2010 fourth quarter shows consistent growth

Transcription

1 Earnings Release 2010 fourth quarter shows consistent growth Gross Revenues 15% higher than Q EBITDA of R$ million, for 17.8% margin Net Income of R$ million, for 11.2% net margin Jaraguá do Sul (SC), February 23 rd, 2011: WEG S.A. (Bovespa: WEGE3, OTC WEGZY), one of the world s largest manufacturers of electric motors and related equipment, announced today its results for the fourth quarter of 2010 (Q4 2010). The following financial and operating data are presented in a consolidated basis, except when otherwise indicated, in thousands of Brazilian Reais (R$) according to the current Brazilian generally accepted accounting principles, as put forward by the Brazilian applicable laws. All growth rates comparisons, except when otherwise indicated, relate to the same period of the previous year. Q Highlights Gross Operating Revenues reached R$ 1,504.6 million in the fourth quarter of 2010, 15.1% higher year-on-year and 6.0% higher quarter-on-quarter. EBITDA reached R$ million, 1.9% lower in relation to Q4 2009, but 7.1% higher over the previous quarter. EBITDA margin reached 17.8%. Net Income reached R$ million (net margin of 11.2%) in Q4 2010, 3.2% higher year-on-year and practically unchanged quarter-on-quarter. Investments on fixed assets amounted to R$ 233 million in During this quarter obtained debt facilities relating to the financing of investments in new plant in India from IFC and BNDES At the end of the quarter we announced the agreement for the acquisition of Equisul Indústria e Comércio Ltda., a Brazilian developer and manufacturer of uninterruptible power supply (UPS) systems. Main Results Q Q Growth % Q Growth % Growth % Gross Operating Revenue 1,504,610 1,419, % 1,306, % 5,282,737 5,110, % Domestic Market 964, , % 871, % 3,503,934 3,371, % External Markets 540, , % 435, % 1,778,803 1,738, % External Markets in US$ 315, , % 250, % 1,015, , % Net Operating Revenue 1,258,429 1,188, % 1,076, % 4,391,973 4,210, % Gross Operating Profit 391, , % 345, % 1,386,952 1,356, % Gross Margin 31.1% 31.7% 32.1% 31.6% 32.2% Quarterly Net Income 141, , % 137, % 519, , % Net Margin 11.2% 12.0% 12.7% 11.8% 13.1% EBITDA 224, , % 228, % 789, , % EBITDA Margin 17.8% 17.6% 21.2% 18.0% 19.9% Figures in R$ Thousands Conference Calls In Portuguese In English February 24th, Thursday - 10 AM (Brazil) February 24th, Thursday 11 AM (Brazil) - from Brazil: (11) from Brazil: (11) Code: WEG - from USA: other countries: Code: WEG

2 Comments from Laurence Beltrão Gomes, WEG s Investor Relations Officer "The year 2010 was marked by the recovery of economic activity, which already shows consistent positive signs in all our business segments and units. WEG offers a broad and diversified product portfolio and operates in a wide variety of markets and end customers. We always stress the importance that the analysis of WEG s results considers the diversification of our products and markets from the point of view of the dynamics of each business or segment cycle. In some cases we have shorter business cycles, primarily those involving serial production, such as the electric motors sold as components for white goods, for example. In other cases, such as in power generation systems, the cycle is considerably longer as they involve engineered products that are specifically designed for each application. This diversification is positive as it protects us from the cyclical swings in demand from each of the various markets. The recovery of the revenue growth, of 15% in 4Q10 in comparison to 4T0*, combined with the evolution of rates of revenue growth over the quarters of 2010, shows that we regained the pace of growth, even in an environment of great competition caused by the entrance of new players (mainly due to the fact that their domestic markets, U.S. and Europe, continue be weak), by increased imports and the appreciation of the Brazilian currency, which impacts the competitiveness of Brazilian-made products. Nevertheless, we have noticed significant changes in our markets, with major impacts on our business. In a short period we have seen the emergence of very clear trends, such as: The emergence of new concepts of generation, distribution and consumption of energy, using more advanced technologies, commonly referred to as smart grid; The harmonization of energy efficiency standards for electric motors, already regulated in 15 countries from various regions, and that has been fostering the replacement market and demand for high quality products; In Brazil, a new renewable energy generation segment, wind generation, has emerged from the auctions held by the federal government. For WEG, which is already a prominent player in providing solutions for energy generation from biomass and small hydropower, wind power emerges as an additional opportunity. Throughout 2010 we have announced acquisitions, both in the Brazilian market and abroad, in line with a characteristic feature of the WEG culture: the willingness to invest to capitalize on the opportunities. Brazil s infrastructure spending should continue at an accelerated pace over the coming years. Events like the Olympic Games and Soccer World Cup, as well as the Growth Acceleration Plans (PAC) 1 and 2 should continue to generate additional business. The exploration the Brazilian pre-salt oil is yet another clear source of opportunities. Likewise, global economic growth, largely dependent on the performance of emerging economies, should continue to increase demand for investment in infrastructure. These trends make us confident that WEG, which has built over the years one of the most comprehensive industrial structures in the sector and that has shown, at various moments, the ability to expand production capacity in line with the market demand, can take advantage of this consistent investment cycle to grow in a robust and sustainable way in the coming years." 2 WEG S.A Fourth Quarter Results

