Knorr-Bremse AG

Hello, ladies and gentlemen, and welcome to the Q1 2025 Financial Results Conference. At this time, our 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 Andreas Schwissauer, Head of Investor Relations.

Thank you, Operator. Good afternoon as well as good morning, ladies and gentlemen. I hope all of you are very, very fine. My name is Andreas Spitzauer, Head of Investor Relations. I want to welcome you to Knorr-Bremse's presentation for the first quarter result of 2025. Today, Marcus Tosea, our CEO, and Frank Weber, our CFO, will present the results of Knorr-Bremse, followed by a Q&A session. The conference call will be recorded on page www.knorr-bremse.com in the Investor Relations section. It is now my pleasure to hand over to Marcus Tosea. Please go ahead.

Many thanks, Andreas. Ladies and gentlemen, welcome to our capital market poll for the first quarter 2025 results. Let's start with the key takeaways for today on the page two. To keep it short and crisp, it's now Ramses in good shape. Quarter one developed as expected. We demonstrated resilience in ongoing challenges of time and ability we have maintained for more than two years now. due to the decentralized set-up of Joe Brunson, our strong local-for-local production and business approach, we have limited cross-border shipments and high localization rates in all imported regions. The overall balanced regional mix of approved revenues limits terrorist risks which we all have to face and which we all currently face. Additionally, we have a solid foundation with strong customer elevations, a superior financial position, industrial backbone, leading technologies, and most importantly, the right people at the right positions and locations. The new U.S. tariffs, if they will come, clearly don't make our lives easier. But we are confident and have the option to pass on this extra cost via price increases to our customers. Further potential implications and effects of the tariffs cannot fully be assessed at this point in time, As you and us know best that it is unpredictable what will come from this president, but we monitor the situation closely and have a task force in place to react quickly if necessary. Back to the part that is in our hands and that we control completely our boost program. We are fully on track, continue to execute the implemented measures. You know that we are in the process of selling two more assets and the respective confines are ongoing as we speak. KV signalling integration proceeds according to plan. We are working on further aspects of greenfields and will provide an update on this topic in the course of the year. Our vision is clear. Develop KV into a leading enabler for sustainable mobility and transportation in order to make it a high-quality capital goods company again that creates value. confirm our guidance for 2025 and are confident to reach our medium-term 26 targets as well. Let's now take a look at the market situation for rail and truck. Looking at the rail market, we can see that underlying demand remains very strong in all regions, also reflected in the high order intakes and record order books of RVS and its customers. We assume that demand still remains strong in the coming quarters, leading to an expected book-to-bill ratio of above 1 on a full-year basis. A good market development in China, and the expectation that 2025 should be as good as 2024 for our rail division are particularly pleasing for us. Please also bear in mind that rail's legacy business, meaning the inflation burden business, has been reduced to a smaller residual amount, which its margin supports as well. The truck markets continue to be challenging in all major regions. We expect the market environment to remain weaker in the first half of the year and still assume higher truck production rates in the second half of the year. Currently, it looks like Europe should develop slightly better and North America worse than originally expected. Both effects should balance each other out. Our assessments are based predominantly on many discussions with customers, but also on analysts' focus. As a result, we lowered our assumption regarding trust works in North America for 2025. In contrast to the VISA or e-business in trust, we expect resilient growth of opportunities in the aftermarket based business. However, we also see opportunities in the current tense trust markets overall via executing cost measures in our truck division and want to use the current situation to strengthen them. Our focus is on further optimizing our costs and searches. Let's now turn to slide 4 and look at the first quarter financials. Some of them have already been published with the preliminary release on April 29. Oil intake achieved a strong result with a 12% increase year-on-year to almost 2.4 billion euros. Both divisions contributed to this growth. Government generated revenues of almost $2 billion, more or less a stable development year-on-year. RBS compensated for CBS market-driven top-line performance last year. From a regional point of view, the APEC region, especially China, but also North and South America, contributed to the revenue increase, while Europe reported a decline. Operating profits increased. Operating avid