Thank you, Ms. [Mohr], welcome everybody to our first earnings call as a listed company. I have to admit myself, I mean, this is not unusual to deal with three quarter numbers for us, but this is the first time in a public manner, I am truly excited. I'm Klaus Deller, the CEO of the company. With me is Ralph Heuwing, my colleague, the CFO of the company, we will both take you through the presentation, Ralph will focus on the detailed financials. I hope you all have in front of you our nine-month results presentation, which has been published this morning on our website. I will run through the first few slides, which give a brief overview of the operational and financial highlights during the first nine months and the Q3 in particular.
Ralph will give you a more detailed perspective on the financial performance of the company. At the end, I will wrap up and open the floor for questions. If there is no question right now, let's go forward without any further ado to our nine-month highlights. One of our highlights, I have to admit it was the highlight, of course, was our IPO on October 12th. It was a rather challenging market environment and we decided to and were able to carry through with a successful listing. I guess otherwise we would not be here together today on the phone. I will give you a few observations on the transaction on the next slide. In the meantime, just ahead of our listing, we had the most important trade shows in our industries. That was the InnoTrans.
That is the trade show for rail vehicle builders, operators, and suppliers in Berlin. We had the two automotive shows, the IAA for the original equipment, the Automechanika for the aftermarket equipment. As always, we showcased our latest products and systems, which were very well received. I give you my sentiment for these fairs, this is totally indicative of what's going on in our industries. 10 years ago, you would have seen these fairs as mostly geared towards cast and iron, it was palpable how these industries are moving towards the digital arena. Let's talk about our results. Our group revenues for the first nine months year- on- year were almost up 10% over the same period of last year.
Note that this is basically all organic growth, aided only marginally by an acquisition, i.e., what we also explained during the IPO roadshow, the acquisition of the IP of Federal-Mogul, which is a friction supplier for the railway industry. Growth would have been even higher if we had stayed on constant FX rates. It cost us a little more than 2% of what you see in the figures here. Given our operational leverage, our EBITDA followed more than suit. Group EBITDA has come out at EUR 876 million, up 12.6% on last year. This equates to a margin of 17.5%. That's 40 basis points higher than during the same period of last year.
We are especially pleased that our order book has grown by almost 12% year-over-year and now stands close to EUR 4.5 billion, which gives us a very good visibility in the wellbeing of the company in the future. Our guidance for the full- year in 2018, I guess it's not surprising that we expect a good 2018 with revenues between EUR 6.6 billion and EUR 6.7 billion and an EBITDA margin between 17.5% and 18.5%. Over to the next slide, our IPO. With the placement of a volume of nearly EUR 4 billion, we were the second largest IPO in Germany in 2018. If I recollect well, I think it's the sixth largest at all in Germany. What I only learned after the fact, it was the biggest IPO of a family-owned business ever in Europe.
More than 80% of the free float shares went to industrial long-only investors, 11% based in Germany, 20% in the U.S., and almost half in the U.K. Our free float is now just under 30%. The remainder of the stock continues to be held by the Thiele family. On our listing day on October 12th, our stock was up 1.5%. Since then, it has performed largely in line with the market and the sector, which I'm told is a rather robust situation for a newly listed stock in the market. All in all, we can say we are very satisfied how we have been received by the market, and I think the little trade action of our stock shows that the long-only investors are also satisfied with our stock and are happy to hold it. We have also been seeing continued further interest of institutional investors post-listing.
Many of them got in touch with us and asked for conversations with us, which has taken place and is going to take place also over the next weeks. Let's go back to what we've been up to recently. On slide five, I would like to talk to you briefly about one of our main pillars of our story, and you know that if you have been with us also during the road show, that we feel very near and dear about is our innovative power. And we are spending a sizable amount on creating new products and services. Just a few examples of these innovations, which we have been presented to the market in this year's InnoTrans, let's first stay with the Rail Vehicle Systems, which we ran under the slogan of the InnoTrans system, .people.connected.
Our new brake control for, which was used to be the brake control for metro systems, the EP 2002, we made now only also suitable to regional and mainline trains. The EP 2002 is the best-seller product of ours and faces very little competition in the market. We improved this product by including deceleration control system, delivering consistent brake distances. That is very important for manned train operation. A brake disc temperature monitoring, which improves the vehicle availability even in case of a fault. This is something that frequently happens, especially in fall conditions, that the conductor gets a signal that brake disc is overheating on one of the wagons, and this can be now completely localized with the EP 2002, and the train conductor can then continue its journey by adjusting the speed appropriately.
