Warm welcome here from our side in Munich. We hope that you and your families are all well. Together with me in the office is Matthias Gründler, our CEO, as well as our CFO, Christian Schulz, and the usual suspects from the legal, finance, communications, treasury and IR department. As you are all aware, we signed on November 7th, a definitive merger agreement with Navistar, and therefore we will use today's call also to give some insight into the transaction. Afterwards, we provide you with a brief update on how TRATON did during the first nine months of 2020.
As most important KPIs were already pre-released on October 21st, and we also notified you about our market outlook for fiscal year 2020 on October 28th. Matthias will kick off the conference call, with all around Navistar transaction, continued by Christian, who will guide us through the results section. In the interest of time, today's quarterly section is a little bit shortened and shorter than normal in the main deck, but you have all the information which we regularly provide in the backup of this presentation. After the presentation, we will host a question answer session on both topics, on the Navistar merger agreement assignment, as well as on the nine months results. Before I hand over to Matthias, just a couple of housekeeping items.
First of all, we hope you have seen all the material for today's call, which is the press release, as well as the interim statement and the IR presentation. If not, you will find them all on our TRATON website. I also should make you aware of the disclaimer, which you will find on page two in the presentation, and we will not go to read this disclaimer. With that, I hand over to Matthias for the first couple of slides.
Thanks a lot, Rolf. A warm welcome from my side. We are happy that on last Saturday, we reached a definitive merger agreement with Navistar. The deal accelerates our Global Champion Strategy by creating a global leader across key truck markets. We, the TRATON management team, are very much convinced that a combination of TRATON and Navistar will create sustainable value for our clients as well as for our shareholders. I'm now on slide four, where we provide a transaction overview with the respective key facts. Navistar ranks currently as the number 4 manufacturer in the U.S., with a revenue of $11.25 billion US in their respective fiscal year, 2019, and a wide range distribution network with more than 1,200 dealers in the NAFTA region.
The acquisition rationale will be elaborated in the next section, but the key points are access to the NAFTA profit pool, deliver on our Global Champion Strategy, leverage powertrain components, in particular, the Common Base Engine across brands to generate significant cost savings over the years to come, and achieve a well-balanced and global footprint with complementary regions. We will acquire all outstanding common shares for $44.50 in cash as a one-step merger with full support of Navistar's two largest shareholders. This reflects an equity purchase price of about $3.7 billion. Financing of the transaction will be provided by Volkswagen. The loan for the purchase price totals EUR 3.3 billion and has a tenor of 30 months. TRATON intends to refinance the bridge via the capital market, we are not ruling out any refinancing instrument.
We think there is significant more value in TRATON, and it will materialize with the execution of the aligned restructuring plan, the opportunities arising from the Navistar transaction, and the strength of the Scania brand. Our current share price is not reflecting this yet. TRATON is committed to maintain a solid investment grade rating post-transaction. Last, closing is expected mid of 2021 and subject to regulatory approvals and customary closing conditions, including Navistar's shareholder approval. I'm now on slide five. TRATON has been in a strategic alliance with Navistar for almost four years already, when we acquired a 16.6% stake in Navistar. The key objectives of the collaboration were access to the North American market, establishing a procurement joint venture, and a technology cooperation for joint powertrains and future technologies. With a full acquisition, we are now in the position to fully capitalize on the incremental synergy potential.
This brings me to page six. If TRATON could wish for a perfect fit to close the gap in North America, it would be active only in North America with focus on trucks and buses above 16 tons. It would be able to deploy technology that TRATON can provide. It would be a company which we can work with easily. As we can see on this slide, all four acquisition rationales perfectly underline the wish. It will come true. Navistar is the perfect fit for TRATON. It offers the opportunity to access the attractive NAFTA profit pool directly with a highly complementary geographic footprint with no product cannibalization. As mentioned in the beginning, TRATON will be able to capture more than 75% of global profit pools as NAFTA accounts for 35%.
Further, we deliver on our Global Champion Strategy with this transaction and will use our strong market positions to further create value and sustainability, establish TRATON in the first row of global truck makers. Page nine. By leveraging powertrain components across our brands, we can generate significant cost savings over the years to come as the powertrain stays for a significant amount of the manufacturing cost of a truck. Our Common Base Engine, which will go on start in 2021 and will help to amortize costs over a significant higher volume. Just as a refresher, the powertrain stays for almost 65% of the total manufacturing cost of a truck. As we target for CBE to achieve an 80% commonality level and avoid that each brand develop its own engine, the consequence is clear. Leverage cost synergies throughout the group.
