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Tenneco Inc (NYSE:TEN)
Q4 2019 Earnings Call
Feb 20, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Tenneco Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Mr. Rich Kwas, Vice President of Investor Relations. Please go ahead.

Rich Kwas -- Vice President, Investor Relations

Thank you, and good morning. Earlier this morning, we released our fourth quarter 2019 earnings results and related financial information. Presentation corresponding to our prepared remarks is available on the Investors section of our website. Please be aware that our discussion today will include information on non-GAAP financial measures, all of which are reconciled with GAAP measures in our press release attachments. Also, note that all pro forma comparisons are measured at 2018 constant currency rates and include the Federal-Mogul acquisition in prior periods. We will discuss year-over-year comparisons on a pro forma basis. When we say EBITDA, it means adjusted EBITDA. When we say revenue, we mean value-add revenue. Unless specifically described otherwise, margin refers to value-added adjusted EBITDA margin. The earnings release and attachments are available on our website. Additionally, some of our comments will include forward-looking statements.

Please keep in mind that our actual results could differ materially from those projected in any of our forward-looking statements. We will be attending a couple of investor conferences in the near future, including the Wolfe Research Global Auto, Auto Tech and Mobility Conference in New York and the JPMorgan High Yield Conference in Miami. We look forward to seeing many of you. Now on to the agenda. CEO Brian Kesseler will summarize our key messages to investors, provide an update on our strategy and touch on Q4 enterprise performance and 2019 highlights. CFO Jason Hollar will review segment performance across the divisions for the quarter, provide comments and color on our balance sheet and updated credit amendment and covenant. Brian will then review our 2020 guidance and give closing comments before taking your questions.

With that out of the way, I'll turn it over to Brian.

Brian Kesseler -- Chief Executive Officer

Thank you, Rich. Good morning, everyone, and welcome. Please turn to page four. To start, we want to address the major topics on the minds of our investors and analysts. Over the last several months, we have been taking proactive and purposeful actions to mitigate the headwinds we are facing in our end markets and to create better financial positions for our businesses. You can see the early effects of some of these actions in our fourth quarter results as we delivered the high end of our revenue and EBITDA guidance and continues to manage our cost structure against uneven demand trends. I want to start by walking you through some of the key areas of focus and the steps we are taking to achieve our objectives. First, we have completed all critical tasks and requirements needed to separate our systems and processes, allowing businesses to operate independently. The work completed to date on the structural cost reductions in both divisions is providing benefit in a volatile marketplace.

This brings me to the second point. We demonstrated our ability to deliver on cost savings initiatives in 2019 as we achieved our $200 million run rate target of cost synergies from the Federal-Mogul transaction by year-end. This was achieved nearly a year ahead of our original plan. Building on the process we used to deliver those results, we are executing on an Accelerate program that we expect to deliver an incremental $200 million in run rate cost savings by the end of 2021. Third, coupling those cost reduction initiatives with the actions we have implemented to improve our capital efficiency, we expect adjusted free cash flow to turn positive in 2020. Fourth, we've recently secured an amendment to our credit facility that increases our covenant ratio to 4.5 times through the first quarter of 2021. This amended credit facility, in addition to our enhanced cash flows, will provide us with the flexibility we need to continue to execute our strategy and deliver on our goals.

Lastly, as we execute these initiatives to strengthen our business, we continue to evaluate various strategic alternatives. We started our evaluation during the middle of last year, and the Tenneco board, in consultation with the company's advisors, is taking a thorough and comprehensive approach to identify the best path forward. While I cannot share any more at this time, I want to stress that the board and the management team are committed to evaluating all opportunities to maximize shareholder value. On slide five, I want to take you through the key factors that contribute to our continued commitment to separate the divisions into two stand-alone market-leading companies. Each division possesses unique strategies to create enterprise value, which would be enhanced as separate stand-alone businesses. Operationally, OE and aftermarket businesses have unique business models with very different resource requirements, different complexity to be managed and different capital requirements that make more focused capital allocation models appealing for each business.

