WEG S A : Earnings Release 2Q21

Jaraguá do Sul, Brazil, July 28, 2021

Highlights

Net Operating Revenue (NOR) was R$ 5,748.2 million in 2Q21, 41.4% higher than 2Q20, and 13.2% higher than 1Q21;

EBITDA(1) reached R$ 1,392.7 million, 90.2% higher than 2Q20 and 37.0% higher than 1Q21, while EBITDA margin was 24.2%, 6.2 p.p. higher than 2Q20, and 4.2 p.p. higher than the previous quarter;

Return on Invested Capital (ROIC) reached 32.2% in 2Q21, up 10.6 p.p. from 2Q20 and up 4.0 p.p. from 1Q21.

Message from the Management

We report another quarter of good performance in our businesses, marked by continued good demand in the domestic market and by accelerated industrial activity in the main countries where we operate in the external market.

In Brazil, we observed solid demand after the consistent recovery in recent quarters. We highlight the short-cycle businesses growth in areas such as Commercial and Appliance Motors, Industrial Electro-Electronic Equipment, and in particular, the distributed solar generation (GD) business. The maintenance of the long-cycle business, mainly in the GTD area, also made an essential contribution to this result, especially the return of wind generation projects revenue.

In the external market, the recovery of global industrial activity confirmed the signs of improvement reported in the last quarter. We posted significant growth in revenue in the main markets in which we operate, especially in mining, oil & gas, and water & wastewater segments. In addition to the Industrial Electro-Electronic Equipment businesses, we also highlight the good performance of the Commercial and Appliance Motors and Power Transmission and Distribution (T&D) areas, with sales growth and increased share in important markets.

It is worth noting that in this quarter, we recorded tax credits referring to the exclusion of ICMS from the PIS and COFINS calculation basis, according to the material fact disclosed on June 22, 2021. The EBITDA and net income were positively impacted by R$ 300.4 million and R$ 282.8 million, respectively.

We remain confident in our strategy to overcome this challenging period, working to protect and promote the health and safety of all employees and minimize, as much as possible, impacts on our operations.

Table 1 Main Highlights

	2Q21	1Q21	%	2Q20	%	06M21	06M20	%
Return on Invested Capital	32.2%	28.2%	4.0 pp	21.6% 10.6 pp	32.2%	21.6% 10.6 pp
Net Operating Revenue	5,748,206	5,076,879	13.2%	4,063,943	41.4%	10,825,085	7,778,379	39.2%
Domestic Market	2,577,971	2,343,108	10.0%	1,604,279	60.7%	4,921,079	3,296,679	49.3%
External Markets	3,170,235	2,733,771	16.0%	2,459,664	28.9%	5,904,006	4,481,700	31.7%
External Markets in US$	600,806	498,120	20.6%	457,014	31.5%	1,098,926	908,773	20.9%
Net Income	1,134,709	764,258	48.5%	514,375	120.6%	1,898,967	954,398	99.0%
Net Margin	19.7%	15.1%	4.6 pp	12.7%	7.0 pp	17.5%	12.3%	5.2 pp
EBITDA	1,392,718	1,016,852	37.0%	732,222	90.2%	2,409,570	1,351,336	78.3%
EBITDA Margin	24.2%	20.0%	4.2 pp	18.0%	6.2 pp	22.3%	17.4%	4.9 pp
Earnings per Share (EPS)	0.27045	0.18211	48.5%	0.12261	120.6%	0.45256	0.22749	98.9%

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. Earnings per Share data is adjusted for split or bonus events.

Net Operating Revenue

Net operating revenue increased by 41.4% over 2Q20, up 60.7% in the domestic market and 28.9% in the external markets, as shown in table 1. The evolution of revenue proportion between markets is shown in figure 1.

