Knorr-Bremse Remains on the Path to Success Even in a Year of Global Crisis

Marc Llistosella, the new Chief Executive Officer of Knorr Bremse AG since January 1: “The achievements made by Knorr Bremse and all its people last year impress me greatly. We again achieved an excellent result. We delivered on our promises. We did that in an extremely challenging year, with the awful human and economic impacts from the Russian invasion of Ukraine, with high inflation, with the fallout of the Covid-19 pandemic, and with the global supply chain shortages. Today, we have a very large order book to our name. That shows me the high level of trust that our customers have in our reliability and quality. All this represents the best conditions for moving into the future, even if the challenges remain tremendous and we are still maintaining a strict focus on our costs. With a clearly coordinated portfolio as well as products and processes that are consistently aligned with market needs, we will defend our position as a global market and technology leader.”

Frank Markus Weber, Chief Financial Officer of Knorr Bremse AG: “Our business model involving two divisions, Rail Vehicle Systems and Commercial Vehicle Systems, has proved to be resilient once again. Order intake and revenue have risen significantly. Profitability, with an operating EBIT margin of 11.1%, is very solid despite the adversities in the global market environment. Raising prices for customers, negotiating with suppliers, and implementing cost reduction measures have helped to achieve this result. We also continued to drive the topic of sustainability (ESG) over the last year. Even just with our three different sustainability-linked financing instruments, we have shown how much Knorr Bremse values sustainable business. The fact that we will broaden our climate targets to scope 3 this year and have them assessed by the SBTi is impressive confirmation of this.”

Determined Implementation of Profit Optimization Measures

The 2022 fiscal year was shaped by the enormous influences of Russia’s invasion of Ukraine, the strict zero-Covid policy in China that applied until year end, and the price rises driven by inflation. In this difficult global environment, the Group’s revenue successfully increased by 6.6% to € 7,149.7 million (previous year: € 6,705.6 million) due to the pleasing customer demand, primarily in Europe and North America. The main driver of this was the commercial-vehicle market and, to a smaller extent, the rail vehicle market. The internal Profit & Cash Protection Program introduced early in 2022 was able to soften the blow from the inflation-related costs, however it could not make up for the negative influences from Russia and China. The operating EBIT margin reached a value of 11.1% (previous year: 13.5%) with operating EBIT of € 794.6 million (previous year: € 908.1 million). Free cash flow in 2022 amounted to € 220 million (previous year: € 600 million). The reasons for this development were mainly the buildup of inventories to ensure our delivery capabilities as well as delays in payments from our customers.

Record Order Intake and Order Book

Overall, the demand among end customers for rail vehicle systems as well as commercial-vehicle systems remains strong in all markets except for China, which exhibited considerable market weakness in 2022 due to its zero-Covid policy. Knorr Bremse successfully grew its order intake by a significant 11.4% to a record level of € 8,114.1 million (previous year: € 7,286.7 million). The recovery of demand in the rail vehicle business in particular ensured a boost for growth. The order book as at December 31, 2022, was worth roughly € 6,907.5 million (previous year: € 5,558.1 million), a significant rise of 24.3%.

Rail Vehicle Systems (RVS) Division Seeing High Demand

Thanks to the relaxation of the Covid-19 situation, the rail vehicle market recovered slowly but surely. Consequently, there was pleasing development in the orders placed under blanket purchase agreements as well as in tendering in the industry. The RVS division had revenue of € 3,401.9 million, indicating slight growth even in the crisis that marked 2022 (previous year: € 3,317.0 million). The operating EBIT margin reached 14.9% (previous year: 17.9%) due to sanctions on Russia and the situation in China. For order intake, the division recorded € 4,161.9 million, up 19.9% on 2021 (previous year: € 3,470.7 million). The order book of € 4,918.9 million as at December 31, 2022 (previous year: € 3,875.1 million), had reached a new record.

Commercial Vehicle Systems (CVS) Division Performing Strongly

The commercial-vehicle market is seeing persistently good demand. Truck production rates in Europe and North America developed positively year over year, while China was weak as expected due to anticipatory effects after the introduction of the China 6 emission standard in July 2021. With revenue increasing by 10.6% to € 3,750.0 million (previous year: € 3,390.2 million), the CVS division achieved a strong result. The division’s profitability was down on 2021 with an operating EBIT margin of 9.0% (previous year: 10.7%). The reasons for this were, firstly, the developments in Russia and especially the economic downturn in China and, secondly, also the increased expenditure on research and development, which is an investment in the future. Order intake rose to € 3,954.3 million (previous year: € 3,818.0 million). The order book at year end, worth € 1,989.8 million (previous year: € 1,696.8 million), also signaled a new record high for the CVS division.

