Knorr-Bremse AG

Dear ladies and gentlemen, welcome to Knorp Wembley full year and Q4 2021 telephone conference with CEO Dr. Jan Maastricht and CFO Frank Weber. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties during the conference, Please press star key followed by the zero on the telephone for operator assistance. May I now hand you over to Andreas Spitzer, Head of Investor Relations, to lead you through this conference. Please go ahead.

Thank you, operator. Good afternoon as well as good morning, ladies and gentlemen. My name is Andreas Spitzer, Head of Investor Relations of Knobremse AG. I want to welcome you to Knobremse's conference call for the preliminary results of Julia 2021. Today, Dr. Jan Rosig, our CEO, and Frank-Marcus Weber, our CFO, will present the results of Knorr-Bremse followed by a Q&A session. The conference call will be recorded and is available on our homepage, www.knorr-bremse.com, in the Investigation section. Here you can find today's presentation and later a transcript of the call. It is now my pleasure to hand over to Dr. Rosig. Please go ahead.

Thank you, Andreas, and welcome, everybody, and thanks for joining us today. As usual, I will start with an overview about the highlights before Frank dives into the details in our Outlook for 2022, followed by a Q&A session. 2021 was a turbulent year, full of challenges due to the pandemic, but thanks to the outstanding execution of the entire Knorr Bremse team, we mastered it very well. We delivered good profitability and improved all financial KPIs significantly, not only in the past quarter. In full year 2021, we generated revenues of 6.7 billion euros, up 9% and an operating EBIT margin of 13.6%, 40 basis points higher year over year. With these results, we fully achieved our fiscal year 2021 guidance. Most importantly, our order book is at record level and underlines the strong market fundamentals in the rail and truck industry. CVS was the key driver of 2021, with a revenue increase of 20% and EBIT margin improvement by 240 base points, despite the challenging supply situation in the truck industry. RVS generated flat revenues at an EBIT margin of 18.1%, slightly above expectations after another challenging year for the rail industry with project postponements. In Q4, business activity clearly improved as promised with a very strong order intake following a book to bill ratio of 1.49. This results in a book to bill ratio of 1.05 for the full year. In 2021, On the basis of unaudited and preliminary numbers, we have reached the important goal of achieving carbon neutrality at Knorr-Bremse sites thanks to our own climate action measures and supported by high-quality green energy certificates. We are also fully on track to reach another important environmental goal of halving our CO2 emissions by 2030. We at Knorr-Bremse aim to use all possible levers to contribute to decarbonization, above all with our ambitious environmental efforts and our product portfolio, but also by tying our goals and efforts to financial commitments. So we adapted ESG targets in the short-term incentives of the management, human remunerations from 2022 onwards, and just recently issued an ESG syndicated loan tied to our sustainability rating. Let's move now to chart number three. As mentioned, we have fully achieved our fiscal year 21 guidance. Revenues of 6.7 billion euros are within the range and profitability with 13.6 is even slightly above our target. Over and above that, two important pillars of our equity story could be proven again in fiscal year 21. We grew faster than the markets and profitability showed a higher level of resilience. The high focus on cash and cash conversion rate, as mentioned, has paid off as well. We achieved a strong free cash flow of 600 million euros and a very solid cash conversion rate of 92%. In terms of corporate governance, we further shortened reporting timelines and managed to publish the preliminary figures eight days earlier this year. Increased EPS and stable ROCE at stolid level underline Knorr Bremses' superior business performance as well. Let me continue with chart 4 and the highlights of our rail division in 2021. As rolled out at the capital market stage three months ago, Knorr Bremses' strategic path consists of our traditional business and the expansion in new growth markets. Our operational highlights are a clear proof of this strategy. In 2021, RVS won major international contracts with all large OEMs around the world. Besides many others, I would like to highlight the large metro contract with Stadler in Berlin and the major Citalis equipment contract with Alscom. Both are long-standing customers of our rail division and their awards are a clear sign of continuation of our strong relationships. With the exposition of EVAC in June 2021, we expanded into the attractive market segment sanitary systems of trains and enhanced our position as a global system provider in rolling stock. Also in the area of new growth markets, we can repost progress. We won our first contract in the area of digitalization such as a cooperation agreement with Deutsche Bahn for sharing data from train operators and a data analytics contract with Siemens for remote condition monitoring of the air conditioning system of regional trains in the UK. Our partnerships with the major global OEMs are better than ever, not least due to the high innovation standards that Knorr-Brenzl provides. We at Knorr-Bremse aim for new sustainable