Welcome to the WEG Conference Call to Release Results for the Q1 2019. We would like to inform you that we are broadcasting this conference call accompanied by the slides at our Investor Relations site at the address ri.weg.net. After the conclusion, the audio will be available at our IR website. Forecasts contained in this document are forward looking statements made during the conference call regarding future events, business outlooks, operational and financial projections and goals and the future growth expectations of the management at WEG and based on information currently available. These forward looking statements involve risks and uncertainties and therefore, depend on circumstances, they may or may not occur.
Investors should understand that general economic conditions, industry conditions and other operating factors could affect the future performance of Guell and lead to results that differ materially from those expressed in these statements. This conference will be made in Portuguese with translation into English. With us today from Xala Guadoso, we have Andre Luis Rodriguez, the Financial and Administrative Director, Superintendent Paulo Poilezi, the Financial Officer and IR Officer Bill Sombazzo, Controller and Andre Salgueiro, the IR Manager at WIC. You may proceed, Mr. Andre Rodriguez.
Good morning to all of you, and it's a pleasure to be with you once again for the results of the Q1 2019. To begin with the highlights, net operating revenues grew 15% vis a vis the Q1 2018, reaching BRL 2,900,000. We also presented a growth of 22 percent in EBITDA that reached BRL462 1,000,000 with a margin improvement that grew 0.8 percentage points reaching 15.7%. Return on invested capital reached 18%, showing 1 more quarter of evolution and returning to the levels observed before the global crisis in 2,009. We will have more details on the ROIC that presented a growth of 1.5 percentage points visavishe1stquarter 2018 reaching 18%.
Operational profit after tax is explained by a growth of revenues and an improvement in operational margin, more than offset the increase in capital invested. This is a reflex of the combination of our strategy of development of new businesses with a return on invested capital, along with discipline in the use of capital shown through the management of working capital and the optimization of our investment program. I would now like to give the floor to Paulo Polesi. A good morning to all of you. We go on to Slide 5 to present the evolution of the different business units.
We begin with Electroelectronic Industrial Equipment in Brazil, where the short cycle equipment continues to show growth. We also have an increase in the share of revenues in long cycle equipment, especially electrocenters and automation panels. The search for equipment for capacity expansion projects, both brownfield and new investments. Greenfield was better than expected at the beginning of the year. The GTB area had a growth of revenue in Brazil, although there was a lower share in wind generation projects, which is something we have anticipated.
The positive highlight is the solar generation business, especially distributed generation. The GBT business also contributed positively this quarter with an improvement in the business dynamics and distribution transformers and renewable energy parks. In domestic used motors, we also had a growth of revenue because they are short cycle and risk. This business depends on the economic performance and especially on consumption. And we now observe signs of recovery and economic resumption.
The paint business had a significant improvement in some areas such as mining, metal structures and the white line. Abroad, the sales of electro electronic equipment continue to focus on the short cycle projects where we have made strides through our expansion of our product line and gaining share in the market. We have built new plans and we see a good demand for long cycle products with good outlook, especially in the industries working in oil, gas, pulp and paper, infrastructure and mining. In the field of GTD, the greatest contribution was in the field of transformers with a growth at all the operations abroad with a highlight for the consolidation of the new transformer company in the United States. In motors for domestic use, the revenue continues to show the impact already observed in the last quarter with a lower order intake in the local market in China, the weak development of the operations in Argentina because of their local problem.
Now in paint, once again, there was a drop in revenues in the foreign market because of the difficulties in Argentina. We see the evolution of EBITDA in the Q1 in 2019 with a great highlight when we compare this to the previous quarter. We had a significant growth of 2.16%. The EBITDA margin ended the quarter at 15.7% with an evolution of 0.8 percentage points vis a vis the Q1 2018. This is a reflection of an improvement in profitability of operations abroad, margin gains and a more favorable mix in Brazil because of lower revenues in wind generation and lower operational margins.
