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Knorr-Bremse AG reported its first-quarter 2025 earnings, revealing a lower-than-expected earnings per share (EPS) of €0.84, falling short of the forecasted €1. The company’s revenue also missed expectations, coming in at €1.96 billion compared to the anticipated €1.98 billion. Despite these results, the company’s stock showed resilience, with a slight pre-market decline of 0.17% before rebounding 1.44% in subsequent trading sessions. According to InvestingPro data, the company maintains impressive gross profit margins of 51.89% and has demonstrated strong financial health with a GOOD overall score of 2.54 out of 5.
Key Takeaways
- Knorr-Bremse’s Q1 2025 EPS fell short of expectations.
- Revenue remained stable year-on-year at €2 billion.
- The company reported a positive cash flow of €50 million.
- Stock price showed resilience despite earnings miss.
Company Performance
Knorr-Bremse maintained stable revenue of €2 billion in Q1 2025, reflecting no change from the previous year. The company achieved an order intake of €2.4 billion, marking a 12% increase year-on-year. Despite the earnings miss, Knorr-Bremse’s operational strategy of reducing production costs and focusing on best-cost countries seems to be yielding positive cash flow results, a notable achievement given the typical negative cash flow in the first quarter. InvestingPro analysis reveals the company’s strong liquidity position with a current ratio of 1.66, indicating robust short-term financial health. Get access to 6 more exclusive ProTips and comprehensive financial analysis with InvestingPro.
Financial Highlights
- Revenue: €2 billion (stable year-on-year)
- Order Intake: €2.4 billion (+12% YoY)
- Operating EBIT Margin: Stable year-on-year
- Cash Flow: €50 million positive
- CapEx: €53 million (2.7% of revenues, down from previous year)
Earnings vs. Forecast
Knorr-Bremse reported an EPS of €0.84, missing the forecasted €1. This represents a surprise percentage of approximately -16%. The revenue of €1.96 billion also fell short of the €1.98 billion forecast. Compared to previous quarters, this miss is notable but not unprecedented, given the company’s strategic shifts and market conditions.
Market Reaction
Following the earnings release, Knorr-Bremse’s shares experienced a slight pre-market decline of 0.17%, with the price dropping from €87.65 to €87.5. However, the stock later surged by 1.44%, closing at €86.9. This resilience in stock performance suggests investor confidence in the company’s long-term strategy, despite short-term earnings challenges. The stock remains within its 52-week range of €65.85 to €96.4. InvestingPro’s Fair Value analysis indicates slight overvaluation, with the stock trading at a P/E ratio of 33.3x. The company has delivered impressive YTD returns of 28.82%, significantly outperforming broader market indices.
Outlook & Guidance
Knorr-Bremse has provided a revenue guidance of €8.1-8.4 billion for 2025, with an operating EBIT margin target of €12.5-13.5 billion. The company aims for a cash flow target of €700-800 million. The truck division (CVS) expects a slight margin improvement to 11%.
Executive Commentary
CEO Marcus Dusseer emphasized a focus on internal improvements, stating, "We do not care so much on others. We have to take care of ourselves." He highlighted the company’s proactive measures, saying, "We want to clean the house, we have to be prepared for the worst flood we have ever seen." Dusseer also reiterated the importance of cost reduction programs.
Risks and Challenges
- Potential U.S. tariff impacts could affect international operations.
- Restructuring efforts may lead to short-term disruptions.
- Weak North American truck market outlook could pressure revenues.
- Currency translation effects may impact financial results.
- Uncertain market predictions pose forecasting challenges.
Q&A
During the earnings call, analysts inquired about the potential impacts of U.S. tariffs and the company’s restructuring efforts. Executives addressed concerns about currency translation and highlighted the challenges in market predictions. The focus remained on optimizing the company’s operational footprint and maintaining resilience amidst global uncertainties.
Full transcript - Knorr-Bremse AG (KBX) Q1 2025:
Conference Operator: Hello, ladies and gentlemen, and welcome to Knoepen’s Q1 twenty twenty five Financial Results Conference Call. At this time, all participants have been placed on a listen only mode. The floor will be opened for questions following the presentation. Let me now turn the floor over to Andreas Spitzsauer, Head of Investor Relations.
Andreas Spitzsauer, Head of Investor Relations, Knoebremstej: Thank you, operator. Good afternoon as well as good morning, ladies and gentlemen. I hope all of you are very, very fine. My name is Andreas Spitzsauer, Head of Investor Relations. I want to welcome you to KNOBREMSF’s presentation for the first quarter results of 2025.
