Welcome to the conference call of VEGI to announce the results of the Q3 of 2018. Today, we are transmitting this conference call along with the slide deck at the address ri.veg.net. And after completion, an audio will be available in our Investor Relations website. Any statements in this document or any declarations made during this conference call about forward looking events, business prospects, financial and operational projections and goals and the potential for future growth of WEG are mere beliefs and expectations of WEG's management and they are based on information currently available. Forward looking statements involve risks and uncertainties and therefore, depend on circumstances that may or may not occur.
Investors should understand that general economic conditions, industry conditions and other operating factors may affect the future performance of VEG and may need to announce that will be materially different from those expressed in such forward looking statements. As a reminder, this conference call is being conducted in Portuguese, and you are listening to the simultaneous translation into English. Today with us in Jaragua do Sul, we have Mr. Andre Luis Rodriguez Administrative Financial Superintendent Director Paulo Polesi, CFO and IRO Vilson Vazco, Controller and Andre Salvajero, Investor Relations Manager. Please, Mr.
Andre Rodriguez, please you may start. Good morning, everyone. It's a pleasure to be with you once again for the conference call of the Q3 of 2018. Starting with the highlights of the quarter, the first point I would like to highlight once again the strong growth in revenue of 33% in the consolidated results. The growth in domestic market was 36 percent, driven especially by greater share in our solar generation business by the recent acquisition of steam turbines, TGM and by the gradual improvement of the revenue from transformers business.
Internationally, our growth of 30% still concentrated on the sales of short cycle equipment. As seen in the previous quarter, we already seen some opportunities for projects that require long cycle equipment. Additionally, this performance was also favored by recent acquisitions and FX variation. Excluding the impact of acquisitions and considering the performance only in local currency, the growth was 6%. The second point was the 26% growth in EBITDA as compared quarter on quarter.
EBITDA margin closed the quarter at 15.1%, tax rate is stable as compared to Q2 2018, but was below the margin of the Q3 of 2017 because of a recent acquisition, new businesses and impacts of FX variation in cost of materials. Paul is going to show you my detail about this. And in closing, once again, I would like to highlight the generation of operating cash that reached BRL910,000,000 year to date and the growth of ROIC, our main indicator. Now moving to Slide 4. We provide more details on ROIC, OIC, which presented a growth of 0.6 percentage points as compared to Q3 2017, reaching 17.2%.
The growth in the operating profit after tax is explained by the growth in revenue and improvement in operating performance. This growth more than offset the growth of the capital invested that was required to support the business growth, both through recent acquisitions and also by our investment in working capital, fixed assets and intangibles that we made over the past 12 months. The consistency of this indicator along the year is an evidence of our strategy of development of new businesses, which although they have structurally lower margins, have an interesting return on invested capital. Now I would like to turn the first over to Mr. Polegi.
Good morning, everyone. Now on Slide 5, you can see the evolution of the business areas in different markets. In the area of industrial electro electronic equipment in Brazil, the sales of short cycle equipment keep their uptrend. On the other hand, the long cycle equipment sales, especially the automation panels, have demonstrated a slight decrease comparing quarter on quarter, thereby justifying the growth in this quarter the smaller growth in this quarter. Solar generation business was the highlight now that our 4 recent solar projects added to our portfolio.
Another highlight in GTD was the improvement in performance in transmission and distribution business, which already indicated some improvement with more orders in our portfolio. Additionally, since March, we have been consolidating our TGM operation, the company of steam turbines in this business area. In engines for domestic use, there has been a slight growth in revenue as a consequence of the consumption dynamics in Brazil, which did not show a significant recovery as compared to last year. Our performance in the coatings business reflected the performance of industrial and consumables markets, which presented a recovery in the past few quarters. Internationally, the highlight is still the area of electroelectronic equipment, where the growth is driven by short cycle products.
Additionally, as we mentioned in previous quarters, we have observed projects for capacity increase and construction of new factories, which also demand long cycle projects, especially in industries related to oil and gas, pulp and paper and mining. In the area of GTD, the main contribution was the transformers business, which presented a growth in all our operations overseas with a highlight for the consolidation of the new transformer company in the United States. In domestic used engines, revenue has presented a slight drop, especially because of fewer orders being made in a local market in China, added to the weak performance of the operation in Argentina, which is suffering the consequences that their local economy is dealing with. In coatings, our revenue international market also reflects the difficulties in the economic scenario in Argentina, our main market outside Brazil. On Slide 6, you can see the evolution of EBITDA in Q3 2018, where the highlight was the growth in revenue.
