 2,500 different types of electric motors
monthlyTooling
Engi
neer
ing
Incoming Orders
Assembly Line
Largest integrated motor site in the world
21 June 2010J.P. Morgan LatAm Corporate Access Days
1026
837
394
487 504
666
923
23% 23%
20%
22%
20%
22%
25%
2003
2004
2005
2006
2007
2008
2009
EBITDA EBITDA Margin
ProfitabilityNet Earnings (R$ million) EBITDA (R$ million)
548
308
403 375
503575 560
18%17%
13%
18%
15% 15%
12%
2003
2004
2005
2006
2007
2008
2009
Net Income Net Margin
22 June 2010J.P. Morgan LatAm Corporate Access Days
Capex and Depreciation (R$ million)
Capacity Expansion Program
126
206
146111
457
226
56 6796 105
157
206 196
318
2003 2004 2005 2006 2007 2008 2009
CapexDepreciation
23 June 2010J.P. Morgan LatAm Corporate Access Days
Net Earnings and Dividends (R$ million)
Dividend Pay-out Policy
82125
176220
375
575 560 548
68 89124
173 165
229
299 301 300308
403
503
29 46
45%
52% 54%
35%37%
39% 40% 40%43% 44%
55%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Net Earnings Dividends Pay-out (%)
24 June 2010J.P. Morgan LatAm Corporate Access Days
General Comments on Q1 2010
Quarter confirms that recovery is going to be gradual
Economic dynamisms spreads from the Brazilian consumer towards other segments:
Consumer goods continue strong, tied to fundamentals
Industrial products doing better the closer they are to the consumer
Longer cycle products is still in early stages of recovery
Other emerging countries faring better than mature economies
We are resuming some investment plans as demands picks up
Production of HT motors in India by 2H of 2010;
Production of commercial motors in Linhares by year end
Page 24
25 June 2010J.P. Morgan LatAm Corporate Access Days
Quarterly Highlights
Page 25
Q1 2010 Q4 2009 Growth % Q1 2009 Growth %Gross Operating Revenue 1.131.546 1.306.913 -13,4% 1.270.984 -11,0% Domestic Market 801.299 871.619 -8,1% 802.351 -0,1% External Markets 330.247 435.299 -24,1% 468.632 -29,5%
External Markets in US$ 181.170 250.328 -27,6% 202.726 -10,6%Net Operating Revenue 931.907 1.076.969 -13,5% 1.048.241 -11,1%Gross Operating Profit 307.454 344.226 -10,7% 311.954 -1,4%Gross Margin 33,0% 32,0% 29,8%Quarterly Net Income 119.074 136.426 -12,7% 122.193 -2,6%Net Margin 12,8% 12,7% 11,7%EBITDA 181.750 228.548 -20,5% 181.112 0,4%EBITDA Margin 19,5% 21,2% 17,3%
Figures in R$ Thousands
26 June 2010J.P. Morgan LatAm Corporate Access Days
Operating cash flow trends continue favorableCapex program picking up where demand is stronger Strong capital structure allows access to low cost sources of funding
BNDES (Brazilian development bank) is the main partnerNegotiating first transaction with IFCTrade finance at very attractive termsForeign subs financed locally but considering consolidated balance sheet
Virtually no net foreign currency exposureExtending average maturities of debt at lower costs
Financing Policies
Page 26
March 2010 December 2009 March 2009CASH & EQUIVALENT 1.962.538 2.127.117 1.815.164 DEBT 1.782.466 1.872.533 2.099.941 - Current 814.274 895.885 1.171.587 - Long Term 968.192 976.648 928.354 NET CASH (DEBT) 180.072 254.584 (284.777)
27 June 2010J.P. Morgan LatAm Corporate Access Days
Evolution of Gross Revenues –
Domestic Market(in R$ million) Gross Operating Revenues
decreasing by 11%. Net Revenues down by 11.1%
FX appreciation of 27% negatively impacts comparisons
Product mix continues to shift towards short cycle products
Lower order intake during 2009 is now apparent in revenues
Recovery continues driven by the Brazilian consumer
Long cycle and external (mature) markets continue soft.
