Knorr-Bremse AG

Dear ladies and gentlemen, welcome to Knopren's 18th conference call to the second quarter financial results. And our customer's request for this conference will be recorded. As a reminder, all participants will be in a listen-only mode. If any participant has difficulty hearing the conference, please press star key followed by zero on the telephone for operator assistance. May I now hand you over to Andrea Spitzauer, Head of Investor Relations of Knorr Bremse, who will lead you through this conference today. Please go ahead, sir.

Thank you, operator. Good afternoon as well as good morning, ladies and gentlemen. My name is Andreas Wittsauer, Head of Investor Relations of Knorr Bremse AG. I want to welcome you to Knorr Bremse's conference call for the second quarter results of 2021. Webcast and conference call will be recorded and they are available on our homepage www.knorr-bremse.com in the Investor Relations section. Here you can find today's presentation and later a transcript of the call. It is now my pleasure to hand over the call to Dr. Jan-Michel Rosig, our CEO, and Frank-Marcus Weber, our CEO. Please go ahead, Dr. Rosig.

Thank you, Andreas. and welcome everybody to our today's conference call. Today's focus is primarily on the business figures for the second quarter, as well as on our outlook in an environment that remains challenging. Before we look forward to your questions and comments. In the second quarter of 2021, we continued our recovery from the corona pandemic and again increased order intake revenue, earnings, and free cash flow, in some cases even significantly. In the second quarter of 2021, Knaubremse generated revenues of 1.7 billion euros, which is an increase of 21% year over year, and an EBIT margin of 14.1%, up 200 basis points. We continue to see a very strong performance from our extractivists, CVS was the key driver in the second quarter, reaching revenues of 879 million euros, an increase of 52%. Even margin came in at 11.2% after 3% in the previous year. Rail market globally is still meaningfully impacted by the pandemic. CVS, as expected, generated revenues of 849 million euros, stable versus previous year and an increase as promised versus the prior quarter by more than 5%. EBIT margin came in at 18.4%. In terms of corporate governance, which is an ongoing focus topic at Knorr Bremse, we managed to shorten our reporting time by one month versus second quarter 2020 and rolled out an employee share program for all 13,000 employees globally in July. Moreover, I would like to take the opportunity to cordially invite you to attend our Capital Markets Day on 29th of November, 2021. We will come back on this topic at a later point. Based on the overall good results in the first half of 2021, we confirm our guidance for full year 2021. Let's have a look at the current market situation and business outlook for both divisions on chart 3. Last year the rail market was moderately affected by the pandemic and this year the recovery is still slow and more protracted. While general market fundamentals are considered to be intact and long-term growth drivers remain unchanged, we see ongoing shifts of projects both in OE and aftermarket. We expect this development to remain during the year. Flona persistently results in less rail traffic and fewer trains on the tracks, which affects the whole rail aftermarket business. We saw last year that ridership levels recovered with decreasing infection rates, but at this point in time, it is difficult to forecast when we will return to normalized levels again. Nevertheless, we do not have to record any cancellations. Overall, 2021 is another corona year for rails, but we believe Q1 should have been the weakest quarter for RVS. In Q2, we started to recover already. The degree of business improvement should speed up gradually in the second half of this year. Proof of this are very good order intakes announced by our OEM customers for the past quarter, which will also reach us with some delays. Overall, we are not happy but also not concerned about the rather slow recovery in the first half of the year. due to the promising long-term growth drivers of the rail industry. Additionally, we also expect long-term that global investment programs supporting rail infrastructure and covering losses of rail operators will mitigate the negative impacts of corona. On the truck side, trade markets have continued to be strong and utilization rates of trucks remain on high levels. Demand is high, but truck OEMs have seen several production disruptions and production capacities are limited due to the ongoing supply shortages, predominantly in the field of semiconductors. However, due to the fact that the production of semiconductors has not improved yet, and distributed inventory levels have deteriorated, we expect the situation to remain tense in the second half of the year and to continue in the first half of 2022. The strong ongoing recovery is also seen in solid truck production rates, especially in Europe and North America, while China, after several months of very strong growth, started to normalize on a solid level. Truck production rates for 2021 will depend predominantly on the development of the supply side. However, market research companies currently mirror the strong underlying demand by forecasting significant increases in Europe and North America overall in 2021. We share this opinion. Let me continue with Chart 4 and the operating highlights of those divisions. We will reach a very important milestone in our climate strategy already by the end of 2021. We expect to become CO2 neutral. Thanks to our climate action measures and supported by high quality green energy certificates. They're going to increase the proportion of electricity from renewables that we use, which is why Knorr-Bremse has signed an offsetting agreement with the Berlin-based Climate Protection Organization This is an important step on the way to reduce our CO2 emissions in absolute terms by 50% until 2030. After two decades of worldwide use, Knorr Bremse celebrated the 100,000th delivery of the world's best-selling metal brake control system, CubeControl. we celebrated the official start of our steering production in Thailand. The new plant is an important step to match rapid market demand in Southeast Asia and increase KB's presence in the Asian region. Just recently, we announced that KB and Alstom extended their framework agreement of hydraulic brake systems for Citadis channels for another five years. Having started in the last quarter of 2020, Knobremse is supplying break-in as well as entrance systems for 69 Citadis light rail vehicles. The extension marks another joint achievement in the long-standing partnership between Alstom and Knobremse on the Citadis platform. You see, Alstom sticks to our long-standing partnership even after they made two smaller acquisitions in the field of rail-breaking. Coming to our newest acquisition, EWAG. EWAG is the world's leading supplier of sanitary systems for regional and high-speed trains, with over 100,000 installed units worldwide. With the acquisition, we expand into an attractive market segment in rolling stock and enhance our position as a global systems provider. EVAC has clearly a USP of quality leader, which is reflected in solid EBTA margins above 10% on adjusted levels. Its business model is based on an effort-like strategy, like KB strategy, and EVAC enjoys a high aftermarket share of 40% of revenue. We expect this market segment will be characterized by above-average growth opportunities in the coming years. Reliable integrated sanitary systems are an operationally critical component for train operators and necessary for train availability. Yet all of us have had the experience in this regard when it doesn't work. EVEX fits very well to KB's business model and we can leverage its global reach under the bigger umbrella of RVN. With this, I would like to hand over to my colleague Frank.