Letter of the CEO to the shareholders.

Dear Readers,

Already, in the early spring of 2020, it has become clear that this will not be a normal year for any of us. We are living in extraordinary times, through a period that poses major challenges not just to our company, but to our society as a whole. The spread of the Covid-19 and its effects on our business processes have gained considerable momentum in March. The protection of our employees and ensuring the ability to deliver have top priority for us. At the same time, we will use a consistent program of measures to keep the economic impact for Knorr-Bremse as low as possible, thus demonstrating the robustness of our business model.

Despite all the uncertainties of the last few weeks and coming months, now is also a good opportunity to take a step back and reflect on the past year. 2019 was an exceptionally positive year for our Group. We achieved all the goals we set ourselves, and I am confident that this success has given us a solid foundation for tackling the challenges facing us in the months ahead.

We won a large number of prestigious international tenders. Projects include an RVS contract to equip Alstom’s new high-speed trains with brake and HVAC systems, and a multi-year contract for the supply of three million brake cylinders won by CVS in Europe. I am especially proud of the many innovative developments we have added to our product portfolio. Not only are they helping us to build on our leading market position – they are also adding significant social value, as the basis for sustainable mobility solutions.

Our company had another reason for celebrating in 2019: the 50th anniversary of Heinz Hermann Thiele’s involvement in our business. It is his strategic vision that has turned the Company into a global market leader and an industrial enterprise on an international scale, and his foresight that has perfectly positioned the Company for success on the capital market, further enhancing Knorr-Bremse’s financial flexibility.

Operationally, we have also continued to make very satisfactory progress. Our pleasing results for 2019 have reaffirmed the resilience of our business model. Our revenues for the year rose by 4.8% to € 6.9 billion, while our EBITDA margin climbed by 140 basis points to 19.2%. And thanks to an especially strong fourth quarter, our order intake also rose by 1% to € 7.1 billion. In view of these good results, the Executive Board and Supervisory Board are proposing to the Annual General Meeting that we should pay a dividend per share of € 1.80.

In short, we have attained the goals we set ourselves in our outlook for 2019, despite challenging market conditions. Every single member of our workforce contributed to these excellent results. This success would not have come about without the dedication and commitment of our colleagues across the Group. So on behalf of the entire Executive Board, I would like to thank all 29,000 of our employees at all of our 100+ locations around the world.

In our Rail Vehicle Systems (RVS) division, revenues rose by 5.6% to € 3,656 million, while incoming orders increased by 5.8% to € 4,017 million. The main growth drivers were regional and freight business. In Asia in particular, RVS enjoyed a surge of business in the passenger, freight and regional rail segments, accompanied by robust aftermarket business. Demand in Europe temporarily normalized, while regional business showed positive development in North America. We were also able to sell our Powertech business toward the end of the third quarter of 2019.

Our Commercial Vehicle Systems (CVS) division saw revenues grow by 3.8% to € 3,280 million. Similarly, incoming orders showed 4.9% growth to € 3,051 million. In view of the -4.5% decline in global commercial vehicle production over the past fiscal year, these results clearly demonstrate how we continue to outperform the market. As in the RVS sector, the European CVS market normalized during the year. In China, we saw further growth despite the decline in commercial vehicle production. Meanwhile, in North America, the anticipated market downturn began in the fourth quarter, accelerated by customers’ destocking.

During the 2019 fiscal year, we boosted our investment in research and development by 9.1% to € 397 million; our revenue growth meant that our R&D ratio only rose moderately by 5.7%. With more than 3,600 employees now involved in R&D, we continue to strengthen our position as a leading innovator, putting us well ahead of the competition. Key areas of RVS development activity include eco-friendly CO2 HVAC systems, digital products, and braking distance management. Meanwhile, our CVS division is increasingly focused on next-generation air disk brakes and autonomous driving.

At our annual press conference in March 2020, we were able to announce two ambitious targets: to become climate-neutral by 2021, and to halve our CO2 emissions by 2030. Taking social responsibility is a duty that we have always considered and continue to regard as an integral part of our activities. I am convinced that our ongoing efforts will not only have a positive impact on society and the environment, but also generate financial returns in the long term.

The global pandemic makes it very difficult to provide a detailed business development forecast for 2020. We cannot yet predict with any certainty just exactly how the current situation will impact our sales markets and we expect to see a significant decrease of revenues and EBITDA compared to 2019.

Responsibility, reliability, innovation – these values are deeply embedded in our corporate culture and, at times like these, more in demand than ever. I am confident that we, both as a business and as a society, will overcome the challenge currently confronting us and emerge all the stronger.

We are determined to continue our profitable growth strategy into 2022 and beyond. Knorr-Bremse is steadily evolving and we should be delighted if you would continue to accompany us on our journey into the future.

Munich, April 23, 2020


Bernd Eulitz - Chairman of the Executive Board of Knorr-Bremse AG