Dear ladies and gentlemen. Welcome to the quarterly financial report, Q3 2019 of Knorr-Bremse AG. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. If any participant has difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. I now hand you over to Andreas Spitzauer, Head of Investor Relations. Please go ahead.
Thank you, operator. Good afternoon, as well as good morning, ladies and gentlemen. My name is Andreas Spitzauer, Head of Investor Relations of Knorr-Bremse AG. I want to welcome you to Knorr-Bremse's conference call for the 3rd quarter 2019 results call. As a reminder, the conference call will be recorded and is available on our homepage, www.knorr-bremse.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 new CEO of Knorr-Bremse and Ralph Heuwing, our CFO. Please go ahead, Bernd.
Thank you, Andreas. Dear ladies and gentlemen, I warmly welcome you to our conference call for the third quarter results of Knorr-Bremse AG in 2019. This conference call is special for me, as you know, as I'm speaking to you for the first time as the new CEO of Knorr-Bremse. Today's call is made up out of three parts. First, I'd like to introduce myself, then my colleague Ralph Heuwing, our CFO, will present the financial results for quarter three, and finally, we will update you on our guidance for 2019 and give you an initial view on the coming financial year. Afterwards, as always, we look forward to your questions and comments. Let's move to chart two, and I'll happily introduce myself to you. My name is Bernd Eulitz, or in English, Bernd Eulitz, and Bernd is perfect in English.
I'm 54 years old and live in Munich with my wife and two children. I have an engineering background and studied process engineering at the Technical University of Karlsruhe. Today, it's called the Karlsruhe Institute of Technology. For the past 15 years, I've held various management positions at the Linde Group, then Linde AG, and now Linde plc. I'm sure you know that Linde is the world market leader in technical gases and engineering, listed in New York and Frankfurt, with a market cap of around EUR 100 billion. Since 2015, I was a member of the Linde AG Executive Board and COO, Chief Operations Officer, for Europe, Middle East, and Africa, with roughly EUR 6 billion profit and loss responsibility and 20,000 employees. I proudly look back on the results and the result development of Linde.
With the closing of the Linde-Praxair merger this March, I took the responsibility for the Americas with a P&L of roughly $9 billion, more than $5 billion actually in the U.S. itself, and again, more than 20,000 employees. As you're aware, with the merger, we did quite some effort in integrating and completing the merger integration, which we actually achieved by end of September. Going back a bit more in time, I spent three and a half years in Singapore being responsible for Linde's South and East Asia operations with all the countries from India to South Korea. Before Linde, I worked for A.T. Kearney as a consultant and for Air Liquide in various positions. When I look back on my professional career, I can say that it was often characterized by managing complex and international structures and being responsible for the management of large-scale projects.
This is a valuable experience that I now bring to Knorr-Bremse. Knorr-Bremse is a very successful, innovative, and global company with a consistent track record and an amazing technology portfolio, as you well know. The management philosophy of be global, act local applies well to the way we run Knorr-Bremse. On one hand, we leverage our technology know-how around the world between our truck business, CVS, and our rail business, RVS. On the other hand, it is important to us that decisions are made locally and very close to our customers. As you know, this approach is reflected in the composition of the Executive Board with the two central Executive Board Members, CFO Ralph Heuwing and myself, responsible for the group functions, overall strategy, and synergies, and our two operating Executive Board Members, Peter Laier and Juergen Wilder, responsible for the respective Truck and Rail Division matters.
Actually, I must say we have a well-experienced management team here. As you know, Ralph Heuwing will leave our company, which, by the way, I deeply regret because I really appreciate working with him, but I'm sure we will find a good successor. I am grateful that Ralph is helping me for the first months get up to speed fast and on board. As CEO and Chairman of the Executive Board, I will represent Knorr-Bremse towards our stakeholders, being our customers, our employees, you, our investors, and the general public. My key responsibilities inside Knorr-Bremse are HR and strategy, M&A communications, digitalization, and the coordination of our company across the divisions and regions. My focus will be on fostering a culture of high performance through teamwork Ensuring the continued development of Knorr-Bremse as the global market leader for braking and other safety-critical systems.
I've now completed almost four weeks at Knorr-Bremse, and have been able to get into quite a few meetings and number of very exciting projects relating to the mega trends of mobility and eco-efficiency. I must say, I found a very highly committed and very technology-savvy team at Knorr-Bremse. I'm actually really impressed by what I see here. By March 2020, when we present our preliminary annual results, I will have visited all our larger sites in Europe, Asia, and the U.S. On March 11th, Ralph Heuwing and I will present the preliminary figures for fiscal year 2019, as well as our guidance for 2020. By this time, I will be able to share my key areas of strategic focus for the coming years with you. Already I can see that our company's strategic setup is actually well-positioned with ample growth opportunities.