Aftermarket demand is generally more stable relative to the OE markets, and businesses with significant aftermarket exposure tend to trade at higher valuation multiples than pure OE-centric businesses. Given the unique profile of each division, we continue to believe significant shareholder value can be unlocked by separating these businesses and harnessing the unique strengths in each. Moving to page six, we share our 2020 enterprise priorities. Our first is to execute our Accelerate program. This is solely focused on accelerating implementation of operational cost improvements. In this program, we have identified incremental cost reductions that should benefit our performance through 2022. Specifically, we expect to achieve a $200 million run rate of cost savings by the end of 2021. We estimate about $100 million of savings will be realized in 2020, inclusive of carryover projects. We expect to incur approximately $150 million in onetime costs in 2020 associated with the implementation of these initiatives. Our second area of focus is increasing cash generation.

On an enterprise basis, we have targeted $250 million in additional working capital improvements. We expect most of this improvement to come from inventory management and ensuring that our standard payment terms are deployed. We expect that we will be able to realize half of the targeted value by the end of this year. We are also keenly focused on achieving higher efficiency in our capital expenditures and methodically moving each of our division's capex investments to a more sustained level. We have embedded a $100 million decrease in capex for 2020 and would expect this capex level to be relatively constant over the next few years. The first two focus priorities will be essential in delivering on our third, the overall reduction in leverage. We have set our objective to reduce our net debt-to-EBITDA ratio to under three times in the intermediate term. We view achieving this threshold as a critical component in facilitating the spin of DRiV from New Tenneco. While we have set a plan to achieve this objective organically through our cost reduction and cash flow improvement actions, we would note that we are also reviewing potential asset sales from the division's portfolios that could expedite this process and accelerate the separation time line.

On slide seven, I wanted to provide an update on our board refreshment process. On February 5, we announced Chuck Stevens joined the Tenneco Board of Directors. Many of you know Chuck. He brings a wealth of financial and operating experience to our board, which will assist us as we execute our operating strategy and strive to maximize shareholder value. Importantly, our board refreshment process is ongoing. As we have done over the past year, we continue to seek high-caliber candidates who bring the requisite skills and experiences relevant to the development and execution of our strategy and operations. On page eight, we summarized Tenneco's 2019 financial performance. As we have been discussing over recent quarters, we faced headwinds throughout the year related to uneven and lower market demand trends. Our value-add revenues fell 3% year-over-year in constant currency and EBITDA margin declined versus 2018. We were able to somewhat mitigate these headwinds through operational cost improvements and synergy capture.

We expect our Accelerate program to build on this momentum and better position us for success in any environment. Slide nine lists a few of our business highlights for 2019. Our Clean Air segment was busy preparing for 27 commercial truck and off-highway launches to help our customers meet more stringent China six emission standards. We signed a strategic cooperation agreement with New Carzone, the leading China aftermarket channel and retail services company, to further expand our Motorparts business in that market. In Ride Performance, our NVH performance materials team won new programs with six different global electric vehicle manufacturers, and we completed the integration of the ohlins team to further build our industry-leading capabilities in advanced suspension technologies. Also notable, we published our first comprehensive corporate social responsibility report this year. The report is based on the GRI framework and highlights our sustainable business practices and community contributions, including the links between the environmental, social and economic dimensions of our business.

Page 10 summarizes our Q4 performance. Total revenues declined 2% year-over-year and value-add revenues declined 6%. The GM strike on a pro forma basis reduced revenue by $88 million or about 2%. EBITDA was $314 million and translated to a 9.3% margin. The GM labor strike reduced our EBITDA by $27 million and our margin rate by approximately 50 basis points. New Tenneco experienced a margin decrease year-over-year, fueled by weakening trends and above-average margin demand verticals such as CTOH and industrial. DRiV margin was flat year-over-year at 8% despite lower revenues due to improved operating performance. Adjusted EPS was $0.28. The higher-than-anticipated tax rate in the quarter lowered our EPS by about $0.07.

Now I'll turn it over to Jason to discuss our business segment performance.

Jason Hollar -- Executive Vice President and Chief Financial Officer

Thanks, Brian. I'll start with operational performance for New Tenneco, followed by DRiV. Please turn to page 12. Clean Air value-add revenues decreased 4% year-over-year on a constant currency basis. Despite the labor stoppage at GM, which cost the business about $35 million in revenue, light vehicle revenues outperformed underlying global light vehicle production by approximately 200 basis points. CTOH revenues fell 6% year-over-year. EBITDA measured $142 million in the quarter, down by 8% versus the prior year. EBITDA margin was 14.6% versus 15% in Q4 2018. However, adjusting for currency and the GM strike, revenue and EBITDA margin were about flat with the prior period. Please turn to slide 13. Powertrain revenues decreased 7% year-over-year at constant currency. Adjusted for the GM strike, sales fell 4% year-over-year. Powertrain EBITDA measured $82 million in the quarter. EBITDA margin was 8.1% versus 12.1% in the year-ago period. The GM strike negatively impacted EBITDA margin by about 60 basis points. In addition, lower volume from other customers and the related impact of nonconsolidated JV income as well as timing of certain costs negatively impacted year-over-year margin performance. Contribution margins are generally higher in the Powertrain business.