Today, Markus Dusseja, our CEO and Frank Weber, our CFO, will present the results of Knoebremstej followed by a Q and A session. The conference call will be recorded on page www.knoebremstej.com in the Investor Relations section. It is now my pleasure to hand over to Marcus Dusseer. Please go ahead.
Marcus Dusseer, CEO, Knoebremstej: Many thanks, Andreas. Ladies and gentlemen, welcome to our Capital Markets call for the first quarter twenty twenty five results. Let’s start with the key takeaways for today on the Page two. To keep it short and crisp, clobramsen is in a good shape. Quarter one developed as expected.
We demonstrated resilience in ongoing challenges time, an ability we have maintained for more than two years now due to the decentralized setup of Globremsen, our strong local for local production and business approach, we have limited cross border shipments and high localization rates in all important regions. The overall balanced regional mix of group revenues limits tariff risks, which we all have to face and which we all currently face. Additionally, we have a solid foundation with strong customer elevations, a superior financial position, industrial backbone, leading technologies and most importantly, the right people at the right positions and locations. The new U. S.
Tariffs, if they will come, clearly don’t make our lives easier. But we are confident and have the option to pass on these extra costs via price increases to our customers. Further potential implications, effects of the tariffs cannot fully be assessed at this point of time as you and us know best that it is unpredictable what will come from this precedent, but we monitor the situation closely and have a task force in place to react quickly if necessary. Back to the part that is in our hands and that we control completely our boost program. We’re fully on track, continue to execute the implemented measures.
You know that we are in the process of selling two more assets, and the respective carve outs are ongoing as we speak. KV signaling integration proceeds according to plan. We are working on further aspects of greenfield and will provide an update on this topic in the course of the year. Our vision is clear, develop KV into a leading enabler for sustainable mobility and transportation in order to make it a high quality capital goods company again that creates value, confirm our guidance for 2025 and are confident to reach our medium term 2026 targets Let’s now take a look at the market situation for Rail and Truck.
Looking at the rail markets, we can see that underlying demand remains very strong in all regions, also reflected in the high order intakes and record order books of RVS and its customers. We assume that demand will remain strong in the coming quarters, leading to an expected book to bill ratio of above one on a full year base. A good market development in China and the expectation that 2025 should be as good as 2024 for our Rail division are particularly pleasing for us. Please also bear in mind that Rail’s legacy business, meaning the inflation burden business, has been reduced to a smaller residual amount, which is margin supportive as well. The top markets continue to be challenging in all major regions.
We expect the market environment to remain weaker in the first half of the year and still assume higher truck production rates in the second half of the year. Currently, it looks like Europe should develop slightly better and North America worse than originally expected. Both effects should balance each other out. Our assessments are based predominantly on many discussions with customers, but also on analyst forecasts. As a result, we lowered our assumption regarding truck production rates in North America for 25%.
In contrast to the weaker OE business in trucks, we expect resilient growth opportunities in the aftermarket lease business. However, we also see opportunities in the current tense truck markets. Overall, we are executing cost measures in our truck division and want to use the current situation to strengthen them. Our focus is on further optimizing our costs and structures. Let’s now turn to Slide four and look at the first quarter financials.
Some of them have already been published with the preliminary release on April 29. Order intake achieved a strong result with a 12% increase year on year to almost EUR2.4 billion. Both divisions contributed to this growth. Top brands generated revenues of almost EUR2 billion, more or less a stable development year on year. RBS compensated for CBS market driven top line performance last year.
From a regional point of view, the APAC region, especially China, but also North And South America contributed to the revenue increase, while Europe reported a decline. Our operating profit, operating EBIT margin benefited from the Rail division too, in particular from a strong aftermarket business operating leverage in general as well as our boost efficiency measures. Consequently, operating EBIT margin was stable year on year. In our quarter four results, we already announced potential restructuring measures, which we now intend to increase to €75,000,000 So far, these efforts have become more concrete and expenses of around €23,000,000 were already realized in the first quarter of this year twenty twenty five. The development of Rail’s operating EBIT margin was solid, seeing an increase of 50 basis points to now 15.6%.
CVA’s operating EBIT margin decreased by 150 basis points to 9.5%. Frank will provide us with more details later. Cash flow usually negative in the quarter one due to overall business dynamics amounted to €50,000,000 plus, well supported by strong operations. I would like now to hand over to Frank, who will outline more financials and dive into the divisional group. Frank?
