Welcome to Linamar Q4 2019 year-end earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Linda Hasenfratz, Chief Executive Officer. Thank you. Please go ahead, Madam.
Thank you. Good afternoon, everyone, and welcome to our fourth quarter conference call. Joining me this afternoon are members of my executive team, Jim Jarrell, Dale Schneider, Roger Fulton, Mark Stoddard, and some members of our corporate marketing, finance, and legal team. Before I begin, I will draw your attention to the disclaimer that is going to be any second now displayed on the screen. There it is. I will start off with sales, earnings, and content as usual. Sales for the quarter were CAD 1.62 billion, down from last year, but again, outperforming soft global markets. The North American vehicle market, our most heavily weighted market, was down 9.6%, in part due to the impact of the GM strike. But despite such, and thanks to global launch growth, our transportation segment overall performed much better with a decline of only 7.1%.
Boom sales were up in Europe despite double-digit declines, and North American telehandler market share growth helped to offset double-digit market declines there as well. The North American combine market was down mid-single digit, but MacDon sales were actually up versus prior year. Operating earnings were CAD 112.6 million, normalized for balance sheet impacts and unusual items that Dale will describe to you. Key factors driving our performance this quarter were strong launches in the transportation sector, gaining traction and working through transition challenges, as well as improved agricultural sales due to 2020 product launches happening in Q4 last year instead of Q3, as we would normally see. A few factors were a challenge this quarter and hurt our results.
First of all, clearly the GM strike took a big bite out of the quarter. Second, double-digit market declines in core North American and European access markets triggering Skyjack sales decline.
Thirdly, global vehicle market declines. Normalized net earnings as a percent of sales in Q4 were 4.7%, down from last year due to these factors. On the positive side, our overall normalized EBITDA performance remains strong at 13.8% of sales for the quarter and 14.6% for the year, top quartile performance in comparison to our peers. In North America, content per vehicle for the quarter was CAD 156.80, down from last year thanks mainly to impact from the GM strike in a market that was down 9.6%. Q4 automotive sales in North America were down over last year at CAD 617.4 million. For the year, North American content per vehicle hit a new record high of CAD 166.17, despite the market pressures reflective of our significant launch book playing out.
In Europe, content per vehicle for the quarter was CAD 77.01, up 5.4% over last year thanks to launching business again in the region in a market that was down 6.4%. Q4 automotive sales in Europe, as a result, were slightly down versus last year at CAD 394.6 million. For the year, we reached CAD 81.58, again a new record for European content per vehicle. In Asia Pacific, content per vehicle for the quarter was CAD 9.92, up 12.1% from last year on launching business in a market that was down 7%. Content growth drove our Q4 2019 automotive sales in Asia Pacific up 4.3% compared to last year to reach CAD 122.6 million. We continue to expect consistent growth in Asia over the next several years based on booked new business.
Much of the growth is coming from electrified vehicle program launches, as you might expect given the stronger focus for new energy vehicles in China. In fact, already over a third of booked business for our newest facility in China is for electrified vehicles, and more than 20% of our overall booked China business is electrified. Similarly, electric vehicle programs represent nearly 30% of our high potential business wins in the region. Overall, global content per vehicle was up both for the quarter and for the full year over last year. It's great to see continued content per vehicle growth globally and in most regions, reflecting our increasing market share thanks to large amounts of launching business. Market share growth is absolutely key to accelerating growth when volumes start to pick up and, of course, offsetting declining markets when they're soft.
Other automotive sales not captured in these content calculations were CAD 82.9 million, up over last year mainly due to increased tooling sales. Commercial and industrial sales were down 9.6% in the quarter at CAD 398.6 million compared to CAD 441 million last year due to lower Skyjack sales on volumes down steeply in core North American and European markets, offset by some MacDon sales growth thanks to those launches of the 2020 product happening in Q4 instead of Q3. Investing in our future continues to be a priority for us at Linamar, but given economic uncertainties, we are using a very disciplined approach around CapEx. CapEx in the quarter was CAD 120.1 million, or 7.4% of sales. That's down 17% from the same quarter last year. Total CapEx for 2019 was CAD 525 million, or 7.1% of sales, which was down from 2018.