Therefore, the sudden demand fluctuations that we've been experiencing put incremental margin pressure on our results. When demand rebounds in China and India in the commercial and industrial markets, we would expect above-average margin contribution from the business. Meanwhile, the team is executing additional restructuring and cost reduction actions to mitigate demand pressures and improve results. Turning now to page 14 for a look at the Motorparts segment. Starting with revenue, similar to last quarter, lower revenue was driven mainly by inventory adjustments with two large retail customers in North America and the continued consolidation among several other customers in Western Europe. The revenue comparison was also impacted by our sale of the Wiper product line in the first quarter of 2019, which is called out as portfolio changes; and lost business due to the pre-acquisition channel conflict in the Federal-Mogul business, which is included in volume and mix. Year-over-year margin improvement continued in the fourth quarter with strong operating performance and effective cost control more than offsetting lower volumes. Fourth quarter EBITDA was $103 million, and EBITDA margin increased 220 basis points to 13.9%.

Ride Performance segment results are on page 15. The fourth quarter revenue was down 5% year-over-year, which was in line with lower global light vehicle production. The GM strike had an $18 million negative impact on revenues in the quarter. And excluding the strike, revenue was 2% lower versus last year. Commercial truck, off-highway and other revenue was up 3% in the quarter and includes the addition of the ohlins business. Ride Performance EBITDA was $34 million, which included an $8 million impact from the GM strike and reflected lower industry volumes. Excluding the GM impact, margins would have been slightly better than last year's fourth quarter. Turning to page 16 for a brief update on our net debt and leverage. In year-end 2019, net debt was $5 billion, and net leverage was 3.5 times, consistent with our prior guidance. Our liquidity position remains strong with $1.5 billion available and no significant near-term maturities on the horizon. Last week, we secured an amendment to our senior credit facility that provides us increased financial flexibility. The maximum leverage ratio was increased to 4.5 times through the first quarter of 2021.

After that, the ratio steps down gradually until reaching 3.5 times by the fourth quarter of 2022. This amendment gives us flexibility to operate under more challenging market conditions, if necessary, and execute our strategy. As Brian discussed, lowering our leverage profile is a top priority. We believe the Accelerate program actions we are taking to reduce costs, enhance cash flow generation and strengthen our balance sheet will enable us to achieve our leverage targets and position both our divisions for the successful planned separation.

Now back to Brian.

Brian Kesseler -- Chief Executive Officer

Thanks, Jason. On page 18, we've highlighted some of the assumptions used to prepare our 2020 outlook. Additional details are available in the appendix. In 2019, at constant currency rates, we expect revenue down 2.5% at the midpoint of our guidance. This is in the face of global light vehicle production that we expect to be down 4%. Commercial truck, off-highway and industrial production down mid- to high-single digits. And the global aftermarket, about flat year-over-year. We would continue our long-standing trend of outpacing underlying light vehicle industry production. Included in our 2020 expectations, our planned program rationalizations in Ride Performance and product line complexity decisions in Motorparts that, in combination, are expected to reduce revenue by $150 million. These rationalization decisions are expected to improve the return profiles in both segments. In total, revenue is expected to be lower year-over-year by approximately $500 million at the midpoint, inclusive of $160 million in negative currency. Nevertheless, through our continuous improvement efforts and the Accelerate program, we anticipate EBITDA margins about in line with 2019 at the midpoint.

Importantly, we are planning for positive adjusted free cash flow in 2020, driven by disciplined capex reductions, lower onetime transaction costs and the working capital improvements we discussed earlier. The details of our outlook for full year and the first quarter are on page 19. We continue to monitor the effects of the coronavirus on the automotive industry. The uncertainty of its full impact results in a wider outlook range for revenue and EBITDA than is customary. Included in our outlook is our current estimate that the equivalent of four full weeks of production will be lost in China in the first quarter, which would have an estimated negative impact of approximately $150 million on revenue and $50 million on EBITDA. The lower end of our revenue range assumes no recovery of that lost China volume and the upper end represents a full recovery within the year. This estimate does not anticipate a prolonged impact on our global supply chain or those of our customers.

