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Knorr-Bremse AG reported its second-quarter earnings for 2025, revealing results that fell short of analysts’ expectations. The company posted earnings per share (EPS) of €0.87, slightly below the forecasted €0.9341, marking a negative surprise of 5.79%. Revenue also came in under expectations at €2 billion, compared to the anticipated €2.03 billion, resulting in a 1.48% revenue miss. Following the earnings release, Knorr-Bremse’s stock price fell by 3.07%, closing at €85.15, down from the previous close of €87.85. According to InvestingPro data, the company maintains impressive gross profit margins of 51.89%, though it currently trades at a relatively high P/E multiple of 32.21x. InvestingPro offers 8 additional key insights about Knorr-Bremse’s financial position.
Key Takeaways
- Knorr-Bremse’s Q2 2025 EPS and revenue both missed analyst forecasts.
- The stock price decreased by 3.07% following the earnings announcement.
- The company maintains a strong position in the rail market with robust demand.
- Operating EBIT margin improved by 60 basis points year-over-year.
- The company confirmed its full-year EPS guidance of €3.5 to €3.6.
Company Performance
Knorr-Bremse’s overall performance in Q2 2025 showed stability in revenue year-over-year, with a slight organic increase of 1%. The company continues to benefit from a strong rail market, especially in China, where the high-speed segment outperformed expectations. Despite challenges in the North American truck market, Knorr-Bremse’s diversified revenue mix and strong aftermarket business have supported its resilience. InvestingPro analysis reveals the company maintains a strong financial health score of 2.65 (GOOD), with particularly robust scores in profitability (3.55) and price momentum (3.01).
Financial Highlights
- Revenue: €2 billion (stable year-over-year)
- Earnings per share: €0.87 (slightly below forecast)
- Operating EBIT margin: Increased by 60 basis points year-over-year
- Free cash flow: €146 million
- Restructuring costs: €75 million
Earnings vs. Forecast
Knorr-Bremse’s Q2 2025 earnings per share of €0.87 missed the forecasted €0.9341, resulting in a negative surprise of 5.79%. Revenue was also below expectations, at €2 billion versus the anticipated €2.03 billion, marking a 1.48% miss. This performance contrasts with the company’s historical trend of meeting or exceeding forecasts, highlighting potential challenges in the current market environment.
Market Reaction
Following the earnings announcement, Knorr-Bremse’s stock experienced a 3.07% decline, closing at €85.15. The stock’s movement reflects investor disappointment in the earnings miss and revenue shortfall. Despite this, the stock remains within its 52-week range, indicating that broader market trends and sector performance may still support its valuation. InvestingPro data shows the stock has delivered a strong YTD return of 28.02%, with current trading levels suggesting the stock is slightly overvalued based on InvestingPro’s Fair Value analysis. For deeper insights into valuation metrics and comprehensive analysis, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.
Outlook & Guidance
Knorr-Bremse confirmed its full-year EPS guidance of €3.5 to €3.6 and expects a stable truck market in the second half of 2025. The company anticipates potential benefits from infrastructure stimulus in Germany and Europe, which could bolster future performance.
Executive Commentary
CEO Markus Zussehr emphasized the company’s resilience and execution in challenging times, stating, "Resilience and stringent execution in challenging times continue to be the key strengths of our house." CFO Frank Weber highlighted the company’s technological advancements, saying, "We are striving for the latest and greatest in regards to technology."
Risks and Challenges
- North American truck market uncertainty could impact future performance.
- Potential tariff impacts, estimated at €10 million, may affect profitability.
- Restructuring costs of €75 million could weigh on short-term financial results.
- Macroeconomic pressures and supply chain disruptions remain potential risks.
Q&A
During the Q&A session, analysts inquired about potential M&A opportunities in the aftermarket and digitalization sectors. The company also addressed the impact of tariffs and provided insights into the strong performance of the China rail market, where revenues are expected to reach €750 million. Concerns about the North American truck market were also discussed, highlighting the uncertainty in production rates.
Full transcript - Knorr-Bremse AG (KBX) Q2 2025:
Conference Operator: Good afternoon, ladies and gentlemen, and a warm welcome to Knorr Bramses Q2 twenty twenty five Earnings Call. At this time, all participants have been placed on a listen only mode, and the floor will be open for questions following the presentation. Let me now turn the floor over to your host, Andreas Head of Investor Relations.
Andreas Spitzsauer, Head of Investor Relations, KNORR BREMSE: Thank you, operator. Good afternoon as well as good morning, ladies and gentlemen. I hope all of you are very fine. My name is Andreas Spitzsauer, Head of Investor Relations. I want to welcome you to KNOBREMSE’s presentation for the second quarter results of 2025.
Today, Markus Dessea, our CEO and Frank Weber, our CFO, will present the results of KNOBREMSE followed by a Q and A session. The conference call will be recorded and is available on our homepage, www.knorbrahmsa.com in the Investor Relations section. It is now my pleasure to hand over to you, Markus Zussehr. Please go ahead.
Markus Zussehr, CEO, KNORR BREMSE: Many thanks Andreas. Ladies and gentlemen, welcome to our Capital Market Call for the Second Quarter twenty twenty five Results. Let’s start with the key takeaways for today on page two. Carbrenza continues to be in good shape. Yes, we do.
Resilience and stringent execution in challenging times continue to be the key strengths of our house. I would like to highlight our very strong aftermarket business once again, 47% of our total revenues, which helps to counterbalance economic volatility and protects our profitability. Our strong market positions globally and our diversified revenue mix also support our results now and hopefully going forward. RBS continues to be very strong with an EBIT margin of 16.5%, more to come. In the past quarter, our Rail division has already achieved its target margin for 2026, eighteen months earlier than originally planned.
We are proud to have reached this milestone and congratulations to our rail colleagues. The sequential margin improvement of CVX reaching more than 10% is remarkable considering the tough truck market in North America currently, Our resilient aftermarket business, but also the implementation of stringent cost measures supported this achievement. In the news ahead, 06/2728, both the rail and truck industry should benefit from the announced German stimulus program as well as from the European defense initiatives regarding the investments in infrastructure. Our Rail Division expects first orders already in ’26 and ’27 to come, while trucks should benefit indirectly from strong economic growth in both Germany and Europe. U.