2020 will see further declines in CapEx to again be below 2019 and under our normal spending range of 6.8%. In a major highlight of the fourth quarter, we saw a fantastic level of free cash flow of more than CAD 380 million. Net debt decreased significantly from Q3 levels to CAD 1.56 billion, and our net debt to EBITDA reduced to 1.5 x in line with these expectations. We have repaid more than CAD 600 million of debt since our peak in Q1 of 2018, despite soft markets. Great evidence, I think, of Linamar's excellent cash control. Free cash flow in the fourth quarter took us to a total for the year of more than CAD 670 million. That does exclude the DOAS purchase, if you recall, that we made in Q3, which was more of an acquisition.
We expect to again generate between CAD 500 million and CAD 700 million of free cash flow in 2020, thanks to another year of strong earnings and lower CapEx. This should bring our leverage under 1x EBITDA by the end of the year. I want to emphasize the importance of a strong balance sheet and strong cash flow in somewhat uncertain economic times. We are in an excellent position to weather some economic softness and take advantage of additional takeover work and consolidation opportunities when many of our competitors simply are not. Strong cash flow also means the opportunity to return cash to shareholders. We were already in the market with our buyback earlier in the year before entering blackout. As Dale will outline, we will be back in the market after our blackout ends with a renewed NCIB.
Turning to our market outlook, we are seeing soft markets in many areas this year, but a few expectations of growth. Industry experts are predicting declining global light vehicle volumes this year, with 16.5 million, 20.7 million, and 44.7 million vehicles expected to be produced in North America, Europe, and Asia, respectively. This does mean a small uptick in North America compared to declines in Europe and, of course, a big decline in Asia, largely due to plant shutdowns related to COVID-19. Industry experts are predicting on-highway medium-heavy truck volumes to be down in double digits in North America as well as Asia, but modestly up in Europe. Off-highway medium-duty and heavy-duty volumes are in a bit of a holding pattern still, thanks to trade issues as well as holdups in terms of infrastructure spending in the U.S.
Turning to the access market, the industry is expecting double-digit declines in core North American and European markets for the aerial work platform market this year. Global performance is being driven by declines in scissors, booms, and tow handlers in both North America and Europe this year, offset by some growth in Asia. Industry consolidation, tariff-driven higher construction costs, uncertainties, and Brexit issues in the key U.K. market are the key drivers of these forecasts. Skyjack's backlog is softer than last year as a result. You should expect double-digit declines for Skyjack this year, with only a modest seasonal uptick in Q1.
Turning to the agricultural market, the industry expectation is for a declining combine draper market in Canada this year in the double digits, thanks to a tough harvest last year, as well as tariffs and political backlash that has hurt North American farmers, dampening demand, particularly in soybean and canola, and again, particularly in Canada. The overall North American market will be down in mid-single digits this year. Global markets are also expected to be down in 2020. MacDon continues to build market share in certain regions to offset these market declines, but nevertheless, we will see sales down in double digits for 2020. Given the strong quarter in Q4 2019 regarding the later launch of the 2020 product and the strong market headwinds in early 2020, do not expect the normal seasonal uptick from MacDon in Q1.
In fact, you should expect to see some dial back in comparison to Q4. In terms of the quarterly outlook for the light vehicle business, you can see quite different pictures here geographically. North America is steady to growing a little bit each quarter. Of course, a big dial down in Asia in Q1 for COVID-19 with recovery in later quarters, and Europe a little softer performance in the front half of the year, notably Q1, offset by some growth in the back half. Current forecasts are showing a global trough of production this year and growth resuming in 2021 in most regions at this point, although, as noted, North American production is expected to dial up slightly after a tough 2019. In North America, as we've talked about in previous quarters, down cycles have typically lasted four years on average with declines of 1%-5% each year.