3 Economic Activity and Industrial Production The year 2010 was marked by a gradual recovery in global economic activity after the severe crisis that affected all segments of the market and virtually all regions of the globe in This recovery was perceived differently in different markets Overall, emerging markets were more dynamic and the ones that have contributed to the growth of world economy. The more mature and developed economies continued to adjust the imbalances accumulated and searching for regain new growth and employment dynamics. In this context, we note that According to the World Economic Outlook report from International Monetary Fund, product growth of the emerging and developing economies should reach 7.1% in 2010, compared to only 2.7% for the developed economies; In Brazil, GDP showed strong growth in 2010, reaching 7.5% expansion for the first three quarters of the year over the same period previous year. The industrial sector performance, showing growth of 10.2% in the period, and the expansion in gross fixed capital formation, of 20.2%, are particularly noteworthy. The analysis of industrial activity in Brazil, however, should consider some important aspects. The growth rates mentioned above are averages for various industrial segments, which have very different behaviors: some already growing fast, others still in the early stages of recovery. This is important for interpreting the results of WEG, since we operate in different market niches, each with different dynamics. Industrial Indicators According to Categories of Use December/2010 Change (%) Categories of Use Acummulated Month/Month Monthly On Year 12 months Capital Goods (0.50) Intermediary Goods Consumer Goods (0.90) Durable Goods (0.60) Semi-durable and non-durable (0.40) General Industry (0.70) Source: IBGE, Research office, Industry Coordination (*) Series with seasonal adjustments Brazilian Institute of Geography and Statistics (IBGE in Portuguese) data showed 10.5% growth in industrial production in 2010 compared to The numbers according to categories of use, however, show variations ranging from 5.2% growth in consumer and semi/nondurable goods up 20.8% growth in the production of capital goods; Likewise, the Brazilian Association of Electrical and Electronics Industry (ABINEE) preliminary data points to 11% growth in revenues for the electro-electronic sector in Brazil over the previous year. Again, this growth was composed of very different performances from each segment. In the most areas that are more closely related to WEG, performance was positive in Industrial Equipment (22% growth) and Generation, Transmission and Distribution (14% growth). Industrial Automation segment, however, showed growth of only 7%, below the average headline growth. In 2010, the Brazilian industrial sector continued to face the negative effects of currency appreciation, which reduces the competitiveness of Brazilian products abroad and promotes the import of manufactured goods. The decision of U.S. authorities to implement measures to stimulate its economy based on policies that have produced 3 WEG S.A Fourth Quarter Results