Frank Weber, CFO, Knoebremstej: Thanks, Marc. Let’s directly move to Slide five. CapEx amounted to €53,000,000 which represents in relation to revenues only 2,700,000.0 This is €19,000,000 and 90 basis points below previous year’s level. Following several years of higher CapEx, we adjusted the target range of CapEx to revenues going forward from 5% to 6% now to 4.5% after the completion of several projects that we had at hand. You all know that we want to increase CapEx efficiency at the same time, which is what we are driving with the optimization of our global footprint initiatives.
We have further improved our net working capital efficiency on an apples to apples basis by roughly two days down to 67.2. Including KB Signalling, we are now at a level of €1,560,000,000 and 71.6 days. All improvements are a result of the collect program measures and strongly supported our free cash flow development as well. Due to the rather stable and the acquisition driven higher capital employed, working capital, ROCE slightly decreased from 19.7% to 19.5%. You know that ROCE has a high priority for us with a target of more than 20%, a level which we are planning to achieve again in the coming quarters, driven by foremost a higher level of profitability.
Marc already mentioned our strong free cash flow. Consequently, the cash conversion rate was also quite high reaching 10%. It is a very strong first quarter cash flow performance and clearly shows the success of our collect initiatives bottom line. The result was also supported by an expected one time cash tax reimbursement that supported a better tax result of over €30,000,000 net. But even without the tax effects, free cash flow would have been strong at only minus EUR18 million.
Let’s take a closer look at the RVS performance on Slide six. In terms of order intake, RVS again recorded a very strong quarter. We won contracts with a total volume of more than €1,300,000,000 representing a growth of around 24% year over year, well supported by KB Signalling. The pure organic result with a growth rate of 19% was also quite strong. Rail demand overall remains very strong, supported by all major regions and should continue throughout the whole year.
As mentioned at our full year results, based on the existing tenders in the market, we assume that regarding our order intake, half year one will be stronger than half year two. For the current quarter, we also expect that RBS should be able to post an order intake nicely above €1,000,000,000 again. As usual, my reminder on Rails order intake dynamics for you. Please keep in mind that it’s a lumpy project business in general and it does not fit well into quarterly reporting structures. Book to bill stood at 1.23, which means RBS reached a book to bill ratio at four at or above one for 14 quarters in a row now, again a new record in KB’s history.
In 2025, we assume that Reyes book to bill ratio should, as Marc mentioned, be above one again, which should also be the case in the second quarter. As a result, the order backlog increased by around 17%, reaching a strong level with more than €5,500,000,000 The high order backlog and the good quality of it provides a strong basis well into 2025 and beyond. Let’s move to Slide seven. Quarter one revenues amounted to €1,070,000,000 an increase of 10% year over year. Our aftermarket business developed nicely in Europe and APAC, while OE business slightly decreased year over year.
In North America, we saw an organically stable development. The very profitable aftermarket revenue share of RVS grew to 55%, well supported by the acquisition of KB Signalling. From a regional point of view, revenue growth was fueled by all regions, including China. In Europe, good aftermarket business more than compensated for slightly declining OE sales, driven by KB Signaling. North America recorded strong increases in both segments.
The APAC region similar to Europe saw slight OE decline while aftermarket grew. China also saw growing revenues in both OE business and the aftermarket. Especially pleasing is the increase in high speed revenues year over year. Operating EBIT margin recorded an increase of 50 basis points to 15.6% driven by operating leverage fueled by a strong APAC region and the positive aftermarket development as well as KB Signalling being as strong as expected. In the quarters ahead, we strongly believe in acceleration of the RBS profitability.
In a nutshell, our last quarter overall developed as expected. And as a reminder, quarter one is usually the weakest quarter due to Chinese New Year and the similar typical seasonality in our North American aftermarket business.
Marcus Dusseer, CEO, Knoebremstej: In the
Frank Weber, CFO, Knoebremstej: current quarter, we expect that the profitability of RBS should see a significant increase quarter over quarter and for the full year 2025. The operating margin of RBS is still expected to be well above 16%. Let’s continue with the Truck division on Chart eight. Order intake in CVS amounted to €1,060,000,000 an increase of 1% year over year, which is a strong result in these tense truck markets around the world. Organically, order intake increased by 5% and on a quarter over quarter level, it was even up 20%.
Order intakes from North America and APAC came in as weak as expected, while Europe and South America increased. Order intake in the current quarter should be below last year’s level, driven especially by increased uncertainties related to tariffs and weaker economic developments, especially in North America. Nevertheless, we still believe in a sequential pickup of truck demand in Europe, while North America remains very difficult to fully assess from today’s point of view. We are still confident to successfully fight current market challenges with our boost measures, our robust pricing power and our resilient aftermarket business. Nevertheless, with reduced market numbers in North America, this is definitely getting more difficult.
