Dear ladies and gentlemen, welcome to the nine months 2019 conference call of TRATON SE. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Rolf Woller, Head of Investor Relations, who will lead you through this conference. Please go ahead.
Many thanks, Kai. A warm welcome to everybody from Wolfsburg to our conference call on the occasion of the nine-month results 2019. Together with me here in the room is Christian Schulz, our CFO, Julia Kroeber-Riel, our Head of Corporate Communications, Annette Danielski, our Head of Group Finance, and Klaus Schartel, the Legal Counsel. Last but not least, we have Andreas Renschler today with us, our CEO. Before I hand over to the gentlemen, I have to mention a couple of housekeeping items. First of all, you should have received the presentation titled Nine Months 2019 Results. You should have received the press release on the nine months and our nine-month interim statement. If not, you can download it from our website under the IR link, which is ir.traton.com. Further on, I should draw your attention on page two of the presentation, which is the disclaimer.
Please read it carefully. With that, I hand over to Andreas for the introductory words. After that, we have Christian, who will guide us through the main deck of the presentation. Before Andreas will comment on the outlook for 2020, and afterwards, we are very happy to take your questions. We would ask you to limit your questions to one or two, as we have about 50 minutes for this call, and in order to be fair to everyone and to take everyone's questions, one or two questions per analyst would be greatly appreciated. With that, I hand over to Andreas. Andreas, the floor is yours.
Thank you, Rolf. Warm welcome also from my side, this time out of Wolfsburg. Before we go into the presentation slides, let me briefly wrap up our results for the first nine months of 2019. As you know, the economic sentiment has further deteriorated in recent months, and the third quarter became more challenging for our industry. I think it's fair to say for the whole global economy. In the third quarter 2019, we have seen signs of a weakening industry. Order intake in Europe declined significantly. How much of this drop is due to the pre-buy effect in connection with the new smart digital tachograph in the first half year of 2019, and how much is poor market weakness is hard to quantify, but we have to admit that the negative trend is accelerating.
Against this background, we saw a solid development of our key figures during the first nine months. Looking at our industrial business, we were able to perform in line or even outperform some of our core markets during the first nine months of 2019. Our truck unit sales grew without MAN TGE, which you know has much lower revenues and margin than trucks. The TGE is based on the Volkswagen Crafter. Our truck unit sales grew by nearly 6%, while our top line in the industrial business grew by + 9% on a like-for-like basis. Operating profit of the industrial business was up by 41%, adjusted for minor effects in 2019 at the MAN Truck & Bus exit of the Indian market, which impacted industrial business in the first nine months of 2018 with EUR 115 million. The increase would have amounted to 25%.
This increase was related to better volumes and product mix, as well as efficiency gains due to the elimination of bottlenecks in the supply process and the end of parallel production at Scania, together with the new truck generation introduction. On a negative side, we had inflationary cost increases, higher depreciation and amortization, and expenses in connection with production preparations for the new generations of trucks and buses at MAN Truck & Bus. The latter one weighed on profit at MAN Truck & Bus in the third quarter of 2019. Excuse me. We ended the first nine months in 2019 at 7.1% return on sales in our industrial business. Another positive story in the first nine months is the development of the net cash flow in the industrial business. It came in at EUR 345 million in the nine months of 2019.
Of course, adjusted for the sale of the Power Engineering business. More importantly, we improved the net cash flow considerably quarter by quarter. After EUR -376 million at the end of the first quarter, we improved to EUR +182 million in the second quarter and further improved in the third quarter to EUR 539 million. You can see we are further moving in the right direction on this KPI as well. Our net liquidity position in the industrial business, we have no financial indebtedness. After the first nine months of 2019 improved to EUR 1.2 billion in the industrial business. Looking at the financial service business, it saw a growth in the first nine months of 2019 in the net portfolio of nearly 18% year-over-year and 11% versus end of the year 2018. Penetration rate and return on equity remained at a very healthy level.
All in all, the TRATON Group came in at 7.5% return on sales, and are still well at the upper end of our targeted range for this year, which is, as you may know, 6.5%-7.5% return on sales. For 2019, we can confirm our targets, even though we think and feel it will be more challenging to achieve them, in particular when we compare it to the situation roughly three months ago when we spoke last time. That leads us to our 2020 market outlook. What we can say today is that without any doubts, 2020 will be even a more challenging year for our industry than the second half year of 2019. The only truck market, which is at the moment and is still foreseen to grow meaningful in 2020, is Brazil.
