Ladies and gentlemen, welcome to the call for the preliminary financial results full year 2019 of Nordbrenter AG. AG. At our customers' request, this conference will be recorded. As a reminder, all participants will be in listen only mode. May I now hand over to Andreas Spitzhall, Head of Investor Relations.
Please go ahead.
Thank you, operator. Good afternoon as well as good morning, ladies and gentlemen. My name is Andreas Spitauer, Head of Investor Relations of Knorr Bremse AG. I want to welcome you to the Norebremte conference call for the preliminary results of fiscal year 2019. As a reminder, the conference call will be recorded and is available on our homepage, www.
AG. Nor bremsse.com in the Investor Relations section. Here you can find today's presentation and later a transcript of the call. It is now my pleasure to hand over the call to Bernd Eulitz, our CEO and Ron Treuving, our CFO. Please go ahead,
So thank you, Andreas. A very warm welcome to our Q4 Capital Markets Call today. Over the next 45 minutes, my colleague, Ralf Hoiwing, CFO at Knorr Bremse, and I would like to give you a brief overview of the highlights From the past year present our financial results and then go on to discuss our strategy priorities for the current and coming years. I would like to draw your particular attention to our new climate strategy, which Norbremss AG. Norbremss initiated back in 2015, but has now substantially expanded.
But let's start first with 2019, which was a very successful year for the group. 2019, we provided We proved ourselves in a challenging market environment and delivered what we promised. Our 2 divisions, rail and truck, continued to outgrow Their respective markets last year increased their market shares and set themselves even further apart from the competition. Both rail and truck met their sales and profitability guidance for 2019 and thus delivered further proof of Nordbremse's reliability. Truck in particular in an environment Where the global truck production rate had fallen by 4.5%, could further increase its revenues by 3.8%.
In addition, we have initiated and in some cases already implemented a comprehensive cost program. We're convinced that we have taken the right precautions and are well equipped for the current year. 2019 was another year marked by the strong operational execution of our strategy. We consistently divested Unprofitable units. We increased the aftermarket contribution to 35% across the group.
We continue to sharpen the focus of our M and A activities on growth and innovation. And with regards to the last bullet point on the slide, please allow me to thank my colleagues, Ralf Hoiving, Peter Leijer and Jurgen Bilder for their very strong support during my start and my onboarding at KnorrBremse. As you learned last week, we have found an excellent successor to Ralf Heuling in Frank Markus Weber from Daimler AG. Ralf We'll leave us at the end of April. And with the arrival of Mr.
Weber on August 1, our Executive Board will be completed again. In the interim period, I will additionally take on the tasks of the CFO. Allow me to sum up some of the highlights of the past year. We won major international projects, both large and small, including several systems for Alstom's new high speed train and a multiyear contract to supply 3,000,000 actuators in the truck With our investments in Railover and RailVision, we've made important steps in the ongoing digitalization of our system solutions. And the celebration of Mr.
Heinz Herman Thiele's 50th anniversary with the company actually has shown us and Again, the passion, the commitment and determination that enabled him To make this company what it is today, the global market leader for braking systems in the rail and the truck industry. And important to mention time and time again, we are not operating in the automotive industry. And today, more than ever, the fundamental difference The development of the passenger car and the truck industry is particularly striking. So when we look at our results across the company, Our dynamic results for 2019 actually confirm our solid business model. Order intake was up by almost 1% to €7,100,000,000 and we benefited from a very strong quarter 4 year.
The order book grew again by 2.8 percent to almost €4,700,000,000 a strong and good starting point for a challenging year 20 20. In 2019, Nordbremza increased revenues by 4.8% to €6,900,000,000 The Rail and Truck division boosted their revenues by 5.6% and 3 point 8%, respectively. Once more, we improved our EBITDA margin. Reported earnings grew to 19.8 percent and operating earnings grew to 18.8%. Respectively, we achieved our guidance well for 2019 despite a challenging market environment in the truck business.
The Rail division, we even exceeded our target margin. Naturally, the division is benefiting from the high demand for sustainable transport and can gain further market share with its systems solutions. In an increasingly Complicated market environment, the Truck division demonstrated the resilience of its business model. Contributing to this The aftermarket business has also recovered after several weak quarters. With this, I would like to hand over to Ralf to take us through the details of quarter 4.
Over to you, Graeme.
Yes. Thank you much, Bernd, and also welcome from my side as well. Let me continue with the financial results of the Q4 starting with page 9. Despite a challenging environment, Order intake in the Q4 improved substantially year over year and even more strongly when compared to the Q3 of 2019. On group level, it was up 10.2% compared to the same period last year and reached 1.9 €1,000,000,000 The organic increase in the quarter was 8.6%, a great finish at the year at the end of the year providing a strong base for 2020.