From 2025 onwards, over 50% of our heavy-duty trucks will be propelled by this engine. Brings me to page 10. Last, with the acquisition of Navistar, we as TRATON will achieve a well-balanced and global footprint. That means we will generate a significant share of our future revenues in the NAFTA region and balance our total revenue, which so far was largely sourced from Europe and South America. Further, TRATON can then serve three key truck market regions, which all have distinct cycles. During the 2017 US downturn, South America continued to grow. Likewise, during the 2016 US downturn, Western Europe continued to grow. Serving all three regions will permit to smooth out the amplitudes of the regional cycles. Page 11. We as TRATON remain committed to achieve a 9% through the cycle margin.
The distinct brand performance, the new truck lines, the key powertrain packages, and future technologies should all help achieving these goals. Page 12. Looking back, there have been a few milestones along the way since TRATON was established. The acquisition of Navistar will accelerate our Global Champion Strategy, and it's a natural next. Going forward on this deal will put our focus on the successful integration. Brings me to page 13. This leads me to my last slide of this section, the status and next steps. The Navistar AGM is expected to vote on the deal in Q1 2021. The transaction is expected to close mid-2021, subject to regulatory approvals. The geographic footprints of TRATON and Navistar are almost entirely complementary, and therefore, we do not expect delays from competition agencies reviews. The delisting of Navistar is envisaged to take place shortly after closing.
Overall, the deal is a great opportunity for our company and for our stakeholders. I'm very happy and proud to run this further with the management team. Navistar will not be our sole focus until the rest of the year. Three other topics are of utmost importance. With a new family member, we will focus to retain and even further develop our TRATON Holding with dedicated value-adding services for the brands. We want to reach an agreement with our unions on the necessary restructuring at MAN Truck & Bus. We need to further stabilize and even improve the brand performance during COVID-19 times. With that, I hand over to Christian. Christian, please.
Thank you very much, Matthias, and also a warm welcome from my side. In the beginning, let me make some remarks on the current situation we are facing. We are still in an unprecedented situation because of the COVID-19 pandemic. We saw a significant decline in demand and supply chain disruptions in the second quarter. A substantial part of production capacities was closed or idled mainly from end of March to large parts of April. We were able to stepwise restart our production, including supply chains, at the very end of April and saw the positive direction in May, starting continuing into the third quarter. October confirms the positive trend seen lately, we remain cautious given current rise of infection rates. As everyone in our industry, we once more focused and are still focusing on managing cost reduction and established measures to safeguard our liquidity.
The economic outlook for 2020 in October has been adapted slightly positive as the signs for economic activities within the third quarter have been released. Still, the contraction for 2020 is expected to be much worse than it was at the financial crisis in 2008 and 2009. This is why we still stay alerted and focused. For 2021, the IMF is forecasting a noticeable increase for all major regions. Clearly, the economic downtrend triggered commercial vehicles markets globally to contract significantly. With only the fourth quarter outstanding, most third-party research foresees a decline of the truck market in Europe of -30% to -35% and -10% to -20% for Brazil. All a notch better than what was seen last quarter. Looking at all regions around the globe and having several shutdowns in mind, there is still a high level of uncertainty for weeks and months to come.
On page 15, incoming orders declined by 14% to 145,933 units in nine months. All figures were negatively impacted by COVID-19 pandemic, but the positive trend seen end of second quarter continued in the third quarter. Unit sales were down by -29%, 227,660 units in the first nine months. Same here as on the order front. We saw the positive trend set in May continuing into Q3. TRATON Group sales revenues decreased by -21% and fell less than unit sales thanks to our after-sales business. Operating profit in the first nine months, still negative at minus EUR 58 million, driven by the EUR 382 million loss in the second quarter, but with a catch-up in Q3 with EUR 162 million positive. Adjusted operating profit is down to minus EUR 9 million, close to break even.