Evolution of Gross Revenues –
External Market (in US$ million)
Gross Operating Revenues
Page 27
507623
761 802 801
23%22%
5% 0%
Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010
126,6 165,2 195,3 202,7 181,2
29%30%
18% -11%
2,1875 2,1066 1,7354 2,3117 1,8229
Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010
External Market in US$Quarterly Average FX
28 June 2010J.P. Morgan LatAm Corporate Access Days
7%
Global PresenceGross Revenues Breakdown: Q1 2010
Page 28
71%
Brazil
10%
North America
5%
South & Central America
9%
Europe
3%
Asia & Oceania
2%
Africa
29 June 2010J.P. Morgan LatAm Corporate Access Days
Gross margin improving, despite little help from top line growth
EBITDA margin trending towards the floor of the historical interval
Net margin showing more modest improvement, benefiting from FX stability
Profitability
Page 29
238293 320 312 307
36% 37% 36%30% 33%
Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010
Gross Profit Gross Margin
118 129 126 122 119
18% 16% 14% 12% 13%
Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010
Net Income Net Margin
149193 203 181 182
22% 24% 23%17% 20%
Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010
EBITDA EBITDA Margin
30 June 2010J.P. Morgan LatAm Corporate Access Days
Growth and Margin Analysis
23,9%
5,1% 6,0%
9,6% 10,1%12,6%
‐4,2%
6,6%
2,6% 2,6%
‐10,0%
‐5,0%
0,0%
5,0%
10,0%
15,0%
20,0%
25,0%
30,0%
WEG SIEMENS EMERSON ABB SCHNEIDER
2004‐2009 2009‐2012E
‐0,30
1,00 0,80
‐1,50
1,10
‐2,00
‐1,50
‐1,00
‐0,50
‐
0,50
1,00
1,50
WEG SIEMENS EMERSON ABB SCHNEIDER
0%
5%
10%
15%
20%
25%
30%
2004 2005 2006 2007 2008 2009
WEG SIEMENS EMERSON ABB SCHNEIDER
Revenues Growth (CAGR)
Financial Leverage (Net Debt / EBITDA 2009)
Profitability (EBITDA Margins)
Source: Morgan Stanley
31 June 2010J.P. Morgan LatAm Corporate Access Days
Our Business
32 June 2010J.P. Morgan LatAm Corporate Access Days
33 June 2010J.P. Morgan LatAm Corporate Access Days
Electric Motors
• NEMA Motors, Single and Three Phase up to 3.7kW (5HP)
Applications: * Pumps* Compressors * General Purpose * Air Conditioning* Explosion Proof
* Pool and Spa* Others
Fractional (commercial use) Motors
34 June 2010J.P. Morgan LatAm Corporate Access Days
Electric Motors
• Three phase TEFC / ODP motors / output ratings up to 1200kW (1650HP)
Types:
* General Purpose* Explosion Proof* Brake Motors* Inverter Duty * Saw Arbor* Pump Motors* Others
• Single Phase TEFC / ODP motors / output up to 9.2kW (12.5HP)
Types: * General Purpose* Farm Duty * Multi-Mounting Aluminum frame motors* Appliance Motors * Ventilation / Others
Low Voltage Industrial Motors
35 June 2010J.P. Morgan LatAm Corporate Access Days
36 June 2010J.P. Morgan LatAm Corporate Access Days
Automation
• Timers and electronic protectors
• Run capacitors for motors and light system
• Power factor correction capacitors
• Contactors and overload relays
• Motor circuit breaker
• Push buttons and signalling units
• D and NH fuses
• Thermoplastic and metal cased starters
• Molded case circuit breakers
Switch and Control Gear
37 June 2010J.P. Morgan LatAm Corporate Access Days
Automation
• LV VFD’s in outputs up to 4000HP
• Servoconverters and Servomotors
• Converters and AC/DC drives, outputs up to 3000HP
• LV & MV Soft-starters in outputs up to 3000HP
• MV VFD’s in outputs upt to 8000HP
Drives and Soft Starters
38 June 2010J.P. Morgan LatAm Corporate Access Days
39 June 2010J.P. Morgan LatAm Corporate Access Days
Energy
• Three Phase TEFC / ODP Induction Motors
-
Master Line, frames from 280 to 1800, voltages up to 15kV;
-
H Line, enclosed, frames from 315 to 630, voltages from 220V to
11kV;
-
DC Motors, frames up to 1800.