If IHS is correct in their assumptions, this will be a 3-year down cycle in North America ending this year with a trough about 9% down from the last peak in 2016 and growth resuming in 2020. I think a key difference to prior cycles down is we didn't head in with the high interest rates and high unemployment that we've seen in the past, which is a positive and likely will mean a shallower trough than we've seen in the past, as IHS is predicting. We continue to keep a close eye on these forecasts, particularly given the recent economic uncertainties. Of course, we're going to provide another mid-quarter update to you on any changes around that on our website for the latest information this quarter.
Turning to an update on growth and outlook, we're seeing strong levels of new business wins and a strong book of business being quoted in our transportation business. Q4 was a fantastic quarter for us in terms of new business wins for our transportation business, with quite a few notable strategic wins driven mainly by outsourcing of new electrified platforms as well as continued acceleration of powertrain outsourcing, which is very exciting. In fact, sales to electrified vehicles at Linamar will grow between 2019 and 2023 by a fantastic 7.5 x for a compound annual growth rate of 50%. Sales to these future-focused vehicles will be nearly CAD 1.4 billion by 2023. And in terms of content per vehicle, will already in 2023 for both actually hybrid and battery electric vehicles be at the level we were at in internal combustion engine-driven vehicles only a few years ago.
Our addressable market across a range of vehicle propulsion types continues to look excellent. Global vehicle growth is forecasted to grow at a compounded rate of 1%-2% over the next 25 years. Each type of vehicle propulsion offers excellent and growing potential for us, and our suite of products for each continues to be developed and to grow. The total addressable market for us today is more than CAD 120 billion, growing to more than CAD 300 billion in the future, an increase of nearly 2.5x . We have 165 programs in launch at Linamar today. You should look for ramping volumes on these transmission engine and driveline programs to reach 30%-40% of mature levels this year, and these programs will peak at more than CAD 4.2 billion in sales.
We saw a shift of nearly CAD 600 million of programs moving from launch to production last quarter, so a big shift there, obviously meaning lots of new business won at the same time. Total business launched in 2019 was CAD 586 million to reach CAD 1.1 billion in total sales for those launching programs. This year, we will see these programs at 40%-50% of mature levels. What that means is incremental sales from launches of between CAD 700 million and CAD 900 million for 2020. In addition, as noted, we are now looking at double-digit declines at Skyjack this year as well as at MacDon. You need to temper that growth with the loss of business that naturally ends each year, noting to expect such at the high end of our normal range of 5%-10% in 2020, as well as normal productivity give back.
To summarize expectations for the top line this year, our strong backlog of launching business will almost offset market softness in our industrial and transportation segments, resulting in flat to modest declines in sales compared to last year. On the margin side, we still expect to see margin expansion in the transportation segment as we get to the other side of the transition to next-generation platforms despite these softer markets. But given the headwinds on the industrial business, we do expect to see now some contraction on the margins in that segment. This will mean net margins overall flat to modestly expanding to stay in the range of 6.25%-6.75% for the full year 2020. This will result in low to mid-single digit growth in both earnings per share and normalized EBITDA for the year.
Looking specifically at Q1, the biggest impact to be sure to allow for is, of course, COVID-19, which we estimate at between CAD 20 million and CAD 30 million OE impact to the transportation segment related to shutdowns in China, although it is a bit of a moving target, as you would expect. In the industrial segment, as noted, Skyjack up a little but MacDon down, which means you should expect to see a dial back in both sales and normalized earnings in Q1 compared to Q4 2019. I know that's not the normal seasonal pattern, but it is reflective of the tough access and ag markets at the moment. There is a possibility of continued impact in subsequent quarters for COVID-19 as well in both segments related to supply chain challenges in our business, but more so potentially for our customers, although difficult to predict at this time.
Again, a bit of a moving target as things seem to be changing daily in this regard. I would like to highlight a couple of our more interesting wins this quarter, which were quite strong on the driveline side. First, we had a very major win for 220,000 PTUs and RDUs per year right here in North America. We're going to do the job in one of our Mexican plants, which has deep expertise in this product. Production starts in 2 years. Secondly, we picked up a very significant program for a ballast shaft assembly for one of our European plants, which begins production in 2023 and will hit 750,000 units per year in annual volume.
