WEG Q3 2016 INVESTOR PRESENTATION

Best way to invest in fast growing global energy efficiency and renewable energy generation businesses

1BM&F Bovespa: WEGE3 / OTC: WEGZY

n One of the highest growth capital goods companies; number one or number two in all product lines in Latin America

n Unique business model is based on vertical integration, production flexibility and technological innovation

n Diversified product lines allows strong growth across different market cycles

n We have a history of achieving CAGR of 18% over past 17 years through organic growth and accretive acquisitions

n WEG 2020 Strategic Plan aims for R$ 20 billion / 17% CAGR through international and product line expansion

1

2

3

4

5

Energy and industrial efficiency

Renewable energy Smart grid Electrical mobility

Electric motors represent around 70% of all industrial consumption of electricity, or 25% of worldwide general electricity consumption;

Electricity consumption is by far the largest component of total cost of ownership of electric motors (may exceed 95%) for industrial clients;

Clear regulatory trend towards minimum levels of electric motor energy efficiency (lower needs to expand generation);

Industrial productivity and energy management drives investments

Global drive to lower GHG emissions;

Renewables allow distributed generation, closer to consumption and requiring lower T&D infrastructure;

Economic viability is highly dependent on scale. With correct price incentives, technology catches up with economics;

Diversity of sources increases systems stability and energy availability. No energy is the most expensive energy of all

Increasing urbanization adds to congestions and need of alternatives;

GHG and other pollutants emitted by internal combustion engines powered vehicles are well above sustainable levels;

Electricity is clearly a more efficient use of energy to power vehicles. Pure electric, hybrids and alternative fuels will grow faster than the market;

Powertrain solutions are scalable to all vehicle types and sizes and to other transportation modes (WEG has commercially available solutions in maritime powertrains)

Electricity distribution grid is evolving and becoming ”smarter”;

All nodes of the system, from generation to consumptions (and everything in between) must be aware of conditions and able to respond to changes;

Every existing electric product must evolve. There will be more sensors, more automation, more efficient generation and use of electricity;

New products are being developed and change is just now starting

Our industry is undergoing major shiftsMegatrends are creating changes in demand patterns and new business opportunities


WEG’s strategic vision is to provide complete and efficient solutions with a complete line of electrical machines, from the generation all the way to the consumption.

This means that we want to continue to be a competitive supplier of electrical equipment for typical applications. For example, WEG is one the world's largest supplier of industrial electric motors used by OEM in the manufacturing pumps, compressors

“End to end of the wire”The global solution in electric machines and automation for the industry and energy systems


and industrial fans, the typical uses of such products.

We also can use this production competitiveness and flexibility and our broad product line to integrate those products into a complete solutions.

We can combine electric motors of several types and sizes with the drives and controls to create complex industry automation systems. Or complete solutions for electricity generation from

renewable sources. Or complete energy substations for just about any use. Important to note that these systems are basically comprised of WEG manufactured products.

This integrated approach based on competitive manufacturing capabilities has been the basis of our market presence and how we present ourselves to our clients and to the general market.

Generation Transmission Distribution Industrial use Electric traction

Building

Automation

Sustainable growthWEG’s revenue growth and margins are among the highest in the industry


Revenues Growth (US$) Profitability (EBITDA Margins)

9,4%

19,2%

12,3%

7,5%

-0,5%

9,4%

3,6%2,6% 2,4%

-1,7%

A WEG C B D

CAGR 2006-2010

CAGR 2011-2015

A C B DWEG

WEG

B

D

C

A

7,0%

9,0%

11,0%

13,0%

15,0%

17,0%

19,0%

21,0%

23,0%

25,0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Strategic positioningWEG offers a complete range of electric products and systems with an integrated one-stop solution


Mot

ors

Fractional

Industrial

High Voltage

Gear boxes

Ener

gy

Alternators

Thermal (Biomass)

Small Hydro

Wind

Solar

T&D

Power Trafos

Dry Trafos

Distribution Trafos

Substations

Auto

mat

ion Drives

Controls

Panels

Clear competitive advantagesUnique business model creates important and defensible competitive advantages

DiversificationVertical Integration

Financial Flexibility

Modular Expansion

Global Presence

Vertical integration allows production flexibility to competitively supply small batches of highly customized products that are matched to perfection to our customers’ needs. We do mass customization, not mass production.

