Dear, ladies and gentlemen, welcome to the Capital Market Lounge of Knoebrems AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. May I now hand you over to Ralf Hoelving, who will lead you through this conference. Please go ahead, sir.
Yes. Very welcome, good morning and good afternoon wherever you are, dear ladies and gentlemen. My name is Andreas Spitzauer, Head of KnobBremsen, Investor Relations.
I want to welcome you today to the
presentation of our first half results for 2019 and the 2 divisional deep dives for rail as well as for truck. As a reminder, the conference call will be recorded and is available on Our homepage, www.knorpremse.com in the Investor Relations section. Here you can find today's presentation It is now my pleasure to hand over to Ralf Hoiving, the CFO of Norbremsee. Please go ahead, Mr. Rudin.
Yes. Thank you very much indeed, Andreas. Ladies and gentlemen, Welcome to our Capital Market lunch. Thank you for making your time available. Today's event is made up of 2 main parts.
First of all, I will present the highlights of our key financial figures for the first half of twenty nineteen as well as the second quarter, followed by our regular Q and A session. My two colleagues, Peter Leija and Jurgen Wilder, We'll then go into a deep dive on our Truck and Rail divisions, including individual Q and A sessions. We chose this format today because we have indeed, over the last 12 months or 11 months to be precise since our IPO, Significantly expanded our capital markets presence, we have met a large number of existing and also newly Interested investors and in addition, our sell side coverage expanded to 12. During the meetings in the recent months, We have noticed that many capital markets participants already have a good understanding of our markets and our equity story. At the same time, we have the impression that investor discussions sometimes tend to focus on relatively few issues and do not always appreciate the full picture.
The topics we therefore want to address in our divisional deep dives today include the following: How might the truck market look like in the context of a cyclical weakening? And what levers are available to Knob Ramsey in order to protect our margins? What are the real drivers For content per vehicle, what are our growth prospects in the rail market? Where are the most Interesting interactive markets outside of China. What potential will the rail aftermarket of Aknerobramze over the next years.
And of course, for both businesses, how will Cranabram's innovation roadmap look like? And what opportunities will this bring for medium term growth? A final word before we start. Admittedly, we are late in reporting Q2. But let me once more reiterate that after the full ERP implementation of our IFRS accounting, So please bear with us till then.
Let's start with Chart 5, 4, indeed. And our key highlights in the first half of twenty nineteen. Considering the increasing economic and political uncertainty, Knoebrems' outperformance and resilience Since the beginning of the year has been remarkable. Our results stand out when compared to direct competition or with other segments in the industrial goods sector, in particular compared to automotive. They confirm the special robustness, which is embedded in Coronavans' business model.
During the Q2, we continued to grow profitably and managed to push further ahead on our strategic agenda to broaden and deepen our product portfolio in both rail and truck. My colleagues will explain this in more detail later. At €3,600,000,000 revenues were more than 8% stronger compared with last year's number. This dynamic development was driven by both divisions and indeed all regions. The strong order book of €4,500,000,000 and the rather long term nature of the contract, especially in rail, provide good visibility and support for our revenue development in the next quarters.
Operating EBITDA margin, which is also the basis of our guidance for profitability in 2019, reached 19.0%. After eliminating the restructuring charges for the plant closure of the production plant in Wolfhard. The first time application of IFRS 16 supported the EBITDA margin in the first half of twenty nineteen, Also with a contribution of 70 basis points. And we were particularly pleased that earnings per share improved 21% from €1.76 to €2.13 To summarize the Q2 highlights, in short, we have again delivered on our IPO promise. Moving to Page 5.
The strong financial results are clearly a reflection of the key elements of our equity story. All the points we presented a year ago during our IPO are still fully valid. Both divisions benefit from their market leading positions In markets with high barriers to entry, important megatrends like urbanization or like autonomous driving And increasing content per vehicle allow them to outperform their respective end markets. As a key innovator, Knob Ramsey has set new trends in the rail and truck industry, especially in terms of efficiency and safety. Our aim Resilience is a cornerstone of our attractiveness.
Both divisions incur around 90% of their respective costs in their respective regions. This high level of localization not only strengthens our relationship with our customers and enable us to score points on homologation. It also means that we are a lot less exposed to risks And last but not least, a high aftermarket share and long term customer relationships help alleviate some of the more cyclical risks of the OE business. Both RVS and CVS continue to show profitable growth. Our asset light business model ensures good cash conversion and flexibility.
Last but not least, the executive team has a clear strategy and is strongly committed to Conoverse's Success. Let me dive deeper into our revenue development on Page 6. During the first half of the year, revenues grew by 8.4% and reached a half year record of €3,600,000,000 The main driver of this development was our organic growth, which contributed 6.8% and reached the upper end of our full year guidance. Revenue development in the Q2 was also quite pleasing and driven by both divisions. Nominal quarterly sales growth was 8.1% and organic sales growth 5.6%.
In the back of our presentation, you will find more details on the organic developments of our KPIs also on a quarterly basis. It's noteworthy that all major regions supported the increase of our top line. The strongest contribution, however, with some distance came from North America. Here, the revenue growth of 23.5% Was clearly outstanding, reflecting good momentum in freight, locomotive and aftermarket for our rail division As well as content growth for our truck division, but also, of course, a favorable FX rate. In organic terms, We've been able to add nearly €100,000,000 of additional revenue in this region.
The region Asia Pacific Delivered a growth of 8%, and Europe achieved 2% in revenue growth in the first half year on year. On a quarterly basis, the regional development was pretty much in line with the half year comparison. As you can see on the next chart, New orders grew less strongly than sales. Our order intake on group level for the first half of the year was up by 1.8% compared with the same period last year and reached €3,600,000,000 On an organic level, growth reached approximately 1%. The book to bill rate in the first half of twenty nineteen reached approximately 1, slightly lower compared with the ratio in the first half Of last year, in the Q2 of 2019, we recorded a nominal and organic decline in order intake On the one hand, this reflects early signs of a more hesitant order activity, as one would expect, From truck producers, especially in Europe.
In addition, the Rail division felt the temporary impact of some project rollover Please remember that Rail is a project business, and as such, larger orders can influence the quarter on quarter comparison. RBS had benefited from larger orders in the prior year quarter and in the Q1 of 2019. We consider this a normal quarterly fluctuation and do not see it as any cyclical or even structural phenomenon. By the way, our July August order intake for Rail was again at a very healthy level. The order book of €4,500,000,000 at the end of June this year provides a visibility of almost 8 months of revenue, Let's move to the development of our profitability on Chart 8.
Organic EBITDA growth was higher than revenue growth in the first half of twenty nineteen. Group EBITDA on an operating level, including the IFRS 16 effects and excluding restructuring costs of €16,000,000 for the closing of the production plant in Bulfgaard came in at €685,000,000 in the first half of twenty nineteen. This equates to an operating margin of 19%, 100 basis points higher than during the same period last year. It is also one of the best half year EBITDAs The performance in Q2 2019 was even slightly higher, Reaching 19.1%. These numbers are a strong indication that we are well on track to achieve our operating margin guidance of 18.5% to 19.5% for the full year.
The application of IFRS 16 supported EBITDA by €25,000,000 in the first half €11,000,000 in the second quarter. On the next chart, you will see that on an EBIT level, we were able to increase margins as well. In the first half of twenty nineteen, operating EBIT margin reached by 15.6 percent. Compared with the operating margin during the same period last year, there was an improvement of 30 basis points with almost no tailwind from IFRS 16. Wilfrid influenced the EBIT in the first half by €27,000,000 Compared to the EBITDA effect, the higher figure also includes Depreciation or write offs on machinery.
In addition, the first time application of IFRS 16 resulted in a higher depreciation in the Q2 year on year, which had an impact of around €11,000,000 Let's move on to Chart 10 and focus on cash flow. The nature of seasonal developments of our cash flow is very well known to you. It is characterized by the fact that it builds up over the course of The year significantly improves towards the end of the year. This, amongst others, due to the fact that A number of projects will be completed by the end of the year. Our operating cash flow and our free cash flow in the first half of twenty nineteen improved year on year by 25% 19%, respectively.
Despite the revenue driven increase In net working capital and higher investments towards capacity expansion. This happened due to a higher cash conversion of our strong earnings. Until the end of the year, we expect to further strengthen our operating cash flow by improving earnings as well as net working capital. Annualized operating ROCE was stable with a high level of 35.5%. For reasons of comparison, we have excluded 150 basis points for Wilfrid as well as approximately 270 basis points for IFRS 16.
The increase in CapEx reflects capacity expansions for the continued demand For Air Disc Brakes in North America as well as the Munich based site development, which we already introduced in the Q1. In the first half of twenty nineteen, the CapEx to sales ratio, excluding IFRS 16, was at 3.7%, In line with our midterm guidance of 4% to 5%. Let me look a bit deeper into the divisions And start with Rail on Page 11. In the first half of twenty nineteen, Order intake of Rail Vehicle Systems was up 2% and almost 4% on an organic level. As explained before, The development of the Rail business is characterized by somewhat chunky orders.
And after achieving a record order intake and a growth of 10% in the Q1 of 2019, we recorded an organic decline of around 2% in the Q2. To put things into context, In the Q2 of 2018, we had received a major order worth more than €70 for Kieple, Our specialist entity for electric equipment. I'd like to add that in July, the book to bill ratio of RBS rebounded again with a level of 1.18. Especially, the Asian region was strong, posting an even higher ratio. Both numbers are much higher compared with group average in the 1st 6 months of the year.
Let me be very clear. The rail industry and our RBS business are very healthy, in particular driven by megatrends, which my colleague, Jurgen Bilder, We'll explain in more detail in the RBS deep dive. Drivers for order intake in the Q2 have been the good development of our Chinese aftermarket and HVAC in general. Additionally, we won several orders Our performance in the U. S.
Freight market is especially remarkable Given the weak development of freight volumes in the raw materials segment. Based on the strong demand for our products and services, our order book Advance as well. At the end of the second quarter, it reached €3,300,000,000 and our visibility, therefore stands at 11 months of revenue. Let's move to revenues and EBITDA in Rail on the next chart. In the 1st 6 months of 2019, revenue increased by almost 8% to €1,880,000,000 Adjusted for disposals, M and A and FX effects, organic growth amounted to 8.4%.