Our expectations for the truck market in the European 28 + 2, that means the European 30, so to say, is a decline of 10%-20%. This is why flexibility is the name of the game for the rest of the year. For 2020, further measures have to be implemented. We explain further on how we prepare ourselves for the potential scenarios in 2020. All we aim for is to safeguard our competitiveness in a potential rapid downturn in order to emerge stronger with a renewed truck portfolio and an aligned cost basis. That's as a short introduction, and with that, I hand over to Christian for the details.
Thank you very much, Andreas, and also a very warm welcome from my side. Let's jump into the presentation and let's go to page number four, which is the group highlights. Briefly, you can see unit sales up 8% for the nine months. This splits into +7% for Q1, + 12% for Q2, and +3% in Q3. There's some deceleration in the overall trend. This is largely explained by, first of all, the slowdown after the pre-buy digital tachograph that we talked about in second quarter. Secondly, we can see an overall cool off of the economic activity. If you look into the branch performance, you can see MAN's dynamic decelerated the most in Q3, with unit sales down by 2%.
The decline of truck unit sales would have amounted to -10% in Q3 if you would leave out the TGE, which is quite increased in number of sales. However, Scania saw still a fairly good development in Q3 2019, with unit sales up 6%, and Volkswagen Caminhões e Ônibus sales with positive momentum up 11% in Q3. TRATON Group sales revenue increased by 5% in Q3 and by more than 7% on a like-for-like basis. Sales revenues in Q3 ahead of unit sales by about 400 basis points, basically based on better product pricing and mix. The operating profit increased by 34% and amounted to nearly EUR 1.5 billion in the nine months of 2019. We have taken into account that in 2019 we had some minor effects, and nine months 2018 were impacted by the market exit of India, like Andreas has said before.
Adjusted for this, increase would have been amounted to 20.2%. Nine months 2019 operating profit benefited from improved gross margin, 20.2% versus 19.6%. Distribution costs grew slower than sales, and the admin expenses were stable year-over-year. The positive effect from R&D net to the P&L amounted to EUR 45 million after the nine months of 2019. The return on sales improved to 7.5%. Please keep in mind that previous year 2018 Q3 was impacted by the market exit of India, which was EUR 150 million, which you can also see in the prospectus that we have given for the IPO. Profit after tax after the nine months grew by 19%. Please bear in mind that the nine months 2018 saw EUR 111 million contribution from discontinued operations. Basically, that is the PE, the Power Engineering profit share, and before this effect, the net income rose 29% after the nine months in 2019.
Net cash flow in the industrial business after nine months totaled EUR 2,323,000. However, you know this contains the proceeds from the sale of the PE business in the amount of EUR 1,978,000. Adjusted for that, net cash flow was EUR +345 million after nine months. Other highlights in the first nine months of the year, Innovation Day in Södertälje, where we have given, let's say, some signs of our capabilities on technical going forward, and we established last week now the procurement joint venture with Hino, which is now operationally immediately. If we turn page to page number five, you can have a look on industrial business. As anticipated, the order intake continued to soften and declined -7% in Q3, bringing it down to 6% after the first nine months.
Order intake for truck went down by -8% at an accelerating trend, while order intake for buses declined by -10%, with a slightly recovering trend during 2019. The order intake for truck business, there was a considerable decrease in Europe, driven particularly in significant declines in Germany and in the U.K., which were only partly offset by other markets. Demand grew in Brazil in the wake of the economic recovery, resulting in a substantial increase in order intake in Brazil. We also saw substantial declines in our markets in Russia, India, and in Turkey. We're going to come back to that later when we discuss Scania and MAN a little bit more in detail. Order intake for buses was slightly lower in Europe than in the previous year. Substantial growth in Brazil.
Overall decline in order intake for buses was reinforced by Mexican and especially the Middle East markets that are basically down at the moment. As already mentioned, we had at the same time strong unit sales, and we have put the book-to-bill development in this context. If you look into book-to-bill, you can see that after nine months we're still at 0.95, backed by the good development in buses and the demand of the MAN TGE, of course. Talk about that in a second. If you take the TGE out on the MAN side, you see some more serious decline on trucks. Sales revenue after nine months 2019 industrial business were up 9%, slightly above the unit sales, and operating profit was up 41% as return on sales stood at 7.5%.
