Good afternoon, everyone. We would like to welcome you to the webcast and conference call for Iveco Group's full year carve-out combined financial results for the period ending 31st December 2021. This call is being broadcast live on our website and is copyrighted by Iveco Group. Any other use, recording, or transmission of any portion of this broadcast without the express written consent of Iveco Group is strictly forbidden. Hosting today's call are Iveco Group CEO Gerrit Marx and the Group CFO Francesco Tanzi. They will use the material available for download from the Iveco Group website. Please note that any forward-looking statement we might be making during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included in the presentation material.
Additional information pertaining to factors that could cause actual results to differ materially is contained in the company prospectus published on 11 November 2021, as well as other recent reports and filings with the authorities in the Netherlands and Italy. The company presentation may include certain non-IFRS financial measures. Additional information, including reconciliation to the most directly comparable IFRS financial measures, is included in the presentation material. I will now turn the call over to Gerrit.
Please stand by. We'll resume your conference shortly.
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Yes, please.
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Okay, let me start. I mean, today is our first earnings call as a new unlisted company. The last few months and quarters have seen us being involved in many pre-spin activities which have been demanding on all our employees, whom I would like to thank personally here. This exceptional commitment includes tireless efforts from our supply chain team managing through the continued challenges around semiconductor shortages and certain COVID-19 impacts. We worked to successfully finalize all the steps in preparation for the spin-off and our first day of trading, which took place on January 3rd this year.
One of these was certainly our Investor Day on November 18th, which was followed by an investor roadshow that was meant to last four days and instead went on to almost Christmas with a great deal of interest from many prior new investors to understand our equity story and plan. At the same time, we have had to react to and manage a very challenging supply chain situation and component shortages that negatively affected our results in the second half of 2021, most severely actually during the fourth quarter. We expect a gradual recovery to normality during the first half of 2022 regarding the supply chain issues, while the Omicron COVID-19 pandemic and related potential further restrictions are still not predictable either way.
Regarding Iveco Group's ability to offset, or more than offset, cost with price, our expectation is to more than offset cost on a full year basis, with the initial part of the year still catching up. Looking at our financial results, the net revenues from industrial activities were up 21% versus the previous year, with the adjusted EBIT margin at 2.4%. The adjusted net profit was at EUR 140 million, and the adjusted net profit excluding minorities was at EUR 160 million, or EUR 0.43 per share. We ended the year with a solid net industrial cash position at EUR 1.1 billion. Free cash flow was -EUR 125 million, mainly driven by two factors.
First, working capital absorption brought on by component-related shortages that resulted in higher fleet inventory levels due to delays in shipments of finished products of about 3,000 units. Second, we did squeeze our working capital at the end of Q4 2020 quite a bit, which had to not only be normalized, but also cope with the substantially increased demand and output in 2021 and going into strong order book for 2022. Available liquidity was EUR 1.4 billion at the end of December 2021. As a reminder, on January 4th this year, Iveco Group signed a EUR 1.9 billion syndicated facility, which includes a EUR 1.4 billion committed revolving credit facility and a EUR 0.5 billion term facility, not included in the figures as of December 31st, 2021.
When including these additional facilities, the resulting available liquidity stands at EUR 3.3 billion, of which EUR 1.9 billion was cash on our balance sheet at the beginning of 2022. As a start for our journey on January 13th, Fitch Ratings assigned Iveco Group N.V. an investment grade status of BBB- with a stable outlook. In summary, while supply chain issues and component-related shortages affected our profitability and working capital, final demand remained very solid, and the expectation for the current year is positive. We closed the year with our worldwide order intake up 77% versus the previous year, with a high double-digit increase across our regions and segments.
We already increased our European light commercial vehicle production to a maximum output in three shifts, and we are exploring ways to further increase capacity in our heavy-duty facility, heavy-duty vehicle facilities in Spain as well, always being mindful of the cyclicality in those segments of our industry. Our order books are very large, and we aim at bringing them to a healthier level by the end of 2022. Moving on, in the next slide, you can see the industry volume performance for full year 2021 with exchange rate change in percent versus the previous year. After strong first semester catching up after relaxing COVID restrictions, a consumer boom and government incentive policies, the truck industry faced a slowdown mainly in Q4.
