Earnings call transcript: Knorr-Bremse misses Q4 2024 EPS forecast, stock rises

Looking ahead, Knorr-Bremse has set a revenue guidance range of 8.1 to 8.4 billion euros for 2025, with an operating EBIT margin target of 12.5% to 13.5%. The company aims for free cash flow between 700 and 800 million euros. Strategic initiatives such as the "Boost 2026" program and potential expansion in signaling technology are expected to drive future growth. For detailed analysis of Knorr-Bremse’s growth potential and comprehensive financial metrics, access the full Pro Research Report available exclusively on InvestingPro. For detailed analysis of Knorr-Bremse’s growth potential and comprehensive financial metrics, access the full Pro Research Report available exclusively on InvestingPro.

Key Takeaways

• Knorr-Bremse’s Q4 EPS was significantly below expectations.
• Stock price increased by 4.78% despite the earnings miss.
• The company maintained stable revenues with improved operating margins.
• Record free cash flow of 730 million euros was reported.
• Strategic focus on digitalization and AI initiatives continues.

Company Performance

Looking ahead, Knorr-Bremse has set a revenue guidance range of 8.1 to 8.4 billion euros for 2025, with an operating EBIT margin target of 12.5% to 13.5%. The company aims for free cash flow between 700 and 800 million euros. Strategic initiatives such as the "Boost 2026" program and potential expansion in signaling technology are expected to drive future growth. For detailed analysis of Knorr-Bremse’s growth potential and comprehensive financial metrics, access the full Pro Research Report available exclusively on InvestingPro.

Financial Highlights

• Revenue: 8 billion euros (stable year-over-year)
• Operating EBIT margin: 12.3% (up 100 basis points)
• Rail division EBIT margin: 15.6% (up 130 basis points)
• CVS EBIT margin: 10.4% (up 40 basis points)
• Free cash flow: 730 million euros (record high)
• ROCE: 20.8% (up from 19.5%)

Earnings vs. Forecast

Knorr-Bremse’s actual EPS of $0.11 was significantly below the forecasted $0.9787, marking a considerable miss. The revenue for the quarter was 1.99 billion dollars, slightly below the forecast of 2.02 billion dollars. This earnings miss contrasts with the company’s previous performance trends, where it had generally met or exceeded expectations.

Market Reaction

Looking ahead, Knorr-Bremse has set a revenue guidance range of 8.1 to 8.4 billion euros for 2025, with an operating EBIT margin target of 12.5% to 13.5%. The company aims for free cash flow between 700 and 800 million euros. Strategic initiatives such as the "Boost 2026" program and potential expansion in signaling technology are expected to drive future growth. For detailed analysis of Knorr-Bremse’s growth potential and comprehensive financial metrics, access the full Pro Research Report available exclusively on InvestingPro.

Outlook & Guidance

Looking ahead, Knorr-Bremse has set a revenue guidance range of 8.1 to 8.4 billion euros for 2025, with an operating EBIT margin target of 12.5% to 13.5%. The company aims for free cash flow between 700 and 800 million euros. Strategic initiatives such as the "Boost 2026" program and potential expansion in signaling technology are expected to drive future growth.

Executive Commentary

CEO Mark Lisducea stated, "We are delivering on what we announced," emphasizing the company’s commitment to its strategic goals. He also expressed aspirations to "compete with the best assets in the market." CFO Frank Weber highlighted the company’s strong local content in the North American market, stating, "We are where the customers are."

Risks and Challenges

• Weak truck market in North America, Europe, and China could impact future earnings.
• Potential supply chain disruptions may pose operational challenges.
• Macro-economic pressures, including inflation and currency fluctuations, could affect profitability.
• Ongoing restructuring efforts may lead to transitional inefficiencies.
• Competitive pressures in the rail and truck braking systems market remain a concern.

Q&A

During the earnings call, analysts inquired about the company’s strategic commitment to its combined rail and truck divisions. Executives confirmed their dedication to these areas and discussed potential restructuring of the global footprint. Questions also focused on the expansion of signaling technology and market recovery expectations.

Full transcript - Knorr-Bremse AG (KBX) Q4 2024:

Andreas Spitzauer, Head of Investor Relations, Knorr Bremse (ETR:KBX): Good morning as well as good afternoon, dear ladies and gentlemen. I hope all of you are very fine. My name is Andreas Spitzauer, Head of Investor Relations at Knoebremsen. I want to welcome you to the conference call of today, where we will present the preliminary results for 2024.

Today, Mark Lisducea, our CEO and Frank Weber, our CFO, will present the numbers and later discuss the numbers with you. The meeting will be recorded and will be available on our homepage in the Investor Relations section. Here you can find today’s presentation as well. It is now my pleasure to hand over to Mark Lisdoussea.

Mark Lisducea, CEO, Knorr Bremse: Many thanks, Andreas. Ladies and gentlemen, I would also like to welcome you to our Capital Market Call for our preliminary full year 2024 results. Allow me to mention a special highlight this year at the beginning. We are celebrating an important birthday this year. Knob Ramsey will turn 120.

Georg Knob founded Knob Ramsey in Berlin One Hundred And Twenty Years ago. He started out in a modern factory of just 165 employees. Today, one hundred and twenty years on, we operate worldwide and we are the mobile market leader. Georg Knorr laid the foundation. Heinz Herman Thiele shaped the company and, thanks to his effort, made it the world market leader.

The entire Knob Ramsey team will continue on this successful path. Our clear priorities are sustainable growth, profitability, and value creation. In January, we have grown steadily, aligned our portfolio with market demands, and responded flexibly to changes. But at our core, we have always remained true to ourselves. We’re innovative.

We act as entrepreneurs. We want to get things done. That is what has made us who and where we are. In this connection, I’m also pleased that I can continue to drive and shape the future of Cranor Bremse together with my executive board team. As you know, my contract was recently extended by five years.

I give my thanks to Reinhard Ploss and this entire advisory board for their confidence and may and look forward to continuing working together closely and trustingly. Let me now begin with the key messages of today. The war in Ukraine, multiple crisis and economic challenges, these were the topics that continued to impact our business last year. Nevertheless, there was resilience, strength and entrepreneurship. We have proven that we can be successful even in difficult environments.