With this, I now hand over to Ralph to take you through the details of our quarterly results.
Yeah. Thank you, Bernd, and a very warm welcome also from my side. Before I continue with the presentation of the financial results, please allow me to briefly comment on the recent announcement that I will resign as CFO in April 2020. I did not take this decision lightly. Knorr-Bremse is a great place to work and a company with unique opportunities in the future. I have taken the personal decision that I might be able to add more value in different setting and different role in the future. The successful IPO of our company and the expanded range of responsibilities in the last few months have encouraged me in this decision. I believe that Knorr-Bremse has already opened up considerably to the capital market, and that we have initiated many projects to continue along this path.
This is precisely why the company has a unique equity story to tell. Combination of benefits and achievements of entrepreneurship over decades, now expanded by the valuable dynamics of the capital market. What can you expect me to contribute in the upcoming months? I will be personally responsible for managing the financial closing for fiscal 2019. I will continue to oversee a number of key projects, especially the conversion of our ERP systems from German GAAP to IFRS, which is scheduled to take place Easter 2020. Together with my colleagues on the executive board, we will jointly agree the 2020 guidance. Until the end of March, I will continue to present Knorr-Bremse at the capital market as well. Finally, and most importantly, I will, of course, fully support Bernd Eulitz in his introduction into Knorr-Bremse and help him take his leadership role in the best possible way.
Now let me focus on the financial results of the third quarter. On chart 3, you can see that our key highlights of the first nine months of 2019. Our key message today is we are on track. Considering the increasing economic and political uncertainties around the world, Knorr-Bremse's overall outperformance and resilience since the beginning of this year has been remarkable. Our results are above average when compared to direct competitors and other segments in the industrial goods sector. We confirm the special robustness that is embedded in Knorr-Bremse's business model, even if the order intake in a single quarter might be lower. During the first three quarters, we continued to grow profitably and managed to push further ahead with our strategic goal to broaden and deepen our product portfolio in both rail and truck.
At EUR 5.3 billion, revenues were up more than 6% compared with last year's number. The strong order book of EUR 4.4 billion and the rather long-term contracts, especially in the rail sector, provides good visibility for the coming quarters. EBITDA margin, excluding restructuring costs and after application of IFRS 16, reached 18.8%, slightly below the midpoint of our full year guidance. Earnings per share reached EUR 2.69. In nominal terms, this represents a decline of 7% year on year. It's important to understand that the disposal of Powertech at the end of the third quarter impacted the financial result, and therefore earnings after tax negatively with around EUR 80 million. Excluding this impact, earnings per share would have amounted to EUR 3.20, an increase of more than 10% over the previous year. Today, we also have some good news that will mitigate the negative EPS impact for the full year.
I'll come to this later. Let's move on to chart four. In recent months, we have succeeded in achieving important progress for Knorr-Bremse, winning important long-term contracts around the world and strengthening our sustained profitability by taking portfolio decisions and streamlining our operations. Let me elaborate a bit on three topics. We won a major order from Alstom for the new generation of the TGV. This framework agreement for brake systems and HVAC will not only increase our order intake and sales at RVS over the next few years, it is also a proof of our excellent market position. Also, Alstom was convinced by the global market leadership of Knorr-Bremse in the high speed segment and our tailor-made customer solutions.
On chart 5, I will continue with two operation highlights. A milestone in recent months was the disposal of Powertech at the end of September. After strategic review, we came to the conclusion that Knorr-Bremse is not the best owner of this business, as it has too little synergetic value to the rest of our activities. This, combined with weak financial performance, led us to the disposal decision, which we implemented within months of taking it. Let me remind you, execution is a major success factor for Knorr-Bremse, and we demonstrated again in this case. This measure, along with a plant closure at Wülfrath, which is progressing well, is key to reduce the burden for Knorr-Bremse while entering a more challenging market situation. In recent months, we have consciously made another decision. We are continuing to expand our U.S. capacity for air disc brakes.
Why do we believe this is the right decision at a time of declining order intake for North American truck OEMs? Well, it's the feedback from our customers who are continuing the migration from drum brakes to disc brakes without hesitation. Market share well above 50%, Knorr-Bremse in particular, is benefiting from this strategic decision by our North American customers. We will not allow a market share loss in this important product area for capacity constraints. Let's move on to chart six. New orders took a dip in the third quarter year-over-year. Order intake on group level was down by 10.1% compared with the same period last year and reached EUR 1.57 billion. On an organic level, the decrease in the quarter was 13.1%.