Our production flexibility allows us to target the markets

(geographies, segments and products) that offer the best growth perspectives. It also

allows us to target markets based on returns, not on our needs to occupy specialized production

capacity.

Financial flexibility allows WEG to pursue growth opportunities as they become available. These opportunities range from trivial, like raw materials procurement at attractive conditions, to strategic, like acquisitions.

The diversity of our product offering also allows us to expand internationally, leveraging the expertizes we have developed into new markets and being a

premier partner for our global customers

Our production system is also based on modular expansion,

avoiding idle capacity build up, maximizing returns on capital e

lowering demand risks.


15,8%

18,5%

5,4%

4,5%

0,6%9,8%

11,2%

34,1%

3Q16 RevenuesR$ 2.2 billion

WEG businessDiversified product line allows for strong growth across different market cycles


Industrial Electro-Electronic Equipment

CoatingsEnergy Generation, Transmission and Distribution (GTD)

External Markets Domestic Market

Motors for domestic use

Revenues (R$ million)

Solid growth track recordBusiness model allows us to find and explore growth opportunities, even under unfavorable macroeconomic conditions


EBITDA (R$ million) and EBITDA Margin

CAGR 20.1%

Net Income (R$ million) and Net Margin ROIC

CAGR 18.1%

CAGR 17.5%

353

372

466

527

628

800

1.06

6

1.28

2

1.69

4

2.20

4

2.51

5

3.00

9 3.74

9 4.50

2

4.21

1

4.39

2 5.18

9 6.17

4

6.82

9 7.84

1

9.76

0

59

67

96

119

133

188

256

293 38

1 475

462 61

7 839 1.

021

812

789

851 1.

017 1.23

0

1.34

5

1.47

8

18,1%20,7%

22,5%21,2%

23,5% 24,1%22,8% 22,5% 21,5%

18,4%20,5%

22,4% 22,7%

19,3%18,0%

16,4% 16,5%18,0% 17,2%

15,1%

30

41

58

98

82

125 17

6

220 30

8 403

375 50

3 575

560

549

519 58

7 656

843 95

5

1.15

6

10,9%12,6%

18,5%

13,1%

15,7%16,5% 17,2%

18,2% 18,3%

14,9%16,7%

15,3%

12,4% 13,0%11,8% 11,3% 10,6%

12,4% 12,2% 11,8%

10,4%

13,5%

14,7%

15,9%

12,1%

10,0%10,3%

11,8%

14,3%

13,6% 13,5%

Margin dynamicsMargins are the result of product mix and product pricing conditions, and tend to track global economic cycle

Prod

uct P

ricin

g

Product Mix

Average Margin

BM&F Bovespa: WEGE3 / OTC: WEGZY 9

Margin dynamicsGrowth of external markets that results from stronger brand is neutral on margins

BM&F Bovespa: WEGE3 / OTC: WEGZY 9

24% 25% 28% 34% 34% 38% 40%44%

45%42%

44%

41%

41%40% 39%

44%

51%50%

51%

57%

76% 75% 72% 66% 66% 62% 60% 56% 55% 58% 56% 59% 59% 60% 61%56% 49% 50%

49%43%

364 456 527 628 800 1,066 1,282

1,694 2,204

2,515 3,009

3,749

4,502 4,211 4,392

5,189

6,174

6,829

7,841

9,760

18.5%

21.1%22.5%

21.2%

23.5% 24.1%22.8% 22.5%

21.5%

18.4%

20.5%22.4% 22.7%

19.3%18.0%

16.4% 16.5%18.0%

17.2%

15.1%

Mercado Interno Mercado Externo Margem Ebitda

y = -0.1607x + 0.2663R² = 0.2576

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0% 10% 20% 30% 40% 50% 60%

WEG strategic planning processWe adopted a bottom–up approach, selecting the individual opportunities that offered the best fit to clear strategic guidelines


OpportunitiesDiscovery

Business analysis

The process started with the involvement of management at all levels, from market-facing mid-level managers to senior C-level officers, that discussed recent evolution, trends and growth opportunities, current and future, in all our core and adjacent markets.

The ideas were developed into business plans, including market assumptions, earnings and cash flow projection models, so each opportunity could be assessed in terms of its expected results and margins.

Capital Requirement analysis

The analysis then considered the capital intensity of each opportunity. The results and margins are not necessarily good or bad, they must be considered within the context of the capital required to pursue the growth opportunity. The net result is ROIC.