In Europe, top line growth was supported by almost all segments, such as high speed trains, freight cars and regional and commuter business. The European aftermarket too developed very well. We also benefited from better revenue development of our major European customers. In Asia, we realized continued momentum in our Indian OE and aftermarkets, As well as in our Chinese aftermarket business. In China, an increasing number of high speed trains are entering the first phase Of overhauls, in the first half of twenty nineteen, our Chinese aftermarket revenue increased by more than 20% year over year to more than €200,000,000 In the region North America, revenues benefited from good demand for brakes overall.
At Product level, growth was driven by positive developments in the aftermarket as well as in the locomotive and freight segments. And we are particularly pleased that the EBITDA margin developed so well in the Rail division. Here, we were able to achieve an improvement of almost 30% to €417,000,000 Even adjusted for the IFRS 16 effect, we recorded a growth rate of approximately 25%. EBITDA margin was At 22.2 percent for the 1st 6 months and at 22.5% in the Q2 of 2019, Both well above last year's figure at an excellent level. The drivers for the strong performance were the following: positive scale effect with corresponding operating leverage support from a better mix within our aftermarket business, especially in Europe and in Asia Productivity improvements from our efficiency and cost measures and last but not least, the disposal of our Loss making business in, of course, Blueprint and Zydec end of last year, which supported the strong margin development of RBS.
Moving over to the truck side. Let me also explain order intake and order book terms. So this is Page 13. Also here, we have been outperforming markets and competition. Order intake for CVS was at 1 point €66,000,000,000 in the first half of twenty nineteen, which is up 2% on nominal figures, but actually 2% down on organic figures.
On a quarterly basis, the trends and changes were roughly the same year on year. Current demand in the truck industry has become more volatile than in previous quarters and is showing initial signs of weakness. Especially in the U. S, the order intake seen by truck OEMs decreased strongly year on year. This trend was, in principle, visible in Europe too, but to a slower and smaller extent.
Against the backdrop, we assess CVS relative development in Q2 is strong. You might have gathered this already from a peer comparison. We currently expect truck demand in North America and Europe to weaken further in the coming quarters, especially in the U. S. One must certainly take into account that the drug market is expected to return to a more normalized level after the strong rise in 2018 and also in the first half twenty nineteen.
But please note that even with a TPR decline of 15% to 25 percent, which most analysts and research companies are expecting for next year, that level would still be more or less where we have been in 2017. However, we also believe that it's too early today to determine the exact nature of an impending downturn. Our message is twofold. 1st, with continued content growth, Knoeb Ramsay should be able to mitigate some of the impact. And second, we are well prepared in terms of cost measures to respond to such impact.
My colleague, Peter Leijer, will provide more details about this in his deep dive. In the Q2, our order intake benefited operationally from increasing content per vehicle across the globe, but particularly in Asia and in the North American region. Especially the higher demand on for products In the area of driver systems, electronics as well as the ongoing migration from drum brakes to disc brakes were drivers behind our growth. Nevertheless, the decline at our European truck units could not be fully offset. Overall, organic order intake in the 2nd quarter was around 2% below prior year figure.
Order book of our truck division stood at €1,300,000,000 at the end of the 2nd quarter and this again provides visibility of 5 months of revenue, a sufficient level to support our guidance for the full year. Moving on to revenue and profitability. On the truck side, on the next chart. CVS posted €1,730,000,000 in revenue in the first half of twenty nineteen. Compared with last year's figure, This is a strong increase by almost 10%.
This was supported too by the first time inclusion of Hitachi's steering as of April 2019. So organic growth, also eliminated for FX, stood at 5.1% versus the same period last year. With this development, our truck division once again substantially outperformed the corresponding first half production rate of truck, which actually declined by 1.1%. CBS was able to grow stronger than the underlying market in North America and Asia. Once again, We've also been able to gain market share and grow content in a tougher market environment.
In Europe, we faced a softer development compared to the overall markets due to a lower contribution from the aftermarket, driven by a more widespread destocking at some OEM customers and distributors. In the first half of twenty nineteen, CBS achieved an operating EBITDA of €281,000,000 at an operating margin of 16.3%. These numbers exclude the Wolfroyd effect of €16,000,000 and includes IFRS 16 at an amount of €11,000,000 In the Q2 of 2019, Our operating margin was at 15.9% compared with 16.0% in the previous year's quarter. The key reason for this decline is also a lower share of aftermarket business and total revenues, as I explained, In addition, also the operating performance of Wolfrost was not supportive and had a negative impact on CVS margins. At the same time, the division continued to face the same supply side constraints, which the whole industry faced to.
That's why we continue to invest responsibly in innovations, targeting megatrends that will support CVS future growth. Let me conclude on the last page, Page 15. Our main message here is, Given the reliable performance in the first half of twenty nineteen, we do 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 the total year of twenty nineteen, in the first half of twenty nineteen, we achieved 6.8%, to the upper end of this full year range. In total, this should lead to revenue between €6,875,000,000 €75,000,000,000 and €7,075,000,000,000 Based on this revenue level, we expect And EBITDA margin on an operating basis, excluding restructuring costs and including IFRS 16 of 18.5% to 19.5%. And as you know, in the first half of this year, we achieved the midpoint of this range.
The current market environment has certainly become more challenging and volatile in recent months. Above all, political environments have become less predictable, and issues such as Brexit, Trade war and sanctions are beginning to take their toll, not directly on Konwarmerse, but of course, on economic activity and customers' demand as well as overall Our CVS division is observing clear indications of weakening demand and has indeed also begun taking action. On the other hand, we benefit from the fact that Our proportionately larger RVS division has proven quite immune to cyclical fluctuations. Maybe on the contrary, in the further course of events, investments in infrastructure and logistics might even increase In times of a downturn, as public funds are mobilized when private funds are receiving. Combined with the growing public interest in climate protection, We expect the rail industry to benefit disproportionately.
Finally, the potential return of quantitative easing in the U. S. And in Europe As well as any pre election stimulus in the U. S. Might soften the impact of the downturn.
So what does it mean for Knobrances? First, We'll continue investing in our relevant future megatrends and drive innovation to ensure attractive growth also in the future. 2nd, at the same time, we'll increase our efforts in cost measures and in efficiency improvements to protect our margins As you can see from the example of Wilfrid, we are not shying away from tough measures, and we do act proactively. We are prepared. And thirdly, we see good potential for improvement in our cash flow, and we'll continue to work on cash conversion.
With this, ladies and gentlemen, I would like to thank you very much for your attention, and I look forward to your questions.
Thank you, Mr. Hoiving. Coming now to the first Q and A session. So please raise your hand, wait for the microphone and then Happy to get your questions. So the question number 1 over there.
Thanks very much. Alexander Virgo, Bank of America Merrill Lynch. You talked about the July and August developments in RBS. I wondered if you could talk about the same Comments with respect to order intake and customer behavior over the summer in CVS. That would be the first question.
And then second question, I wonder if you can just characterize or quantify some of the supply chain constraints and the impact that, that had on your margins in
Yes. Let me comment first on the supply chain constraints. We gave some dimension on that also in the Q1 call. So this may be somewhere between 50 basis points and 100 basis points. And it's characterized by over time, it's characterized by premium freight, it's characterized by supporting our suppliers And this, of course, has been most relevant in the North America region, which is still acting at very high levels.
And Peter will go into this in his presentation in more detail. In terms of order intake CVS, Yes, I can confirm that it has been weaker in starting in the Q3. But the exact nature of that, we will only disclose Along with the Q3 figures, also because monthly fluctuations can be up and down, and we want to first see the full picture for the
Okay. Coming now to the second question over there.
Hi, it's Akash from JPMorgan. Two quick questions, please. First one is on RVS. You said you have a visibility of 10 to 11 months. Can you split out how does it how it is for OEM aftermarket given many of your customers, Rail OEMs have a very long visibility on aftermarket and whether the shorter visibility on OE side would have any impact of this order moving from Q2 to Q3.
That's question number 1. And question number 2 is on the U. S. And I know you have a local presence there, but was there any impact in your cost from And Chinese tariff is even a short material, but if you can give us some figures, that would be great. Thank you.
Yes, sure.
Naturally, the aftermarket portion in the order book is a small one because it's a faster turning business. Only scheduled overhauls where we know it's going to happen 3 or 4 or 5 months from now, they might be in the order book. So the mix in the order book between OE and aftermarket is more in favor of OE, yes? But I think this is natural for most businesses. And the visibility is at, as I said, approximately 11 months.
And of course, the chunkier part In terms of U. S. And impact from tariffs, Well, I mentioned that we have a relatively small portion of imports. So that is not a material impact. But what one can see, of course, is that Sourcing in the U.
S. Itself has become more expensive in some instances. So steel prices, aluminum prices, Just benefiting for the supplier, for the local suppliers from those tariffs. So they are raising prices because the landed cost of imports are increasing. And we do have price escalation clauses, as you know,
Okay. Coming to next question, Ben.
Thanks, Andreas. A question for Ralph. I'm curious to understand the margin drivers within RBS. It's a very nice progression up to 22%. How big a deal was the Chinese aftermarket in that?
You gave a figure of about €200,000,000 if I'm correct. So roughly 25% of the aftermarket. Is the mix shift in China what's a big driver of that margin? So that's question number 1. And question number 2 is how should we think about the margins in North America aftermarket?
Presumably, the orders have grown. Is that going to be material to your margin mix over the next 12 months?
Okay. So first of all, I spelled out that there is a number of reasons which were positively influencing our raised Margin and the aftermarket altogether is one of them, not the only one, it's one of them. And of course, The good growth in China is within that also a very sensible contributor. But I would not say that it is only that effect. It's really 4 or 5 things that were pointing in the right direction And not just on a seasonal basis, but we would say on a structural basis.
All of those things are going to also support us going forward. And you were then asking about North American aftermarket?
Yes, for rail. I guess what I'm curious about is the Chinese aftermarket margins are
If you have in mind that we make a lot more money in China, then I think this impression is mostly formed by those years, exceptional years of 2014 'fifteen. Ever since, things have normalized to, I would say, group margin. But within that, of course, China does play A positive mix role, yes? That is still true, but it's not the same differential that we recorded maybe 4 or 5 years ago. So changes in the regional mix of aftermarket, I would argue, are not a very decisive
Thank you. Coming to the next question, Mr. Laurent?
Thank you very much. A quick one on the aftermarket. You mentioned in the truck business that there is a decreasing trend in aftermarket revenues in H1 While the OE business still grows, you're not the only one in the industry to mention that. As I Folland was also mentioning that, Wabco was mentioning that earlier this year. I was curious to understand why is that, that actually there is a decline in aftermarket and not just an underperformance versus the OE business?