Especially in these economical and globally geopolitical tense times, we are more than satisfied with our business performance. At the same time, we have secured long term rein financing with our latest successful bond issue, which included our first green bond. A rock solid balance sheet gives us the basis we need for the future. We have achieved strong results of all the record order books, which give us a solid foundation for this year. Our Rail division delivered record levels for revenues in order book.

In addition, Rail once again accounted for a share of revenue of more than 50%, thus creating an important basis for the entire group’s profitable growth. Our truck division generated a double digit return despite the extremely difficult market situation it currently has to contend with. That is a strong performance. We responded to the market weakness at an early stage by taking countermeasures. That enabled us to secure our results.

We are fully on track with our Boost 2026 strategy program and it has announced half implemented important measures as part of our brownfield activities, including the successful streamlining of our portfolio with the sale of our four companies. As a result, we have already carved out more than 60% of the planned revenue volume. Our brownfield activities, our housekeeping as well, as we call it, also includes strict cost discipline and permanent questioning of existing processes and structures. The result is a significant improvement in profitability, an operating free cash flow that reached the highest level in our one hundred and twenty years company history. Ladies and gentlemen, let us now take a look at our financial targets for 2024.

We were able to achieve or even surpass all our targets for revenues, EBIT margin, free cash flow in the past fiscal year. Our record order book, a low leverage, and high liquidity confirm our strong resilience and show that we are in top financial shape. At the same time, they are the foundation for sustainable growth. Let me continue with an overview of our boost program on slide five. We have set out to accomplish a lot under the strategy program which we launched in summer of twenty twenty three.

After all, we want to be substantially quicker, more efficient and develop greater strengths. Our boost program is clearly aligned to creating added value. All initiatives must contribute to this goal. Our profitability has top priority. We have implemented more than 1,000 measures globally with great success.

We are reducing our costs, we are streamlining our product portfolio, and at the same time, we are investing in digitalization and automation and have also launched first AI initiatives in order to benefit from the new opportunities. We are also investing in profitable new business fields such as the rail signaling technology business in North America. The acquisition of KV signaling from Alstom (EPA:ALSO) in September 2024 opens up new opportunities for Knobrenze in the highly promising North American market. The successful entry into the attractive and high margin signaling technology business means we can push ahead with creating our own value added and generate sustainable growth with new and digital solutions. At the same time, we are also increasing our share of revenue in the more stable and more profitable rail business and reducing our dependency on the cyclical truck market.

In addition, we were and we are currently conducting an intensive strategic discussion and evaluating how Knobrenze should be positioned in the future. We are not shying away from any option and in general, I do not want to rule out a possible expansion of business. Our focus on increasing value and sustainable growth is and will remain very clear. Our portfolio measures with a total revenue volume of €1,400,000,000 are shown on Slide six. As part of that, we are challenging all of our business areas, in particular those that deliver relatively weak results.

Wherever the analysis indicated that we are not the best owner of a particular line of business, we initiated a consistent separation process or launched a firm turnaround plan. We are aligning everything towards ensuring sustainable value creation. We have made great strides in optimizing our portfolio over the past year with a clear focus on core competencies and performance. Four units have already been successfully sold since the beginning of twenty twenty four, Keep Electric from the Rail Division and Safety Direct GT emission standards and Shepherd from the CVS Truck Division. To further sell it, processes have already been initiated.

We expect that the SELID measures will increase our operating EBIT margin by around 130 basic points by 2026 versus 2022. A comprehensive programme of fixed measures is also underway and is delivering greater efficiency worldwide, and here too we always focus on where we can become faster and more agile. Where can we become even better where we’re already good at? Where our talking and tackling, in some cases, of outdated structures, and where our previous branches were not sufficient, we’re making adaptations quickly and flexibly. Fail fast.

As part of that, we had to make adjustments in many areas, bundle areas of responsibility, centralize group white house and also optimize our global footprint, always with the aim of making our company more powerful, more cost conscious and more agile and more modern. In addition to the efficiency programs we have successfully launched to date, we are already looking beyond 2026. That is why we have expanded our optimization measures globally. The clear assignment of global responsibility is the prioritization of projects or efficient controlling are just some of the measures that support our goal of improving margins under the Boost program. Furthermore, additional sustainable efficiency measures such as expanding global shared services or strengthening sites with low cost levels will also increase Grenoblebrands’ profitability beyond 2026.

Let me now give you a few examples from our operating business to show you where we were particularly successful last year on slide eight. At product level, we made a brilliant impression this year, particularly on the stages of the leading Trailfares Auto Meccanica, Innotrans and IAA Transportation, where we demonstrated our technological solutions to international experts and aroused the interest of our customers with numerous innovations. Our rail division again captured important contracts in 2024. Among other things, Cranbournezer will equip at least twenty four six two forty six CityLink streetcars from Stadler with systems solutions that will be responsible for providing our comprehensive aftermarket services for twenty two years. This makes Knob Ramsey a key equipment partner for Stadler in a long term and large scale mobility project.

Knob Ramsey will also fit 42 further regional trains of braking, entrance, and sanitary systems for Alstom. This is another large follow-up order from the platform partnership between Alstom and Knobremse under which train fleets in several European countries are already being equipped. In 2024, our truck division successfully pressed ahead with streamlining its portfolio in order to concentrate even more strongly on its core competencies moving ahead and to make its business even more focused and profitable. As I already briefly mentioned, this included the sale of the Safety Direct product line, the sale of GT Emissions Systems, a leading supplier of emission control systems for diesel engines and commercial vehicles, the disposal of Shepherd, a manufacturer of commercial vehicle steering systems in the North American market, which was another important milestone. Let us now take a look at the current market situation for rail and truck as well as our market expectations for the year 2025.

Looking at the rail market, we can see that underlying demand is very strong in all regions, something that is reflected in the consistently high order intake and record order books. Thanks to a resurgence in passenger numbers in most countries, both in the aftermarket and the OA segment, the Rail division made a significant contribution to the good overall result. We assume in the plan that demand will remain strong in the current fiscal year reflected in an expected book to bill ratio above one. Our customers’ order books are full and that makes us optimistic about the outlook for the current fiscal year. The backlog of old orders, which was heavily affected by inflation, has been largely handled, as said.

