Hello, ladies and gentlemen, and welcome to the Knorr-Bremse AG Q2 23 Earnings Call. At this time, all participants are in place on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Andreas. Please go ahead. Good afternoon, and well, good morning, ladies and gentlemen. I hope all of you are very fine. My name is Andreas Spitzauer, our Head of Investor Relations of Knorr-Bremse AG. I want to welcome you to Knorr-Bremse's Conference Call for the Second Quarterly Results of 2023. Today, Marc Llistosella, our CEO, and Frank Weber, our CFO, will present the results of Knorr-Bremse, followed by a Q&A session. The conference call will be recorded and is available on our homepage, www.knorr-bremse.com, in the Investor Relations section. You can find today's presentation and later, a transcript of the call. It is now my pleasure to hand over to Marc Llistosella. Please go ahead. Thank you, Andreas. Welcome everybody to our conference call from my side. Before we get started, I would like to take the opportunity to express my deep sorrow of the sudden death of Daimler Truck CFO, Jochen Götz. For me, personally, Jochen was a highly valued former colleague, always fair, always great. My heartfelt condolences, which I express on behalf of the entire Knorr-Bremse Group, with his family, to whom I wish much strength at this difficult time. Thanks, Marc. Let me tell you that for me, words can hardly express my fear. I'm deeply saddened about Jochen Götz's sudden passing. Jochen Götz was much more to me than a very long-time colleague in various functions. He was a friend. He was an exceptionally knowledgeable, persistent, pragmatic, and trustful professional, as well as an outstanding and down-to-earth individual. For me, he was unparalleled in terms of reliability, integrity, and kindness. I will forever miss him. My heartfelt condolences go out to his wife and kids, as well to my former colleagues at Daimler Truck. Thank you, Frank. As usual, I will start with an overview of the highlights before Frank dives into the details, followed by a Q&A session. Let's kick it off on chart number two, which is our main messages of today. Number one, we continue to see strong customer demand across all regions in both divisions. As a result, order books reach record levels and are a solid foundation of our outlook for 2023. Number two, as promised at the quarter one 2023 presentation and our strategy update in July, we saw a turnaround of profitability in the past quarter. This is a consequence of our successful Profit and Cash Protection Program, PCCP. Together with Indian Railways, number three, we could find a mutual solution to solve the security issues with freight wagons in India, and we concluded a settlement. We are therefore confident that the outstanding payments by Indian Railways will decrease in the term. Number four, a meaningful part of our boost program is Brownfield, housekeeping, which we presented to you in our strategy update. A major cornerstone of this is the focus on portfolio optimization. It took quite some time, but we could sign a deal to sell our group subsidiary, Kiepe Electric, to Heramba. We are confident to close the deal soon. Number five, let's talk about our company's efforts to fight climate change. We have increased our scope one and two target to reduction to 75% by 2050. In addition, we have defined an ambitious scope three target, and we delivered on our commitment to obtain target validation through the Science Based Targets initiative, SBTi. It was a major step forward and shows our strong commitment to sustainability. Number six, last but not least, we confirm our guidance and increase our revenue target for 2023 to EUR 7.3 billion-EUR 7.7 billion to EUR 7.5 billion-EUR 7.8 billion. Next chart, please. On chart three, I want to share our market view with you and focus on five main messages. Overall, the good demand in the rail industry continues, driven by the political bid to support green mobility. After corona, ridership levels and rail traffic are recovering across the globe. As a result, aftermarket business growth and postponement decreased, which results in high order books of our global OEM customers. The market in China is back, it's already showing a positive effect on our AM business. The demand in Asia, however, is still challenging as the provinces and municipalities suffer from the weak real estate market and the accumulated tax burden of the past corona years. The truck market shows high demand in Europe and North America. Our production rates significantly increased in both regions in the past quarter and are also expected to grow slightly on a full year basis. Overall, in terms of demand, we hardly see any signs of weakening. Constant regional growth is supported for CVS. After the Chinese truck market struggled last year, we see a strong recovery in 2023. CVS benefited from this recovery due to our leading market position and the leading position in the field of technology. There are good opportunities regarding constant behavior, driven by rather lower safety standards.... and move towards innovative and reliable technology also inside. Chart number four. Let's move to the second quarter KPIs on chart number four. All major financials moved higher year-over-year. The most important one for me was the Operating EBIT margin is up by 60 basis points to 11.1 in the second quarter 2023. This development was driven by higher revenues and the success of our cost initiatives. In addition, order book reached new record high with EUR 7.1 billion. It provides good visibility and confidence in the quarters ahead regarding utilization rates. Last but not least, the cash flow returned positive in quarter two as planned, we expect this good trend to accelerate further between now and the end of the year. With this words, I would like now to hand over to Frank for the financial insights. Frank, please. Thanks, Mark. The pleasure comes from my side as well. Let's move to chart five. CapEx in the past quarter amounted to EUR 75 million, representing 2.7% of our revenues. They were stable in absolute terms year-over-year, but lower in relation to revenues and currently well below our target range of 5%-6%. I expect some higher spendings towards the end of 2023, as usual. Net working capital increased by roughly EUR 180 million