Despite an overall positive order trend, registrations were lower than expected because of production and logistics disruptions, creating sometimes odd distortions in market shares, which were driven by their respective abilities to supply rather than the actual demand for a certain brand. As you can see, with the exception of buses in the European and rest of the world markets, all other regions and segments have seen market improvements year-over-year. The European market and LCV, excluding U.K. and Ireland, was up 8% versus the previous year, and 0.7% versus 2019. Medium and heavy was up 19% versus the previous year, but still lower than 2019 by about 13%.
Almost all the European countries closed above the previous year, except for Germany that was slightly down by 0.8%, and only a few European countries over past 2019 levels. On the next slide five, we show our usual channel inventory statistics, as well as a focus on the European order intake and book-to-bill. Channel inventory for both light and medium and heavy-duty trucks was up year over year to accommodate strong order intake. Looking at dealer inventory only, and in particular at the European one that accounts for 80% of total. In LCV, 84% of the products in our dealer inventory already had a final customer order, and it is at 94% in medium and heavy dealer inventory.
Our used vehicle inventory, which is not shown on this page, sits at very low levels due to our dedicated focus here since 2019 and the strong demands to counter shortages of supply with new units. We consider this a good start into 2022. In light commercial vehicle, European order intake was up 76% versus last year, with book-to-bill at 1.51. Europe order intake for medium heavy was up 94%, of which heavy up 99%, and book-to-bill was at 1.77 for medium and heavy, and 1.8 in heavy only. Moving on, I'm on slide six now. We have our European preliminary market share performances.
Starting from light commercial vehicle trucks, our market share at the end of 2021 was at 14.1%, considering the entire segment from 3.5 tons-7.49 tons. When looking at the upper end of the segment, the 6 tons- 7.5 tons, our market share was actually at 61%, and the cab chassis product category overall was at 27.5%. Overall, a strong testimony of our leading position in this important segment, which we also fully electrify starting from fourth quarter of this year. In medium and heavy, our market share at the end of the year was at 8.8% and close to 8% when looking at heavy trucks only.
We have closed the year maintaining a solid leadership position in the natural gas heavy vehicles, which with a market share of 53%. Our market share performance in all segments was somehow impacted by our ability to get the vehicles completed and out to our dealers and customers. Not shown here on this slide, but worth mentioning, is our very strong year-end finish of our bus business unit with 23% market share in Europe in heavy buses only, just 2 percentage points short of the segment's number one. In the light cab chassis-based bus segment, our number two market share was 20.2% with an order book that more than tripled versus the end of 2020. I will now hand the call over to Francesco to take you through the full year financial highlights, after which I will then conclude with final remarks.
Thank you, Gerrit. Good afternoon also from my side to our participants on this call. It is my pleasure to address you today in our first earnings call. I've joined Iveco Group one month ago. I'm on slide eight with our full year 2021 financial highlights. We ended the year with consolidated revenues at EUR 12.6 billion, up 22% versus previous year. Financial services net revenues were up EUR 30 million to EUR 195 million, primarily due to higher volumes from financing activities. Yet the supply chain impact of delivering vehicles certainly slowed us down here as well towards year-end. Net revenues from industrial activities were at EUR 12.5 billion, up 21% versus the previous year, with both commercial and specialty vehicles and powertrain segments contributing positively.
Commercial and Specialty Vehicles net revenues were up 25% to EUR 10.3 billion, primarily driven by higher truck volumes and positive price realization. Powertrain net revenues were up 17.9% to EUR 3.8 billion on higher volumes. Sales to non-captive customers accounted for 61% of the total and were impacted by the discontinuation of engine supplies to Stellantis starting from Q3 last year, as already previously commented in prior quarterly earnings call. For your reference, CNH Industrial is considered a third-party client from here for obvious reason, and we continue on our engine supply with the long-term engine supply agreement. Financial expenses were at EUR 150 million, almost flat versus the previous year.