That means nine months adjusted return on sales was slightly negative at -0.1%. Last net cash flow in the industrial business was at EUR -148, versus EUR 2,323, one year ago. Please have in mind, last year's investing cash flow was supported by the sale of Power Engineering with EUR 1,978,000. Excluding this, the swing year-over-year was positive EUR 493, thanks to a solid net cash flow generation of plus EUR 199 million in third quarter. The net cash flow in the light of COVID-19 looks acceptable. Other topics to mention, I will run through some topics in a minute. For your reference, we listed them all down here. Page number 16 leads me to the next slide, which is showing the development of our unit sales and incoming orders.
Overall, vehicle utilization in most regions, especially in the long-haulage truck business, saw a continuation of the positive development since May. The market recovery went faster than expected. With close to 50,000 units sold, we are still not on the pattern we saw in the years 2018 and 2019, but as it can be seen on the right side, the gap to previous year's level narrowed significantly. Looking at the year-over-year change on the right, we see that unit sales are following the incoming order momentum, which was strong in Q3. Book-to-bill ratios were well above one for industrial business throughout the third quarter. A ll in all, the graph suggests a V-shaped momentum in the third quarter, but we still have to be careful as we all see the pandemic development increased strongly in the last couple of weeks.
Page number 17. Before we go into some specific topics, let me raise some quick highlights on the performance in the third quarter. As seen in slide before, we see a noticeable market recovery in combination with increasing incoming orders. These were up 19% year-over-year in third quarter. Very impressive is Scania, with a book-to-bill ratio of 1.5 in the third quarter. The adjusted return on sales was 3.7% and therefore above the first quarter 2020 level, which stood at 2.8%. We were able to clearly reduce CapEx and primary R&D, as well as capitalization ratio for R&D stood at 19% in third quarter. Thanks to all the developments and other actions, we were able to write a net cash flow of positive EUR 199 million.
Page number 18. Here you see a detailed view on brand level for the third quarter alone. Highlights are Scania had a book-to-bill of 1.5 in third quarter. Sales revenue declined by only 15%, while unit sales were down 25, mirroring a strong product mix. Adjusted operating return on sales close to 9% and compared across competition on like-for-like basis, again, benchmark for the industry.
MAN on strong volume year-over-year and sales revenue followed. The operative loss declined to EUR 27 million and was better than Q1, mirroring the production stop relief since in late March and the fact that we make good progress on the cost side. Volkswagen Caminhões e Ônibus sales revenue was clearly impacted by exchange rate, but again, positive on return on sales. On page 19, similar to our first half year reporting, I once more can just reiterate what was said in the last weeks and months.
TRATON looks at a sound balance sheet and ample liquidity. Both are highly important elements as they give us the freedom to concentrate on the steps necessary to emerge stronger from this crisis. In general, our balance sheet position is strong with an equity ratio within the industrial business of 36% and a net debt adjusted EBITDA ratio of -0.5, even after the end of the domination and profit and loss transfer agreement with Volkswagen AG for the FY 2019. EUR 1.4 billion has been transferred. Our gearing is currently at only -6%. That also holds true looking at our liquidity. Thanks to strict cash management unrestricted cash of EUR 2.1 billion and credit lines of EUR 7.7 billion, we are able to safeguard liquidity in these uncertain times.
As announced, TRATON SE took out its first syndicated revolving credit facility with a volume of EUR 3.75 billion in the third quarter. Further reducing operating costs by repricing our CapEx and R&D expenditures, we once more took decisive action. If you please go to page 20. Here, we've put all together relevant information on the MAN realignment. Negotiations have been formally begun and shall be successfully closed, hopefully, by the end of the year. We can witness, there's a clear momentum at MAN Truck & Bus, of course, we keep you posted when we have an update here. Next page. One highlight worth mentioning is the signing of a joint venture agreement for e-mobility with our partner, Hino, with the scope to develop electric vehicles and relevant components.
The extensive know-how of the MAN, Scania, and Volkswagen Caminhões e Ônibus brands will be concentrated at the TRATON office and combined with Hino's expertise in alternative drive systems. We believe this will shorten lead times for future e-mobility products, be it battery or be it fuel cell technology. Further, we have introduced strong products during this year, which underline our strong efforts to further develop our portfolio. Here I would like to emphasize, in particular, the innovations in the electrification of our trucks and buses. If you go to the next page, after highlighting some latest news within our group, I would like to conclude the presentation with our outlook, which we already made public in an ad hoc release on October 25th.