On Slide number 7, we show you the investments of the last quarter. In the Q1 of 2019, investments reached BRL91.8 million, 31% destined to Brazil, 69% to our production units abroad with the growth vis a vis the first quarter 2018 due to the advance of investments in the first foundry of wet outside of Brazil, which is in the final phase of construction in Mexico. With this, I would like to conclude and return the floor to Andre. Thank you very much, Paolo. And before we go on to question and answers, I would like to reinforce our outlooks for the rest of the year.
At the beginning of March, we stated that WIG was once again considered among the main companies in clean energy throughout the world. We're part of the Clean 200 ranking made up of 200 companies and there are other Brazilian companies that are part of this. This shows our commitment with the best sustainability practices. Practices. Now even though we have the expectation of lower revenue growth into 2019 because of that drop in our project portfolio and wind generation, we do expect to have an improvement in the operational margins of EBITDA.
This is because we expect a better performance of mature businesses in WAG in Brazil and better profitability in the operations abroad. And we will also have an improvement in the value of return on invested capital during the year. We will now go on to the question and answer session. Ladies and Our first question comes from Thiago Pachelli. You may proceed, sir.
Hey, good morning to all of you. Thank you for taking my question. I have two questions. The first referring to the market abroad where we see good outlooks and during this quarter. I would like to hear about your outlook if there is more space during the year to increase your share to obtain new customers or to increase the volumes with the present day customers and which was the impact on your EBITDA margin in this Q1 of 2019?
Thiago, this is Andres speaking to you. Thank you for the questions. And I would like to refer to your abroad, and Paolo will refer to the impact in 2016. Now we're thinking of a slowdown in economy abroad, and this has been disclosed broadly, but we do not feel this. We continue to show significant growth in the main regions, and we have carried out work to increase our market share through the mature businesses of WAG and by launching new products in a diversity of markets.
And that is why we deem that our performance will continue to remain above that of the market. In the foreign market, we should also reinforce that we're predominantly stronger with the short cycle products that has a portfolio of 3 to 4 months. Now with this portfolio that we have enhanced at present, we're still not feeling this reflex abroad. But despite this, WEG is working with a winning strategy when it comes to the launch of new products, and we're exploring markets where we have strong participation in Brazil and abroad. Of course, we have a very good reputation.
All of this has shown good results. Thank you, Andre, and thank you, Thiago. Good morning. This is Paulo. That Series S-sixteen, the new standard was adopted in Brazil beginning in January, And we have a new explanation on our side.
All of the details are there. This represents a value of BRL 2,000,000 approximately in our calculation, and you can calculate this yourself. It represents 0.3 percentage points for the company, an increase of 0.3 percentage points. Once again, you have all of the details in our explanation number 3 on the slide. Thank you very much.
The next question is from Alice Chandri Falcon from HSBC. Hey, good morning to all of you. I have two questions. The first, if you could speak about the situation abroad. When you think of this in the dollar denomination, perhaps the situation is not as robust as it was.
I would like to gain a better understanding of what you're doing with this in terms of your outlook, the local currency, the denomination in dollars. The second question refers to Brazil. When it comes to the short cycle, especially in terms of investments, your results show that there has been a drop in GDP and a drop in demand. Are you beginning to feel this contraction in demand? Falko, thank you very much for your question.
Let's continue on then. We have to pay attention to the short term analysis because WEG is exposed to a series of currencies, not only the American dollar. And that is why we always present the growth of local currencies. And the local currencies, the basket of currencies in the countries in which we operate had a growth of 8.1% during the quarter. This is positive.
When it comes to the question in terms of operations in China and Mexico, let's begin with China. China is following the same trend that we observed in the last 5 years for industrial motors with a low voltage. There has been a growth of 2 digits in the last 5 years for our performance. Things were not different in the Q1. And because of this, we increased the capacity of the Vogel plant to be able to continue on with the growth that WEG has there.
