The Executive Board of Knorr-Bremse AG: Frank Markus Weber, Dr. Claudia Mayfeld, Bernd Spies, and Dr. Jürgen Wilder (from left to right)

Letter from the Executive Board to the Shareholders.

Dear Readers,

The year 2021 was another time of major challenges for our customers, employees and Company. There is barely any industry out there that has been able to evade the impacts of the global Covid-19 pandemic. Orders have been postponed worldwide while supply chains have had to face delays and massive fluctuation. In this difficult situation, the business models of our rail and commercial divisions have once again proven to be resilient and crisis-proof. Our revenues have increased significantly with a high earnings contribution and we have successfully achieved new record highs for our order intake and order book. We owe this success chiefly to our roughly 30,500 employees worldwide who made this excellent result possible despite the difficult conditions. We wish to thank them expressly for their tremendous dedication.

This commitment and desire for success is in keeping with the vision of Heinz Hermann Thiele, our Supervisory Board Chairman and majority shareholder for many years. His sudden death on February 23, 2021, was a shock to us all. Mr. Thiele had shaped the Company for decades, laid the foundation for it and made Knorr-Bremse into an internationally successful global market leader. His entrepreneurial legacy is one of a kind. Together, we will continue the successful Knorr-Bremse growth story, whether it is in our core business or through strategic investment in new markets and profitable expansion.

Before we address the results for the fiscal year just ended, we would like to take a brief look at the present day in spring 2022. We, the Executive Board of Knorr-Bremse, are appalled by Russia’s war in Ukraine and condemn Russia’s invasion of that country in the strongest of terms. Russia’s war is not only an attack on a free country, but also an attack on our democracy and liberal values in Europe. For this reason, we temporarily suspended all deliveries that had Russia as their final destination just a few days after the war’s outbreak. We will only resume deliveries that are necessary to avoid claims for damages under existing contractual arrangements and that comply with the applicable sanctions regimes. In all cases, we will only ever deliver products or components that cannot be used for military purposes.

Additionally, we wish to help the affected people in Ukraine and the refugees from there. For instance, we as a company have donated € 500,000 and also matched every donation made by our employees. Thanks to the high rate of engagement among our workforce and the generous individual donations, we have already raised € 1.2 million. With this money, we will support the aid in Ukraine provided by the German Red Cross and UNICEF, the UN’s aid agency for children. Furthermore, our employees have started numerous initiatives in Germany and countries neighboring Ukraine to help people in the war zone as well as refugees. We support this outstanding commitment and are proud of it.

Even though the consequences of the war in Ukraine cannot yet be assessed fully and conclusively, we wish to build on the pleasing operating results that we achieved over the last year. In our Rail Vehicle Systems (RVS) division, we signed critical contracts with leading original equipment manufacturers across the world in the 2021 fiscal year. Although there were many, I would like to point out a major metro train contract with Stadler in Berlin and a Citadis equipment contract with Alstom. Both these companies have been customers in our rail line of business for many years and their choosing of Knorr-Bremse is a clear sign of our close partnership with them.

In our Commercial Vehicle Systems (CVS) division, our efforts were concentrated on innovation and the expansion of our position in safety, electric vehicles, efficiency and automated driving. We were able to achieve great success in this division, too. For example, we signed a major supply contract worth approximately € 1 billion with a leading European truck manufacturer. In offering our Global Scalable Brake Control system, we have also created a high-performing and flexible platform for our customers which acts as a foundation for automated driving.

We also found success in new, rapidly growing markets. RVS acquired its first few pilot projects and orders involving digitalization, such as a cooperation agreement with Deutsche Bahn for shared usage of data from rail operations and a data analytics contract with Siemens for remote condition monitoring of air conditioning systems in regional train fleets in the UK. Our purchase of a minority interest in Autobrains, an AI start-up, will strengthen our capabilities for key issues that will be relevant in the future. The company’s video recognition technology is based on self-learning algorithms and will deliver crucial ideas for the development of driver assistance systems and highly automated driving in the commercial vehicle industry.

The major foundations of our equity story are growth that outpaces our markets and robust profitability. The numbers speak for themselves: The revenues of Knorr-Bremse in 2021 as a whole were up 9% at approximately € 6.7 billion, a significant increase. EBIT, at € 916 million, was just over 13% more than in the previous year. With an operating EBIT margin of 13.5%, we were able to achieve impressive profitability and strong free cash flow of € 600 million. Our order intake rose by a significant 13% to a record level of € 7.3 billion while our order book grew by 12% to just under € 5.6 billion, which is also a record for us. These results mean that we have achieved our forecast for the 2021 fiscal year. Given this performance, the Executive Board and Supervisory Board will propose payment of a dividend increased by 22% to € 1.85 per share at the Annual General Meeting.

Despite the global consequences of the Covid-19 pandemic and the slow recovery of rail transportation, our RVS division attained stable revenues of about € 3.3 billion. Its operating margin was 17.9%. RVS signed important contracts with major OEM customers across the world in 2021. We are therefore anticipating growth momentum for the current year. With revenues increasing by 20% to approximately € 3.4 billion, our CVS division was the main driver of growth last year. The division also significantly improved its profitability with an operating EBIT margin of 10.7%.

Overall, Knorr-Bremse enjoys an excellent financial profile with strong profitability, high liquidity, robust assets and a clear path to growth. Nevertheless, 2022 will be another challenging year for us, just as it will be for most businesses worldwide. Alongside the geopolitical uncertainty and dramatic impacts of the war in Ukraine, we are still facing issues in international supply chains and the effects of rising inflation. We are confronting these challenges determinedly with a heavily disciplined approach to expenditure and further measures to safeguard our business model.

The outlook for 2022 is based on assumptions that exchange rates will remain largely stable, that there will be no significant Covid-19-related setbacks and that general geopolitical and economic conditions will remain stable. It is not yet possible to deliver a conclusive evaluation of the added impacts that the war in Ukraine might have on business development. Against this backdrop, we are anticipating revenues between € 6.8 billion and € 7.2 billion, an operating EBIT margin from 12.5% to 14.0% and free cash flow between € 500 million and € 600 million for the 2022 fiscal year, based on today’s perspective.

Quality and innovation are the cornerstones of our success, and we will continually expand our technology leadership and innovativeness. In order to keep capitalizing on current megatrends with innovation, we increased our research and development expenditure further in fiscal 2021. Consequently, it grew by almost 9% to over € 431 million.

We have also reached an extremely important milestone with our ambitious climate targets. Knorr-Bremse’s sites worldwide have been carbon-neutral since the end of 2021. We are very proud of this critical success, and we will not stop there either. We are progressing completely as planned on our target of halving carbon emissions by 2030. By 2021, we had already lowered our emissions by more than 65% on 2018 levels.

As you can see, Knorr-Bremse is on a clear path. We are working closely with our customers – which include the world’s leading companies in their industries – to turn our strong position into a sustainable future. We look forward to pursuing this goal together with you.

Munich, March 30, 2022


Frank Markus Weber – Chief Financial Officer and Executive Board Spokesman of Knorr-Bremse AG