EBITDA grew 25.6% as compared to Q3 2017 with a margin of 15.1%. As Andre mentioned, the performance was practically stable as compared to Q2 2018, but was below the margin that we had in Q3 2017, especially as a consequence of impact of the acquisition of VEG Transformers in the U. S. A. And the fast growth of new businesses such as solar generation, which has lower operating margins and also the impact in short term FX volatility on the cost of materials of our long cycle projects.
Finally, on Slide 7, we show the investments of recent quarters. In Q3 2018, investments amounted to BRL 105,000,000, 44% allocated for Brazilian, 66% meant for our manufacturing units overseas. We should highlight that the recovery of the market behavior gradually requires more and more disbursement for the expansion and modernization of our production capacity. Now I finalize my part, and I turn the conference back over to Andre Rodriguez. Thank you, Paolo.
Before we move to Q and A session, I would like to highlight a few points. First of all, as we've recently mentioned in our call, ROIC is one of our main drivers for 2018 along with revenue growth. In the foreign market, the recovery of sales is consistent as the industrial protection has been growing in the main global markets. Additionally, important industries continue their trajectory of recovery with opportunities and projects involving long cycle equipment. In Brazil, on the other hand, the solar generation business, acquisition of CGM, a recovery of the economy, we continue to contribute for our growth in revenues in 2018.
Lastly, we continue to pay attention to short term oscillations where recent acquisition, new businesses and short term FX volatility may impact our profitability. But then on the other hand, the improvement in our mix of sales and the gradual recovery of economic activity in Brazil may have a positive impact in our midterm businesses. Now we will move into our Q and A session. Ladies and gentlemen, we are now going to start our Q and A session. Our first question comes from Luca Marcheoli from Safran Bank.
Good morning. Thank you for the call. I have two questions to ask. The first is the portfolio of solar products. Could you give us an update of the value of the current value of this portfolio?
And when we are going to start seeing the delivery of solar products domestically? I would like to have more detail about the size of this portfolio. 2nd point, as Paoli mentioned, domestic or home appliances. And I would like to understand more about China. Argentina is very clear, but the fewer orders that you are getting from China, is this related to President Trump, commercial war?
What is it? Hello, Lucas. Good morning. This is Andres Salgueiro. I will answer about the solar business, and then we'll answer about the home appliances market.
In solar business, as we said from the beginning of the year, we expected revenues to be between BRL 500,000,000 and BRL 600,000,000. I think we are more closer to the high, closer to BRL 600,000,000. In terms of solar farms, there was a new project, a new solar farm that was added. This is a new project added to our portfolio, and we are looking to an amount of BRL 240,000,000 to BRL 250,000,000 in the portfolio for solar farms, about BRL 80,000,000 more or less possibly this year and the rest for next year. And I think that the additional information is that here, we are only talking about solar farms.
In addition, we have the entire distributed solar generation, which is more recurrent and this is keeping the same key tone with a significant growth as compared to last year. How big is the distributed portfolio? Can we share that with us? Well, it's really a short term portfolio. They come in all the time.
So it doesn't really make sense looking at it, but it's because it's a very short term portfolio. What we estimated earlier this year is that revenues from distributed solar would be around BRL 100,000,000 for this year. It's closer to BRL 150,000,000, and it's growing. Lucas, this is Paulo Polevi answering your question, talking about home appliances in the international market. As I mentioned in the call, in fact, there are 2 factors which are not really helping us this quarter.
Number 1 is China. And so a little bit more detail about what is going on in China. We are dealing with stronger competition, especially in the Chinese local market, and we need to accommodate our market share in China. To offset that, we are trying to develop differentiated projects with higher value added in trying to differentiate our brand in the local market. At the same time, we also need to remember that there is a devaluation and this decreases the competitiveness of our products.
And lastly, in China, there's a quite strong trend of globalization of the platforms and also high efficiency of products. And we also have the intention of advancing in that direction to mitigate the fierce competition that we have there. It's not now only since the beginning of the year. Also internationally, we should remember our businesses in Argentina. If you are not really familiar, we have a manufacturing plant there for home appliances, especially kitchen appliances, the engine.
So the combination of these two factors are making our performance more difficult in this area. In China, it's not related to the limitation of the importing of home appliances by the U. S. From China. We are not yet seeing that.
No, we are not. Our next question comes from Marcelo Inouye from Citi. Good morning. Thank you for allowing me the question. CapEx, my question is about CapEx.
Your CapEx, your quarter CapEx was around BRL 60, BRL 70,000,000. Now it's closer to BRL 100,000,000, a significant increase, almost 50% increase in your CapEx. And this level of CapEx reflects your recent acquisitions. But I would like to understand how much of this increase was related to the CapEx for the new assets. And could you talk about what you expect for CapEx from now on in terms of region and segment?