Book to bill reached 1.19 in the past quarter. Our order book of more than €1,900,000,000 at the March is 4% below the previous year level, but considering our two divestments of GT and Shepherd, it was at a stable development quarter over quarter, it even increased.
Marcus Dusseer, CEO, Knoebremstej: Let’s move to Chart
Frank Weber, CFO, Knoebremstej: nine. Revenues declined by 12% to EUR899 million, which represents an organic decline of 8%. This development was expected and represents a rather solid performance in a challenging environment. Thereof, the OE business in CVS decreased as expected in Europe and North America, whereas the APAC region saw a stable development. Our aftermarket business was robust again and saw a stable or increasing development in all regions except North America where it slightly declined.
In the European market, our organic revenues have experienced a 12% decline in line with the continuously weak market in both the truck and the trailer segment. Revenues in North America declined organically by minus 6%, primarily driven by the OE business. CVS was able to show a strong resilience here, considering a decrease in heavy duty truck production rates by more than 15% in the same quarter. Coming to the bottom line. Operating EBIT of our CVS division amounted to €85,000,000 in the past quarter, down around 24% year over year.
As a result, the operating EBIT margin declined by 150 basis points to 9.5%. The lower margin was mainly impacted by lower volumes and an unfavorable regional and product mix, which impacted the profitability of our truck division as well. Our resilient pricing stance, the success of our efficiency measures and the higher share of revenues in the aftermarket were in total unable to offset the previously mentioned burdens. For 2025, we continue to expect almost flat revenues compared with the reported figure for 2024, given our exchange rate premises. As a result, CVS should be able to reach a slightly improved EBIT margin towards 11%.
This is a bit lower than our previous expectations due to the current economic challenges in The U. S, which are, as said, currently difficult to fully assess. Profitability should improve going forward, but more in the second half of this year. The margin in the current quarter is expected to be only slightly better, primarily due to the forecasted weak truck market in North America. With that, I hand over to Marc again.
Marcus Dusseer, CEO, Knoebremstej: Thank you, Frank. Let’s have a look at our guidance for 2025 on Page 10. Based on the assumptions outlined on the right side of the guidance page, we expect the following for full year 2025: a revenue range of EUR8.1 billion to EUR8.4 billion, which should lead to an operating EBIT margin between EUR12.5 billion and EUR13.5 billion. As a result, our cash flow should then reach 700,000,000 to €800,000,000 Compared to the first announcement of this guidance, we see that our expectations regarding RBS remain strong and unchanged. For CVS, our expectations are slightly more conservative due to lower market expectations for North America.
Nevertheless, group level guidance ranges remain unchanged. Due to the weak economic conditions in some regions, we see opportunities and need to increase our restructuring efforts. Therefore, the potential cost could now be around €75,000,000 As mentioned during our full year 2024 results presentation, the guidance is based on the exchange rate levels of February 2024. Therefore, due to foreign exchange movements, translation effects can occur. It also does not include large impacts from tariffs, for example, burdens on important economies, and it is based on stable geopolitical as well as macroeconomic conditions.
Thanks a lot for your attention. We are now available for your questions.
Conference Operator: Ladies and gentlemen, let’s now proceed to the Q and A session. And the first question comes from Akash Kutva, JPMorgan. Please go ahead. Your line is open.
Akash Kutva, Analyst, JPMorgan: Yes. Hi, good afternoon, everyone, and thanks for your time. I got two, and I’ll ask one at a time. My first one is on truck business. So and this is for Frank.
Frank, when I look at the drop through in the quarter, you had like 43% organic drop through on revenue decline of $76,000,000 in the quarter. And this is somewhat weaker than 21% we had in Q4 and 17% in Q3. So my first question is that, was there anything that you can highlight behind this higher drop through that we have seen in the quarter, any mix or any one off impact? And how should we see this drop through in second quarter? That’s the first one.
Frank Weber, CFO, Knoebremstej: Thanks, Akash. Rightly pointed out, as our rails drop through is quite nice, exactly in the targeted range that we are having. The truck one is a weaker one, has basically three impacts to that. One is the general mix effect that we are having. It’s not only regional effect as North America has been dropping further than the European market.
So this is a negative market mix effect for us. Then also some product mix effects occur when several customers are hit in different way than the other or in the previous quarter. So that’s the one element of mix effect in products and regions. The second is, of course, that we are having definitely some start of productions for major projects in the truck division over the last months like the GSBC, the NEXT and the SYNACT products where amortization for R and D kicks in. So cost increases that also didn’t help us ultimately.
