Welcome to the conference call of VEG about the results of the Q1 of 2018. We informed that this conference call and the accompanying slides are being transmitted on our website of Investor Relations atri.wag.net. And after its completion, the audio will be available at our website of Investor Relations. Any forecasts contained in this document are statements that may be made during this conference call relating to VAG's business prospects, projections and operating and financial goals and to WEG's potential future growth are based on management's beliefs and expectations as well as on information that is currently available. These statements involve risks, uncertainties and the use of assumptions as they relate to future events and depend on circumstances that may or may not occur.
Investors should understand that the general economic conditions in the industry and other operating factors may affect WAG's future performance and lead to results that may differ materially from those expressed in such future considerations. We would like to remind you that this call is being held in Portuguese with simultaneous translations into English. Here with us, we have Vilso Vasco, Controller Andres Alguero, Investor Relations Manager. Please, Mr. Andre Rodriguez, you may continue.
Good morning, everyone. It's a pleasure to be with you again for the tele Q1 of 2018. I would like to start by highlighting the main points of this quarter. First, we had a strong revenue growth, 19.6% in the consolidated results, of which 13.9% in the domestic market and 24.5 percent abroad. In the domestic market, this growth was driven by the economy's recovery and increasing share of the business of solar generation plants.
It is worth mentioning that as of March, after the final approval of CADE, Brazil's antitrust agency, we started to consolidate TGM, a Cinturben company, acquired in December 26, which contribute to our portfolio of GTD products. In the international market, growth remains concentrated in sales of short cycle equipment, but we have already found some opportunities in major projects of industries that require long cycle equipment. In addition, the consolidation of the new business of transformers in the United States helped in revenue growth. 2nd, the performance of the EBITDA margin was as expected, showing an improvement over the Q4 of 2017 since the one off impacts of the last quarter are no longer present, but stayed below the Q1 2017 margin impacted by the acquisition of TRANSFORMERS operation in the United States and by the rapid growth of the solar generation business still maturing and with lower operating margins. Finally, I would like to highlight again the generation of cash from operations, which reached BRL 492,600,000 and the growth of return on invested capital in the annual comparison, the main performance indicator of VAC.
Going to Slide number 4, we have more details of ROIC, which grew by 1.2 percentage points when compared to the first quarter of 2017, reaching 15.1%. The growth in operating income after taxes is due to the revenue growth, improvement in operational performance and other nonoperational accounts. This growth more than offset the growth of capital invested required to support business growth, but both from recent acquisitions and investments in working capital, fixed assets and intangible assets carried out over the last 12 months. I now turn the floor over to Paolo Folezi. Good morning, everyone.
Moving on to Slide 5, we present the evolution of the business areas in the various markets. In the domestic market, we had growth in all business areas. In the area of industrial electroelectronic equipment, after last year's recovery, we reached a standard level for short cycle products, especially low voltage motors and serial automation equipment, which presented lower growth in sales quarter on quarter. The solar generation business was the highlight in GTD, gaining relevance in recent months with 2 major solar projects added to the portfolio and contributing positively to revenue growth this quarter. Additionally, as already mentioned by Andre, since March, we are consolidating the operation of TGM in this business area.
In motors for domestic use, the recovery dynamics of last quarters continues, but favored by the combination of increased consumer confidence, low inflation and lower interest rates. The performance of paints and varnishes reflected the performance of industrial and consumer goods markets, which have intensified the recovery process over the quarters. Internationally, we also had revenue growth in all areas, with the exception of motors for domestic use, where the effect of component inventory adjustments in large global OEM and the decrease in orders coming from China have impacted performance in this quarter. In Electroelectronic Equipment, growth remains driven by short cycle products in countries in Europe, Asia and Africa have shown significant growth in revenue this quarter. In addition, capacity building projects and construction of new factories, which also demand long cycle products, continue to grow mainly in industry relating to mining, infrastructure and production of pulp and paper.
In the GTD area, revenue growth was mainly driven by the consolidation of the new U. S. Transformer company. In Paints and Vanishes, the growth of revenue in international market reflects the search for new customers, especially in Latin America, with products already consolidated in Brazil. On Slide 6, we see the evolution of EBITDA in the Q1 2018, in which the main highlight when comparing to the quarters was the growth of revenue.
EBITDA grew 14.7% in relation to the Q1 of 2017, and there was a reduction of EBITDA margin to 14.9%. As Andrea mentioned, this performance was within our expectations and EBITDA margin recovery will happen naturally with the integration of new acquisitions and as the new business in GTD matures. Slide 7 shows the financial net financial result in details, which reached BRL 27,900,000 positive, remaining stable when compared to 1st Q 2017. In this quarter, we recognized interest revenue on contract renegotiations with clients, which offset the lower interest rates received on our cash position. It is worth noting that despite its negative impact on our financial results, the reduction in interest rates is very positive for the company's business as it reflects a more stable economic environment with increasing consumption and consequently higher level of industrial investment.
