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Knorr Bremse : Transcription of the Q1 2021 Conference Call (englisch)

08/16/2022 | 11:34am EDT

Knorr-Bremse AG Event - Q2 2022 Conference Call

TRANSCRIPT

Company:

Knorr-Bremse AG Event

Conference Title:

Q2 2022 Conference Call

Moderator:

Andreas Spitzauer

Speaker: CFO Frank Weber, Head of RVS Dr. Jürgen Wilder

Date:

Friday, 12th August 2022

Conference Time: 13:00 (UTC+01:00)

Operator:

Good day and welcome to the Knorr-Bremse AG Q2 2022 Conference Call. Today's

conference is being recorded. At this time, I would like to turn the conference over to Andreas Spitzauer, head of investor relations. Please go ahead.

Andreas Spitzauer: Thank you, Elaine. Good afternoon, as well as good morning, ladies and gentlemen. My name is Andreas Spitzauer, Head of Investor Relations of Knorr-Bremse AG. I want to welcome you to Knorr-Bremse's conference call for the second quarter 2022 results. Today, Frank Weber, our CFO, will present the results of Knorr-Bremse, followed by a Q&A session, which will be joined by Dr. Jurgen Wilder, Head of RVS, as well. The conference call will be recorded and is available on our homepage, www.knorr-bremse.com in the investor relations section. Here you can find today's presentation and later a transcript of the call. It is now my pleasure to hand over to Frank. Please go ahead.

Frank Weber:

Thank you, Andreas, and welcome everybody to our conference call. We appreciate you are joining us today. I will start with the last quarter and the outlook for 2022. Afterwards, Jürgen Wilder, Head of RVS, and myself look forward to your questions. Bernd Spies, Head of CVS, was unfortunately unable to attend today, as he has important meetings with customers. I do hope that you understand that.

Let's kick it off on chart 2 with our main messages: 1) Despite many market challenges and macro economic headwinds, market demand in both rail and truck continues to be strong in almost all important markets. In China, the markets are much more cautious 2) We are well on track with our clear action plan

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to fight increased input costs in both divisions 3) We have the necessary strength to face all global economic uncertainties which will not disappear in the near future, BUT we are prepared and well underway. Our key points in that regard are: We derive 37% of revenues from aftermarket business; We have a rock-solid balance sheet with very low net debt; We are the market leader in rail and truck; Our customers need solid and reliable partners like RVS and CVS that can sustain a crisis like the one we are in. 4) We have done two very attractive deals in digitization, well in line with our promised digital business M&A strategy and we walk the talk. 5) We had to revise the FY22 guidance recently but are well on track to fulfil these targets

On chart 3, I want to share our market view with you. Let me start with the rail market: We see that the underlying demand in both OE and AM business continues to be high, visible in a continuously very good order intake. We do not have any indication that it should significantly decline in the near future. Nevertheless again, let me point out that rail is a lumpy business which does not always go well with quarterly reporting. We have now seen three great quarters in a row but there might also be weaker quarters coming up in the future. Nevertheless, our good OE trend is long-term intact. Europe remains the strongest rail market for RVS but also North America continues to be a solid contributor. The consequences of the Russian invasion in the Ukraine are significant and weexpect very little turnover in this country in the future that is not affected by the sanctions. The Chinese market has been characterized by a strong weakness over the past quarters with low railcar investments

and economic pressures through their zero-Covid policy. We now do not expect a significant recovery in H2/22 either.

Overall, we are confident that we will see a subsequential improvement in the global rail industry in H2, also benefitting from increasing ridership levels.

In the course of the year, we expect demand to remain healthy, which should also be reflected in a B-t-B ratio above 1. However, supply chains have also tightened in the rail industry since last year and inflation is also clearly noticeable.

The truck market also experiences ongoing solid demand. Truck production rates in Q2 in Europe and North America developed positively year-over-year with a positive outlook throughout 2022, only limited by managed order books of our customers. China remains on a very weak level as expected.

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Supply chain situation and input cost increases are still the key concerns in the truck industry. In the coming quarters we expect that global supply chains remain challenging, but we see some signs of slight improvements. In regards to pricing discussions with our customers, we are well on track to compensate higher input costs. In the second half of the year, we will be able to book the first results here.

High usage rates of old trucks currently drive the aftermarket business which continues to develop very positively. All in all, the global environment is tough but the underlying demand is robust, too.

Let's move to details of the second quarter on chart 4.

Knorr-Bremse generated stable revenues of around 1.7 billion euros and an operating EBIT margin of 10.5%, which was impacted by both divisions. CVS posted revenues of 914 million euros at 8.1% operating margin and RVS 823 million euros in revenues, resulting in an operating EBIT margin of 14.3%. FX effects supported the development on revenues and EBIT but did not impact the EBIT margin significantly. Free Cashflow in Q2 was already significantly better than Q1 but still slightly negative with 35 million euros. Order intake of 1.9 billion euros increased solidly versus prior year. Please note that the order book also benefited from an upwards adjustment of 375 million euros, which does not affect the order intake. Specific existing orders like prototypes and FX effects etc. are now included in the order book.