The result of these and other improvements is that maintenance intervals can be extended, reducing lifetime costs significantly. Significantly, of course. As Knorr-Bremse, which is indicative for brakes, but we are quite a bit more than brakes. Integrated in our existing door system, iCS4, where iC stands for innovation for entrance systems. We presented a pioneering new sealing system for sliding doors, which significantly reduces noise, enhancing passenger comfort, and raises energy efficiency. Again, the result is lower operating costs. If I may iterate again from our presentation we have done on the road show, there are two drivers of this industry. It is either cost down or it is uptime of the train. These are always the two main lines for our innovations. Finally, our iCOM platform applies the idea of smartphone apps to the rail vehicle, enabling the extensive digitalization. We have three different trajectories.
For example, iCOM Assist application supplies recommendations for most energy-efficient driving style based on the route, train data, and timetable, resulting in up to 12% energy savings. Needless to say, that is the pre-step to a manless operated train. The iCOM Monitor application diagnoses a variety of vehicle systems directly or via installed sensors using algorithms which generate status reports and maintenance recommendations. Customers receive an early warning if an increased risk of component failure is detected, allowing them to take the necessary preventive action in good time. I also want to reiterate, preventive and predictive maintenance are big drivers in improving the attractivity in our products for especially the operators. Going over to the commercial vehicles at the IAA, the Internationale Automobil-Ausstellung for commercial vehicles, the leading fair in this scene. We went under the motto, shaping tomorrow's transportation dot together.
We introduced a new concept based on our innovations regarding the four major themes. Traffic safety, that is the core value of a brake company safety, emissions reduction, a major driver of legislation, as well as automated driving and connectivity. Again, on the commercial vehicle side, the two main drivers for innovation in the vehicles is cost down and the legislative action coming, especially from, I cannot even say, especially from Europe and the U.S. because already this legislative power also in other legislative bodies have been rising significantly. We focused on system solutions which will enter serial production, some of which we have already shown to selected customers. One of them, which we are especially proud of, is a Highway Pilot. A truck equipped with our actuator sensors demonstrate a fully automated Level 4 hub-to-hub driving scenario.
Our sophisticated equipment identified road boundaries, signals, as well as road obstacles and carry out evasive maneuvers entirely without a driver. It was one of the main shows at this year's truck show. The truck performed these maneuvers even with failure of the steering system, maneuvering the truck solely by braking on individual wheels and making the brake system as a redundant system for the steering. These are only a few examples of the innovation engine that is working all the time inside Knorr-Bremse, and I say it again, which we are very proud of. Let me now turn to a brief overview on our financials on slide six before I hand over to Ralph. While industrial companies around the world have delivered mixed results and the capital markets have clearly become more cautious, Knorr-Bremse is delivering a strong set of financials for its Q1 in the public domain.
Naturally, we are monitoring early indicators as diligently as everybody else, maybe even more diligent than others. But our figures show a solid development that points to a continuation of our performance track. This is, of course, a result of how we position the company strategically and how we run it operationally every day. Q3 revenues were up 5.4% on the same quarter last year, somewhat below the trend of the first six months. However, the H2 of the year already showed strong growth and provides tougher comparables than the H1 . For the first nine months, our growth rate still stood at a healthy 9.5%. EBITDA for the first nine months up 12.6% and our margin improved 40 basis points, as already mentioned at the beginning of this presentation, compared to the same period of 2017.
Q3 2017 had been a weaker quarter, while Q4 2017 presented an extraordinary margin, as you certainly have calculated. It is important to note, from my perspective, that we run a long-term business. We cannot say that often enough. If you judge us by the quarter, you would come to misunderstandings. Our comments on quarterly performance are courtesy to you and the market that they are not something they specifically provide. We are in the business of sustainable performance to which quarterly numbers are merely a means to an end. This is not something we would take as a basis to take long-term decisions. So much for my introduction. Ralph, over to you.
Thank you, Klaus, and good afternoon, everybody from Munich. Let's start on slide seven with revenues and orders. Remarkably, all regions contributed to the EUR 432 million year-on-year revenue growth. In particular, Europe and the APAC region provided strong growth in absolute terms. In the Q3 itself, North America was the biggest contributor in absolute terms. During the first nine months, our order book grew by 11.9%, driven by 8.2% growth in order intake and a book-to-bill ratio of 1.05. This provides strong visibility for the quarters to come. Let's move to slide eight and our EBITDA development. Let me begin with the 18.1% margin for the full- year of 2017 against the 17.1% for the first nine months of the year 2017. These percentages, of course, imply a margin for the Q4 of 2017 of above 21%.