The book-to-bill rate of 0.92 in the third quarter of 2019 was below last year's level, but actually slightly higher compared with the ratio in the second quarter of this year. The lion's share of this development is reflecting market dynamics in the truck division in Europe and North America. I will go into this in a bit more detail a little later. The rail division recorded a better development in the past quarter. As explained during the capital market lunch, some projects were rolled over from Q2 to Q3. In addition, we continued to see strong overall demand for our systems and solutions, which can be seen partly from a very good order intake of the rail OEMs.
Please bear in mind that although OE customers show the total multi-year volume of frame contracts in their order backlogs when they win the contract, they only make call-offs on an annual basis for the suppliers like Knorr-Bremse. Accordingly, RVS' order backlog is only in quotation marks 11 months, although we have firm commitments for deliveries over several years. We are strongly convinced about the positive medium-term outlook for the group. This assessment is based on our solid backlog and the industry dynamics for years to come. The order book of EUR 4.4 billion at the end of September this year was slightly higher compared to last year. This provides visibility of 7.6 months, enough time to respond to any potential market changes which might be ahead of us, for example, in the truck segment. Let me dive deeper into our revenue development on chart seven.
During the quarter, revenues on group level grew by 2.4%, reaching EUR 1.7 billion. Our organic growth contributed 0.7%. The revenue increase was supported by RVS on a comparable level in Q3 2019 year-over-year. In the backup, you will find all information about the organic developments of our main KPIs on a nine-month basis. The strongest regional sales growth was achieved in North America, thanks also to foreign exchange rates and also in Asia, both with a similar order of magnitude. In Europe, on the other hand, sales declined in the third quarter, reflecting the uncertainty in the region after this region had grown year-on-year strongly in the previous two quarters. Let me continue with the development of our profitability on chart 8. EBITDA in the third quarter of 2019 grew by 6.7%, outperforming revenue growth in the same quarter significantly.
Accordingly, EBITDA margin rose from 17.6 to 18.3%. The main drivers of this development were our sales growth and the conversion to profitability due to economies of scale and the success of various cost and efficiency measures. In addition, EBITDA benefited at EUR 15 million from the first time application of IFRS 16. During the first nine months, our EBITDA margin, excluding restructuring costs, reached 18.8%. With this level, we are on track to achieve our EBITDA margin guidance of 18.5%-19.5% for the full year. Let's turn to slide nine. The seasonal nature of the development of our cash flow is well known to you.
It is characterized by the fact that working capital typically builds up over the course of the year and then significantly improves towards the end of the year. This, among others, is due to the fact that a number of projects are completed by the end of the year. Nevertheless, our operating cash flow and our free cash flow in the third quarter 2019 improved significantly year-over-year, despite higher investments towards capacity expansions. In addition, we've made good progress in strengthening our operating cash flow by improving cash conversion and net working capital performance. On a year-over-year comparison, DSO improved from 58 days in the third quarter last year to 55 days in the third quarter of this year. Towards the end of 2019, we expect to continue this progress of improvement. On a nine-month basis, free cash flow reached a level of EUR 335 million.
We are well on track to reach our free cash flow guidance, which is above last year's number of EUR 402 million. Annualized operating ROCE was at 34% on September 30th in 2019, more or less unchanged compared with last year's figure. For reasons of comparison, we have excluded the effects from Wülfrath, Powertech, and IFRS 16, which together had an impact of 320 basis points. The increase in CapEx reflects capacity expansion for the continued demand for air disc brakes in North America, which I already mentioned, as well as the Munich-based site development. I will come back to this point on the next chart. In the third quarter of 2019, the CapEx to sales ratio, excluding IFRS 16 impact, was at 4.7% in line with our medium-term guidance of 4%-5%.
In this context, let's move on to chart 10 and onto a non-operational topic which lies immediately ahead of us. We've decided to enter a sale and leaseback transaction regarding real estate and mainly office space at our headquarters here in Munich and have signed a detailed term sheet with the buyer. As you know, our asset-light strategy is an important cornerstone in improving returns on capital employed and driving our cash flow. We are constantly looking for opportunities to drive efficiency and flexibility further. In our production plants, we've already succeeded in many areas. For example, by outsourcing highly asset-intensive production steps such as casting, forging, or pressing to suppliers. In this specific case here, we are planning to sell existing office buildings and those under construction at our Munich headquarter location and rent them back immediately for an extended period of time.
The reason for this is simple financial arithmetic. As shown on the previous chart, our operating business achieves a return on capital employed of more than 30%. The return on invested capital in office and lab real estate, in contrast, is in the mid-single digit percentage range and hence rather dilutive. As you can see, this transaction represents a clear increase in value for our shareholders. Asset allocation at Knorr-Bremse follows a consistent prioritization towards our ROCE. What are the details of the transaction? We're selling land and office buildings for net cash flow of EUR 200 million, which will be paid in two tranches in 2019 and 2021. This results in a book profit of around EUR 46 million under IFRS and actually EUR 63 million under German GAAP. The buyer, Opus, is indirectly owned by Mr. Thiele, and hence a related party.