4 historically low interest rates, has produced, as an important side-effect, the depreciation of U.S. dollar against virtually all major world currencies. In Brazil, the relatively better economic performance, the significant inflows of foreign funds for fixed income, portfolio and direct investments, and the relevant weight of primary products in total exports, have caused an even more intense strengthening of currency. Convergence of Accounting Standards The financial statements for the year ended December 31, 2010 are first prepared and presented by the Company in accordance with rules established by the Comitê de Pronunciamentos Contábeis (accounting pronouncements committee or CPC) and IFRS. The opening balance considered was the one at 1st of January 2009, the date of transition to the CPCs. In all periods, including the year ended December 31, 2009, the Company prepared its financial statements in accordance with accounting policies adopted in Brazil (BRGAAP) in force hitherto. The main differences between the accounting practices previously adopted in Brazil and IFRS, including the reconciliation of shareholders' equity and comprehensive income, are described in the footnotes to the complete financial statements released today. The main adjustments made by the Company to restate the opening balance sheet after adopting these new accounting standards, relate to the determination of fair value of fixed assets and use of that value as the assigned cost of these assets on the date of transition. As a result, the Company revised the estimated useful lives of fixed assets and changed its annual depreciation rates. The net impact on depreciation expense, was, however, of little relevance. The main effects of these adjustments on the accounts statements can be seen below: Reconciliation of Net Worth as of 12/31/2008 Net Worth Consolidated balance as of 12/31/2008 according to BRGAAP 2,178,580 Adjustments related to the transition to IFRS: - Participation of non-controlling shareholders of subsidiaries 42,341 - Net assigned cost 865,125 - Economic depreciation for comparison purposes (Initial adoption adjustments) (54,016) - Proposed additional dividend 87,085 Consolidated balance as of 01/01/2009 adjusted to IFRS 3,119,115 Similarly, we are refilling the quarterly financial statements for The differences of the restated values and the previous ones, calculated under the previous accounting standards, are presented in the following tables. We stress, once again, thatthe impacts on the final results were of little relevance. Main figures according to IFRS Q Q Q Q Q Q Q Q Gross Operating Revenue 1,504,610 1,419,160 1,227,421 1,131,546 1,306,913 1,282,506 1,250,193 1,270,984 Domestic Market 964, , , , , , , ,352 External Markets 540, , , , , , , ,632 External Markets in US$ 315, , , , , , , ,726 Net Operating Revenue 1,258,429 1,188,622 1,013, ,907 1,076,969 1,055,465 1,029,945 1,048,241 Gross Operating Profit 391, , , , , , , ,913 Gross Margin 31.1% 31.7% 30.6% 33.1% 32.1% 38.2% 28.7% 29.9% Quarterly Net Income 141, , , , , , , ,666 Net Margin 11.2% 12.0% 11.5% 12.8% 12.7% 15.2% 12.6% 11.7% EBITDA 224, , , , , , , ,112 EBITDA Margin 17.8% 17.6% 17.2% 19.5% 21.2% 24.1% 16.8% 17.3% Figures in R$ Thousands 4 WEG S.A Fourth Quarter Results

5 Main figures according to BR GAAP Q Q Q Q Q Q Q Q Gross Operating Revenue 1,504,609 1,419,161 1,227,421 1,131,546 1,306,913 1,282,506 1,250,193 1,270,984 Domestic Market 964, , , , , , , ,352 External Markets 540, , , , , , , ,632 External Markets in US$ 315, , , , , , , ,726 Net Operating Revenue 1,258,429 1,188,622 1,013, ,907 1,076,969 1,055,465 1,029,945 1,048,241 Gross Operating Profit 394, , , , , , , ,954 Gross Margin 31.3% 31.4% 30.5% 33.0% 32.0% 38.1% 28.6% 29.8% Quarterly Net Income 143, , , , , , , ,193 Net Margin 11.4% 11.9% 11.5% 12.8% 12.7% 15.2% 12.6% 11.7% EBITDA 224, , , , , , , ,112 EBITDA Margin 17.8% 17.6% 17.2% 19.5% 21.2% 24.1% 16.8% 17.3% Figures in R$ Thousands Receita Operacional Bruta e Líquida In the fourth quarter of 2010 (4Q10), Gross Operating Revenues reached R$ 1,504.6 million, 15.1% higher than the fourth quarter of 2009 (4Q09) and 6.0% higher than the third quarter of 2010 (3Q10). The expansion of 15.1% in Gross Operating Revenues was net result of two events: Increase of 15.7% as result of the changes in mix of products sold, volumes and selling prices, the consolidation of revenues from the business acquired throughout this year; and, Decline of 0.6% due to the 1.5% appreciation of the average Brazilian Real / U.S. Dollar exchange rate in the 4Q10 compared to the same period of According to the destination market, 4Q10 Gross Operating Revenues breaks down as follows: Domestic Market: R$ million, representing 64% of Gross Operating Revenues, for a 10.7increase in relation to 4Q09 and 6.3% compared to 3Q10; External Markets: R$ million, representing 36% of Gross Operating Revenues. The comparison in Brazilian Reais is 24.1% higher than the 4Q09, and 5.5% higher quarter over quarter. Considering gross revenues measured in U.S. Dollars, converted by using average exchange rates, shows increases of 25.9% when compared to the 4Q09 and of 5.8% in relation to the 3Q10. Gross Revenues per Market (R$ million) External Market Domestic Market % 35% 31% 33% % 32% % 36% 63% 65% 69% 67% 71% 68% 64% 64% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q WEG S.A Fourth Quarter Results