Provided there is no further increase in the number of COVID cases and no associated countermeasures are adopted by the relevant countries. Subject to the potential impact on our production and supply chains, we are assuming that our business activity will continue to recover by the end of 2020. However, we are anticipating a sharp decline in total unit sales worldwide for the entire fiscal year 2020 due to the market downturn. In line with unit sales, we are assuming that the sales revenue of TRATON and the industrial business segment will also decline substantially year-on-year, and are expecting an operating return on sales for the TRATON GROUP of between -1% and +1%.
The projected operating return on sales does not contain any expenses for the realignment of MAN Truck & Bus announced on September 11th. Due to the ongoing nature of the negotiations, obviously, with the employee representatives, it's not possible to predict the timing, as well as not the amount of these expenses at this point in time. For the cash conversion rate, we are anticipating a negative net cash flow in the industrial business segment. As mentioned already in the beginning, truck markets from a third-party perspective can end up at -30% to -35% in Europe, and in the bandwidth of -10% to -20% in Brazil. With that information given, Matthias and I are happy to answer your questions in the due course of this meeting.
Thank you, ladies and gentlemen. It is from Klas Bergelind of Citi. Your line is now open. Please go ahead.
Thank you very much. Hi, Matthias and Christian. It's Klas at Citi. First on Navistar, I obviously appreciate that there are no hard numbers on synergies right now. If we think of the likely trajectory, at least, you're starting introducing the CBE in Scania in Europe next year, the year after in LATAM, and then you have MAN and Volkswagen Caminhões e Ônibus 2024 and 2026. How much technology transfer can you really push through with Navistar in the short term? Obviously, when we look at the trajectory of the current brands, the synergy potential on the powertrain seems a little bit back and loaded. Just to understand the shape of the powertrain synergies at least.
Thanks very much for the question. I think you shouldn't forget that we are already in four years where we actually work together in our alliance. We know each other well, our projects are running well, and I can tell you will not wait until the end of the century that we're going to see efficiencies. They are going to come significantly earlier.
That is good.
Matthias, yes. Klas, what Matthias has said, look, so far with all the components that might come to Navistar, we would have only been possible to participate with our, let's say, 70% shareholding. If there's a full takeover, obviously, if the success of the product is in the market, then we can also benefit on the full scale. Yeah.
The reason for asking is obviously Navistar is sourcing from Cummins currently, and you have the 13-liter coming out now with Scania. How quickly can we see that shift over? I guess that is the question.
Hey, look, we're going to give more color after this, once closing is done. I think you understand this, huh?
Yeah. Sure. My second one is on the guidance for the year. I appreciate it's sensible to be prudent, but obviously looking at the numbers here, particularly on the Scania side, you have a very strong order book into year-end. Your book-to-bill is 1.6 on the truck side in Scania, and that would suggest that the margin could increase sequentially as you deliver out of the backlog around production. I get that orders can be weaker in November onwards in Europe, but not really sure why the margin would go backwards. I totally get the message in the press release, but just wondered, Christian, if you agreed with my reasoning at least, that you have a lot of deliveries coming in into the fourth quarter.
I emphasized on orders, obviously. For us, it's very simple, Klas. We've seen how quickly the world turned in March, April. If you see infection rates in Europe, which is for sure one of the core markets, nobody can rule out how the next six to eight weeks will come. Obviously, there might be things, as you have said, we are prudent people. Yes, I said it before, we have positive feedback so far from the market, but we rather be prudent when it comes to the entire year. I think this is not a mistake, quite honestly.
No. I understand. It's just that the backlog looks so strong in Scania. My final one is on the cooperation with Hino. Now focusing also more on the fuel cell side, similar to what Volvo and Daimler are doing. What is the scope here of the JV? Is it on the truck and the powertrain only, or are you also thinking of including infrastructure, fueling stations similar to what we see at Nikola? Are you relying on subsidies and partnerships here, going forward?
No, in the moment, we're really focusing on the technical side of the product at this point in time when it comes to electrification, when it comes to fuel cell. We are especially exploring all the opportunities we have on the fuel cell side when it comes to Nuremberg to evaluate what we can really do here.
