Letter of the CEO to the shareholders.

Dear Readers,

In February of this year, we had to make a sad announcement: Heinz Hermann Thiele, for many years CEO, Supervisory Board Chair and majority shareholder of Knorr-Bremse, had passed away. One of Germany’s greatest entrepreneurs and business personalities, Mr. Thiele devoted his whole life to the service of Knorr-Bremse with unflagging zeal and personal commitment. A visionary entrepreneur, Mr. Thiele placed the management of the Company in the hands of an external management team nearly 15 years ago. He was also behind Knorr-Bremse’s IPO in 2018 – another important step toward safeguarding the Company’s future. Together with the Supervisory Board and workforce, the Executive Board continues to ensure that Knorr-Bremse pursues a successful growth trajectory today, very much in the spirit of Mr. Thiele.

The past fiscal year was dominated by the Covid-19 pandemic, affecting all of us. It became clear at an early stage that 2020 would present serious challenges, and indeed it did. As a company, we weathered this year of crisis comparatively well, thanks to the resilience and solidity of our business model. This was primarily due to the measures we took, at very short notice, to safeguard our ability to deliver products and services to our customers, while at the same time making the protection of our employees’ health our very top priority. Even so, we did not entirely escape the pandemic’s negative impact on businesses and markets. Plant closures by customers, reduced traffic levels and severe restrictions on mobility all served to constrain our business development.

Despite these constraints, Knorr-Bremse made some significant progress last year in terms of business development. Following the acquisition of R.H. Sheppard in the USA, our CVS division has become one of the world’s three leading suppliers of steering systems for commercial vehicles. The acquisition also created a platform for turning the division into a global systems supplier of integrated steering and braking solutions. In turn, these will form the basis of future driver assistance and highly automated driving systems. And in November, Knorr-Bremse and Schmitz Cargobull further cemented their long-standing partnership as joint developers of technologies for the future by signing a multi-year agreement for the supply of trailer braking and chassis control solutions. Our RVS division also consolidated its market-leading position last year, as customers placed a series of major orders. Siemens, for example, ordered entrance systems for 94 trains intended for London Underground’s legendary “Tube” metro system. And in April 2020, even as the first wave of the pandemic reached its height, we received an order from Russian train manufacturer Transmashholding in Egypt to supply braking systems for some 1,300 passenger cars.

The entire Executive Board is very proud of the strong performance and high levels of motivation shown by the Company’s workforce as a whole over the last 12 months, despite the challenges we all had to deal with. All of our employees remain very focused and committed in their work for our customers and Knorr-Bremse as a company. We believe these efforts are exceptional and would like to thank our 29,500 employees in the warmest possible terms.

Our equity strategy is based on two key principles: growing more rapidly than our target markets, and ensuring that our business model and profitability remain highly resilient. Last year, we were able to demonstrate just how dependable these principles are. While our revenues, at € 6.16 billion, were down by around 11% on the previous year, they still came in at the upper end of the forecast range for fiscal 2020.

As a result of the Covid-19 pandemic and its impact on our target markets, both divisions reported a decline in revenues for the past fiscal year. Our RVS division’s revenue fell by -8.7% to € 3,337 million, essentially due to the drop in levels of business with rail vehicle manufacturers across all regions. While declining business volumes caused EBITDA to fall by 6.2%, high-margin earnings contributions by our aftermarket business, coupled with the impact of our Covid-19 action program, raised our EBITDA margin on revenues to 22.9% from 22.3% in the previous year. At € 2,819 million, our CVS division’s revenue was also down by around 14.0%, primarily as a result of a global decline in truck production that impacted Knorr-Bremse revenues in North America and Europe in particular. Similarly, EBITDA fell by 24.3% due to the drop in business volume. The EBITDA margin was 13.5%, compared with 15.4% in 2019.

However, thanks to our swift response and implementation of cost-cutting measures right at the start of the pandemic, we were able to ensure that margins remained high across both divisions. At Group level, we ultimately exceeded the EBITDA margin predicted for 2020, achieving 18.0%. In view of these results, the Executive Board and Supervisory Board will be putting a proposal for the distribution of a € 1.52 dividend per share before the Annual General Meeting.

Assuming that political and macroeconomic conditions remain stable, and that the Covid-19 pandemic produces no further setbacks, we are expecting to see revenues of € 6.5-6.9 billion for fiscal 2021, together with an EBITDA margin of 17.5-19.0% and an EBIT margin of between 13.0% and 14.5%.

Quality and innovation are what set Knorr-Bremse apart and make us such a strong partner to our customers. Indeed, we owe the resilience of our business activities to our capacity to innovate, through which we are able to contribute solutions to major societal challenges. Thus we develop products that improve travel safety and reduce emissions. By doing so, we support the global transition to greener, more sustainable forms of mobility, and are proud to be a key partner and enabler of this crucial trend. Our business activities will benefit from the EU’s stated objective to become climate-neutral by 2050, because the rail industry is an important cornerstone of this initiative. Major trends that are even now shaping the future, including e-mobility and self-driving trucks, will have the greatest impact on truck markets over the next few years.

Even in challenging times, it is important to invest in innovation, digitalization and new business models. Consequently, we invested around € 400 million or 6.4% of our revenues in our research and development activities last year. Key innovations by our RVS division included, for example, our new clean[air] HVAC systems, which help to keep passengers safe in trains by providing smart air distribution, together with air filtering and purification systems. Further details of Knorr-Bremse’s broad-based achievements as an innovator appear in our “Driving Innovation” magazine. Published alongside our annual report, the magazine also introduces you to the people behind Knorr-Bremse’s systems.

As you can see, Knorr-Bremse’s two divisions are ideally positioned for future success. We will play a leading role in these future developments while continuing to pursue our profitable growth strategy. And we look forward to the pleasure of your company on our journey!

Munich, March 30, 2021


Dr. Jan Mrosik - Chairman of the Executive Board of Knorr-Bremse AG