We have found other opportunities of entering the market through a unit to act in the Chinese market. We have had some difficulties that we have reported because of some local issues of the market and the commercial war with the United States. But the general balance continues to be very positive and we continues to invest in China. Now continues to invest in China. Now Mexico tends to follow the same trend with lower growth rates compared to China.
Now the first point, we continue on with our verticalization strategy in Mexico. And in the second quarter, we will conclude our investments in the foundry. Mexico will be ever more competitive in terms of prices. And the business of transformers did not show a good performance. It was somewhat below the previous year because of discussions.
What we are reinforcing for this 1st semester is an improvement in the sales area in transformers coming out of Mexico for the domestic market as well as for exports. Therefore, these two countries that are strategic countries outside of Brazil, where we concentrate our industrial production are having a very positive evolution. In terms of the short cycle, we like to always be very cautious about developments in Brazil because this gradual resumption of economy will depend on the economy. But this also holds true for the short cycle. When we speak about short cycle, we're referring to motors and automation.
These are projects that have a shorter period, 3 or 4 months. But as I mentioned, those that we have in hand have shown a positive performance during the Q1. The next question is from Lucas Macchiore from Safra Bank. I also have 2 questions. We see the revenue and energy growing year after year in the domestic market, perhaps more than was expected.
There has been, of course, a drop in wind energy, but there has been a growth. Now I would like to understand where this improvement or enhancement in revenues is coming from, why this is more than you had expected? And this is my first question. The second question, Well, you mentioned the improvement in the competitive environment in Mexico. Is this going in accordance to what you had planned when you acquired the company?
Lucas, thank you very much. And let's begin speaking about GTD and the results for this quarter. We had a very great expectation, once again, due to the fall of the wind portfolio that had already begun. But during this quarter, we were able to report a growth of 13.3% higher than that of the first quarter in 'eighteen. Now what happened?
The first positive aspect is solar generation that became ever more relevant for the company in 2018 and continues to grow. It is adding orders to our it is adding orders to our portfolio. And the outlook for this business is still positive, especially in this Triadiot Energy that has been showing continual growth in the last few months. So this has fully offset the fall in wind energy and even more so. I would like to remind you that in 2019, the GTD part has made a positive contribution.
The outlook is for this contribution to continue. We do have an improvement in the dynamic of substation, And our deliveries will begin to take place in 2019 2020. And of course, we will be able to recognize these results. We should recall that in 2018, we had a Q1 that was somewhat weaker in terms of transformers. And we had a smaller solar energy and distributed energy base.
And in 2018, we only had 1 month of TGN that was consolidated only in March. So this explains the good performance we had in the Q1. Now when we speak about Vega, WEG Transformers USA, things are very positive from the viewpoint of sales. The transformer units of Wuegabro have a better performance, all of the units. But in the United States, we have a very good order portfolio, WEG and NPS.
Once again, this is a highly renowned company in terms of transformers. And the good news is that in this Q1, the results have already become positive. The expectation was that this would happen throughout 2018. We also throughout 2018. We also mentioned that the internal inflation in the United States and commercial issues were very strong and would not allow this to be possible.
But we had announced that we had an initiative to increase prices because of inflation, and we have seen the good results already in the Q1. Now the EBITDA is positive and the operational results of this company are positive as of this first quarter. The next question is from Bradesco Bibi. Good morning and congratulations for your results. I have two questions.
One was a follow-up on the question made by Lucas about GTD. If you could give us some more color in terms of backlog for solar energy and based on backlog, we can say that GTB could become a reason of concern and the top of revenue. We see that this will not be the case. And the second question, you mentioned that some clients are beginning to quote prices for new projects. Could you give us some more color in terms of the potential revenue that could arise from these contracts?
This is Olegi. Good morning. And let's begin speaking about GTD and Solar Energy. Now the backlog, it's very difficult to speak about details, but I can comment about some points what we can advance in terms of solar plants and distributed energy. In the Q1.