On Slide 8, we have the cash flow analysis. Cash generation from operations reached BRL492.6 million in the quarter, an increase of 18% compared to the same period of the previous year, resulting from a better operational performance in conjunction with working capital management. Investment activities consumed BRL218.4 million in the quarter, reflecting a stable level of investment when compared to 1st Q 'seventeen and considering the acquisition of TGM as well. Finally, financing activities consumed BRL410 1,000,000 in the period, reflecting the increased settlement of loans and the greater payment of dividends in the quarter. Finally, Slide 9 shows the investments of the last quarters.
In the 1st Q 2018, investments totaled BRL61.7 million, of which 60% went to Brazil and 40% to production units abroad. It is worth mentioning that the normalization of mark behavior requires that we gradually increase disbursements for the modernization of our production capacity and purchase of machinery and equipment in Brazil. For the first time in the last 12 quarters, investment in Brazil was higher than overseas. With that, I finish my presentation and return the floor to Andre. Thank you very much, Paolo.
Before I start the Q and A session, I want to reinforce some points. 1st, as anticipated in the 4th quarter's release, growth revenue and the continuous focus on Reich will be the main drivers for 2018. Revenue should grow organically with increasing global industrial investment with the entry into new business such as solar generation and with acquisitions that increase their competitive advantage, such as the recent acquisition of U. S. Transformers operation, for example.
In Brazil, the diversification of our business will continue its positive contribution to revenue growth After the recovery in 2017 of the area of industrial electro electronic equipment, in 2018, we have solar generation business and TGM contributing to GTD revenue growth. In the international market, the signs of recovery are very consistent. Industrial production grows in the main global markets and the improvement in short cycle products continues to be driven by OEMs. In addition, important industries are beginning to show the first signs of recovery with the emergence of the first opportunities of projects involving long cycle equipment. To conclude, I would like to highlight that this morning, we sent a save the date for VAC Day 2018.
This year, the event will be held in 2 days, June 12 in New York and June 22 in Jaragua do Sul. We'll be pleased to see you at one of our events. We can now start the Q and A session. Operator, you can continue. First question comes from Lucas Macchiari from Bercus Safra.
Good morning, everyone. Thank you for the call. The first question about solar energy. Could you specify from a solar complex, how much equipment do you provide? Is that transmission system?
What type of equipment? And how what percentage of a CapEx of a solar plant does VEG account for in terms of the potential of equipment provided by VEG? Just for us to have the figure in mind. And the second question, something that Paolo mentioned caught my attention, the fact that 60% of investments were made in Brazil after a long period that you invested more abroad and also the nominal drop in CapEx abroad, I would like to understand how we should interpret that. If you plan to maybe grow that in other geographies, if you could just explore that a bit more?
Thank you. Hello, Lucas. Thank you for the question. This is Andres Alguerra speaking. I'll answer the solar question and then Paulo will talk about CapEx.
As for solar, we started selling equipment to the solar energy market. The main is the frequency inverter, but we also have solutions of substation and transformers for solar complex for solar plants. Some new accounts in our portfolio that joined our portfolio recently, we sold the entire we started to operate it as a turnkey we started to operate it as a turnkey provider since August. So we develop equipment sold by VEG. We buy the rest, which we don't make, which is solar panels, for example, and we deliver the full package to customers.
So these two major projects that we are recognizing the revenue this year, we are billing 100% of the project, including the parts that are purchased from other providers. But if the customer wants, we can only sell part of the equipment, such as the frequency inverters or substations and transformers. These components, these inverters and transformers, how much they account for in the CapEx of a solar plant? Well, we believe it's about 45% equipment and services from VAG and 55% from other providers. This is pretty much the breakdown.
Okay. Thank you. Lucas, good morning. Continuing with the question about CapEx, yes, after a long period of many quarters, this year, the CapEx is more local after a long period of investments abroad. So this year, we estimate to invest EUR 370,000,000.
Of course, it may be a bit lower. This is a goal of CapEx investment. It may be a bit lower than that. But the main reason is the end of a cycle in investments in Mexico and China. In China, investments have been completed last year.
The plant is producing at a full stage, at a full capacity almost. And in Mexico, we had 2 stages of investment. First, to increase the production capacity of the plant, which was completed and the other investment was significant or even more significant was another project that ends at the end of this quarter of this year, I'm sorry. But we still have some investment. About 20% of this budget will be invested still in Mexico.