Applications:
* Mining* Sanitation* Steel Plants* Cement* Pulp and Paper* Petrochemical* Cooling Systems
Medium and High Voltage Motors
40 June 2010J.P. Morgan LatAm Corporate Access Days
Energy
• Generator for generator sets up to 4200kVA
• Large size generators
-
Turbogenerators, outputs up to 80,000 kVA, voltages up to 15kV
-
Hydrogenerators, outputs up to 200,000 kVA, voltages up to 15kV
• LV/MV control and distribution boards, MV panels
Generators
41 June 2010J.P. Morgan LatAm Corporate Access Days
42 June 2010J.P. Morgan LatAm Corporate Access Days
Transmission & DistributionTransformers• Oil:
Power
-
Outputs up to 300 MVA, voltage classes up to 550 kV
Industrial
-
Outputs from 500 to 5000 kVA, voltage classes 15; 24.2 or 36.2 KV
Distribution
-
Outputs from 30 to 300 kVA, voltage classes 15 or 24.2 kV
• Dry:
Outputs from 300 to 15,000 kVA, voltage classes 15; 24.2 or 36.2 kV
Substations• Stationary -
Up to 550 kV• Mobile -
Up to 145 kV
43 June 2010J.P. Morgan LatAm Corporate Access Days
44 June 2010J.P. Morgan LatAm Corporate Access Days
Manufacturing Plants: Brazil JARAGUÁ
DO SUL -
SC
MANAUS -
AM
GUARAMIRIM -
SC JARAGUÁ
DO SUL -
SC
ITAJAÍ
-
SC BLUMENAU -
SC
SÃO BERNARDO DO CAMPO -
SP HORTOLÂNDIA -
SP GRAVATAÍ
-
RS
JOAÇABA -
SC
*LINHARES -
ES
*New factory (from Nov. 2010 on)
45 June 2010J.P. Morgan LatAm Corporate Access Days
MEXICO -
Huehuetoca
CHINA -
Nantong
MEXICO -
Tizayuca
PORTUGAL -
Maia
PORTUGAL -
Maia
INDIA -
Hosur -
Under construction
ARGENTINA -
Córdoba ARGENTINA -
San Francisco
MEXICO -
Huehuetoca
Manufacturing Plants: Outside Brazil
46 June 2010J.P. Morgan LatAm Corporate Access Days
Certifications
47 June 2010J.P. Morgan LatAm Corporate Access Days
Quality Certifications
ISO 14001:2004Certificate Number: BR229183/A
ISO 9001:2008Certificate Number: BR229182
48 June 2010J.P. Morgan LatAm Corporate Access Days
References -
OEM Ventilation
49 June 2010J.P. Morgan LatAm Corporate Access Days
References -
OEM Pumps
50 June 2010J.P. Morgan LatAm Corporate Access Days
References -
OEM Compressors
51 June 2010J.P. Morgan LatAm Corporate Access Days
References: Oil & Gas
52 June 2010J.P. Morgan LatAm Corporate Access Days
References:OEM‘s and End Users
53 June 2010J.P. Morgan LatAm Corporate Access Days
References -
Engineering Companies