These products are important opportunities that are resulting from engine downsizing efforts of our customers and fit Linamar very well, thanks to their technical challenges that are really well suited to our design and process capabilities. Third, we were thrilled to pick up a third major eAxle program for a high-performance vehicle. Linamar will be tier one on this product, meaning not only will we design and manufacture the gearbox, but we also have responsibility for sourcing the electric motor and controller. Volume is pretty low given the high-performance nature of the vehicle, but because of the value of these additional subsystems, the overall revenue of this program is actually pretty significant. Finally, and again on the driveline side, we were awarded a major program for an electric drive unit housing for a battery electric vehicle.
We will cast and machine this highly core product, which is actually perfectly suited for our low pressure and gravity casting processing expertise. This is an exciting new product for our light metal casting group. More on that in a few minutes. Another exciting opportunity that is evolving, as we discussed last quarter, is the takeover work from suppliers failing mostly financially. We are seeing stress in the supply base, mainly in Europe, where volumes hit hard a year ago, thanks to WLTP, and have not recovered, as well as a difficult transition from diesel to gas vehicles. We have now won to date more than CAD 240 million in takeover work, all due to startup inside of the next 12 months. We continue to quote quite significant levels of additional takeover opportunities and hope to hear back on some of them quite soon.
Takeover work is the silver lining of industry downturn and one that Linamar has always been very successful at winning, thanks to our responsive, nimble approach, these opportunities, our technical strength, and of course, available cash to invest quickly. Turning to an innovation update, we continue to invest in innovation in each of our key businesses. First, we are nearing completion for our iHub building in Guelph. This facility is going to house our factory of the future projects that are testing out a myriad of new technologies to further automate and improve the efficiency and quality of our production cells. It will also house our additive 3D manufacturing process development team and will also be the spot for us to incubate new production processes for diversified markets. The team is excited about moving in pretty soon, actually early in Q2 of this year.
Our light metal casting teams are preparing for future products in the electric vehicle space with the development of products like this electric drive unit housing, which is used in eAxle assemblies. Our expertise in aluminum, highly cored, low pressure die casting, gravity casting processing enables us to provide a compact, lightweight, technically complex module that these EV applications require. This is also a great example of the advantages of Linamar's vertically integrated capabilities and how we are growing future EV content with customers across a range of components and systems. As we know, MacDon is well known in the harvesting marketplace for its technical leadership. For the 2020 production year, they launched the new R2 Series rotary disc header for K-Cross.
Last summer, we had a test lead out on a demonstration program that generated great early interest, so much so, in fact, that the limited initial production run is actually already sold out. Lastly, we talked about the great success of Skyjack's innovative telematics package known as Elevate. Skyjack is evolving their digital products offering now by rolling out Elevate Live. It's the next step in providing customers value-added information about their fleets. Elevate Live can provide machine operation and maintenance data to operators as well as fleet owners simply by using any mobile device. A focus of the program is centered on battery health. Batteries can be one of the highest class maintenance items for an electric scissor lift. This will enable customers to increase battery life, leading to better managing the condition and the value of the machine over its lifetime.
Our Elevate technology continues to capture industry attention with no less than six industry innovation awards racked up so far. We also continue to make considerable progress on our broad digitization initiative that's summarized here on this slide. We are rapidly transforming our shop floor to be more efficient, more productive, more than reactive, more proactive as well, safer, more connected, and in the process, creating a lot of exciting career opportunities for our employees. There's a huge amount of opportunity in these technologies to dramatically improve efficiencies of our operations, both on the shop floor as well as in the back office that we can deploy on a global basis. In other areas of operations, our plans to continue to perform well, both on mature business metrics and in terms of launch. Our launch systems are excellent and plant controls world-class.
In terms of new plants, we have finalized all three of our construction projects at this point: the new eAxle plant in China, the new eAxle plant in Hungary, and the expansion of our Hungarian fabrication division to house Skyjack European production. In the quarter, we hosted the official grand opening of our Hungarian eAxle plant to great reception. Strategically, in the quarter, you may have noted the announcement of Linamar's manufacturing agreement and concurrent investment with Synaptive Medical Inc. Linamar is going to be the exclusive manufacturing partner for two key products for this Toronto-based medical device and technology company called the Evry and the Modus V. Modus V is a fully automated, hands-free, robotically controlled digital microscope with advanced visualization that supports a wide range of surgical approaches and workflows.