S. Tariffs continue to be monitored closely by our teams. We are confident to fully pass on these extra costs via price increases to our customers some with a certain time delay. Please keep in mind that this is the current assessment. Potential changes on the mode of Mr.
Trump and tariffs in terms of timing and rates are uncertain today. Boost is fully on track as the carve out process of the outstanding RBS targets are almost complete, potential investors will be contacted after the summer break and will expect signings by the end of the year. We confirm our operating guidance for ’25. Since the original guidance for ’25 was issued in February, the euro has significantly strengthened against many other currencies and against all the experts’ judgment that we will see parity. We have taken this development into account and are now assuming the current exchange rates, which will have an impact on the expected revenue development in 2024.
But it’s purely Frans Latovich. As we are almost exclusively affected by translation effects, our EBIT margin and cash flow expectations for this year remain completely unchanged. Let’s go to number three. Have a look on the market situation of rail and truck. Looking in the at the rail market, we can see that underlying demand remains strong in all regions, also reflected in good order intakes and fully and full order books of RVS and its customers.
We believe that demand will remain strong in the coming quarters to come, leading to an expected book to bill ratio of above one on a full year base. The market development in China is strong on a high level this year. We welcome this progress, which is quite supportive for our profitability as well. Truck markets show a mixed picture currently, as you all know, and as you have already heard from our customers. Europe shows signs of recovery with stable truck production rates.
The first half of the year has developed better than expected. This is also mirrored by good capacity utilization rates in our European plants and the fact that we have neither short term work nor reduced shifts. For the second half, we expect a stable market demand in Europe. Same for the Chinese truck market, which is expected to develop stable this year as well. The North American market is the big black box currently because it’s erratic.
Truck production rates in the second quarter were down significantly, and the expected recovery for the second half of the year is rather unlikely at this point of time. Nevertheless, we do not expect further deterioration, but a stable development in the second half of the year compared to the first half. Currently, our North American customers are taking days off and slowing down production lines in the factories. On the other hand, they are acting rationally and only slightly reducing their workforce. We expect to have
Executive, KNORR BREMSE: a clearer picture after the usual summer holidays. The better than originally expected development in Europe cannot fully compensate the weaker than expected development in North America. Nevertheless, every crisis presents opportunities. This market downturn in North America will eventually come to an end and will then meet a lower breakeven point on our side. This is the core of housekeeping.
Be prepared for everything what comes,
Markus Zussehr, CEO, KNORR BREMSE: and the lower the breakeven is, the better is the positive impact of a returning market. That’s what we are going for. Now page number four. Please turn to that page, and we look at the good financials of the second quarter. Order intake achieved a strong result, more or less stable at €2,000,000,000 The decline in truck was almost fully compensated by profitable business and intake from rail.
KNORA brands generated revenues of €2,000,000,000 a stable development year over year. Organically, we posted an increase of 1%, RBS compensated for CVA’s market driven top line decrease. Our operating profit margin benefited as well from Rail’s performance, in particular from a strong aftermarket business operating leverage, our boost efficiency measures and KB Signalings contribution. Consequently, operating EBIT margin increased by 60 basis points year over year. Free cash flow amounted to €146,000,000 Due to some cost opportunities, we announced restructuring cost of €75,000,000
Consequently, EPS in quarter two amounted to €0.87 affected by restructuring cost of €28,000,000 For the full year, we expect €3.5 to €3.6 The portfolio optimization and restructuring measures have a onetime impact, the bottom line last year and will this year. As a result, earnings will improve quite meaningfully next year benefiting from a stronger asset base and lower breakeven points. I’m proud of our teams maneuvering KB so successfully through challenging times and also interesting times with a lot of opportunities to come. With these holy words, I hand over to Fred.
Frank Weber, CFO, KNORR BREMSE: Thanks, Mark, and hello everybody. Let’s move on to slide five. CapEx amounted to €63,000,000 which represents in relation to revenues 3.1%. Spending in absolute terms decreased by €2,000,000 or 10 basis points year over year. This development is fully in line with our strategy to optimize CapEx spending following our lower target range for CapEx to revenues of 4% to 5%.
There will be some acceleration of investments in the second half of the year. We have further improved our net working capital efficiency again by two days versus prior year. Including KB Signalling, we are now at the level of €1,500,000,000 and sixty seven point six days. This step forward is clearly based on the success of our collect program including improvements in all major net working capital categories quarter over quarter respectively inventory accounts receivables and accounts payables. Despite acquisition driven higher capital employed working capital, ROCE nicely increased from 20.2% to 21.3%.
You know that ROCE has a high priority for us with a target of more than 20%, a level which we are planning to exceed in the coming quarters driven foremost by a higher level of profitability. Free cash flow amounted to €146,000,000 despite negative FX effects. Consequently, the cash conversion rate was nicely higher reaching 96%. With that quarterly cash generation, are roughly €100,000,000 ahead of last year year to date amount. Let’s take a closer look at the RVS performance on slide six.
In terms of order intake, RVS recorded a very strong quarter once again, resulting in almost €1,300,000,000 This represents a growth of around 13% year over year supported by good organic development as well as via the acquisition of KB Signalling. The organic growth rate stood at 8%. Rail demand overall remained strong also supported by the APAC region ex China and Europe. As mentioned in previous earnings calls and based on the outstanding tenders in the market, we assume a stronger half year one compared to half year two disregarding orders. Nevertheless, for the current quarter, we expect that RVS should be able to post an order intake slightly above €1,000,000,000 again.
As usual, I want to remind you to please keep in mind that rail is a lumpy project business and does not fit well into quarterly reporting structure in terms of order intake and lead times. Book to bill ratio stood at 1.17, which means RVS reached a book to bill ratio at or above one for 15 quarters in a row now. Order backlog increased by around 14% reaching a new record level with more than €5,500,000,000 The higher order backlog and the good quality of it provides a strong basis for the rest of the year and beyond. Let’s move to slide seven. Quarter two revenues amounted to €1,100,000,000 an increase of 9% year over year, also positively impacted by KB Signalling.