Overall, the inflation related effects on our business have thus been minimized. As expected, the current market environment in the truck division is difficult in the three major regions of North America, Europe and China. We expect the market environment to remain weak in the first half of the year. We assume there will be an increase in the truck production rates in the second half of the year and therefore a recovery of the market in The US, Europe and China. This assessment has been indicated in many discussions with customers.

In the current year, we see growth opportunities in the aftermarket, business in particular, and we have high hopes that Kohlhe will continue to perform very well. In this challenging market situation, we are using the time to further optimize our costs and structures at the Truck Division with efficiency and foresight in order to strengthen and future proof our business. I would now like to hand over to Frank, who will outline the preliminary financial figures for the past fiscal year twenty twenty four. Frank, please.

Frank Weber, CFO, Knorr Bremse: Thank you very much, Mark, and welcome also from my side. Let’s now turn to slide 10 to discuss the financials for the full year ’24 first. Knobbrandsen generated revenues of almost €8,000,000,000, more or less a stable development on reported level year over year and slightly up in organic terms. On a divisional level, RVS more than compensated for CVS market driven top line performance last year. From a regional point of view, the APAC region and South America contributed to the revenue increase, while Europe and North America reported a decline.

Our operating EBIT margin benefited from a strong bottom line improvement in rail, a good regional mix, very good aftermarket in rail, operating leverage in general, as well as our boost efficiency measures. Accordingly, our group’s EBIT margin rose by 100 basis points to 12.3%. The development of Rail’s EBIT margin was particularly pleasing, seeing an increase of 130 basis points to 15.6%. Important reasons for this increase in profitability in ’twenty four was the good aftermarket business as well as the closing of the price cost gap, which will also be supportive for this year. CVS was able to increase its EBIT margin as well by 40 basis points to 10.4%.

This was a great achievement considering the weak truck market, especially in Europe, a strong demonstration of CVS resilience. Order intake and backlog also achieved great results, stable levels year over year and ranging only slightly below record levels. This development underlines KP’s outstanding position in both markets. The strong improvement in cash flow is a major highlight of ’twenty four. We were able to improve the free cash flow quarter over quarter last year again.

Overall, free cash flow for the full year came in at €730,000,000 a historical record figure if you exclude non operating proceeds which we had in the year 2019. We promised to improve the cash flow, and we strongly delivered. I would also like to thank all colleagues, business partners and customers for the great collaboration and dedication in the last year. Let’s continue our path on the way to new strength together. Let’s now focus on our balance sheet on slide 11.

A top priority of my finance policy is and was and remains a superior financial profile, especially important in times of uncertainty like nowadays. In addition, it provides a high level of flexibility for our strategic goals and operations at the same time. A strong level of equity remains important to us. At year end ’24, now BMC reached a level of more than €3,000,000,000 and a good equity ratio of 32%, slightly down year over year, but higher in absolute terms. The slight decline of the ratio is purely driven by the pre financing of the ’25 bond maturity of €750,000,000 Without that, the equity ratio would have remained at 35%.

Our liquidity increased significantly to €2,300,000,000 This is driven by the issuance of a dual tranche bond amounting to €1,100,000,000 in September, including our first green bond. With the proceeds, we strengthened our position as a trailblazer of sustainability and green mobility for our customers. We financed the acquisition of KB Signaling. And as already mentioned, we refinanced existing liabilities in the amount of €750,000,000 maturing in September of this year. Consequently, net debt increased by 45% to €912,000,000 leading to a very comfortable net debt to EBITDA leverage of 0.7.

Our credit ratings with A minus and A3 remain on a very good level with a stable outlook underlining again our strong financial profile resilience. Let’s move to slide 12. CapEx in ’24 amounted to €350,000,000 in relation to revenues roughly 4.4%. This is 20 basis points and €80,000,000 below previous year. Following several years of higher CapEx, we adjust the target range of CapEx to revenues going forward from originally 5% to 6% to now 4% to 5%.

The reason for this is that quite a few projects have now been completed with revenues kicking in over time, and it is important for us to increase CapEx, capital efficiency further, which we are driving also with footprint optimizations globally. Regarding R and D expenses, we will target the ratio towards six midterm after 6% to 7% in the past years. The reduction will be done especially in the truck division. Also here, revenues should kick in, and we focus on r and d portfolio streamlining. Reported net working capital increased by 164,000,000 year over year, solely driven by the acquisition of KB Signaling.

Without this effect, net working capital would have been nearly on the previous year’s level. The slight increase in scope of days year over year is driven by the strong market downturn in CVS, especially in half year two, which we couldn’t fully equalize in the supply chain at the same time. We continue to take action across all working capital areas, in particular, further efficiency improvements on the inventory side via our collect program. Despite all measures in customer receivables and inventories, we still took care of a rock solid supply security for our customers but could not completely decouple from the market. As a result of improved EBIT and capital efficiency, our ROCE increased from 19.5 to 20.8% without KB signaling even to 21.2%.

This figure represents a good development and is fully in line with our target of more than 20%. Thanks to our strong financials, we can both provide a solid return as well as a growing dividend to our shareholders and at the same time, invest in future products and system solutions, strengthening our competitive positioning. I would like to provide you more details regarding our free cash flow on slide 13. We could improve the free cash flow sequentially last year, reaching four eighty two million euros in the last quarter alone. Overall, free cash flow came in at €730,000,000 on a full year basis, the best figure ever in the hundred twenty years history of Knob Ramsey.

If we consider 2019 numbers, had a massive positive sale and leaseback effect. The improvement of free cash flow was driven by a higher and qualitatively good EBIT, lower capital expenditures, lower tax payments, as well as by the before mentioned net working capital measures. We were able to basically improve in all relevant dimensions. A very important KPI derived for us is the cash conversion rate. In ’twenty four, it reached 113% in operating terms, adjusting it even downwards for negative noncash one timers that burden our net income.

This is an extraordinary figure, well above the 96% in 2023 and again, well above our target range of 80% to 90%. Let’s move to chart 14. Also in ’24, we consequently focused on integrating ESG into our business of operations and processes, value chain activities and our decision making. This is not only reflected in our strong ESG ratings in ’24, but displayed by the positive development of some KPIs such as the reduction of CO2 emissions for scope one and two, as well as the respective emission intensity by 20%. With the public publication of our green finance framework in September even prior to the issuance of our green bond, we are continuing our journey to integrate sustainability into our financing structure.