More than 50% of this amount is related to sale of receivables, mainly to captive financial services, and the remaining part refers to hedging costs, mostly in Argentina, and cost of funding and other financial fees. Financial interest paid by industrial activities to financial services for the interest-free period on dealer floorplan agreements are booked as sales incentives, and therefore as a reduction of net revenues of industrial activities, so directly impacting the reported adjusted EBIT. Net profit for the year attributable to Iveco Group, excluding minorities, was at EUR 52 million or EUR 0.19 per share. Adjusted net profit was at EUR 140 million, and adjusted net profit excluding minorities was at EUR 116 million or EUR 0.40 per share. The adjusted effective tax rate was at 47%, reflecting the impact of unbenefited losses in certain jurisdictions and certain other discrete items.
We expect this adjusted expected tax rate to be significantly lower in the upcoming years. Important to note that cash tax rate full year 2021 landed at 36%, 36%. Financial services net income increased EUR 46 million to EUR 59 million, primarily due to higher volumes from financing activities in 2021 and lower risk cost, reflecting better conditions after the 2020 COVID-19 pandemic peak. The managed portfolio, including unconsolidated joint venture, was EUR 5.4 billion at the end of the year, of which retail was 51% and wholesale 49%, up EUR 0.1 billion compared to the end of 2020. The receivable balance greater than 30 days past due as a percentage of portfolio was 3.9% versus the 5.8% as of the end of December 2020.
Equity of the financial services segment was at EUR 740 million at year-end 2021. December end 2021 net industrial cash position was at EUR 1.1 billion, and available liquidity was at EUR 1.4 billion. I will provide more granularity on both figure later in the presentation. We are now at slide number nine. We show our net revenues from industrial activity split by region and segment. I will not go through each single number, but let me just point out a few relevant ones. As you know, we are predominantly exposed to Europe. 76% of our industrial activity top lines come from here. In regard to top line growth versus last year by the various region, it is important to mention the increase shown in South America, almost doubling sales.
Our presence in the region has been ingrained for years, with strong brand recognition in both Brazil and Argentina, where Iveco Group is perceived as a leading local player. Looking at the split by business unit, the majority of the top line comes from trucks. That was up 44% versus the previous year, with a strong order book entering 2022 as Gerrit outlined. The next slide, number 10, shows our industrial activities adjusted EBIT walk by segment and driver. Adjusted EBIT improvement of EUR 391 million was driven by volume and mix and positive pricing, partially offset by increased production cost due to the supply chain concern and raw material price increase. Higher SG&A and a year-over-year increase in R&D of 10% addressing the priorities in our product roadmap ahead. The Commercial and Specialty Vehicle adjusted EBIT margin was at 2.5%.
The EUR 403 million increase in adjusted EBIT was driven by higher volume and positive price realization, partially offset by increased raw material cost, freight cost, and rework cost due to the component shortage. The SG&A cost increase was driven by higher variable compensation. R&D cost, as I mentioned, increased by 10%. Powertrain adjusted EBIT margin was at 5.5%. Adjusted EBIT was EUR 208 million, with an increase of EUR 13 million compared to the prior year, mainly due to favorable volume and mix in the first half of the year, almost offset by unfavorable raw material cost, higher freight cost due to logistic constraints and higher SG&A cost. R&D spend return to a pre-pandemic level.
There was a considerably lower absorption of fixed cost in the second half of the year due to the discontinuation of the supply agreement with Stellantis, which has been addressed by new engine launches in that range throughout 2022 and 2023. The next slide 11, is the reconciliation of total debt to net cash debt. I don't want to comment again number by number, but just highlight the main topics. Looking at the third-party debt as of the end of December 2021. The financial services third-party debt was at EUR 2.5 billion, of which the majority was related to securitization and factoring, and the remainder was mainly bank debt maturing 2022 that we expect to renew in the course of the usual operation. For industrial activities, EUR 0.2 billion refers to operating lease.