Our book to bill rate of 1.18 in the Q4 was very strong compared with 0.92 in the Q3 2019 or 1 point 7 in the Q4 of 2018. In the Rail division, as discussed in previous quarters, order intake Fluctuates with the influence from large orders. Over the 12 month period, however, order intake in rail grew at 5.8%, in line with our midterm expectations. In the CVS division, after the pronounced drop in the order intake in the Q3 last year, The rebound of October continued and led to moderate full year decrease of 4.9%. We remain confident about our positive midterm outlook for both divisions.
This assessment is based on our solid backlog and the industry dynamics driven by megatrends, urbanization, mobility and the global goal to reduce our carbon footprint. The order book of €4,700,000,000 at the end of the year were 2.8% higher compared to last year's level. This provides a visibility of more than 8 months. Let me continue on page 10 with our revenue development. During the Q4, revenues on group level were stable year over year supported by favorable FX development.
Top line on group level came in at €1,600,000,000 With this development, we reached our full year 2019 guidance In absolute terms, as anticipated, CVS revenue development was affected by the lower number of trucks produced both in Europe and in North America. Our Rail division, however, fully compensated for this in the Q4. Continue to grow strongly in both divisions, reaching an overall increase of 25%. The other regions have been impacted mostly by the truck cycle. I will continue with the development of our profitability on Chart 11.
On a reported level, we finished the year with a very strong EBITDA margin of 21.3%, driven by booking from the sale and leaseback transaction of €45,000,000 in the past quarter. We had already announced this during November. Operational EBITDA in the last quarter of 2019 reached €304,000,000 compared with €320,000,000 in the previous The year over year decrease was primarily driven by the continued slowdown in the drop markets, but also by an adverse effect in FX and some one off charges at group level. We had Additional restructuring costs of €3,100,000 for the closure of the Busswaard plant in Q4 2019 on top of the €16,400,000 we had recognized by the Q3 of 2019. This final charge was necessary in concluding negotiations with the Workers Council.
Accordingly, operational EBITDA margin reached 18.7% in Q4 compared with 19.8 in the Q4 of 2018. On a full year basis, we delivered an operational EBITDA margin of 18.8%, which is fully within the guidance range of 18.5% to 19.5%. You'll find more details on this in the backup section of our presentation. Let me now continue with the divisional view on slide 12 with the Rail division. In the Q4 of 2019, order intake of RBS was significantly up by 21%, fully driven organically.
Unlike the 2nd or Q3 of 2019, In a year on year comparison, this time the order lumpiness was in our favor. In the Q4 of 2019, we were awarded some big contracts for passenger coaches like in Northern Africa, where we won a double digit €1,000,000 order or in Eastern Europe for more than €20,000,000 We also received the first orders of the contract For the TBG TBG from Alstom, which we had announced in September 2019. Demand in Asia Pacific was strong and not only driven by China, but by India and Australia too. Our rail business in North America reflects a weaker situation in the freight markets. Within our OE mix In this region, freight represents more than 46% of revenue, but on a group level, it is only 4% of Our book to bill ratio strongly improved to 1.32 compared with 1.04 in the previous quarter and €1,140,000,000 for the same period last year.
At the end of December 2019, the order book reached €3,600,000,000 which provides visibility of almost a full year of revenue. Moving on to revenue and profitability for the Rail division On Slide 13. In the past quarter, revenue increased by 4.3% to 8 €65,000,000 The sale of Powhatec reflected for the first time in this number. Hence, organic Revenue was actually up by 4.5 percent excuse me, by 5.4%. Revenue in the aftermarket and service business was nicely up across all regions.
In total, it grew approximately 10% in the Q4 year over year. Our strong growth The aftermarket overcompensated the OE development, which was predominantly impacted by the project related timing of revenue recognition. In Europe, top line decreased in the OE part of the business. On a subsequent level, subsegment level, the main drivers were high speed and metro. Locomotives contributed positively.
In Asia Pacific, OE revenues were up Even stronger than the aftermarkets, especially the passenger segment is again worth mentioning, but Metro and Regional commuter too. On the other hand, we experienced weaker development in the field of locomotives. In China, in Particularly higher utilization of trains and increasing number of high speed trains entering the 1st phase of overhaul were important drivers for the market for the continued growth in our aftermarket business. As a result, our aftermarket and service revenue grew by more than 10% year over year. 2nd biggest revenue driver was the OE Metro segment in China, which is already double in the size compared with the high speed segments.
In the region North America, revenues benefited from good demand for our aftermarket and service Mitigating again lower revenues from OE. Within OE, the Freight segment expectedly contributed lower revenues year over year. Given the favorable project mix and the higher share of aftermarket revenues, but also thanks to the discontinuation Of the Powertech losses, Q4 of 2019 operating EBITDA margins bounced back strongly compared the previous quarter and even surpassed the previous Q4 2018 margins. Let's now move on to the Truck division with Chart 14. As we all know from recent months quarters, our customers, the truck OEMs, recorded Significant declines in their own order intake beginning last summer.
The U. S. Truck market was particularly affected by this development. Our own order intake reflected this with a strong correction in the Q3 of 2019. However, as already explained in November, The situation started to improve.