Financial services business, looking at the net portfolio during the first nine months of the year, up by 11%. The penetration rate continues to be well above 40%. Sales revenue is in line with net portfolio growth, but operating profits, as you can see, growing somewhat lower than sales, with a return on sales hitting 16.5%. With that, let's briefly go to page number six, where you can see the sales revenue development quarter-over-quarter. We have increased from EUR 6 billion to EUR 6.286 billion quarter-over-quarter. If you then see the return on sales there, it is from 4.1% to 6.5%. Keep in mind, if you would put the adjustments back in there coming out of the India effect, the increase would have just been from 6% to 6.5%. Nine months stay at the level of 7.5% return on sales.
Basically, if you would see the group revenues without the VGSG impact you have seen in the year before that we adjusted, that was that sales company of Volkswagen [sales] that we have excluded last year. The revenue would have increased with only 6.5%, but 9%. Going to the unit sales on page number seven. You basically can see on the left-hand side quarter-over-quarter that our unit sales increased by 3%. In depth, you could consider trucks being flat, buses being up 8%, and the TGE, that was what I mentioned before on the MAN side, + 68%. For the nine months, we see an increase of 9% return on sales. Therein, trucks with 6%, buses with -4%, and the TGE with 108% compared to the prior year. Talk a little bit about markets. How have they developed in 2019, page eight.
You can basically see looking at the charts that we have to note that the comparison is not always like to like because we are mainly heavy duty, but not exclusively. As an indicator, if on the right-hand side you take the market, it gives us a good feeling for the trend. The European market for heavy duty trucks is up 5%. We grew, including our medium duty share, by 11%. Germany was up 8%. We grew by 14%. South America, where Brazil is about 80%, by around 10%, we grew 24%. It is still true that the markets like Venezuela, Argentina, or others are in a very sorry state. Brazil, as I said before, + 42%, and with that, we have grown in line with the market.
If you now go to order intake, which is certainly of your interest, you can see, as told by Andreas also in the intro, that the order intake is backed by the strong development of the MAN TGE front and the recovering bus business development in the course of 2019, but trucks are not really gaining traction at the moment. You can see in Europe, the regulation change for tachograph led to a pre-buy effect in the first half of the year. According to our own estimates, it was around 19,000 trucks. We watched the situation very closely and have prepared ourselves for a softer Q4. Book-to-bill on a brand level for the nine months 2019 is on the MAN side 0.99, Scania 0.89, and for VWCO 0.97.
Please keep in mind that if you take out TGE on the MAN side, it would be considerably lower on a level of 0.96. If you ask yourself why Scania has a little bit deterioration in there, it was mainly a U.K. effect in the U.K. market, which was amounting on a level of 1,400 units, and that basically brings it down to the level I described here. Briefly, page number 10, industrial business unit sales, shows you the corresponding unit sales going up 3% as well in the nine months, now currently on a very high level of 179,000 units. It's just a look to chart number seven. Going forward to sales revenues in the industrial business, page number 11, grew 9% faster than unit sales, + 8% during the first nine months of the year.
Sales revenues did in Q1 with +9%, Q2 with +11%, and Q3 with +7%. When we look at the different sources of sales revenue, we can state that new vehicle sales grew by +12%. The average revenue per unit was up by 4% after nine months of the year, and amounted to EUR 71,000 compared to a level of EUR 68,000 in the prior year. Used vehicle sales revenue grew by only 2% during the first nine months of the year after sales and service grew by +5%. As already mentioned, operating profit and ROS benefited from an increase in unit sales and positive earnings from the end of parallel production on Scania after the successful introduction of the new truck generation.
On the negative side, we had inflation-related cost increases, higher depreciation and amortization, and expenses in connection with production preparations for the new generations of trucks in MAN Truck & Bus. Remember last time we talked in Q2 that we started in Q3 already ramping up the production despite the fact that market launch will be in February next year, and MAN is quite busy working on that end. Therefore, return on sales of the industrial business improved to 6% in Q3 and amounts for the 7.1% for the first nine months of the year. Maybe a few comments on primary R&D. They amounted in nine months 2019 to a level of EUR 982 million, which is corresponding to 5% of the sales revenue, about 40 basis points below our level in the nine months of 2018.