We already had pointed out in the prospectus that Q4 2017 was positively influenced by back-end loaded revenues and profits that were rather unusual, also in comparison with previous years. Especially in the Rail Vehicle Systems, accruals that turned out not to be necessary were released during the Q4 of the year. Against this backdrop, the 17.5% achieved for the first nine months of this year is 40 basis points above our EBITDA margin last year, an increase driven both by improved volumes and better efficiency. While material expenses were relatively higher than at the same time last year, the personnel expense ratio, as well as the other operating expenses and income ratio, came down by roughly 100 basis points each. Slide nine shows the impact of depreciation and amortization this year. This impact was lower than in 2017.
In 2017, we wrote down assets in our rail services business in the U.K., a project called Blueprint West, before we sold it end of October this year. With this transaction, we've also put an end to the operating losses in this business, which added up to about EUR 12 million for the first nine months. As a result, our EBIT margin was 14.4%, up 90 basis points against 2017. To finish off our P&L, a briefer look at our net income on slide 10. Net income year-on-year confirmed the trends we discussed for EBITDA and EBIT. Our net income was up 27.6% on the same period last year. Our margin was up 150 basis points, reaching 10%. Noteworthy, even a higher level than we saw for the full- year 2017.
The driver behind this was primarily a better tax rate, which improved from 32.5% to only 26%, thanks to tax credits from the U.S. and other items. For the full- year, we continue to expect a tax rate starting with the digit two rather than the digit three. The financial results increased only by approximately EUR 8 million during the first nine months. Finally, our earnings per share came in at EUR 2.89, up more than 32% from the EUR 2.18 last year. This concludes our analysis of Knorr-Bremse's P&L. Now let's look at CapEx, working capital, and some balance sheet metrics before we move on to our segment performance. On page 12, we show that CapEx, including asset deals, increased to EUR 239 million, or a ratio of 4.6% of revenues after only 3.2% during the same period in 2017.
Excluding asset deals, we continue to expect a ratio of approximately 4% for the full- year, consistent with the medium-term outlook we provided with our IPO in October. We invested EUR 167 million in additional capacity worldwide, as well as in productivity enhancements and replacement CapEx. We concluded the asset deal with Federal-Mogul in the area of friction materials for rail worth EUR 63 million. On the working capital side, we also invested under EUR 50 million by building up net working capital in support of strong revenue growth. Days working capital, however, grew by only three days and should come down substantially towards year-end, as is usually the case. Please note that there will always be a degree of variation in our working capital, and we continue to operate within the normal operating range. Let's move on to page 12.
Despite our increase in CapEx net working capital, ROCE was up 210 basis points on nine months last year, reaching an attractive 34.3%. Our operating cash flow showed the same development with a 1.8% reduction year-over-year, and free cash flow followed suit. As explained earlier, we do expect improvements on all these cash metrics in the Q4 as in every year, bringing the full- year picture to a strong level. On to our balance sheet on slide number 13. After the payment of the special dividend of EUR 850 million in May, which lowered our equity ratio from 35% at the end of last year to 22% in mid-2018, this ratio has now recovered to a solid 24%. Needless to say, with an equity base of almost EUR 1.5 billion, our balance sheet is strong, and we are in a comfortable position of strategic and financial freedom to act.
Before I hand you back to Klaus Deller for his closing remarks, let me take you through some salient divisional stats as well as some observations on our aftermarket business. Nine months revenues in Rail Vehicle Systems were up just 9% on the same period last year. The main drivers of this growth were our European Brakes business, China, which I already alluded to on slide seven, our Freight business in North America, and Rail Vehicles in India. Our EBITDA margin for the first nine months improved by 80 basis points, continuing the trend from our half year figures. The extraordinary asset write-down on the Rail Services business in the U.K. in 2017 provided a further base effect on the EBIT level. Let's move on to the order situation on the next chart.
