- Strong growth: Revenues up 8.4% in first half of 2019 to €3,602 million—best first-half revenues in company history
o CVS division once again outgrows commercial vehicle market
- Healthy earnings performance: Operating EBITDA margin (adjusted for restructuring expenses) increased from 18.0% to 19.0%
- Earnings per share: 21.1% increase to €2.13
- Full-year guidance for 2019 confirmed
Ralph Heuwing, CFO of Knorr-Bremse AG: “After a highly successful start to 2019, we posted the best half-year revenues in our company’s history despite a difficult market environment and one of the best half-year earnings. Our two divisions complement each other ideally in regional performance and continued to gain market share. This confirms Knorr-Bremse’s special business model. Earnings are also substantially higher than in the prior year. Overall, we are highly satisfied with the company’s performance and confirm our guidance for the full year. We are nevertheless taking precautionary measures with regard to efficiency and cost control in order to safeguard our competitiveness and profitability.”
In the first half of 2019, Knorr-Bremse continued to benefit from its strong market position and the international megatrends of Urbanization, Digitization, Eco-Efficiency and Automated Driving.
The Knorr-Bremse Group’s incoming orders increased by 1.8% in the first half of fiscal year 2019 to €3,581 million, compared with €3,517 million in the first half of 2018. The order book reached €4,542 million, compared with €4,372 million at the end of the first half of 2018. At a high level of nearly eight months of revenue, the forward order book paves the way for solid business performance over the remainder of the year.
Knorr-Bremse continued the successful trend from the first quarter of 2019 through to the end of the first half year. Revenues rose in the first half of 2019 by 8.4% to €3,602 million, compared with €3,322 million in the same period of 2018. Both divisions and all key regions contributed to the strong revenue growth. The aftermarket share of total revenues was unchanged at 32% in the first half of 2019 (prior year adjusted for activities sold in the meantime).
With its focus on rail and commercial vehicles, Knorr-Bremse’s resilience sets itself clearly apart from other industrial goods markets and in particular the automotive sector.
Significant improvement in EBITDA and EBIT margins
Based on the strong revenue growth as well as due to economies of scale and improvements in the order mix, Knorr-Bremse generated EBITDA of €669 million in the first six months of 2019, compared with €582 million in the prior-year period (an increase of 14.9%). The reported EBITDA margin amounted to 18.6% (H1 2018: 17.5%). Adjusted for restructuring expenses for Wülfrath in the amount of €16.4 million, the operating EBITDA margin for the first half of 2019 came to 19.0%. In the first half of 2018 (after adjusting for one-time expenses and operating losses from activities disposed of in the meantime), the operating EBITDA margin had been 18.0%. Knorr-Bremse is proactively preparing for an economic slowdown in the truck market with the closure of the Wülfrath plant and other cost-cutting measures.
EBIT rose in the first half of 2019 by 12.9% to €533 million, compared with €472 million in the first half of 2018. The reported EBIT margin stood at 14.8%, 0.6 percentage points up on the prior-year period (14.2%). The operating EBIT margin (before restructuring expenses of €26.8 million for Wülfrath) rose to 15.6% in the first half of 2019. After adjusting for one-time expenses and operating losses from disposals, the operating EBIT margin in the first half of 2018 had been 15.3%.
Knorr-Bremse continued consequently on its course of innovation. The R&D rate was 5.6% (H1 2018: 5.7%).
Rail Vehicle Systems (RVS): strong revenue and earnings growth
Revenues in the RVS division rose in the first six months of 2019 by 7.6% to €1,876 million, compared with €1,744 million in the first half of 2018.
The increase in revenues mostly related to growth in the service business in Europe and Asia (and there particularly in China and India). OE revenues in Europe also increased, mainly in the regional and commuter train as well as metro segments. North America saw revenue growth in locomotives, freight cars and service. OE business accounted for some 60% of divisional revenues (H1 2018: 60%), while the aftermarket business (RailServices) share of revenues accounted for 40% (H1 2018: 40%; 39% adjusted for companies disposed of in 2018).
EBITDA in the RVS division rose by 29.4% to €417 million in the first half of 2019 (H1 2018: €322 million). The EBITDA margin increased from 18.5% in the first half of 2018 to 22.2% in the first half of 2019. Adjusted for the revenues and losses of divested businesses (Blueprint and Sydac), the operating EBITDA margin in the prior-year period had been 19.4%. The yearon- year improvement in EBITDA is mainly due to higher volumes and revenue mix effects.