The Modus V would replace the traditional surgical microscope, which is not very flexible, leaving surgeons in awkward positions and having to spend time moving and repositioning the scope as they shift the area of the surgery. The Modus V moves with the surgeon for much better ergonomics and shorter surgery time, thanks to elimination of the microscope adjustment time, which is estimated, by the way, at about 18% of total surgical time. This is great for efficiency, of course, but also much better for patients and better ergonomically for the surgeon who no longer needs to contort into awkward positions to work around the microscope. A win-win-win for hospital efficiency, surgeon well-being, and patient well-being.
Evry is an innovative low magnetic field magnetic resonance imaging machine designed to bring the MRI directly to the point of care in the ICU, or the operating room, saving valuable time, increasing efficiency of care, and reducing costs associated with siting that's required by high-field MRIs, which can present a real barrier to access of MRI as well as reducing the operating costs. Evry weighs 2,000 lbs compared to alternative technology at between 10 lbs-20,000 lbs and occupies only 250 sq ft compared to 1,000+ sq ft for a traditional system. This enables placement at multiple points in the hospital not possible with systems available today and for a fraction of the installation cost. Helium-free operation and one-button press imaging reduces operational cost to between a half to a quarter of the cost of a traditional scanner.
Despite the cost improvements, the imaging results are very high performance with much less distortion and potential for needing to rescan the patient. Again, a big win for both patients and hospital efficiency. We're very excited about our partnership with Synaptive and the opportunity to start branching out into the medical device market. With that, I'm going to turn it over to our CFO, Dale Schneider, to lead us through a more in-depth financial review. Dale?
Thank you, Linda. Good afternoon, everyone. As Linda noted, Q4 was a great quarter for cash generation that led to significant debt repayments as we generated more than CAD 380 million in free cash flow in the quarter. As a result, the full year 2019 free cash flow was more than CAD 670 million, which is well beyond our minimum target of CAD 500 million.
With a soft market globally, it was great to see that on average we were able to outperform our markets. For example, the three automotive regions that we operate in were down 1.4% for the quarter and 5.8% for the year in comparison to Linamar's automotive sales, which were only down 6.7% for the quarter and 2.2% for the year for the same region. As a result, we grew our global content per vehicle in both the quarter and the year. Similarly, when you layer in our other businesses, we were able to outperform our markets on average. Turning to the financial results, sales were CAD 1.62 billion for the quarter, down CAD 115.9 million from CAD 1.73 billion in Q4 2018. Normalized operatings for the quarter were CAD 112.6 million. This compares to CAD 158.9 million in Q4 2018, a decrease of CAD 46.3 million or 29.1%.
Earnings were normalized for FX losses related to revaluation of the balance sheet and the unusual items incurred in the quarter. These items impacted normalized EPS by CAD 0.39. During the quarter, we did incur three unusual items. The first unusual item relates to the restructuring costs incurred in both segments. This did impact EPS by approximately CAD 0.05. The second unusual item relates to a supplier quality issue in the transportation segment, which Linamar would normally fully recover. This supplier quality issue impacted EPS by approximately CAD 0.04. Finally, the final unusual item relates to a timing issue in regards to our annual inventory cost review, which is completed in the fourth quarter each year. Our European industrial fabrication facility underwent a major launch program in 2019, which is rare for this facility.
When the inventory costing were updated in Q4, it was determined that costs were understated in Q1 to Q3 of 2019 and overstated in Q4 with the adjustment that was booked in the quarter. This had no impact on the overall results for the year. This did impact the EPS for the quarter by CAD 0.07. These three unusual items had a net impact of increasing EPS by CAD 0.16 on a normalized basis. With these adjustments and the FX losses, normalized net earnings decreased by CAD 40 million or 34.7% for the quarter to CAD 75.4 million. Fully diluted normalized EPS decreased by CAD 0.60 or 34.3% to CAD 1.15. Included in earnings for the quarter was a foreign exchange loss of CAD 19.6 million from the revaluation of the operating balances.