This actually represents a strategic benefit to Knorr-Bremse in terms of long-term commitment as well as synergies with their bordering southern real estate portfolio, especially given the particularities of the concerned properties. We sought external advice when selecting the buyer and negotiating the terms and conditions of the transaction, fully confirming the arm's length nature of the agreement. We expect to sign the contract by year-end 2019. We plan to invest the proceeds mainly in strategic and value-enhancing M&A projects as well as R&D. Let me continue with the divisional view on slide 11 and start with the rail division. In the third quarter of 2019, order intake of Rail Vehicle Systems was down 1.6% and on an organic level by 2.9%. In this context, let me underline a specific aspect of the rail segment.
RVS is dependent on projects which are independent of seasonality or cyclicality but reflect the ups and downs of a diverse project portfolio. A quarterly comparison on a year-on-year basis might therefore sometimes be misleading. In the last quarter, we have been quite successful in winning bigger contracts in Asia as well as in Europe. Order intake in North America, however, fell visibly, mainly due to a lower demand in the freight sector. Please bear in mind that this sector accounts for significantly less than 5% of the global rail business, but it was a driver of lower order intake in the third quarter. In Asia, we recorded positive development of our order intake, just like during the two previous quarters. Our book-to-bill ratio of RVS strongly rebounded to 1.04 compared with the previous quarter and slightly lower compared with the previous year.
At the end of September 2019, the order book reached EUR 3.3 billion, which provides a visibility of almost 11 months. Moving on to the revenue and profitability for the rail division on chart 12. In the past quarter, revenue increased by 3% to EUR 950 million. Adjusted for the disposal, M&A, and FX effects, organic growth amounted to 4%. Once again, all major regions were able to show growth in the OE business in the third quarter year-over-year. In Europe, top-line growth was supported predominantly by the OE business. On a sub-segment level, we've been successful on executing projects in the regional and commuter business in light rail vehicles, for example, trams, as well as in freight cars. In Asia, we realized continued momentum in our OE and our service business. Especially the passenger segment is worth mentioning. On the other hand, we experienced headwind in the field of locomotives.
In China, in particular, the higher use of trains and increasing number of high-speed trains entering the first phase of overhauls were important drivers for the increasing aftermarket business. Our aftermarket turnover has grown by almost 10% year-over-year and now stands for close to 45% of our total Chinese revenue. The second-biggest revenue share derives from the metro segment in China, which is already double the size compared with high speed. In the third quarter, turnover from locomotives was lower year-over-year. In the region North America, revenues benefited from good demand for the aftermarket business, mitigating lower revenues from OE. Within OE, as said, the freight segment expectedly contributed lower revenues year-over-year. Our EBITDA showed an improvement of 6.4% to EUR 189 million in the third quarter 2019, including an IFRS 16 effect of EUR 9 million.
The corresponding EBITDA margin was at 20.6% for the third quarter in 2019, slightly above last year's figure. After a very strong, actually an exceptional margin performance in the first and second quarter, we expectedly saw a lower margin in the third quarter. Cumulatively, we are very much on track towards the targets that we set out to achieve for 2019. Despite positive influences on profitability, namely the strong aftermarket performance and efficiency improvement, it's important to emphasize that the development was impacted by some specific topics, too. For example, Powertech, which we disposed only at the end of the third quarter, posted a loss of EUR 6 million in that third quarter. That was an operational loss. Additionally, Kiepe Electric's share of sales was also significantly higher year-over-year, which along with lower margins, led to a burden on profitability.
One of Kiepe's subunits is active in the general contracting business for rail customers. This business is characterized by high risk and low margins given the relatively low engineering content. While this was margin dilutive in the third quarter of 2019 and likely also in the fourth quarter of 2019, we're planning to reduce our exposure in this business significantly next year. I come to this point in a moment. On slide 13, I'd like to continue with the development of our truck division. As we all know from recent months and quarters, our customers, the truck OEMs, recorded significant declines in their own order intake year-over-year. This development is now also leaving its mark on our CVS results.
Order intake for the division was at EUR 621 million in the third quarter, which was 21% down compared with the third quarter of 2018 on nominal figures, and 26% on purely organic figures. This decrease was predominantly driven by Europe and also the U.S. Overall, we expect truck demand in North America and Europe to be weak in the coming quarters. In the U.S., most analysts and truck OEMs expect for 2020 a truck production rate decline of 20%-30%. This shouldn't be considered as a crisis. In fact, it is exactly where we've been in 2017, and that for Knorr-Bremse was actually a very decent year. The order book of our truck division stood at EUR 1.12 billion at the end of the third quarter. This provides visibility of 4.2 months of revenue.