You want to take
if you can do that? If you look to the aftermarket performance, we have to differentiate between independent aftermarket and OES. In regard of independent aftermarket, you see with the upcoming downswing of truck business, specifically In Europe, there are adjustments in the inventories, in independent aftermarket distributors That causes and that's typical for the start of a downswing at first as well a reduction in the sales in independent aftermarket After this adjustment, that is usually bouncing back to a more normal level. We have this time a specific situation in OES, which is Usually not the case, but we see that some big customers are adjusting their inventories For optimization of working capital, and based on that, we have a temporary reduced demand in OES, But we are expecting that, that will come back in the next few months.
Okay. Thank you. Next question over there.
Yes. I would really appreciate a comment on HYDEC, maybe moving into the U. S. Truck brake market. How and if at all does that change the competitive landscape?
And also appreciate a comment if you are Looking at that from a more interested standpoint now.
1st, According to our knowledge, Alix has no brake business in trucks in North America for disc brakes. They have some disc brake business for trailers, but not trucks. We see ourselves as a clear market leader In the North American market for disc brakes and with the expected ADB, Airspace Growth in North America, we think that we will participate on that over proportionally In regard of our interest in Halyx, as you know, we are still holding some shares in Halyx, and We monitor in that regard the performance, but there is in the moment no further reason to think about this.
Thank you. And just one follow-up very quickly. Also in terms of guidance, if you could give a comment on the guidance for order intake, how that is looking?
In terms of what, sorry?
Order intake.
We have published a guidance for order intake in the annual report, And we believe that this is also still holding up, yes? We can confirm it just as much as revenue or EBITDA margin.
Thank you. It's Leo Carrington from Credit Suisse. Just away from the quarter, in terms of the While the latest is with the CEO appointment, can you share internal thinking or thinking of the Board and in particular in regards to timing?
Yes. So Professor Mangold was the Chairman of the Supervisory Board, had offered a conference call right after the departure of Claus Zeller as the CEO, and he had announced that the The O search has immediately been initiated. To our understanding, it's now reaching the final stages. And we should be able to announce the successor reasonably soon. But as always, those Things can only be announced once the ink is dry.
And you should also know that Professor Mangels has promised that he will include the 3 of us in the final stage of that process. What he had also said is the focus will be less on being, let's say, the better rail or the better truck expert, But more, somebody who is able to integrate the team and create a high performance organization and somebody who Focuses on HR Development, somebody who focuses on strategy and further international growth.
Okay. Next question coming from Will Mackie.
Hello. Good afternoon. Wilmaki, Kepler Cheuvreux. Two questions, please. Firstly, one of the opportunities to offset The potential downswing in CBS is clearly the addition of content per vehicle, which you highlighted a couple of times in your presentation.
Are you able to quantify to what extent that impacted results in H1? And to what extent the opening, For example, the new disc brake factory in North America should have a structural impact on revenues going into next year. And secondly, coming back to the growth in North America, which was asked, the 24% that you report, Could you give us at least a flavor of what the underlying growth was or how it splits between RBS and CBS in the period? Thank you.
Yes. So content growth, Peter will in his deep dive go into a bit more detail also On product examples, yes, you are pretty familiar, I think, with the address break story, but there's a lot more than this particular Product, yes. There's actually growth happening across a whole range of our offering. I think you can backward calculate basically comparing truck production rate on the one hand and our organic growth on the other hand, What the outperformance has been, of course, there has also been a share gain, which we talked about. So it's both these factors.
But then let me also point out that those are sometimes even connected. So the specific example of air disc brake conversion, This is both an increase in the content, but with every truck, which is equipped with an addressable rather than a drum brake, The share that comes to us is increasing because of our relative position in this particular product. So it's really having both these impacts. Then you asked about the growth rates between Rail and Truck for North America.
So, what you have seen, we have achieved in North America on rail turn in the Q2 2019 of €110,000,000 in truck of 320,000,000 And in the Q2 of last year, it was for rate €100,000,000 and for truck €270,000,000
So in other words, the relative growth in truck was stronger than on rail.
Okay. Now concluding the first Q and A session, I would now like to hand over for the
2nd presentation.
Yes, good afternoon, everybody. Pleasure to be back here and talk to you. In regard of the deep dive for the division Commercial Vehicles, I would like to start with an overview About our high quality business model and the resilience of that business model and resilience is Specifically in those times, I think a very important part of our discussion today. As you know, we are the market leader, the global market leader in the most of the areas where we are doing business in, and we are the technology leader and we strongly believe that via technology leadership, we are able So we are investing more than the competition In R and D, which is creating our innovation power, and I have shown last time in a presentation that 8 of the major 10 innovations in truck business in the last decade came from us In the related business areas that shows our innovation strengths. Because we are in a safety Business, the barriers of entry are due to qualification high.
Basically, in our business, there are only 2 Global players acting with the related know how and capabilities. We have proven that we are growing, We are outperforming the truck production rate growth in the markets, and we are still thinking specifically Where the already mentioned content per vehicle and market share growth that we will be able to do that as well in the future. And in regard of Brazilians, besides the strong aftermarket performance and the strong aftermarket share we have, Again, the market share growth and the content per vehicle growth is our model to work against the site for sure The action plans to keep the margin performance. And that is something I think where We have proven in the past and I will talk about that, that we are able to react pretty fast on changes in the market with Starting to talk about revenue and market development. Just a brief look back at the beginning.
What you're seeing here is the growth Which we performed from 2010 to 2018, so coming from around about €1,700,000,000 sales in 2010, We have achieved last year's €3,160,000,000 sales. That is a CAGR Of 8%, while at the same period, the TPR has grown by 3.5%. So we clearly have outperformed the market over that period. And if you look to the different carriers and the different regions, we have done that So our business model is working over time. There was a question before guiding your attendance to the right side of the chart about aftermarket share.
Yes, you see that aftermarket share went down in that period from somehow 37% to 27%. But if you look a little bit more in details to that, that has nothing to do that we are weak in aftermarket. We grow by 4%, which is a good growth rate for aftermarket, but our great success in the OEM acquisition channel with new projects And the continuous growth by 10%, and that's why our market share gains via content per vehicle is clearly outperforming that and that is changing the ratio. I know for sure that the big elephant in the room, the question today is how We see the markets developing in truck. And for sure, our business truck business is cyclical.
Everybody is knowing that. And that has clearly to do with the dependence on macroeconomic factors like GDP, industrial production rate And truck tonnage and freight transportation volume. As you see as an indication here for 2020, we see out of those Macroeconomical indicators, not so much support. And based on that, we think as well, and we see that already, And we see that and hear that with the announcements and see that with the customers that the net orders of heavy duty trucks will go down In the major regions next year. Again, we are living in a cyclical business.
And if you look to the upper Part of that chart, you see very clear that we have enjoyed a decade of more or less growth in the major regions. And if you look to the perspective which we are seeing for truck production rate, maybe guide your attendance to the lower part And if you look to 2020 for North America, we see here a range between minus 15, minus 27 in the moment. I mean, that's the actual picture. If you would ask me where we are seeing the development, we see that more in the middle of this area at the moment. In Europe, The indicators coming out of the market, you see the sources on the lower part of the chart, It's between somewhere minus 3 and minus 9, we see that more on the lower part of that.
And in Asia Pacific as well, A downswing, but as I mentioned before, we are not so much depending on the TPRs in Asia because of our strong opportunities We as a company are used to those cyclical business behavior. Truck business is cyclical since many decades and it will not change in the future. So it's all about to be fast if you have the first indicators that the business, The TPR is going down. And that we are able to do that, we want to show a little bit with that example. So There was a downswing in North America of TPR from 2015 to 2016 by minus 22%.
Based on our business model, we were able to reduce or kept our sales only reduced by minus 16%, And we kept the margin on a relatively high level of stability only reduced by minus 30 basis points.
How
did we do that? For sure, we have a strong market position and we use our market position and our strong customer relationships in such a situation. Our product portfolio met the market demand and we could grow via content per vehicle. We continued with localization And for sure, and we need to say that to show the full picture, we had as
well a little bit of favorable exit that year.
But the major important topic is the last bullet point. We have a set of actions which we are executing pretty fast from rigorous management of our overhead structures To management of the flexible costs in our plants, consequent supplier management, we do special campaigns In profitable channels, as well as for sure the premium rates are going down. So we have proven and we have our plans ready again for every market to execute if the downswing is coming. And For example, looking to the European markets where we see already now a reduction of orders, We have already introduced our first action plan scenario since end of July to keep our margin Under control. So as I mentioned, we are looking to drivers for growth in the future.
There is on the one side clearly truck production rate, but there is content per vehicle and market share growth. For the near term future, truck production rate will not so much support growth, as the opposite will be the case. But content per vehicle and market share Where growth are still areas where we will be able to grow and compensate the downswings which we are expecting from TPR to a certain extent. And beside organic growth, those three pillars, we are continuously working on M and A And with the track record we have proven in the last few years, we are able to constantly grow via that channel. The last acquisition we did, For example, Hitachi steering in Japan, which is for sure a sales growth, but it's much more important from a strategic point of view, Because we are having a strong player on steering business taken on board.
Just to prove a little bit more those growth opportunities beside TPR, that is A chart which is based on a Roland Berger study investigating the content per vehicle growth in all regions. And what we see here is principally that all regions are showing opportunities in Continental Vehicle Growth in the foreseeable future. My personal opinion is that in Asia, there are even maybe more opportunities than shown on the chart, but I think it's not at And important to stick to the final percentage figure here. The clear message is in every region, there is a growth In content per vehicle, and if we look a little bit more where this content per vehicle is coming from, We see on the one side that is coming from new regulations on the safety side as well as on the emission side. And exactly those products about to come As regulations specifically in regions outside of Europe, we have in our portfolio since a long time, we are strong in And that is giving us opportunities of growth in Asia, in North America specifically.
And its Driver assistance functions, it is for sure again functions like emergency braking, But as well, a discussion about the first framework for automated driving functionalities And in emission, we see clearly that based on the Increasing discussions about CO2 emission globally and the awareness about that, that a lot of countries outside of Europe are Fast stepping now in Euro 6 Comparable Emission Regulations. And as we all know, for the European Union, There is a new strict regulation for the truck industry with reduction of minus 15% in 2025 reduction of minus 30% in 2,030. So a lot of new technology to come to achieve that and that's exactly again an opportunity of growth Some case studies now in the deck, which you have in front of you. Don't want to go too much in detail of that, but just hear an example, for example, driver assistance systems where we are market leader in North America It's still one of those content per vehicle drivers with new functionalities to come. Next to come is, for example, lane keeping function in North American market, Followed by further functions.