From a business segment perspective, the Q4 loss was a result of a CAD 5.5 million loss in industrial and a CAD 14.1 million loss in transportation. The FX loss did impact the quarter's EPS by CAD 0.23. Further looking at the segments, industrial sales decreased by 5% or CAD 17.5 million- CAD 335.9 million in Q4. The sales decrease for the quarter was due to the reduced access equipment volumes in Europe and North America. Certain key customers continued to adjust their capital spend in light of the uncertainty in the markets, which was partially offset by higher agricultural sales due to the release of the 2020 model year product and additional orders from the harvest being delayed into Q4. The normalized industrial operating earnings for Q4 decreased by CAD 6 million or 13.2% over last year.
The primary drivers of the industrial operating earnings results were impacted by the net lower volumes, as I just discussed, and by the inventory absorption costs that we sold out of inventory and reduced production in the quarter due to the market conditions. Turning to transportation, sales decreased by CAD 98.4 million over Q4 last year to reach CAD 1.28 billion. The sales decrease in the fourth quarter was mainly driven by the impacts of the GM strike continuing into the fourth quarter, the lower volumes as a result of certain programs that are coming to end of life, the softer automotive markets globally, in addition to a softer market for medium-heavy trucks in North America, and an unfavorable FX impact due to changes in rates since last year. These were partially offset by additional sales from launching programs.
Q4 normalized operatings for transportation were lower by CAD 40.3 million or 35.5% over last year. In the quarter, transportation earnings were primarily impacted by the strike at GM and the lower volumes net of launching programs as a result of the softer markets. Returning to the overall Linamar results, the company's gross margin was CAD 197.5 million, a decrease of CAD 63.3 million, primarily due to the impact of the GM strike, the lower earnings from the reduced volumes in both segments, the inventory absorption costs in the industrial segment, and the unusual items incurred in the quarter.
Cost of goods sold amortization expense for the fourth quarter was CAD 106.3 million. COGS amortization as a percent of sales increased to 6.6% due to the amortization from launching programs and the adoption of the new leasing standard in Q1. Selling general administration costs decreased in the quarter to CAD 98.9 million from CAD 109.2 million.
The decrease is mainly due to lower management costs net of the restructuring that was incurred in the quarter. Finance expenses decreased by CAD 900,000 since last year due to the impact of the lower debt levels and the lower interest rates, which was partly offset by less interest earned from lower cash levels and lower long-term AR levels. The consolidated effective interest rate for the quarter was flat at 2.8%. The effective tax rate for the fourth quarter increased to 22.6% compared to last year, which is mainly driven by an unfavorable mix of foreign tax rates, an increase in non-deductible expenses, which was partly offset by tax recoveries recognized in the fourth quarter related to prior years and the recognition of a previously unrecognized benefit related to tax losses.
We are expecting the full year 2020 effective tax rate to remain at the midpoint of a range of 22%-24%. Linamar's cash position was CAD 338.2 million on December 31st, a decrease of CAD 133.8 million compared to December 2018. The fourth quarter generated CAD 502.7 million in cash from operating activities, which was used mainly to fund CapEx and debt repayments. This resulted in free cash flow generation of more than CAD 380 million in the quarter and more than CAD 670 million for the full year compared to our minimum target of CAD 500 million. Net debt to EBITDA decreased to 1.5 x in the quarter as a result of the strong cash generation.
We are currently expecting net debt to EBITDA to be under 1 x by the end of 2020. The amount available credit on our credit facilities was CAD 771.1 million at the end of the quarter.
Thanks to the strong free cash flow in 2019 and the expected strong free cash flow in 2020, it is management's intention to seek to renew the normal course issuer bid. The board has approved the NCIB, and we have initiated the process to get the renewal with the TSX. This will allow Linamar to strategically purchase and cancel shares to help offset the downward pressures of the stock markets and provide a return to our shareholders. To recap, Linamar had a remarkable cash generation quarter, and our sales outperformed in comparison to our markets, which is great to see as well. Q4 generated more than CAD 380 million in free cash flow. The full year greatly exceeded our minimum free cash flow target of CAD 500 million as we generated more than CAD 670 million of free cash flow.