Order intake was up more than 11%, and order backlog more than 12%, both substantially above our competition, we believe. This strength is broad-based. Orders are coming from around the world with no particular region as the sole driver. As a result, we expect the next quarter also to show healthy revenue growth around the world. Moving to Commercial Vehicle Systems on slide 16, developments here were also positive in the Q3. Revenues for the first nine months grew by 9.8% and by 8.5% in Q3. The biggest drivers of this growth were content and truck production rates in North America. EBITDA margin improved slightly to 16.4% after nine months, compared to 16.3% for the same period last year, benefiting from positive geographic mix. At the six-month mark, we still had a margin decline over last year.
We are underlining the fact that we continue to invest in our steering, Advanced Driver Assistance, and automatic driving activities, which will cost the margin in the quarters to come. At the same time, the investment we are making is the foundation for our long-term ability to outperform. Moving on to the order situation at the truck business. Our order intake grew by 5% in the first nine months, following a strong 2017, as you will remember. Order backlog continued to improve by 10.9%, providing for solid visibility. Especially the North American market went through an upgrade of truck production rate estimates for 2019. While this clearly is a positive signal, we continue to observe developments carefully. Our aftermarket activities for the first nine months shown on slide 18 continued to grow, albeit at a reduced rate. Aftermarket revenues grew by 3% for rail and 4% for commercial vehicles.
On the rail side, aftermarket growth, I have to add, was affected by the disposal of entities which had shown already shrinking revenues in 2018 versus 2017. More generally speaking, as discussed earlier, aftermarket projects in rail are also subject to fluctuations from quarter- to- quarter. Overall, the aftermarket ratio as a percentage of total revenues showed a decline of approximately two percentage points given the strong OE growth during the nine-month period. Against this backdrop, our quality of earnings for the first nine months was actually even better than it might appear at first glance. Thank you for now, ladies and gentlemen, and let me hand you back to Klaus Deller, who will wrap up the presentation before we come to Q&A.
Thank you, Ralph. After now having to digest this whole set of numbers, none of them, I think, are hard to digest. I can tell you our outlook for the full- year shown on slide 19. We are in slide 19 now. I think it's a little surprising. As we also mentioned during the roadshow, we don't want to give you much surprises. This is a solid development in Q3. We expect revenues in the last quarter to develop similarly as during the first nine months. Hence, our outlook for the full- year is EUR 6.6 billion-EUR 6.7 billion on the top line. In terms of EBITDA margin, we expect a stronger Q4 compared to the first nine months. As already explained a few times, a weaker margin compared to Q4 of 2017.
The full- year is expected to range between 17.5% and 18.5%, hence not very different from the 18.1% of the full- year of 2017. The lower part of the slide is known to you. I think you're very familiar with it, as it simply shows the components of our midterm guidance. We expect them to apply for the full- year of 2018 as well. We included slide 20 for the sake of completeness. It reconfirms our midterm targets as we presented them to you in the prospectus. Let's conclude. I assume you have all read an extensive prospectus we published at the end of September this year. Despite volatility in the financial markets, not too much has changed in our business since then. We had confidence in our business then, and even more so we have it now.
We will continue to outspend our competitors in creating new products and services to remain the innovator and leader of our industry. Our growth and profitability are where we expect them to be. We see no reason to change our expectations for the future either, provided of course, that we continue to see a supporting overall economic environment. Strength of our order book is encouraging in every regard. Our guidance for the full- year of 2018 is for 7%-9% top line growth and for an EBITDA margin of around 18%. This concludes also now my part of the presentation. I thank you very much for the attention also on behalf of Ralph Heuwing and Ms. [Mohr]. We have done enough talking. Back to you, I guess we open the floor for questions.
Thank you. Ladies and gentlemen, we will now begin our question- and- answer session. The first question is from Ingo Schachel, Commerzbank. Your line is now open. Please go ahead.
Yes, thank you. I have three questions. The first one would be on your aftermarket business in Rail Vehicle Systems. Here, I would be interested in a little of the geographic breakdown, of course, of the growth, because in your slide, you mentioned a number of European service growth opportunities. Just wondering whether you could confirm that the Rail Vehicle Systems service growth was high single digits in Europe as well as in Asia, and maybe not in North America. Maybe also give us a hint as to how much of the profit growth in RVS was attributable to the aftermarket business, whether you could confirm that, let's say, most but not all of the Q3 growth was services or around half of the nine months growth of profits in RVS.
I hear two questions. Was rail service aftermarket and profit growth in the Commercial Vehicle Systems, how much is due to aftermarket? What was the third one?
Sorry, both was on Rail Vehicle Systems, both the incremental profit from services as well as the geographic breakdown. Those were what meant to be the first question, if you want to complement two with it, that's fine as well.