At the end of the year, the net financial receivable of Iveco Group versus CNH Industrial were at EUR 0.4 billion and were settled during the month of January. Moving on in slide 12, we have highlighted our net industrial cash walk, including a snapshot of working capital behaviors as well as our debt maturity profile. Free cash flow of industrial activities in the full year was -EUR 125 million, driven by working capital absorption due to higher inventory as a result of supply chain disruption and normalization of working capital following a squeeze in Q4 2020. At December end, the number of unfinished product sitting in our inventories on a worldwide basis was at 3,000 units. Investment, PP&E and R&D capitalized was up 41% to EUR 563 million.
The year-over-year improvement to change in provision and others was mainly driven by higher provision and lower deferred income tax. The net industrial cash at the end of December 2021 was at EUR 1.1 billion. Looking now at the debt maturity profile as of December 31st, 2021, our available liquidity was at EUR 1.4 billion, with the next 12 months maturity of EUR 0.6 billion related to financial services debt. As already anticipated by Gerrit in his opening remarks, Iveco Group signed a EUR 1.9 billion syndicated facility, which includes a EUR 1.4 billion committed revolving credit facility and a EUR 0.5 billion term facility maturing in 2024. Adding this syndicated facility to existing available liquidity at year-end 2021, the resulting available liquidity is at EUR 3.3 billion.
This concludes my prepared remarks on the financial, and I will turn it over to Gerrit for his final remarks.
Thank you, Francesco. I'm on slide 14, where we have highlighted a few of the main milestones that occurred during the last quarter of 2021. As already mentioned in my opening remarks, on the November 18th during our Investor Day, we presented to the financial community our business strategy and 2026 expected financial projection, excluding upsides from new business models and targeted partnerships. Our adjusted EBIT margin outlook is based on conservative assumptions, which we have consciously made without considering the potential contribution of partnerships, including those initiatives that we have illustrated during the presentation. Our watch word is focus on delivering our core business, and now being an independent company is a great enabler in several areas of our business system. Partnerships and collaborations are central to our strategy.
As I explained during the presentation of our strategic plan, the markets are changing rapidly, and we have created a network of diverse partners that enable us to respond quickly and to effectively leapfrog linear and sequential technology developments. In mid-December, Iveco joined Plus, a global provider of self-driving truck technology, as the European partner for the launch of a pilot in Europe and China to begin the validation integration of Plus autonomous trucking technology with Iveco latest-generation S-Way heavy-duty truck. This first joint trial will test and demonstrate the performance of Plus integrated PlusDrive system in the Iveco S-Way across a wide range of environments and driving conditions.
This level of comprehensive testing using the driver in, that means the driver on board or in the cab, PlusDrive solution and level four autonomous driving technology, both will help gather data and validate the final design until such technology might enter production at a later stage. For Iveco Group, this project is perfectly in line with our customer-centric view of a more automated and safe truck aiming at improving productivity and reducing operating costs. During the course of the fourth quarter, we announced an important development in our relationship with Amazon.
Amazon has already taken delivery of the first batch of 216 Iveco S-Way CNG compressed natural gas units to be operated by its partners in Europe, and another 848 units have been ordered, with deliveries to be started in the middle of 2022, which makes it a total of 1,064 trucks. These almost 1,100 trucks are powered by the state-of-the-art FPT Industrial Cursor 13 Natural Gas engines and equipped with the 1,052 L CNG tanks, the largest available, with the expectation that they will yield an impressive range of 620 km in heavy duty emissions between individual fuelings. The 848 units on order for delivery in 2022 will also feature Iveco Driver Pal, the brand's trailblazing onboard vocal driver companion with Amazon Alexa features.