We had results similar to those we had last year. And for the time being, our deliveries will concentrate during this 1st semester. And I would like to remind you that since 2016, WEG has already delivered 4 solar plants, once again, Maut and Paraiba as well as 3 other projects until mid-twenty 19. The forecast that we have is to deliver another 3, Gerdaldo, Pernambuco, Sobrado in Bahia and another one in Paraiba. To conclude, our vision is that this business has become ever more relevant in the GTD field, and the expectations are positive for the rest of the year.
We still have projects that are open due to the auctions, and this will enable us to capture something. But this is still part of our outlook in terms of distributed energy, GTD. We had stronger growth. And where does this growth come? From a very sound network of integrators with national coverage.
And this has led to a great number of orders. And finally, this doesn't exactly pertain to backlog, but distributed energy is the segment where we are able to obtain better margins, and this helps us to recover our margins when it comes to distributed generation. Now if you could repeat your second question, please. The question is if there will be improvements in the long cycle in Brazil. We already perceived that we're receiving quotes for long cycle equipment.
In the same period last year, we did not have these requests for quotes. Some at present have interesting amounts. They're linked to the Pulp and Paper segment and especially Mining. And this is favorable. We will begin the year with a better outlook.
And Dre, at the beginning, mentioned that we have to be very cautious. For the time being, there are few projects. But last year, we had an absence of projects. So we do have a better outlook for long cycle equipment if compared with 2018. Thank you.
The next question is from Jorge Orautu from UBS. Good morning to all of you and thank you for taking my question. I have only one question in terms of your ROIC. We have seen an increase in the last quarter. But in the last quarters, there has been an appreciation of the real, and we continue to see an increase.
You spoke about the transformers that have had positive results in the Q1. And I would like you to give some more color in terms of what explains this improvement of return on invested capital and how far we can go. I recall that during the crisis, you didn't imagine that you would return to a level where you are, but the investments in long cycle equipment are still missing. And I would like to know what will happen with investments in long cycle equipment and when this will materialize and which will be the level that it can attain if we imagine a return of the long cycle projects? This is Andres Salguero.
To speak a bit about ROIC, we do have several impacts, And it's very difficult to explain the reasons. You mentioned them very clearly. There is an improvement in the margins in our operations abroad. This, of course, can be helpful. And additionally, we begin to see a resumption of the long cycle equipment in Brazil in industrial projects, in specific segments like pulp and paper and mining.
And we also see an improvement in GTD of what we deem to be long cycle. We believe that when the market is in a better situation, we will be able to recover those margins, and this will enable us to continue to grow the ROIC in the long term. It's difficult to give you a metric. What we can state is that this year, we should return to levels very similar to those of last year. This is our expectation at present for 2019.
Thank you. Thank you very much. That's exactly what I wanted to hear. The next question comes from Joao Noronia from Santander Bank. Good morning to all of you.
Thank you for taking my question. There have been several questions in terms of backlog and GTD. Now if you could refer to the orders that have come out from the transmission at the end of 2016 2017. If you could give us a more qualitative answer if the results are above or below what you had expected in terms of the auction? Good morning.
Yes, we can give you more color. When it comes to the auctions. We would like to remind you that we have some contracts. Our clients were awarded for lots in 2017, 2018. There are several open contracts in the market and WEG would have the opportunity of working with other players.
It's also possible to work on other fronts, for example, by selling equipment directly in terms of other orders and other opportunities. And with all of this, we have a very clear vision of our order portfolio that has been improving quarter after quarter. We don't think that we will have great leaps from 1 quarter to the other, but instead a gradual improvement year after year. Year after year, we have observed a significant improvement semester after semester. Evidently, we have to be somewhat cautious.
Some of those who were awarded the auctions offered very low prices. This could have an impact on supply. And once again, we will have to guarantee the best returns possible. We don't necessarily want to have a higher number of orders. We're working very well in this, and our expectations in this field are quite positive, not only for this year, but for coming years as well.
Thank you. Thank you very much. The next question is from Guilherme Mendez from JPMorgan. Good morning. And another question going forward.