							5,748.2
			4,801.3	4,889.9	5,076.9
3,714.4	4,063.9					55%
			57%	54%	54%
54%	61%
			43%	46%	46%	45%
46%	39%
1Q20	2Q20	3Q20		4Q20	1Q21	2Q21
			Brazilian Market		External Market

Figure 1 Net operating revenue by market (figures in R$ million)

Net operating revenue from the external market, measured by quarterly average US dollars, increased by 31.5% compared to 2Q20 and increased by 20.6% compared to 1Q21. The distribution of net revenue by the geographic market is shown in table 2.

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

	2Q21	1Q21	2Q20	HA%	HA%
	(A)	VA%	(B)	VA%	(C)	VA%	(A)/(B)	(A)/(C)
External Markets in US$	600,806	100.0%	498,120	100.0%	457,014	100.0%	20.6%	31.5%
North America	260,106	43.3%	213,758	42.9%	214,340	46.9%	21.7%	21.4%
South and Central America	72,546	12.1%	58,354	11.7%	44,787	9.8%	24.3%	62.0%
Europe	154,484	25.7%	133,645	26.8%	133,448	29.2%	15.6%	15.8%
Africa	40,254	6.7%	32,102	6.5%	23,765	5.2%	25.4%	69.4%
Asia-Pacific	73,416	12.2%	60,261	12.1%	40,674	8.9%	21.8%	80.5%

Net operating revenue from the external market, measured in Brazilian Real, was impacted by the average Brazilian Real/US dollar Exchange rate that moved from R$ 5.38 in 2Q20 to R$ 5.29 in 2Q21, a 1.8% appreciation of the Brazilian Real.

It is important to consider that we set our sales prices in different markets in local currency and according to their competitive conditions. Measured in local currencies, weighted by revenues in each market, net operating revenue from the external market increased by 22.5% compared to 2Q20.

Consolidation and Acquisitions Adjustments

Adjusted for the consolidation effects of recent acquisitions of MVISIA, BirminD, and consolidation of TGM Kanis Turbinen GmbH, revenue would have grown by 39.4% vs. 2Q20.

ir.weg.net

Earnings Release 2Q 2021

2

Performance by Business Area

Industrial Electro-Electronic Equipment

	Domestic	External
NOR	Market	Market
2Q21	851,190	1,865,878
1Q21	900,493	1,620,332
%	-5.5%	15.2%
2Q20	635,641	1,583,637
%	33.9%	17.8%

47.3%

Share in NOR

Domestic Market

• Revenue continues to be supported by the high demand for industrial products in Brazil this year. Segments such as agribusiness, civil construction, and mining were the main highlights in demand for short- cycle products such as electric motors, serial automation equipment, and gearboxes.
• Important supplies of long-cycle equipment, such as e-houses and automation panels, continue to contribute in this quarter, especially in the mining and oil & gas segments.
  External Market
• We observed an accelerated pace in the economic and industrial recovery in all regions where we operate. The high sales volume to equipment manufacturers (OEMs) confirms the industry's recovery movement. Relevant segments such as mining, oil & gas, and water & wastewater are among those that most demanded our products, such as low voltage electric motors and automation equipment.
• Long-cycleequipment showed a gradual improvement in revenue. However, it is worth noting that the signs of recovery reported in the previous quarter are being confirmed, with a growing improvement in orders intake for projects in segments such as mining, oil & gas, water & wastewater, and steel.

Energy Generation, Transmission, and Distribution (GTD)

	Domestic	External	Domestic Market
NOR	Market	Market	▪ All businesses presented growth in this quarter, where we highlight the
2Q21	1,204,262	931,744
return of wind turbine supplies, the good demand for distributed solar
1Q21	974,275	757,391
generation (GD), which continues to evolve compared to previous
%	23.6%	23.0%
quarters, and the increased demand for alternators.
2Q20	755,710	700,600
▪ We also highlight the maintenance of deliveries of large transformers
%	59.4%	33.0%
and substations for important projects linked to transmission line

auctions carried out in recent years.

External Market

• The T&D businesses presented another quarter of evolution, with relevant projects being delivered in the US, Colombia, and also South

37.2%Africa.

• In generation, we highlight our steam turbine business in Europe, where we are successfully expanding the sales of products and services. It is worth remembering that in October 2020, we began to consolidate this operation in our results.