Risk adjusted ROIC analysis

Finally, each opportunity was assessed in terms of identifiable, business-related, non-systemic risks. This was then used to adjust the ROIC, or ROIC’

4.39

2

5.18

9

6.17

4

6.82

9

7.84

1

9.76

0

20.0

00 18% 19%

11%15%

24%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

WEG strategic Plan 2020Corporate aspiration of R$ 20 billion by 2020. Growth comes from diverse base, with a disciplined approach to organic and non organic expansion


1/3 Non Organic

2/3 Organic

CAGR 17.9%

CAGR 15%

Our products / markets enjoy fairly healthy

organic growth trends. For example, the global

market for industrial use electric motors is

independently estimated to grow 5% to 10% per

year. If we are able to maintain our market

positions, either leadership and / or strong brand

recognition, we will be in position that advantage

of this healthy growth dynamics;

Growth driversThe growth opportunities identified can be separated into three distinct categories/growth strategies


We will continue to expand into

new geographies, initially with

industrial electric motors. As

we have established market

positions and/or recognized

brands, we will leverage those

to synergistically expand the

product line.

We will also continue to

expand the product line into

business / products that

complement the offering and

allows us to offer our clients

more complete and efficient

solutions.

International Expansion

International Expansion

New Businesses

New Businesses

“More and Better”

“More and Better”

Technology

Mar

ket

Acc

ess

2010

2010

2010 2010

2011

20112011

2011

2012

2012

2012

Portfolio strategyClear vision of attractiveness of opportunities and of the strategic fit


2014

2014

2013

2014

2014

20142015

2015

2015

March 2016

October 2016

Revenue profile


2015

2008

Global production platform


Produced and sold in BrazilProduced in Brazil and exportedProduced and sold abroad

65%

31%

4%

200843%

32%

25%

2015

Capex (R$ million)

Use of cash


Research & Development (R$ million)

Net Earnings and Dividends (R$ million)Working Capital (% of Net Revenues)

16 18 18 21 30 34

63 73 86 89 83

101

131 148

183

224

284

197

2,5%2,3%

1,7% 1,6%1,8%

1,5%

2,5% 2,4%2,3%

2,0% 2,0%

2,3%2,5%

2,4%2,7%

2,9% 2,9%2,8%% of Net Revenues

42 38 49 73 83 126

206 146

111

305

457

226 233 188

238 244

425 468

243

8,0%

6,1%6,1%6,8% 6,5%

7,4%

9,3%

5,8%

3,7%

8,1%

10,2%

5,4%5,3%

3,6%3,9%3,6%

5,4%4,8%

3,5%

% of Net Revenues

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

3Q08 3Q09 3Q10 3Q11 3Q12 3Q13 3Q14 3Q15 3Q16

Working Capital

Inventories

Clients

SuppliersAdvances

Issuer

Ticker

Number of Shares

Share price

Market value

WEG S.A.

WEGE3 (BM&FBovespa) / WEGZY (OTC – ADR Level 1)

Listing Segment Novo Mercado (since 2007)

Issued: 1,614,353,076In treasury: 1,055,483Ex-treasury: 1,613,297,593

On Dec 30, 2015 : R$ 14.95 On Oct 24, 2016 : R$ 17.62

On Dec 30, 2015 : R$ 24.1 billionOn Oct 24, 2016 : R$ 28.4 billion

Liquidity (average daily volume)

In 2015: R$ 27,576 thousand / day In 2016: R$ 33,883 thousand / day

Composition of Free Float

54% - Foreign institutions02% - Brazilian institutions 44% - Others (individuals, etc.)

Capital markets information


35%50%14%

WEG S.A.WEG S.A.

Voigt33.3%Voigt

33.3%Silva

33.3%Silva

33.3%Werninghaus

33.3%Werninghaus

33.3%

Treasury and ManagementTreasury and Management

WPA Participações e Serviços S/A

WPA Participações e Serviços S/A

Founders’ Families (directly)

Founders’ Families (directly)

Free FloatFree Float

1%

Shareholding structure


4,00

5,00

6,00

7,00

8,00

9,00

10,00

11,00

12,00

13,00

14,00

15,00

16,00

17,00

18,00

19,00

20,00

WEG

E3 s

hare

pric

es (R

$)