From today's perspective, Q3 looks as if an order decline was exaggerated. Subject to the effects of COVID-nineteen, we expect the underlying demand situation to normalize in the coming months. We also expect that the European truck market to remain in the coming months and quarters ahead. Order intake for the division was €771,000,000 in the 4th quarter of 2019, only 3% down compared with the Q4 of 2018 on nominal figures and 7.1% down organically. This decrease in order intake was driven by Europe and the U.
S, while China positively showed a rather positive momentum. At the end of the year, the order book of our truck division So that €1,130,000,000 expectedly down 17% compared to the year end of 2018, but almost unchanged compared to the previous quarter. This provides visibility of 4.1 months of revenue. Let's move on to Page 15. CVS posted revenue of €756,000,000 for the 4th quarter.
Compared with last year's figure previous year's figure, this is a decrease of 5.2 Organically, revenue declined by 9.7% versus the same period last year. We outperformed North America and European truck production rates declined, thanks to the content increase and market share gains. In China, our 4th quarter revenue grew more than 50% compared to a TPR growth of 26%. In the context of declining OE revenues, our aftermarket ratio as a percent of total revenue Picked up quite strongly. We believe that the destocking in the aftermarket workshops and amongst the OEMs that we experienced for quarters might have come to an end and revenues have started growing again.
Q4 2019 revenue development In Europe, it was burdened by pre buy effects in the first half due to the introduction of intelligent trachometers. Additionally, the market reached a more normalized level after strong demand in the last couple of years. In the last quarter, CVS Achieved an operational EBITDA of €113,000,000 and an operating margin of 14.9 percent compared with 16.3% a year ago. The main driver of the decline in profitability was, Of course, the negative operating leverage resulting from the decline in revenues. However, at less than 20% from Like for like business, I.
E. Outside of Hitachi and the Zwiftrad plant closure, it was an expected level. The successfully implemented cost efficiency program and the release of temporary workers across European and North American plants had a positive effect on the bottom line and helped contain the impact of the market situation. Overall, the Q4 of 2019 was in line with our expectations With regards to the decline in sales and efficiency measures. From today's perspective, the measures introduced Efficient for CVS to achieve our 2020 targets, provided, of course, that COVID-nineteen does not leave major traces.
Summing up our quarterly and full year performance, I'm very pleased we delivered what we promised for the 1st full year since our IPO in October 2018. With this, I'd like to return back to Bernd.
So thank you, Ralf. Before I move on to our guidance, on Page 17, I'd like to address the corona of yours and what it means for our business. Our top priority has been our employees. In January, we took the first steps To protect them, central task force was set up. Our employees in China were supplied with respiratory masks And first, rules for conduct as well as travel regulations were implemented.
We are in permanent contact with All of our employees and partners in China and other countries to ensure that we are up to date with the latest developments and we react quickly and decisively Our plants in China have all resumed production and more than 80% of our employees are back On average, production has returned to 80, up to 90% of target capacity Of course, it is still too early to comment on the overall impact of the viro's on our business. However, what we can say is that in February itself, the 1st full month affected by the outbreak of the virus, Sales in China was around €60,000,000 below our budget, which is actually very reasonable. From today's perspective, we are confident that we can make up this shortfall by the end of the year. Also thanks to the economic Timolus provided by Chinese authorities. You might have read that the Chinese authorities have issued Early orders for additional locomotives and investments into high speed trains.
With respect to our supply chain, our consistent efforts to localize and our approach to dual sourcing has We continue to take a very positive view on our business in China and obviously we'll further expand our commitment in Naturally, we are closely monitoring developments worldwide and obviously currently with a greater focus on Europe and the U. S. If I move to Chart 18, Let's look into what we expect in 2020. As usual, the outlook 2020 is under the disclaimer of the Political and macroeconomic environment and this time obviously extended by the effect of the COVID-nineteen On the world economy, for rail, we are expecting good growth mainly in the passenger segment and the market sales as our installed base continues to grow. For truck, we anticipate a slightly lower truck production rate With regional variation between North America, Europe and Asia, weakest in North America was potentially down to 20% to 30% relatively to 2019.
With the help of our cost efficiency programs And the aftermarket business, we will counteract. Despite the weaker environment, We increased investment in research and development to drive tomorrow's technologies in e mobility and autonomous driving. We move to Slide 19. We therefore expect a stable fiscal year in 2020 despite The lower truck production rate in figures, we are forecasting revenues between €6,500,000,000 €6,900,000,000 and an operating EBITDA margin in the range of 18% to 19%. In case the recovery from the euros in China continues the way we see it right now and the economy does not spiral into recession, We feel we should be able to manage the year well.
Now after presenting all these figures, I would like to now give you an outline our strategic initiatives. Knorr Bremse's vision is strongly shaped by the people who work for And with Nordbremse. We are shaping the mobility of tomorrow and driving innovations for sustainable systems solutions With our products and our corporate responsibility, we are helping to solve the great challenges of Society. This motivation has driven our employees for many years and is actually the great legacy of Mr. Thiele And it shows no sign of fading.