And why is that coming? It's partly coming by regulation, but it's as well coming by TCO, total cost of ownership for the fleet. The fleets are introducing that because of the used accidents, uptime coming out of that and The safety of the drivers. So we expect here for the upcoming years, a CAGR between 16.5% 18.5% Another example for content to vehicle growth AMT's automatic manual transmissions. They are already having a high level of introduction rate in Europe with Somehow 87% and in North America, somehow 40%.
With the new generation of drivers, AMTs are very important topic to attract them. We see them based on that and based on fuel efficiency gains getting further introduced. So North America here as a market which will grow, but even more growth opportunities in Asia, specifically in China. And that's the reason why we acquired some time ago in April 2007 the related Transmission Control Business from Bosch in Japan to be prepared for that growth in Asia and serve that Another topic of growth and Ralf Rolffing already talked about that briefly is Airtis brakes are well accepted in Europe with over 90% market introduction rate, And there's a clear reason for that. It's increasing safety and it's easier in maintenance and that's why The introduction is going fast forward now in North America.
Actually, we are in 2018 on a level of somehow 26% market take rate and we are expecting that to grow in the foreseeable future to somehow 50 percent. In Asia Pacific, we are still on the start with somehow 10% take rate right now, but that shows only which kind of great opportunities are in that product group to grow for us. And as I mentioned, we are the market leader for that type of product and we will participate over proportionally on this content per vehicle growth opportunity. Last but not least, an example of steering. I talked about the next function to come in driver assistance systems, which is lane keeping.
For lane keeping, A talk overlay steering is necessary with the acquisition of Hitachi. And not only with that, we have a talk overlay steering technology in our portfolio, So that we are able to participate as well via this technology and those functions on the growth opportunity to come, we are expecting here a growth of somehow 8% to 9%. Besides the content per vehicle growth, I talked about market share gains and have brought 2 examples In that regard, the first is China, what you see here on that chart. Guiding your attention to the left side, you see here this red line representing the development of truck production rate in the Chinese market between 20122018. You see here fluctuation up and down Of the frac production rate.
If you look to the lower part, you see our sales growth. So we permanently grew in that market. We permanently grew. We outperformed the market every year. And for example, In the market downswing of minus 8% TPR in 2018, we were able to grow our sales How is that possible?
For sure, we have a high acceptance of our products in the markets. The trucks are asking for more higher technology in the market. We have exactly that portfolio to provide and to offer. We have to develop in the last years strong customer relationships with the top performing customers in China. We have our JVs in China.
Here is the example of the Dongfeng joint venture, where we have increased the product arena with compressors last year. And that brought us in the position that we are market leader now In China, in the brakes business arena. And that not only trucks is interesting, shows the last bullet point. We Had a major breakthrough in trailer business through a close cooperation with a trailer axle manufacturer, which we started last year, which is again giving us The market share increase. That over proportional growth is as well possible in markets Where we are already market leader should be shown via that chart.
That is showing the development of our sales In North America, from 12% to 18% as well here fluctuating TPR And overall CAGR of TPR 4%, while we grow nearly 7% CAGR in that market. So again, here, our strong relations to the customers, to the fleets directly combined with the quality of our products and the performance Broad us in that direction, technology leadership is here the name of the game. And for sure, we were able As well as the aftermarket and the installed base to grow further. Yes, technology leadership, just to talk about that. Beside improving our products with new generations To keep ourselves competitive and leading, we have identified 4 major trends of our business Where we want to grow in besides that.
The one is still traffic safety with the increased focus on that, specifically You see on the lower part of the chart products, which we have already developed and introduced, they are from new brake control generations To highway pilot functions, to automated driving functions or e compressors to support electronic electric driven trucks Or technologies like Safety Direct, where we have the opportunity to improve driver training via connectivity For Pro Fleet Connect, which is a transportation optimization tool. So we are active in all those megatrends, and we are investing R and D efforts To develop new products which are fitting and supporting those strengths. And again, we are not only in that, we want to shape that as well in the future. That's why we are investing in R and D, and we will continue investing in R and D. We are investing more than the related competition, And that we do by purpose.
We separate clearly in R and D between R and D ratio, which we want to invest in our core business And R and D ratio, which we want to invest in new business fields. And for sure, in addition, we invest constantly in the AVISO Product cost improvement measures to keep ourselves competitive. And what It means to invest constantly in R and D and think about technology and growth opportunities. I would like to show a little bit That chart which is a little bit looking back and then explain the way forward. If you are a brake supplier, you are usually focused on what a brake should do, Deceleration.
When you are working on that, in somehow the 80s of the last century, The first ideas came up for ABS anti locking system and then later for traction support and then for ESP. So with that, you found out that braking is not only being used For deceleration, you can use that as well for vehicle stability controls, specifically if you intervene a real individual. If you want to do an ESP, you need to develop a vehicle model. If you have a vehicle model and can do Vehicle stability control, the next innovation you think about is if you are an innovative company, oh, then I can do maybe as well driver assistance. So I can do emergency braking, I can do adaptive cruise control and things like that.
If you are starting those first driver assistance functions, So why not doing more? So now we are talking, as I mentioned before, about lane keeping, assist, traffic jam assist and things like that. That's where we are in right now. And if you have the vehicle model and if you have the capability of the both actuators now, which you need for that braking and steering, The next logical step is to talk about automated driving. And that's what I mean with innovation power.
You come out of a deceleration function And step by step, you create a totally new world of business opportunities. And that's exactly what we are doing. But for sure, if you want to do such a complex system as an automated driving system, we want To ensure that we are on the one side providing the best functionality to our customers, but on the other side as well we need to ensure That we are doing what we can do best. That's why we have decided for a partnership for automated driving with Continental. They are providing us the sensors.
They are providing on the decision level the electronics and the part of the decision. And we cooperate with them closely creating a joint system under our leadership to provide the best system to the customer by keeping the costs That is what we are offering to our partners, getting specific attraction in North America as well as in Asia, Just to show how something like that is developing. Beside all those Technology opportunities and the growth opportunities coming out of that in the moment there is a clear and strong focus on operational excellence. So we have operating system installed and in place to permanently focus On our bottom line performance, this continued site improvement programs with best in class purchasing and The AVE and localization and as well to look for cash, we have asset light approach. Besides that, we have in the moment special programs in place.
In the one side, we have margin stability programs in place To further focus on our bottom line performance, focus on structural costs on the one side, but as well Looking for further improvements in our whole processes as well as products and manufacturing. Those special margin stability programs are reviewed by myself in a regular base. And I mentioned that before, We have in addition to that, our market downswing programs, which we have prepared for every region customized to the needs of the region And I mentioned before, we have started this first step of the TPR reduction scenario for Europe and have introduced at end of July and we are in execution of that program. How those continuous improvements are looking like? I have brought here one example to you that's wealth production, which we had for Long period of time located in Italy and in Hungaria, which we have relocated to India.
This brought as you see on the left side a significant improvement of the cost performance. But on the other side, it has as well an opportunity for us to create the right economies of scale In our India manufacturing plant to make them more competitive for the local market as well as for export. And I want to underline something like that is only possible if you do not only just relocate manufacturing and assembly That is only sensible and gives you real improvements if you do a deep localization of the whole supply base in India. Yes. With that, I want to come to conclusion.
We at CVS Confirm the midterm guidance of 4% to 5% revenue growth over the cycle. For sure, we will go now to a Downswing, but for the midterm, we confirm that. We will further increase content per vehicle in all markets, And for that in the moment, mitigate the TPR volatility and use that for further growth, outperforming the market. We will further work on increasing our market share specifically in growth areas outside of Europe. We will foster and ensure our technology leadership by investing in R and D and there is more to come.
We work continuously on our operational performance and have proven that we are able To keep our margins stable and get our margins under control in downswings and for that we have our cost optimization programs in place. And in addition, we have excellent customer relationships and further improving them on a daily basis With that, I want to thank you very much for your attention. I'm very open together with my colleagues for your questions.
It's
Akash from JPMorgan. I have 3 questions, please. My first question is about the investments and maybe if you can talk about what sort of flexibility do you have there And especially if we have a scenario, worst case scenario where global production rates are down, let's say, 20%, 25%, then do you have flexibility to scale some of So that's question number 1. Question number 2 is how your Truck content growth compares to the new product launches by your customers, mainly truck OEMs. Is it fair to say that when your truck OEMs, your customers launching new products then contained per vehicle growth could be higher than otherwise keeping everything else equal.
And my final question is on truck aftermarket. I mean, you showed that in the U. S. When truck production rate was down 22%, aftermarket was down 2%. So in general, is it fair to say that, let's say, when you enter into double digit production rate environment, Then some of these customers might be cannibalizing their inventory or in order to not to go for aftermarket.
So Maybe if you can talk about, let's say, if you have a scenario of double digit truck production rate in 2021, then what to expect for aftermarket?
Thank you. Why don't you take the second and third and I'll answer on the third.
Mike, you want to go?
So on CapEx, first of all, our CapEx rate is not particularly high reflecting
Sorry? CapEx
and R and D.
And R and D, yes. But let's start with CapEx. CapEx rate and percent of sales It's not a particularly high number, reflecting our asset light approach. We don't have any foundry in our portfolio. We don't have any forging units, stamping units.
So it's focused on relatively small machinery and final assembly lines, everything that matters for our quality, basically. We do care for the upkeep of our equipment, and we do invest in productivity measures as well as in capacity expansion. And Peter talked about the ADB lines in the U. S. Of course, We are in a position to delay or postpone.
On the other hand, one has to ask the question, if we are sitting on a €1,500,000,000 or €1,700,000,000 capital cash amount, should we really postpone something if it Add value and if indeed it postponed would increase the bill, yes? So Some of those investments may be under review, but it is not always clear that postponement is a good thing. On R and D, I think, Peter, you will go into that when you talk about the scenarios. But there's a clear commitment
Yes. Thanks, Ralf. Just to add one comment in regard of CapEx. For example, I talked about the ADB growth in North America. Due to that fact, we have We decided recently to extend our manufacturing in our plant in Bowling Green, Kentucky.
And that has nothing to do with the foreseeable downswing of the market. Why? Because the take rate will increase and we are by far a market leader. So So it makes absolutely sense to go on that investment. But definitely case by case, as Ralf mentioned, we will investigate In regard of R and D, I talked about different scenarios, which we have in our desk To be introduced if the market is turning down, usually for the first scenarios, We are not cutting R and D.