Thank you. Marcelo, thank you for your question. This is Andres Salgueiro. CapEx has, in fact, increased slightly this quarter with 2 main impacts. Number 1 is that we have come to the final phase of our casting the process in Mexico.
So now we are expecting more expenses for that project, and there's a strong component of FX variation. So most of the CapEx is done overseas. And when we look at it in BRLs, there is an impact of the FX variation that affects especially this quarter. Now looking into next year, we're still in the budgeting phase, so we don't have a final number. But it's natural to assume because the completion of Mexico casting, we are going to have a level slightly above the level that we had this year.
Thank you, Andre. Our next question comes from Alexandre Falcone from HSBC. Good morning, everyone. I imagine you must be working very hard in designing your budget for next year. Could you give us a little bit more color about your main lines?
And if you have a growth that is above what the market is expecting for Brazil. What are you expecting for the growth in Brazil? And could you tell us more about Mexico as you're casting a plant is ready in Mexico? So what should we expect in terms of volume and improvement in mix and margins in Mexico? So this is Andre Rodriguez talking.
So we are defining our budget. So not everything is precise for next year, especially with everything we are going through in Brazil recently. We're slightly more cautious before we disclose our numbers for next year. But just to give you slightly more color, there are a few things we can mention. Number 1, for very mature businesses.
So if the economy keeps on developing and everything evolves positively, naturally, WEG's mature businesses will be likely to present a better performance than we have this year. Another positive aspect that we were finalizing is that the our T and D portfolio will be better than it was last year as we could see in this quarter, as we mentioned this year. If our T and D portfolio may have a better performance, one thing that is always gets our attention is that we need to be careful in a comparison basis for GTD, especially in terms of wind. Our portfolio in 2017 2018 is similar, but we are expecting a reduction of that portfolio. Another point that we need to pay attention to is new businesses, the solar this year, TGM Acquisitions, BW, TU that did not have a comparison basis in the previous year will have the comparison basis next year.
So we need to observe all of this, and we are in this process of defining what we can expect for 2019, and then we may have more precise information once we finish that. As to our casting businesses and completion of our investment in Mexico, with this investment in Mexico, we are going to get to the last phase of our verticalization strategy in Mexico. So it's much more an investment to increase competitiveness of becoming more vertical. And what we expect from that is a better structure for project cost and optimization that may come from working capital when we talk about inventory because today, engines are produced in Brazil, sent to Mexico, and they get to the production. Once we have the casting business in Mexico, we may have that too.
So could you talk about installed capacity? If you have demand, a demand shock, are you ready for that? How much annual capacity you have today to absorb growth and how much investment would it require. So another thing that we always mention is that we are modular, and this is one of our competitive advantages. We can accommodate demand without much investment in CapEx.
When we talk about short cycle businesses, we've been disclosing that we are close to the ideal capacity. We are almost full capacity in terms of our industrial. Everything that is short cycle. And in our long cycle businesses, we still have some way to go because of everything that happened with the crisis in Brazil. The good news is that 2017 was better than 2018, and 2018 is now better than 2017 was.
And our expectation, short cycle, when I say that we are almost full capacity for the long cycle, we are around 70%, 90% depending on what we are talking about. So in terms of a better recovery than we were expecting, no problems for short cycle and neither for long cycle because we can add capacity very fast without much CapEx investment. So along the recent years, I think we have clearly demonstrated that in the way that we operate. Our next question comes from Thiago Caser from Credit Suisse. Good morning, everyone.
Thank you for the question. And so I'm talking about oil and gas in Brazil, recent scenario, do you see good prospects in a domestic market in Brazil because of oil and gas investments? Thiago, this is Andres Salgueiro entering. We had auctions late last year. They were very successful.
So we have an outlook of investment in oil and gas in Brazil thinking in 5 year time. And these investments are going to be significant, but they are more mid- and long term opportunities. We're not seeing opportunities for 2019, for example. So it's something for late 2019, 2020. I think that the only thing that is worth mentioning is the change in the market.
In the past, there was a very strong concentration in local players, and now we have international players. And we still pay attention at competitiveness and how we are going to take part in those processes. But I think that we have proven along the years that we have products, technology and competitiveness in terms of costs to be involved in oil and gas projects anywhere in the world. So if it's in Brazil, this helps us too. Our Our next question is from Rogerio Araujo from UBS.
Hi, thank you. Thank you for the opportunity. I have two questions. The first one requires GTV in Brazil. We have seen a very strong growth, much greater than we were expecting.