The framework strengthens our sustainability goals and supports Knobrems’ efforts in promoting sustainable mobility and decarbonization of our own operations. It enables us to issue green finance instruments to finance eligible green projects, which occur in the form of CapEx or OpEx. Let’s turn to slide 15 to discuss the financial highlights of the fourth quarter specifically. Order intake was again very strong with more than €2,000,000,000 for RBS (LON:NWG), down 7% organically year over year, which was driven by the truck markets as expected. Revenues amounted almost to to almost €2,000,000,000, and as in the three previous quarters, book to bill ratio was again above one, an important and good support for our future capital, capacity utilization.

Operating margin amounted to 12.2%, almost on the same level as in the previous year. Rail contributed to this development with very strong figures, while truck margin decreased as expected. Free cash flow improved further and came in at €482,000,000 as mentioned, and it followed the typical pattern throughout the year. The first quarter is always the weakest and the fourth quarter usually the strongest quarter in terms of our free cash flow generation. In ’twenty five, we do expect a similar development.

Let’s take a closer look at RVS performance on slide 16. In terms of order intake, RVS again recorded more than €1,100,000,000 posting a growth rate of around 12% year over year, thanks to the KB Signaling acquisition. Leading to that, the growth was particularly strong in North America while Europe as well as APEC remained stable. China declined slightly as expected. Current rail demand is still very strong and should continue throughout the whole year with half year one stronger than half year two.

Consequently, for the current quarter, we expect that RBS should be able to post an order intake well above €1,000,000,000 driven again by some larger orders. Book to bill ratio stood at one point o five, which means RBS reached a book to bill ratio at or above one for 13 quarters in a row now. Again, a new record in KB’s history. In ’25, we expect that rail’s book to bill ratio should also be above one. As a result, order backlog reached new record levels with more than €5,400,000,000 in organic terms, meaning excluding Kiepie and Signalling, order backlog rose by 8% in quarter four year over year.

The high order backlog provides a strong basis for us going into ’25 and the years beyond. Let’s move to slide 17. Quarter four revenues amounted to €1,070,000,000, an increase of 7% year over year. Our aftermarket business grew in every region year over year in the fourth quarter. As a result, its very profitable revenue share increased to 57%.

From a regional point of view, revenue growth was fueled by North America, while Europe and APEC remained stable or almost stable. In Europe, good aftermarket business almost fully compensated the slightly declining OE sales. North America recorded strong increases in both segments driven by KB signaling. APAC region saw OE decline while aftermarket grew. China also saw growing revenues in aftermarket and declining OE business as expected after very strong q two and q three results, which included even some pre buy effects.

We believe China should face some normalization in high speed and aftermarket demand this year. Nevertheless, our Chinese revenues should stay flat year over year, even taking into account, the good developments in the year ’twenty four. Operating EBIT margin recorded an increase of 80 basis points to 15.6%, driven by operating leverage as well as efficiency and a lower share of legacy business. On top, a positive revenue mix driven by the before mentioned high aftermarket share impacted the operating margin positively. In Q1, we expect that probability of RVS should be slightly up quarter over quarter.

For the full year 2025, the operating margin of RBS should be well above 16%, including an improvement over the course of the quarters this year. Let’s continue with our truck division on chart 18. Auto intake in CVS amounted to €887,000,000, a decline of roughly 15% year over year, but 8% higher quarter over quarter. All major regions had a deal had to deal with weaker truck markets overall. CVS couldn’t escape these market developments, and given the dimension, was also unable to fully offset them with other content per vehicle.

Weak order intakes from Europe, North America, and APEC came in as expected, while China posted higher numbers. Book to bill reached 0.97 in the past quarter, and our order book with more than €1,800,000,000 at the December remains on a good level and well above our long term average. Order intake in the current quarter is expected to show only a slight improvement quarter over quarter as the truck demand is still challenging. Nevertheless, the start into the year was quite promising. Going forward, we expect a rather sequential pickup of truck demand, which should then be reflected in the development of our order intake along the year.

However, we are prepared for different scenarios. As a reminder, let me walk you through some of our measures again. High flexibility at our sites and facilities for temp workers, short time work at European plants if necessary, robust pricing, resilient aftermarket business, which represents significantly more than 30% of revenues in Europe and North America, and last but not least, our operational and structural cost optimizations via our Boost program to counterbalance the market challenges ahead. Let’s move to slide 19. Revenues declined by 14% to $9.00 9,000,000 €19,000,000 This development was expected and a solid performance in such a challenging environment.

OE business in CVS, as expected, decreased in all regions except South America, mostly in Europe, followed by North America. Aftermarket business, on the other hand, saw more robust and saw a stable development in North America and even slightly increased in Europe and APEC. In the European market, our revenues have experienced a 19% decline due to the weak demand in both the truck and trailer segment with heavy duty truck production rates declining over 30% in the fourth quarter alone year over year. Higher aftermarket, which generates nearly 40% of our European revenues and our disciplined cost measures were the main reasons for the strong outperformance of the market, a clear sign of resilience again. Same picture for Apex, where CVS could also outperform the decline in truck production rate of minus 6%.

Revenues in North America also declined, mainly driven by OE business, But CVS was also able to show resilience here if you take into account the decrease of heavy duty truck production rate by around 10% in the same quarter. Coming to the bottom line, our operating EBIT of our CVS division amounted to €87,000,000 in the past quarter, down around 26% year over year. As a result, the operating EBIT margin declined by 150 basis points to 9.5%. The lower margin was mainly impacted, as explained before, by the market driven operating leverages as well as the regional mix. Our supportive pricing strategy, the success of our efficiency measures and the higher share of revenues in the aftermarket were, in total, unable to fully offset all these enormous negative market effects.

For ’twenty five, we expect almost flat revenues compared with the reported figures for ’twenty four. This development will be supported by stable aftermarket business and our content per vehicle growth, but at the same time, be impacted by the two disposals with more than €200,000,000 of revenues that we have sold as mentioned before. As a result, CVS then should be able to reach an operating margin of around 11%. We expect the current quarter to be the trough of the year on or only slightly above the margin of the previous quarter, but that profitability should increase steadily in the following quarters. CVS development is subject to certain truck market recovery in half year two.