On an organic level, the increase was 4%. Our aftermarket business developed nicely in Europe and North America, resulting
Executive, KNORR BREMSE: in
Frank Weber, CFO, KNORR BREMSE: a strong aftermarket share of 59%. From a regional point of view, revenue growth was fueled by all regions. In Europe, both OE and aftermarket business grew nicely. Also, North America strongly increased its aftermarket business, driven by KB Signalling, while OE business significantly decreased year over year given the weak freight market in The U. S.
The APAC region saw a stable OE and a growing aftermarket business. China also grew nicely in OE, while aftermarket was slightly down year over year. Keep in mind that the second quarter in twenty twenty four was a particularly strong quarter in aftermarket business due to pent up demand and some pull ahead effects back then. The recovery of ridership, which started in 2024, still continues. We are quite happy about the development in China, especially in high speed local business and the aftermarket.
So far, there are still no signs of a better metro market. We improved our operating EBIT margin by 90 basis points to 16.5%, driven by the positive aftermarket development, operating leverage, a strong performance of the accretive APAC region, as well as the positive contribution by KB Signalling. In the current quarter, we expect a book to bill ratio of around one. The EBIT margin of RVS should be flat or slightly higher quarter over quarter. On a full year level, the operating margin is still expected to be well above 16%.
Let’s continue with the Truck division on Chart eight. Order intake in CVS amounted to €820,000,000 a decrease of 17% year over year, which was expected given the divestments we made and the weak North American Class eight truck production rates. In organic terms, orders only decreased by 5%. On a year over year level, quarterly order intake in Europe was slightly and in North America significantly down. The APAC region overall slightly grew, benefiting from a good development year over year in China.
Order intake in the current quarter should be able to increase mid to high single digit quarter over quarter supported by Europe. The North American market remains very difficult to fully assess at this point in time. Book to bill reached 0.92 in the past quarter. Our order book of more than €1,770,000,000 at the June is 10% below the previous year’s level. Adjusted by our two divestments of GT and Shepherd, it was organically a minus 3%.
Let’s move on to chart nine. Revenues declined to €895,000,000 which represent minus 10% driven by the divestments of GT and Shepherd and only minus 2% in organic terms. This development was as expected and represents a solid performance in such a challenging environment. OE business in CVS decreased as expected in all major regions predominantly driven by lower market demand and FX. Only Europe was able to post a slight reduction.
Our aftermarket business performed better than OE, including an almost flat development in Europe and an increase in APAC driven by China. However, both regions were unable to fully offset the double digit decline in North America. In the current quarter, we expect that CVS total revenues should stay around the same level of the past quarter, so no real growth impulses here. Coming to the bottom line. Operating EBIT of our CVS division amounted to €92,000,000 in the past quarter, down around 18% year over year, but up compared with the first quarter of this year.
As a result, the operating EBIT margin declined 90 basis points year over year to 10.3%, but up 80 basis points quarter over quarter. The lower margin was mainly impacted by lower volumes and an unfavorable regional mix, which could not be fully compensated by benefits from our boost measures and the higher aftermarket revenue share. I would like to mention as well that a double digit EBIT margin is a good achievement considering the very weak but still accretive North American market. Profitability should slightly improve in the current quarter compared to quarter two supported by stable markets in Europe and steady demand in North America at a low level. In addition, we expect to see more benefits from our cost measures and aftermarket.
Overall, we are confident to successfully fight current market challenges with our long term measures as well as our short term measures in North America, our robust pricing power and our resilient aftermarket business. On a full year basis, CVS should be able to reach an operating margin above previous year. With that, I hand over to Mark again.
Markus Zussehr, CEO, KNORR BREMSE: Thank you, Frank. Welcome. Let’s have a look on our guidance for the end of the year on Page 10. Main message, we confirm our operating guidance. Solely due to translation foreign exchange effects, we have adjusted our revenue outlook for this year.
In case the dollar ratio to the euro will change or the renminbi, we will see the controversial effect. So it’s not a reduction of our revenue in operation. It’s only because it is we are a European company. It’s noted in euro. So therefore, we have done it, not for any other reason.
The operating EBIT margin is not impacted by any of this. It stays between twelve point five and thirteen point five. Free cash flow, we esteem and we see between €700 and €800,000,000 Compared to the first announcement of the guidance back in February, our expectation regarding LVS has slightly increased. For CVS, we are more conservative about the North American market and our guidance does not incorporate any recovery in this market in the second half of the year, so we see it flattish. Nevertheless, group level guidance regarding profitability and free cash flow remains unchanged and seeing the July already gone, we are very positive to reach it.
Thanks a lot, and thanks for the team. Thanks for your attention, and now we’re available for your questions.
Conference Operator: Thank you very much. I repeat, the combination is nine and star. To answer your question again, if it has been answered by another speaker, please press 3 and star key. All right. There are a couple of questions incoming.
One moment for the first question, please. The first question comes from Sven Baier of UBS. Over to you, Sven. The floor is yours.
Sven Baier, Analyst, UBS: It’s Sven from UBS. The first one is on the Boost program. I was just wondering, obviously, it’s been now up and running for a while. It seems to go really well. I was just wondering if this allows you also to look into additional structural measures.
And if that’s the case, whether you could also give us an example and let us know when it would be the right time to speak about this more comprehensively? That’s the first one. Thank you.
Frank Weber, CFO, KNORR BREMSE: Thanks, Ben. Good to hear you. Yes, I think we have very initially back some one point five years ago when we kicked off Boost somehow made chosen the sequence to do first so to say, the brownfield and greenfield stuff and later on go for some more structural footprint discussions. We have, as you know, in the meantime, the perfect storm kind of what’s going on in the industry and as well in order to also negotiate through some footprint discussions already now. And so that’s what you see reflected in the €75,000,000 We are going for some footprint adjustments basically in regards to Europe, shifting some production from Germany to Poland, shifting some production to Czech, shifting production from Austria to our campus in India.
Those are some structural measures we are intending to do and are already nowadays preparing for that, which is really a strategic move, nothing that we would need to do in order to achieve our midterm guidance, but very strategic move. We have been pursuing already those. Those are some examples, if I would say so. So basically shift more from high cost countries into low cost countries and bring together some efficiencies in terms of synergetic moves.
