WEG S A : 3Q20 Earnings Release

Jaraguá do Sul, Brazil, October 21, 2020

Highlights

Net Operating Revenue (NOR) were R$ 4,801.3 million in 3Q20, 43.3% higher than 3Q19 and 18.1% higher than 2Q20;

EBITDA(1) reached R$ 935.3 million, 61.5% higher than 3Q19 and 27.7% higher than 2Q20, while EBITDA margin was 19.5%, 2.2 p.p. higher than 3Q19 and 1.5 p.p. higher than the previous quarter;

Return on Invested Capital (ROIC) reached 23.3% in 3Q20, up 4.1 p.p. from 3Q19 and up 1.7 p.p. from 2Q20.

Message from the Management

This quarter was marked by the resumption of demand for short-cycle equipment, both in Brazil, where we observed a significant improvement in all business units, and abroad, where the recovery, although slower, has remained constant since April/May, worst months of the pandemic's impact on our business. This recovery, combined with the maintenance of the good performance of the long-cycle businesses and our efforts to control costs and operational efficiency, were determining factors for the good results presented in this quarter.

Demand improvement for short-cycle equipment occurred in all business areas, though at different pace between them. The Commercial and Appliance Motors, Paints and Varnishes and Distributed Solar Generation businesses (included in GTD), linked to the Brazilian market, showed rapid recovery, reaching volumes at the end of the quarter similar to pre-pandemic levels. Businesses in the Industrial Electro-Electronic Equipment area showed a good evolution compared to the previous quarter, although slowly in the external market when compared to domestic market.

Another highlight was the performance of our long-cycle businesses, which continue to contribute positively to the result, as a result of the important order book built both in Brazil and abroad. Projects for relevant industries such as mining, pulp & paper, water & wastewater and oil & gas, as well as in the Transmission & Distribution (T&D) area, were mainly responsible for the good performance in the quarter.

Despite the improvement in business dynamics this quarter, we reinforce that the pandemic caused by COVID-19 is yet to be overcome. Uncertainties regarding the global economic recovery still remain, and future impacts in different industry segments can reflect on our business in the medium and long term, especially in projects related to long-cycle equipment.

Table 1 Main Highlights

	3Q20	2Q20	%	3Q19	%	09M20	09M19	%
Return on Invested Capital	23.3%	21.6%	1.7 pp	19.2%	4.1 pp	23.3%	19.2%	4.1 pp
Net Operating Revenue	4,801,260	4,063,943	18.1%	3,349,604	43.3%	12,579,639	9,568,588	31.5%
Domestic Market	2,085,192	1,604,279	30.0%	1,378,136	51.3%	5,381,871	3,919,960	37.3%
External Markets	2,716,068	2,459,664	10.4%	1,971,468	37.8%	7,197,768	5,648,628	27.4%
External Markets in US$	505,040	457,014	10.5%	496,584	1.7%	1,413,813	1,451,054	-2.6%
Net Income	644,246	514,375	25.2%	418,243	54.0%	1,598,644	1,114,094	43.5%
Net Margin	13.4%	12.7%	0.7 pp	12.5%	0.9 pp	12.7%	11.6%	1.1 pp
EBITDA	935,332	732,222	27.7%	579,073	61.5%	2,286,668	1,578,076	44.9%
EBITDA Margin	19.5%	18.0%	1.5 pp	17.3%	2.2 pp	18.2%	16.5%	1.7 pp
Earnings per Share (EPS)	0.30711	0.24521	25.2%	0.19939	54.0%	0.76209	0.53116	43.5%

(1) Earnings before Interest, Taxes, Depreciation and Amortization

The following financial and operating data are presented on a consolidated basis, except when otherwise indicated, in thousands of Brazilian Reais (R$) according to accounting practices adopted in Brazil, including Brazilian Corporate Law in convergence with IFRS international norms. Except when otherwise indicated, growth rates and other comparisons are made to the same period of the previous year.

Net Operating Revenue

Net operating revenue increased by 43.3% over 3Q19, up 51.3% in the domestic market and up 37.8% in the external markets as shown in the table 1 above. The evolution of the revenue proportion between markets is shown in figure 1 below.

									4,801.3
				3,778.8	3,714.4	4,063.9
		3,349.6
2,932.4	3,286.6
								57%
				57%	54%	61%
	61%	59%
57%
43%	39%	41%	43%	46%	39%	43%
1Q19	2Q19		3Q19	4Q19	1Q20	2Q20	3Q20
			Brazilian Market			External Market

Figure 1 Net Operating Revenue by Market (figures in R$ million)

Net operating revenue from the external market, measured in the quarterly averaged US dollars, increased by 1.7% in relation to 3Q19 and grew 10.5% in relation to 2Q20. The distribution of net revenue by geographic market is shown in table 2 below.