Turning now to page 20. I'd like to give a few brief comments before we open the line up to your questions. In 2019, we navigated a volatile industry environment and concluded the year by meeting our Q4 guidance on both revenue and EBITDA. Looking ahead, we're intently focused on executing our Accelerate program to reduce costs, enhance cash generation and strengthen our balance sheet, ultimately positioning New Tenneco and DRiV for the planned separation. Having delivered on our acquisition-related cost synergy targets almost a year ahead of schedule in 2019, I am confident in our team's ability to deliver on our Accelerate program targets. These actions will continue to strengthen our business moving into 2020 and beyond. As we've said, while we continue to see a compelling value-creation opportunity through a planned separation, we are also reviewing strategic alternatives to ensure we are pursuing the best path for our company and our shareholders. We are confident that the steps we are taking will better position each of the businesses, regardless of which path we ultimately pursue and ultimately deliver enhanced value for all of our shareholders. We'll continue to provide updates regarding this plan and timing as appropriate.

In summary, we have a strong consolidated leadership team in place and a sound strategy, both of which give me confidence in the opportunities ahead of us. We also have 78,000 dedicated team members around the world who take pride in working together to make Tenneco a stronger, more successful company. I want to thank all of our team members for their support and efforts in delivering our results in the fourth quarter and for their focus on achieving our goals in 2020. And as always, thank you for your continued interest in Tenneco and for joining our call this morning.

With that, we're ready to take your questions.

Questions and Answers:

Operator

[Operator Instructions] First question comes from Rod Lache, Wolfe Research. Please go ahead.

Rod Lache -- Wolfe Research -- Analyst

Good morning, everybody had a couple questions. First, this cost reduction plan that you talked about today, can you give us a little bit more detail on that? It sounds like from the description, it was a little bit more skewed toward the DRiV business. What's the split between the two businesses? And can you give us a sense of what you're looking at with some of the additional opportunities there?

Brian Kesseler -- Chief Executive Officer

Yes. Rod, this is Brian. About the benefits that we're going to get out of that are expected to be about equal between the two businesses. When we went through our synergy capture process, you can see we had about $115 million run rate benefit that we expected in DriV and $85 million in New Tenneco, and we achieved that. This one is about equal at about $100 million. And we continue to find opportunities that allow the division levels to share more of the business support functions in the regions. We also find opportunities to rationalize the capacity in certain product lines.

Rod Lache -- Wolfe Research -- Analyst

Okay. And any color on the financial impact of the plants that are closing? And more broadly, curious if you could give us a bit of a sense of how you sort of size up the opportunity here? Your capex is running at around 4.5% of sales. Is there sort of a significant percentage of the company or plants that are running below 4.5% to 5% EBITDA margins?

Brian Kesseler -- Chief Executive Officer

Yes. As you know, in our aftermarket business, we run below that. In general, it's just the characteristics of the model. We have a couple of the product lines in the OE side across Ride Performance, Clean Air and the Powertrain business. In general, the range between them isn't very high. Obviously, it spikes now and then depending on growth and new launches. But the 4.5% is kind of in range. We would look for that to get to be 4.5% on the OE side and probably in the 3%-ish range on the aftermarket side of the business.

Rod Lache -- Wolfe Research -- Analyst

Okay. Okay. And then just lastly, I was hoping you can give us an update on where exactly the strategic option process currently stands? And any word on whether you're leaning toward one option or another, spin or sale? And presumably, the different businesses that you're looking at have different levels of leakage from tax or pension or whatever. Can you give us kind of a sense of if we think about the enterprise value of one side or another, where would the would net sort of cash proceeds be higher?

Brian Kesseler -- Chief Executive Officer

Yes, let me hit the process. As we announced earlier in the year, we've brought in some fresh eyes, so from an advisory perspective, to make sure that we're looking at all possible alternatives. And we have not set a timetable for the completion of that process. Obviously, right now, we're intently focused on executing the business. We've got to make sure we deliver on the results, especially with some of the uncertainty we have with the coronavirus here in the quarter and probably the knock-on effect of that across the global markets. We're not I wouldn't say we're leaning one way or the other because it's still an open process. Our base case, as we highlight in why we believe these two divisions operate better long-term separately is the spin. But if there's a way to maximize shareholder value in a different form, then obviously, we're wide open to that. The options we're considering go all the way from individual product lines in each of the divisions to a sale of a division, if that makes sense and if it gathers if that's the right value. As far as debt proceeds or tax leakage, I'll have let Jason grab that.