Let's move to chart 5. As anticipated, Capex in Q2 with 77 million euros slightly increased year-over year and quarter-over-quarter, still fully in line with our targets. Larger investments on the Rail side were made for footprint expansion in India and capacity increase of brake pads. CVS invested among other areas in supplier tooling in Europe and APAC as well as in general capacity increases in the regions outside Europe. Net Working Capital - just as in Q1 - is accepted on higher levels as current uncertain times require higher safety stock and higher flexibility to mitigate disruptions in the supply chains best possible. We have set up a clear action plan, especially for the second half of the year, which will lead to a reduction of the NWC. Consequently, and also additionally affected by a lower EBIT contribution, ROCE amounted to 16.4%.

Let's have a look on the divisional performance in Q2, starting with RVS on Chart 6.

Order intake of RVS was again remarkably high - after two strong quarters Q4/21 and Q1/22. It increased by more than 40% to 1.05 billion euros. The order book also increased by more than 35%

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year-over-year to 4.8 billion euros. The Book-to-bill ratio in Q2/22 was accordingly strong with 1.27. Let's move to page 7. Revenues amounted to 823 million euros, a slight decrease by 3% year-over-year but an improvement as anticipated versus Q1 by around 50 million euros. RVS recorded declining sales in the OE business, primarily driven by the APAC region. The aftermarket business was up 2% year-over-year and its share increased from 45% to 47% in Q2/22. This development is remarkable, because many rail operators still having a lower number of trains in service due to Covid restrictions, lower ridership levels and a tighter supply chain that took its toll.

China continues to face a strong rail market weakness and a slower recovery than expected from its lockdowns, both visible in OE and aftermarket business. Overall Chinese revenues decreased year-over- year by 10% which is much better compared to the 30% drop in the first quarter 2022. In North America, we recorded an increase in the OE and aftermarket business. We expect a sequential quarterly improvement from now on and anticipate that in 2022, overall, RVS revenues should grow solidly, predominantly driven by the OE business in Europe and North America. Aftermarket demand should increase, too, strongly depending on the development of rail traffic and travel restrictions, especially in China.

Operating EBIT margin of RVS in Q2 reached 14.3%, after 18.4% a year ago. The main influencing factors of this weak development was the regional mix with much lower profit contribution from China. In addition, revenues and profits in Russia were significantly lower in the last quarter. Also, the input of higher inflationary costs was visible as countermeasures will come in during the year with a certain time delay. In the remaining six months, we expect to benefit from price increases to our customers and a slightly better development in China.

Let us continue with truck on slide 8. Incoming orders of CVS amounted to 881 million euros, which is a decline of 18% year-over-year. A strong decrease after several quarters of record levels and a result of the ongoing weak Chinese market as well as of component shortages on the customer side with the consequence of a managed order book. We see strong underlying demand in Europa and North America, but OEMs are restrictive in taking orders from truck fleets because they have production bottlenecks. APAC - especially driven by China - remains on a low level. The order book of our truck division reached 1.9 billion euros at the end of June, which is a remarkable increase by 16%.

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Book-to-bill in Q2/22 was at 0.96.

Currently, market demand is not our biggest concern and we rate the quality of our high order backlog as very good. Our problems, which we share with the whole truck industry, are the availability of parts and the stability of supply chains.

Let's move on to slide 9. CVS posted 914 million euros in revenues in Q2/22 - which is an increase of 4% year-over-year and a very good result considering supply chain disruptions and issues in China. In Europe and North America, CVS saw a positive development in all channels, OE as well as aftermarket. The APAC region still ranges on low levels after the China-6 introduction last year and the additional industry slow-down driven by zero-Covid measures in Q2/22.

The utilization of fleets continues to be high, which drives demand for spare parts and services. Consequently, the share of aftermarket revenues increased from 25% to 27% in the last quarter. In absolute terms, that means aftermarket business increased by a strong 30 million euros, reaching 250 million euros. In the coming quarters CVS should be able to post a solid increase in revenues quarter- over-quarter. This positive outlook depends on the global supply chain situation and somehow a catch-up of truck production rates in China in the latter part of H2/22. In Q2 of this year CVS achieved an EBIT of 74 million euros, which is 24% lower year over year. The EBIT margin amounted to 8.1 % compared to 11.2% a year ago. This margin development was highly affected by the lower contribution from China as well as Russia. In addition, cost pressure from inflation and supply chain headwinds took its toll. CVS concluded price negotiations with many customers already. Major benefits from these negotiations will be reflected in improved margins in the second half of the year.

Let's move on to chart 10. The impacts of the Russian war in Ukraine and Knorr-Bremse's previously announced withdrawal from business in Russia resulted in a meaningful adjustment of the guidance, as communicated on July 27. Our direct exposure in Russia on a full year basis amounts up to 200 million euros in revenues of which we expect to lose roughly € 130 million euros this year. On the margin side and on group level we expect to lose roughly 70 basis points on Knorr-Bremse group level. The withdrawal from Russian activities resulted in non-operating and non-cash expenses of 18 million euros which is reflecting a write-off of inventory. Additionally, we have a deconsolidation effect of 9 million euros for the KB Kamaz Joint Venture in our financial result.

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Um den Rest dieser Noodl zu lesen, rufen Sie bitte die Originalversion auf, und zwar hier.

Disclaimer

Knorr-Bremse AG published this content on 16 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 August 2022 15:33:01 UTC.


© Publicnow 2022
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Net income 2022 524 M 503 M 503 M
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Number of Analysts 14
Last Close Price 43,17 €
Average target price 68,14 €
Spread / Average Target 57,8%
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Frank Markus Weber Chief Financial Officer
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Werner Ratzisberge Member-Supervisory Board
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