6 Evolution and Distribution of Consolidated Gross Revenues per Geographic Market (R$ Million) Q Q Change Q Change Gross Operating Revenues 1, , % 1, % - Domestic Market % % - External Markets % % In US$ % % North America 31% 36% -5 pp 33% -2 pp South and Central America 17% 15% 2 pp 15% 2 pp Europe 22% 22% 1 pp 24% -1 pp Africa 19% 17% 2 pp 5% 14 pp Australasia 10% 10% 0 pp 23% -13 pp Distribution of Consolidated Gross Revenues per Business Area ingles Q Q % Q % Electro-electronic Industrial Equipments 54.2% 59.8% -5,6 pp 47.4% 6,7 pp Energy Generation, Transmission and Distribution 25.4% 21.7% 3,7 pp 31.4% -6 pp Electric Motors for Domestic Use 13.6% 12.0% 1,7 pp 14.8% -1,2 pp Paints and Varnishes 6.8% 6.6% 0,2 pp 6.4% 0,4 pp Industrial Electrical- Electronic Equipment Another change introduced by the adoption of IFRS was the disclosure of segment information. The segmentation traditionally used by WEG in its communication with the market considers the criterion of market dynamics and groups revenue in business areas (electro-electronic industrial equipment, GTD, motors for domestic use and paints & varnishes). This segmentation is not the same used by WEG internally, which considers industrial aspects divides the company into five business units: motors, automation, energy, transmission & distribution and paints & varnishes. In order to preserve the historical information, we will continue to inform in our traditional format of business areas. There reconciliation of the two formats of information can be seen below: Business Area Business Unit Electroelectronic Industrial Equipments Motors + Automation Generation, Transmission and Distribution Energy + T&D + Automation Electric Motors for Domestic Use Motors Paints and Varnishes Paints and Varnishes The industrial electrical-electronic equipment area includes low and medium voltage electric motors, drives & controls, industrial automation equipment and services, and maintenance services and parts. We compete in all the major world markets with our products and solutions. Electric motors and other related equipment find applications in practically all industrial segments, in equipment such as compressors, pumps and fans, for example. The performance of Brazilian industrial production, keeping the consistent expansion pace, and the maintenance of BNDES Programa de Sustentação do Investimento (investment support program or PSI), has continued to favor investments in increased production capacity, and offer us interesting business opportunities. 6 WEG S.A Fourth Quarter Results

7 Equipment for Generation, Transmission and Distribution Motors for Domestic Use Paints and Varnishes We note that the expansion investment cycle, most clearly seen in the consumer goods and general manufacturing industries, has started to given consistent indications in process industries as well, specifically for the production of basic materials. This is important for the WEG, as it usually means growth in demand for more elaborate and complex products and systems, with higher value content. In the external markets where WEG operates we find a great diversity of economic environments, some as favorable as the Brazilian for the economic activity recovery and the resumption of investment. But even in less dynamic markets, we have achieved good performance by gaining additional the market share and by introducing new product lines. This business area includes the following products and services: generators for hydro and thermal power plants, water turbines, transformers, substations, control panels, and system integration services. We have made investments in production capacity, as our new units of transformers in Mexico and high voltage motors in India, to expand our presence beyond the Brazilian market, where we have strong significant presence. This business area is characterized by the long business cycle. The longer investments time frame, which slows down the investment decision process, and the relatively long lead times for design and manufacturing of such equipment, causes variations in demand being reflected in revenues in a relatively slower and diluted in time way. As such, this long cycle feature has allowed for much of 2009 we continued to display revenue growth, fulfilling orders from our backlog, even with the drop in new orders intake. The lower of demand was only reflected as decreasing revenue growth for this business area in Just as we noted earlier the resumption of business activity for more complex products in the industrial equipment area, focused the process industries, the recovery in GTD is increasingly apparent. The Transmission & Distribution (T & D) segment, which became an autonomous business unit in early 2010, has managed, through diversification of clients and markets, to obtain good performance. In Brazil we have expanded our presence in the area of substations, both for industrial customers and for utility companies. Outside of Brazil, we continue to execute our business plan in North America, expanding production in our Mexican factories and increasing market penetration. In the segment of power generation segment, where we have a very clear focus on renewable energy and the Brazilian market, the recovery has occurred more slowly and led by smaller sized equipment. The expectations, however, are positive for both our traditional businesses in the small hydropower and biomass, and for new opportunities presented by the emerging wind generation business. In this business area, our operations are mainly focused in Brazil, where we hold a significant share in the market of single-phase motors for durable consumer goods, such as washing machines, air conditioners, water pumps, among others. This business area has a characteristically shorter business cycle, i.e., changes in consumer demand are quickly transferred by production chain and adjustments are made rather quickly. After the fast recovery during the second half of 2009, the sales performance of consumer durables has maintained a more moderate growth. The economic conditions are favorable, with growth of employment and disposable income and maintaining the supply of consumer credit. Oscillations of production tend to track the seasonal nature of retail promotional calendar. In this area, including liquid paints, powder paints and electro-insulating varnishes, we have very clear focus on industrial applications in Brazil. 7 WEG S.A Fourth Quarter Results