Jason Hollar -- Executive Vice President and Chief Financial Officer

Sure. Yes. I would say that under most scenarios that we're looking at, tax is most likely not going to be a hindrance to the process. Certainly, the tax we spend is always going to be the most efficient. But under most scenarios that we have evaluated, tax is not the differentiator as to whether or not we would do something. So this will be very much around what Brian highlighted in terms of returning the total shareholder value. And in most cases, I think it's going to be dependent upon the actual gross proceeds in terms of pre-tax type of inflows.

Rod Lache -- Wolfe Research -- Analyst

Thank you.

Jason Hollar -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Next call comes from James Picariello, Keybank Capital Markets. Please go ahead.

James Picariello -- Keybank Capital Markets -- Analyst

Hey, good morning, guys. Within DRiV's guidance, you called out the revenue impact from the Ride Performance plant closure, $75 million. What was the impact in 2019? And would you expect any carryover headwind in 2021? Or does this fully abate? And then the follow-on is, when thinking about the $20 million to $25 million in structural run rate savings to be achieved by the end of next year, would that require any recapturing of some of the lost volumes you're calling out now or not necessarily?

Brian Kesseler -- Chief Executive Officer

No, that would be all kind of volume neutral's is the way I would think about the last part of that question. From the Ride Performance, it's really the ride control business in North America that we've been talking about. We started to see those volumes as they balance out per our plan beginning in Q4 a little bit. Then this year is where we'll see the $75 million, and then we'll lap that by the middle of 2021. As we've said before, we expect run rate improvement on this footprint, about $20 million to $25 million into our run rate, beginning at the end of 2020.

Jason Hollar -- Executive Vice President and Chief Financial Officer

Yes. I think the key addition there is that the volume that's being taken out that we're talking about is relatively low-margin volume, and it's all wrapped up within that $20 million of improvements that we're highlighting. So any spillover into 2021 certainly could have an impact to the top line, but we're not thinking it's a significant impact. In fact, there should be additional savings coming through for the carryover effect from 2020 to 2021 as it relates to the underlying cost reductions.

James Picariello -- Keybank Capital Markets -- Analyst

And the spillover into 2021 could be roughly half of the headwind in this year?

Brian Kesseler -- Chief Executive Officer

Probably a little bit less.

James Picariello -- Keybank Capital Markets -- Analyst

Okay. And then the other bucket that you call out within DRiV for Motorparts, the $75 million, does this relate to the legacy loss share impact? Or is this a new dynamic to be thinking about with respect to the product manufacturing and complexity reduction? And can you just confirm what the loss share impact was in 2019? And based on your progress through this year, I think you've been calling out progress through the quarters here. What are you baking in for 2020, assuming the $75 million bucket is a separate item?

Brian Kesseler -- Chief Executive Officer

Yes, let me hit the channel conflicts losses first. We through a two, three-year period of beginning in the Federal-Mogul before the transaction and after, the equivalent lost business was about $300 million. We experienced some of that in 2018, in 2019. We fully lapped that now as we exit 2020. The team who's gone to work done a very nice job of we believe we've captured about 1/3 of that back, and that will be ramping into 2020. Obviously, as we go to regain the relationships and confidence of the customers in that, we're they've had to find alternatives sources. And so they're as they wind down, some things we ramp up. And so I think it's going to be a little tough to talk about exactly how much of that $100 million is going to be ramping in. I wouldn't want to estimate at this point. But we feel real good about where we're at on that. Let me get into maybe the manufacturing and complexity reductions or optimizations that we're doing. We're taking a disciplined 80-20 approach to the Motorparts business. We've got in all the regions we execute, we have seven product categories that we deliver and distribute to our customers.