With that, I hand over to Marc.

Mark Lisducea, CEO, Knorr Bremse: Thank you, Frank. Now let’s have a look at our guidance for ’25 on slide 20. Based on the assumptions outlined on the right side of the slide, we expect the following for full year 2025: a revenue range of €8,100,000,000 to €8,400,000,000 despite more than €200,000,000 of disinvestment last year an operating EBIT margin between twelve point five and thirteen point five and a free cash flow between €700,000,000 and €800,000,000 This outlook fully supports the target for 2026 that we set in our strategy update. We are absolutely on track and we will deliver on our targets. We have had a good start to the new fiscal year so far, which fully supports our outlook.

Ladies and gentlemen, as you can see, we have systematically implemented what we set out to do a year ago. We are delivering on what we announced. We have made great strides forward in our transformation, but as a global market leader, we are not fully satisfied with what we have achieved yet. In 2025, we want to implement the next level of our Boost strategy program, which clearly focuses on sustainable and profitable growth. Thanks a lot for your attention.

Thank you. Thank Andreas.

Andreas Spitzauer, Head of Investor Relations, Knorr Bremse: Yeah. Dear ladies and gentlemen, we will start the Q and A session in one to two minutes. In case you would like to ask questions, please dial in via the provided telephone number. Mute the webcast and ask the question on the phone.

Speaker 3: You.

Speaker 4: And

Frank Weber, CFO, Knorr Bremse: Uh-huh.

Mark Lisducea, CEO, Knorr Bremse: Okay.

Speaker 5: Bye. And

Speaker 3: Thank you very much. We are starting with the first question from Akash Gupta of JPMorgan. Over to you.

Speaker 6: Yes. Hi. Good afternoon, Mark, Frank and Andreas. My first one is on rail industry, where when you describe current situation, you are no longer mentioning supply chain problems with specialist supplier for the rail industry that you previously mentioned. So maybe if you can elaborate, is this all addressed?

Or is this maybe less of a problem than what it used to be? And whether you’re able to overcome with duplication of supply chain? Or is it the same suppliers now back on track on their delivery commitments? Thank you.

Frank Weber, CFO, Knorr Bremse: Yes. Thanks, Akash. I mean to set things straight, it was never a really huge issue like it was on the truck supply chain side some two years ago. It was always a completely different situation. We felt the need to mention it that not after CVS gotten basically back to 99% of all fine level, that there is still a bit of issues on the rail side.

It has gotten further better. This low amount of noise, I would say, in the supply situation, it has gotten better again and is, as always, a very low disruption only for us. So it’s not of that importance, but it has gotten still better.

Speaker 6: And my second question is on your boost brownfield fix it. So in sell it part, you disclosed that you have achieved progress like based on the four entities that has been sold. You have achieved 80 basis points margin improvement versus 130 basis points that you targeted, while you have not given any comment on where are we in reaching the 70 basis points margin improvement from fix it. So any color, any granularity on where we should be by end of the year on reaching this 70 bps by that you target by end of twenty twenty six?

Frank Weber, CFO, Knorr Bremse: Thanks, Akash. You’re right. On the fixed side, we have promised from 2022 to 2026 to get to 70 basis points. And I would say roughly at this point in time because it’s not so easy to to calculate it because some of the assets in the meantime have been sold, so they count for the first year kind of under the fix it. And, though it’s a bit complicated, but I would say roughly at 50% level, we are currently and we should be at the two third level of this moving into ’twenty six.

So by the end of this year, the precise answer to your question would be roughly two third of that 70 pips we would have achieved.

Speaker 4: Thank you.

Speaker 3: Thank you very much. Then the next question is from Sven Weier of UBS.

Speaker 7: Yes, good afternoon. Thanks for taking my questions. They also relate only around Slide five in terms of the improvement measures. The first question I have is, should we understand that your fix it measures should be mostly completed by the end of twenty twenty seven and then you could potentially reach your new margin targets in 2028 at the earliest? Or should we expect that to carry on still longer so that the earliest opportunity would be a bit later?

And the second question is really on the R and D side. And because Frank you mentioned, you go down to 6% from roughly 6.5%. I mean, is that improvement then mostly on the truck side, so you would be improving the truck R and D ratio by 100 basis points and bring that in line with the rail division? Thank you.

Frank Weber, CFO, Knorr Bremse: Thanks, Sven. First question, in regards to fix it. I mean, there are I would say there are two elements to that fix it side as you can see. There are some parts of the fix it program overall that are kind of precisely focused on on on getting the right portfolio together in terms of performing assets and performing companies. And I would say there there, you’re perfectly right that we expect everything, so to so to say, to be brought to a well performing level by ’26 so that these measures should conclude by then.

In regards to when it comes to global footprint optimization, this is something that is, for example, never ever ending. Yeah? This is, of course, the ultimate task for each and every management to, on a regular basis, look at, where the markets are developing, are we close enough to the customers, etcetera. So this is something where we might now do a bit of bigger moves over the next two years, but this is something that is very sustainable as as the nature of the topic is a rather strategic one. You have to permanently somehow adjust your organization and act to the current situation.

So I would say most of it, yes, but some topics would linger on beyond 2026 as the nature of it’s the nature of the game. The second topic is, it was important for us to to mention clearly that we try to bring the ratio down as we also expect to grow. This is, as a consequence, doesn’t mean we cut down on R and D cost, not at all. So in a growing with growing revenues for the group, we will still be investing in R and D in the future, but relatively less on the truck side. You’re perfectly right.

The the the biggest efforts we do currently around the portfolio prioritization, we do in truck, and bring those levels, the ratio below the levels of RBS to have the most efficient capital allocation that’s possible in regards to the future investments. And by the way, same is true for CapEx as well. As I’m not hearing of you, was that okay, Sven?

Speaker 7: Sorry. I’m here.

Frank Weber, CFO, Knorr Bremse: Can you hear me? Yes.

Speaker 7: Yes. Sorry for that. Just a quick follow-up on my first question in terms of 2028 being the first potential year of a kind of a new margin targets because quite well really around are you done by the end of twenty twenty seven then mostly and optimistically speaking 2028 could be such a level or should we brace ourselves for something later than this?