8 Cost of Goods Sold Costs of Raw Materials This is the area with greater diversity of markets and customers as we have adopted the strategy of cross-selling to customers from other business areas, always with high value added products. The target markets range from the shipbuilding industry to the manufacturers of white goods. We seek to maximize the scale of production and our efforts to develop new products and new segments. Operating Results (R$ Thousands) (EBITDA according to methodology established by CVM s Ofício Circular 01/07) Q Q Change Q Change Net Operating Revenues 1,258,429 1,188, % 1,076, % Cost of Goods Sold (867,129) (811,395) 6.9% (731,784) 18.5% Gross Operating Profit 391, , % 345, % EBITDA Margin 31.1% 31.7% 32.1% (-) Selling Expenses (119,335) (121,602) -1.9% (103,326) 15.5% (-) General & Administrative (68,677) (71,111) -3.4% (45,771) 50.0% (-) Profit Sharing (27,209) (22,242) 22.3% (16,594) 64.0% Result from Activities 176, , % 179, % (+) Depreciation & Amortization 48,069 46, % 49, % EBITDA 224, , % 228, % EBITDA Margin 17.8% 17.6% 21.2% Selling, General & Administrative Expenses Cost of Goods Sold (COGS) totaled R$ million in 4Q10, 18.5% higher year on year and 6.9% higher quarter on quarter. Gross margin was 31.1%, decreasing one percentage point compared to 4Q09 and 0.6 percentage point in relation to the previous quarter. During 2010 the changes of mix of products sold from quarter to quarter was the main explanatory factor for the changes in gross margin. This factor was still presenting during the 4Q10, even if its impact was not as pronounced as it has been in the previous quarters. This is a natural evolution of the recovery of the markets: it starts on the short cycle product lines, which typically command lower unitary gross margins, and, through time, reaches the long cycle products, which normally are more customized and have greater value added and, as such, tend to have better margins. Furthermore, our efforts to control costs, the continuous improvement program and the adequacy and gradual recovery in capacity utilization, continued to deliver good results, with greater dilution of fixed costs and productivity gains. The average prices for copper at the spot market of the London Metal Exchange (LME) were up by 30% in relation to average of the 4Q09 and by 19% in relation to average of the 3Q10. Steel prices in the international market, according to the index CRUspiGlobal, increased 17% over the 4Q09 and showed relative stability when compared to the 3Q10. Consolidated selling, general and administrative expenses (SG&A) represented 14.9% of Net Operating Revenues in the 4Q10, 1.1 percentage points higher in relation to the 4Q09 and 1.3% lower in relation to the 3Q10. In absolute terms operating expenses were up by 26% over 4Q10 and down by 2.4% over the previous quarter. 8 WEG S.A Fourth Quarter Results

9 Main impacts on EBITDA 228,5 205,7 8,0 Volumes, Aumento Prices & de volumes Product Mix & preços e Changes mix de produtos FX Impact on Gross Revenues Impacto Cambial sobre receita bruta 16,2 Deduction on Gross Revenues 139,4 COGS CPV (ex depreciação) 14,8 Selling Expenses 21,1 General and Administrative Expenses 10,6 224,1 EBITDA Q4 09 EBITDA Q4 10 EBITDA Net Financial Results Income Tax and Social Contribution Net Income As a result of the previously mentioned effects, EBITDA in the 4Q10 (calculated in accordance to the methodology established by the CVM Ofício Circular 01/07) reached R$ million, a decrease of 1.9% over 4Q09 and an increase of 7.1% in relation to the previous quarter. EBITDA margin stood at 17.8%, 3.5 percentage points lower yearon-year and 0.2 percentage point higher quarter on quarter. Financial income reached R$ 97.7 million during the 4Q10 (R$ million during 4Q09 and R$ 92.0 million during 3Q10). Financial Expenses, net of interest on stockholders capital declared in the period, reached R$ 61.5 million (R$ 71.8 million during the 4Q09 and R$ 51.9 million during the 3Q10). In this quarter, Net Financial Results were positive in R$ 36.2 million (positive in R$ 31.6 million during the 4Q09 and R$ 40.2 million during the 3Q10). Provision for Income Tax and Social Contribution on Net Income for the 4Q10 reached R$ 16.5 million (R$ 61.8 million on 4Q09 and R$ 50.4 million in 3Q10). Additionally, we also accounted for R$ 39.7 million in Deferred Income Taxes. As a result of the previously mentioned effects, Net Earnings during the 4Q10 amounted to R$ million, 3.2% higher year-on-year and practically at the same level quarter on quarter. Net margin for the quarter stood at 11.2%. 9 WEG S.A Fourth Quarter Results