Inside those seven product categories, we have 42 product lines. And so we are methodically moving through each region, categories that are offered there and the product lines are offered there and identifying with very, very good analytics as to where are we generating and capturing the most value from that complexity in products and product lines and where aren't we. And we are exiting some product lines in different regions. We're actually exiting some categories in different regions based on where we need to focus our growth. So in that complexity reduction, there'll be some revenue that would drift away in those decisions. But our expectation in the medium term is as we turn our attention, our focus to, I'll call, the 80s product lines and the 80s customers and we have approximately 9,000 customers on our Motorparts business, we will continue to optimize the network for with those decisions. So this is what we've got into the decisions are right, and we'll continue to do those. At the end of the day, we would expect our cash flows to improve on our returns, return profiles and return on assets to improve as we make these decisions.

James Picariello -- Keybank Capital Markets -- Analyst

Appreciate it, thanks.

Operator

Next question comes from Armintas Sinkevicius, Morgan Stanley. Please go ahead.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Good morning. Thank you for taking the question. When I look at the leverage exiting 2019 at about 3.6 and I look at your guide for 2020, adding the free cash flow that you plan to generate in 2020 and then backing out some of the restructuring costs from that, I get to about a 3.6 leverage by the end of 2020. And I'm just wondering with you targeting a three times leverage for the spin, is the spin still on track for this year? Or when do you anticipate that intermediate term to get to the three times leverage in order to be able to execute on the spin?

Brian Kesseler -- Chief Executive Officer

Well, a couple of points. We exited the year at 3.5 times. And we've got the range in our EBITDA for a reason. We're going to continue to go to work and offset as much of this coronavirus impact that we can without with not counting on any of it coming back. So we're obviously going to be always driving to the business to get to more of the top end of that range, but it's very uncertain at this point in time. The to peg a we're not pegging a date on the spin because, as you can imagine, there's several variables that we consider, sale of a particular product line or a couple of different product lines come together, and we move our leverage down. Then under three is where we open up the window for the consideration. Once we get to that mark, we'll be looking at the end markets we're serving to see how stable they are. And we will have to refinance the DRiV side. So we want to make sure the financing markets are conducive to an affordable structure there. But I'll reiterate, the only reason we're not already separated, we've solved all the variables from an execution, operational side is making sure that the two businesses have the right capital structure coming out of the gate to operate the way they need to.

So we're not putting any specific time line on a spin because there's a lot of variables that can come in there that can improve that time, or depending on end market performance, could get a little push it out a little bit. So we're intently focused on executing the business, making sure we're being very deliberate and disciplined on the strategic alternatives. And as the opportunities present themselves, we'll that maximize shareholder value, we'll execute on them.

Jason Hollar -- Executive Vice President and Chief Financial Officer

Yes. And a couple of other elements to remind ourselves of. When you think about that leverage ratio, of course, we're using a trailing 12-month type of view. And so it's really going to be important stringing together a couple of quarters that imply that, that forward leverage is going to be sustainable for those businesses. That's going to be a lot more important than just a trailing 12 view. For example, we will certainly have, in the first quarter, some noise here as relates to coronavirus. Just because that's included in our guidance doesn't necessarily mean that, that should be how we think about the forward earnings potential of this business. Likewise, in the fourth quarter, we had the substantial impacts from the GM strike. So we just need to make sure we're normalizing for those effects to ensure that as we go forward, we have a sustainable underlying leverage ratio that makes sense for these businesses.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Okay. And then maybe you could touch on the aftermarket business. Last year, when you were reporting first quarter results, aftermarket was a bit soft there. How do we think about this year and the cadence there? Should are we starting to look at some easy comps there in the first quarter? And just holistically, how does the aftermarket business look for the full of 2020?

Brian Kesseler -- Chief Executive Officer

Yes. Maybe let me talk about the first quarter of last year. We came out of the gates pretty strong. I think the entire industry is doing OK about the January and February. And then the back half of the quarter really dried up in a hurry. Here is where we'll have about one more quarter of the Wipers divestiture kind of lapping here at the end of the first quarter. We, as we said, we covered the rationalization on the complexity that we've been doing on the program. I've been very pleased with the Motorparts segment performance. Last year, our margins expanded 120 basis points for the things we knew about coming in, the Wipers divestiture, the lost business on channel conflict. And if I take currency out, we were down about 5% year-over-year. And we had two large customers in North America go through some significant inventory destocking and optimization. We see one of those starting to taper off. The other one is probably at the same pace as they accelerate some store closings.