Mark Lisducea, CEO, Knorr Bremse: I take that. ’26 will be the year where we first meet the lower line of our EBITDA funnel. So ’14 is for us the understanding that over the future cycles, we never want to be falling above below the 14. In order to reach that, we have to get to a much higher level in ’27, ’20 ’8, ’20 ’9. We cannot say now each year, but in order to be very clear, we see ourselves volatile between a 14 and that other number, which is quite higher.

And that’s our aspiration. So ’26 is not the end of the story. Twenty six is just the full milestone of the story. When you ask, yeah, what is the end of the story? There is no end of the story.

Our aspiration is to compete with the asset goods, assets in the market. That is our aspiration. Our aspiration is not to be just at at 14 as flash in the pan and then go back to another way. This is not. Our understanding is very clear, and this is why in the first step, first three years, first step is, we want to be very, very clear with our brownfields.

But everything what comes then more and more, and you see it on the slide with greenfield, has to contribute to secure the 14 and to reach much higher. So when you ask what is in our target margin in ’28, there is no target margin. There’s a target funnel to reach, and this target funnel starts with 14 as a low level, and everything above is then also our target. So it can be that in ’28 to ’28, we will be much higher, or it could be. But we have not a target where we say, and that’s it, and that we have to secure.

It’s an aspiration, it’s a journey, and it’s a forwarding where we don’t have to find so far the end of the funnel.

Speaker 7: Very clear. Thank you, both.

Speaker 3: Thank you very much also from my side. Moving on to the next question, it is from Gail de Brey of Deutsche Bank (ETR:DBKGn). Over to you.

Speaker 8: Good afternoon, everyone. Thanks very much for taking my questions. Look, the first one is a kind of a strategic related question. I can see the greenfield measures appear to be very focused on RVS, while at the same time you’re talking about reducing CapEx and R and D intensity for CVS. So is the combination of CVS and RVS under the same roof still the right combination, the right strategic approach for Knorr Bremse?

And then I have a second question around rails spending. I know you’re guiding for book to bid above one, so it seems perfectly fine for this year, But there is always a time lag between what your customers, the OEMs, see and what you see yourself. Just my question here is, have you seen any early sign that the constraints around public budgets in Europe and potentially the ongoing shift towards more defense spending could eventually have a toll could have a negative impact on the rail spending at some point? Thank you very much.

Mark Lisducea, CEO, Knorr Bremse: So to the second question, we haven’t seen anything. And, what happens in the future and whether mister Putin will be the best friend of mister Trump, which nobody has foreseen yesterday and seems to be today the fact of the union, we cannot predict. But one thing’s for sure, our urbanization strategy is working. The trend is a fact, especially in areas which are mainly in Asia, we will see a trend towards trains. And we see also orders coming, huge orders coming, from Asia more and more to our customers, and we are prepared to take it.

So the answer is very clear. We don’t see a shift. We don’t see any form of shift from public spending to military, which is to our disadvantage. Your first question was, I think it’s the old question, why do you have trucks when rail runs so fine? And then are you still having in mind to keep the two divisions together?

Yes, we have, because truck is massively contributing in terms of contribution, in terms of cash, in terms also of balancing when it comes to forms of joint efforts, it comes to cost in SG and A. We couldn’t afford it with rail alone. It would also harm our rail margins if we would not stick together. And now you can ask rightly, should not be that the synergies, can you quantify the synergies? I cannot quantify the synergies in bips, but I can tell you, I would guess 100 at least in favor of rail and also for trucks.

So long story short, truck and rail, very good. So in the last year, 2023, they were $50.50. This year, it’s $55.45 in terms of revenue. It could be that this year, we see a $60.40. This is nice because the margin in rail is higher and in truck is not.

But what you will see in 2026, that the truck is picking up massively. Truck is cyclical, and what we have to see, and we want to see that, is by lowering down now the break even of trucks significantly over the next twelve months, we will see ourselves in a very good position when in 2026 the truck markets are coming up. And then we will see ourselves in a good position where we see much better margins than we see today. So long story short, the two divisions are cooperating perfectly. We see synergies more and more to come, especially when it comes to IT and AI, where the differences in purchasing, the differences in accounting, the differences are vanishing more and more away.

And with the right attitude, we can also leverage and also exploit these kind of synergies.

Speaker 8: That’s very clear. Thanks very much.

Speaker 3: Thanks a lot. The next question is from William Mackey of Kepler Cheuvreux. Over to you.

Speaker 9: Good afternoon, Marc, Frank. Thanks for taking the time. A couple of questions. It seems to me that it’s a very large and important question about considering a new leg to Knorr Bremse, which would significantly shift the balance from your core businesses and impact thinking for your investors. So maybe just to start off, can you at least open the box and share a little of your thoughts about where this discussion on a new leg is going, how it’s being debated at the supervisory board level and what sort of efforts or thinking you have at your leadership level, please?

Mark Lisducea, CEO, Knorr Bremse: Okay. Thanks for that question. So the third leg, the muth, which is now accompanying us for the last years. First, if we would plan it, we would not tell you, sorry to say, because you would just destroy the prices of potential assets. Second, it could be also an organic growth, which is already starting in which when it comes to certain form of threshold, we will make them public.

Third, if it comes to a moment that we think that the ownership or the management of that is better allocated in an independent unit, then we will do it. But currently, currently, and for the next months to come, we have no plans to go for a third leg. We have no plans to announce a statement that one of our internal, units is big enough to stay alone or in terms of management allocation to stay separately. That means three times later, eventually, I don’t tell you or we don’t tell you because we don’t want to poison our prices. And third, it can come from within.

Speaker 9: Thank you. Very clear message. The second, which I’m sure is more tactical and to the pleasures of volatility created by Trump that you mentioned, tariffs. Can you just maybe update us on your current tactical thinking around tariffs, where the group is exposed to relevant cross border flows of value added and how you may have to adjust if worst case scenarios unfold? Thank you.

Frank Weber, CFO, Knorr Bremse: Yes. Thanks. Good question. I mean, you know the history of this company and how this company developed over decades. We are a decentralized, company.

We are where the customers are. We are where the markets are. We have a lot of high local content in most of the areas, which suited us very nicely in the times of the supply chain disruption. We have not changed that approach, and we are even fostering that. So we are already on a very high level of local content in the respective markets, including North America.