There's a clear reason. We want to be prepared for the future. We want to come strong out of The downswing and then have the new technologies and portfolios available. If the market Downswing is going further and deeper. For sure that has to be decided case by case if you just stretch a little bit the time plan If you go on further pruning of that, but that is decided region by region differently, but again, the plans are existing.
You asked about truck content in relation to new vehicle launches. Yes, there is a relation. Usually, if it comes to new vehicles, there is always a decision what is Standard in those vehicles and what is option. And we have the experience in different regions. The technologies which were optional before are becoming standard either due to legislation or due to customer demand.
So yes, there is a change and that's in For us, in a jump fix opportunity of growth. And in addition, you asked about aftermarket In the U. S. And specifically talked about this cannibalization effect, I would like to answer in to that question in that regard. It always depends how a crisis is developing and every downswing is different.
Usually, if you have a moderate downswing, it's just happening in the aftermarket as I have described at the beginning. You have a little bit of reduction and then you see relatively stable aftermarket. If the crisis is going in a real crisis and not only in a downswing, the fleet at first start not to use a part of their trucks Any longer. They just keep it standing. So there's no aftermarket for a truck which is staying around.
And if it's going further, yes, there is some cannibalization. We have experienced that in 2,008, 2009, but the cannibalization is stopping pretty fast. So that's temporary effects where you have maybe quarters where you see that, But then the aftermarket is bouncing back and it's about keep it running, keep your equipment running and then the aftermarket is performing on the level as mentioned before.
Okay. Coming to the next question by Philippe Leurant.
Thank you very much. A couple of questions as well from my side. The first one is you mentioned always the opportunity from content per vehicle growth from sharpening emission standards. But in total, the segment's exposure Fuel efficiency is about 14%. That's what was indicated at the time of the IPO.
So on an aggregated basis, how much of the total CPV growth opportunity for the segment would stem from the emission standards versus traffic safety solutions and also the air tick brake. That's the first one. And then also on the trend on the air disc brake, I was just wondering whether If you compare the foundation drum brake to the air disc brake, the air disc brake has actually a higher share of maintenance and service related revenues Versus the drum break. And the final one is really like a housekeeping one on Slide 32. When you show the numbers for NAFTA Historically, we see that in 2018, I think, your own $1,000,000 sales revenues We're slightly underperforming the truck production rate.
So I was wondering what's the reason behind that? Okay.
Yes. Starting to answer in the sequence of your questions. Yes, you're totally right. Our share of overall business related to emission reductions is significantly lower than it is In the brake stability area and related products. But we have products in that arena, which are related to that, for example, EGRs or the AMT technology.
In addition, with the Emission reduction requests I talked about, which is minus 15% 20.25%, minus 30 percent, 2030 in the European Union. There will be considered the whole range of the technology, which is related To Chassis and Powertrain, what kind of contribution can be given out of that for further emission reduction. So a lot of new technologies to come. In addition, we think that this emission reduction regulation will support e mobility where we are preparing ourselves with the right product. So it's not only about the classical powertrain related segment, it's about all products You remember when I was last time presenting to you, I showed, for example, this technology which we call ACR, that's a special technology just always spreading the pads of the disc brake That is able to reduce fuel consumption by up to 1%.
So technology in brakes, Which cause of reduced friction during normal use is contributing to emission reduction as well. So a lot of opportunities. In regard of ADB maintenance, The maintenance of the disc brake and drum brake is not so different. There's similar maintenance needs in regard of change But to change pads in a drum brake in comparison to a disc brake There's much more time necessary. So the serviceability of a disc brake is much more easy.
You just clap off the downholder, Take the pads out, put new pads in, good for running, while on a drum brake, you have to take away the whole drum, clean it, Put the new pads in, put the drum in there, readjust and then you can go. So it's much better serviceability. That's one argument specifically convincing North American market besides safety.
The third one? Yes. Let me just clarify the math on the third one. We are comparing truck production rate with overall revenue. And within that, there is, of course, OE and aftermarket.
So if aftermarket continue to grow at 4%, we've basically grown 1% roughly Faster in OE than the overall market. That's to clarify. 2nd part is, of course, as you can see from Each and every year in that chart that the outperformance isn't the same every single year. There is In particular, phasing issues. So the time when we recognize revenue and the time when a truck is being built is not the same month.
So there are always shifts between those. And therefore, I would urge you to also look at truck production rate versus content growth On a more longer term trend, yes? Also changeovers in models, as Peter was explaining, don't happen every month. So those things, I think can clarify that question.
Okay. Coming to the next question, Alex.
Thanks very much. I was quite intrigued by the fact that you've already started making adjustments in Europe, But obviously, the prospects in the U. S. Look a lot worse. I appreciate the growth in production is obviously still quite strong or certainly has been still quite strong.
But perhaps you can talk about how quickly you can move in the U. S. To implement those sorts of initiatives. At what point you would choose to do that in the context of the next 6 12 months because obviously, the sharp downturn that some market forecasters are expecting in Q4 Would suggest you need to get a shift on, if you'll pardon the expression.
Yes.
I think that question is supporting what I said before. Every downswing is a little bit different. While in Europe, we see in the meanwhile eroding production rates and eroding orders We have already the need to prepare for that. In North America, we see on the order side, you're totally right, A really concerning picture since a lot of months now. But on the truck production rate side, It's still extremely high.
So we are in North America in a situation where we are seeing that For Q3 and maybe even partly for Q4, you see continuous high volumes And then maybe a sharper drop down. So that's why it's so important that we have the measures prepared to immediately execute that On all levels, the manufacturing side, production side as well as on the structural side as soon As this is happening and it's all about monitoring that and fast executing if it's happening. But in the moment it makes no sense We are still running on extremely high levels.
Okay. Coming to the next question by Ben.
So Peter, thank you for the presentation. I really want to make sure I fully understand the message on that 22% production decline in mid teens revenue. What you're basically saying is that my interpretation is We can limit the margin downturn here quite significantly. I mean, 30 basis points is I don't want to say it's irrelevant, but it's minimal. If you go back in history, are there other examples of declines which have been more significant?
We have 1, 2 percentage points down. What would be a frame of reference if we look at the last 3 or 4 cycles, Not just 2015 or 2016. And I guess, yes, let me leave it there.
I mean, yes, for sure, if you look longer back in history, there was this significant downstream 2,008, 2009. And you know what happened to the whole industry at that point of time, that was downturn of somehow 40%, 50%. And even in that time, we were able to keep the business at least Somehow around the Flex 0, with a downstream of that level.
On EBITDA margin level, it was A drop roughly from 10% to 5%, following a global reduction of truck production by somewhere between 40% 50%.
Another lesser sort of cycles, obviously, 2008, 2009, hopefully never happens again, is what would be an average? I know this is hard, but we have to do the same now.
I understand that. But if you look back to the last nearly decade after this Maybe deep crisis, eightnine. The truck business enjoyed a constant growth. I mean, I could not talk about China where I have shown to you that there There were years where we had a drop down in TPR in the market and we grew and we improved our margin. That's why I think what we have proven is that we are able to react fast and adjust.
If you would look Much further back in history, the business would have different characteristics than our cost. The mix of the product is totally different. That's why that is maybe not helping so much to then foster that. But again, we are able to reduce Our cost structure is adopted so that for sure we will feel a downswing always. That is Not just we are not I know, against that, but we are able to mitigate that on the bottom line performance.
And have you announced headcount reduction formally in the United States yet? I know that you mentioned some measures have Taken, but has anything been made public at this stage?
No, we haven't because there is Definitely, actually no need for that as long as the TPRs are high. And I really want to underline that again. I totally understand Your view on that because you read every month the order intakes and they are so low in comparison to a year before. But on the supplier side, we still supply the demands of the customers according to their production. And if you look to truck production rate, they are still high in North America.
So that's why we still continue producing on a high level by knowing That will come to an end. And that's why I said, we know that, we have the measures ready for that, and we introduce it as soon as we need it. Okay.
Thank you, Doctor. Leija. Now coming to the 3rd presentation by Doctor. Wilder and Giving us a deep dive into the Rail division.
Yes. Thank you very much, and good afternoon, ladies and gentlemen. Actually, Turn to the rate side here also by the slides. I just finished my 1st year in my new position Enfino Brumzes, being a member of the Executive Board and responsible for rail. And I can tell you That this year was one of the most exciting years in my 20 years And that's not because I'm new to the rail world or to the rail sector.
In fact, I spent the vast majority of my career in rail. But it is really that our rail business at Knobremse has, you could summarize, A lower risk profile and a higher profitability profile than any other environment that I worked in the rail sector, and that makes It's really a sweet spot in this sector, and it offers also a lot of opportunities to be realized in the future. And that is really an exciting thing to do, which I'm was working on in the past year and also looking forward To work on in the future. And as Ralf Hollving already stated, there is Some reasons for that, why this is such an interesting business and why that sweet spot is there. First of all, We are the global market leader in what we are doing.
In each and every market, with very few exceptions, we are the number one in terms of our market position in those markets. And that doesn't come by itself. It is because we have a strong technology leadership. We are innovators. Peter just We don't compromise on R and D spendings.
We don't do that either in rail. We want to stay that way in the future. And I think we have also Based on the results out of the past, that with our R and D spend, we were outperforming our peers regarding the results of the R and D. And that is very strength of Knoebels, which I personally very much appreciate. The rail sector is also special.
It has high barriers to enter. It's not only that we are dealing with Highly safety critical products, I mean, that goes by itself when we talk about brakes and doors, for example. But also, There's very particular standards and norms across the world, and they are very different from each other. So it's not easy to just enter this market and say I'm a player there as well. We are the only supplier that actually masters those norms and regulations in every piece of the world pretty much, and that's also what our success is based on.
Strong growth profile. We have a long track record of outperforming the underlying markets. And first, it goes generally with the OE business. Also, when we go into markets that are just starting to develop really. And then after some years, we also see that impact on the aftermarket business, like for example, now in China and come to that In a little more detail later.
The rail business rail vehicles, as you all know, they stay in operations for 30 to 40 years. So essentially, that implies a certain resilience on the business. In 30 to 40 years, Our customers expect from us that we are around, that everybody who supplies in the rail industry is around for that long time and builds really a Strong partnership with those customers. So they don't get any issues or problems later because there were some offerings in there again. And we have shown that in all parts of the world.