margin benefited from the rail division, too, in particular from a strong aftermarket business operating leverage in general, as well as our boost efficiency measures. Consequently, operating avid margin was stable year on year. In our Q4 results, we already announced potential restructuring measures which we now intend to increase to 75 million euros. So far, these efforts have become more complete and expenses of around 23 million euros were already realized in the first quarter of this year, 2025. The development of rails operating avid margin was solid, seeing an increase of 50 basic points to now 15.6%. CVS operating avid margin decreased by 150 basic points to 9.5%. Frank will provide us with more details later. Cash flow, usually negative in the quarter one, due to overall business dynamics, amounted to 50 million plus euros, well supported by strong operations. I would like now to hand over to Frank, who will outline more financials and dollars into the division. Thanks, Mark. Let's directly move to slide five. CapEx amounted to 53 million euros, which represents in relation to revenues only 2.7. This is 19 million euros and 90 basis points below previous year's level. Following several years of higher CapEx, we adjusted the target range of CapEx to revenues going forward from 5% to 6% now to 4.5% after the completion of several projects that we had at hand. You all know that we want to increase CapEx efficiency at the same time, which is what we are driving with the optimization of our global footprint initiative. We have further improved our networking capital efficiency on an apples-to-apples basis by roughly two days down to 67.2. Including KB signaling, we are now at a level of 1.56 billion euros in 71.6 days. All improvements are a result of the collect program measures and strongly supported our free cash flow development as well. Due to the rather stable and the acquisition-driven higher capital employed working capital, ROSI slightly decreased from 19.7% to 19.5%. You know that ROSI has a high priority for us. with a target of more than 20%, a level which we are planning to achieve again in the coming quarters, driven by, foremost, a higher level of profitability. Mark already mentioned our strong free cash flow. Consequently, the cash conversion rate was also quite high, reaching 10%. It is a very strong first quarter cash flow performance and clearly shows the success of our collect initiative bottom line. The result was also supported by an expected one-time cash tax reimbursement that supported a better tax result of over 30 million euros net. But even without the tax effects, free cash flow would have been strong at only minus 18 million euros. Let's take a closer look at the RVS performance on slide six. In terms of water intake, RVS again recorded a very strong quarter. We won contracts with a total volume of more than 1.3 billion euros, representing a growth of around 24% year-over-year, well supported by KB Signaling. The pure organic result with a growth rate of 19% was also quite strong. Rail demand overall remains very strong, supported by all major regions and should continue throughout the whole year. As mentioned at our full-year results, Based on the existing tenders in the market, we assume that regarding our order intake, half year one will be stronger than half year two. For the current quarter, we also expect that RVS should be able to post an order intake nicely above a billion euros again. As usual, my reminder on ways order intake dynamics for you. Please keep in mind that it's a lumpy project business in general, and it does not fit well into quarterly reporting structures. Book-to-bill stood at 1.23, which means RVS reached a book-to-bill ratio at or above 1 for 14 quarters in a row now. Again, a new record in KB's history. In 2025, we assume that Graves' book-to-bill ratio should, as Mark mentioned, be above 1 again, which should also be the case in the second quarter. As a result, the order backlog increased by around 17%, reaching a strong level with more than 5.5 billion euros. The high order backlog and the good quality of it provides a strong basis well into 2025 and beyond. Let's move to slide 7. Quarter 1 revenues amounted to 1.07 billion euros, an increase of 10% year-over-year. Our aftermarket business developed nicely in Europe and APEC, while OE business slightly decreased year over year. In North America, we saw an organically stable development. The very profitable aftermarket revenue share of RBS grew to 55%, well supported by the acquisition of KB Signaling. From a regional point of view, revenue growth was fueled by all regions, including China. In Europe, with aftermarket business more than compensated for slightly declining OE sales, driven by KB signaling, North America recorded strong increases in both segments. The APAC region, similar to Europe, saw a slight OE decline while aftermarket grew. China also saw growing revenues in both OE business and the aftermarket. Especially pleasing is the increase in high-speed revenues year over year. Operating EBIT margin recorded an increase of 50 base points to 15.6% driven by operating leverage, fueled by a strong APEC region and a positive half-to-market development, as well as KB