Reinforcing the Divisions’ Digitization and Automation Capabilities

As a world-leading technology corporation, investment in research and development provides tangible growth prospects for Knorr Bremse. In 2022, Knorr Bremse increased its R&D investment by 9% to € 470.0 million (previous year: € 431.4 million). The R&D intensity, that is, the ratio of R&D expenditure to Group revenue, is therefore 6.6%. In total, the company now has over 12,000 patents, with more than 4,000 employees working in research and development for Knorr Bremse, including over 750 software developers.

The investments made during the 2022 fiscal year to strengthen digitization and automation capabilities are a consistent continuation of the company’s M&A strategy. Through the strategic cooperation and investment agreement signed with Swiss TradeTech company Nexxiot in May 2022, Knorr Bremse is reinforcing its in-house capabilities for digital business models in the rail sector. Under the agreement, Knorr Bremse will use Nexxiot’s sensor technology and digital ecosystem and offer its customers further, appealing digital business models.

In Commercial Vehicle Systems, Knorr Bremse acquired a majority interest in Cojali S.L., based in Spain, in November 2022 to build up its position in the field of digital and data-driven aftermarket solutions. Cojali is a globally successful developer and manufacturer of cross-brand diagnostic solutions for commercial vehicles. Knorr Bremse is consequently adding, among other things, a commercial-vehicle-specific software solution to its existing aftermarket business so that it can exploit new fields of business in big data and predictive maintenance in the future.

Further Expansion of ESG Measures across the Value Chain

For Knorr-Bremse, corporate responsibility and sustainable business practices are essential. The importance of sustainability for the company can also be seen in the new, global remuneration system for the Executive Board and management: Since 2022, 20% of the short-term variable remuneration has been based on the achievement of sustainability targets for climate protection and employee safety as well as on the companies sustainability ratings. All sustainability targets for 2022 were achieved.

The syndicated loan obtained in January, the first-ever sustainability-linked bond issued in September, and the Supply Chain Finance Program launched in December are the three sustainability-linked financing instruments that Knorr Bremse launched in 2022 and are all further evidence of the ESG strategy.

Knorr Bremse AG is fully on track to meet its target of halving production-related carbon emissions (scope 1+2) by 2030. In the fiscal year 2022, Knorr Bremse has achieved a reduction of more than 65% compared to the base year 2018. During the current year, Knorr Bremse decided to expand its climate targets also to up- and downstream value chain processes (Scope 3). The focus is on emissions from the supply chain (purchased materials), logistics, and the use phase of the products. Knorr-Bremse plans to publish a target validated by the Science Based Targets initiative (SBTi) for reducing its Scope 1, Scope 2 and relevant Scope 3 greenhouse gas emissions by August 31, 2023.

The Knorr Bremse Group had a total of 31,464 employees (FTE) as of December 31, 2022, an increase of 3% year over year (previous year: 30,544). To increase the share of female employees, Knorr Bremse set target percentages in 2022 that apply globally: 25% women in the workforce and 20% in management by fall 2027. At year end 2022, the share of female employees globally was 21.1% (previous year: 20.3%). The share of women in leadership positions increased to 16.4% (previous year: 14.1%).

Guidance for 2023

Assuming that exchange rates remain as they are, that the geopolitical and macroeconomic environments remain mostly stable, that there are no new Covid-19 lockdowns, that there is no significant intensification of inflation, and that there are no additional supply chain issues caused by potential energy shortages, the company expects revenue between € 7,300 million and € 7,700 million, an operating EBIT margin of 10.5% to 12.0%, and free cash flow between € 350 million and € 550 million for the 2023 fiscal year.

The figures presented here are preliminary and unaudited. The full annual financial statements and annual report will be published on www.knorr-bremse.com on March 23, 2023.

A video recording of our annual press conference with Chief Executive Officer Marc Llistosella and Chief Financial Officer Frank Markus Weber on the preliminary figures for the 2022 fiscal year will be available on our website at www.knorr-bremse.com .

A webcast for investors with Chief Executive Officer Marc Llistosella and Chief Financial Officer Frank Markus Weber on the preliminary figures for the 2022 fiscal year will take place today at 1 p.m. (CET). The presentations are available on our website at www.knorr-bremse.com .