If we take the value add that we are deriving in North America and the materials we are, so to say, sourcing from North America and compare that with the levels that we are importing from abroad, we are above levels of 70%. So on a very good levels, if we also what we think the competition and others are doing in that market. So we are pretty comfortable. Do we have any remaining exposure? Yes, of course, as we do have import materials coming from Asia, from Europe into North America, a bit also from Mexico, a bit from Canada, but not a lot.

Not huge numbers that you should expect. And needless to say, at the basis, we know we have full transparency upon. It’s just about the factor that would be applied in case if anything would be applied as a tariff. That’s then, of course, up to the political decision. We have a good transparency.

Our local content levels are high. So I think we are pretty comfortable in a pretty comfortable situation.

Speaker 3: Thank you very much. Next (LON:NXT) question is from Lucas Ferrani of Jefferies. Please go ahead.

Speaker 4: Hello. Good morning, everyone. So I have two questions. Maybe we do them once at a time. The first one is on the restructuring of the adjusting the production footprint.

Can you give us a bit more of a view on what are the regions where you’re looking at making some of those changes and how you got to the million? Is it in Germany and is it kind of severance kind of packages? And that would be also kind of mostly related to truck or is there also things you can do on the production footprint in rail? And also it seems to be kind of ongoing discussion around whether this happens or not. Do you have a timing in mind?

Are you waiting to see maybe how H2 unfolds before kind of launching this restructuring? Thank you.

Frank Weber, CFO, Knorr Bremse: Yeah. I start with the timing. This timing has nothing to do with the development of half year one or half year two. And I try also to make the bridge now to Mark who also needs or wants to say something in that regard. So it doesn’t depend on a quarterly development of the market.

We are taking the actions as we see a strategic need. I think we clearly outlined that we don’t need to do these measures in order to get our 26 targets achieved. Definitely not. It’s about the strategic thinking and the strategic optimization of the company way beyond 26. So it has nothing to do with the half year one or whether half year one is a bit better than previously thought or something like this.

This is fully independent as it’s a strategic need and something that we see. And before I hand over to Mark, I’ll just tell you once more, even most of the measures, I would say, or at least half of the measures of the 50 you mentioned, will be in the rail segment. Especially there and there, you can see the strategic thing is we have by far not yet on a level where we say we have reached the ultimate that rail can deliver. So we are even thinking about footprint restructuring things, also in rail to boost rail even beyond, yeah, where they could be next year. So I think that’s a good thing, and we are, of course, thinking about the region of Europe, where we do have some production facilities in countries that are maybe not the highest, the best competitive ones in the world.

But Marc will tell you a bit more on that. Just that you know, it’s not truck restructuring only as an urgent immediate need. It’s about a strategic thing that we’re doing.

Mark Lisducea, CEO, Knorr Bremse: So I jump into that. And first of all, absolutely right what Frank said. Mr. Verani, I would say the following. The breakeven of the two divisions are not efficient.

They are too high, period. The personal costs are too high. The location footprints are not optimized. They are now started to be optimized. The engineering footprint is not optimized.

They will be optimized. All of that is not only a reduction, this is a reshuffling. This is a reshuffling of capacities. It could be a strengthening some area, it could be a weakening of other areas and also in locations. Number two, all the restructuring which is taking place is now on both sides of the hill.

So that means we will see it in trucks, we will see it in rail, and we will see it also in the headquarter. So we have a lot of things here to do, especially when it comes to IT. So the IT is also part of the restructuring. So that means what are we doing for what are we paying for what are we not paying in the future? And have we ever really levered the synergies of both of the units?

We don’t have, so this is very clear. So beside that, we will strengthen our focus because as you rightly know, 1,500,000,000 of the 3,780,000,000 of trucks is generated out of America, right? So a good third of our business, more than that, is in America. In rail, we were, before our acquisition, we were just at $300,000,000 to $400,000,000 out of $4,000,000,000 so nearly 10%. Now with the acquisition of $300,000,000 we are now in a range of $700,000,000 7 hundred million dollars is still not enough to be rightly allocated in the regions.

So that means we are relatively strong in rail in Asia. We are relatively weak in truck in Asia. We are relatively strong in rail and truck in Europe, and we are relatively underrepresented in America with rail. So that gives you an indication where we have to grow and where we have to go. And why do we do that?

Because exactly as the colleague of yours asked, I think William Mackey asked that, do we have any issues with potential tariffs, with potential wars on tariffs? Of course, it could cause some irritations. Of course, we have already proposed and prepared ourselves for the last two or three years to be not dependent from any president, not from any president. But to be very clear, America and the American market is extremely interesting for us. Why is that?

The market is semi protected against Chinese contenders, which the European market is not. So you can imagine why also our con competitors make a very, very good margin in America, and that’s exactly where we want to be also, not only in trucks, but also in rail. In Asia, we are extremely well located in China with our rail operations, but also here we have to be very clear, we have to be self autonomous when it comes to any forms of tariff wars, and we are working on that. In terms of trucks, we are relatively weak in China, and we’re relatively weak in India. That has to be addressed.

That has to be changed. What is good is that we could see already self healing capacities in Japan where we are merging and sizing, rightsizing the operations which we have in truck. And everybody was telling us that we cannot make any money out of Japan. And I can tell you, since twelve months, we are doing it. We are making money out of Japan with Japanese customers, and it is a very good market for us.

So it can be done sometimes even without an acquisition. Hopefully, this gives you a little bit of an insight how we think.

Speaker 4: Super clear. And the second one on rail. The first part would be just on the signaling expansion that you talk about. Can you tell us a bit more how you want to do it to come to Europe and also going into digital? Obviously, there’s in the deal, it’s mostly focused on the conventional portfolio.

So how do you kind of make that move? And the second one is just on the rail. You’re talking about slightly declining sales, I think, in the equipment side in Europe and China. Just wondering why are we seeing maybe some kind of weakish volume in OE given we’re seeing quite strong kind of order trends or maybe it’s just the lumpiness? Thank you.