Sven Baier, Analyst, UBS: Yes. Thanks for that color. That’s helpful. The second question I had was just because you also mentioned the German stimulus benefits, But I guess to benefit more from that, you probably have to increase your infrastructure exposure like in signaling like you did in The U. S.
And obviously, I guess, the signaling deal, the COJALI deal have all turned out to be highly accretive as we could also see now in the quarter again on Signalling. We see big rail merger in The U. S. We see BAPTECH being active. So do you feel you have also have to do something to react to that, to increase your exposure also to the German stimulus?
Or are you still looking to do deals outside the two divisions?
Frank Weber, CFO, KNORR BREMSE: Thanks also for that one. So first of all, I think the potential stimulus program not only in Germany, but also European wide has I would say more phases kind of like the trust infrastructure element. It also depends whether there are some of course GDP stimulus measures included. So it should be by far more having an impact on us than just on the pure extension of railway infrastructure or the expansion of modernization of streets or what have you. So we are pretty well.
We are doing pretty well with that plans even though they are not concrete enough in order to write home on it. But we feel pretty comfortable there. It’s nothing that we would have a revenue impact all of a sudden in a quarter by 500,000,000 or something like that. It’s a very smooth, continuous and sustainable support of the underlying market that we are seeing for many years to come. And that’s it.
We don’t we are not back off, so to say, in regards to anything that should be done. And organically, we will always keep in mind and very clearly strive for that financial guardrails we have been given ourselves. We are not doing something nasty kind of irrational. We have a strict scheme of what we are searching for in terms of targeted businesses and margin profiles that those businesses should have. So nothing also on latest competitors moves in regards to M and A, nothing where we would be so to say, in a defensive position at all.
Sven Baier, Analyst, UBS: But I’m feeling you make good progress on further deals, given that it’s been a while since the Alstom one. You feel you’re going ahead well in that regard? Or is it difficult to find good targets?
Frank Weber, CFO, KNORR BREMSE: Yes. First of all, I mean, the financial guidance that I just outlined that you know well, it’s needless to say that it’s more difficult to find suitable targets on the truck side of things. On the rail side, still opportunities out there, know, this has not changed, I would say, over the last two, two point five years that we have somehow some 10 plus targets on a regular basis on the table, whether we are in the process, ahead of the process or thinking about it strategically only. So we still have opportunities in certain dimensions in the field of aftermarket, in the field of digitalization, in the field of platform business suitable for our aftermarket ecosystems or digitalization of things. And this is something where we also, I would say, not in a hurry, but we are carefully looking at those and it’s this is the situation I would say.
Sven Baier, Analyst, UBS: That’s clear. Thank you, Frank. And also for the clear quarterly guidance for Q3 for both divisions. That’s much appreciated. Thank you.
Frank Weber, CFO, KNORR BREMSE: Yes. Thank you very much, Sven.
Conference Operator: Thank you very much also from my side. The next question comes from Akash Gupta of JPMorgan. Please over to you.
Akash Gupta, Analyst, JPMorgan: Yes. Hi, good afternoon and thanks for your time. I got two as well. The first one is on margins. I mean, you talked about the segment margin expectations for Q3, but I was just wondering if you can also give some color on what shall we expect for corporate costs because I see that corporate cost in Q2 was a bit lower than what we had in both Q1 as well as Q2 last year.
So shall we expect this roughly €10,000,000 run rate for rest of the year? Or do you think it should come back to the levels that we have seen before?
Frank Weber, CFO, KNORR BREMSE: Yes. Thanks, Akash, for that. Obviously, so to say, you have quite an amount of intercompany charges always when it comes to headquarter costs. So always expect for the full year number that’s 60,000,065 million euros roughly for the full year. That’s a number we feel comfortable about.
That means roughly that we are on a level of an average like €15,000,000 plusminus then at times. So this is something that you would see ongoingly. And sometimes you have a quarter where you’ve charged a bit more out than on the others. But that’s roughly the number to take into consideration.
Akash Gupta, Analyst, JPMorgan: And then maybe a follow-up on full year margin guidance. So you did 12.6% margin in the first half, and I think you’re indicating slightly better margin in Q3, do you think we still have a reasonable probability of ending in the upper half of the range, I. E, 13% to 13.5%? Because your guidance is still quite wide and given the progress on first half, I just wanted to understand how do you feel about full year guidance and where you might land based on your anticipation for second half?
Frank Weber, CFO, KNORR BREMSE: Yes. Thanks for that question, Akash. I think it’s as always kind of we try to set the guidance ranges in order that we feel pretty comfortable with what we are planning in regards to the midpoint of those ranges. Nothing to add on this. Obviously, some things need to turn out a bit better in order to be on the upper side and some need to come out a bit worse to be on the lower side of things.
But that’s it. I feel we feel comfortable with the midpoint of things.
Akash Gupta, Analyst, JPMorgan: Thank you. And my second question was on RBS. So you had a good book to bill of 1.2 times in the first half and that is an acceleration from book to bill you had in the past couple of years. The question I have is that how shall we think about phasing of these strong orders into revenue? Are there several orders with longer duration that will have limited impact on the, let’s say, next twelve month revenues?
Just wondering if you can talk about timing of acceleration in organic sales growth given in the first half, we had only 3.8%, which looks somewhat lackluster compared to what your rail customers are reporting in recent quarters? Thank you.
Frank Weber, CFO, KNORR BREMSE: Yes. Thanks. Also here a very fair question. As always, the order intake and the duration of those orders that sit in our order book are quite significantly different between rail and truck whereas the CVS orders usually are scheduled for the next twelve months, so to say, give and take. We talk about even in cases for some projects several years on the rail side, on the project business side.
And it’s plenty of course of those projects sitting in our order book. So, yes, the answer is yes. It’s to quite some extent also a widespread timeline until those projects really turn out to be revenues on the rail side. Our order book is so good. The timing transparency is also so good that we feel totally comfortable to achieve with that existing order book situation that we are having today as well as the newly on a daily basis, newly incoming orders on our side as well on the OE side of things, keeping that we should be able to keep our market share and therefore achieve fully our midterm growth targets of 5% to 6% CAGR for the group.
This is sorry for the Rail business, this is definitely nothing that we see endangered here and fully loaded, I would say.
Akash Gupta, Analyst, JPMorgan: Thank you, Frank.