Let's move on to chart 14 to explain in more detail the development of our CVS order intake on a monthly basis over the course of the year, and in comparison to 2018 and 2017. In the third quarter last year, to be precise, after the summer break, the general demand for trucks was still very strong, the truck OEMs wanted to secure capacity at the suppliers. Accordingly, they pushed ahead and placed orders at this early stage. 12 months later, the situation is completely different. After the summer break, our customers reassessed the situation based on the slump in demand and decided to correct their order flow to the market needs. What is our take? We do not witness any panic among the truck OEMs, as most of them only adjusted positive overreactions in previous years.
This can be seen from the fact that our order intake and our book-to-bill ratio in October developed much better again. The reported order intake figure for Q3, seen in this context, appears to be more dramatic than it actually might turn out to be. Let's also be clear, we do not believe that we've already seen the bottom. It's too early today to make a final assessment for the truck demand and the truck production rate development in 2020. Let's move to the next chart. CVS posted EUR 797 million in revenue for the third quarter. Compared with the last year's figure, there's an increase of 1.6%. This development was supported too by the first-time inclusion of Hitachi Steering as of April this year, and FX. Organic revenue declined by 3.2% versus the same period last year.
With this development, our truck division once again outperformed the corresponding third-quarter production rate of trucks, which declined by 3.6% year-over-year. CVS was able to grow stronger than the underlying market and was again able to gain valuable market share from our main competitor. By the way, also our aftermarket ratio as a % of total revenue picked up again. We believe that the de-stocking in our supply chain towards distributors that we experienced for a few quarters might have come to an end. In the last quarter, CVS achieved an EBITDA of EUR 130 million at an operating margin of 16.3%. This number includes an IFRS 16 effect of EUR 4 million. We are quite pleased with this development in times of a weak truck market and regard this as a confident demonstration of our margin stability.
The main driver for this positive development was the strong increase in the aftermarket share, which increased from 27% to 30% in this quarter. Also the cost measures contributed. On chart 16, I would like to continue with the topic TPR and those cost measures at CVS. In recent months, we have seen that a number of truck OEMs have published their outlook for truck production rates for next year. We've noticed that there was almost a competition who could give an even more negative outlook. On the chart, you can see the range of expectations of analysts who expect a TPR decline of 10%-20% for Europe next year and 20%-30% for North America. CVS will be affected by these declines, but to a lesser extent, thanks to the aftermarket resilience and our content growth.
On the cost side, we've prepared very well for different scenarios. We are currently reducing overtime and paying close attention to the overall number of employees in our truck division. At the same time, we're acting very disciplined in terms of overhead costs and investments. Should these efforts prove not to be sufficient, we have defined further countermeasures to safeguard our profitability. These include, amongst others, a further reduction in temporary workers and more stringent cost management of material costs. You can rest assured that protecting our profitability has top priority at Knorr-Bremse. Let's move on to slide 17. Our main message here is, given the performance during the last nine months, we confirm our revenue and our operating EBITDA margin guidance for the full year. We expect organic growth of revenue between 3.8% and 6.9% in 2019.
Nine months of 2019, we achieved 4.7%, which is well within the full-year range. Including M&A activities, this should lead to EUR 6.875 billion-EUR 7.075 billion in revenue in 2019. Based on this revenue level, we expect an operating EBITDA margin of 18.5%-19.5%, which excludes restructuring costs and as well the mentioned book profit from the sale and leaseback transaction, but includes the IFRS impact. In the nine months of 2019, we achieved 18.8%, again, well within the range. The current market environment has certainly become more challenging and volatile in recent months. Above all, the political environment is less predictable, and issues such as Brexit, trade wars, sanctions, are beginning to take their toll. Not directly on Knorr-Bremse, but on economic activity, our customers' demand, and on overall investment behavior.
Our CVS division benefits from the resilience of its aftermarket business and increasing content per vehicle, both of which are largely independent of truck production rate. In addition, CVS was again able to gain market share over its main competitor. On the other hand, we monitor our customers' developments very closely. Accordingly, we have defined, tightened, and in many cases, already implemented an efficiency program to reduce the increasing cost pressure. We've been very successful in this so far. RVS, the proportionately larger and higher margin division, has proven quite immune to the cyclical fluctuations, thanks to longer-term investment programs initiatives in the context of climate change. In the further course of events, investments in infrastructure and rolling stock might even increase in times of a downturn as public funds are mobilized when private funds are receding.