Yeah. Well, see, we have not a single region where we have not been growing. That is correct. We have been solidly growing in both aspects, maybe a little less on the aftermarket side as we have performed very well on the OE side. The EU service growth, you are correct on that, has been relatively higher than the rest of the world due to a lot of refurbishment projects and stock increases with several major operators. The split between our profitability of rail service or the aftermarket and the OE business, we have not been providing so far.
I might just add, Ingo, that given the lower share of aftermarket in our revenues, of course, the profit contribution got actually a little bit diluted. Against that fact, one has to underline that our profit in each of those two segments, OE and aftermarket, was actually pretty good. On a constant share between OE and aftermarket, of course, the profitability would have been even higher.
That's understood. My second question would have been on the seasonality and Q4 margins. Of course, quarters don't really matter that much, but of course, your guidance for Q4 is still pretty broad with regards to the margin. I would like to understand a bit better what the seasonality has been in previous years prior to 2017. Can you give any indication as to whether the EBITDA margin in Q4 has typically been around 20%, below 20% most of the time, or above 20% in most of the years?
We pointed out very clearly that Q4 2017 was extraordinary in terms of the delta between nine months and full- year. That was something that we would clearly not expect for this year. I think when you go back, maybe the Q4 selective margin might be one or two percentage points higher than the average of the other three quarters. Not more than that. I wouldn't necessarily attribute it to seasonality in terms of seasons in the year, but more to a, let's say, more cautious approach of accounting throughout the year until then finally in the last quarter, maybe some over-provisioning is being released. That is, I think, the more general behavior that you also see in many other industrial companies.
I may add. There is a seasonality, what you think is a seasonal seasonality, of course, if you have harsh winters, you will see you will get a peak in wearables or you see also depots before wintertime stocking up in order to have parts available. The non-seasonal effect is that we cannot plan is really when fleets get overhauled, when fleets get refurbished. That is a patchy business and you will see sometimes double-digit growth and sometimes less. The Q4 outperforming everything under the sun is not something we see every year. That is beyond the matter of being a cautious company. There is no other such effect.
Okay, [inaudible], yeah. Thanks so much.
Sure.
The next question is from Akash Gupta, JP Morgan. Your line is now open. Please go ahead.
Yes. Hi, good afternoon, Klaus and Ralph. I have three questions, please. I will take one at a time. My first question is on truck market outlook. A number of your customers as well as peers have reported 2019 outlook in terms of what they expect production rates to look like next year. One clear observation from that is that Europe and North America growth rate expected to come down next year. Maybe, can you talk about what is your assumption for production growth at this stage for next year, and how should we think about content growth when truck production growth rates are expected to slow down?
Okay. That's a question I think we entertain internally for the last five years. We have just had a look. I'm not even sure if I can share that with you, but I do it anyways. We just had a look in the board meeting into how solid the numbers from the order book go into production schedule. In all regions that you have mentioned, it is very solid and strong. We see no tapering off. There has been the question heavily mulled over of double bookings at the last trade fair. We can be sure that everybody was talking to everyone. It is not in a magnitude that should raise eyebrows or even concerns. Even on the trailer and for the axle manufacturers, we see extremely strong transfer from the order book into the production.
For the medium term, we can look, and the medium term is about six months. There are no clouds on the horizon. I knock on wood, it's going to stay that way. Of course, managing for us is always thinking in alternatives. Do we think in alternatives? Of course, we do. The biggest problem remains for us to be at the moment to make sure we have the parts available in our factories to produce what our customers demand.
Only adding maybe the outlook that we have already provided midterm, which we can reconfirm, that in fact, we are expecting a medium-term growth globally of 4% to 5%.
Thank you. My second question is on China Rail, which was growing in nine months despite some moderation in high-speed demand. Can you talk about visibility you have in China Rail for coming quarters and how backlog look like there? Can you also provide a breakdown of Chinese business in passengers and freight?
Yep. We have become quite a bit less dependent on the high-speed market. The high-speed market, as we have explained it has come to a steady state. It's still a sizable market, but it has been quite overtaken by the metro market. The visibility for that for China for the next year is strong. There is a growth we are projecting of around about 5%. We are participating in all segments, also in the aftermarket. Not so much on freight. We have little activity in freight in China. This is still a very much Chinese, I would say, low-tech. Certainly not embraced on the newest technology segment, but with the embrace of also electronics in there, we see good chances to materialize. Not next year, for the years to come.
