Knorr Bremse : Transcript of the second Q&A session of the Capital Markets Day

Transcription

Knorr Bremse AG - Q&A Teil 2

{EV00129651} - {45 Min}

06 December 2021

Knorr Bremse AG - Q&A Teil 2

{EV00129651} - {45 Min}

Q&A 2

00:00:00 Operator

Thank you. We now start with the first question, which comes from Lucy Carrier, Morgan Stanley. Lucy, your line is now open.

00:00:11 Lucie Carrier (Morgan Stanley)

Hi, everyone. Good afternoon. Thanks for taking my question. The first one is around the opportunity in aftermarket in Rail. And I think it would be helpful for us to understand how you think about your installed base in China. So what is currently the installed base? And when you think about aftermarket, how do you think about your conversion rates, you know, what is really forcing operators to work on the aftermarket side with you rather than maybe kind of insourcing or using local supplier? So how should we think about that in terms of opportunity generally speaking for aftermarket but more particularly in China?

00:00:55 Frank Markus Weber (CFO)

Have you drawn for that question. I mean, the way you need to think about it is, as we have seen on the chart that was shown previously, we had a very, very strong base and business in the high speed trains, for example, in the middle of the last century. And on Metro, it was growing up to that. Now, when you think of aftermarket, then of course, you have different components. The most attractive component is spares that we sell, we sell them to a certain extent constantly. But you also see spikes in major overhauls that we have. And once our system signs those strengths and we have said before that almost in the in speed trains in the last decade, basically, we delivered to almost all of those high speed trains. So we have a very widespread footprint. And by having that footprint now when those trains get into different overhauled cycles, which is very visible into the future, because we know when they need to be overhauled, it's not just when a plant has a capacity or something like that. That is a defined point, then we deliver our systems once again into those trains. And that applies to the high speed trains and that also applies to the to the Metro trains, of course. And I think a second part of your question was, is there local competition. Of course, there's also competition, there's also constant thinking of how much can be done in house. If the domain know how that we have on our subsystem is that sufficient in house? Sometimes it's not, very often it's not actually and what we are doing is also services locally. Despite the market development in China, we made the decision to increase our local footprint also in China in the market, so we are close to the customers; we are there when they need us. We have shop and shop concepts, so where we are directly there where the trains are overhauled and repaired. And that helps us a lot in order to benefit from that OE market share that we have built up, especially since the mid and beginning of the last decade, and even now continuing to also benefit in the aftermarket arena. I hope that answers your question.

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00:03:46 Lucie Carrier

Yes, thank you. Partially I guess, maybe before go to my second question, when you say choose to have the installed base, you will benefit about overhauled cycle and so on. Is this contractual? I guess my question is what gives you the guarantee that you will be effectively serving your entire install base?

00:04:07 Frank Markus Weber

Well, there is example where that is contractual, but you cannot think of that everything for the next 40 years is under contract. But it is at the end of the day also our domain know- how, the pairing for example of the friction, the overall system that defines the break rates and with those bright brakes, you get those strengths homologated. If you mess around with those then you might you might damage those things. And then you might run into a risk that is very difficult at the end of the day to maintain and that puts us into a prime spot when it comes to overhaul in order to also serve that business.

00:04:58 Lucy Carrier

Thank you very much my second question was around the margin mix across the division. I appreciate China was historically quite high margin. And you expect kind of more flattish growth. But I think it's been probably the case for the past year or two already. And you've also highlighted you expect the share of aftermarket to increase across the portfolio, I mean, normally in China, but also for the rest of the division. So wouldn't that kind of offset or actually benefit, to some extent the margin mix from here, considering China's been already a little bit weaker for the past couple of years, and now we show increasing aftermarket sales as part of the total mix, which we assume that maybe correct me if I'm wrong, which we assume is higher is higher margin than the OE business.

00:05:51 Frank Markus Weber

I mean, the aftermarket business helps us in our margin mix, especially also when it comes to, for example, spare parts, which is the bulk of our aftermarket business, there's also other aftermarket businesses that we want to want it to grow into. There's modernization. And there's also new service models in connection also with digitalization preventive maintenance, where we grow into business models that are not just basically selling spare parts, but also creating a benefit for the customers, being more reliable, makes those strengths more reliable. And sometimes we even enter into a performance management regime, so to say, in order to share the benefits with our customers, that also happens. So there's also a wide range of profitability even on the aftermarket side, as you can imagine. But what also determines our profitability as a division overall, is not only the growth, that mostly comes out of the aftermarket, that is where we get a good chunk of the growth from, but also that we have more opportunity to grow in some non-break businesses rather than in break businesses, just because of the market shares, we have still lower market shares in those other systems

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than in the break system. And there's also a little bit of a different margin regime there. Meaning that those other businesses are not par on par in terms of margins with a breaks business. And those components, I will say will define our margin development, also in the future.