And then we of course also have with this the combination of our Boost program, some investments into further efficiency measures that will then kick in later on. So these three things, mix, cost increases on the R and D side, regular amortization and investments into the future, those three things, Kash.
Akash Kutva, Analyst, JPMorgan: Thank you. And my second one is on the Rail business. So I think in your prepared remarks, you said that Rail OE business was down in Europe, while aftermarket was up. I mean, if you just touch base on Rail OE business on what’s going on in Europe, because in Q1 earnings season, we have heard from couple of other rail suppliers like SKF as well that saw that their growth rates in Rail Europe kind of come down versus what it was in the last few quarters. So maybe if you can touch base a bit or elaborate a bit more on what’s going on in Rail OE Europe?
And when do you expect this market to return to growth? Thank you.
Frank Weber, CFO, Knoebremstej: European market is rock solid still for us. If we look at our tenders that are out there in the market and where we have been participating, we are still not seeing a single project being canceled. This holds true now since five years. We do see some push outs in the one or the other project from one quarter to another or even two quarters. This is definitely something.
If we look at the Freight segment, if you search for some negatives, Freight market per se is a bit weaker than it was, but not different to what we expected it to be. But we don’t see there any big drop on the growth momentum in the market demand side, not at all.
Akash Kutva, Analyst, JPMorgan: So maybe we can say that this European OE slowdown in revenues in Rail is just phasing off backlog or timing effect and should be corrected in the coming quarter?
Frank Weber, CFO, Knoebremstej: I don’t know whether I can judge on that hypothesis because I don’t know the root cause of their revenues, but this is a hypothesis that might be a valid one, no? But I can’t judge on their revenues root causes, so to say. The
Conference Operator: next question comes from Sven Weyer, UBS.
Sven Weyer, Analyst, UBS: Two. The first one is a follow-up, Frank, on your statements regarding CVS margins in the full year, where you said you’re working towards 11%. So shall we take that as a 10.5 to 11% guidance? And I was also wondering, I mean, that, that would obviously imply that the margin in the second half would be like 11.5% or higher. I mean, do you assume that the kind of tariff uncertainties are done after the ninety days and things are back to happy days in the second half?
Or what are you currently assuming there? And are your restructuring measures of €75,000,000 are they consistent with this scenario? Or are they more consistent with a darker scenario?
Frank Weber, CFO, Knoebremstej: A lot of questions, Sven. Thanks.
Sven Weyer, Analyst, UBS: Sorry.
Frank Weber, CFO, Knoebremstej: Yes, it’s okay. It’s totally okay. I would say, first of all, yes, purely mathematically, that’s right. But this is not kind of hockey stick hope that we are having for CVS. But rightfully, we are seeing a bit of a better situation in the market in Europe and expect the market to grow sequentially.
North America, as we said, is a bit difficult to assess, but we currently see a more flattish development coming from the first quarter. So it should get from an operating leverage perspective also in Asia a bit better throughout the quarters of the year, which benefits, of course, via certain operating leverage on the profitability side. In addition, the more time, so to say, goes by until the decision for efficiency measures in the boost program, for example, the more effect it shows bottom line, of course, that’s the implementation of the boost measures, which boost our profitability as well. If you take both together and combine it, that speaks for itself that over time, our margin should improve according to the boost measures and the market support, so to say. We are not I would say, we’re not dreaming in regards to the market.
Like you said, we as I said, we even though it’s hard to assess, we do believe that North America stays the weak on a weak level like it was in the first quarter, and Europe getting a bit better. As I said, China also stable to a bit better over throughout the year. This is a bit the scenario where also the CHF 75,000,000 is based upon. And those CHF 75,000,000 are also, repeatedly, we are saying that not there to ensure our 26 numbers, but to strategically make this company even fitter. This has a more very strategic kind of focus, but nevertheless, it’s a good opportunity also now given the market environment.
That’s the way I would judge it. That’s okay, Sven? Or did I miss something else?
Sven Weyer, Analyst, UBS: No, no, you did not. So did I understand you correctly that for The U. S, you’re also not assuming a pickup in the second half, but very kind of
Frank Weber, CFO, Knoebremstej: more. That’s what Marc said and myself as well. Our market expectation, like we said, worsened for North America, where we were still thinking so at the right very beginning of the year, but we now expect it a bit to be weaker and Europe a bit better.
Sven Weyer, Analyst, UBS: And just on the truck order intake comments you made, because I think you said it will be down year on year in Q2. I mean, I think it’s probably a bit ungrateful to ask how trading was in April because of the Easter break, it’s probably been would have been weak anyhow. But should we expect like a number that starts with an eight? Or how bad could Q2 be on orders?