On the contrary, the role that a company Can and must play in our society is growing and important and we address this with enthusiasm. On Slide 22, the corporate strategy was formulated and communicated roughly 1.5 years ago for the IPO In 2018, since taking over as a CEO in November last year, I've engaged in many discussions And I've come to the conclusion that Knorr Bremza is positioned exactly as it should be and works on the right topics. So respectively, there will be no revolution in strategy, but rather a continuous process of evolution along the development of our markets. Our corporate strategy is geared to the major megatrends of urbanization, Sustainability, digitalization and mobility. We will continue to extend our innovation leadership while further developing and leveraging our global presence, expanding our profitable Aftermarket business and continuing to improve our efficiency will play a decisive role here.
And of course, we will continue to work on our efficiency and control our costs closely. We aim to achieve organic growth of between 4.5% and 5.5 percent with an EBITDA margin expansion of 150 basis points relative to 2017 up to 2022 as we have promised in our IPO. We'll move on to Chart 23. In order to prepare for future growth through research and development, We once more increased our efforts, our expenditure for research and development for 2020. 12,000 patents and more than 3,600 employees in R and D speak for themselves.
That's more than 10% of our workforce Focused on innovation. Let me talk about 2 examples to illustrate this. The first one comes from the truck area, And you're well aware we bought into steering business and there's a very strong logic for that. For autonomous driving in the truck segment, it is essential to have full and redundant control of the driving dynamics. With the integration of steering systems in Germany 2016 Hitachi Japan in 2018, The joint venture with Dongfeng in 2019 and Shepherd in 2020, somewhere in the next 3 months, We have expanded our portfolio by steering expertise for trucks and are now a strong number 2 in the global market.
By combining braking, steering and intelligent control, We now master the entire driving dynamics of a truck. It's all about safety. Thanks to our system competence And the sophisticated modular system of the new global scalable electronic brake control, We're able to meet the high requirements for redundancy and safety in road traffic. We thus meet the mandatory requirements for autonomous driving. Accordingly, we are working with various partners on automated driving functions up to fully automatic Driving.
Alongside e mobility, this is the major future topic in the truck industry. We move on to Rail. In the Rail segment, I would like to address a whole portfolio of developments in the aftermarket sales. We call this field rail services. As the global market leader for braking systems, we have an exceptionally broad Sold base in rail vehicles on all continents.
We supply them with reworked components and even completely new technologies. Our modernization and digitalization solutions plus lead our customers into the future. With a train service life of up to 40 years, our service ranges from the replacement of obsolete components Through the placement of 3rd party components to the complete overhaul of EG trams. With new technology, these then enter the next 20 years The division is also benefiting greatly from growing demand to make existing solutions viable for the future, e. G.
Through e mobility, retrofit solutions for diesel locomotives and digital solutions. Let's move to Chart 26. I would now like to highlight A part of our corporate strategy that was previously maybe placed a bit more in the soft category, but is now coming sharply into focus. We recognize climate change as one of the most pressing challenges of our time. As an industrial company operating worldwide, we at Knobrenze attach great importance to climate protection and aim to make a significant contribution to achieving climate neutrality.
After 10 years of our corporate responsibility initiatives and 5 years of our first climate strategy, We have renewed our commitment with a new ambitious climate strategy that forms part of an ESG excellence initiative. We commit to help our CO2 emissions by 2,030. In addition, we will become climate neutral as early as next year 2021 as one of the first major industry companies. These targets are in line with the requirements derived from climate science To limit global warming to a maximum of 1.5 degrees Celsius in accordance with the Paris Climate Convention. To reach this target, Nordbremse intends to halt the CO2 emissions caused by the energy consumption of its plants and offices worldwide and its vehicle fleet by 2,030.
This equates to an average reduction of 4.2% per year compared to the baseline of 143,000 metric tons of CO2 emissions in 2018. Furthermore, starting next year, we will minimize CO2 emissions by purchasing green electricity and offsetting the remaining amount Climate protection. By definition, our Rail division operates in a sector that benefits from the expansion of public transport and efforts to shift freight traffic from road to rail. And also our truck division makes a considerable contribution to reducing CO2 in production and fleet consumption. Even today, 9% of our revenues are achieved largely thanks to our ability to return products to the production cycle via remanufacturing and overhauling.
International rating agencies such as Ecovadis, MSCI and ISS IRCOM And last week, actually, the new DAX 50 ESG have assessed this and confirmed it by awarding high ratings Let me give you a few examples on the next page, chart 27. This actually shows how we have managed to reduce the CO2 emissions of the whole Life cycle of our products from production through operations, Through recycling and then disposal where necessary. You see that we were able to significantly reduce the CO2 emissions Up to 50% of some of our products. But let me also point at a very interesting innovation that shows how our engineers look at things. On the right hand side, it's the active caliper release.