We entered markets to stay actually. And profitability, we have outstanding profit margins. We have seen from Ralf's presentation that we could increase further our profit margin for good reasons that I also will comment at a little later. So that are the key Cornerstones of our rail business, which makes it a very resilient business and that is especially Appreciate it in times where markets might get a little shakier to have that resilience in the market. Let's talk about the market a little closer.
In our rail business, we see continued growth With increasing profitability. And if you have followed the news basically also on our customers and major car builders, And many of them, you see that there is a record order entry and Also a record backlog that they have. And the next step that they need to do, of course, they need to execute it. Execution at the Car Builder is also always something where risks need to be managed, where risks need to be kept low Reliable partners that don't mess around, that don't deliver quality that is not acceptable, They deliver high quality and basically that are reliable in their systems in order to limit that risk. And that is what Knob Ramsey is, a partner to them with those characteristics.
And We talked about order entry and order entry in the second quarter. I mean, you can see that we were in the second A quarter were a little weaker with the order entry. But at the end of the day, you can see that with those big orders that the car builders get, there's huge situations on their sites from quarter to quarter and order entry, and that to a certain extent trickles down to us as well. That doesn't mean That we have special issues there because in the following 2 months, July August, Again, we have seen very strong order entry, participating in what you see on this slide And actually, significantly, just by those 2 months, increase our book to bill rate for the entire year again. And we are number 1 in Brake Systems globally, in particular also in almost each and every market and also in Entrance Systems.
HVAC, we are number 1 or number 2. And that means in combination of what I said, we have a strong business That growth year over year, like you can see there, with the CAGR close to 8% and also a profitability growth that we have seen from 2018, the first half of the year to twenty nineteen. And there is essentially three reasons for that profitability growth. First, we can really expand on our aftermarket business. The business mix is more favorable.
But second, Also, we have been watching our costs quite a bit. We have Done tough cost management that is also there that increases the profitability basically From 20% to 22% in the first half of 2019. So we see a really long term and stable growth in our business, And that's what we will be able to continue. If we look at the underlying market, there is an underlying market that is Constantly growing. We don't see a dip there.
There's constant investments into infrastructure. Of course, there's regional differences. There's even within regions, there's differences. But once we are strong in each and every market within those regions, we can capture Those the business there where it really grows and that helps us. So the underlying market, we believe, There is another development, of course, that we are all aware of That gives this market an additional tailwind, which is not in that business in those market numbers yet Really considered to the fullest extent because we also don't know exactly what it means for the future.
But if only half of those things that are discussed in a political environment, CO2 reduction, climate change turn into reality with measures In the transport sector, we are the ones who will profit from that quite a bit. You can see here the major megatrends, but one of the major megatrends I really would underline and that is eco efficiency. The transport sector is one of the very few sectors That essentially didn't fulfill so far its targets in terms of CO2 reduction. All the other factors are much better in that yet. Targets that have been set, for example, in 1990 to reduce CO2 emissions by 60% to 2,050 have been failed so far.
In fact, CO2 emissions in the transport sector has been growing since then. Now with the increased discussion on a political level that we have seen in the past years and few months, In order to achieve those targets there, the only choice is to have a higher share and rate, As you can see from that picture, there is a vastly lower amount of CO2 emissions by rail traffic Then with any other mode of transportation, whether it's air, car and bus, and you see that here those charts, CO2 emission and passenger transport For, let's say, per person and per 1,000 kilometers. If we want to achieve those targets in the next year, so in the next decade, then rail is the system to go with. And there's also a lot of discussions in terms of providing incentives by government sites to shift. You can follow the news, for example, in Germany currently, where there is a lot of discussion about lowering VAT tax on train tickets And therefore, shifting more traffic to rail or also lowering track access fees for different modes of transportations on rail in order to provide that incentive.
That has not been considered yet on that Underlying market really, but it might contribute in the next years to come, a special tailwind of those of that market. Now I would like to come to some specific markets maybe to go a little bit more into detail there. If we look at China, for example, we have been discussing in the past a lot of the Chinese market for good reason because the Chinese market for our business is the biggest single market that we have there. We believe that in the next few years, the Chinese market, the OE market It's rather being flat, whereas there's still good growth to be provided in the aftermarket In China, that's actually also what we see in our numbers. We still see growth in our business in China, But we expect that in the next few years to come, the OE market is rather flat.
On the other side, we see That there is other markets, selected markets that see a very strong growth also in the OE market in the next few years. And it is not only markets that are on the brink of a new development, it's also established markets because like I said before, The rail market comes into chunks with some big contracts at a time, and therefore, there are some countries That see that growth. In the developing market, for sure, there's India, We have a very good position and I come to that in a minute in a little more detail, but also in the established markets in Europe, there's for example, France. Now you could say in France, we have not the number one position like in all the other markets that you can see there in order to participate that growth. But also we announced just the other day that we have won the brake systems and also the HVAC systems on the next generation The Alstom high speed train, the TGV 2020, and I think that's a great success to increase our share also Having a closer look at China.
First of all, China remains the country where there is a lot of spending, of course, on the rail infrastructure and that is also needed because the usage of the rail And the efficiency of the rail infrastructure needs to increase in order to fulfill the demands out of the passenger and Trade market there. But also we see on our side that our revenue still grows is growing. And especially between 2017 2019, there was an annual revenue growth between 4% 5%, The majority of that coming between 2018 2019 actually fairly recently. There is a shift in the structure of our business in China. We used to be very, very strong In the OE market and high speed, especially in those years 'fourteen and 'fifteen, that was a little bit, of course, of Special effect in the last years, we have seen that the content per vehicle is changing there a little bit in the high But therefore, we grew stronger in the metro business and also in the aftermarket business.
The net result is That we are growing the bottom line further in China and that due to the shifted structure more towards a higher share of aftermarket, Also, our profitability in China is profiting from that trend. India. India is the next big growth market, and we have seen that also in the past years. And there's good reasons for that. Several reasons for that.
One is that there's an ongoing electrification in India 35,000 kilometers in railway lines, Which basically increases the electric locomotive needs from €250,000,000 per year to €600,000,000 per year. That is a dramatic growth. Also on passenger coaches, we see a strong growth to 5000 to 6000 coaches a year, An increased demand on electrical multiple units and also a discussion that has been going on for a while, but seems to Become a little more concrete is those 7 high speed corridors that are planned with 10,000 kilometer of high speed lines Overall, that compares by the way to 30,000 kilometers of high speed lines today in China. So that is almost a third and EUR 140,000,000,000 investments in the next 10 years. Dedicated freight corridors.
We also see dedicated lines in the Western and Eastern freight corridors that need to be built up. And last but not least, of course, the Metro business. The Metro business Currently covers 9 major cities with 3,500 cars. There will be there's a potential for an additional 26 cities with 5.50 cars per year for the years 2018 2023. That are growth drivers that are there, undisputable and that helps us to win over business.
And how do we do that? And how do we go about it? I think at Knorr Premise, we know how to do that. We have practiced it In different countries, for example, in China, when that growth came along, we know that we need to be locally present. We need to have local factories.
We need to have some local R and D, and we need to have local service in order to also gain a good share On the service business, we're doing the same thing in India. And we have seen in the past years that we are growing year by year by about 25% in India, which is a good development of the business and that helps us, of course, to further grow our Asian Pacific business. We mentioned a couple of times the aftermarket business. I would like to spend a few more words On the aftermarket business and what is our strategy there because that's a good chunk of our growth 1st of all, aftermarket business is always a local business. For aftermarket, to be successful in aftermarket, especially in rail, you need to be local.
We have around the globe About 60 major service locations and a number of smaller service locations even on top. And that is very important because We can that way ensure short lead times for the repair business. We also understand much better by being local, local regulations That we can capture by our local presence and we have headcount wise about 2,000 people in those locations They do nothing than providing service to our customers global. So that is a very good setup In order also to quickly roll out new service products that we can generate for the market with that infrastructure that we have there. And our service business is based essentially on 3 pillars.
First of all, we are servicing the installed base. That is kind of what we have been doing also in the past. There's also new products in there that we can offer, for example, obsolescence management. I mentioned that at the beginning. In the rail business, it's based on long term customer relationships, 30 to 40 years That those trains are on the tracks.
And there is a growing concern about obsolescence with our customers. And we provide kind of a product that we can offer them to take care of those issues, to take that away from them And ease their worries there that, that is not available anymore. And that's what we're also Modernization, modernization is a very important field to also upgrade solutions or it is a good field on top of that To do some cross product selling, once you go into a customer situation and we can do modernization on certain subsystems, We can bring in our other subsystems as well that we offer. The third one is new service models and digital Well, I mean, if we if you think of Just to give one example, I mean, there's a whole lot of offerings that we can think of and that we are working on. I give you one example.
For example, take doors. Doors, you might think what is so interesting about doors, yes? The doors have a very special meaning in the overall Because if they fail, yes, you read it in the newspaper the other day and people were not able to enter the train or leave the train and that's always a major issue. But doors are not doors, just doors. Doors are entrance systems.
So if we start, for example, counting the passengers going through the doors and That way, we can make some conclusions about how occupied is an individual car. What does it mean in terms of axle load? Where is the free space in the car? Provide that information to the So that the passengers entering a train know in advance which cars still have space and where is the space more comfortable in which cars And they can sort out themselves on the platform before the train arrives. And you can save the big run on the platform that you see sometimes today.
You can connect those systems and essentially also Draw some conclusions about the fresh air that is needed in the cars. And essentially, Also STIA air conditioning systems with it at the end of the day. So there's much more to it than just doors. That's all I'm saying. And this is just one example So with that, we would like to increase our revenue share In our service business from more or less today 40% to 45% in 2020 We see service as a major growth area that also contributes to our bottom line.
And in a little more concrete numbers, the aftermarket business From today, more or less or last year, about €1,400,000,000 will grow to 2024 to higher than €2,000,000,000 That is clearly our target and we believe with Our offerings that we can achieve that. It is also worth mentioning that you can see here in the chart that The 1.4 still included some vehicle maintenance business, which we have divested. So the annual growth rate in total I also would like to spend some words on innovation. How do we develop future business, defend and grow our market share? In the past year, we have pretty much restructured a little bit our R and D roadmap.