10 Net Cash Debt and Cash Position (R$ Thousands) December 2010 December 2009 CASH & EQUIVALENT 2,552,996 2,127,117 - Current 2,552,996 2,127,117 DEBT 2,418,943 1,872,533 - Current 1,018, ,885 - Long Term 1,399, ,648 NET CASH (DEBT) 134, ,584 On December 31st, 2010, cash and cash equivalents totaled R$ 2,553.0 million and gross financial debt amounted to R$ 2,418.9 million, resulting in a net cash position of R$ million (net cash of R$ million on December 31st, 2009). Cash funds are invested mostly in Brazilian currency denominated instruments, such as certificates of deposit (CBD), at interbank deposit rates, in first-tier banks. According to the maturity of the lines, gross debt is divided in: Short-term debt, to the total of R$ 1,019.0 million (42% of total debt), represented by the current portion of short-term debt with the Brazilian National Development Bank (BNDES) and other development agencies, largely denominated in Brazilian Reais, and by trade finance related debt denominated in currencies other than the Brazilian Real. Long-term debt, to the total of R$ 1,399.9 million (58% of total debt), mainly represented by loans contracted with BNDES and other development institutions, mostly denominated in Brazilian Reais, and by the long-term portion of working capital financing of overseas subsidiaries, denominated in their respective domestic currencies. According to the currency of denomination, the breakdown of total debt is as follows: Investments In Brazilian Reais, totaling R$ million (accounting for 70% of total debt) represented mainly by loans with BNDES and development agencies. The weighted average cost of debt denominated in Brazilian Reais is of aproximateely 6.4% per year. Floating rate contracts are indexed mainly to the Brazilian long term interest rate TLJP. In other currencies, totaling R$ million (accounting for 30% of total debt) mainly represented by trade finance operations (Advances on Foreign Exchange Contracts or ACC) and working capital financing contracted by overseas subsidiaries in their respective domestic currencies. Investments in fixed assets for modernization and expansion of production capacity totaled R$ in 2010, 60% of which allocated to industrial complexes and other facilities in Brazil and 40% to production units abroad. We highlight the investments in the commercial motors plant in Linhares, ES (Northeast of Brazil) and the medium voltage motors and generators plant in Hosur, India, both of which have recently started operations. 10 WEG S.A Fourth Quarter Results

11 Investments in Fixed Assets (R$ million) Outside Brazil Brazil 91,9 20,1 71,8 63,5 15,7 47,8 32,7 13,7 73,8 61,4 38,2 34,2 43,7 13,8 19,1 24,3 27,2 30,1 53,7 44,1 13,0 2,0 40,7 42,1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Share Price Performance The common shares issued by WEG, negotiated at BM&F Bovespa under the ticker WEGE3, closed on the last trading section of the 2010 quoted at R$ 21.80, an 18.8% nominal increase in share price for the year. Considering dividends and interest on stockholders equity declared during the period, the total return reached 22.4%. The average daily traded volume during the 4Q10 reached R$ 10.8 million, 72% above the average of the 4Q09. During the quarter, 53,835 trades took place (33,314 during the 4Q09) involving 29.5 million shares (21.2 million shares during 4Q09), to a total amount of R$ million (R$ million during 4Q09). Share Price Performance and Traded Volume 30,00 Shares Traded (thousands) WEGE3 25, WEGE3 share prices 20,00 15,00 10,00 5, TRaded shares (thousands) 0,00 0 Total return (adjusted by dividends)) 11 WEG S.A Fourth Quarter Results