It's a small but very sophisticated device That ensures that the brakes open completely and there's no friction. And this mechanism helps the operator to save 1% of its fuel consumption, Obviously, again contributing to reducing CO2 emissions around the world. On the last slide, Chart 28, let me conclude by returning to the promise of Our IPO provided that the political and macroeconomic environment remains stable, we had announced average organic growth 4.5% to 5.5% over the period in average. And we had committed to an EBITDA margin improvement of 150 basis points from 2017 onwards to 2022. And despite the current truck production rate downturn, we consider this forecast to be tenable and confirm our medium term forecast.
With this, I would like to end my presentation I'll hand back to you, Andreas.
Yes. Thank you, Bernd. Happy to now start the Q and A session.
Thank you. Of Commerzbank. Please go ahead. Your line is open.
Yes. Thanks very much. My first question would be On your strategy in steering, which seems to play an important role in your strategy update, The way you illustrated in your Slide 24 with the 4th missing puzzle part coming to play, it looks like you're trying to suggest that Sherpa is The last asset you needed to complete your portfolio on the steering side, what should we expect as next steps? I mean, do you need more bolt on acquisitions? Do you have everything you need and now go for more greenfield CapEx to tap the geographic markets where you're not yet strong?
Or is it just really about Smaller steps, incremental R and D and so on. What's happening from here?
So Shepherd is in the well, first of all, thank you, Ingo. Shepherd is an important acquisition because it opens the U. S. Market. You need to keep in mind that in the U.
S, the trucks have a different Design with the long snout that basically caters to a different geometric design of the steering components. With buying Shepherd, We open into this market and we get a significant market share. Now we are present in all key markets around the world. Now we are in the process of integrating the steering with the braking system. And I can share with you that at our test sites, For example, Arjavlok in Sweden, where we test trucks on ice, these systems are already in Operation and we can show to our customers how the redundancy works and how the integration works.
So that was an important step. Now what we are doing with the acquisitions, clearly, we're upgrading quality. We're upgrading production to the level of Knobremza's Requirements, which is well perceived and highly appreciated by our customers. But I think that was a very important major That to complete the steering acquisition strategy. And I believe that our company announced this approach Roughly 2 years ago as a string of pearls approach.
Okay. Thanks. And the second Question would be on the margin target on the 150 basis point margin expansion in the midterm. If we Compare your margins today to where they were at the time of the IPO, the Rail Vehicle Systems segment has already made a lot of progress or effectively already achieved 150 basis points Improvements and Commercial Vehicle has not. So from here, do you see margin upside in both segments?
Or would RBS is already where it should be and can lean back and now it's up to commercial vehicles to deliver. Where do you see the margin upside from here?
Yes. Ingo, I think leaning back is not our philosophy. We see upside potential across Rail, truck and also the other line in our P and L. On rail, with continued growth and a continued Increase in aftermarket share as we announced, we believe that over time there will be further upside. On truck coming out of the trough Of this year, we believe that this will also strengthen our profitability, also benefiting from the cost And then we, of course, also had some extraordinary items in the other category, so at group level, Which we expect not to repeat in the future.
So all these will contribute to strengthening of margin towards 2022.
Okay. That's very clear. And maybe just as a quick housekeeping question to finish. On the last call, you spoke about the conversion of your ERP systems from German GAAP to IFRS Should we finish before Easter or before you leave the company? Is that still the timeline?
Or will that happen a bit later?
Yes. We are this is a project which stands on several different legs. We have already made Significant progress. We are confirming the reporting dates for the year 2020 as we had put them on our website. But this will not be finished on Easter.
We will continue to work on this also over the course of this entire year into next year. We've, for example, already improved our POC calculation and automated that. We have accelerated the report processing and we because we have Found that we can still further align our chartered accounts across the different companies, 150 companies. We'll need a bit more time during the course of 2020 to complete this effort. So you can expect that the reporting date of 2021 Will be a further acceleration from those dates which we published for 2020 this year.
Okay. That's fair. Thanks very much.
Thank you. Our next question comes from the line of Irish Sheng of Credit Suisse. Please
I've got a few. Shall we go 1 by 1? I guess my first one is on trucks. The order intake was very much stronger than consensus at least than what We had and could you maybe comment a bit more on this and how this turned out, say, against your original Which have outperformed in Q4 versus your expectations? And secondly, just on the most recent conversations you've had with your OEM customers.
What are they saying? I mean more like in January February after situations Have changed a
bit. On the order intake, Iris, You will remember that in the Q3 presentation, we had exceptionally also showed October because we needed to put the Q3 order intake reduction Into context, it was a very weak Q3 and we believe this was a one time correction Cleaning up orders between ourselves and our customers. You will also remember that the same happened in a Pretty pronounced manner at the OEM level 1 or 2 quarters before, yes? So we showed already that October was a lot Stronger than the average of the 3 months before. And that actually continued throughout the rest of Yes.