Frank Weber, CFO, KNORR BREMSE: You’re welcome.
Conference Operator: Thank you very much. The next question comes from Gael de Bray of Deutsche Bank. Over to you.
Gael de Bray, Analyst, Deutsche Bank: Yes. Good afternoon, everybody, and thanks very much for taking my questions. Can I start with the bridge, the EBIT bridge for the LVS division? I mean, what’s striking here is the contribution from M and A, now €21,000,000 contribution to EBIT for only £76,000,000 of revenue. I mean, does imply a margin of around 28, right, which looks much higher than the 16% level I had in mind for the Alstom signaling business.
So why is the accretive impact from M and A so positive? That’s question number one.
Frank Weber, CFO, KNORR BREMSE: Yes. Very generally speaking, we are totally happy, so to say, about the business that we have acquired and the way it developed. The management team has done so far a fantastic job. We have not changed a single person in the management team fully dedicated, fully committed to the company. It’s just great to look at how they work.
And yes, the business, the underlying business as a result is really doing great. Do we have it’s a project business as well It’s not only aftermarket business. So you also have here big parts of seasonalities in. And therefore, yes, don’t, so to say, multiply the results for this first half year and for this quarter by for the quarter by four or for the half year by two.
If you look at the second half year, the number already sorry, if you look at the full first half year, the number of the 28% already comes down. So you see a bit that the second quarter was extremely well run quarter. For the full year, we expect that we even slightly overachieved what we intended the business to reach, but not a margin of above 20% already. We are aiming to improve it constantly further, but it’s seasonality. As a simple and short answer would be seasonality effect.
Gael de Bray, Analyst, Deutsche Bank: Okay. Understood. Then, I mean, I look now at maybe the same kind of bridge at the group level. So I calculated that the margin benefited from around 100 bps of positive portfolio effects. So both positive I mean positive for both RVS and CVS.
And then it implies obviously that the margin would have been only 12.1% -ish in the second quarter without the various M and A activities. I know they are part of the job, right? But nevertheless, on an underlying basis, it appears that the margin trajectory is not exactly positive yet and that it is still down on a year on year basis by about 40 bps or so. So I guess my question is, it’d be great if you could comment on the cost cutting activities, potentially on the amount of savings that have been achieved so far in the first half and what’s expected in H2 maybe also going into 2026 for us to better appreciate the underlying margin trajectory?
Frank Weber, CFO, KNORR BREMSE: Yes. First of all, it’s a combination. Of course, the significant headwinds that we see organically be it quarter over quarter in the second quarter or even for the full half year when it comes to truck and at the same time the quite positive really organic moves that you see on the rail side. But we also need to see that part of the positive developments on the rail side is also driven by the acquisition of Signalling like we intended it to be and that even brought us to a level where we were originally expected to reach only in ’26 already. So keep in mind, of course, the one is significantly reduced and the other is improving.
And I mean, organically, this is not a huge upswing in terms of profitability as those two things to some extent balance each other out. Look at the sheer reductions that we see in the market in North America, which is an accretive margin, a very accretive margin market for us on the truck side where we have a significant reduction year over year. This is the situation. We have to face it that the two businesses are not kind of running synchronized when it comes to the macros of it.
Gael de Bray, Analyst, Deutsche Bank: Well, get it that it was pretty challenging in trucks. But even for RVS, I mean, the organic drop through is pretty dynamic this quarter.
Frank Weber, CFO, KNORR BREMSE: Yes. If you adjust the quarter over quarter, like I said, we had last year a very strong Chinese quarter two. If you remember, we had the discussion here with quite some questions on that very strong quarter two in China and which is something that is definitely not repeating itself this year around. We said we had some pull ahead effects already in the second quarter, which turns out to be true. And we’re coming to the third quarter and to the 2024.
So expect to see a better organic conversion moving into quarter three and quarter four for rail.
Gael de Bray, Analyst, Deutsche Bank: Okay. Okay. That sounds pretty great. So a better organic conversion in Q3 and Q4, but do you also expect to see a step up in organic revenue growth for RBS in Q3 and Q4 compared to H1?
Frank Weber, CFO, KNORR BREMSE: Yes, this should be a level that should be higher than the 4%.
Gael de Bray, Analyst, Deutsche Bank: Okay. Thanks very much.
Frank Weber, CFO, KNORR BREMSE: You’re welcome.
Conference Operator: Thank you. We are moving on to the next question. The next question comes from William Mackey of Kepler Cheuvreux. Please go ahead.
William Mackey, Analyst, Kepler Cheuvreux: Hi, good afternoon, Frank, Mark. Thanks for the time and for the presentations. Couple of questions, probably more higher level. You know, the balance sheet’s really strong, and I wonder if you could just talk conceptually about the strategic flexibility you have to develop the portfolio, in terms of theoretically what sort of leverage rate you could take it to. And building on that discussion perhaps and and what, I think Sven had asked earlier, perhaps touching on where you see, you know, live opportunities to expand the portfolio, perhaps driving into that digitalization and service segments that you’ve flagged before that are adjacent to your business?
And also how you’re progressing with the divestment, the final divestments that you had on the table as part of the one of the later stages of the booster program? Thank you.
Frank Weber, CFO, KNORR BREMSE: Thanks, Will. Totally different angle now. That’s good. So strategic flexibility, yes, I mean, we have currently net debt to EBITDA leverage of around 0.6, so to say. We have or I have always said that I feel totally comfortable with one.
No worries at all. Even above one to some extent is for me absolutely no issue if the right target comes along fulfilling the criteria that we have set. So this is a bit the way we are thinking. We have no issue with slightly one slightly above one if the right target comes along. So we still have some opportunity.
That is the first answer. The second is I mentioned it already, I think it was Sven somehow indicating that we have certain target areas to do something in terms of M and A if anything would be coming along. Definitely, we are a resilient company based on the strong aftermarket that we are having. So the aftermarket area for both divisions is definitely a focus field where we’re looking at to expand our ecosystem in that regard is definitely something the digitalization of businesses, be it OE products, but also aftermarket products on the digitalization side is something where we’re pretty much interested. We have also opportunities to expand our signaling business, of course, more globally, which could then also be something where we find bits and pieces here and there.