The P&L effect amount declined from EUR 844 million to EUR 799 million, and the capitalization rate was close to 33%, down from 36% in Q1 and 34% in first half of the year. Continuing going now on the brand view, on page 12. It just reads as follows on MAN. You saw a more or less stable sales revenue in Q3, despite unit sales declined by 2%. Looking on pure trucks isolated, it declined by slightly more than 10%. We should all keep in mind that from an MAN perspective, the mix with the TGE is diluted in both revenue and also on return on sales. Having said that, the ARPU for MAN was decreased nine months, only slightly by about 1% year-over-year. Excluding the TGE, MAN was even slightly up.
That's quite encouraging in the light of the new introduction of the truck, because we always discuss that pricing is important for MAN, and I think that is a good sign. Nevertheless, return on sales in MAN in Q3 was only at 1.3%. Basically, there are three reasons for that to be named. First, it's the sequential step down in sales revenues Q2 to Q3, which you know, because in Q2 we said there's the digital tachograph with the pre-buy effect. MAN was disadvantaged in absorbing its fixed costs in Q3. Secondly, a less favorable product mix and a difficult market environment for used truck vehicles. Thirdly, as I mentioned before, higher expenses, including starting depreciation and tariff increases in the launch of the new truck that MAN has started by September, October this year.
Scania saw sales revenues increasing by 10% in Q3, whereas unit sales were up by 6%, driven by Truck & Bus business. Return on sales in Q3 at 11.5% and on a like-for-like basis, again, amongst the best in terms of profitability in the industry in Q3 2019. Volkswagen Caminhões e Ônibus saw sales revenues increasing by 26% in Q3, whereas unit sales were up 11%. Return on sales third quarter at 2.5%. If we continue now to go to page 13, talking a little bit about our liquidity. You can basically see our industrial business, our cash and cash equivalents outstripped the net financial indebtedness. It improved to EUR 1.2 billion after the first nine months of 2019. It stood at EUR 689 million at June 30. The improvement in net liquidity was driven by positive cash flow.
As you could see, we made progress there in Q3, and the cash flow amounted to EUR 539 million. Basically, the cash flow benefited from two things. One is the improved operating profit and secondly, a relief in working capital year-over-year. There are two non-recurring effects included in Q3 net cash flow, which amounted in total to EUR 225 million. That is the sale of the military business out of MAN to Rheinmetall. Secondly, we've had an effect in Brazil where we got money back on some social payments. Overall, we improved our net cash flow considerably after the first nine months. You can see a positive trend in the upper end in that little blue box in the chart where you see where cash flow developed in Q1, Q2, and Q3. We see our measures taking action. Page number 14, very briefly on MAN.
I think it's worthwhile noting that the reduction in order intake was driven mainly by Germany, Poland, Russia, India, and Turkey, given the situation there. I have described before the two effects that lead to higher costs on the MAN side. You can find them here again. It's basically, if you so will, a weak third quarter, driven by the pre-buy effect and the general third quarter, and by the ramp-up of the new truck generation. A good thing is, MAN presented the electric bus, city bus, the Lion's City E, at the BUS2BUS Fair in Berlin. We have a product ready to be sold here. If you go a little bit more in detail on page number 15, you can see key figures per quarter. Order intake, unit sales, book-to-bill, sales revenue, operating profit, and return on sales. I think we concentrate here only on Q3.
Order intake down 13%, unit sales down only 2%. By this, resulting obviously in a book-to-bill of 0.93 for the third quarter. Sales revenue are more or less flat and operating profit increased. Here I would like to point out that Q3 2018 was impacted by the market exit of India with EUR 150 million. Like-for-like operating profit was down significantly, as I explained before. As told on page 12, return on sales in Q3 only at 1.3%. Again, three reasons. Sequential step down in sales revenues. Q2 over to Q3 of this year was EUR 441 million. By this, less absorbed fixed cost on the MAN side, a less favorable product mix and difficult market environment for used vehicles and, also then on the third side, the impact of the new truck generation. Which, as you all know, is the key to lift MAN to a next level.
By this, we must not fail in any event with the new truck. Scania on page number 16. Unit sales of trucks, as I said before, up 11%. Order intake declined by -8% . Order intake in truck was also down 8%, mainly caused by U.K., Russia, and Iran. Operating profit, nevertheless, a very strong third quarter, also on the Scania end. We have introduced now fully, as we said, the new Scania truck generation. Double ramp-up costs, as promised before, are faded out. We have introduced, for those of you participating the Innovation Day, our AXL, which is a fully autonomous concept truck without a cab. Going also here a little bit more into detail of the key figures from left to right. Order intake, unit sales, book-to-bill.