And as I said, I think in hindsight, one can say the swing, the downswing was a bit too pronounced in the Q3 For this to be sort of an indicator for the times to come.
Our
Guidance, which we had already indicated to in November, we keep and confirm based on our customer conversations. The year had started solidly. But of course, what is unknown is whether there will be a demand slump Following a reduction in transportation activity, going back to the virus spread. This, I think, Nobody can answer precisely at this point in time.
This is very helpful. And thank you. And the second one is on Rail. Firstly, just on China. So is it possible that you could share maybe how much your rail business in China grew in the quarter because The full report is not out yet.
And because you mentioned aftermarket is up 10%, and it will be good to know how much how OE has performed as well. And secondly, can you maybe comment a bit on what you are seeing in the market on both high speed rail and metro side and how How you think you have performed against the market?
Yes. Our Asia Pacific Rail Business Grew double digit in the Q4. And it also was a strong region for the full year. Within Asia, China performed very nicely. But As I said earlier, India and also Australia also performed very solidly.
So we are We're continuing the story that has happened for the last three quarters and don't see any particular change. And As far as aftermarket is concerned, that was also a good development in the 4th quarter. But I think I mentioned that some of the OE segments grew even faster than aftermarket.
Okay. Very helpful. And secondly, on margin, because it looks like for 2020, if we just Taking the midpoint of the margin guidance, then it's slightly lower than what we had in 2019. And that's after the disposal of Powertec and also Like gradual phase out of the general contracting business, which should be tailwinds For the margin, so on the underlying business, I mean is there any product mix and regional mix we should think about?
Well, let me first start by saying that the full year of 2019, and in particular also the Q4, was Above our expectation in real, yes? You saw this. That's a fact. And therefore, of course, it doesn't mean that Things will continue from this level onwards. As we had highlighted already in the commentary on the Q3, we said Margins also move up and down with project mix, and this is a fact.
So if you consider the 4th quarter in Rail to be A bit out of the ordinary, then the base from which we see 2020, I think, gets more normal. The first point. 2nd point is we also will increase our efforts on both R and D and on IT In order to push our innovation agenda and to become more efficient, we don't want to Save on this at the expense of our future. So there will be, in some way, A load on the margin coming from this part. Then we tend to be cautious.
I think this is important to highlight. Tend to be cautious just knowing that project mix changes And then I think there's one final point. I don't want to stress it too much, but I think it should be understood. Our strong revenue development in those boom years of 2014, 2015, as those come into overhauls and so on, That is positive for the aftermarket, but it also means that some provisions which have been built during that time Have been released step by step. And this has been supportive for the margin.
And of course, at some point, Because of lower revenue in 2016, 2017, we don't see the same effect ever in the future. So This is also one aspect to be understood.
This is super helpful. Can I just follow-up on that? Just you mentioned on The increase in IT and R and D spend, is there a way maybe to quantify what is the magnitude of the impacts like In basis points terms, if possible. And secondly, I mean, if it is possible, is it possible to quantify also the margin impact from the Provision releases from the previous years.
So on the first question, I think there we can speak more clearly. I think it's in the range of €10,000,000 of additional spend that we are planning. On the second, that's actually hard to say because It depends on whether we are able or not to release that provision, yes. And that is the question of whether there are any warranty cases or not. It may or may not have an impact.
I just wanted to explain the phenomenon, yes?
Yes, understood. Thank you.
Thank you. Our next question comes from the line of Akash Gupta of JPMorgan. Please go ahead. Your line is open.
Yes. Hi, good morning, everybody. Thanks for your time. My first question is a follow-up on medium term margin guidance. And I'm wondering if you can help us Phasing of this approximately 180 basis points margin improvement that you will need from midpoint of 2020 guidance to In the next couple of years to reach to your 150 basis points mid term margin guidance.
So that's question number 1.
Yes, I think I had provided already an answer to this in towards Ingo Schachel. So if we assume that in the years 2021 2022, Norbremse is able to show the requisite growth in order To fulfill the 0.0 $4.5 to 0.5 percent top line ambition, yes? And we do assume that. We don't have any reason not Then of course, there will be operating leverage. There will be aftermarket increase, as I said earlier.
There will be The benefits of the cost containment or cost efficiency programs on the truck side, after every downturn, we tend to See a nice margin increase because we come out of it in a leaner way. And we are sparing also some costs At the AG level or the other line. So those are the main aspects. And We are here to explain our expectation for 2020 and will be more articulated on 2021 at the same time next year.
And my question was more about like if you get similar level of growth in 2021 2022, Is there any reason why margin improvement in 1 year should be higher or lower than the other, given all the And marketing actions that you are taking in place?
I think the best assumption is actually To take the midpoint for 2021 Towards 2022. I think there's no particular front or back loading in this assumption. Yes. As I said, when you get more volume on a leaner structure, you really benefit pretty quickly with a nice positive operating leverage. And that should depending on the time of recovery on truck, that should be already visible next year.