And when we try to do the math of what explains solar, the solar part is less than half. We had 88% organic growth in GTD and in solar is half of that and the other half, it's difficult to explain. You mentioned that lean power had a low in the 3Q 2017. If you could give us more detail about GPV investment and what explains such a significant growth? Then that was my first question.
Rogerio, this is Poulezi answering. Giving you more details about the numbers in terms of GTD. So we had a record revenue in this quarter was about BRL670 1,000,000. And then and I'm talking about 97% quarter on quarter according to our calculation. And I think that the difference between my number and yours is TGM.
So number 1, solar plants and also there's distributed generation as part of the growth. 40% is explained by the solar businesses. And number 2, in terms of relevance, we have the expansion of our sales in T and D, about 25%. And then what explains this is an increase in sales, especially in projects for renewable energy. And then the improvement, we have better orders in our book for power.
And then number 3, we have wind. It's about 10% for wind. As I reminded, in the Q3 of last year, there was in the project that we were delivering, and last 10% TGE that explains part of this growth. And I think with these elements, we can explain to you the reasons for the significant growth in this quarter. Thank you very much, Paolo.
This is very clear. My second question regards Zeng Transformer. Could you tell us about the turnaround? Have you broken even? What is the turnaround in future quarters?
How much is it contributing for a reduction in margin? And is this pressure going to be relieved over the next few quarters? This is Andre Rodriguez answering your question. And so this pressure is going to go down in future quarters. Yes, all action plans that we have been developing to improve margins and the growth of the unit, they are in line with what we were developing in this year.
What we did not expect was to have an internal inflation that was as high as we had in the U. S, as you've been seeing the higher steel prices and other raw materials. This internal inflation that was higher led to a result that was below our expectation. But what we are doing in concrete terms, we're renegotiating prices. And together with all actions that we are already implementing that in the future, we will be able to reverse slightly faster our performance.
And then we were expecting that it happened more strongly this year. Our next question comes from Marcelo Molto from JPMorgan. I have two questions to ask. Number 1, when we look at the euro margin, as we mentioned during the presentation, there was some pressure because of devaluation of the currency, raw materials prices. How much is the impact of FX, of the mix?
And how much of that do you think we will be able to reverse in the Q4 because the effects appreciated. The second regards new products that can go in many lines with many different products, electronic products, engines, electrical vehicles. Is there any line that could surprise us in terms of very fast growth next year? So let's talk about margins. One point that we always mention and we pay close attention at in terms of the variation in margins quarter on quarter, it's driven by many different factors.
Here specifically something that we always alert is that when there is significant volatility in FX rate, usually one you can see a stronger impact in 1 quarter. And this is what happened, the strong volatility of FX rate in the Q3 had a relevant impact in the margin for this quarter. And this is because for long cycle projects, they are developed along 1 year with predefined prices And sometimes, fluctuations impacts the margin in that quarter. So that added to the problems that we found in WTU as announced led to a drop in margin, a margin that according to reports was slightly lower than the market expectations. In terms of what we see for the future, it's difficult to see how much that is going to be translated into growth for VEG.
And so in terms of storage, we have closed a supply in U. S, I think in Vermont, if I'm not mistaken, for storage unit that we are going to deliver something new for our company. And this is reflected in countries such as Brazil. And we believe that this is a business that is likely to grow. Another thing that we announced recently, everything leading to the 4.0 industry, motor scanning is a product that we're also launching.
We expect to advance in those front too. So let's think of TGM where we already have businesses. TGM was the unit here in Brazil that concentrated most sales in South America and in Europe through a joint venture that we have there. But in some markets where they already had commercial and structural presence, such as South Africa and United States and Mexico, they were markets where TGM did not have in the list of suppliers for those markets. We are developing that too, and we are using the strength of VEG's structure and brands to develop those markets.
We have also been talking about electric traction that VEG is following closely. And then and also Volkswagen In terms of urban deliveries, the prototype is already being tested in Sao Paulo and the schedule we have. I don't know the details, but we are going to go into a process of marketing as of next year. And we are trying to develop a small bus with electric traction. And there are many lines where we are trying to advance in order to diversify Our next question comes from Murilo Freibergen from Bank of America Merrill Lynch.
Good morning, everyone. Thank you very much for allowing me to ask a question. Actually, I would like to hear a comment about two things. Number 1, I would like to hear about long cycle. Do you see any improvement?
So you see the quotes in terms of wind, and this is going to go into the results of 2019, 2020. In terms of distributed generation and there are segments that aren't really surprising as in terms of growth, that is bigger than expected. So how is this segment within solar businesses this year? And what you are expecting for next few years in terms of distributed generation? Hi, Murillo.