versus last year's level, but scope and pace improved slightly year-over-year. I will go into more detail regarding this development on the next chart. We also believe that the level of EUR 1.56 billion should mark the peak in 2023, and the scope and pace will strongly decrease in the second half of the year. Grossly, for the second quarter, please, we increased slightly to 17%. There is still some way to go before we reach our target margin of more than 20%, but the development was definitely in the right direction. On chart six, I would like to provide you more details regarding our free cash flow, which was positive as expected, and came in at EUR +24 million in the past quarter. With that, some EUR 69 million better than in the previous year. In the first half of 2023, the improvement even added up to around EUR 100 million. Traditionally, our free cash flow is significantly weaker in the first half of the year, and 2023 is not an exception. The biggest impact on the development of our free cash flow is still the higher net working capital. The major driver for this was the increased accounts receivables among some larger customers, which tend to delay some payments. We still maintain a high level of inventories in order to be flexible in response to customer requests and to ensure a high degree of supply security. Due to the currently further improving supply chain situation, we also expect the scope of base to improve. We have launched Project Connect, which is made up of cross-divisional teams such as direct and indirect purchasing, logistics, supply chain, as well as sales and aftersales, in order to systematically improve our net working capital again. I expect in the quarters ahead that we will improve KPIs, also driven by higher payments from Indian Railways, again, after the finalization of the performance this year. I am still confident that North Anthony will reach its free cash flow guidance of EUR 360 million - EUR 550 million in 2022. Let's take a closer look at the divisional performance in Q2, starting with RVS on chart seven. In the second quarter of 2023, order intake in the rail division was again very strong and above EUR 1 billion. The lion's share of its absolute performance was in Europe, followed by Asia and North America. The book-to-bill ratio is now above one for the seventh consecutive quarter and reached 1.07. This development will support the positive trend of RVS. It is particularly important for me to mention that the current price quality for new long-term models is the same as it was before the sharp increase in inflation last year. The order backlog of June 13th amounted to EUR 5.1 billion, reaching again a new record high. Let's move to chart eight. Revenues of RVS in Q2 amounted to EUR 958 million, an increase by more than 16% year-over-year, driven especially by aftermarket business, which outperformed our OE in the quarter. Additionally, price increases supported this development, too. Operating EBIT for RVS in the second quarter of 2023 was EUR 141 million, up 19% year-over-year. As a result, the operating EBIT margin increased from 14.3% - 14.7% in the second quarter. The main drivers for our margin improvement were, first of all, good operating leverage driven by higher revenues in all regions. Second, the aftermarket revenues in China, which increased double-digit versus the previous year's quarter because of the sharp increase in ridership following the end of the zero COVID policy. We also recognized the forward effects on train maintenance and spare parts deliveries. Therefore, it remains to be seen whether this level of the second quarter will be sustainable in the upcoming quarters. Last not least, price measures and cost improvements to offset some of the inflation as well. We also expect a solid development of profitability in the first quarter, due to a very solid revenue development and further successes of the profit and cash production program. At the same time, we keep to our forecast that RVS margin for the full year can easily be below last year's level. Let's continue with our truck division on slide nine. The same high demand, which was already mentioned by some truck OEMs, has led to significantly increased truck production rates since the beginning of the year in Europe, North America, and especially China. Becoming orders of CVS amounted again to more than EUR 1 billion, which is an increase of 18% year-over-year. Main drivers of this significant growth were Europe and APAC, especially China. On good demand for transportation services. The order book of our truck division amounted to almost EUR 2.1 billion, which is again, remarkably 7.7 percentage points higher year-over-year. Let's move to slide 10. Thanks to price increases and higher volumes, CVS posted a 15% year-over-year increase in revenues to EUR 1.5 billion in 2Q 2023. The division enables increased revenue in all regions. Operating EBIT in our CVS division amounted to EUR 98 million in the, up 31.5% year-over-year. As a consequence, the operating EBIT 9.1 - 9.3 due to the strong aftermarket, successful implementation of cost measures, and higher customer prices. We are close to successfully finish our second round of price increases, also called phase II, which will support CVS, EBIT, and EBIT margin starting from the third. With that, I hand over to Marc for the guidance 2023 and final remarks. Thank you, Marc Llistosella. Thank you, Frank Markus Weber, and sorry for my coughing. I don't know, it's an allergic reaction. I want to finish with our guidance for 2023 on chart 11. Our main assumptions are, as outlined on the right side of the page. As one aspect of those, we expect that all next extra costs due to the inflation also this year, will be once again compensated with our comprehensive Profit and Cash Protection Program measures. For 2023, we now expect an increased revenue target of EUR 7.5 billion-EUR 7.8 billion. This uplift was mainly due to a higher-than-expected truck production rate and a better development of the aftermarket in the rail division. Furthermore, we expect an Operating EBIT margin between 10.5% and 10%, and a free cash flow between EUR 350 million and EUR 550 million, which confirms our guidance. On top sales, as you can see, quarter two results have shown clear signs that we are heading into