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

12/15/2021 | 12:49pm EDT


Knorr Bremse AG - Q&A Teil 1

{EV00129651} - {32 Min}

06 December 2021

Knorr Bremse AG - Q&A Teil 1

{EV00129651} - {32 Min}

Q&A 1

00:00:01 Operator

Okay, we now start with the first question, which comes from Sven Weier, UBS, Sven you're line is now open.

00:00:12 Sven Weier (UBS)

Yeah, thank you Sophia. Thanks for taking my questions. Good afternoon. And thanks for the presentation. My first question is for Jan. And that is basically following up I think, shortly before you joined or shortly after you joined I think we talked about the things that could still improve at KB. And I think you just talked about one aspect digitalization, I was more curious about the aspect of automation inside the factories of the company. And also the integration on the previous m&a deals that you've done. I think those are two areas, where you said they would be also upside; maybe you can shed some more color on these. That's the first one. Thank you.

00:00:56 Dr. Jan Michael Mrosik (CEO)

Sven, thank you very much. Talking about automation. It's also part of the digital journey that KB is undertaking. And we are active in a lot of areas in our factories to employ automation cases. Automation is something that is not something that needs to be done because we would like to do it, because, you know, the investments that go with it, have to be carefully selected. And therefore, we are looking at individual used cases. And we systematically build up automation wherever it makes business sense. And wherever it gives us a return of invest. For example, in Berlin, in our factory in our RVS factory and also in CVS, we are already starting with automation activities where a robot is going to replace the manual picking of certain parts. So we do it in a very sensible way. We do it looking at the invest in a very focused way. The integration of activities here we are with our undertaking of standardizing processes, and putting digitalization in place, the Northstar that I've been talking about going through systematically also through the acquisitions of the past, in order to integrate them in our overall KB approach. And as I said before, this integration is happening in a very systematic way. Integration has been happening in the past already, but we add now the digitalization and process aspect to it.

00:02:40 Sven Weier

Okay, thank you for that, Jan. And the second question is from Marcus regarding the capex outlook. Because when I take the ranges you give for revenues and the capex ratio at the higher end, we could land at the capex at above 500 million, which would be a more than 50% increase where you were in the past. On the other hand you said you would be very disciplined about capital spending. So can you elaborate a little bit more on the focus area? Jan has already

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Knorr Bremse AG - Q&A Teil 1

{EV00129651} - {32 Min}

mentioned selected automation but you know, on the other hand, it could be quite a bit of an increase. So I was just wondering there the highlights, and wouldn't that also then have a certain benefit for your earnings bridge? Thank you.

00:03:28 Frank Markus Weber

Thanks. And, yes, you're right, we have indicated some 5 to 6%. That basically means over the cycle, and there could be years depending also on the respective revenue in those years where it's rather on the five-ish side, or other years where it's on the sixish side, just purely mathematically you are right. We have seen in the past also some bigger capital expenditures on the production footprint side in order to cope with the growth that's basically out there. We intend to do that as well in the future. But we did have some real estate investments in the past that will not occur to that extreme anymore in the future, basically that's behind us already. So most of the capex that we are foreseeing in the future is driven by the maintenance issues. It's driven by supplier tooling. It's driven by information technology, it's also driven by digitalization aspects, all these things will come into play. And basically in order to reach the six-ish kind of figure, it has to be a culmination of basically all those things. So I would rather say it's in that range across the board when we come to the next years until 25.

00:04:56 Sven Weier

Okay, thank you, Frank, and I'll go back in line.

00:05:04 Akash Gupta (J.P. Morgan)

Yes. Hi, good afternoon, everybody, I have two questions as well. And my first one is on your software strategy. So when we think of KB, it comes across as a product company, yet you have more than 700 software engineers at the company. Can you tell us more about what kind of projects your software workforce are working on, and maybe if you can provide some split of new businesses versus legacy businesses, and also your strategies to monetize the software offering that you're developing in the company? Thank you.