Mark Lisducea, CEO, Knorr Bremse: I don’t know whether you get the numbers. In China, we see a rebound. In 2023, we had only 100 to 120 high speed trains. Last year, we have seen two forty high speed trains only in China alone. So the good thing in China is that our Chinese customers are reflecting to our high superior quality and also to our technology superiority ground.

So that means we see very good very good penetration in Metros. We see very good on solery coming. Yeah. They come back to us when it comes to high speed trains. So we can’t see any form of deterioration of the Chinese market, which I remember in 2022 and 2023.

This was part of the story that we have an end of this party. Yes, that is right, but it is now normalizing. And I think we got very well acquainted with the normalization of the Chinese market, and we have very good, very good connections to our Chinese customers, especially in rail, where we see a high appreciation of our technology, high appreciation also of our quality and on demand supply. So in China, I would slightly disagree with your question or let me say your statement. In terms of the rest of the rail business, where we see ourselves increasing our digitalization, The thing is relatively clear, we are getting more and more requests that not only the braking control system, but also the technology which is required by more and more providers, They want to have more answers.

They want to have more services which can be provided by first tier suppliers which we are. In terms of signaling, there’s even a German and European request to us to step into this business. So we have here a reputation. This reputation is taken and it is also granted if we would enlarge our product scope. So that means you’re right when you say in America, you have a first step taken.

Now what’s with the rest of the world? We will be very careful because we have a reputation to lose. So whatever we do in this area will be step by step. And it could be organic, and it could be also unorganic to be significant. Now the question is, do we have an idea?

Yes, we have more than an idea. And it’s very clear that our next focus is the affiliated countries to America like Australia, South America, South Africa, that are the countries which can be easily supplied by our services and also our product services and solutions from America. But if any exceeds these markets, it’s very clear we need another step to

Speaker 4: take. Great. Thank you.

Speaker 3: Thanks a lot. Ben, the next question is from Ben Aglow of OCSECAP Analytics. Please go ahead.

Speaker 5: Afternoon guys and thank you for taking the question. It’s actually kind of similar to the one before. But Mark, I mean, the point that you make about China, you’re guiding to flat revenues. And I guess that’s the question. Unless high speed is going down significantly or there’s something differentiated on ridership, why wouldn’t revenues be better this year in China?

So that’s my first question.

Frank Weber, CFO, Knorr Bremse: Ben, good to hear you again, first of all. I mean, we are we our flattish development guidance for China is not new. I mean, as Mark outlined, the high speed numbers, but, metros are on a very difficult level. I mean, you know, since ever since Evergrande (HK:3333) happened in China and the real estate markets went down south, there has not been a significant demand out there. It’s a lumpy figure over the last years, around 5,000 metros each and every year, where in the past, we had 7,500 or even more.

And there we have to be a bit careful when it comes to the expectations for the metro market going into the future. That explains one thing that offsets a bit on the high speed side of things.

Speaker 5: Understood. Understood. And then the follow-up for, I guess well, for either is the market or the let’s call it the outsider perception is that there aren’t that many available decent assets in rail. And if you want to grow organically inorganically rather and you’ve got a great stepping stone of significant building block with the Alstom signaling transaction. That’s great, but it’s not going to be that straightforward.

The pipeline is not that easy. Do you agree with that? Is that correct or not? And to what degree has the Alstom signaling acquisition kind of opened up that world to you? Has it become easier to identify new targets?

Mark Lisducea, CEO, Knorr Bremse: The first question I would like to answer, no. They are targets. And the second is, yes, it’s easier with experts on your side to define and to identify potential assets which are accretive to our overall business.

Speaker 5: So we should expect that when you’re making decisions between inorganic and organic, there are avenues to explore in the next one to two years, it’s clear?

Mark Lisducea, CEO, Knorr Bremse: Yes.

Speaker 5: Got it. Thank you.

Speaker 3: Thank you very much. Then the next question is from Tore Fengmen, Bank of America. Over to you.

Mark Lisducea, CEO, Knorr Bremse0: Hi, good afternoon. Thank you for taking my questions. Two from my side as well. Just one of the have the expectations around the recovery in CVS slipped to the right a little bit and it looks a little bit more apparent in North America despite the orders actually being a bit better? And is there any view from your side on pre buying here?

And then secondly, could you tell us a little bit about how much of the growth comes from the content per vehicle? And do you expect this to accelerate with the new truck model launches over the next quarter? So yes. Thank you. Yes,

Frank Weber, CFO, Knorr Bremse: thanks for the question. First of all, recovery, I wouldn’t say it slipped to the right side. I think in all the conferences I’ve been over the last month, I’ve always been when I was able to do so, I did draw even a picture of how we see the market somehow, and we saw that there will be a trough and then it’s getting better. We think within 25 over the quarter, so that still kind of remains intact. And as you also know, the stock levels, the inventory levels of the OEMs have been reaching quite a high level by the end of quarter three.

Levels came down from 90,000 units now by due to production reductions down to a level of 80,000. The longer term average over the previous quarters have always been around 60,000 to 65,000 in the North American market. So there is a bit of a risk in there, which we also need to, of course, consider when we talk about guidances going into the future. And we see a bit of a risk, so to say, and that’s why we have given the guidance, we have given it, that also production is not immediately jumping up. That’s our guidance.

In regards to pre buy, we also stick to what we have always said in that regard. We do think that only at the very end of twenty twenty five, we might see as first order intakes as tier one supplier, the first signals of a pre buy, not earlier. I don’t think that the fleets would need two years to replace their fleet to go for the maximum potential of pre buys, but maybe rather one point five years, and that would imply that the first suppliers maybe get order intake uprise towards quarter four, not more, not earlier. Content per vehicle, I think, a good question as well. You also see in the guidance that we have been saying that basically, in a nutshell, CVS will have stable revenues year over year, almost stable revenues year over year.

$210,000,000 go out because of debt investments. So you can say that we are compensating 200,000,000 basically in the wider term with content per vehicle. So we are, I would say, fully on track with what we said so far. So that looks good, compensating for the divestments.

Andreas Spitzauer, Head of Investor Relations, Knorr Bremse: Okay. As we see, there are no other people who want to ask questions. Thank you very much for participating today. We wish you a great spring, which hopefully comes up soon. Thanks, Od, and bye bye.

Frank Weber, CFO, Knorr Bremse: Thank you. Bye

Speaker 3: bye.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.