I think it's worth noting that the order intake was down 11% and sales up by 6%. By this, you see that the book-to-bill on Scania for the third quarter only is 0.77. Sales revenue are up 10%, operating profit 41%. One can really say that Scania has recovered on the margin side towards the 100 basis points that we have described when we were in London beginning of the year. I think it's also important to understand that Scania, with a return on sales improved to 11.5%, is also continuing to concentrate on margin-rich business, as also referring to the brand positioning of margin before volume. Needless to say, also in Q3, Scania was amongst the best in our industry. Volkswagen Caminhões e Ônibus, page number 18. You can see Brazilian market recovered in tandem with the economic upturn. Truck unit sales up 20%.
Export sales in Latin America are still difficult given the situation in the countries around Brazil. Operating profit on Caminhões e Ônibus benefited from the increase in sales revenue. It was to a certain extent offset by foreign exchange rate effects and basically, it also includes a gain of EUR 13 million from a reversal of a restructuring provision. Nevertheless, we see Caminhões e Ônibus progressing. Are we satisfied at the moment? Of course not, but one also needs to keep in mind that the Brazilian truck market, especially on the extra heavy, was recovering on the light and medium duty. It's still in an upward trend, so we are confident that we can manage that in the future also better than it is today. Briefly, page 19. Again, the six KPIs in an overview for Q3. Order intake up 15%, sales up 11%, resulting in a book-to-bill of 0.99.
Q3 improved the return on sales on 2.5%. Again, work is not over in Brazil. We need to continue. Financial services, page number 20. Sales revenue as at 30 of September , up by nearly 11%. 13% growth in Q1, 8% in Q2, and 11% in Q3. The return on sales is very satisfying on a level of close to 17% for the nine months of 2019 and in the third quarter, 16%. When we then continue to the next page, you see that the net portfolio has grown 11% from year-end 2018. The penetration rate remained at very healthy levels according to our plans. Now, if you go to page number 22, let's come to the outlook for the market in trucks in 2019. One needs really to say it's fair that you said the economic sentiment has further deteriorated over the last quarter.
As you all know, the political environment is challenging. Potential hard Brexit, trade wars, crises and conflicts in Iran and Turkey, and the global GDP forecast was revised down again by the IMF, +3% for 2019 in October. Also, Germany, Italy are forecasting showing only limited growth. The outlook for 2020 is hardly any better. Fed lowered interest rates, ECB restarted quantitative easing, and overall, we had to witness a decline in order intake, which has been somewhat anticipated in previous months, but showed an accelerating trend in truck business in the last three months. However, our market outlook for 2019 is more or less unchanged. We see Europe 28+2 stable in 2019. Germany, which represents about a fifth of Europe, slightly up. For Brazil, we expect substantial growth in 2019.
I think this outlook here on 2019 is not very much different from what you see in the overall industry. When we go to the next page, on page 23, leading us to the outlook for TRATON Group. We clearly confirm our outlook for 2019. We expect a slight increase in unit sales for the overall year. We expect group sales slightly above prior year, whereas we do not adjust for the VGSG business in 2018. Sales revenue in 2018 amounted to EUR 585 million. Again, this is this Gebrauchtfahrzeug business company that we sold back last year in light of the IPO. Group return on sales is 6.5%-7.5%, and we see us around the midpoint in 2019. I alluded to the main reasons of our confidence in the introduction. With this, I would like to hand back to Andreas.
Thank you, Christian. Let me come now to the market outlooks for trucks in 2020. All what Christian has said before, it also true for the outlook of 2020. We are operating under a high degree of uncertainty. What we can say with certainty is that 2020 will be much more challenging than the second half of 2019. We currently think that the European truck market can be down by 10%, but it could also be down by 20%. We need another couple of months to finally assess where we stay in the range. On the positive side, we can note that Brazil, which is an important market for TRATON, with the brands Scania and Volkswagen, will be likely up and provide us with some buffer. However, after a long period of unparalleled growth, we have to prepare for a decrease of 10%-20%.
That brings me to the next slide. I think it's the last one. What we have already started is that we reduce time accounts, take out shifts, and reduce temp workers as the slowdown seen in Q3 further continued into the fourth quarter of 2019. If, however, the situation gets worse further, then we have to make more action in order to safeguard our competitiveness. This is what this chart is showing you. One thing is clear, we cannot and will not compromise the start of the new truck generation at MAN. In addition, we also have to safeguard the profitability of Scania. Our aim is to emerge stronger from the downturn, from which we do not know how severe it will be. This is why we must and will be flexible. We will tackle the respective cost items.