In addition, we continuously analyze and optimize our railway business portfolio for maximum value creation. I would like to end the presentation with a chart 18, which gives you our first thoughts for 2020. We are currently in the planning process for next year, which should be completed over the next few weeks. We would like to share with you our basic assumptions, our strategic focus, and the resulting first indications of financials in the year 2020. For the rail segment, we expect the passenger market to develop positively, and our aftermarket turnover to benefit from the large installed base. From a strategic point of view, we'll continue to optimize our product portfolio. In particular, we plan to ramp down the mentioned low-margin general contracting business by annual sales of EUR 60 million-EUR 80 million, with no restructuring costs to be expected.
According to our initial assessment, this, along with the Powertech disposal, should lead to a slight increase in RVS revenue as well as EBITDA margin. RVS should be a robust and reliable performer in 2020, compensating for some of the CVS headwinds. On the CVS side, European and North American truck market data suggests significantly lower volumes as already mentioned. This means both of these markets should reach a TPR at a similar level like the longer-term average, for example, the 2017 level. At the same time, we assume that the correction in the aftermarket has already taken place in the last two to three quarters, and revenues here will stabilize and contribute positively in 2020. We do not see our content story to be at any danger.
Our CVS focus in 2020 will therefore be on consistently driving forward our cost programs, while at the same time investing in our innovation agenda. Based on our current estimates, CVS revenues should drop, but significantly less than truck production rates due to a positive aftermarket business, a good development of content per vehicle, and a positive development of our market share. Based on this assumption, we expect that our CVS EBITDA margin should only decline moderately, even though we will increase our R&D spending both in % of sales and in absolute figures in future growth projects. Combining the expectations for CVS and RVS, Knorr-Bremse should be able to deliver a robust group performance, exactly what you would expect us to do.
Once again, these statements do not represent a guidance, but they should help you understand the mechanics which we expect to be at work in the year 2020. With this, I would like to thank you very much for your attention. Now I look forward to your questions.
We will now begin our question and answer session. If you have a question for our speakers, please dial 01 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask the question. If you find your question is answered before it is your turn to speak, you can dial 02 to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. The first question is from Ingo Schachel of Commerzbank. Your line is now open.
Yes, thanks very much. My first question would be on your margin in the rail ecosystems. You mentioned a lot of one-off factors, Powertech, Kiepe, and so on. I think with all that phasing out, one might have thought that you might even take a more positive view on the margin expansion potential in 2020. Why would you not sort of expect more margin expansion if all those low margin stuff is phasing out? Is it that the project mix in the last years was unsustainably strong? Are you seeing more margin pressure in certain markets like China? What is it that you're seeing as underlying margin pressure in, let's say, the core business excluding loss makers?
Yeah, Ingo, thanks for this question. I think the starting point to answer this is actually our guidance that we released at the start of this year. We clearly said what we would expect. At the time it was 20%-21%, and if we added the IFRS 16 effect, it would be 20.8%-21.8%. Of course, especially the Q2 margin was exceptionally high, which we also presented at the Capital Markets Day. This goes back to project mix. So far for the nine months, I think we are actually at the upper end of that guidance. I wouldn't explain this purely with one-offs. There are always certain factors which make a quarter less comparable to the previous one, and we mentioned some of the reasons, but there's no structural issue behind that.
It's just the fact that from quarter to quarter, you have different mix of projects which are rolling in, whether it's the product mix, whether it's the geographic mix or the customer mix, and hence the margin keeps moving within a certain bandwidth.
Okay, thanks. Maybe on the timing of your sale and leaseback of the Munich property. Of course, it seems to be quite value accretive, of course it becomes even more value accretive if you actually deploy the cash. I was just wondering whether the timing of the transaction has to do with the specific bigger M&A opportunities that you see or with the new management team maybe putting an even stronger emphasis on M&A and aiming to have deeper pockets and be ready for transactions when they come. Is it just a pure coincidence?
I would say closing this deal before 2019 does make a lot of sense, just to make sure that we actually counteract some of the CapEx that we are in the process of investing in some of the buildings on the way that we actually get the cash back. This is only to balance out, I would say, cash inflows and cash outflows. M&A is on our agenda, and we are hopeful that we can talk about transactions also within the next several quarters. As always, we are carrying a decent pipeline of opportunities, and once those are getting more concrete, you will of course hear about it.
Okay, great. Thanks very much.
The next question is from Philippe Lorrain of Berenberg. Your line is now open.
Yeah. Thank you very much. Also two questions from my side. The first one is really, if you could update us on the factoring volumes. I'm asking especially against the background of very strong cash generation, whether that was perhaps helped a bit by, especially the decline in net working capital by more factoring volumes. That's the first.