00:07:52 Sven Weier (UBS)

Yes, thank you, Sofia. The first one was on CVS. And you've talked a lot about the content to Truck, the transition to battery trucks. I was just wondering, you haven't mentioned anything at all regarding new braking system, electromechanical braking system? But does that mean: you're still not really convinced that this is going to take off? And what are maybe the latest developments you see on that side?

00:08:24 Dr. Peter Laier (Member of the Executive Board, CVS)

Yes, that is always an interesting question we are receiving for years specifically, when it comes to e-mobility trucks, or fuel cell trucks. Everybody says immediately, then the brakes need to be electromechanical. Well, we don't think so. Why? Because at first, you need to understand that in a truck, the pneumatic system is a second energy system used for a lot of different energy actuators. It's not only brakes, it's for coupling truck and trailer, the trailer itself, it's for the air suspension, for lift down lift up of the truck. So a lot of things which are using compressed air. That's why we still believe in compressed air as well in the new vehicle generations. That's why by the way, we developed as well, those compressors with rotating compressing principles. But for sure we develop in parallel as well full electromechanical brake systems. We see there an opportunity of usage in specific types of trucks. But all around that there is as well growth in the core area of our brakes, as you have seen in the presentation. So it's about those new compressor systems. It's about having more complex brake control systems, where recuperation is needed to have an efficient e- mobility truck. So a lot of opportunities in the brake arena itself and well the brake will not stay exactly the same in e- mobility trucks as we see it right now.

00:10:12 Sven Weier

Yes, thank you for that. And if I may just have one follow up on the truck side regarding the situation that you had with Bosch. I think one of the trucks was obviously sorted, so what's the current situation there on the payments? And also the situation, I think on the second trial that was going on.

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00:10:34 Dr. Claudia Mayfeld (Member of the Executive Board, Legal & Integrity)

Thank you. So thank you so much for your question. You know, as you know, the process, the arbitration procedure is still running. We have booked financial liability of 380 million euros. We tried in the summer months to settle the arbitration procedure, but we did not get a final agreement on that. Therefore, Bosch started, again, arbitration proceedings in order to receive an award regarding the purchase price of 379 million euros. In addition, and perhaps you know that as well, there's a second arbitration procedure regarding the delivery of components; that has been started in 2020. It has been suspended on neutral terms in May of this year, in order to try to settle the issue out of court. Since these discussions failed in October, the procedure has been continued now. And we are and, you know, we want to explain, we are in continuous talks with Porsche regarding different topics, among other things, securing our supply of components.

00:11:58 Frank Markus Weber

And just when additional information for my side, the 379 billion is absolutely the same amount that we have been actually having in our books for quite some time. So we do think this is the upper limit that should come out of that.

00:12:19 Sven Weier

Okay, thank you for that. Can I just ask one more question on rate? [Very quickly] I will be quick test on the automated coupling. I saw in the coalition treaty, the new German government is actually mentioning their technology. So maybe question for Dr. Weber? Is there anything concrete now coming from the German government that you can have a kind of first try with Deutsche Bahn, or what are the next steps here? Thank you.

00:12:47 Frank Markus Weber

Yeah, thank you for that question. In order to not get into conflict with Sofia I will try to give a quick answer here. Yes, there are pilot trains out there. There are a lot of tests that are going on. We are full-speed and the development of those systems. A final decision has not been made, I think this needs to be a European initiative overall, because it doesn't make sense to refurbish all those freight costs in one country, because they go cross border, and they mix and match to each other. So this system needs to be implemented. So there's a lot of political lobbying going on, including with the support of Deutsche Bahn and in different countries, that there will be also European subsidies, which has been discussed in the past already, in order to kick this off. I truly believe this will be kicked off, this will need to be kicked off. It is crucial for freight in the in the future. I think by now everybody understood that. A little a little political push in Europe

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