And then in Europe, we had, again, more destocking and consolidation at the customer side from several distributors, especially in the middle of the year. We are starting to see that taper off, too. So as we continue to put the right mix of product lines and product categories to work in North America and in Europe, I feel real good about the progress the team is making. Obviously, we're making strong investments in the China aftermarket as those vehicles in operation continue to age. But for the short, medium and long term in the aftermarket business, I'm optimistic.

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Appreciate it. Thank you.

Operator

Our next question is from Ryan Brinkman, JPMorgan. Please go ahead.

Rajat Gupta -- JPMorgan -- Analyst

Hey, This is Rajat Gupta on for Ryan. Just a question on the EBITDA margin EBITDA guidance for 2020. It looks like you're guiding to somewhere around down $75 million at the midpoint on $500 million in revenue decline, but you're also seeing $100 million of year-over-year benefit from cost savings. So just on a core business basis, I mean, that would imply a pretty high decremental on the revenue decline. Just curious as to what's driving that? I mean, is it I don't know, current alliance has an impact in the first quarter. But are some of the other like business realignment actions or the channel conflict revenue decline, are those coming at a high decremental? And then I have a follow-up.

Jason Hollar -- Executive Vice President and Chief Financial Officer

Yes. The single greatest decremental would be related to China and the piece that's implied for that at the as we highlighted in the prepared remarks that we have all of that included in the low end and none at the high end. So you can kind of imply the midpoint is about half and half. So you can see $50 million on $150 million of revenue is a fairly high decremental. We're also seeing weaker CTOH in the guidance, consistent, I think, with a lot of other reports and peers. So those generally have a higher decremental as well. But then outside that, you would expect most everything else to flow.

Brian Kesseler -- Chief Executive Officer

I'd add something on to the China margin impact. It's stronger than usual, I would say, because the ability to flex out the cost is a little bit following the government mandates. We have to pay all our people while they're not at work. So that makes kind of all the way through our variable operating costs are backing more like fixed in that manner. So a lot of that kind of coming in that's packed in the entire average.

Rajat Gupta -- JPMorgan -- Analyst

Got it. That's so helpful. And then just in the free cash flow bridge, just walking through from EBITDA to free cash flow. How much is the working capital assumption there within the bridge, including the savings you expect to get? And then any one-timers in there? And also, like how much is cash restructuring in those numbers?

Jason Hollar -- Executive Vice President and Chief Financial Officer

Yes. So the working capital is roughly half of that $250 million as it relates to the performance associated with this Accelerate plan. The restructuring we highlighted in the year, well, we said $250 million over the course of the two-year plan and then...

Brian Kesseler -- Chief Executive Officer

About $150 million.

Jason Hollar -- Executive Vice President and Chief Financial Officer

In 2020 is the initial estimates that, certainly, that will be moving around a little bit. And then we also have within this cash plan is the remaining payments associated with the antitrust settlement from a few years ago, of which should be behind us then at the end of 2020.

Rajat Gupta -- JPMorgan -- Analyst

Got it. So working capital is a positive this year? Is that...

Jason Hollar -- Executive Vice President and Chief Financial Officer

Yes. That's right. And you can think about it as fairly similar to the first $250 million from the synergy projects were completed at the end of 2019. So this is an additional $250 million. And you can think about the cadence being somewhat similar where we split out over the first couple of years to 2018 and 2019 for synergies. And now this next step will be 2020 and 2021, so the continuation of the efforts that are already in that progress from doing more of them.

Rajat Gupta -- JPMorgan -- Analyst

Got it. So I mean, it seems like, I mean, if you walk from EBITDA to the $100 million to $200 million, there is a sizable drag from cash restructuring and some of the settlement payments. So if you look to 2021, obviously, EBITDA can go in any direction. But like how much of one-timers do you think do not repeat in 2021? And then also, from a capex perspective, how do we see that progressing? That will be all.

Brian Kesseler -- Chief Executive Officer

I think as we've mentioned in the call, the we would envision our capex to be about constant over the next couple of years after the reduction that we're making here in 2020. We would anticipate on this Accelerate program to have $50 million less restructuring there. About $150 million of it this year would imply about $100 million in 2021. And we'll continue to see going to see the antitrust payments coming through and further working capital improvement.