But the most capital intensive investment abroad ends this year with Mexico. And from now on, we'll see what the market where the market goes and WEG wants to invest to increase productivity and make the most of all opportunities available. Next question comes from Joao Norone from Santander. Good morning, everyone. Thank you for the question.
I have two questions. First, regarding margins. I remember that in discussions in 2017, the main message was that you were developing margin every quarter. It was running close to 16%. And now looking at the scenario for 2018 and considering the deliveries, it's complex to think about the company going back to reaching this 16%.
How do you see the development of margins quarter on quarter for 2018? And the second question, if you could give some more color about the closing of projects and sales for as of April 2017? Hello, Joao. This is Andres Alguerra speaking. In terms of margin, what we have mentioned since the last quarter of 20 17 is that the consolidated margin for 2018 should stay at a very close level of the consolidated margin for 2017, which closed at 15.5%.
We also said that given the higher concentration of solar project deliveries in the first half of this year and also the impact of U. S. Transformers operation on results. And since we expect to improve the profitability of this operation throughout the year, it's natural to forecast that the first half of this year will have a margin that's a bit lower than that level and a slight recovery in the 3rd and 4th quarters of this year. As you know the company well, we have a wide variety of businesses.
So these estimates are based on the figures that we have right now. Good morning, Joao. This is Paola speaking. I would like to give you an update on research and development or T and D. We had 3 transmission auctions, BRL 12,000,000,000 in October 2016 and then in October and then 2017 December, BRL 17, BRL 9,000,000,000.
So our vision is that all of the auctions were very successful, and they brought new players to the process, which brings us good business prospects for everyone actually. We're very confident as people are working on the market, looking for new orders. VEG is already participating in contracts for substations, and we continue focused on obtaining new orders on power transformers as well. But even without any new pre agreements, we had a big one and then we didn't get any on. But even without these new pre contracts, there are still players in the market that have not yet signed this pre contract with anyone.
So there is still opportunity available in the market, and we are going after them. Also, we are working in other fronts, such as selling equipment directly to those who won the auction, which provide a good business opportunities as well as selling to other providers and all the lots. So it's a long process. We know it takes longer because projects will become effective in coming years. And but they're happening quite intensively, I would say.
Okay. Thank you very much. The next question is from Thiago from Credit Suisse. Good morning. Thank you for the question.
My question is about the GTD domestic market revenue. Despite the year on year strong growth, there has been a decrease when we look quarter on quarter. Is there any type of seasonality? And if so, should we expect a stronger quarter if we exclude the consolidation of TGM? Thiago, to understand your question better, well, first, good morning.
You referred to the drop in GTD in the domestic market quarter on quarter, if you look the Q1 against the Q4 of last year, Yes, this Q1 against the Q4 of 2017. Just a minute, please. Thiago, actually, the figure that we have in this quarter is higher than the Q4 of last year. I don't know if you refer to the table we published in the relief and as a percentage basis, but nominally speaking in nominal terms, we are bigger, BRL 407,000,000 in 2017. And the Q1 this year was BRL 446,000,000.
And this growth is linked to solar energy. Okay. I'll take a look at those figures later. Thank you. The next question is in English from Juan Tavares.
Hi, thank you. Good morning, everyone. So my first question is just to touch a little bit on your new businesses that you mentioned that are in the early stages. I'm curious what would be the impact on your margins and your ROIC today if these segments were operating with normalized profitability? Would it be an expansion of 50 basis points on your margin in ROIC?
And also when would you expect these projects to kind of reach those normalized levels? And my second question, just touching on GTD, is what's the size of your backlog for wind? Because I saw you mentioned that those sales for those projects are like going to end in the Q3 of this year. And also what's the size of your backlog in solar? And maybe putting that in context of how different is the visibility of your backlog today within the GTD business versus what it was either this time last year or even last quarter?
Thank you.
This is Andrea Rodriguez speaking. We'll answer in Portuguese, but then there is a simultaneous translation. To clearly explain to you in English. So as for the acquisition of VAG Transformers in the United States, your question was how would be the margin of VEG in this quarter, excluding the impact from solar, with you? Well, it will be slightly higher than we had in the Q1 of last year.
I think I take this opportunity. So before talking about how we expect to improve it is to say what we have been doing since the acquisition process that happened in the Q3 of last year. We optimized industrial processes using the synergy with the Mexican unit. And whenever I had a chance of talking about the acquisition, I said that it's a very strategic acquisition as given the opportunities of synergy with Mexico. And today, we are actually producing some components in Mexico to optimize costs.