20

WEGE3 performance

BM&F Bovespa: WEGE3 / OTC: WEGZY

Inclusion Ibrx-100

Selected for ISE 2014

Selected for DJSI-EM

Selected for ISE 2015

Inclusion Ibovespa

Inclusion Ibrx-50

Paulo PoleziInvestor Relations

Officer

Luis Fernando Oliveira

Investor Relations +55 (47) 3276-6367

[email protected]

Investor Relations Contacts

+55 (47) [email protected]

twitter.com/weg_ir

https://www.facebook.com/ri.weg

plus.google.com/113035339542615065006/posts

www.linkedin.com/company/weg-investor-relations

www.weg.net/ir

HighlightsYearly Figures


2015 2014 % 2013 %Net Operating Revenue 9,760,323 7,840,757 24.5% 6,828,896 42.9% Domestic Market 4,227,286 3,876,757 9.0% 3,432,040 23.2% External Markets 5,533,036 3,964,000 39.6% 3,396,856 62.9% External Markets in US$ 1,654,261 1,684,785 ‐1.8% 1,569,447 5.4%Gross Operating Profit 2,765,588 2,484,497 11.3% 2,236,766 23.6%Gross Margin 28.3% 31.7% 32.8%Quarterly Net Income 1,156,065 954,726 21.1% 843,467 37.1%Net Margin 11.8% 12.2% 12.4%EBITDA 1,477,603 1,344,829 9.9% 1,230,032 20.1%EBITDA Margin 15.1% 17.2% 18.0%EPS (adjusted for splits) 0.71669 0.59180 21.1% 0.52289 37.1%

Figures in R$ Thousands

HighlightsQuarterly Figures


Q3 2016 Q2 2016 % Q3 2015 %

Net Operating Revenue 2,238,078 2,335,255 ‐4.2% 2,546,349 ‐12.1% Domestic Market 991,101 947,241 4.6% 1,087,388 ‐8.9% External Markets 1,246,977 1,388,014 ‐10.2% 1,458,962 ‐14.5% External Markets in US$ 384,016 395,460 ‐2.9% 411,211 ‐6.6%Gross Operating Profit 618,962 641,668 ‐3.5% 724,802 ‐14.6%Gross Margin 27.7% 27.5% 28.5%Net Income 257,043 254,997 0.8% 265,409 ‐3.2%Net Margin 11.5% 10.9% 10.4%EBITDA 338,053 326,051 3.7% 395,093 ‐14.4%EBITDA Margin 15.1% 14.0% 15.5%EPS (adjusted for splits) 0.15933 0.15806 0.8% 0.16459 ‐3.2%

Figures in R$ thousands

HighlightsBalance sheet – assets



R$ % R$ % R$ % (A)/(B) (A)/(C)CURRENT ASSETS 9,182,023 67% 9,589,344 67% 9,679,358 68% ‐4% ‐5%Cash & cash equivalents 4,735,833 35% 4,434,759 31% 4,288,962 30% 7% 10%Receivables 2,267,128 17% 2,545,927 18% 2,576,676 18% ‐11% ‐12%Inventories 1,647,138 12% 2,009,254 14% 2,248,834 16% ‐18% ‐27%Other current assets 531,924 4% 599,404 4% 564,886 4% ‐11% ‐6%

LONG TERM ASSETS 436,183 3% 619,206 4% 569,135 4% ‐30% ‐23%Long term securities ‐ 0% 214 0% ‐ 0% ‐100% ‐Deferred taxes 127,848 1% 131,327 1% 108,749 1% ‐3% 18%Other non‐current assets 308,335 2% 487,665 3% 460,386 3% ‐37% ‐33%

FIXED ASSETS 4,016,619 29% 4,052,991 28% 4,041,424 28% ‐1% ‐1%Investment in Subs 224 0% 1,379 0% 1,463 0% ‐84% ‐85%Property, Plant & Equipment 3,066,288 22% 3,264,898 23% 3,255,878 23% ‐6% ‐6%Intangibles 950,107 7% 786,714 6% 784,083 5% 21% 21%