The second?
The second one is more like a question on the CFO succession, whether you can share with us a bit of view on what kind of personality you're looking for and especially, I guess for the new CEO, starting in the company now, being in charge of HR and one of the first big mandates he has is actually to find a successor to Mr. Heuwing.
Okay. Maybe if you allow, this is Bernd. I'll start with your second question. The search for a CFO successor is handled by the supervisory board. It has already been started. Maybe also important to note is that I am part of that review and selection process because, similar to my selection, it is very important to the supervisory board that we create a team that works together very successfully. We're looking for somebody who has good experience in capital market relations and the way a company needs to be set up to perform well and interact well with the key shareholders. That's one of the main objectives. All the rest, obviously, I think are very obvious criteria we're looking for. I hope that answers your question as far as I can go, obviously.
Yeah. Perhaps just to follow up on that, I understand it's going to be likely then that you come with an external candidate.
It is likely, but please bear with us until we are able to speak more.
Perfect. Thank you very much.
Yeah. Philippe, on your factoring question, there was no particular development, so it was basically similar level as in the year before. Our goods cash performance was partly driven by changes in accruals, for example, the pension provisions. We had to accrue for those given the interest rate environment and that means that a good portion or much higher portion of the profit actually came in in cash and not because of an unchanged or even a release of provision.
Okay. Thank you very much.
The next question is from Sven Weier of UBS. Your line is now open.
Yeah. Thank you. Good afternoon. Two questions on the order intake and one follow-up on the RVS margin. On the order intake, I was just wondering, appreciate the fact, obviously, that the order intake in rail is lumpy, but also after nine months it's only up moderately. I was just wondering where you see the year ending on this. Should we see some acceleration in the fourth quarter or is the kind of up 1%-2% also kind of a good guide for the year as a whole? As far as the truck business is concerned, obviously in Q3 you had quite a monthly volatility in the orders. Do you see a more stable monthly development in the fourth quarter? I guess in October it was down like mid-single digit year-over-year. Is that also a good prognosis for Q4?
On the margin, I was just wondering what kind of total EBITDA does the EUR 130 disposal or discontinuation have this year? Thank you.
Order intake in rail. You gave the keyword, which is higher lumpiness than on truck. Therefore, I can only say that we are on a stable and robust track. We don't expect any major deviations up or down. I think the one thing we pointed to is the U.S. freight market. It's not huge in terms of output for you, but it has, of course, an impact. Otherwise, on the whole passenger side, we think that we are basically growing in line with our full year expectation. On truck, I think the September observation and partly even the July observation were, as you can see in the chart, a correction and assessment of the market situation. Basically, I think we only saw in our order book what our customers had seen in theirs maybe a few months before.
Whether a single-digit reduction is the right level to expect for next year, that's I think the big question, and that's why we also said there's a range. We think that -5% is a positive and optimistic outcome, and -15% is a negative outcome. You should also watch the gap between that on the red line and the truck production rate. In the market, you clearly see an outperformance. I think that range of 5% to 15% describes what we believe right now, we are also not at the time of the guidance, in the next few months we'll watch it closely and then come back with, I think, a much more concrete guidance for the next year.
The question was not so much with regards to what happens next year, but more on the Q4 order intake if you see more stable monthly bars. So to say.
We've been as open to you as we can.
Even talking about monthly figures. I think weekly figures would be a bit much. What will be the end of November and the end of December, just bear with us. We don't know better than I think the general market. On the rail margin, I think that was your other question.
Can you repeat it again?
Yeah. You said that the sales impact is EUR 130 million in total, right, of both factors. I was just wondering what the total EBITDA impact of those factors is. On the Powertech is a negative EBITDA. On contracting is probably a low EBITDA. Is it zero, or what should we assume?
The net of those two should actually be a positive impact next year. Powertech, we mentioned this, contributed roughly minus EUR 20 million in the year 2019 in those nine months. Once they are gone, they are not reappearing. The Kiepe Electric contracting business is a rather low profitability. It's not zero, but it's rather low. That will reduce the Powertech impact a little bit.
Maybe just one final follow-up on the RVS order intake. In terms of your market share, it's not like that you've lost some market share in the first nine months. It's just the lumpiness, it's just the timing. It has nothing to do with market share. Did I understand that correctly?
Yeah. If you understood us closely, you even heard us talk about some share gains here and there. We do feel that we are very much on track of what you have seen from us in the past.
Okay. Thank you.
The next question is from Andreas Willi of JP Morgan. Your line is now open.