Collaboration with global leaders like Amazon is a testament to the robust capability of our innovative products and our commitment to the industry's objectives of decarbonizing transport by 2040. Iveco Group will continue leading the way in combustion engines running on renewable fuels, the only viable solution already available at scale on the market to reduce emissions. Let's not forget that such a CNG truck powered by biomethane can cut CO2 emissions by up to 95% from a well-to-wheel CO2 perspective measuring approach, effectively contributing to the decarbonization process. In the quarter, the New Holland Methane Powered tractor was awarded Sustainable 2022 Tractor of the Year equipped with an FPT engine. It received the award because it represents a step forward towards a more sustainable farming.
Leveraging more than 20 years' experience in natural gas engine development, proven by over 60,000 units sold globally, FPT Industrial is now pioneering also the introduction of natural gas technology in off-road applications with customized engine solutions for installation on agricultural equipment. In real world agricultural working conditions, CO2 emissions are reduced by a minimum of 10% when compared to standard diesel tractor and are close to net zero, -100% when running on biomethane. Moreover, polluting emissions are reduced by 80% on average when compared to a standard diesel engine. In the beginning of 2022, we announced that FPT Industrial with its partner Microvast, a leading global provider of next generation battery technologies for commercial specialty vehicles, would provide the complete battery system for the IVECO's new CROSSWAY Low Entry city and intercity bus.
The contract award was achieved based on the 2019 agreement that encompasses an industrial and commercial cooperation between Microvast and FPT Industrial, with us leading the development of mechanical and thermal integration and industrialization of high voltage battery packs for commercial vehicles. For the IVECO BUS CROSSWAY Low Entry Electric, Microvast designed and FPT Industrial industrialized, validated and certified a high energy density battery pack that ranges from 400 kWh-466 kWh, depending on the operative mission requirements. This new generation battery pack will set an industry standard in terms of energy density and charging capacity and will provide the CROSSWAY Low Entry Electric with up to 10 years of battery life. This marks an important step forward in our electrification journey.
The IVECO BUS CROSSWAY Low Entry Electric project complements the same or similar project of the Iveco eDaily, which we have announced earlier. We will launch this electric eDaily full range, as I mentioned earlier, by the end of 2022. The new electric Daily will be equipped with a modular battery concept of 1, 2 or 3 batteries, ranging in combinations from 37 kWh- 111 kWh, pioneering the cooperation between Microvast and FPT Industrial in this first application that aims to set the zero emission standard in the light commercial vehicle cab chassis segment. Also here, we are exploring at an early stage suitable applications for fuel cells to extend the range in the most demanding missions of light cab chassis vehicles.
Before entering into the details of our collaboration with Heuliez, let me just re-emphasize that our partner for the development and production of heavy duty BEV battery electric and fuel cell electric trucks is Nikola Motor, and we are committed to reaching together all our ambitious milestones in terms of introduction of such vehicles to the European market in the coming year, 2023, as per our initial plans announced back in 2019. You have certainly noticed our joint progress of putting battery electric and fuel cell electric heavy articulated Class 8 trucks on U.S. roads into customer hands over the past months, which our partner will comment further during their earnings call.
In this regard, we have now started the prototyping of the 4x2 European version of the Nikola Tre battery in our joint venture facility in Ulm, Germany, as well as FPT started commissioning the production lines of the e-axles. Moving on to the partnership with Hyundai. The partnership focused on Europe will contribute to materialize clean mobility by leveraging the two companies' complementary competencies, in particular, Hyundai's unique expertise around the entire hydrogen value chain, from production and storage to distribution, and Iveco's legacy as a provider of advanced, clean, sustainable transport solutions. Both partners will dedicate means and resources to study the rollout of fuel cell electric vehicles of all ranges, coupled with the deployment of a network of renewable or low carbon hydrogen refueling stations along the main Trans-European Transport Corridors.