Thank you. My final question is on CVS, where how do you see the phasing of investments for technology, including autonomous driving over the coming years? Will there be a step up in 2019?
Steady. We have a long-term plan. We have ramped up engineering capacities along the way. We are teaming up. You have heard about this collaboration we have with Continental, not excluding that other collaborations on other segments will follow, that has been factored in we are not planning to go beyond what we are doing.
Thank you.
The next question is from Philippe Lorrain, Berenberg. Your line is now open. Please go ahead.
Yeah. Thank you very much. Actually a couple of questions also from my side. First on CVS, I was just curious to bounce back on Akash's question regarding the content. If you could share with us as well, how does the price erosion develop, especially in years when volumes are a bit under pressure? If I look at what grew over time, it seems like 2009 did not see a massive price erosion compared to the previous years. If you could confirm that the price erosion we see of about 1 to 2 percentage points per year is something that is pretty stable over time, that would be great. Thanks.
That I can confirm.
Okay, great. I've got a second question just on your guidance, especially implied guidance for Q4. At the low end, it looks like we're expecting rather flattish kind of sales development in Q4 versus last year. I do appreciate that sales last year perhaps were a bit dynamic, especially in the Rail Vehicle Systems. Is it just a reflection of that kind of normalization that we see in your full-year guidance, or do you plug in perhaps any kind of, let's say, other things that you see out of your backlog right now, just on timing of execution and so on?
Well, Philippe, the low end of the guidance just reconfirms and reassures that it won't be worse in the Q4 than the other three quarters. Of course, we provide a range and it's not our intention to come out at the low end of that range. I think we would regard the last year full-year margin as an ambition level that we would like to see again this year.
Okay, fair enough.
If somebody had asked me, "Can we take the Q4 2017 for 2018?" I would have bought that in any single day of this year. It has been a fantastic Q4 2017, so 2018 is very fine.
Okay, great to hear. The last question is just more on the housekeeping side. Why are the liabilities held for sale actually not disappearing after you've sold your assets during the course of Q3, while on the asset side there is no asset held for sale anymore?
It's very simple. Only part of the purchase price has been paid. There's still an amount to be paid. Roughly half of the amount has been paid and the other half will still have to be paid based on certain milestones.
Okay, great. Thank you very much.
The next question is from Felicitas von Bismarck, Deutsche Bank. Your line is now open. Please go ahead.
Yes. Thank you very much. Also three cash questions from my side. The first one would be on your operating cash flow conversion. Do you expect this to come down this year compared to last year, or do you expect a catch-up effect in Q4?
Felicitas, as we had said, clearly the last quarter is always one where we are improving the cash flow situation based primarily on collections and also maybe a reduction in the inventories. That's a pattern that we see every year. We are not providing a guidance whether the operating cash flow will be higher or lower than last year. It's also very much a timing question. Do certain payments come in on the 29th of December or on the 3rd of January? I think we will always have to live with that kind of volatility as I mentioned. Clearly our focus is on bringing operating cash flow to a good level at the end of this year. That's for sure.
Okay, thanks. On the second question, you mentioned the CVS growth, you're factoring the 4%-5% growth. Does that actually factor a downturn of the U.S. or North American market in the next three years, or is it basically assuming a flat market?
That is in our planning. We have put that, I think, as a guidance from 2017 till 2021, also. That is our average expectation of how the market and our business is going to develop. You see there will be some years where we outperform and maybe we outperform in all of them. Especially in the U.S. market, I want to reiterate our share content growth is quite, let's say, supportive of immediately rating also a tapering off of the market. All of that is encountered. You should take that as an average value for this time period.
Yeah. We actually referred to.
Sorry.
Sorry about that. We actually referred to the Roland Berger study that was expecting a 1.4% CAGR on a global level, that's being, of course, put together between different CAGRs on a regional level. That is our reference point.
Sorry, just to clarify, the 4%-5% you just mentioned was not the market growth? That was your growth?
It was our growth based on both truck production rate and content growth.
Okay. The last question I had would be on your new Conti partnership. Can you maybe give us some color and maybe mention if you consider this a better partnership than the one with Bosch?
I did not understand. What about this partnership? It's a superior partnership, did you say?
Yeah. Do you think it is a better partnership than the one you had with Bosch before?