Keep in mind, Klas, the joint venture was just announced recently, so there's plenty of things to discuss. Yeah.
The key question we get from investors is obviously whether there could be some first-mover advantage from startups in that they're also providing the infrastructure. That's the reason.
Look, again, it is too early, but Hino and Toyota have a good track record on fuel cells, so let's see where the joint venture leads us to.
Thank you.
Thank you. The next question is from Hampus Engellau of Handelsbanken. Please go ahead. Your line is now open.
Thank you very much. Hampus Engellau, Handelsbanken. Two questions from me. I'm sorry for coming back on this Navistar and Indian situation here. They signed a two emission cycle agreement with Cummins. They're targeting to implement your 13-liter engines. Does this mean that Cummins will continue to supply engines on the 15-liter side, or what's the thinking here? That's my first question.
I'm just really sorry, but at this point in time, we are not really commenting on this. You have to wait until closing.
Okay. Maybe on Navistar. Everybody has the history with Navistar and the MaxxForce big bore engine and pushing in EGR when you were changing. Everybody else went for SCR solutions. That eventually resulted in a 5-6 percentage point market share loss. Given where you're heading now, are you aiming to regain Navistar's structurally lost market shares? How should we think about that going forward? Is that a reasonable target given that you have a quite competitive engine?
Hi, Hampus. It's all well understood, yeah, that you obviously want to get more information and gain more information actually on how Navistar will continue with its supply chain and so on and so forth. We have to ask at this point in time for your patience. You know that's quite complicated until closing for us to comment on. Navistar is an independent company, and we refrain from speculating. Therefore, please be patient. After closing, we will answer all these questions.
Okay, fair enough. I hold my horses.
Thank you. The next question is from Demian Flowers of Commerzbank. Please go ahead. Your line is now open.
Hello. Thank you, Matthias, Christian. My first question is about demand. In Q3, the sales volume growth was clearly better at MAN than it was at Scania. When we look forward, when we look at the order book, that seems to be reversed. The Scania book-to-bill, as already mentioned, is better than that at MAN. I sort of assumed that given all the new product you've got at MAN that you would be seeing continued strong momentum there. Is the orders that you're seeing a bit disappointing? Can you make a comment on the demand dynamics that we're seeing there between those two divisions, first of all?
I think if you compare with your previous year, as you know in comparison back then, Scania market share in Europe has been down because of the spillover effect of the new truck generation Q1. That's clear from the history. If you see order book in Scania is quite strong, as you have said. On the MAN side, well, look, we're going to introduce the new generation of the heavy duty truck in the due course of next year. As we have said before, we also need to watch out that margins are safeguarded there. This is basically, if you so will, introduction strategy to a certain extent. I wouldn't say that we are disappointed on the MAN side. I think it's going according to check.
If you remember, Demian, the discussion we had in the IPO, how important it is that the launch of the new MAN truck, obviously would have been a better timing without the COVID crisis in Europe. We need just to be, let's say, sensible, and this is what you see there. Yeah.
In terms of the timing of when we'll start to see that, in which quarter of next year meaningfully hitting the MAN volumes? Is it in the first half?
I think I would rather say second to third quarter, you will see the share of those new heavy duty trucks arising.
Okay.
Obviously, depending on the overall market dynamics, right?
Yes. Just to follow up on MAN's profitability. When I look at your guidance and also the MAN guidance of EUR 450 million to EUR 650 million loss, clearly you're pointing to a weaker Q4 versus Q3. Is that dynamic all about volumes getting softer, or is it also about other cost headwinds that are playing a role as well at MAN?
If you look into the past, Demian, you see Q4 always is one of the weaker ones, right? In every year. Second thing is again, all the, let's say, discussions we currently see and the ramp up we still have there. Don't forget, we ramped down our production in the first half of the year. We needed to restart it. We have all these distancing things. You need to be careful what you do in MAN now in the fourth quarter. I think it's rightly said. Yeah, hopefully we are improving.
Okay. Good luck. Thanks very much.
Thank you. The next question is from Horst Schneider of Bank of America. Please go ahead.
Yes, good afternoon. Thanks for taking my questions, too. Before I try it again on Navistar, maybe first of all, another question related to the business you own already. When I look at the Scania charges in Q3, w as that now all the charges that we should expect, or is there the bulk of the charges only to come in the fourth quarter? That is my first question.