In parallel, both companies will jointly promote initiatives to encourage hydrogen mobility by involving all stakeholders along the entire value chain. Let's move on to the final slide, number 15, in which we have highlighted our preliminary industry outlook. As outlined in the takeaway message at the bottom of the slide, this industry focus forecast is based on current visibility and needs to be seen together with the near-term uncertainties related to our supply chain and the evolution of COVID-19. Our preliminary expectation is for a European market, excluding U.K. and Ireland, up 5%-10% across the truck segments. South America is expected to be broadly flattish, with the exclusion of the bus market, in which we are projecting demand to increase almost by 25% year-over-year.
On a worldwide basis, trucks are expected to grow at approximately 5% and buses at 10%. Based on this preliminary industry outlook and considering persistent short-term uncertainties in regards to supply chain and current COVID-19 pandemic, our preliminary expectations are for net sales of industrial activities to increase up to 5% in the coming year. SG&A shall remain at around 6.5% as a percentage of industrial activities net sales, and net industrial cash equal or above December 31st, 2021. As already mentioned in my opening remarks, our expectation is to more than offset costs with pricing on a full year basis, although in first half we still see difficulties to more than offset costs, particularly in Q1. This concludes our prepared remarks. We can now open it up for questions. Sandra, please go ahead with questions.
Thank you. We will take our first question. It's from the line of [Nancy Le] from Goldman Sachs. Please go ahead.
Hello. Thank you for taking my question. My first one's sort of regarding free cash flow. I was hoping you could provide a bit more color on that. Could you guide on positive free cash flow beginning 2022? Sort of how you plan on bridging that and the trajectory from there as well. Thank you.
Yeah, we project and we see, as I mentioned in my last comments here, a positive industry cash flow adding to our net financial position here, net cash position. We are on a trajectory here to add cash.
Right. Given sort of the announced investment plans and the R&D, how 'cause you're on a negative free cash flow currently, so how do you plan to add to that?
Well, our projection for 2022 includes increased levels of CapEx and R&D. Despite those, we do forecast a positive cash flow, industrial cash flow.
Okay. Sure. Thank you. I was just wondering if you'd be able to provide a bit more color on margins as well, going forward in 2022, given sort of the supply chain disruptions that you've been flagging.
We do expect to, over the course of 2022, to outprice the cost inflation that we see at the moment. We should keep or slightly increase the marginality also in 2022 versus 2021.
Okay, sure. Thank you very much.
We will take the next question from the line of Monica Bosio from Intesa Sanpaolo. Please go ahead.
Good afternoon, and thanks for taking my question. The first one is on the order backlog duration. I remember that during the last call, you mentioned the 35 weeks order backlog, if I'm not wrong, which was well above the historical level. I was wondering if you can give an indication on the current situation. I know that you already anticipated a stronger order trend, but I really appreciate if you can share with us some flavor on the start to the year in term of revenues trend. The very last, in term of market outlook, do you expect to I believe that you are expecting to perform in line. But are you expecting some market share gains maybe in the heavy duty segment? If you can give us some flavor on this.
Thank you very much.
Thank you. Starting with the order book. The order book has, since last time we spoke, further increased in weeks. Since we have added the third shift in our light commercial vehicle factories, we were able to stabilize the order book at around 30 weeks, 31 weeks. On the heavy side, it has increased even further. This is why we are approaching almost 40 weeks, which is why we have, you know, engaged in exploring ways to expand capacity in our Madrid and Valladolid facility. In addition to not only pricing actions but also these capacity actions shall help us to bring order book towards the end of 2022 to less than 30 weeks.
Between 25 and 30 weeks is where we would like to land, which is a more healthier level than 40 weeks on the heavy side, which we like, obviously. It's a great response and appreciation of our vehicle. The second question was about Q1 revenues. Well, look, I'm not commenting on financial performance in 2022, especially first quarter at this stage. Hence, yet the supply chain disruptions are carrying forward into the first quarter. We do have here and there days where we need to go slower.
You know, the semiconductor shortage in the one or the other area from one or two other, you know, well-known suppliers has, you know, slowed us down here and there in the start of the year in some of the business units. This happens at the same time with a growing order book. I think Q1 start is very much driven by the availability of components and too early to say where this will land.