00:05:42 Frank Markus Weber

Akash, thank you very much. Indeed, we have 740 software people actually working for KB and they are exactly in the fields and that I've been describing my during my presentation. So remember that we as KB are combining a very strong know-how knowledge and basis in the space of mechanical products with electronics, and then software that runs on electronics. And we, in a more and more accelerating way, are working on adding dynamics models of vehicles to our products, and this happens, actually, on the basis of software based modeling. So that's something that has been enhancing our products in the past already and is part of new developments. And on top of that, we'll now go the next

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step in terms of defining digital business models, where data is being taken from our products, where these data are getting analyzed, obviously, through software and artificial intelligence, in order to get conclusions drawn out of this. Either in the monitoring space, or in the predictive maintenance where one predicts from the data, when, for example, a door is going to fail, when a brake needs to be maintained, how a driver should be driving either a train or a truck in both fields. So we have examples here. And this is obviously all products that are being implemented via software. And how is the monetization going to work? It depends on the product. It is either part of a system or it can be part of a continuous contract. In the case of predictive maintenance, or condition, monitoring, just depends on the use case where the software is being applied.

00:07:40 Akash Gupta

Thank you. And my second question is on leverage. So at the time of IPO, have you provided leverage below one times EBITDA? I was just wondering there was no mention of this target in today's presentation, so is this target still on the table? Or any thought on that?

00:07:59 Frank Markus Weber

Akash, thanks. You're right. It was not mentioned in the presentation. We do still hold true to this statement. When it comes to the net debt to EBITDA ratio, we think that we have enough leverage and headroom and flexibility as well going into the future with below one. That's absolutely right. Akash, it holds true.

00:08:37 Gael de Bray (Deutsche Bank)

Thanks very much for the time. Good afternoon, everybody. The first question is in relation to CVS; you mentioned slide 14, it changing in tier one supplier landscape. So could you talk a bit about the competitive dynamics for CVS? And specifically could you indicate the kind of price pressure assumption that is embedded in the growth guidance by 2025? This is question number one. Question number two is about RVS. If I take the revenue targets of between 4.2 and 4.5 billion, it implies a revenue growth of between 6 and 7% per annum over the next four years. And with China expected to be flat, it means you need to deliver growth of between 7 and 9% in Europe and North America. So I'm just wondering what's driving such confidence in RVS market growth dynamics. Thank you.

00:09:47 Frank Markus Weber

Right, so CVS the competitive landscape, there is obviously a situation that happened in the market a little while ago where two companies got together. And obviously a competitive landscape is getting more dynamic. There are also competitors in China that are coming up at low cost and competing with us. On the other side, we believe very strongly

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in our strategy, first of all, in the field of the current business where we are experiencing market share gains throughout the board, and I've presented that during my presentation. So we are very, very successful even in these difficult and increasingly competitive landscape situations. And we further intend to grow that shows you the outperformance that we are aiming for in the market. In RVS, there is the situation that indeed the market is going to grow by roughly 4% past COVID. So there's going to be an extra growth that after the pandemic will be over we expect in the markets to happen before then a normalized growth of 2 to 3% is going to apply again. And we intend to outperform this by roughly two percentage points. And that's obviously something that we would like to do and we are aiming to do by increasing our market share existing portfolio that predominantly in the areas where our market shares is less today, that's doors, it's A track, but over and above that in those additional fields of digitalization, digital services, automation and sustainability related products as well. So, we are very comfortable. These are ambitious targets on the one hand, but on the other side, we are confident that we are going to achieve this.

00:11:59 Gael de Bray

Can I just follow up on this point about market share gains RVS. So you said about two points per annum. In brake systems with the global market share of about 50% you already have and with the competitive dynamic in China being pretty tough still, I guess, it does imply right that most of the market share gains will be in the rest of the portfolio indeed, but then that would imply for those edge backed systems and the likes market share gains probably around, you know three to five points. Or am I wrong in this analysis?

00:12:40 Frank Markus Weber

So we said in my presentation, if you just refer to my presentation here, that it's one to two percentage points above the market. The market is going to grow 4% So that gives you the range that we foresee and forecast and we are aiming for. And it is absolutely right, the increase of market shares in areas where the market share is already quite high is certainly difficult to make and to implement. So therefore growth activities will mainly go into the two fields that I said before, first of all A-track and the doors were our market shares less compared to today. For example, TCMS and others. There, we also have market shares that can still grow. And then we go into these fields that I talked about that will be growth fields for us. And where we can increase the share in the market from all sides quite substantially. So these are the additional growth areas that we're going to tackle.

00:13:48 Gael de Bray

Okay, thanks very much and I will get back in the queue.

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Knorr-Bremse AG published this content on 15 December 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 December 2021 17:48:04 UTC.

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