But I don't think there's any particular aspect that would push either the effects Forward or backward?
Thank you. My second question is coronavirus and the Q1 expectations. So you talked about €1,000,000 revenue impact in February. And I would assume there would be some impact in March as well given you have No take over to full production rate. And at the same time, if you look at your outlook for global truck production and comparables In 2019, it seems that the decline in production in first half could be much higher than second half.
So my question overall is that like, And A, if you can tell us the impact of coronavirus in China, how much of this $60,000,000 would be split into truck and rail? And b, outside of China, is it fair to assume that Q1 would be Q1 or maybe first half would see higher decline 2nd half, particularly in truck business?
So in China, the business, I would say 2 thirds would be rail, roughly 1 third would be truck, rough assumption because the rail business is significantly larger in China than the truck business, although the truck business is growing strongly there. That's why the stimulus That the Chinese government is triggering obviously pays into the growth of our pipe business directly. Obviously, we will see Weaker quarter 1, that's clear. But we do see at least the Chinese business returning to what we had planned for In quarter 3, and then it depends on the development and the way China is addressing things right now, it actually looks very positive Whether we can recover what we've lost in quarter 1 in this year. What is still very uncertain is the development In Europe and the U.
S, obviously, there's a lot of news flow right now, difficult reactions at the stock markets. The question is how severe that's going to be. The truck production rates we've put into our guidance already show A wider interval than we would normally guide. And they reflect the uncertainty of Our key customers are the large OEM producers. And I think that, on the other hand, gives us A bit more room in the guidance to be on the safe side.
So for now, obviously, subject to no huge recession or anything, We feel our guidance is very reasonable. We do want to be careful. We don't want to be bullish. But on the other hand, we're not in desperation. Does that help?
Thank you. And my final one is on net debt. I know you will provide full details with annual report. But for modeling purpose, can you indicate whether the company finished the year with net debt position or net cash position?
Yes, I'm pleased to say net cash.
I think our problem of negative leverage is Potentially going to continue.
Yes. But we'll pay a dividend, so that is correct.
Thank you.
Thank you. Our next question comes from the line of William Mackey at Kepler Cheuvreux. Please go ahead. Your line is open.
Yes, good afternoon. Thanks for the questions. A couple, please. Firstly, on The CBS are on commercial vehicles. The assumptions that you're providing for the market Development are very are identical actually to the initial guidance you provided at the time of the Q3 But with the incremental insights that you've gained from the development of market demand in each The regions, can you perhaps throw some additional color on where your expectations for the year are Where they're developing relative to the guidance you've given in each of the regions from respect to volume at CVS?
The second question comes back again to the rail outlook. I mean you've given an aggregated rail outlook. But actually when we look at the rate of growth in the OE and the aftermarket In 2019, the OE growth, as you highlighted, was lower than Expected due to project timing. It seems that we should expect a significant acceleration In 2020 as those projects come back on stream across Europe and also as you discussed Stimulus effects in China. So maybe you could talk to the respective growth expectations around aftermarket and OE in Rail.
And then lastly, a great performance with respect to cost and management to minimize the negative operational leverage in CVS, perhaps you could just discuss again some of the contingency planning that is underway across the business to further mitigate Costs in light of a challenging first half with volumes across the CBS business. Thank you.
Yes. I think I should take those. Well, so the CVS guidance, Yes, you're right. We are basically confirming. I wouldn't call it repeating.
It's confirming the ranges that we Given in November, we've now in the 1st couple of months talked to our customers. Some have given us stronger indications, some have given us weaker indications on aggregate. We feel that we are pretty well positioned with those assumptions. Of course, what that doesn't factor in is a, let's say, serious reduction in transportation activity, yes? So this assumes that those plans which our customers have are going to be executed.
And Those plans are basically on aggregate confirming our views and also by region. Maybe one aspect, We had really a quite strong quarter in China in 2019, last quarter. And It's going to be interesting to see how quickly the demand side is going to recover there as well. But there is There are good reasons for China to continue its positive development. Your question around OE and aftermarket mix on rail.
So first of all, the rail Aftermarket share altogether for the full year was about 42% compared to 40 Maybe 41% in the year before. On and the OE business, The comment on project delays was mostly focusing on Europe, yes. So there are projects which I'm going to show more revenue development in the year 2020. So it is, I think, not unreasonable to assume Higher growth rates in 2020 compared to 2019 in Europe in particular. I think the range of The guidance on a like for like basis is somewhere between 2% 8% growth.
So let's say on average 5%, Which also fits very well with our medium term expectation. And I would say the progress on the aftermarket Shares was 42%. It's actually maybe a little bit ahead of where we thought we would end, yes? Thanks to if I want to call it that way, thanks to the OE development. But that also means that maybe the share of Aftermarket won't grow that much in the year 2020, more than maybe in the year 2021, 2022 On our way all the way to 45%, which we had announced already in the fall.