Frank Weber, CFO, Knoebremstej: No. The April didn’t have an eight. But April was not that bad despite Easter, but not bad at all. But It’s the Americans saying in regards to our Germans saying, one swallow doesn’t make a summer yet, but April was rather winter.
Sven Weyer, Analyst, UBS: Okay. something
Marcus Dusseer, CEO, Knoebremstej: to Mr. Weier and also to Mr. Gupta’s question because your question, of course, understandable. Nobody, especially not in the banking environment, has any clue what will happen in the next two months. Nobody.
I just remind you what we have seen and heard from our dear friends, so called experts. In January, we heard that the euro and the U. S. Dollar will be at parity latest in the next six weeks to come. Now the dollar is 1.13 to 1.14 to the euro.
So the experts were wrong. The experts said in January, U. S. Is the capital market to be, right? That was the sentence.
That was the expertise. Now everybody is fleeing from the American markets and there is a re justification to be in the European or in the non American markets. Then in April, when the markets crashed temporarily, everybody was saying that the markets are just the beginning of a big, big huge correction. Now just four weeks later, the market recovered and we are even in Germany better than we were at the April. Then we heard that Europe will lack, as we heard in February.
Now Europe is better in terms of progression of GDP than America. All the experts were wrong, four times wrong within four months. And the next and the last and then I will not bother you with this, the inflation will rise or stay high. And now we see by this unreasonable tariff conflict, we see a massive deflationary pressure from China because they will flood the markets and that will bring down the inflation around the world, plus U. A.
So having said so, I understand fully your, let me say, uncertainty what is now our plan. I tell you very clear, and I try to do my best the last two point five years. We do not care so much on others. We have to take care of ourselves. We have to bring down our costs.
That’s what is a fact. Everything else is a strategy. This is a fact. We have to address, and this is why we asked for 75,000,000 more to spend. We want to make our personal cost more, we want to get it down.
We want to make sure that our R and D process is only done in projects which are having a return within three to four years. We want to make sure that our CapEx is absolutely to what we decide and the CapEx will be lower this year because we are very stringent in this. So as you rightly said, and some of you said it and wrote it very often and frequently, the self healing is the one which is thriving, and that is fully right. And that is absolutely what we want to do. We want to be prepared for the worst of the market.
We want to be prepared when the markets are going up. But we cannot predict in this environment anything but ourselves. And what we can really work on is our self healing, that’s our cost. Our cost, we can work, there we can focus, and that’s exactly what we do. We focus, focus, focus on on cost reduction programs.
That’s what we do. That’s what we focus. And I’m sorry, there will be a lot of questions. How do you see when Russia is going to pace? Will Ukraine will be a rising market for our truck industry?
Eventually, yes. Eventually, not. But the impact on our EBIT will be still insignificant. Sorry for that. But I think this was good to be said because that’s the premise what we are planning.
That’s the planning what we’re working. And that’s the planning also in the communication with you. What are you doing to face all that? You know what, we have to clean the house, we have to be prepared for the worst flood we have ever seen, and we have to make sure that we will survive every form of crisis which will occur. Also when you ask us, what is with your Indian growth plans when we see a war between Pakistan and India?
We don’t know so far how this works, but we know how to compensate it because India so far has not that dramatic impact.
Conference Operator: Next question? Okay. The next question then comes from Vivek Mehta from Citi. Please go ahead.
Vivek Mehta, Analyst, Citi: Thank you very much, everyone, and good afternoon. I have a question around China, where, again, you’ve seen a good development in rail in the first quarter. On the last call, you commented that you expected normalization in ’twenty five after the strength in ’twenty four, something more like a flattish development. So should we think of this as phasing? Or are things developing better than you maybe expected?
Thank you.
Frank Weber, CFO, Knoebremstej: You’re welcome. I would say it’s with the normalization, we mean that it’s not maybe growing the way that it did in 2024 on a year over year basis. So it’s now absolutely delivering the market, it’s delivering what we expected it to do. So we have seen some good high speed builds, some 60 high speed trains being built. We have seen nearly 1,100 metros being built in China in the first quarter.
We see that ridership levels in the first quarter have been two to three percentage points higher than the ridership levels in the first quarter of last year. So that’s not a significant growth anymore. If you just extrapolate it, that definitely speaks for what we forecasted. It’s a rather normalization, rather stable kind of development. So all is fine in regards to that speech back then.
Vivek Mehta, Analyst, Citi: Understood. Thank you.
Frank Weber, CFO, Knoebremstej: You’re welcome.