Additionally, Linamar was able to maintain a strong normalized EBITDA margin of 14% even with the tough market conditions in the quarter. That concludes my commentary, and I now would like to open it up for questions.
Thank you. As a reminder to ask a question, you will need to press star and then one on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Peter Sklar from BMO Capital Markets. Your line is open.
Good afternoon. First of all, on the transportation segment, the operating margin was a little bit lower than we've typically seen. You talked about the GM strike and just overall volumes, but were there any other issues during the strike?
I'm sorry, any other issues beyond volumes and strike that account for the margin in terms of ramp costs or things of that nature?
Yeah. I mean, I don't think there was anything unusual there. If I look at the sales decline and the comparative earnings decline in comparison to, let's say, the third quarter, to me, it lines up really quite well in terms of contribution and what we generally have guided that you utilize. So we've talked, for instance, about when we see a big sales decline that you should estimate 20%-25% impact on the net earnings, which would translate to 30%-35% impact at the operating level. So I think if you do the calculations, you'll see that that actually works pretty cleanly for comparing Q3 to Q4.
Okay.
On the big gap, like the cash flow generation during the fourth quarter, which came from a big working capital swing, what was the nature of the working capital swing? And is there further room to reduce working capital in 2020?
Well, working capital is always a focus that we have. But as we talked about in previous calls, we did have a couple of unique initiatives that we're working on to reduce non-cash working capital through financing and other opportunities. And as we talked about, the plans were always to initiate those agreements in Q4, and we were able to accomplish that. So that was a big part of it. But the rest of it was through operational improvements in AR and inventory and AP.
These initiatives, could you talk a little bit about what they are? Does it have something to do with receivables or payables, or what is it?
Yes.
We looked at selling certain short-term and long-term AR. So we entered into a financing agreement to do that.
Okay. And then lastly, on the coronavirus, you saw it had a dramatic impact on retail vehicle sales in China in February. I'm just wondering what you're hearing from your OE customers. Have you seen any cuts to the Q2 production schedules yet in North America or Europe?
Yeah. So, Peter, from the standpoint, we get a nightly letter every night from our guys out of China. So certainly, the China volume in February stacked up pretty low, like 80% decline. So right now, over here, we've talked to our OEMs, and we have not had any decline based on this issue. What we sense, though, there could be sort of a lull coming to us in April because of the supply chain. But right now, they're running truck plants.
They're still accelerating launches as well. So we haven't had any impact as of this time in North America.
Okay. Thanks, Jim. That's all I have. Thank you.
Your next question comes from the line of Kevin Chiang from CIBC. Your line is open.
Hi. Thanks for taking my question. Maybe if I could just follow on the free cash flow questions from Peter. When I look at your guide of CAD 50 million-CAD 700 million, I think to get to below 1x, you probably need to be in around the midpoint of that. It sounds like you'll get CAD 50 million-CAD 75 million of CapEx savings. Earnings might be flattish year-over-year. That does suggest maybe a CAD 150 million lift from working capital. One, is my math generally correct?
And two, can you just talk to maybe some of the initiatives you're doing to continue to drive elevated working capital release like you saw in 2019?
Yeah. So first of all, earnings are going to be up in 2020. I mean, if you look at reported earnings as opposed to normalized earnings, certainly, we expect to see an increase. CapEx, absolutely, we expect to see a decline and a decline to under that normal sort of 68% level. So that kind of gives you a bit more of a sense of what that decline might be. So on both counts, that is going to generate more cash flow. We think non-cash working capital is probably pretty steady. I don't think we'll see much additional improvement there, maybe a small amount. But we do expect long-term accounts receivable to improve.
I mean, remember back last year, actually, before last year, we started putting in place some of those financing arrangements to replace the long-term AR. So that should start to roll off as more and more of our contracts are getting into the new financing as opposed to the old, and the old are being repaid. So that's going to be another source of cash for 2020.