12 Dividends Management will propose during the annual General Shareholders Meeting to allocate, as compensation to shareholders on the results for the year 2010, the amount of R$ million for the payment of dividends and interest on stockholders equity, which corresponds to approximately R$ per share before tax deductions. This amount represents 59% of net income before statutory adjustments. From August 11 th onwards, we paid the dividends that were declared during the first half of 2010, as below: On March 23 rd, as interest on stockholders equity, to the shareholders of record on that date, to the total amount of R$ 31.0 million On June 29 th, as interest on stockholders equity, to the shareholders of record on that date, to the total amount of R$ 36.5 million On July 27 th, as intermediate dividends related to the first half of 2010, to the shareholders of record on that date, to the total amount of R$ 66.4 million. The dividends referring to the second half of 2010, as described below according to the date of record, will be paid from March 16 th, 2011 onwards: On September 21st, as interest on stockholders equity, to the shareholders of record on that date, to the total amount of R$ 34.3 million; On December 21st, as interest on stockholders equity, to the shareholders of record on that date, to the total amount of R$ 36.5 million; On February 23 rd, 2011, as complementary dividends referring to the results of 2010, to the total amount of R$ million. Event Board Meeting Date Payment Date Gross amount per share Net amount per share Interest on Stockholders Equity 3/23/2010 8/11/2010 R$ R$ Interest on Stockholders Equity 6/29/2010 8/11/2010 R$ R$ Dividends 7/27/2010 8/11/2010 R$ R$ Interest on Stockholders Equity 9/21/2010 3/16/2011 R$ R$ Interest on Stockholders Equity 12/21/2010 3/16/2011 R$ R$ Dividends 2/22/2011 3/16/2011 R$ R$ Total R$ R$ Acquisition of Equisul On December 6, 2010 we announced the signing of an agreement to acquire Equisul Indústria e Comércio Ltda., a company specializing in developing and manufacturing uninterruptible power supply (UPS) systems and products such as rectifiers, chargers, battery banks and inverters. Equisul manufacturing plant is located in São José, state of Santa Catarina, Brazil, employs around 50 people and its 2010 operating revenues should reach approximately R$ 15 million. The company was founded in 1995 and manufactured small and medium sized systems up until 2004, when it expanded its product line into large three-phase systems, with the addition of GPL Eletroeletrônica S.A., a traditional player in this segment. With the acquisition of Equisul, WEG increases its portfolio of products and complete solutions for energy systems, incorporating solutions known as critical power, incorporating solutions known as critical power, equipments with a wide range of applications in segments like information technology, financial and industrial critical process like, for example, in oil and gas exploration platforms, where a production interruption is potentially very costly. With the increasing automation of industrial processes, the technological and commercial synergies of the UPS area with our other businesses are increasingly important. 12 WEG S.A Fourth Quarter Results

13 WEG listed as one of BCG s Global Challengers WEG was highlighted in The Boston Consulting Group (BCG) report as one of the thirteen Brazilian representatives in the list 2011 BCG Global Challengers. The USA based consulting firm listed companies that, due to the rapid annual growth, are challenging the established rivals in the markets they serve. # # # 13 WEG S.A Fourth Quarter Results

14 Áudio Conferências WEG will hold conference calls, when Management will present the results. Conference in English: Date: February 24, Thursday Schedule: 09 AM EST (NYC) 11 AM BRST (Brasilia) 02 PM BST (London) Connection Numbers: Calling from Brazil: (11) Calling from USA: Calling from Other Countries: Code: WEG Conference in Portuguese: Date: February 24, Thursday Schedule: 10AM BRST (Brasilia) Connection Numbers: Calling from Brazil: (11) Code: WEG The presentation will be available in the Investor Relations page of WEG website Please call approximately 10 minutes before the call is scheduled to start. The information contained in this report relating to the Company business perspectives, projections and results and Company growing potential should be considered as only forecasts and were based on the management expectations relating to the future of the Company. These expectations are highly influenced by the market conditions and the general economic performance of the country and of the foreign markets which may change suddenly. 14 WEG S.A Fourth Quarter Results

15 Annex I Consolidated Income Statement - Quarterly in R$ thousands 4th Quarter 3rd Quarter 4th Quarter Changes % Q4 10 Q4 10 R$ AV% R$ AV% R$ AV% Q3 10 Q4 09 GROSS REVENUES 1,504, % 1,419, % 1,306, % 6.0% 15.1% Taxes and Deductions -246,181-20% -230,538-19% -229,944-21% 6.8% 7.1% NET REVENUES 1,258, % 1,188, % 1,076, % 5.9% 16.8% COST OF GOODS SOLD -867, % -811, % -731, % 6.9% 18.5% GROSS PROFIT 391, % 377, % 345, % 3.7% 13.4% Sales Expenses -119, % -121, % -103, % -1.9% 15.5% Administrative Expenses -68, % -71, % -45, % -3.4% 50.0% Financial Revenues 97, % 92, % 103, % 6.1% -5.5% Financial Expenses -98, % -86, % -83, % 13.7% 17.4% Other Operating Income 3, % 5, % -2, % -29.1% n.m Other Operating Expenses -38, % -23, % -30, % 68.1% 26.2% Earnings from Subs (Equity Method) % % 1, % -16.6% -66.0% EARNINGS BEFORE TAXES 168, % 173, % 183, % -2.7% -8.4% Participations -2, % % -1, % 154.2% 89.9% Income Taxes & Contributions -16, % -50, % -61, % -67.3% -73.3% Cash Dividends Reversal 36, % 34, % 11, % 6.4% 211.2% Deferred Taxes -39, % -6, % 8, % 471.2% n.m Minorities -5, % -7, % -3, % -27.6% 39.6% NET EARNINGS 141, % 142, % 137, % -0.4% 3.2% EBITDA 224, % 209, % 228, % 7.1% -1.9% 15 WEG S.A Fourth Quarter Results