Again, to be clear, it's nothing decided yet, as we just simply don't know where we will end up in 2020. One thing is for sure, we are prepared and have all the flexibility to react to a different market condition. With that, we are happy to take your questions. Thank you.
Ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial zero one on a telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it's your turn to speak, you can dial zero two to cancel your question. If you're using speakerphone today, please lift the handset before making your selection. One moment, please, for the first question. The first question received is from Klas Bergelind from Citi. Your line is now open.
Yes. Hi, Andreas, Christian, and Rolf. It's Klas from Citi. The first one I have is on the cash flow. It's obviously good to see an improvement. Christian, I was wondering if you could help us on how much of this is linked to the lower production, and especially at MAN in the old range, versus the improvement we have waited for at Scania following the NTG. I'm thinking of the cyclical effect versus the underlying improvement. Also, if you could comment on the work you're doing with VW to change your payable days. I think you're paying your suppliers sooner than what you collect the cash from your customers. I will start there. Thanks.
Yeah. Let's put it like this, Klas. The Q3 effect was mainly really done by the work of working capital reduction that we have run in our Demand- to- Cash initiatives. Basically, majority coming out of Scania in there. The two effects that I've mentioned before obviously helped us, but nevertheless, we saw an improvement of higher than EUR 300 million. I would consider that mainly the work of the Demand- to- Cash and not yet the big amount of the deteriorating, let's say, overall business on the MAN side. Secondly, when it comes to the payment terms, well, we address that actively currently, with Volkswagen also with Christian Levin, our COO currently, and we also work in order to improve these payment terms. We still largely adjusted to Volkswagen also in our relationship agreement. We pursuing that and we'll hopefully also gain some progress there.
Okay, that's good. My follow-up is on MAN, please. If I could ask, how much is cap R&D? Are there still a positive swing in the group bridge? Seems like if I back out R&D, you're almost loss-making on a cash basis. How much was cap R&D last year? I'm trying to get the bridge clean year-over-year in MAN. Within this, looking into next year, it seems like EUR 200 million-EUR 250 million of EBIT is a working assumption, depending on the market outcome. Could you help us with what pricing assumption you baked into this, and how much cost do you expect from the Truck & Bus launch relative to the 2018 baseline?
Let's put it that way. We do not go in details on the cap rate on the brand level. As I said before, we reduced it already substantially compared to first and second quarter, and continue also to work on here on the MAN side. When it comes to MAN, of course, we are not giving forward-looking profit statements for the year 2020. The only thing I can tell you is that there was extensive exchange between MAN and Scania on the preparation of the new truck in order to avoid the known things that hit Scania, and they are already baked into the plan. As I said before, we must not favor the new truck, so we need to tackle all things that will come in the next year, because for sure, the ramp-up of the new truck is in focus.
Just quickly, are we talking around EUR 200 million-EUR 250 million of cost drag for the whole launch from 2018 baseline? Have you said anything, Christian, in terms of we can get some help on the bridge into next year?
As I said before, we will not comment on that, let's say, range. You know that on Scania we lost 200 basis points, which was 100 basis points onto a production and another 100 on material cost. Again, Klas, with all respect, it's difficult to say right now. Yeah?
All right, sir. Thank you.
The next question we received is from Hampus Engellau from Handelsbanken. Your line is now open, sir.
Thank you very much. Two questions from me. If I look at the Scania order intake in Latin America, it was down 4.3%, while if I look at the Volkswagen order intake, which I know it's really not fully comparable, it was + 15%. If you could maybe talk a little bit about the difference here in development in Brazil in particular, if it's the lower medium-duty, heavy segment that is performing, or how we should think about the difference. Second question is maybe a little bit nitty-gritty on the cash flow, but I would be interested to hear why the depreciation and amortization during nine months was EUR -626 million, which is EUR 147 million increase year-on-year. If you could maybe add some flavor on that. Thanks.
Let's talk first about the market. When you differentiate the segments, you see that the extra heavy, so the segment above 16 tons, is on a five-year high at the moment. You see that the market is quite good in Brazil, and that there Scania gets some support from the market. When you go back to light and medium duty, the overall economy, let's say, improvement hasn't yet reflected fully in that segment. This is why we are optimistic for the year to come that Caminhões e Ônibus, which is mainly present in light and medium duty, will benefit in the same positive way that Scania did on the other hand.