And we always said that if we would want to do something in that regard, we would need some acquisition because we don’t have the complete set of knowledge respectively products at hand here. So those are I would say some three, four life examples that I can give you. Third element, how are we can’t can’t even read my own my own handwriting as of Yeah. We have basically some 60% of everything we have initially planned achieved as of now. Now it’s been quite for some months on our side in regards to divestments.
Last one was in January. So we have some €300,000,000 roughly, nearly a bit less than €300,000,000 still to go out of which we have one bigger, let’s say, bigger animal on the plate currently, which is part of the rail business. It’s not the brakes business. It’s not the door business. So, this business is in the production sites pretty much integrated into the other businesses.
So that means in North America, in Europe, in Spain, as well as in Australia, We have to do carve outs, technically do some carve outs. That takes a bit of time. We are on plan to approach investors after summer break. We should be able to start that. But it took a bit of time to divide the FTEs from one bucket to another and have to carve out entities ready.
So we are on track. It took a bit of time. We knew it took a bit of time, and we hope that we can sign it towards the end of the year. This is still the plan, and this is the big chunk. And with that, we would be even able to overachieve the €700,000,000 that we originally indicated.
William Mackey, Analyst, Kepler Cheuvreux: That’s wonderful. Thank you, Frank. My second sort of area of questioning was perhaps in a couple of buckets around gross margins. I wonder if you can just speak to a couple of questions. Firstly, how would you describe the gross margin development in the backlog for Rail?
Should we expect that as that backlog converts, it becomes accretive to the underlying profitability? And secondly, with regard to gross margins in CVS or more generally, in this downturn across the European and North American markets, have you seen any change in the level of gross margin perhaps due to tariff costs or other factors? Or looking towards your 13.5% goal, are we basically is that dependent on volume and operational leverage?
Frank Weber, CFO, KNORR BREMSE: So first of all, I’m not 100% sure whether I understand the question regarding RBS. Pretty clear, we have had difficult times in ’22 and 2023 regarding the high inflation situation where we had the significant cost pressure, but at the same time couldn’t pass on to the full extent to the customers on some of the contracts. But all the other intakes that came in, I would say starting from 2023, all have the same good margin quality that we had in the past plus of course the strategic necessity on top targets that we should need to have in rail. So all the new incoming orders since we counter steered and after we got hold of the inflation situation is totally covering that target aspiration of future RBS margins. Or was that your worry still?
We still have that much or we have again that margin quality. We only had a drag of a year where we had difficulties back in ’22. On the CVS side, no?
William Mackey, Analyst, Kepler Cheuvreux: Absolutely. No worries with Knorr Bram. Sorry. Just wanted the detail of the opportunity. Yep.
Frank Weber, CFO, KNORR BREMSE: Yep. Okay. On the CVS side, no structural changes except also back in the days, of course, for the high inflation times, we had raw material increases and all that stuff. But that’s all kind of normalized and already state of the art kind of. But we have a bit of temporarily sitting tariffs in the P and L even as we speak, which has, so to say, a phasing effect.
It’s not something that we intend to swallow and we will work very hard in order not to swallow it ultimately, it’s still sitting in our P and L as we speak, maybe for two months, three months, four months depending on the lead time of the certain products. But overall, we are trying very, very hard and this is what we intend to do to pass over all the tariff costs to the customers. And the fourth element, second element of your third question, of course, when we announced the Boost program in 2023, the assumptions for the market in truck were roughly that from 2023 onwards towards 2026, they should be rather stable to 1% That’s what we discussed plenty of times. So we didn’t plan for a big growth of the truck markets, not at all.
But of course, we didn’t plan for a reduction This is also true.
Andreas Spitzsauer, Head of Investor Relations, KNORR BREMSE: Super. Thanks.
Markus Zussehr, CEO, KNORR BREMSE: Yeah.
Frank Weber, CFO, KNORR BREMSE: You’re welcome. And that’s why we always said the 13.5% is maybe more difficult to achieve.
Conference Operator: I’ll Moving on to the next question, it is from Lukas Firani of Jefferies. Please, Mr. Firani, go ahead.
Executive, KNORR BREMSE: Good afternoon, everyone. I have a first question just on that point on tariffs. Can you talk a little bit about the headwinds you have on the margin that is related to tariffs and kind of the difference between rail and trucks there of zeroes. It’s pretty small the business there, but it would be interesting to understand the headwinds from tariffs there.
Frank Weber, CFO, KNORR BREMSE: Yes. Lukas, thank you very much on that for that one. We’ve been pretty blunt, I think, with you all since the beginning of that discussion. We are since decades, I would say, as Snowbrams, a company that’s very decently organized. Always went there where the markets are.
We are having high localization rates basically in the countries we serve. And therefore, we are not pulling the localization rabbit out of the head just now as the tariff discussion starts. So this is part of the DNA of KNORAMSE ever since. And I told at the beginning of the year when it all started that we maybe have gross exposure on tariffs of 200,000,000 to $250,000,002 €50,000,000 I think somehow the dimension. It’s a bit more on the truck side than it is on the rail side.
That’s the color I can give to that number. And now it’s about what are the commodities. Ultimately, once there is an agreement there or not there, this is what we will see in the end. Like I said before, we have for a half year now. So basically, it’s four months.
It’s the March and it’s the second quarter. We have some nearly €10,000,000 sitting in our P and L. Temporarily, as I said, temporarily, this is the effect that we had so far in four months.
Executive, KNORR BREMSE: Perfect. Thank you. It’s understood. And then the second one was just on U. S.
Trucks. Can you provide a bit more details on your discussions with customers at the moment? And specifically, kind of is kind of one of the issue tariffs and the uncertainty around it and you know, the difficulty maybe on on pricing trucks and making sure that they’re they’re ready to produce, also kind of general kind of macro uncertainty related to that? Because, obviously, we’re getting more clarity on tariffs of several deals that are being signed and to an extent that’s removing a little bit of that headwind. But do you think the underlying market outside of that uncertainty is also weak?
Thank you.