And we have much more so focused on the customer needs. And we have identified 7 fields of R and D that we will serve in the future and where we spend our R and D money on. I don't want to go in the short time that we have in the presentation in all of the details And just to name a few, of course, there's a new product generation where we compose our brake systems and other systems of That we are working on or a big trend is also automatic train operation that also has something to do and I'll talk to that a little later still, It has something to do with much higher efficiencies of use of infrastructure that is also possible by that and getting a higher throughput Or life cycle costs and eco friendliness, life cycle costs for sure, if you ask the train builders, It's more and more a criteria of awarding contracts to train builders. So If we can contribute to that, we can make our customers successful, and we have a lot of opportunity to contribute with that, and that's what we are focusing on. Data driven business, for sure that's a big field.
I already mentioned a few examples, just on the other slide. And then connected systems, we make our systems communicate with each other, our subsystems and benefit From this communication and basically cross data that we can use to offer additional services for A train build as well as on the service side or even in the field of operations. Airless train and frictionless braking, while frictionless braking It's a big word. Friction is breaking is not that easy, but of course, there will be a tendency to reduce friction in breaking. We don't see that, by the way, As a short term solution because it would not be less expensive actually than what it is today.
But we don't want to miss any trends on that, and we keep close to where that goes. And not only that, but define that future of that. Maybe I would like to talk in a little more detail about some deep dives That's where I can give you a few examples of what we are doing before we talk too generically. And I don't want to be too technical at the same time. Those deep dives that also fit into this scheme is, of course, the optimized life cycle costs, standardized solutions, by the way, That is a big issue also for operators or even for train builders.
A big bang for the buck is The more intensive use of existing infrastructure with the trend of urbanization, throughput, higher throughput is critical, Especially in a growing world, in a growing urbanization world and increasing traffic between cities, I do believe we significantly can contribute to that and also reliability and passenger comfort. Let's start with the letter, passenger comfort. And not to always take examples from brakes, Let's take an example from doors, door system, entrance systems like I said. Noise in vehicles is an issue, especially, for example, in subway systems where people want to Commute to work, maybe prepare for the 1st meeting, read the newspaper, whatever people do on metro systems. And it becomes a more and more tough requirement also that is being put on the car builders for noise reduction On those systems, doors can contribute significantly to that trend.
And traditionally, The noise level outside the train or close to a train is can be like 90 decibels, which is quite a bit of a noise level. And classical door systems and previous requirements Demanded a noise reduction of 20 to 24 decibel in that environment in order to make the ride more We have developed a door system that is closing and opening very, very fast, Faster than other systems in the market and also reduce the noise level by much more than that Through a specific solution to that, maybe up to 32 decibels even, which is on the logarithmic scale of decibels, a quite Remarkable noise reduction in those vehicles. We had a successful market launch with that, And that provides a much higher degree of passenger comfort. That is a major argument for operators to use those Doors, for example, in order to provide that comfort level for the people and increase the ridership even further. Still turning to the brakes.
Breaking trains is something That is very different from breaking a car on the road or even a truck on the road. I'm not sure who of you had a chance to ever break a train. It feels more like you're trying to navigate A big ship into a harbor and try not to damage something or something like that. It's a very different regime. And you can see here How different it is, just considering break distances, where you have at 80 kilometers an hour in a Around the breaking distance of 30, 31 meters on a truck with a trailer, maybe 40 meters.
If you go into a light rail vehicle, You are up to 85 meters already. Then you go further up with regional commuter trains to 2 20 meters. Freight trains, you go up to 600 meters already. And then high speed trains at higher speeds Like, 3 30 kilometers an hour, you are higher than 3 kilometers to break that train. Now that is not that is only part of the story because now the rain sets in, fall comes in, the leaves are shedded on the tracks.
And what do you see with those weather conditions today, those break distance is double or triple. If that is the case, then the signaling system and the system in the infrastructure needs to account for that, of course, for the Conceivably, most are the longest break distance in order to have a safe operation. That means the distances between the trains and the infrastructure is Quite high. Needs to be quite high to have a safe operation. Now we are at the brakes again.
If we, as Knobenz, can provide a system where you can More or less reproduce under all weather conditions a lower break distance. It doesn't need to be the minimum, And that is a key feature. And that is key to essentially all the railroad companies in the world, whether it China or other places in the world, rather than investing into expensive steel and concrete, those are concrete ideas in order to Use existing infrastructure much better. And how do we do that? It sounds simple, yes?
Just hit the brakes, But it is not that simple. First of all, we need that's also part of our R and D landscape, A new generation of products. Here, I have the example of a new brake control system, Which is much more exciting than it looks like, I can tell you. Because first of all, this is a standardized project that they need because there are so little standards on trains. We can ease that and relieve that by having a product that is applicable To any train type, that doesn't exist that way today.
The other thing is reduce life cycle costs that also comes with it And increase reliability, make it more reliable, reduce life cycle costs by stretching a little bit the overhaul cycles. Of course, that is built in then. You cannot just do it. And a lighter and smaller installation We have brake systems, the next generation brake systems that, for example, can save like 3 tons of weight on a 8 car high speed train, for example, and 3 tons, you can calculate how many more passengers that means in revenue service for those customers Depending on whether it is 30 or 60 people that you can put on top into that train and that helps And last but not least, these new products also offer solutions for even retrospective after installation remote software updates In order to get new features on the train. And that is, of course, a whole field, a new field of additional revenue service models.
And that helps us to enable automated train operation. And again, why is that so I quickly jump over this slide. Why is that so important? Because there's I don't need to explain that everybody knows that the Increasing need for transport capacities, you can easily do that by putting the trains closer together on the tracks. And therefore, Features that are also used for automated train operation, but can be used independently of that as well is reproducible brake distance Or environment observation, and we have very and digital communication, of course, we have very special solutions to that.
And how do we do that? The reproducible brake distance that can lead to a higher use of infrastructure Works that way that we have new features on slide protection and adhesion management And real time calculation of applying those things, so we can actually narrow The spread of the break distance quite a bit, you can see that schematically here, and basically Provides a reproducible break distance. We can avoid that the break distance is triple or double and lower to a much bigger limit, And that means higher use of infrastructure. By the way, maybe just as a side note, I mentioned also the Chinese market. Those are features that are especially of value also for China.
If we are in there with our full brake systems and supply those features, that is something that Everybody, including the Chinese rail world has a special interest in. The other element of it, environment observation That I just mentioned, we invested into a share of a company called RailVision. That is a company, a start up company, an Israeli start up company that actually Provides infrared cameras with artificial intelligent picture evaluation And under all weather conditions, can in a very high level of details, look 2 kilometers ahead of a train. And of course, obviously, that can be used for automated train operation and then use correct Action on the braking also on the traction system. But as a side effect, you can derive many more business models out of that.
You all know that when the storms and the rain come in the winter that the railway system Can read, article failed again, trains are late because trees and green are falling into the tracks, And there's a big problem. It sounds always easy to solve that. But if you can do Recognition of those pictures and identified where preventive maintenance is needed, very specifically with this technology, You can save quite a bit of money on doing that, by doing it point to point and very specifically. And there are Side effects, so to say, of this technology and other benefits that we can generate quite a few Of additional revenue models for additional service for operations out of that besides the feature that it also is very necessary For automated train operation. And you also see with that, that we are not shy to invest Into start up companies that can provide or that has proven to provide technology fast.
We don't need to develop everything ourselves. We invest into those and make use of that for our own business. So these are just a few things on the innovative landscape. So in summary, The rail business is embedded in a steadily growing market Especially in those key growth markets also for the future. We see a huge growth potential further in our Service business, which will then be accretive to our margin, and we want to grow that by more than 2 more than not We have key innovations on the way.
This is a conservative industry, of course, and service proven equipment is necessary, But we also need to be innovative to have the next generation of products and services that we can offer the market. And that includes even software based feature upgrades and products. And we see that the margin expansion in the future primarily comes through aftermarket growth or also efficiency improvements. There is some there's always something we can improve, and we have seen that, as I said at the beginning, and I've already explained at the beginning. We've seen that also in the past year.
So in summary, we confirm our mid term guidance between 2017 and let's say 'twenty two of on average 5% to 6% revenue growth. And I think we have lots of opportunities to do that. And that's what I can confirm here. So thank you very much. And yes, we are looking forward to take your questions.
Thank you.
So thank you, Doctor. Wilder. Coming now to the 3rd and last Q and A session, and we would be happy if you focus first on the rail part and then, of course, So coming to the first question, Vivek, please.
Hi. Thanks very much for taking my questions. Vivek Midda from Deutsche Bank. So firstly, in terms of your estimates of over €2,000,000,000 of aftermarket revenues 2024, what's the number for China, which you've embedded within that forecast? And then secondly, if you could talk perhaps about The what you alluded to in terms of content per vehicle shifts in high speed, I understand with Metro, you've performed Quite well over the past sort of a year or 2.
What's the mid- to long term risk that as local competition intensifies in The high speed segment in China that there's some spillover effect in Symetro.
Yes. I mean, maybe regarding the Chinese market, how we see that, I would like to say a few sentences actually based on your question. Indeed, we have seen a tremendous, like I said before, OE market in 2014 2015 in the high speed arena. Based on that, if you looked at that in 20 And 2015 or at the end of the 2015 2016, you would have said, oh my god, yes, that's good. But you also accumulated kind of a risk that, that will stay.
And how do you deal with that in the future because your market share is so high with the total Brexit. Now for the next generation of the high speed trains in China, the Fuxing, we are still in, let's say, 80%, 90% of those high speed trains, but not necessarily with a full brake system like we used to be. So the share and the content per vehicle It's going a little bit down. That's not a surprise at all because that is based on the Chinese politics to become more independent. You don't only see that in the brakes market.
You see that also in other markets. Now the good news about it is, we have seen That share coming down already. And you haven't even seen that in our total number. You see that when you go into more details. And that has been compensated by Metro Business.
So what was the high share in our OE business in 20 14 15 on high speed is basically turned around. Now there's a higher share in Metro, yes, without going into all the details of all those numbers, but it Flipped around. So the risk and opportunity relationship going forward with those kind of innovations that we have is That if we supply those innovations into the Chinese market, for example, as in other markets as well, But especially in the Chinese market, and that is only possible if we go back to supplying a full brake system into the trains. Otherwise, you cannot So this risk that was there at the end of the year 2015 has been realized To a certain extent, and we have seen in the last year and this year that the share also in the high speed market is more or less not declining anymore. So we have reached And now it turns a little more maybe even into an opportunity saying, if we provide innovation to the market, that content might go up a little bit.
That on the high speed question, yes, I mean that's a long way. I know that in China. That's we need to be realistic about that. But I think we have realize some of those risks without compromising our numbers in the past. It's all in there already, yes?