Conference Operator: The next question comes from Gael de Bray, Deutsche Bank. Please go ahead.
Gael de Bray, Analyst, Deutsche Bank: Yes. Good afternoon, everybody. I have two questions, please. I mean, the first one is out of curiosity, what would the full year guidance for revenues and free cash flow look like if you had to update currency effects for today’s level? And then the second question is rather on the M and A side.
I mean we’ve heard from IMI this morning that they placed their transport business in the review. Is this a business you could be potentially interested in?
Frank Weber, CFO, Knoebremstej: Well, can you repeat the second of your question? Which company was that that you mentioned or what was it?
Gael de Bray, Analyst, Deutsche Bank: It was IMI, which said this morning that they are thinking about potentially divesting their transport business. I think they do pneumatic and hydraulic valves and actuators and a few other things for the truck market.
Marcus Dusseer, CEO, Knoebremstej: Okay. Thanks, understood.
Frank Weber, CFO, Knoebremstej: Question. I mean, as you know, and we always disclose the numbers again this morning in the back up, you see the exposure that we are having in U. S. Dollar, roughly $2,000,000,000 strong is our exposure. And if you assume the 10% volatility in the FX rate, you end up with roughly an impact of €200,000,000 in regards to the dollar.
So in the first quarter, we had around €1.04.00 €05 to dollar. Currently, we’re at €1.4 in the second, as we speak, spot rates. So this is roughly, let’s say, 10%. So if they would occur for a twelve month basis, it would be €200,000,000 If they would occur for x months, you can calculate it or we all have to calculate it by ourselves depending on how long these levels would stay. But this is always, so to say, our, so to say, service to you that we provide you with the exposures for all the currencies in the backup.
But this is the number for U. S. Dollar. IMI, I have not heard about this topic, and it’s not on our table.
Gael de Bray, Analyst, Deutsche Bank: Okay. So not in your radar. Just coming back to the FX point, do you confirm you don’t really have any transaction impact related to FX?
Frank Weber, CFO, Knoebremstej: Not a big one. Of course, you always have to have a true up on balances, yes, in each and every month. And that might be a bit of a transactional effect, but the rest of the transaction effects are minor to our understanding as of today, but only translational effects that really count, maybe a bit of transactions in the moment that the FX rates dropped significantly or at the month end where the FX drops significantly, then there might be a bit of a hiccup, but nothing else. The rest is basically translational.
Gael de Bray, Analyst, Deutsche Bank: Thank you very much.
Frank Weber, CFO, Knoebremstej: You’re welcome, guys.
Conference Operator: The next question comes from Lukas Verhani, Jefferies.
Lukas Verhani, Analyst, Jefferies: I’ll have two. Maybe we do it one at a time. The first one is just on the restructuring. If you can give a bit more detail on what’s behind that, how much is maybe for trucks or rail? Is it all clear kind of what you need to do?
Is it mainly labor also looking at footprint? Thank you.
Frank Weber, CFO, Knoebremstej: You’re welcome, and thanks for that question. We have maybe not digged so deep in the past on that. But yes, it’s rather comprehensive field of action that we are having on the plate here. It’s a lot of footprint, plenty of footprint issues. I would say even a bit more rail related than truck related, shed some light on it would be like we are moving production basically as a headline from high cost countries out into more best cost countries, for example, from Germany to parts of Eastern Europe, from Spain or Germany or Austria to India as some examples that you understand what we are doing and also some capacity issues that we are facing given the market.
There is also a part of it, but the bigger chunk of it is the pure footprint strategy realization that kicks off usually with adapting, so to say, your current labor workforce. So both elements, but the big chunk is footprint and a bit more rail than truck.
Lukas Verhani, Analyst, Jefferies: Perfect. And then regarding the on rail orders and the kind of H1 versus H2, I guess that doesn’t include the potential deal in signaling that you kind of mentioned before?
Frank Weber, CFO, Knoebremstej: No. Thanks. Good question as well. The distribution of the order intakes throughout the year always depends on what tenders are in the market because it needs a long preparation time usually for tenders. So we know exactly which tenders are out there in the market and just seeing the distribution of those tenders and applying a certain percentage of how likely we will be able to win that contract.
This implies the half year one and half year two thing. The big or potentially big North American project that’s in the signaling market is further delayed as we know at this point in time. So it’s definitely not a topic that is relevant. If it would even come one day, not relevant for ’twenty five, maybe end of twenty twenty six, but not earlier. It looks like it’s further delayed due to political uncertainties more or less.