On the other question, Hampus, we will get back to you. You were referring to depreciation, amortization on the profit and loss for TRATON overall?
Yeah, exactly. There's EUR 147 million increase year-over-year on nine months. I guess I was looking for if there's a specific one-off write-down or something on the amortization side. We can come back on that. Maybe, Christian, I also do maybe one question , you highlighted a little bit on the order side, but it would be interesting to hear what, if you look at the European business like MAN and Scania now, where are you in terms of taking down run rate? Are we looking at the 10% in each now, or where are you?
Let's put it that way. You saw, and you will see this afternoon, it should be already out, that Scania and MAN both taking actions. On MAN, we currently see that in Munich, Steyr, Nuremberg, and Salzgitter, we extended the production tact. We also released a second shift in Kraków, in Poland, and we will have selective closure days also for the German operations, and the same thing basically on Scania. You can see basically we will extend Christmas vacation in there. We will have selective production days that we do closures on. We are, as Andreas has said before, quite flexible with that page that we have in there. Everything that is in the current site in 10%-20%, around, let's say, 10% to the midpoint, we can very well act with our time accounts, with our flexible workforce.
Of course, if a cool-off in the European market would turn into the, let's say, direction of 2009, measures would have been different, and those haven't been taken yet. Of course, we monitor very closely the current market development also with our union members and with suppliers, and are able to adjust quickly. Basically, that's what I would like to comment there.
Thank you very much.
Maybe just one point on the depreciation and amortization. Don't forget we have the IFRS 16 effect in there. That might be the point, but I'll also get back to you on that. Okay?
Thank you.
We go on to the next question. It's from Kai Mueller, from Bank of America Merrill Lynch. Your line is now open, sir.
Thank you very much for taking my question. The first one is, coming back to this chart you showed with your two market scenarios or the sliding scale. Can you give us a bit of color? You obviously talked about reducing time accounts and temporary workers. How much, in terms of temporary workers and time accounts, are you already tapping into in the second half of this year? How much do you basically have left for next year? Following up from that, we obviously know your guidance for through the cycle margin. If the scenarios of a -10% next year materialize or maybe even a -20%, can you give us a little bit of color in terms of where you think a Scania margin or a MAN margin could get to if you assume the cost measures you've indicated today?
Let me start with the second part of the question. There you will not get none, so we will give you a guidance then at the first quarter as it used to, and it depends really on the market condition. As I said before, we up to now don't know exactly how the market will be. It will be between 10% and 20%. That brings us to this kind of chart that we showed you. The first things what you are always doing is time accounts, so we are using time accounts like Christian mentioned. We will have a longer break between Christmas and so on. This is underlined with time accounts. The second thing is we have then temporary workers. We have approximately in our locations so far, 10%-15% temporary workers and depends on how this will go.
We will see part-wise this year, and then next year, the rest of the temporary workers. The major thing is, if you have the orders, and the orders are, if I'm looking to the situation overall, the orders are still based on the circumstances, not so bad. We have to produce this, and now we have to adjust when the orders are in a different level. As I said, we feel pretty secure through our measurements, like we said, all the time. In a downturn that's expected and whatever the downturn will be, we have a lot of potential to react.
Perfect. Maybe just, have you seen any changes in pricing as a result of obviously the slower outlook? Has any one of your peers trying to fill the book on better price terms?
I don't know what our peers are doing, but we are very price disciplined.
I think you mentioned it this way in your remarks always. If you look to our brand positioning of Scania, it's a very simple thing, price before volume, like Christian Schulz mentioned before. We don't see or we don't compromise this if markets are getting into a different situation.
Perfect. Thank you very much.
The next question received is from Erik Golrang from SEB. Your line is now open, sir.
It's gone. Erik, is he gone? Erik, can you hear us?
No, Erik is not in the queue anymore. The next question received is from Tim Rokossa of Deutsche Bank. Your line is now open, sir.
Yes. Thank you very much, guys. It's Tim from Deutsche Bank. I would have two questions, please. The first one is, Andreas, you lived through quite a few truck cycles already as a manager. How does this one feel to you? If you do talk about a high degree of uncertainty when making the forecast, how do you come up with the 10%-20% number? S econdly, I appreciate the pre-buy effect. I appreciate the ramp-up costs, b ut for someone who has followed Scania and MAN for many years, it's really not a surprise at all to see how those two brands are now developing at a turning point of the cycle. Scania seems to just always anticipate it earlier, does very well in reacting to it. MAN is always the opposite.