Jason Hollar -- Executive Vice President and Chief Financial Officer

Yes, I can provide a little additional color. I think earlier in the year, we were highlighting about $200 million of transaction costs in 2019. That turned out to be a little less than that, about $150 million. And then for 2020, we're thinking about half that is still necessary for the finalization of more tax than any other single category in terms of the payments to separate the legal entities associated with the final separation. And then on top of that, the antitrust payments that I referenced earlier. You add that all up, and it's about $100 million of transaction and antitrust that we would anticipate being paid in 2020. That's fairly unusual and not likely to repeat in future periods.

Rajat Gupta -- JPMorgan -- Analyst

Got it. That would be helpful. Thanks so much.

Operator

[Operator Instructions] Our next question comes from Joseph Spak, RBC Capital. Please go ahead.

Joseph Spak -- RBC Capital -- Aalyst

Thank you. Maybe just sticking with free cash flow. I know your definition includes the factoring proceeds. It looks like historically, we've been like $150 million to $200 million. Is that also what we should be thinking about for 2020?

Jason Hollar -- Executive Vice President and Chief Financial Officer

It should be relatively consistent, but it's going to fluctuate with not only the underlying business, but our decisions on what to factor. Remember, I mean, we treat that just like cash flow. It's just the holdback piece, a relatively small percentage of the total factoring proceeds. It's a holdback piece that is going to come through as cash flow. So we treat it as cash flow for how we measure our performance.

Joseph Spak -- RBC Capital -- Aalyst

And then does that as we sort of think about the division, is that mostly related to DRiV and some of the aftermarket receivables? Or and I guess, just more broadly, maybe you could help us I know you sort of talked about different capital intensity in the business, but if you could help us think a little bit more about how that enterprise free cash flow breaks up by division, that would be helpful.

Jason Hollar -- Executive Vice President and Chief Financial Officer

Sure. The factoring is more overweighted toward DRiV, certainly with the Motorparts business with the longer terms. That's more of an industry standard. So it's consistent with that. As it relates to the underlying cash flow dynamics of the individual divisions, DRiV and New Tenneco, they have similar characteristics, depending upon the volume, timing, of course, that fluctuates year-to-year. But over the last couple of years as well as consistent with our future view of the plan and the guidance, it's relatively consistent to have the operating cash flow at the division level as a percentage of revenue is generally pretty consistent.

Joseph Spak -- RBC Capital -- Aalyst

Okay. The by the way, the $250 million in restructuring charges, that's all cash?

Jason Hollar -- Executive Vice President and Chief Financial Officer

That would be cash. Correct.

Joseph Spak -- RBC Capital -- Aalyst

Okay. All right. And then just bigger picture, in the past, you guys have sort of talked about shocks and struts at that business or, I guess, ride controlled it. But at an industry level, having a bunch of overcapacity, I mean, you've definitely done some action. But the margins there sort of continue to deteriorate. At least, they did in 2019. Like what else is going on in that in sort of the broader industry? Like have competitors also worked to sort of reduce some of the capacity? Like how has sort of the competitive dynamic changed in that business?

Brian Kesseler -- Chief Executive Officer

Yes. If I think about it in the three major regions, if we if I go to China, we've been gaining share there and been very deliberate on our side have been very deliberate about where we'll cap our capacity. In the North American market, we do sense that there's a couple of competitors struggling a little bit in the conventional side of the business and taking capacity down. And somewhat the same in Europe. We moved our footprint in Europe a couple of years back to Poland, and have been happy with where we're at there. So think from a conventional side, as we get the North America footprint consolidated from four to two, we're pretty well set up for the long haul.

Joseph Spak -- RBC Capital -- Aalyst

And is the rest of the industry rationalized as well?

Brian Kesseler -- Chief Executive Officer

I think in the mature markets, there's we understand that there's some rationalization going on. Obviously, those of our competitors that have a Western European footprint, that gets a little more challenging, as everybody is aware. So but we're all I can tell you is we're happy with where we're ending up here at the end of this year.

Joseph Spak -- RBC Capital -- Aalyst

Okay, thank you very much.

Operator

[Operator Closing Remarks]

Duration: 48 minutes

Call participants:

Rich Kwas -- Vice President, Investor Relations

Brian Kesseler -- Chief Executive Officer

Jason Hollar -- Executive Vice President and Chief Financial Officer

Rod Lache -- Wolfe Research -- Analyst

James Picariello -- Keybank Capital Markets -- Analyst

Armintas Sinkevicius -- Morgan Stanley -- Analyst

Rajat Gupta -- JPMorgan -- Analyst

Joseph Spak -- RBC Capital -- Aalyst

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