I think you might see minor ones continuing, but not in the same magnitude. I think by second quarter next year, everything should be baked in.
The larger part is coming just in next year? Because for 5,000 employees-
No, the other way around, Horst.
Yeah.
I just said, the 50 you saw, you might see the one or the other smaller thing, and this might continue until second quarter, but not in the magnitude you've seen in the Q3.
All right.
Okay?
It sounds like a quite cheap restructuring, right? Given the fact that you reduce 5,000 employees, or you reduce now less than you wanted originally.
There are other things. First of all, Scania has reduced significantly costs last year already in the fadeaway of the dual ramp-up costs, right? They decided to take out the 5,000 people. Obviously now with a higher order book on the direct side, you have a small counter effect depending on how the volume comes. What you saw here in the first quarter is structural things like the bus plant in Finland or other things where you really now take actions there. I wouldn't say that we didn't meet our expectations. That's not the case.
Okay. The other question I tried again on Navistar, especially related to potential fees from the acquisition. You book any of these fees already in the fourth quarter, and if yes, in which segment?
I'd say no.
No.
Closing.
No, with closing.
Okay. I guess you cannot yet comment on any purchase price allocation effects, right? That you can only do post-acquisition, right?
Hey, Horst. This is a nice try, okay? Thank you.
All right. On the refinancing again, because you said you leave all options open. You decide on these options before the acquisition, or you decide on that when the deal is fully closed and all is fully consolidated?
It could be both.
Of course, what I'm pointing to is the risk of a capital increase, or not risk, but the possibility of a capital increase, when you would decide on that?
First of all, I would say both. We will think through what we do, in the refinancing of the debt in the course of the next couple of months. There's nothing more to say than what Matthias has said. We keep open which instruments we use from the capital market. I understand the background of your question, but I will not comment on this. We will cross the bridge when we get there.
All right. Thank you.
Thank you. The next question is from Nicolai Kempf of Deutsche Bank. Please go ahead.
Yeah. Thanks for taking my question. Nicolai Kempf here at Deutsche Bank. My first question would also be on MAN. Can you give us more updates here on how MAN should improve and how the margin of 8% should be achieved? I understand that the biggest lever should be labor cost, but what else can be done? My second question would be on your alternative powertrains. One of your key competitors announced last week at its capital markets day, an electric vehicle sales target. When will you provide something similar like that?
You start first to MAN.
Yeah. MAN is quite a holistic work we need to do. When it comes to material costs, we're going to attack there. When it comes to the overall head count, we're going to attack there. When it comes to the overall plant structure, we actually have to improve there significantly to actually get the inbound and outbound logistic costs down. It's really in every area, we actually going to have to improve the company.
Keep in mind, we just introduced a new heavy duty truck. That means, like Matthias has said, not only on head count and whatever is going to be agreed with the unions, also on the material costs, you have way more potential because if you have a new truck, it's something different when you discuss with your suppliers if you then have a 20-year-old truck, obviously. There's lots of potential. Yeah.
What was it? Electrification.
Yeah.
Yeah.
Sales targets for electric vehicles.
No, we're not going to announce them now.
No, not now. We are debating them, but we are not ready for announcement.
Okay, thanks.
Thank you. The next question is from Henning Inger of UBS. Please go ahead. Your line is now open.
Hi, Zeynep from UBS. Hi, Matthias. Hi, Christian. Thanks for taking my question. Just a couple on my side. I'll take one at a time. Firstly, just going back to MAN. Could you maybe help us with any launch-related costs that you're still incurring and for how long we should expect that to continue?
Until Q2 next year, we will have some costs there, especially when it comes to manufacturing, because in the ramp-up, as I said before, with all the COVID measures, it's surely different than what we have planned for. By second quarter next year, hopefully those might be gone.
Right. Do you have a rough magnitude on how much are the costs currently that you're incurring related to this?
We don't communicate this, sorry.
Okay. Guess secondly, in terms of pricing, could you maybe just help us with, given that the overall strength of the truck market, particularly for Scania, are you actually getting any pricing benefits for Scania? Also, with the new truck launch in MAN, are you getting any price increase from that?