TOTAL ASSETS 13,634,825 100% 14,261,541 100% 14,289,917 100% ‐4% ‐5%

(A) (B) (C) September 2015September 2016 December 2015

HighlightsBalance sheet – liabilities



R$ % R$ % R$ % (A)/(B) (A)/(C)CURRENT LIABILITIES 3,021,444 22% 3,494,850 25% 4,597,696 32% ‐14% ‐34%Social and Labor Liabilities 319,764 2% 191,077 1% 313,073 2% 67% 2%Suppliers 519,466 4% 566,769 4% 671,967 5% ‐8% ‐23%Fiscal and Tax Liabilities 117,928 1% 121,461 1% 151,490 1% ‐3% ‐22%Short Term Debt 866,919 6% 1,284,633 9% 2,107,029 15% ‐33% ‐59%Dividends Payable 84,982 1% 172,484 1% 92,809 1% ‐51% ‐8%Advances from Clients 518,105 4% 486,225 3% 578,720 4% 7% ‐10%Profit Sharring 82,974 1% 143,897 1% 84,861 1% ‐42% ‐2%Derivatives 35,584 0% 1,438 0% 3,107 0% 2375% ‐Other Short Term Liabilities 475,722 3% 526,866 4% 594,640 4% ‐10% ‐20%

LONG TERM LIABILITIES 4,650,027 34% 4,610,631 32% 3,702,273 26% 1% 26%Long Term Debt 3,887,457 29% 3,868,335 27% 2,972,924 21% 0% 31%Other Long Term Liabilities 172,968 1% 159,632 1% 168,922 1% 8% 2%Deferred Taxes 184,930 1% 242,696 2% 230,914 2% ‐24% ‐20%Contingencies Provisions 404,672 3% 339,968 2% 329,513 2% 19% 23%

MINORITIES 111,384 1% 126,680 1% 128,400 1% ‐12% ‐13%STOCKHOLDERS' EQUITY 5,851,970 43% 6,029,380 42% 5,861,548 41% ‐3% 0%TOTAL LIABILITIES 13,634,825 100% 14,261,541 100% 14,289,917 100% ‐4% ‐5%

(A) (B) (C) September 2015September 2016 December 2015

HighlightsCash flow statement



9 Months 9 Months2016 2015

Operating ActivitiesNet Earnings before Taxes 920,499 927,824 Depreciation and Amortization 254,047 234,216 Provisions: 225,457 477,545 Changes in Assets & Liabilities 189,246 (933,684)(Increase) / Reduction of Accounts Receivable 114,662 (599,997)Increase / (Reduction) of Accounts Payable 186,636 311,650 (Increase) / Reduction of Investories 243,869 (250,318)Income Tax and Social Contribution on Net Earnings (168,189) (235,308)Profit Sharing Paid (187,732) (159,711)

Cash Flow from Operating Activities 1,589,249 705,901

Investment ActivitiesFixed Assets (244,842) (352,913)Intagible Assets (5,498) (23,001)Results of sales of fixed assets 7,491 13,202 Asset Rightdowns ‐ ‐ Long term securities bought (171,201) (10,948)Aquisition of Subsidiaries (292,301) (115,552)Cash Aquired from Subsidiaries 4,014 3,729 Cash Flow From Investment Activities (702,337) (485,483)

Financing ActivitiesWorking Capital Financing 1,042,632 1,106,349 Long Term Financing (902,609) (580,619)Interest paid on loans and financing (299,306) (182,272)Treasury Shares 5,101 (8,814)Dividends & Intesrest on Stockholders Equity Paid (524,736) (519,127)Cash Flow From Financing Activities (678,918) (184,483)

Change in Cash Position (78,335) 91,595

Change in Cash Position 129,659 127,530

Cash & Cash EquivalentsBeginning of Period 3,277,115 3,284,275 End of Period 3,406,774 3,411,805

HighlightsBalance sheet – debt and cash position



Cash & Financial instruments 4,915,263 4,813,700 4,630,389 ‐ Current 4,745,649 4,442,278 4,316,136 ‐ Long Term 169,614 371,422 314,253 Debt 4,854,150 100% 5,170,654 100% 5,095,869 100%‐ Current 902,503 19% 1,286,071 25% 2,110,136 41%‐ In Brazilian Reais 611,532 638,990 1,144,511 ‐ In other currencies 290,971 647,081 965,625 ‐ Long Term 3,951,647 81% 3,884,583 75% 2,985,733 59%‐ In Brazilian Reais 2,285,319 1,751,352 1,219,314 ‐ In other currencies 1,666,328 2,133,231 1,766,419 Net Cash (Debt) 61,113 (356,954) (465,480)

September 2016 December 2015 September 2015

WEG Q3 2016 INVESTOR PRESENTATION

Investor Relations

Transcript of WEG Q3 2016 INVESTOR PRESENTATION