Knorr-Bremse AG

Good afternoon, ladies and gentlemen, and welcome to the Knorr Brink, the agent conference call regarding the Q2 2024 results. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Andreas Spitzauer, Head of Investor Relations. Please go ahead.

Thank you, Operator. Good afternoon as well as good morning, ladies and gentlemen. I hope all of you are very fine. My name is Andrea Spitzow, Head of Investor Relations. I want to welcome you to CronoBremse's conference call for the second quarter results of 2024. Today, Marius Zesea, our CEO, and Frank Weber, our CFO, will present the results of CronoBremse, followed by a Q&A session. The call will be recorded and is available on our homepage www.canada.com in the next relation section. You can find today's presentation and later a transcript of the call. It is now my pleasure to hand over to Marcus Lucea. Please go ahead.

Thank you, Andreas. Thank you. Welcome, everyone, to our call regarding the financial results for the second quarter of 2024. Let's start with chart number two. As usual, I will start with an overview of the highlights before Frank dives into the details, followed by a Q&A session. Let's take a look at the key messages from today on chart two. Number one, Knoll-Bruns' outperformance in the billion since the beginning of the year has been remarkable. For rail, we continue to see strong demand across all regions and a positive margin strength. Despite the weakening truck market, CVS's latest results confirm its remarkable robustness, which is an integral part of its business model. Last year, I presented our Booth 2026 program for the first time. One year later, I am very pleased to inform you that we are fully on track. Later, I will provide more details on the measures we have successfully implemented so far. Number three, with the contract extension of branch fees as a member of the executive board, the Supervisory Board of Governors has ensured further... continuity in the leadership team. Bernd is responsible for the track division and he will continuously drive the success of it. The entire executive board team works extremely well together. The situation that Dr. Bernd did not have always in the past and it helps us achieve our goals quickly. Last but not least, we raised our guidance for 2024 and our three future hours on performance in both divisions. In the second quarter, in the positive outlook for the rail division, the second half of the year, 2024. So, let's please move to chart number three. The progress of our growth and efficiency program, Boost 2026, which we launched one year ago as a 30-day update, is very successful. The most important goal is to return Brock Mensah to its former strength and beyond. That is why we are not only focusing on cost and efficiency, but also want to further boost our possible growth. The basis for this is to secure global technology, market leadership, positioning in the rail and truck market. At the same time, we are striving to expand into new growth areas and existing and new markets. To achieve these ambitious goals, we have set up 150 specialized working groups around the world. These teams are strategically located across the different regions and consist of experts from various disciplines to optimize processes and structures. Today, we would like to focus on some of them. Number one, increased capacity in best-cost countries. KD has been specifically centralized for decades. This means that local management is close to our customers and has a very high level of P&L responsibilities. For the next phase of efficient growth, we are now systematically expanding our production sites close to our customers, like Poland, Mexico, and India, as few examples could be named. Number two, aftermarket. Cofar is a wonderful company. Compared to our expectations at the beginning, the corporation, the company has developed better, and the integration into KD has gone extremely well. What are our next steps and goals? Today, roughly 15,000 diagnostic tools from Kohane are used in workshops worldwide. We would like to leverage these unique gateways to further increase the number of applications here. And second, Kohane is the key market in Europe. We see good growth opportunities around the U.S. and other markets, too. Number three, in order to reduce complexity in the rate of cost, we would increase the number of legal entities further. Beginning of 2023, the number was at 126. Now, at the end of 2024, we expect 100. Number four, in an increasingly connected and competitive business world, optimizing processes is crucial to success. To meet these requirements, we are expanding our global business services platform, GBS, by centralizing functions such as finance, accounting, human resources, or procurement, we can leverage economies of scale and significantly reduce our operating costs. At the same time, we want to be flexible and take local conditions into account. That is why we are currently focusing on our four GBS hubs in Czechoslovakia, Czechia, for Europe, India as our global hub, and for the APAC region, Mexico for North America, and as well, so too, for China. Coming to chart number four. Part of Boost is Brownfield, a federal efficiency program which targets business units with total revenues of 1.4 billion euros. In Brownfield, there are fixed pressures included, which are already defined and mostly implemented for entities which combine their revenues of roughly 700 million. Compared to the EBIT margin in 2022, we expect these measures to lead to a margin increase by 70 base points by 2026, as part of the overall 200 basis points improvement, which also includes selling initiatives. For CVS itself, boost material includes structural material cost levels, such as value analysis, value engineering, international realignment of the supply address, and an optimized supply chain management concept. Global responsibilities, the realignment of the CVS