Lukas Verhani, Analyst, Jefferies: Okay, understood. And just a last one on the German stimulus and what we’re seeing in terms of the increased government spending. Obviously, it’s not clear yet how it’s going to be broken down, but most likely, of it will go to Transport to Rail. I mean, it was mentioned by Deutsche Bank that they needed a lot more investments, part of it for kind of transport, part of it for equipment. Just what’s your view on when we could see that be unlocked and whether you think it’s going to be kind of a big impact for Rail or you don’t necessarily see it as a huge support for you?
Yes.
Frank Weber, CFO, Knoebremstej: So definitely, this is very helpful for us, very clearly. We mentioned that beforehand. It’s nothing that we ever expected to happen, so to say, within the next month with an impact on our P and L. But definitely, midterm, this will help us, this whole program. It will help us, by the way, not only in rail, but because everybody is usually talking about rail impact only.
It’s also road infrastructure taken in the mouth of the politicians. We don’t have the clear plan, but what some are uttering, this also relates to truck in future. So in general, this is a very good thing basically for us, and we will be definitely also in the eye of the storm of that. But it’s nothing that will happen now over the next month. I don’t expect the 1,000,000,000 of additional revenue kicking in, but it’s slowly, so to say, helping the markets to grow for us.
Yes, I mean, some are clearly saying that also, of course, the Deutsche Bank demand is there and the investment need is there. But again, as said, it’s too difficult to really assess. There is not a clear plan existing yet. I think we have to wait knowing the politics in or let’s say political processes here in Germany. I think we have to wait another one, two, three months maybe until it’s pretty clear what the plan is.
By the way, similar procedure like we had with the green deal, I think, 2022 it was or 2021. It also took quite a long time in order to get the real clarity what’s behind the measures. And then I think we can discuss further if you agree. Thank you.
Lukas Verhani, Analyst, Jefferies: Perfect. Thanks very much.
Marcus Dusseer, CEO, Knoebremstej: You are welcome.
Conference Operator: The next question comes from Claire Loun, Morgan Stanley. Please go ahead.
Claire Loun, Analyst, Morgan Stanley: Hi, good afternoon. Thank you for taking my question. My first one is just on Rail. Obviously, results on Rail. And you mentioned support from signaling business.
So I was wondering if you can quantify a little bit more in terms of how much signaling business grew in Q1 in both order intake and sales? And what do you see as a reasonable growth level for the full year, please? Thank you.
Frank Weber, CFO, Knoebremstej: Yes. Thank you, Claire. It’s pretty easy for me to answer that question because in Q1 twenty twenty four, we didn’t have the KB signaling business. So it’s the first time in our books regarding the P and L and regarding the balance sheet, needless to say. So you see in our walks that we are regularly providing basically the effect of the signaling business, if you look under the section of M and A.
We have acquired that business with a return of around 16% EBIT margin and a 300,000,000 return revenue for a full year. We are on a level of around €70,000,000 of revenues in the first quarter, and the margin is a bit better than what we bought. Thank you very And so I gave you already a full year indication, right? You.
Claire Loun, Analyst, Morgan Stanley: Okay. Thank you. And then second question is just on M and pipeline. Given the current macroeconomic environment, is there do you see in your conversations in
Akash Kutva, Analyst, JPMorgan: M
Claire Loun, Analyst, Morgan Stanley: and A, is there any slowdown or potential kind of delay on anything? Any comments there would be helpful. Thank you.
Frank Weber, CFO, Knoebremstej: I mean, you, of course, feel also a bit the uncertainty talking to the, of course, M and A banks and listening to what the market is doing and not doing currently. Uncertainty is definitely a factor, but we don’t see any slowdown in the process of the two assets where we are still in the works in regards to selling them. We still believe that it’s possible to get a signing done towards year end. Both longer procedures are not driven by the fact that there is a bit of something going on in the market uncertainty, but it’s rather more technically complicated carve out process for at least one of the businesses, the bigger one, but has nothing to do with the hesitation in the market or that the market would be collapsing the M and A market. No, we don’t see a bit of hesitation, yes, but not a significant shift in patterns.
Conference Operator: Okay. Thank you.
Frank Weber, CFO, Knoebremstej: You’re welcome.
Conference Operator: Okay. Thank you, everyone, for this Q and A session. I now like to hand it back to the speakers for some closing remarks.
Andreas Spitzsauer, Head of Investor Relations, Knoebremstej: Okay. Thank you very much for all your questions. If you have further ones, please get in contact with us. And we wish you a great afternoon. Thanks, and bye bye.
Frank Weber, CFO, Knoebremstej: Thank you. Bye.
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