Well, one can only comment that we were still able to hold the price point we wanted to with the new truck generation on Scania, as you can also see reflected on their margins. I've said before that when we talked about the orders and the question in the beginning of the call, that we are very prudent when it comes to the ramp-up of the volumes of the new heavy-duty truck on the MAN side, exactly because we are going to follow a policy which is margin before volume on that end. I can only say we are satisfied with the targets we've set ourselves.
Understood. Thank you. My last question is on working capital. I think it's been very strong in the past two quarters. I guess with ramp-up in production expecting in Q1, potentially into 2021, how should we think about this working capital going into full year?
As you rightly said, we had a very good trajectory, I would say, in the second and third quarter when it comes to optimization of working capital and also the cash flow of the plus EUR 199 million in the third quarter is a showcase for that. Obviously, now if you see the order book, if you would eat up that order book, of course, you have increased working capital in there. I think that the spirit of cash flow optimization remains, but without doubt, there will be an effect in the fourth quarter when it comes on eating up the order book.
Yeah. Thank you very much.
Thank you. The next question is from Himanshu of Jefferies. Please go ahead.
Hi. Good afternoon. Thanks for taking my question. The first one actually follows from the previous question on your industrial net cash flow guidance. You're guiding for negative net industrial cash flow for full year 2020 versus negative EUR 150 million year to date. I understand Q3 was quite strong, and normally Q4 is a strong cash quarter. Are you guiding negative cash flow for full year because of the working capital ramp-up, or is there something else?
Thanks, Himanshu. Two effects. As I just said before, if you ramp up production and your working capital is suffering from that's one aspect. Other than that, you saw that we have a prudent forecast when it comes to the EBIT guidance, those two factors relate to the cash flow guidance.
Is your cash flow guidance based on the EBIT midpoint?
Yes.
Okay. Got it. Secondly, on the Hino JV. Recently, Hino also signed a joint venture with Xox Trucks, electric trucks in North American market. You also have a JV with them on electric and fuel cell trucks. How is that equation going to work? Is their JV limited to North America with XOS and with you in Europe? If you could just shed some color on that.
Our joint venture with Hino is not limited to Europe. It's a global joint venture. We need to see after closing what opportunities we have with Navistar on that joint venture. All things are open for creativity.
Okay. Their joint venture with Xos Trucks in North America, is that something that'll affect your positioning in North American market with them?
No. We cannot comment on Hino's joint ventures and how this would relate to a deal with Navistar that not yet has closed. Let's debate this if time has come. Okay? Thanks.
Okay. Thank you.
Thank you. The next question is from Sal Mashada of Seaport Global. Your line is now open. Please go ahead.
Hi, good afternoon. This is Sal Mashada with Seaport. I guess question on the transaction process. What is it that you think will be the last to occur of the necessary items before closing?
There's two things. One is obviously the shareholder meeting of Navistar, as Matthias has outlined, is supposed to take place in Q1. Obviously after this, the normal regulatory approvals like CFIUS and antitrust, and then there's basically closing them. That's it.
Okay. The reason I ask is because, I guess in a departure from what would be customarily true, the closing can't, or I should say, there's no obligation to close before July the 1st. Both the items you mentioned would be conditioned, so it'd be impossible to close, or the obligation to close wouldn't exist before the conditions are satisfied. That July 1st closing definition is completely separate from the conditions. Is there something with financing or some other procedural-
No. It's just, I mean, we are in the middle of COVID times, right? I mean, now Navistar plans for a shareholder meeting. If they do it in Q1, let's give ourselves a couple of weeks to get the antitrust thing done and the CFIUS thing. There's nothing that you suspect on other topics. It's purely shareholder meeting, then all the governmental procedures, and then that's it.
Is that to say that-
It is a prudent timeline.
Sure. No, I appreciate that it's prudent. That's why I'm focused on it a bit. I mean, if you get everything you need prior to July the 1st, do you intend to close prior to this artificial deadline?
It depends. It's hard to give a correct answer to these questions. I can only say Percy and the team now are heavily focusing on getting the shareholder meeting. We see that the votes come there, and then we go into the regulatory process, and then we see how the end is, and then we give you an update on every quarterly call. Okay?
Okay. Thank you.
Thank you. The next question is from Daniela Costa of Goldman Sachs. Please go ahead. The line is now open.