Table 2 Net operating revenue from external market by geographic region, in US dollars

	3Q20		2Q20		3Q19		HA%	HA%
	(A)	VA%	(B)	VA%	(C)	VA%	(A)/(B)	(A)/(C)
External Markets in US$	505,040	100.0%	457,014	100.0%	496,584	100.0%	10.5%	1.7%
North America	221,583	43.9%	214,340	46.9%	231,905	46.7%	3.4%	-4.5%
South and Central America	55,851	11.1%	44,787	9.8%	60,087	12.1%	24.7%	-7.0%
Europe	143,533	28.4%	133,448	29.2%	115,207	23.2%	7.6%	24.6%
Africa	34,141	6.8%	23,765	5.2%	42,210	8.5%	43.7%	-19.1%
Asia-Pacific	49,932	9.9%	40,674	8.9%	47,175	9.5%	22.8%	5.8%

Net operating revenue from the external market, measured in Brazilian Real, was positively impacted by the average Brazilian Real/US dollar exchange rate that moved from R$ 3.97 in 3Q19 to R$ 5.38 in 3Q20, with 35.5% depreciation of the Brazilian Real.

It is important to consider that we set our sales prices in different markets in local currency amounts, according to local competitive conditions. Measured in local currencies, weighted by revenues in each market, net operating revenue from external market decreased by 4.5% in relation to 3Q19.

Acquisition Adjustments

Adjusted for the consolidation effects of recent acquisitions of Geremia Redutores, PPI-Multitask and V2COM, revenue would have grown by 42.3% vs. 3Q19. The growth in the domestic market would have been 48.8%, while in the external market it would be in line with the reported values.

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Earnings Release 3Q 2020

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Performance by Business Area

Industrial Electro-Electronic Equipment

	Domestic	External		Domestic Market
NOR	Market	Market	▪	Important recovery in the Brazilian industrial activity linked to short-
3Q20	795,313	1,678,359
	cycle equipment, with emphasis on the serial automation products and
2Q20	635,641	1,583,637
	low voltage motors, partly associated with the high demand in the
%	25.1%	6.0%
	construction and agribusiness sectors.
3Q19	530,024	1,298,831
▪ Deliveries of important projects contributed to the good long-cycle
%	50.1%	29.2%

equipment quarter, especially for the mining, oil & gas and pulp & paper segments.

External Market

▪ Continuity in the gradual resumption of global economic activity after

	the initial impacts of the pandemic, but still lower when compared to the
51.5%	same period last year for short-cycle equipment. Except for our
operations in China, which showed significant growth, associated with
	the high industrial activity in the Chinese domestic market.
	▪ Long-cycle equipment maintained good revenue performance this
	quarter, with orders being delivered to relevant segments such as oil &
	gas and water & wastewater.
	▪ It is important to highlight that throughout 3Q20, we observed a
	decrease in order entry for long-cycle equipment in several regions.
	Important industries, such as oil & gas, pulp & paper and water &
	wastewater, reduced the pace of investment, reflecting the effects of
	the pandemic.

Energy Generation, Transmission, and Distribution (GTD)

	Domestic	External
NOR	Market	Market
3Q20	867,383	777,722
2Q20	755,710	700,600
%	14.8%	11.0%
3Q19	526,221	506,817
%	64.8%	53.5%

34.3%

Domestic Market

• A recurring highlight in recent quarters, the transmission and distribution (T&D) business continues to be a main driver for reported growth, with large transformers and substations being delivered for projects linked to the transmission line auctions carried out in recent years.
• The distributed solar generation (GD) business, after the initial impact of the pandemic felt in 2Q20, showed a good recovery, reaching activity levels similar to 1Q20 at the end of this quarter, contributing to the good results of the GTD area.
  External Market
• We presented another quarter of good results, with the continuation of relevant deliveries being made in the USA and Mexico, with an important contribution from the synergy between our operations in North America.

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Earnings Release 3Q 2020

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Performance by Business Area

Commercial and Appliance Motors

	Domestic	External
NOR	Market	Market
3Q20	253,321	220,709
2Q20	106,285	153,889
%	138.3%	43.4%
3Q19	188,023	145,720
%	34.7%	51.5%

9.9%

Domestic Market

• Following the movement observed at the end of 2Q20, demand for products in this business area showed a rapid improvement, after a sharp drop at the beginning of the pandemic, especially in the segments of motors for durable goods (white goods), motor pumps and commercial compressors. This movement can be explained in part by the economic stimulus promoted by the local authorities.
  External Market
• Sales recovered well this quarter, especially in North America, where we continue to increase our market share in the USA and Mexico.

Paints and Varnishes

	Domestic	External	Domestic Market
NOR	Market	Market	▪ An increase in demand in several important segments, especially in
3Q20	169,175	39,278
road implements, agricultural machinery, home appliances and
2Q20	106,643	21,538
construction, confirmed the road to recovery which began in the
%	58.6%	82.4%
second half of last quarter.
3Q19	133,868	20,100
%	26.4%	95.4%

External Market

▪ The good performance was driven by the improvement in economic activity in Argentina after slow months due to the pandemic, as well as the increase in sales in other Latin American countries, both in industrial paints and in automotive refinish paints.

4.3%

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Earnings Release 3Q 2020

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