And that is the good news. Now how did we compensate that? First of all, I said a stronger share of our OE business in Metros. And also, of course, the majority of the growth, also now what we have seen between 2018 2019 In China was coming out of the aftermarket. And that share is growing.
That share is growing. As you can imagine, the share of the aftermarket was at the beginning low like it is Today, lower in India because it's a developing market and it comes later. But it goes into the similar direction Or even at times a little higher than on our total average business.
To your first question, Vivek, I can add that The share of China in the total rail aftermarket was between 25% 30% and is likely to grow Given the relatively young fleet, that's natural, yes, it won't grow to 40% because also the installed base in the other regions We'll continue to generate aftermarket value. Okay.
So that is essentially, I guess, the answer to your question.
Okay. Coming to the next questions over there with the glasses.
Hi. Ding Lu from UBS. Thanks for taking my question. Firstly, on China OE, do you actually see upside potential given that recently we've seen a lot of stimulus Continuing into 2020 possibly and also a lot of it actually funnel into infrastructure or does your actually your flattish forecast Account for the fact that you see increasing competition from local players. And on local competition, do you actually see that Coming through in recent activities in terms of tenders, do you see actually local player actually increasing share?
And lastly, on aftermarket, I know in your Capital Markets Day, you mentioned about
the
aftermarket potential over the life cycle being 1.5 to 2 times the value of the OE. Do you still see that? And appreciate that the exact timing of the major overhauls is hard to pinpoint.
Right. First of all, I mean, that was numbers where we see a flat OE business between in the next few years, yes, it was shown on the past. Last week, I just spent a full week in China and had a lot of discussions on that. And I believe that mid to long term also the OE market is growing again in China. For example, There's clear plans to add 10,000 kilometers to that network of 30,000 kilometers on high speed rail.
Some of that are feeder lines. It's not necessarily all pure high speed lines. But that also means that the existing infrastructure So we need to be used heavier in order to get the throughput and that also will eventually turn Into OE Business Growth. The other impact or the other characteristic is that those high speed trains In China, they run much, much longer distances every year than what we are used in Europe. And based on that, The life cycle of those trains is a little shorter, and they need to be replaced earlier than what we've seen in Europe.
And that we will also see in the years to come. What exactly that means in market figures, we really need to see, But there's a qualitative argument, 1st of all, that we also should see in the mid term, long term growth in the OD business In China again. Then you had another piece of the question. I don't know if you
Maybe I can take that. I mean just to add, this discussion about stimulus, one needs to see If and when this money is being spent or released, then it will be spent on planning and then executing tunnels, bridges and all of that. Before then maybe 3 or 4 years later, we see that in the vehicle demand. So there is, of course, a time delay. And such stimulus is always a pull ahead of the demand that would have come anyway.
So question is, is that really a positive Game or is it at the end of the day, a 0 sum game? And I think then we'll go back to the fundamental demand drivers that Hume was just displaying. We said actually in the IPO documents that on average, the cumulative aftermarket revenue on your question It's roughly between 2 and 3 times revenue that is generated at the point of sale in the initial OE business. Again, depending on the lifetime of the vehicle, depending on the type of the vehicle and the usage, but that's roughly the experience that we've gathered.
And also, I mean, when does it exactly come? We see it already coming, yes, because we see a good growth in the aftermarket, but it is not That it kicks in exactly on the day, I don't know, 5 years or so after the train was introduced, it smeared out a little bit and that's also what we see. But it comes, yes.
Okay. Coming to the next question. Akash?
Hi, it's Sakash from JPMorgan, and I have three questions, please. My first question is on China and market share. So maybe if you can help us quantifying the market share that you have in Various categories like if you look at this rolling 12 months basis, then where do we stand on high speed and these metro as well as these mainline trains? So that's question number 1. Question number 2 is about your 3 businesses in rail, Primarily brakes, HVAC and Entrance Systems.
And maybe if you can talk about the margin profile of these three businesses because to me it doesn't look All 3 would be having similar margin profile. And also if you can talk about aftermarket intensity of these three businesses.
So
that's question number 2. Krishnamurti is slightly longer term. I mean, you were previously in breaks, then you've grown into other adjacent areas through acquisitions. So is there any forth lag that you are considering that might be, let's say, inboard signaling equipment or something that can also help you going into These automated self driving trains, so maybe if you can talk about any to the fund there? Thank you.
Yes.
I mean, first of all, on those market shares that you mentioned, We have come from a market share point of view in the high speed arena, like it was also in the IPO document from very high levels. There were in the past like especially in those boom years 90% to 100% of Market share there. It is not that we are not in almost all of the trains still, but the content is a little lower, yes? So from that perspective, of course, we have a certain drop in market share, but we are still in the our Products are still in the vast majority of those high speed trains. So that is the one impact there or effect there.
On the metro side, we saw a relatively high market share. It's a little different from high speed In the past, and we have seen that this market share is more or less stable. And then you asked the question about It breaks HVAC doors and the different margins, I believe, on that. Yes, of course, the profit pools are different. There's a different, let's say, competitive landscape.
There's different market entry barriers for those different systems and that also has different impacts on the margin. What I can say is that we have looked at that intensively and identified in each and every of those Segment's improvement potential, so to say, how can we become the benchmark also in profitability in each There's also other segments besides doors and HVACs that might have Even higher margins than in the brake system. It varies. What we have done as a management tool, we have said we define A certain bandwidth for each of those business of the profitability margin in order to set targets for the businesses to improve. And we are also seeing that this year already that we see margin improvements on those different subsystems and sub businesses, So to say, and that helps us to overall improve our margin as you could see also from our numbers that we delivered In the overall business.
And then Aftermarket intensity. Well, you can imagine that we have a very high aftermarket intensity on the brakes, like it was mentioned, 2 to 3 times of the selling price. That has something to do, of course, with constant friction material and things like that you need to replace. Whereas the share in the other businesses like doors and also HVAC It's a little lower. Yes, it is lower, definitely.
But it also offers new business models, like I explained, for example, on the door, you can think of Other business models even also in HVACs and other subsystems that help us also generate additional services in the Original sense of the word to the operators. And then expanding of business, you said, portfolio. Yes. I mean, we have constantly been looking at that. And I mean, 1st of all, of course, we are looking at adjacent businesses, and we are scanning that landscape having discussions Around that, but I wouldn't raise the expectation that we are currently Looking for a big acquisition or something like that coming up soon, that is also not the case, but that is something to be considered.
Okay. Coming to the Next question, Will?
One question on RBS, please, and then perhaps if I could just jump back to CVS. So you've demonstrated in the first half the strength of operational gearing and the benefits of that to profitability. And you've set out an attractive long term growth path with a structural shift towards the aftermarket, which we've been led to believe is Significantly more profitable. So when we look at the midterm potential for margin, Is the first half figures probably just something of a waypoint on the way to where you could be over 2 to 3 years or do you envisage step ups in innovation or other potential costs that are going to Strain the levels of profitability as you look against the bands in each of the businesses you've discussed.
Yes. I mean, I wouldn't say we can improve the margins year over year like we did from last year to this year. Of course. We also have seen some effects in the first half of the year where we see some revenue contribution In the second half of the year, for example, from portions of our businesses like Keeper, that will be revenue stronger in the Second half year, that is from its profitability profile a little longer. It wouldn't have a major impact, but maybe some, yes?
But what we I still can do is, of course, and that's what we like I explained before, we have set targets for each of our businesses to further improve. And we want to stay on that track, of course, and continuously improve our businesses. And that needs So we really discussed and that's what we are doing and doing internally and doing that myself, what is the profit pool in each and every segment of those businesses And where are we good? Where can we improve? And what does it mean for the overall improvement?
I mean, to answer this question on a Somewhat more higher level, our guidance, mid term guidance of expanding the margin versus 20.17 Of 150 basis points plus, of course, the adverse effect, that stands. And it is also very clear, I think, to everybody A good chunk of that will come from rail, but we will provide specific guidance on how much will come From rail and truck in every year, only for the year. So stay tuned till early part of next year on specific statements regarding rail profitability as well as truck profitability.
Thank you. Within CVS, I mean, when we think of autonomous driving for trucks and the long term future of that, It seems that the landscape has significantly changed through consolidation steps that your competitors are making. And also, I suppose your alliances between some of your electronics suppliers have shifted or are shifting Towards Continental. How should we think about where the majority of the R and D and innovation effort is going to Unfold, there seems to be a push between Tier 1 suppliers and OEMs taking place at the moment or if so. And How will you be able to maximize the way in which you capture that value as we go forward beyond braking and steering?
Yes. Maybe starting to answer your question from OEM in comparison to supplier point of view and then answer the question how we are seeing ourselves in that situation. We differentiate in regard of the OEM approach between Europe and other regions. In Europe, the most of the OEMs Are developing a system for automatic driving by themselves and they need to have us In a description of how we are positioning ourselves, as I explained before, we have a strong heritage in brakes And we have now built a footprint as well as steering. Those both are the main actuators for an automated driving vehicle.
What we did is that we put an overarching layer above those posts, which we call truck motion control, where we do a joint interaction of braking and steering to keep the vehicle dynamics of the truck and every situation under control. That is something which is a little bit different in comparison to what you see in PESCAR. That's the further development which we are doing coming out of our historical strengths. If it comes then to a model how to support the customer further, if we come to the decision layer or if we come to The sensing layer, that's both layers where we are cooperating with Conti. And you're right, we have shifted here Our focus towards Continental as a partner for those both activities and we are pretty happy with that partnership and the customers are highly appreciating What we are creating is demonstration trucks right now.
In regards to the question of competition, Well, I think there is this rising merger of ZF Wabco. There is a competitor which have background now out of truck business And background out of PESKA business with ZF know how. So we take that serious, what is happening there. And for Sure, there will be a know how injection we are expecting out of this arena of ZF and TRW into WABCO. But as I mentioned, we are the technology leader and we will definitely invest in R and D on a level that we can keep our It's about intelligent partnerships.
We have started that with Conti And we are open for discussions about further partnerships. And we are partnering with our customers. And depending on their willingness to take system responsibility, we are a sub Systems supplier, we are developing different models with them, but we are quite convinced that we are here in a very good position to grow.
Okay. Thank you very much. And thank you very much for all your stamina, staying with us 2.5 hours. One last request and what you could do as a pleasure is, we will send out today or latest to tomorrow in the morning Something from monkey survey. So if you want to like us give us feedback, it would be highly appreciated that we can improve further.
And Thank you very much, and have a nice afternoon.
Thanks, everybody.