organization, will lead to simplification of interfaces and responsibilities to streamline and accelerate key processes. In addition, accountability will be ensured for a clear global definition of workers, capabilities, and interfaces. R&D optimization, CVS, strengths, and USPs are based on innovative and customer-oriented products. We want to maintain this. At the same time, we want to reduce retail specialties, more consistently terminate and successful projects, and achieve our growth targets with our existing R&D team of today. For RVS. At RVS, we always see potential for improvement in the areas of inventory, pricing, and China. Especially in China, cost reduction is a slightly declining OE business. Longer term and further expansion of the growing aftermarket business. As previously mentioned, we want to further expand our production footprint in countries with a good cost structure and no further expander will even reduce the number of employees in high-cost countries. We will take restructuring measures in business areas where we want to benefit from growth opportunities in the long term and we do not yet fully meet our target. We do not expect high one-off costs, but rather want to make use of staff fluctuations. Chart number five. Let me explain the current status of our sell-in program in more detail than in chart four. Overall, we want to lift the EBIT margin additionally by around 130 basic points until 2026. This together with the 70 is combining to 200. This is what we said. This is what we do. That's the difference with promises. We don't promise. We just execute what we say. That's something which I would like to highlight before we speak about something like promises. We have finally identified and decided all the business units that we want to sell. Their combined annual revenues amount to slightly more than 700 million euros. The first basket mainly includes business from the truck division, and the second basket is more focused on rail. Following the sale of Hepler and Safety Direct, two further companies are in the sales process currently. One of them is GT Emissions Systems, which we informed you over the last two days. Thereafter, the following units to be sold are larger in terms of revenues, which entail a longer carport process. Accordingly, we expect the clothing to take place more towards 2025. and even 26. Overall, we are fully on track with our sales program and looking forward to seeing more institutions in the next years to come. Chart number 6. Let's have a quick look on the current market environment. Here we see rail in Europe and North America is experiencing solid growth in both OE and aftermarket currently and going forward. Growth in Europe is supported by the unbroken political will to make the mobility of the future greener and more sustainable. For example, there is a significant push to replace obsolete sleeves, which will further fuel demand for new rail vehicles and related infrastructure. China's rail market is performing well this year, particularly in the aftermarket, which benefits from last year's push-out of rain-diminishing topics. Additionally, the high-speed segment continues to receive decent support from the government because ridership levels of today are above the pre-coronavirus. Globally, OEMs are reporting higher order books, indicating a robust demand for new rail vehicles and equipment. The pricing of new contracts in rail remains favorable, which is a clear margin driver for RDS. The rail industry continuously faces supply chain challenges, particularly at the level of small specialist suppliers in the industry. As you know, we have hundreds of them. These issues can cause delays and increase costs, but efforts are ongoing to mitigate these disruptions through better planning and flexible sourcing. But as you know, for us, the delivery fidelity is key of our success. So this is always to keep in balance with our network and capital. The total number of passengers in trains in the full year 2024 is expected to be higher than last year, so it has to be expected to be a very positive trend also in the year 2025. In the second quarter of 2024, the production rate, especially in Europe, remained significantly lower year over year, while the price sense of CVS was supported. In North America and China, production rates were only declining slightly or stagnating. On a full year level, we believe the decrease of production rates in Europe, CBS, will exceed 10% over the year. In North America, the potential decrease should be lower than in Europe, but still negative, slightly negative. The market in China develops promising but makes, including growth momentum driven by exports, especially into Southeast Asia region, but a weak domestic market at the same time. We observe the development in the stock market closely, and we are able to react quickly to all challenges, if necessary, especially in Europe. Going to chart number seven, let's move to an overview of our first half year KPIs for 2024. Almost all major financials move higher year over year. Most important for me and us was that the operating unit margin It's up by 107 basic points, 12.3. In the first half, 2024, well supported by a boost efficiency program. You remember we spoke about EBIT margin, which is exceeding 14% by 2026. We started at 11.1 in 2023, and now we are half through the 12.3. So it looks very, very promising that we will reach what we set. In addition, order book remains on a very high level with 6.8 billion. It provides good visibility and confidence for the quarters ahead regarding neutralization rates. Please, this is always a crucial keeper because that was last year included. First-hand C-Cash law for the first half of the year has reached 64 million euros positive, a strong improvement versus last year where we still were, at this time of the year, negative. I would like now to hand over to Sam for more financial insight regarding our second quarter.