Well, we're speaking about a better growth and improvement in EBITDA margin and much more. How do you consider where going forward thinking of the 2020, 2021 horizon, are we going to have a slower growth because we see that the improvement in margin is taking place at a faster pace since 2018? So what is your outlook for the medium term? Guileadmi, let's speak a bit about expectations in the long term. But once again, we need to be very cautious when it comes to these expectations.
In 2019, what we expected the following: that the EBITDA margin will be better than in the previous years. We were at 15% 15.2% in the last 2 years because of the crisis that had an impact on the EBITDA margin. Now this year, we have everything to have a better performance, and we have 2 quarters, the last quarter of 2018 and this Q1 with better results. Now the expectation for the resumption of economy in Brazil means that we should have an improvement in margins in the more mature businesses of WEG Brazil. As Paolo mentioned, we will have a more consistent delivery of equipment this year and an improvement of profitability in businesses abroad.
We have to speak about the U. S. As well as Mexico, where we're concluding an important part of capacity, we're better able to dilute our cost, and we can improve our margin. The expectation to improve the margin of the mature operations in Brazil, evidently, depend on the market, as I mentioned. And our portfolio of wind projects will be delivered this year, and we do hope to have a better return on capital.
Now this is what we are expecting for this year. The margins of WEG can continue to improve during the coming years. Yes, the response to this is positive. As Rogerio stated in his question, the long cycle in the right economic conditions could further improve. Now those who were at WEGday know that we have a new product grant for the improvement of costs presented in Brazil, and we're implementing the same program outside of Brazil as well.
So there is an expectation that improvements will continue, but we cannot state which will be the levels of our margins. We too have years where we have a better performance, other years when we continue our process of investments or acquisitions with a small drop perhaps. But I believe that the company will always present attractive figures, which is the main indicator for the company. Now we can't state if we will have an improvement quarter after quarter. Perhaps the figures will be somewhat lower than 2.18.
It is possible, but we want to remain at attractive levels once again. Thank you very much. Thank you very much for your response. We continue with Lucas Balboza from Morgan Stanley. Good morning, Andre, Paolo.
Thank you for the presentation. My question is a follow-up on the discussion on distributed generation. Could you give us more color in terms of what you are expecting this year? And if you could speak about the competitors that are involved in this distribution network. Lucas, good morning.
This is Paulo. What we can advance is that we have a highly positive outlook in GDP. This is something that has gained relevance. And in so far as solar energies have volatility, 1 quarter may be stronger, another may be weaker. But we tend to have a more stable and constant base for distributed generation.
And we will get to the point where distributed generation will become more important than the solar plants. The outlook, nevertheless, is positive. WEG carried out very good work in terms of training, the network installation. We have focused a great deal on this, and the financial results continue to be attractive. The payback for distributed generation is highly favorable.
And therefore, as civil companies are working in terms of cost reduction because of the present day situation of the country. Cost reduction has good results. So we're increasing our ability to assemble our export contracts for the long term, getting ready for a more prolonged improvement in distributed generation. As you can see, the company is ready to grow more in this sector, not only this year, but going forward as well. Thank you, Paolo.
So when it comes to competition, have you observed any differences, any new players in the market or not? Lucas, this is Andres Salgueiro. Yes, we do have other players in the distributed generation market. Wager is not the only player. But as we have been in Brazil for some time, as we are an acknowledged company, we do have a competitive edge.
But of course, we have to think about the size of the market. And yes, we are competing with other players in the market. At this point, we would like to close the question and answer session. I would like to reach the floor to our speaker for the closing remarks. Well, thank you very much once again to all of you for your participation.
And what can I say at the end of this quarter? We ended this quarter based on confirmation of our expectation, and we have had a very good return on invested capital. Now even though we will have less growth during the year in wind generation, for example, we do want to reach better operational margins compared to previous years and deliver an attractive return on invested capital. Once again, thank you for your participation, and have a good day.