Commercial Vehicle Systems (CVS): strong performance in North America and Asia
Revenues in the CVS division grew by 9.5%, from €1,577 in the first half of 2018 to €1,727 million. A worldwide increase in content per vehicle, gains in market share and positive currency effects made for substantial growth relative to the truck production rate, which was slightly down year on year. There are initial signs of a market slowdown among commercial vehicle manufacturers, given substantial reductions in incoming orders, which from today’s perspective might lead to weaker demand growth for suppliers in North America and Europe during the next year. In this environment, the CVS division performed significantly better than the general demand trend and the competition.
Revenue growth in the first half of 2019 mainly related to positive performance in North America and the Asia region. The European business, on the other hand, showed a mixed picture with growth in the OE business and a slight decrease in aftermarket revenues. Business performance in the Asian market was positive due to increased content per vehicle, gains in market share and the revenue contribution from the Hitachi Automotive acquisition in Japan, which was included in the consolidated financial statements for the first time. OE business grew globally by three percentage points to 78% of divisional revenues (H1 2018: 75%). The aftermarket share of revenues decreased to 22% (H1 2018: 25%) due to inventory optimization efforts on the part of our customers.
CVS increased EBITDA in the first half of 2019 by 1.8% to €264 million, compared with €260 million in the first half of 2018. The reported EBITDA margin correspondingly amounted to 15.3%, down from 16.5% a year earlier. Adjusted for the restructuring expenses for the Wülfrath location, the operating EBITDA margin, at 16.3%, was almost level with the prioryear period (16.5%).
Regions: Strong growth in North America
Growth in the first half of 2019 was driven by all regions. The regional revenue split in the first half of 2019 shows a slight strengthening in the North America region. In a dynamic market environment, notably in commercial vehicles, revenues in the North America region alone grew by 23%, partly supported by currency effects. The regional split was as follows:
Europe/Africa: 47% (H1 2018: 50%)
North America: 23% (H1 2018: 20%)
South America: 2% (H1 2018: 2%)
Asia-Pacific: 28% (H1 2018: 28%)
Year-on-year growth in capital expenditure and workforce
In the first six months of 2019, Knorr-Bremse invested €134 million or 3.7% of revenues (H1 2018: €106 million or 3.2% of revenues) in property, plant and equipment and intangible assets. Alongside ongoing site development projects in Munich, capital expenditure also targeted upgrading and expansion projects such as expansion of production capacity for air disc brakes at the Huntington, U.S., location.
As of June 30, 2019, Knorr-Bremse employed 16,558 people in the Rail Vehicle Systems division (June 30, 2018: 16,674) and 12,562 in the Commercial Vehicle Systems division (June 30, 2018: 12,025). In total, the Knorr-Bremse Group had 29,812 employees as of June 30, 2019 (June 30, 2018: 29,326).
Full-year guidance for 2019 confirmed
Assuming an ongoing stable economic environment, taking into account M&A transactions made in 2019 and the application of IFRS 16, and before restructuring measures, Knorr- Bremse has confirmed its guidance for 2019. The company expects revenues of €6,875– €7,075 million (2018 reported: €6,616 million) and an operating EBITDA margin, meaning before restructuring expenses, in the range 18.5%–19.5% (2018 reported: 17.8%).
The full half-year report for 2019 is available at www.knorr-bremse.com.
This publication has been independently prepared by Knorr-Bremse AG (“Knorr-Bremse”). It may contain forward-looking statements which address key issues such as strategy, future financial results, events, competitive positions and product developments. Such forward-looking statements are subject to a number of risks, uncertainties and other factors, including, but not limited to, those described in Knorr-Bremse’s disclosures. Should one or more of these risks, uncertainties or other factors materialize, or should underlying expectations not occur or should assumptions prove incorrect, the actual results, performances or achievements of Knorr-Bremse may vary materially from those described in the relevant forward-looking statements. Such forward-looking statements may be identified by words such as “expect,” “want,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will,” “project” or words of similar meaning. Knorr-Bremse does not intend, nor does it assume any obligation, to update or revise its forward-looking statements regularly in light of developments which differ from those anticipated.
This publication may include supplemental financial measures—not clearly defined in the applicable financial reporting framework—that are or may be alternative performance measures (non-GAAP measures). Knorr-Bremse’s financial position, financial performance and cash flows should not be assessed solely on the basis of these alternative supplemental financial measures. Under no circumstances do they replace the performance indicators presented in the consolidated financial statements and calculated in accordance with the applicable financial reporting framework. The calculation by other companies that report or describe similarly titled alternative performance measures may vary despite the use of the same or similar terminology.