Yeah. Good afternoon, everybody. I have two questions, please. The first one on your comment on the truck production versus your own performance in Q3, if you could elaborate a little bit more on that. I think you said truck production was down 3%. Your sales were also down 3%. Maybe you could just elaborate a bit more on that and maybe also make some comments on the regional outperformance, either for the three months or for the year to date. The second one on the lease-back. What's the P&L impact going forward in terms of the operating cost, the rent going up?
Let me start with the latter. We will have a higher expense of roughly EUR 10 million compared to the P&L situation beforehand. We are replacing, of course, depreciation with interest and rent. Therefore, there is a gap between owning and leasing, which makes up roughly EUR 10 million. This is also compared to the cash inflow, roughly 5% year-over-year. On the truck production rate, what I said was the market overall, but this is, of course, the composition of all the regions, had a negative development of 3.6% versus our own development, which was at 3.2%. This is, of course, not a big gap. In the U.S., we continued to outperform in terms of our content growth by roughly 4%. In Europe, that was a little slower. In Asia, we also had a positive contribution by content growth, like in the previous quarters.
Thank you very much.
The next question is from Vivek Midha of Deutsche Bank. Your line is now open.
Hi. Thanks very much for taking my questions. Two for me, if possible. Firstly, just wanted to follow up on the questions around rail margins in 2020. Can I just check that all of the assumptions you're talking about with margins in rail are with pricing are basically as normal? Secondly, just to think about Q4 margins. Usually that's the strongest of the year for rail. Obviously, you've mentioned that Q2 was exceptional, but how should we think about Q4 margins relative to H1? Thank you.
Yeah. Vivek, you may remember that actually 12 months ago, we were saying the fourth quarter of 2018 won't be such a stellar quarter as 2017.
That was actually our expectation. It is not a regular that every single year we have a very strong fourth quarter. It is more the project mix. Quarter to quarter, and in 2017, and indeed also in 2018, that happened to be in the fourth quarter. In 2019, we think that happened to be in the second quarter. Otherwise, we would have a reason to talk about our margin guidance now, and we're not. We are confirming that also the margin guidance for rail is what we stick to. You also might remember that I said the general contracting business, which we are still seeing a strong contribution from in the fourth quarter of 2019, will continue to dilute our margin also in that quarter. It is most likely not going to be the strongest quarter of the year, just to confirm that.
Thank you.
The next question is from Lucie Carrier of Morgan Stanley. Your line is now open.
Hi. Good afternoon, gentlemen. Thanks for taking my question. I will have two, actually. The first one, sorry to have another follow-up on the margin dynamic in rail, I was just wondering if you could comment maybe a little bit more on the margin you are actually seeing in the backlog in RVS. How is the margin currently looking versus what you have in the P&L? Is there a risk that the mix maybe is a little bit softer as we go into the next few quarters?
Yeah, Lucie. I'm sorry, but I will continue talking what I said before, or repeating it. We believe that the margin guidance that we showed for the full year is still true, and we will deliver within that band, which means that the current order book carries margins in that particular band. Yeah. Otherwise, we would, of course, have a reason to correct that margin. The portfolio mix is rolling through. What we can say, and that's actually what we mentioned with a view to 2020, that the elimination of the Powertech business and the elimination of the general contracting business of Kiepe Electric, those are two specific items where we actively structure or change the portfolio mix.
Otherwise, it is just a reflection of the market needs, whether it's doors or HVACs or electric systems, or whether it's a business that's growing in China or in North America, this mix of different projects continues to impact our margin that we are going to deliver. That, as we can see it, remains quite stable.
Okay. I guess the margin backlog you have now is not so impactful for the fourth quarter, considering you have about one year visibility on the backlog, so it's more going into next year. What you're saying is the margin in the backlog is currently stable as we go into next year.
With those elimination effects, we believe that next year should show a better margin on average than this year.
Thank you very much. My second question was around the CVS business, specifically aftermarket sales. That was particularly strong indeed in the third quarter versus what we had seen. You think that the inventory kind of correction has already taken place, but do you think that the low double-digit growth that we have seen is sustainable from here? If you think it's the case, what is the evidence that we're going to have some form of massive restock at the moment where the market is decelerating?
Yeah. See, the de-stocking that we have seen and maybe some restocking that we are seeing, they will balance out over time, and we have seen historically, the aftermarket grow at roughly 4% per year. This is, I think, where it will balance out again. A positive contribution, which is what we have said, is what we expect for the year 2020. We think that unless there is a major correction also in terms of economic activity, like a recession in many countries, unless that is happening, transportation volume will provide basically the base for spare parts and repair and maintenance and so on, which is growing at a historic rate.
Thank you.
As there are no further questions, I hand back to the speakers for the conclusion.
Thank you very much for your questions, and we wish you a very great Christmas time. Thanks a lot, and have a nice afternoon. Bye-bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.