16 Annex II Consolidated Income Statement Figures in R$ Thousands 12 Months 12 Months R$ AV% R$ AV% 2009 GROSS REVENUES % % 3,4% Taxes and Deductions % % -1,0% NET REVENUES % % 4,3% COST OF GOODS SOLD % % 5,3% GROSS PROFIT % % 2,3% Selling Expenses ,9% ,7% 6,4% Administrative Expenses ,0% ,4% 16,6% Financial Revenues % % -9,1% Financial Expenses % % -2,8% Other Operating Income % % 62,2% Other Operating Expenses % % -8,1% Earnings from Subs (Equity Method) % % -67,6% EARNINGS BEFORE TAXES % % -7,0% Participations % % -9,2% Income Taxes & Contributions % % -31,4% Cash Dividends Reversal % % 35,3% Deferred Taxes % % n.m Minorities % % 47,5% NET EARNINGS % % -5,6% EBITDA % % -5,8% 16 WEG S.A Fourth Quarter Results

17 Annex III Consolidated Balance Sheet Figures in R$ Thousands December 2010 December 2009 R$ AV% R$ AV% 13 4 CURRENT ASSETS 4,794,009 64% 3,973,158 60% Cash & Cash Equivalents 2,552,996 34% 2,127,117 32% Receivables 1,044,712 14% 910,136 14% Inventories 1,008,952 13% 758,116 12% Other Current Assets 187,349 2% 177,789 3% LONG TERM ASSETS 136,984 2% 193,814 3% Lawsuits Receivables 21,697 0% 30,739 0% Deferred Taxes 78,810 1% 101,739 2% Recoverable Taxes 31,661 0% 44,499 1% Other Long Term Assets 4,816 0% 16,837 0% FIXED ASSETS 2,580,171 34% 2,416,094 37% Investment in Subs 601 0% 16,041 0% Property, Plant & Equipment 2,395,575 32% 2,271,193 35% Intangibles 183,995 2% 128,860 2% TOTAL ASSETS 7,511, % 6,583, % CURRENT LIABILITIES 1,938,803 26% 1,698,561 26% Suppliers 242,300 3% 188,779 3% Taxes & Contributions 214,001 3% 165,331 3% Short Term Debt 1,018,995 14% 895,885 14% Dividends Payable 63,440 1% 36,849 1% Advances from Clients 271,949 4% 254,864 4% Profit Sharing 23,583 0% 54,088 1% Other Current Liabilities 104,535 1% 102,765 2% LONG TERM LIABILITIES 2,028,525 27% 1,557,219 24% Long Term Debt 1,399,948 19% 976,648 15% Provisions 126,384 2% 99,434 2% Other Long Term Liabilities 502,193 7% 481,137 7% MINORITIES 89,229 1% 27,547 0% NET WORTH 3,454,607 46% 3,299,739 50% TOTAL LIABILITIES 7,511, % 6,583, % 17 WEG S.A Fourth Quarter Results

18 Annex IV Consolidated Cash Flow Statement Figures in R$ Thousands 12 Months 12 Months Operating Activities Net Earnings before Taxes 729, ,525 Depreciation and Amortization 183, ,130 Earnings from Subs (Equity Method) (2,090) (6,449) Provisions: Profit Sharing 84,859 76,640 Other Provisions 34,737 12,974 (Increase) / Reduction of Accounts Receivable (96,268) 396,686 Increase / (Reduction) of Accounts Payable 196,623 (384,135) (Increase) / Reduction of Investories (254,945) 350,557 Income Tax and Social Contribution on Net Earnings (152,808) (152,945) Profit Sharing Paid (109,470) (72,251) Cash Flow from Operating Activities 614,593 1,150,732 Investment Activities Investments - - Fixed Assets (293,012) (226,248) Intagible Assets (84,357) (40,762) Asset Write Downs 18,929 7,997 Incorporation of Shares - Trafo Equip.Eletricos S.A. - 57,224 Accumulated Conversion Adjustment (34,008) (121,714) Cash Flow From Investment Activities (392,449) (323,503) Financing Activities Working Capital Financing 100,548 (445,286) Long Term Financing 442, ,602 Dividends & Intesrest on Stockholders Equity Paid (338,872) (260,906) Cash Flow From Financing Activities 203,735 (549,590) Change in Cash Position 425, ,639 Cash & Cash Equivalents Beginning of Period 2,127,117 1,849,477 End of Period 2,552,996 2,127, WEG S.A Fourth Quarter Results