Mm-hmm.
On your third question about market share, well, we have finished 2021 with a very remarkable light commercial vehicle market share of 14%, if you compare this to historic levels. We have great momentum here. Our electric Daily will only come to market at the end of this year and then roll out across 2023. Given our strong position in the light commercial vehicle segment, we expect quite some take rate there, but this will not show in market shares in 2022. It shall only come in 2023 when the electric adds on top. In the medium, we are well underway. I think there's nothing to comment there. Strong, good performance.
On the heavy duty side, we do see room to further grow our market share subject to the supply situation with components. This is, as I commented as well, I mean, market shares in 2022 will continue to be very much impacted by the ability of an OEM to supply rather than the actual demand for the respective brand. We do our best to push things further north. On the heavy duty bus side, we are chasing the number one. We have, you know, closed the gap to only 2 percentage points in heavy buses. You know, ambition is clearly to go for more here. Let's see how the year will play out.
I clearly see the room to grow and room to gain market share, some market share in some segments over some of the competitors entirely driven by our ability to have the supply chain enabling us to get the products to customers.
Okay. Thank you very much.
Thank you. We will take the next question from Michael Jacks from Bank of America. Please go ahead.
Hi, good afternoon. Thanks for taking my questions. I have two. Firstly, just going back to your comment on free cash flow. Is my understanding correct that the net receivable from CNHI of around EUR 440 million at year-end is included in this assumption? And if so, do you expect to generate positive free cash flow excluding this amount? And then just my second question is if you can just help to clarify, if I heard you correctly there around an expectation of about 5% industrial revenue growth for 2022. I mean, this doesn't really seem congruent with reducing order book durations down to 25-30 weeks versus the current high level. If you could perhaps just comment on that as well. Thanks.
Okay. Francesco Tanzi speaking. For the first question, for what is concerning the receivable for CNH Industrial, they were settled during the months of January, and they are now entering into the free cash flow. This is out of the boundaries of the free cash flow in this sense. There are commercial activities. For the second-
Sorry, just to be clear, is that included then in your expectation for free cash flow generation this year or excluded?
No, they're excluded because they were settled and expected in the agreement between the two companies for the spin-off.
That's clear. Thank you.
You're welcome.
Sorry, your second question was about the order book, why we consider 25-30 weeks a healthier level. Was that the question?
It was more in terms of your comment that you made earlier. Firstly, just wanna make sure that I heard you correctly, just in terms of how congruent reducing order book durations down to 25-30 weeks is because, I mean, I guess that assumes that you need to deliver into that order backlog versus industrial revenue growth of 5%.
Yeah, look, an order book of 40 weeks is not helpful because the lead time for the vehicles is too far in the future, and this obviously limits room to, you know, to materialize pricing and other, you know, beneficial, you know, attributes of such a deal for us. Therefore, we believe 30 weeks is fundamentally a better place. Yes. The top line projection of +5% is very much also attributed to the fact that we are adding capacity, and that we're gonna reduce the order backlog with increased capacity. Also, as we take more orders, an increased and continued price realization.
Thanks. If I could maybe just sneak in one last question. In powertrain, could you perhaps give us a sense for how much incremental revenue the new engine launches are expected to add relative to the Q3 and Q4 2021 base?
You mean the platforms that we have launched this year versus prior year, or what exactly?
Yes. I mean, I'm trying to get a sense for what sort of revenue recovery we should expect in the powertrain business of the new base X, the Stellantis contracts. Basically relative to Q3 and Q4.
Yeah. We are launching several new products and actually customers in that site, and we expect those revenues to be caught up with what we've lost by the end of 2023 with programs and platforms that we ramped up by the end of 2023.
Thank you.
Thank you. The last question for today comes from the line of Martino De Ambroggi from Equita. Please go ahead.
Thank you. Good morning. Good afternoon, everybody. The first question is on the operating leverage under the new perimeter. What is a reasonable normalized operating leverage for your volume growth?