Good morning. This is Andres Salgueiro. As to long cycle products outside Brazil, the first observation that we must make is that VEGS exposure to long cycle life outside Brazil is not relevant, and it's never been as relevant as it used to be relevant in Brazil in the past. We have some exposure to that, but our main focus of sales and most of our sales still come from short cycle outside Brazil. That said, as part of the operations that we have outside Brazil and also in terms of exports.
We have seen an improvement. And as we mentioned in our press release, some important industries because of recovery of commodity prices, oil and gas, especially in mining, pulp and paper. We have seen some projects there in our operations outside Brazil, which deal with long cycle projects, especially electric machinery in the U. S. And VEG India, they have a quite robust and strong order portfolio and a significant growth as compared to last year, and we expect to grow from this year to next year.
So it depends on the market. This is very much focused on the U. S. Market. So we have shale gas, pulp and paper.
And in India, it's more focusing on infrastructure, generation and water movement like sanitation, irrigation. This is what demand in Mexico. As to GD, this is a market, as we said, that is important, and it's becoming more and more important, in fact. And we announced BRL 50,000,000 of revenue for distributed generation. And this year, our expectation was to double that number.
And now we have more than BRL 150,000,000 for this year. And this, in fact, demonstrates an improvement in how the small market has been performing in Brazil. So the expectation is quite positive, and there is a trend for growth. But it's difficult to tell how much the market is and how it's going to evolve. Our business model has been working well for small projects that we call retail, distributed generation, small homes, small commercial facilities.
We have integrators. They are trained in Vague, and they're responsible for certain region to work in sales, installation and technical assistance and this has been working. And we have the smaller projects, which are not like a solar farm, but sometimes we get them and we do them with companies that we hire with our engineering team. And I think that in terms of market, and as we have said that a few times before, Brazil is one of the main countries in terms of solar radiation. We have mentioned that the worst place of solar radiation in Brazil is still 30% better than the best place in Germany.
And although China has been investing a lot, Germany is one of the countries that's the most developed in terms of solar generation. So our expectation for the next few years is quite positive. Our next question comes from Victor Mizusaki from Bradesco BBI. I have two questions. The first is a follow-up on Murillo Murillo's question about distributed generation.
Can you somehow map ZAGG's market share in this segment, especially considering that ZAGG is the only company that has national distribution for this segment. What is your market share? Can you tell us more about that? And the second question is about transmission. In your last call, you said that we were getting to a phase in this sector where many of the auctions and other projects would start the contracting process.
Could you give us any numbers in terms of backlog and how you see this segment? Victor, this is Poulezi answering your question. So talking about the G and D market, it's a number that is difficult to give to you. I don't have it available right now. The comment I have to make is that we have many different models in the market.
There are many different companies working in this segment. They undoubtedly is one of the most relevant companies in this market in terms of relevance and size. So our perception is that we are leading this market because there are many different models. There are integrators or investors that do them that do it alone. Others outsource everything, others sell part of the equipment.
So I don't think this information is so well structured in the market. Maybe in the future, we can address it in more depth and disclose more in future calls. But what we can see from our portfolio and demand and fast growth, as Salgueiro mentioned, we are strongly represented in distributed generation markets, okay? A little bit about transmission and distribution, giving you an update about this process. What we have been saying is that we keep this message.
It is a market where suppliers work in 2 models, both pre contracts and also investors that do not work with contracts. But in terms of those who prefer pre contracts, we mentioned before we had some pre contracts, some won and others did not. Our customers won 2 lots, and we are working to deliver those lots. There are several outstanding contracts in the market, Many of them have not yet finalized choosing their suppliers, and we are negotiating with other players. These are ongoing processes.
The thing is that it has been improving gradually since October 2017. And I'm talking about these negotiations. And we can see that it starts with smaller pieces of equipment. It gradually evolves towards bigger pieces of equipment. And finally, also in this area, we are working on other fronts such as the sale of equipment directly to the winners of auctions or other suppliers in other lots.
So in the market, it's also common for you to supply to other suppliers and have more than one brand in just one venture. So this is an overview of the market for you, Victor. Thank you very much. We are now closing our Q and A session. I would like to turn the conference back over to Mr.
Andre Rodriguez for his closing remarks. Please, Mr. Rodriguez, you may start. Once again, thank you very much for attending our conference call, and we'll meet for the release of the earnings of the Q4, and this is going to be next year. So have a good afternoon.
This conference call has now ended. We thank you all for your participation and wish you a good day. Thank you.