solutions and digitalization is becoming increasingly important. Therefore, we are expanding our R&D activities, including our involvement in startups like Railnova. This company is the leading supplier of railway telematics solutions and maintenance workflow software to the railway industry. Digitalization in the rail freight business also offers great potential for us. I will come to this at a later point again. Let me proceed to chart 5, with the highlights of CDS, which follows the same approach of traditional business and the expansion in new growth markets. Our efforts in 2021 overall focused on enlarging our positions in e-mobility and automated driving. In order to meet the strong demand in China, the truck division expanded manufacturing capacities there. As market leader, we continue the strategic operations on automated manual transmission, advanced driver assistance, and highly automated driving with Dongfang. With a global scalable brake control system, we have created a next generation technology and a strong, flexible platform for our customers also laying the groundwork for automated driving. In April, 2021, we signed a new major supply contract worth approximately 1 billion euros with one of the largest European OEMs. Among the extension to cover serial deliveries of current braking and air treatment systems, also a new supply contract providing GSBC as well as the global scalable air treatment system. In terms of new business, we won the first big contract with our electric power steering solution for Knorr Bremse. I will elaborate on this topic later. To drive e-mobility, we founded the e-cubator to bundle know-how of 60 specialists last year. In this context, I would like to mention the successful launch of our e-compressor rotary VW. It is scalable to variable e-truck air requirements and has taken a market leader position within a short period of time with several business awards won so far. This technology will continue to strongly support our content per vehicle growth. In both divisions, we are pioneers in the respective megatrends and also like to engage with young companies and startups to enter new business fields. In 2021, we invested in the startup AutoBrains, which supplies video perception technology for realizing systems solutions for advanced driver assistance and automated driving. Let me continue with an overview of the markets on chart six. The global rail market was clearly affected by COVID, which was mirrored by less rail traffic in 2021. Nevertheless, general market characteristics are fully intact and market drivers long-term are unchanged. The biggest rail market for RDS Europe remains to be a strong growth driver now and in the future, based on our strong market share, especially in brake systems. The ongoing low ridership levels around the world burden the overall dynamics in the OE and aftermarket business, which is the reason for ongoing postponements of projects. Throughout the current year, we expect a sequential recovery demand after two quite difficult years which should lead to a book-to-bill ratio of above 1 for RBS in fiscal year 2022. The rail market is increasingly affected by supply issues, cost headwinds from components and raw material price increases this year compared to last year. On the truck side, underlying demand in Europe and North America currently is strong and utilization rates of trucks remain on high levels, due to the high global freight and transportation needs. So far, the CDS team has well managed the crisis. Nevertheless, the situation remains tense for semiconductors, components, raw materials, and in the area of logistics. In addition, we are feeling the challenges of general inflation. Several production costs touched and planned shutdowns from OEMs caused by supply issues negatively affected truck production rates in Q4. The Chinese truck market, as expected, remains on low volumes since the introduction of China 6 in July. This is also not expected to recover anytime soon. In the coming quarters ahead, we expect that the global demand for trucks will continue to be higher than supply for the industry. Therefore, the development of the global truck production rate until year-end 2022 will depend heavily on the development on the supply side. In general, however, we expect a positive trend in Europe and North America. In China, however, the truck production is expected to be lower in 2022 versus 2021. But Knorr-Brenner should be able to outperform this development again. On chart seven, I would like to share our confidence for a solid development in the rail industry in 2022. As mentioned, rail was hit hard by the pandemic so far, which is also visible in the order books of the major European OEMs. Please keep in mind that RVS generated roughly 50% of its revenues in Europe. Shortly before the outbreak of the pandemic, the order backlog of our biggest customers in Europe amounted to around 100 billion euros. In the first year of the pandemic, this backlog has decreased only slightly. No cancellations and a clear positive sign from the rail operators for the long-term demand for train capacity. Then there was a significant recovery over the last year. Our customers' order backlogs rose to new highs. Please note that there are usually a 9-18 month free time between our customers and us. Accordingly, we expect our order intake to develop well in the further course of 2022. With this, I would like to hand over to my colleague, Frank Weber.