Well, the one with Bosch is still going on. It is with the shareholder. It is not our choice to dissolve this common company. However, there are parts in the business that are going in the development a lot quicker, and they tap into scale efficiencies and product technology from other segments, i.e., the passenger car segment. Conti is an extremely strong contender, a very agile company, very much at the same drumbeat as we are too. We are very positive about this partnership. Whether it is going to be a better one, future will tell. Again, we are very positive about it.
Okay, thanks very much.
Sure.
The next question is from Ben Uglow, Morgan Stanley. Your line is now open. Please go ahead.
Oh, afternoon, Klaus and Ralph. Thank you for taking the questions. I had three. First of all, I think in your opening remarks, it was in the press release, you mentioned a soft patch or a small decline or a softer period in China high-speed revenues. Can you just explain that to us? Was that to do with orders previously contracted? Was it to do with the rate that you were executing? Is there anything particularly significant in that, i.e., is it temporary or is it ongoing?
Secondly, in terms of China procurement and tendering in general, you made some remarks about mass transit and regional being positive. Are you politely signaling that you actually see the high-speed outlook as more tempered, perhaps less growthy than it has been? Is that second question. The third question on. On cash flow, if I looked last year, that's the only reference we've got, you actually did 60% of your free cash flow in the Q4. Is that a normal situation or is that 60% rate abnormally high?
I'll start with the first one, I think Ralph is going to tackle the last one. With the high-speed business in China, if you think 10, 12 years back, that was the major driver of the growing Chinese rail market. The volumes have come to a steady state, somewhere between 200 and 300 trains. What has been rampantly growing is especially the metro market, where many of those multi-million cities are developing, installing, or expanding their metro networks. This is why our business in China is growing. It's growing solidly. It's that high speed has become less important.
Sure.
Relatively less important. It doesn't mean it's unimportant, especially not on the after market of the installed train base of almost 2,500 trains. I would think I almost answered the first and the second question.
Understood.
Yeah?
Yeah.
Just one follow-up on that, and thank you for the clear answer. You basically expect that the growth trajectory that we've seen between mass transit, high speed, regional, et cetera, that growth rate is sustainable as we move into 2019?
Yeah.
Okay.
Yeah. On the cash flow situation, you calculated right. I think it's a combination of two things that happened last year. One is the usual pattern of working capital. The other one was, of course, also the particular pattern of earnings in the last quarter. I wouldn't necessarily expect also 60% of free cash flow being delivered in the 2018 figures. As I had alluded to, we do have high expectations on cash flow in the Q4. No doubt about that.
Mm-hmm. Okay. That's very helpful. Thank you very much.
Sure.
The next question is from William Mackie, Kepler Cheuvreux. Your line is now open. Please go ahead.
Yes. Good afternoon, gentlemen. Thank you for the questions. A couple. Firstly, if we can come back to ensure I understand the comparative base for 2018 Q4. When you talk of an exceptionally strong Q4 in 2017, can you confirm that we're specifically relating to rail and relating to China? Just so that when we look at the comparative base in CVS, we understand that that's a more normal base. When you relate to the profitability being exceptionally strong, does it just refer to the level of accruals release, which you've alluded to? Or is there another specific factor on top of the volume effect that you refer to?
On the first question, you are 95% correct. Everything you say is right. It has been rail, it has been China. To a very sizable extent, India. India has what we call LHB coaches. That is a special coach design which is standard around the world in terms of the bogey design. It's called Linke-Hofmann-Busch. That is a very traditional German company in Salzgitter being absorbed by Alstom. That is like for when we call it hand me a Kleenex. That has become the standard for paper towels. The LHB segment is growing rapidly and rampantly in India, and that has given a big boost for the last year. The second question?
Yeah, just to add on the commercial vehicle side. Full- year margin on commercial vehicles and the half year margin, and also the three quarters margin were all roughly in a similar ballpark, so last year. It was not particularly abnormal compared to other years. It was, as Klaus said, it was in particular the rail division and their Asia Pacific.
Okay. Two follow-ups then to that. The first would be that during the commentary regarding RV rail, I believe you indicated that the strength of the order intake in rail in Q3 was a good indication that you would be able to grow revenues in the Q4, so against this higher base. Is that correct?
Sorry, but not just Q4. For quarters to come because, of course, the order book has a value which is not so far away from a full- year revenue.
Yeah.
Orders in rail usually do not materialize in the next month. That is, you get awarded a big project and that is then materialized over the next couple of years. Can also be the next month if it's sitting in the order book, but it's usually such an order is not given with two months notice.