Let me say that we are starting from a net financial position, a cash with EUR 1.1 billion at the end of the year. We are expecting that this position will be basically as stated also by Gerrit Marx in his outlook. By the end of 2022, there will be certainly some seasonality. As you know, seasonality in our business is Q1, which is absorbing cash. Q2 is starting to generate cash. Q3 as well is absorbing. Finally, the most sizable cash is built up in the fourth quarter. During this seasonality, I would say that the target that we have looking forward is to generate cash, as we have stated also in our strategic industrial plan for the next foreseeable future.
This year, certainly we would like to be in a position to have cash at the end of the year positive versus what we closed the December 2021. To offset the seasonality over the year, we have signed two agreements, one that is split in two. The EUR 1.9 billion facility is split in two parts. EUR 1.5 billion is revolving, actually, unfunded, so we are not drawing and cash from that. The second one is a term loan of EUR 500 million, which basically can be in a position to offset the seasonality during the year.
Okay, thank you, Mr. Tanzi. Actually, my question was the operating leverage. Meaning, every 10% higher top line translates into how much of a return on EBIT, very roughly. In the older CNH, it was at 25% or more. Just to have a rough idea of what is in the current perimeter.
Let me say the incremental margin is in the region of high teens.
Okay, thank you. As you elaborated on the financial structure and so on, just to understand if EUR 3.3 billion liquidity, as you mentioned before, is considered a normal level of liquidity causing some cost of carry, because it is functional for your activity or may be reduced. I don't know if I can get a comment on the possibility to use this cash. Presumably, you need to fund CapEx, but why not buy back, or if any, at any price, it's impossible.
Well, let me say that for the sort of buybacks that you mentioned, we do not foresee any buyback of shares in the foreseeable future. For what concerns the liquidity, the EUR 3.3 billion is a liquidity margin. It includes the cash available at the end of the year, plus the undrawn portion of the syndicated facility that I mentioned. If we are talking the EUR 3.3 billion as a sum of the available liquidity and the undrawn portion of the syndicated facility, we see that we are running at the EUR 3.3 billion. But effectively, the liquidity that runs a negative carry is the one that we have in the balance sheet, which is roughly something more than EUR 1 billion.
for what concerns looking forward, we have of course to respect the standard of the rating agency. We are rated investment grade by Fitch. They ask us to have always some available liquidity, and we have the EUR 1.4 billion revolver, which suits the possibility to offset any shortage in our cash flow looking forward, despite the fact that as of now, we are looking forward to generate cash. I would say that the EUR 1.1 billion is the cash available for our business to fund the CapEx, to fund the operating cost, and give us a certainty of funding for the operations.
Thank you. If I may very, very last to get a comment on the improvement in the rate on net sales you mentioned before. If I understand correctly, you have higher volumes because well, depending on the shortage of components and so on. Price is able to offset the inflation, the cost inflation. What is negative in your bridge for 2022? Is it mix because the S-Way is still unprofitable, or what else?
Let me say that on 2022, certainly, as also Gerrit mentioned at the very beginning, we are expecting raw material and semiconductor and supply chain to certainly has the power to influence our margins at least for the first part of the year, because we consider to offset this as a whole for the entire year 2022. This is basically what we are expecting, and I don't see any other elements apart from raw material supply chain that can be in a position to give us other question mark.
Yeah, maybe just to add to that, we have continued and continue to do so as we speak, to further realize net pricing also on the S-Way diesel versions, that have now improved considerably versus the Stralis years, which were the year 2019. We have also here substantially closed the gap or narrowed the gap between the marginality of an LNG truck and a diesel truck, thanks to that pricing activity in certain markets. We're on a good trajectory here, also for 2022, further gaining ground in gross margin for this most challenged business that we have, which is the heavy duty.
Okay, thank you.
That will conclude the question and answer session. I would now like to turn the call back over to Federico Donati for any additional or closing remarks.
Thank you, everyone, and have a nice rest of the day. Thank you. Bye.