Now, yeah, okay, you get a little bit of a bounce maybe in the Q4 margin development, but it seems to be a very clear direction. I appreciate that you're giving us these measures on slide 24, but when is it, if not now, the right time to really go structurally into the cost base of MAN, beyond short time work, beyond taking out a few shifts? This is a continuously underperforming asset. This has already been a big discussion of all of us during the IPO process and afterwards. If we now see -10% to 20%, why not really fixing this company to finally make it live up to its potential? Thank you.
I think, let me start with the first one. If the world would be so easy than you describe it, that would have meant we have done nothing the last two or three years. The most important thing now for MAN, like we said all the time, is the new truck generation. There we are changing not only the full product line that was necessary. A product is 20 years old and is in certain areas not as competitive as we would like. The second thing, we change this kind of introduction, with the introduction of the new truck, we are changing a lot of processes. These processes will bring us to another level. Of course, it's not only the kind of issue that we see this time compared to cycles you mentioned before. Of course, we went through cycles.
Forget that the second of 2008 and 2009, that was not a cycle, that was an external initiated crisis. In the normal cycles, you will see something like 10%-20%. What is different than to other kind of market conditions maybe 10, 15 years ago? It's really the unstable situation. We never made such experience, or I made never such experience that a tweet can change a lot of different kind of things. We don't see it only in one country. All this kind of unstable situation brought us to the point that we say, okay, there is a trend that we can read 10%-20%, and we will know better than in the first quarter of next year. The second thing is there was this pre-buy effect. I think Christian Schulz mentioned before this new digital tachograph that was launched.
Is there a pre-buy effect? We get this from some customers, yes. They see it like that. This is the insecureness. The most important thing in our business is really that we are using this downturn, however this downturn will end up, and to come out stronger. All the kind of measures we have prepared already will go into some substance if it's necessary. Again, we feel us very well prepared. Now we have to show that we can realize this preparation because so far it's only on paper, but I'm pretty sure that we can do it.
To add on your question on MAN, we discussed that all the time, that the coming six to seven quarters are a kind of a challenging situation for MAN with the new truck. We see that we started in Q3 with the new truck. Of course, we have the discussion, Tim, on how to improve structural measures. If you in parallel introduce a new truck, that gives you a lot of challenges. It remains unchanged what we have said. The next six quarters for MAN are a period of transition, let's work through that.
Great. Thank you, guys. Thank you.
The last question for today is from Sebastian Ubert from Societe Generale. Your line is now open, sir.
Yes, good afternoon. Thanks for taking my question. It's more on the housekeeping things regarding the positive tailwinds you had from FX. Can you give us some figures here like we have gotten during the second quarter, as well as can we do the math, what was the real impact on Q3? I guess after having achieved after nine months the upper end of the range, that your comments on 2019 outlook to end up at above the midpoint of the EBIT margin range is still valid despite a more challenging Q4 2019. Your sneak preview you have given at the beginning of the year for further growth in revenues and margin improvements for 2020. Mr. Renschler, is that still valid?
Okay, let's take it one at the one. First of all, the FX rate effect is pretty much neutral. We saw a positive effect on the Scania side with the Swedish krona, but on the other hand, we've seen a burden on Caminhões e Ônibus in Latin America. As such, you can say it levels out in the group to a minor two-digit million euro number. Second thing is your question. I said before, we are comfortable around the midpoint, not above the midpoint. That's what I said before. We have a close eye on the development of Q4, as I said before. We are within our range and around the midpoint. I would like also then to take the question is outlooks on 2020.
We only give around March when we have the annual press conference, by then we will confirm how we see the next year.
Okay, just as a follow-up, during the Q2 call, Mr. Schulz, you reflected you are happy to see an outcome above the midpoint of the margin range.
Today, I said I'm comfortable around the midpoint.
Which is not ruling out that it could be slightly above, but it does not rule out that it could be slightly below, Sebastian.
Okay. Thank you.
We have no further questions. Back to the speakers.
Yeah. Thank you very much. Thanks for the very vivid discussion and the very good questions. Thanks for sticking to the two questions per analyst. Very much appreciated. We look forward actually catching up with you over the phone. Whenever you feel there was a question unanswered, then we will get back to you, and you can always reach us under the known numbers in Munich, the whole IR team. We thank you very much, and speak latest then March 27th, when we will have our annual press conference. Thanks. Have a good rest of the week. Bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.