Hi. Good afternoon. Thanks for taking my question. I only have one. I wanted to ask you conceptually about the thoughts regarding the revenue opportunity. When you look at electric vehicles, one of your peers recently have said they think it could be 40%-50% higher than current. I was wondering, how do you think about that? Related to that, when we think about the aftermarket profitability, do you think there will be any meaningful changes compared to IC trucks for the new powertrain trucks aftermarket? Thank you.
I actually think the corridor you mentioned of 30%-50% is very reasonable, and we see it in a similar way. Yes, there will be a significant long-term difference when it comes to after-sales, as a lot of revenues are generated by the powertrain on the after-sales side. Nevertheless, we also see the opportunities when it comes to battery cell exchange and so on, that there will be a new field of after-sales business which we don't have today. We need to work on that, but there are opportunities for us.
Regarding the profitability of the after-sales, is it similar in your view to current?
Yes, it's going to be similar. That's what we are targeting for.
Thank you.
Thank you. The next question is from José Asumendi of JP Morgan. Your line is now open. Please go ahead.
Thanks very much, José. JPMorgan. Hi, Matthias, Christian, and Rolf. A few questions, please. Maybe the first block, Christian, can you give us some guidance, please, on restructuring cash outflow for the year 2020 and 2021? If you don't want to give us 2021, just 2020, please. Also, some color on production Q4 versus Q3 for MAN and Scania. If you could quantify sequentially Q4 versus Q3. Otherwise, a simple guidance of flat, lower, or higher versus Q3, please. For Matthias, a couple of questions, please. A bit more strategic. As you think about the group and capturing that aftermarket business as you transition into electrification, you would say you're part of a much bigger group, obviously, that has a huge bench in terms of technology. How deep or how vertically integrated do you want to go in terms of the key components?
I'm thinking about the electric motors, transmissions, et cetera. Can you go in a different direction and change the vertical integration of the truck in that sense? Second, can you comment a little bit about your thoughts around the free float of the company and whether this is a topic that is still being considered or not? I think an important topic when we speak to investors, obviously improving the free float of TRATON would be very welcome. Thank you.
Christian, José, thank you. First of all, on the cash flow on the MAN, while we are speaking here, we are negotiating with the union. There is not yet an arrangement to say that you can predict how much do you need to accrue or when do you pay it out. You just need to be please, a little bit more patient on this one. Yeah? I can only tell you we are making good progress, but more is not to be said today. The second question, quite honestly, I didn't understand because the connection was really terrible. Can you try to repeat it?
Is it correct that you were asking for the vehicle integration or the vertical integration in the vehicles between the-?
That was the third one. It was the second one that I didn't get. What was your second one?
Very simple. Production Q4 versus Q3, MAN and Scania. If you can give us some either quantitative guidance, how do you see sequentially, or simply do you think it is higher Q4 versus Q3, flat or lower?
Okay.
Lower.
MAN similar levels, Scania slightly up.
Thank you very much. Matthias, please, on the other topics, free float of the entity of the group in terms of the market cap free float. The second question, yeah, the key components.
I'm sure we're striving for the key components to actually integrate over the brands. We need to see when is the optimal timing for doing that investment and really exchanging the components. We have a strategic plan for that. Yes, we are striving for the big, really effective components to be integrated across all our brands, for sure. That includes, surely, Navistar. With the free float, we said before, we leave all options open and we see when time comes, when it's appropriate timing.
On the key components, you were referring to the electric truck, right? That is what I am trying to get to at the end of the day. You have an opportunity to increase the vertical integration of the business and capture additional aftermarket going forward.
Absolutely. We need to. If we don't get the aftermarket on the combustion engine, we need to do it on the electrified truck, for sure. Most probably, they will need different sales instruments, but we are working on that.
Great. Super. Thank you. Thank you very much.
Thank you. As there are no further questions, I would like to hand back to you.
Thank you very much for your numerous participation, actually, in that call. That concludes the call. Please keep the IR team busy with any unanswered questions. They are here in Munich, and they will take your calls, Marvin, Thomas, Helga, and myself. We look forward actually speaking to you again once we have the fiscal year numbers ready. That should be in March 2021. Look forward actually to catching up then. Thank you very much for participating.
Thank you. Bye.
Thank you. Bye.