My follow-up question again is on rail, but it's on a larger picture or bigger picture question. I noticed some of your OE customers are forming internet-based sales channels to address distribution of a wide number of parts to the rail operators in the market and promoting that as a go-to platform for many different products and services alongside their standard offerings. How do you see yourself fitting within that environment longer term in the rail side, where in effect it seems that there's a risk of being disintermediated between the rail operators and yourselves?
I'm somehow confused in the first part of your question. Did you say CVS or RVS?
Sorry. Rail, RVS.
RVS.
To be clear, yes.
To be honest, I am not aware of any major activity that would be impacting our aftermarket business. I'd get back to you after you said. At least that blurb is not big enough that it has surfaced on my table.
Great. Thank you.
Okay.
We have a follow-up question from Philippe Lorrain, Berenberg. Your line is now open. Please go ahead.
Yeah. Thank you for taking my follow-up questions. Two quick ones. Could you first indicate broadly the kind of pressure that we see on the CVS margin from these investments in ADAS and also autonomous driving technology? That's the first one.
I would just specify that our margin expansion will be lower compared to the rail side, and that's what we also indicated previously. In particular, I would say in 2019 and 2020, don't look for too much margin expansion because of these investments. In the outer years, I would see an improvement of margin over time. We're not indicating a serious margin decline here. We're just saying moderate your expectations on margin expansion on the truck side, at least for the next 24 months.
Okay. That's a fair point.
The good thing that you can think about, if that would be the automated driving would be something we're shooting for in, I don't know, seven, eight, nine years and the product is coming to the market, I would say, ooh, that is quite a sizable risk. We monetize it on the way there. The product is out there and function for function is added. We're now at a Level 2, going to a Level 3, having things like turning assistant, having Highway Pilot, et cetera. There is a cash flow back for these special efforts being undertaken.
Coming to a Level 5 autonomous driving, speaking to infrastructure, reconfirming what the camera has seen by communicating, let's say the camera sees a red light. In order to really take an action out of that, you have to communicate with the infrastructure and say, "Hey light, are you really red?" The light goes back to you, "Yes, I am red." Then it's confirmed. To come to this stage, there's quite some way to go. Some say 2025. I would say we won't see that before 2030.
Okay, great. Thanks for the addition. The second question is just on the RVS order book. Would you mind sharing perhaps a little bit about the visibility of the order book as it is today? How much of the order book is actually for revenues, perhaps in 2019 and beyond 2019? As a follow-up on that, do you have as well, beyond just the order book that is apparent, I guess like a big iceberg of framework contracts where we do not see these orders as being reflected right now in the backlog, but perhaps in future years?
Well, see, the way we register orders in our order book is very conservative. Only what is in there is firm. Let's say if you go to Transport for London and we would be chosen for one of these subsystems, which we hope, clearly, then we would put it in for the first 90 trains and not for the full slew of 340 trains that are being procured. What we see in the order book right now, I cannot give you a concrete number. I'd say in our order book, what is going to be monetized the next year is going to be between 50% and 60%. The rest is going to fill up.
We have some, we monitor over the year, usually we have a coverage of our order book by January for the rest of the year, is for some components, almost 100%, for others, HVAC, for example, belong to that, we have maybe a coverage of 40%-50%. Orders materialize throughout the year. We do not see in this chart we are following there, we have not any component or any subsystem where we would feel uncomfortable about order coverage.
On track, just to complete the picture, the coverage at nine months is. We recorded roughly EUR 1.2 billion order book versus a revenue of EUR 2.15. You can see we're covering maybe five, six months, five months. That means that only the really confirmed portion of the overall pipeline is in there. We, of course, have long-term agreements which reach all the way to 2023. Yeah.
Yeah. Sure. I guess on the track side, it comes step by step anyway, so.
Absolutely, yeah. Absolutely.
All right.
Ladies and gentlemen, as a reminder, if you have any final questions, please press zero one on your telephone keypad now. We haven't received any further questions. I hand back to the speakers.
Well, thanks a lot. It was a pleasure. Our first call, as I said in the beginning, I was excited of going in there, but as already during the roadshow, it's a pleasure talking to people like you who are interested in our business. I hope Ralph and I, for the next calls to come, can always at least meet your expectations. We will do our best to exceed them. Thanks a lot for these constructive questions. I hope you got the answers that you were seeking for. Bye-bye.