Share in NOR

ir.weg.net

Earnings Release 2Q 2021

3

Performance by Business Area

Commercial and Appliance Motors

	Domestic	External
NOR	Market	Market
2Q21	306,977	326,113
1Q21	280,829	309,084
%	9.3%	5.5%
2Q20	106,285	153,889
%	188.8%	111.9%

Domestic Market

• Sales volume remained high in Brazil. Durable consumer goods segments, agribusiness, and food & beverage were the highlights this quarter. Applications such as air conditioning, washing machines, and leisure (swimming pools) were some of the main destinations for our products.
  External Market
• We observed substantial growth in the demand for our products, a movement explained by the economic recovery acceleration and market share gain, especially in the US and Mexico.

11.0%

• It is worth highlighting the weak comparison base in 2Q20, both in Brazil and abroad, a period in which we had the most significant impacts of the pandemic on short-cycle businesses.

Share in NOR

Paints and Varnishes

	Domestic	External		Domestic Market
NOR	Market	Market	▪	Demand for paint and varnish products also continued to be strong,
2Q21	215,542	46,500
	with emphasis on the oil & gas, sanitation, and construction segments.
1Q21	187,511	46,964
%	14.9%	-1.0%		External Market
2Q20	106,643	21,538
▪ We presented sales growth in Latin American countries, especially in
%	102.1%	115.9%
	Mexico, where we initiated operations at our new paint factory at the
				end of 2020.
			▪ As in other short-cycle businesses, the weak comparison base in 2Q20
				explains part of the strong growth presented this quarter in Brazil and
	4.5%			abroad.

Share in NOR

ir.weg.net

Earnings Release 2Q 2021

4

Cost of Goods Sold

Cost of Goods Sold (COGS) and gross margin for the quarter are shown in table 3.

Table 3 Costs

	2Q21	1Q21	HA%	2Q20	HA%
Net Operating Revenues	5,748,206	5,076,879	13.2%	4,063,943	41.4%
Cost of Goods Sold	(4,001,699)	(3,457,140)	15.8%	(2,831,840)	41.3%
Gross Margin	30.4%	31.9%	-1.5 pp	30.3%	0.1 pp

Efforts to reduce costs and improve processes that led to productivity gains, especially in our operations abroad, were decisive factors in maintaining operating margins close to normal, despite the increase in the main raw materials used in our products.

17.8%	19.9%
	2.6%			Labor
2Q21	3.4%		Depreciation
7.4%	2Q20 8.5%		Other Costs

72.2%	68.2%		Materials

Figure 2 COGS Composition

Sales, General, and Administrative Expenses

Consolidated Sales, General, and Administrative (SG&A) expenses totaled R$ 637.0 million in 2Q21, an increase of 26.8% vs. 2Q20 and an increase of 4.6% vs. 1Q21. When analyzed compared to net operating revenue, these expenses accounted for 11.1%, down 1.3 p.p. vs. 2Q20 and down 0.9 p.p. vs. 1Q21.

It is worth mentioning that adjustments made since the beginning of the pandemic continue to contribute to the control of expenses, although in less intensity when compared to previous quarters, mainly due to the reduction in expenses with business trips.

EBITDA e EBITDA Margin

The composition of the EBITDA calculation, according to Instruction CVM 527/2012, and EBITDA margin are shown in table 4. Note that EBITDA was positively impacted this quarter by the recognition of tax credits referring to the exclusion of ICMS from the PIS and COFINS calculation basis. Disregarding this non-recurring effect, EBITDA would have been R$ 1,092.3 million, with an EBITDA margin of 19.0%.

Even considering the recurring EBITDA margin, we recorded another quarter of evolution year over year, reflecting the rationalization of costs and expenses, better capacity utilization, and improved margins in some significant operations abroad. However, it is worth mentioning that recent material costs increase and the change in the mix of products sold, mainly concerning the return of the wind generation business, reduced the EBITDA margin compared to 1Q21.

ir.weg.net

Earnings Release 2Q 2021

5