Frank Weber, CFO, KNORR BREMSE: Thanks, Lucas. With all the topics we are facing in an industry, we’re happy that we don’t have to deal with the pricing of the customers’ trucks. So that’s one topic that we don’t care about as our priority number one. But joke aside, let me see it this way. It’s extremely difficult to predict how the situation in the Class eight and Class six to seven is, of course, also relevant for us, but the biggest chunk is Class eight.
How the market will really develop so many determinants out there who would increase, reduce those levels. We see, yes, we see retail stock levels at quite a big number. It’s more than 90,000 trucks, if I’m not mistaken, already there. It’s a bit of a similar situation like we had towards end of last year. I think it was October, November, when also there were quite some high stock levels which then resulted in lower production.
Long story short, so many ingredients we think about roughly the truck market for Class eight should be on the level for the full year of 02/50000 units give and take. 5,000 units more or less doesn’t move really the needle. So that’s roughly the dimension. We have roughly seen half of it already in half year one and so similar dimension roughly in the second half of the year. That’s the situation.
Days the closure days of plants for the customers are not excessive as we can see compared to previous years. Only one of our customers is closing down in July and August more than ten days. It’s only one. And the others are in between five to eight days as far as we know at this point in time for our according to our EDI systems. We see, yes, that order intakes are quite significantly down in The U.
S. Compared to last year’s quarter two. But so many things around influencing that market, we still see a lot of uncertainty out there. Everyone you ask basically gives you a bit of a different answer. That’s our guess at this point in time.
Executive, KNORR BREMSE: Perfect. And one last follow-up on that point, U. S. Trucks. I know that, obviously, the situation is difficult, but is there any still kind of discussion around kind of EPA changes and whether these are still coming or not?
Or any way your kind of customers are preparing for that? Or it’s no longer
Holger Schmidt, Analyst, DZ Bank: the topic at all? Yes.
Frank Weber, CFO, KNORR BREMSE: Also here, it couldn’t get more if you just listen to some of the OEMs, which I don’t name now, but the one is saying you still believe in some EPA pre buy and even already in ’twenty five. The others are saying not even in ’twenty six. So and I have to admit the OEMs should be much closer of course to it to those emission effects so to say that are deleted or reduced in aspiration. I don’t know about these 30 adjustments that potentially should be made to the EPAR regulations. We don’t know the details there.
But we have anyhow not or never said that we expect any revenue impact for us in the year 2025. So it’s not of relevance anyhow whether there is something coming or not. It would only be a surprise if something would come in 2025, but we don’t believe that. In regard to 2026, let’s wait and see how the discussions will go and the clarifications will go.
Executive, KNORR BREMSE: Perfect. Thank you.
Conference Operator: Moving on, the next question is from Holger Schmidt of DZ Bank Please, Mr. Schmidt, go ahead.
Holger Schmidt, Analyst, DZ Bank: I have two questions. When you acquired Alstrom Signet, you talked about a potential larger project tender. I think the volume was $607,100,000,000 Is this project still in the market? Has it been canceled or just being postponed? And then the second question is on the global AI center in Chennai.
What kind of impact do you expect this to deliver? And when can we expect the positive impulse out of it?
Frank Weber, CFO, KNORR BREMSE: Sorry, please forgive me, Diogo. The second was about Chennai. Okay, okay, Let me start off with the first. You know that a bit of difficult political times we have since quite some months. And the situation in regards to the timeline of the project that project in North America, not necessarily The U.
S, but North America, is still not clear. There have been delays over months due to political circumstances, which is out of our control, completely out of our control. So we can’t say at this point in time. It’s still delayed and discussions are ongoing, but it’s still not clear whether it kicks in at the timing that we agreed within the SPA. So it still needs a bit more time still and the €600 to €700,000,000 for all the others listen for the other listeners was always a multiyear view, of course, the integral of the multiyears in regards to revenue potentials that we saw back there for that one.
The second question is on our AI center. Yes, we are striving. You know that we are we have been always and we are still striving of course for on the one hand side synergetic moves within the group wherever we can grab them. At the same time, of course, for the latest and greatest in regards to technology and the combination of those two aspects is the creation of that hub in Chennai, combination of rail and truck, artificial intelligence and innovation center that we are doing. We have so far had certain bits and pieces here and there and we are doing a combined approach now with the Chennai office and more even to come.
I mentioned to several of the colleagues already at conferences of course that we are doubling down in India. You know that. Marc mentioned that as well already a year ago. We believe in India. We believe in the growth potential of India in both divisions.
And so we have agreed to spend nearly €100,000,000 so to say in the extension of our footprint in India over the years. And there is quite something to come still for us in order to really harvest everything that we have in India as a potential, as I said, for both divisions. So it’s just a start into our doubling down in India what we have seen here.
Holger Schmidt, Analyst, DZ Bank: Okay. Thank you so far. A follow-up on the large project here. I mean, it’s not going to kick in in the time agreed, do you get some kind of compensation?
Frank Weber, CFO, KNORR BREMSE: Yes. However, good question. Yes, there is yes, it’s exactly the way you described it. It’s regulated in the SP and A what would happen in that case. Yes.
So USD 30,000,000 that we would get back, which is some of the net present value of the project overall that we would get.
Holger Schmidt, Analyst, DZ Bank: Okay. Thanks a lot.
Frank Weber, CFO, KNORR BREMSE: Yes, you’re welcome.
Conference Operator: Thank you very much. Moving on to the next question. The next question is from Tore Fangmann, Bank of America. I
Executive, KNORR BREMSE: hope you can hear me. I just, once more have to come back to the North American truck outlook. So if I understand correctly, you expect the truck production in line with H1 in North America. But as I see it, most truck OEMs have recently announced layoffs in the region seemingly looking to reduce their production rate. Has this come up with your recent discussions with them?
Or is there any reason why there’s a difference in the view? Thank you.
Frank Weber, CFO, KNORR BREMSE: So thanks, Tove. That’s not a contradiction at all. We have also reduced our workforce in North America accordingly. Maybe the one is a bit faster than the other or the other way around. I don’t want to touch on this, but we have also adjusted our workforce structures.
Usually, we have some 10% to 15% always this kind of flexibility in the blast basically kind of in a nutshell a global number 10% to 15% is the flexibility we have consisting of temps and some other flex time workers, and we have done the same thing. So both messages, I would say, are not contradicting each other.