signaling being as strong as expected. In the quarters ahead, we strongly believe in acceleration of the RBS opportunities. In a nutshell, our last quarter overall developed as expected. And as a reminder, quarter one is usually the weakest quarter since the Chinese New Year and the similar typical seasonality in our North American upper market. In the current quarter, we expect that the profitability of RBS should see a significant increase quarter over quarter and for the full year 25. The operating margin of RBS is still expected to be well above 16%. Let's continue with the truck division on chart X. Order intake in TBS amounted to 1.06 billion euros, an increase of 1% year over year, which is a strong result in these 10 trucks markets around the world. Organically, order intake increased by 5%, and on a quarter-over-quarter level, it was even up 20%. Order intakes from North America and APEC came in as weak as expected, while Europe and South America increased. Order intake in the current quarter should be below last year's level, driven especially by increased uncertainties related to tariffs and weaker economic development, especially in North America. Nevertheless, we still believe in a sequential pickup of truck demand in Europe, while North America remains very difficult to fully assess from today's point of view. We are still confident to successfully fight current market challenges with our boost measures, our robust pricing power, and our resilient aftermarket business. Nevertheless, with reduced market numbers in North America, this is definitely getting more difficult. Book-to-bill reached 1.19 in the past quarter. Our order book of more than 1.9 billion euros at the end of March is 4% below the previous year level, but considering our two divestments of GD and Shepard, it was at a stable development. Quarter over quarter, it even increased. Let's move to chart 9. Revenue has declined by 12% to 894.49 million euros, which represents an organic decline of 8%. This development was as expected and represents a rather solid performance in a challenging environment. Thereof, the OE business in CVS decreased as expected in Europe and North America, whereas the APEC region saw a stable development. Our after-market business was robust again and saw a stable or increasing development in all regions except North America, where it slightly declined. In the European market, our organic revenues have experienced a 12% decline in line with a continuously weak market in both the truck and the trailer segment. Revenues in North America declined organically by minus 6%, primarily driven by the OE business. CVS was able to show strong resilience here, considering a decrease in heavy-duty truck production rates by more than 15% in the same quarter. Coming to the bottom line, operating EBIT of our CVS division amounted to 85 million euros in the past quarter, down around 24% year-over-year. As a result, the operating EBIT margin declined by 150 base points to 9.5%. The lower margin was mainly impacted by lower volumes and an unfavorable regional and product mix, which impacted the profitability of our truck division as well. Our resilient pricing stance, the success of our efficiency measures, and the higher share of revenues in the aftermarket were in total unable to offset the previously mentioned burdens. For 25, we continue to expect almost flat revenues compared with the reported figure for 24, given our exchange rate premises. As a result, CVS should be able to reach a slightly improved EBIT margin towards 11%. This is a bit lower than our previous expectations due to the current economic challenges in the U.S., which are, as said, currently difficult to fully assess. profitability should improve going forward, but more in the second half of this year. The margin in the current quarter is expected to be only slightly better, primarily due to the forecasted weak truck market in North America. With that, I hand over to Mark again. Thank you, Frank. Let's have a look at our guidance for 2025 on page 10. Based on the assumptions outlined, On the right side of the guidance page, we expect the following for full year 2025. A revenue range of 8.1 to 8.4 billion euros, which should lead to an operating average margin between 12.5 and 13.5. As a result, our cash flow should then reach 700 to 800 million euros. Compared to the first analysis of this guidance, we see that our expectations regarding RBS remain strong and unchanged. For CBS, our expectations are slightly more conservative due to lower market expectations for North America. Nevertheless, group level guidance ranges remain unchanged. Due to the weak economic conditions in some regions, we see opportunities and needs to increase our restructuring efforts. Therefore, the potential costs could now be around 75 million euros. As mentioned during our full year 2024 results presentation, the guidance is based on the exchange rate levels of February 2024. Therefore, due to foreign exchange movements, cancellation effects can occur. It also does not include large impacts from tariffs, for example, burdens on important economies, and it is based on stable geopolitical as well as macroeconomic conditions. Thanks a lot for your attention.