That's great, color. Thank you very much there. And then I was a little bit surprised in your market snapshot of, I guess, the end market outlook for Asia, for Skyjack, just given what's happening in Q1 in China. And if memory serves me correct, I think on your Q3 call, I think the optimism around Skyjack's Asian growth opportunities were primarily related to China.
So if you can just tell me, or if you can maybe just walk me through where that optimism is coming from given the slow start to the year?
Yeah. From my side, the China side, the market penetration. We haven't had a great deal of penetration there, but we certainly have increased our exposure there, looking at strategic alternatives to sort of locate on the ground there. We're going to get that done this year. So we're pretty optimistic to be gaining market share by being there. Right now, we're shipping things from here to China, which really is a difficult thing to play competitive in that game. So our goal is to basically be on the ground there supplying our product in China throughout this year.
I mean, obviously, this certain COVID-19 has sort of held up a little bit this implementation, but that's our goal to get that exposure there this year.
Yeah. With respect to the market overall, I mean, from the research we've done and the industry experts we've spoken to, there is an expectation for growth in the market this year, notwithstanding the fact that the virus situation is obviously having an impact in the early months. Again, it is a bit of a moving target. So I think as the year evolves, we'll see was the impact in the early part of the year underestimated by these industry folks, and are they now expecting something less in terms of growth in Asia? Regardless, I think from our perspective, as Jim says, we are in the process of executing our strategy there as a pretty small amount of our business today.
So whether that market is growing substantially or only moderately, I don't think in either case it will have a major impact on our sales at Skyjack.
That's helpful. Maybe just last one for me. Maybe this is not specifically a Linamar question, but just given you have a global supply chain, any color you can give in terms of what you're seeing in China, I think there's been some reports of maybe activity starting to improve at the port level and maybe on its way to normalization. What are you seeing on the ground there?
Yeah. I mean, I think as Jim says, we're definitely seeing improvements in terms of customers and just broadly industry getting back up to speed. Obviously, it's not uniform across the country. Some areas are getting ramped back up a little slower than others, but I think they're on the road to recovery.
Yeah. And again, just to maybe give some comments from this night letter that we received, and this is last night, around 70% of business started to operate nationwide in the last two weeks. So that's a new development. Local governments have rolled out various policies to delay and reduce taxes. Domestic production for automotive picking up very slowly. Lack of consumer demand, potentially 40%-50% reduction in March. Wuhan City remains shut in automotive production. And they look like at the end of March, they'll start back up. For us, our facilities are basically back after the extended vacation, and we're about 85% employees back now because every employee gets approved coming back to work. So those are some of the commentary that we're seeing on a daily basis.
And just to add to that a little bit, I know the stark shock of some of those declines in terms of February consumer activities were a little scary. But don't forget, you can't buy a car if you can't leave your house. So just because they didn't buy in February because they were confined to their homes doesn't mean that they're not going to buy in March. I think that certainly, as Jim has mentioned, there are already incentives that are being provided by the government to try to get people back out and buying products as the quarantines end in China.
That's great, Color. Thank you very much.
There are no further questions at this time. Ms. Linda Hasenfratz, I turn the call back over to you.
Thank you very much. Well, to conclude this evening, then I'd like to, as always, leave you with three key messages.
First, we are thrilled with the excellent performance in the quarter on free cash flow of more than CAD 380 million for an outstanding year of more than CAD 670 million cash generated. As you know, this has been a big priority for us. We are delivering on it. We expect to continue to deliver in 2020 and to continue to return cash to shareholders in the form of buybacks. Second, we are excited about delivering another amazing quarter in new business wins and targeted products, which is driveline systems and electrified vehicles and strong market share growth in core products like booms and telehandlers and draper headers in our industrial business.
And finally, we're seeing great progress on cost reductions to offset soft markets, notably in our transportation business as we move through the launch curve, as well as in our industrial business, with, as you may have noted, sales down from last quarter, but normalized earnings actually up a little. So grow, cut costs, generate cash, return cash to shareholders. We think that's a recipe for success in soft markets, and we are delivering on all of that at Linamar right now. Thanks very much, and have a great evening.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.