And we also developed a single supply chain management, which allows us to make annual purchases of packages and single prices for raw materials that are used in common that has been implemented. We also define the adequate portfolio of products for each industrial plant. What needs more optimization is made in Mexico and what should be done in organizational structure of the company. We expect that in the Q2 of this year, so now, we will be able to present positive operational results. This is what we're focused on now, and we expect this, yes, to happen in the Q2 of this year.
Juan, as for your second question about backlog, we don't usually give this guidance on backlog for every quarter. The backlog for the revenues of wind power this year will be at the same level of last year pretty much BRL 700,000,000. And these BRL 700,000,000 will be distributed linearly throughout the year. So based on that, you can have an idea of what the revenue from the Q1 was and what we estimate for the coming quarters of the year. As for solar specifically, what we have for 2018 total for the year, BRL 15,000,000.
In solar, we do have a greater concentration in the first half, BRL 100,000,000 in the first quarter, and the second part will be in the second and the third, and then the 4th quarter will be a bit lower. There's another question in English from Juan Tavares.
Yes. Thank you. Sorry, just two more questions, if I may. First on tax management. I noticed that this quarter, you had one of the lowest cash taxes that you've had in a long time, which helped your ROIC.
I'm curious if this is the level that we should be seeing for the coming quarters as well. Is there anything specific that you're able to monetize on your tax asset size that's facilitating kind of this lower cash tax levels? And second, maybe just to touch on short cycle. You mentioned that in Brazil, you've reached a normalized pace of kind of demand for short cycle products. So is this segment back to pre crisis levels now in Brazil?
And maybe on the long cycle, how would you categorize the gap today versus pre crisis levels? Thank you.
Hi, Juan. This is Paolo speaking. Your question about taxes. Okay. Today, the tax rate in the Q1 was 13.8%.
The same rate was 11.5% in the Q1 of 2017. So these the levels are close. What we can say from for the future in terms of tax rate is that we believe it will be around 10% to 15% based on the 3 main benefits that the company obtained. 1st, paying interest on equity, which is still enforced and it helps. There is also the difference of tax rates in operations abroad, which also helps.
And finally, the incentives tax incentives for Les Dubains, which give donations. So with these three benefits, we believe tax rates will be from 10% to 15% for the next period. The second question about Industrial Equipment and the behavior now has been normalized. Yes. In fact, we may say that, yes, we have noticed a return to pre crisis activities, so to speak.
But, Juan, for short cycle equipment, for low voltage motors, automation and serial equipment, we can say with some comfort that, yes, we have returned to pre crisis levels. What's still lagging or lacking is the new orders for long cycle because in Brazil, we have not seen anything yet for that. But in the external markets, we export a lot, right, from our Brazilian operations. And we have seen some orders and small invoices for long cycles. So in summary, short cycle, yes, we are back to levels of precrisis, but in long cycle, no.
Just follow-up, just to clarify one thing on the tax side. I was actually talking more about the cash taxes that you report on your cash flow statement, not so much the reported tax on your income statement, where in the cash taxes where I saw it's almost half the level of what your reported tax is. So it was really low compared to even previous quarters. So I'm curious if there's anything in terms of how we should be looking at monetization of some tax assets that you have on the balance sheet or anything like that, that should facilitate a lower cash tax in the coming quarters? Not so much the reported tax line, but more about the cash tax in your cash flow statement, which is in the end what impacts your ROIC in total.
So I'm curious if you have any guidance on that side.
Just a second one. Please hold. Well, we have the numbers here with us. We don't see a material difference in numbers. I don't know exactly what you're referring to.
But in a way, we prefer to talk to you shortly afterwards. We can address this question in detail. But however, we have not noticed any higher taxes in our cash flow. But we can get into more detail with you shortly after this call, okay?
No worries. Thank you very much.
The next question comes from Lucas Macchiore from Banco Safra. It's a quick question on my side. You said that solar comes as a percentage of completion. These 2 major projects that now you have in your portfolio, how much of them have you made so that or realized so that we know how much more is still to go? Hello, Lucas.
I just mentioned this before, but we don't give details about that. But just for you to have an idea, we have built slightly above BRL 100,000,000 this quarter for solar projects. So in the backlog, we have BRL 500,000,000 for the total of the year. This is what we have done so far up to March. Okay.
Thank you, Andre. This ends the Q and A session. I would now like to turn the floor over to Mr. Andre Rodriguez for his final comments. Mr.
Andre, you may proceed. Well, once again, thank you very much for attending the call. There are some questions sent by webcast that will be answered by e mail throughout the day. So we'll see you next call. Thank you very much.
The conference call of WACC has now ended. We thank you very much for attending. Have a good day.