And then on the contingency plans on truck in particular. So I think generally speaking, truck is, Of course, more exposed to demand fluctuations than rail. And Therefore, we are always prepared to take action if there is a lower occupancy at our factories. We haven't fully utilized our opportunity to reduce temporary workers. We have, of course, started to reduce, but we haven't fully Utilize it because it wasn't necessary.
We have not even started to utilize the short work weeks, but we have prepared for it. So there are several levers which we are fully prepared to take, but which we haven't had to take yet. And Even in the worst of scenarios, yes, if demand crashes strongly, we know what to do. We have I think we've explained it also in our Capital Markets event in London. Peter Lai explained, we have contingency Plans for minus 20%, minus 30%, minus 40%, and we know what to do, yes?
And this may also include temporary plant closures, Things like that. It's all thought through. And I think Norebremse is known, as I said earlier, not for hesitating, but for taking action quickly.
Great. Thank you very much for that. One final follow-up relates just to Italy. I understand you Around 500 people and 3 sites in Italy. Maybe if you can, could you just throw light on how you see developments in that country?
Perhaps Canary in the coal mine for what is to come?
Well, Italy right now, our plants are in operation. So No downturn, no shortages of supply chain or anything. Obviously, we're tracking that very well. We've applied the same The stringent regulations about business travel and the like as we have for the whole company to protect our employees and to protect the production Up to now, all stable. And I think it depends on how long the virus spread continues in Italy.
And beyond what we see today, to be honest, anything else is a guess. But I feel we are well prepared for the situation and right now are faring well with it.
Perfect. Thank you.
Thank you. And we have one final question in the queue. That's from Vivek Midhar of Deutsche Bank.
I have a couple just following up on the coronavirus situation. So firstly, thanks very much for the €60,000,000 figure you gave. Within the hit, particularly within rail, is that primarily OE? Or is there some aftermarket hits as well in That number. And secondly, you talked about reaching maybe 80% to 90% capacity again within China and the potential Normalization of the supply chain in the near future.
Could you maybe comment on where your suppliers stand right now? Are they also at similar kinds of capacity
So I mean, first of all, with respect to the question whether it's OEM or aftermarket, I mean, the Chinese government managed the situation the same for basically all businesses in the same province. So It's across the board. It covers the OEM, the aftermarket. The first step government did was to extend the New Year's break By 1 week and that applied to all suppliers and all customers. So basically everybody was, if you will, in the same boat.
That basically answers the question. I think we see it across the board and we will see a catch up especially in rail. I would assume latest in the second half of the year as Chinese government will put a lot of focus on fulfilling the 5 year plan and just make sure they don't fall behind too much. The same systematic applies to our customers and to our suppliers inside China. So you can assume that they all are on a similar ramp up and especially with respect to our supply chain, obviously, we're Very close contact with our suppliers.
So we have good visibility on what is happening. And so far, everybody is in a very similar process as we are. After the plants were allowed to restart somewhere around 11, 12 February, we had our workforce come back Into the plants, by the way, we kept our office workforce working from home just to limit any risks. And then those who had traveled inside China to visit family were asked to stay at home for 2 weeks for quarantine. So All the plants started up with, let's say, 40% of their workforce and ramped up basically day by day as the employees fulfilled the quarantine requirements.
And today, we're significantly above 80% of our workforce backup plants, quite a few plants already significantly above 90%. So the recovery is happening and with the workforce coming back, production was ramped up very fast. My Assumption is that by end of April, we should be back to what we would have planned for as a normal production rate. And then we need to see what happens in the months beyond that. But hopefully, we'll see a bit of a pickup and recovery effort from Our customers and that should help us fill the gas.
Okay. Thanks very much.
Thank you. And we've had one final question come through just whilst this has been answered. That's from the line of Irish Shen of Credit Suisse. Please go ahead. Your line is open.
Thank you so much for squeezing me in. I just want quick follow-up and just on the truck side to understand just for the sales. So let's say because Some OEMs, truck OEMs, they do say that there have been some supply chain bottlenecks. And so if that It happens and say your customers are not able to deliver their trucks to their customers, then would this have any impact on your sales or As long as you are able to deliver, then you are covered by your agreement.
I mean, obviously, if they were to hold their production, That would reduce our supply to that supplier. But it depends on how long that happens. And again, I'd like to point out the fact that for our guidance, we put a quite wide interval for the truck production rates That within the normal effort should actually capture most of the effects. At the moment, we would get a bit more cautious was if there was Significant recession in Europe or the U. S.
As a result of other effects hitting this. But I think the wide interval we have for now should cover any effects we see as of now. The rest depends on what the economy is doing. And I think it's far too early to speculate on that.
Yes. That's very clear and sensible. Thank you.
Thank you. And as there are no further questions, I'll hand back to our speakers the closing comments.
Yes. Thank you very much for your questions. Wish you a great morning, afternoon and stay healthy. Thanks and bye.
Thank you. Bye bye.
This now concludes the conference. Thank you all very much for attending. You may now disconnect your lines.