Executive, KNORR BREMSE: But you’re not planning to reduce the production there. Just so you can have still the same production basically with fewer peoples in the
Markus Zussehr, CEO, KNORR BREMSE: factories? Yes. Yes.
Frank Weber, CFO, KNORR BREMSE: The current production, we’re not producing the same amount like we have produced last year. That’s obvious because the market is down. But as of today, looking into the future of the year, we keep that production with compared to last year’s lower number of people on the shop floor and in the management as well and white color as well needless to say.
Conference Operator: Next question is from Vlad Tsegierski of proceed.
Andreas Spitzsauer, Head of Investor Relations, KNORR BREMSE0: Yes, gentlemen. Good afternoon. Thank you very much. First question is on China Rail business, please. In 2023 strategy presentation, you expected your rail revenue in China to bottom at around €650,000,000 this year.
No. Could you update us what are you now expecting in terms of China revenues this year based on what you have seen recently? And how this new expectation is compared to this €650,000,000 previously?
Frank Weber, CFO, KNORR BREMSE: Thank you. Thank you, Vlad, for that question. He’s been putting on Putting us on sale. Sale for the last three years, isn’t it? Vlad, I hope that your target share price is correlated to that 6.5 So a tenth of that $6.5 So maybe with the news I give you now, we have potential to increase it.
Are right, Vlad, fully right. We have given the very difficult years of ’twenty one and ’twenty two where we have been taken out of the market to a large extent. We have been losing market share. The ever grandi situation kicked in, the real estate market complications, all that kicked in and our assumptions going forward back in the days where that the market should normalize for us on a very stable level in China, Mainland China of around €650,000,000 maybe even a year that it could do it down to 600,000,000 That was the rationale behind it given a not increasing metro market and even a stable kind of high speed market going into the future. The situation now is that the high speed business is doing better than we expected it to do back in the days.
We thought that maybe 100 to 150 high speed trains should be built a year. Going into the future, we are now at the level of roughly two forty, 50 high speed trains a year. We are having a better aftermarket than we expected back then. The ridership levels in China is still the only country in this world where ridership levels nowadays are exceeding 2019 numbers by far. So they are more than 20%, 25% higher than what we had in what China has seen in 2019.
So better ridership levels and better high speed brought us to levels which are now, I would say, above 700,000,000 close to €750,000,000 when it comes to Mainland China alone. So that’s the situation I would say. So maybe €100,000,000 up compared to what we back then thought driven by those two things. At the same time, Metro is a bit weaker, the Metro market. So no increase yet due to real estate market coming back.
So bit the situation there. If that’s okay for you, Vlad, then or should I go into more details?
Andreas Spitzsauer, Head of Investor Relations, KNORR BREMSE0: That’s great. That’s super helpful. I appreciate you sharing this. If I can also ask you about the book to bill, Adreel. Obviously, as you mentioned, 15 quarters of FY ’one, very solid and consistent performance over here, which is great to see it.
Would you be able to give us some color of how this order intake is Rail is split between new equipment orders and service orders. Is this split roughly consistent with what you report in revenues or backlog duration in one part or the other is expanding faster?
Frank Weber, CFO, KNORR BREMSE: First of all, like I said, the book to bill ratio is significantly above, not a steady state, of course. Always and this is the clear plan and also looking at the tenders that are out there in the market, something above slightly above one, one point five one point zero five, sorry, not 1.5. It’s something that we would need going into the future when it comes to achieve our revenue case for the business. And so just not that anybody is worried if there would be a quarter where our order intake book to bill is not that fantastic like it used to be. It doesn’t have to be.
We don’t know how to get the production capacity if it would continue with 1.2 going into the future. The split of order intake is roughly in a similar dimension like you see on the revenue side of things between OE and aftermarket. That’s also somehow the split of order intake.
Andreas Spitzsauer, Head of Investor Relations, KNORR BREMSE0: Super helpful. Final quick question from me. Obviously, you have seen consistent increase in share in aftermarket and rail, I would say, much since 2019, when new equipment revenue has been broadly flat and aftermarket grew quite a bit in rail. Is it the trend you expect to continue? Or there is a point when new equipment growth starts to outperform the aftermarket growth in rail?
Frank Weber, CFO, KNORR BREMSE: Yeah. Flat, there was a bit of a of a noise in the line. Can you repeat again which trend I see changing or confirming it?
Andreas Spitzsauer, Head of Investor Relations, KNORR BREMSE0: Yeah. Absolutely, Frank. So the question is on the split of revenues in rail between new equipment and aftermarket. Aftermarket has been growing the share in overall RVF revenues pretty much since 2019. While the absolute euro million level of new equipment revenues in rail has been broadly stable for the past five, six years.
So the question is, is there a point when new equipment starts to outgrow aftermarket within the revenue mix or aftermarket will continue to gain share?
Frank Weber, CFO, KNORR BREMSE: Thank you. Thank you. Obviously, it’s a mix. It’s a heterogeneous product mix that we’re also having, and we’re having also, of course, as you know, the regions. So we have the brakes business, we have stores business and we have also HVAC business.
And we are of course strategically striving to grow our aftermarket a bit stronger than the OE business. That’s the strategic target that we are having. Of course, OE should grow as well. That’s clear, but aftermarket a bit stronger. We have achieved, of course, a stronger aftermarket aftermarket growth in the past.
This will now be the challenge to go into the future. To keep the OE business stable is definitely not the strategy to go into the future. It’s we expect growth on the OE side as well as on the aftermarket side with a bit better growth rate on the aftermarket side.
Andreas Spitzsauer, Head of Investor Relations, KNORR BREMSE0: Super clear, Frank. Thank you very much.
Frank Weber, CFO, KNORR BREMSE: You’re welcome, Vlad.
Conference Operator: Thanks a lot. At the moment, there are no more questions in the queue. There’s no more questions to be incoming. So with that, I’m closing the Q and A session and handing the floor back over to the host.
Frank Weber, CFO, KNORR BREMSE: Thank you very much.
Andreas Spitzsauer, Head of Investor Relations, KNORR BREMSE: We wish you a very nice summer holiday break and looking forward to meet you and talk to you next time. Thanks and bye.
Frank Weber, CFO, KNORR BREMSE: Thank you. Bye bye.
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