the right direction. We all know one swallow doesn't make a summer. We'll use the following months to rigorously implement and execute our plan for value creation, as we showed you a few weeks ago in the Power Boost presentation. We say what we do, and we do what we say. The heat is on, and it will not cool off in autumn, nor in winter. We announced a further relevant update of our roadmap to you for February next year, and rest assured, we will deliver on time. Thanks for your attention. Thank you very much, Frank and I myself. We will look forward to hear and to answer your questions now. Ladies and gentlemen, if you would like to ask a question, please press nine and the star key on your telephone keypad. In case you wish to cancel your question, press nine and the star key again. Please press nine and the star key now to state your question. The first question comes from Sven Weier. Please go ahead. Yeah, good afternoon. Thanks for taking my questions. First one is on RVS, where you mentioned on the EBIT side that the price increases compensated higher inflationary costs. In Q1, you were still a bit more reserved on that in terms of only partial compensation. Are you making quicker progress there in terms of the impact of the legacy contracts than you assumed so far? Sorry for the delay. We had a technical issue here. Thanks, Sven, for your question. Basically, the, the plan going forward in regards to the degree of compensation of cost via pricing has not changed. Maybe kind of understanding issue that we have here. It's clear that last year, overall, we were able to roughly compensate 66% of our cost increases via pricing only. This year, we should overall, for the whole group, be able to achieve roughly 80%, towards next year, it will then again get better until it's completely consumed, so to say. This plan has not changed. It's gradually getting better, but it's not fully compensated yet. I think Q2 it was, in RVS at least. I don't, I don't think in Q2 it was, it, it wasn't. It wasn't. It wasn't. It was compensated, but not to the full extent. Okay. Because I, I just refer to the comment on the slide, on slide number eight, where you said price increases and cost measures compensated high inflationary costs. Maybe not fully. Prices and cost measures fully compensated, but not price measures only. Understood. Then just on the second point regarding China and ridership and reopening, in were you also a bit surprised by this? Because on the strategy update, you sounded a little bit more defensive on China, that you said aftermarket was already relatively sound also during the pandemic, and the catching up there was maybe not so much needed. I was just wondering what, what has changed between, between now and the strategy update. It's a very general outlook. We -- I wouldn't say we were surprised. We said that we do expect out of this change, drastic change of zero-COVID policy, some head tailwind on the aftermarket side, but not on the OE side. We still see in actual results and also in our outlook for the full year in regards to the production, assumed metros, as well as the high-speed trains, the same numbers that we had talked about just several months ago. We do think that maybe on the OE side, we could reduce some 100 high-speed trains throughout the year, and we can see the same level of roughly 5,100 metros within China. OE isn't a big lever for entices in for us. This is still confirmed. On the aftermarket side, it, as ridership levels have really gone strong. They are in the first quarter and in the second quarter, which were even higher above 2019 pre-COVID levels already. This is a bit better than we thought indeed. Also this resulting aftermarket business, including some pull forward effects in the second quarter is stronger than expected. Could you quantify the improvements you saw in China, potentially on the aftermarket? In, in, it's a double-digit EUR revenue number, I would say in the quarter alone. The big question out of that is, is you can hardly distinguish clearly what are really pull ahead effects from customers trying to get their, their shelves uploaded. This is difficult to say what's out of that kind of sustainability, but low to mid double-digit revenue figure in terms of EUR, million EUR. Okay. Thanks, Frank. You're welcome, Sven. The next question comes from Akash Gupta. Please go ahead. Yes. Hi, good afternoon, everybody. It's Akash from JP Morgan. My first one is on the guidance. So, while you have raised your revenue guidance, if you look at the implied second half, the midpoint is kind of implying flat year-on-year growth, after you recorded 15% revenue growth in the first half. So can you elaborate, like, is this only because of the accelerated pacing of backlog in the first half, or, you just take a more conservative view on the second half of the spend? First one. I think that this distribution between the quarters and the half year one and half year two has also not changed. If we look at our first half levels, it's just that a bit stronger quarter one and quarter two came in on the CVS side. You know, that we have seen a bit of outputs, potentially there, over time and giving you the guidance a bit for CVS development. But we already expect there or that towards the second half of the year is getting a bit weaker in terms of revenues, and this has nothing to do yet with a significant drop in order intake that we would expect. I mean, we have a quarter coming up, first quarter, which is usually a rather weak one on the supplier side. At least as, as, also our customers going through kind of summer vacation in regards to their plans. This is typically a lower one, and the fourth quarter is still a bit out there. Given the current EBIT numbers that we have, we also see it's a bit on the weaker side. That, so to say, hints to the imbalance that you pointed out in between half year one and half year two. Thank you. My follow-up is on, is on the guidance again from this Kiepe Electric diversion. Can you elaborate more on the financial implication of this divestment and whether there will be any impact, and if we should create later in the year? First, first of all, as we talked about, the Kichle overall, isn't that much of a performing unit of ours. That's the reason why we are in the current process. As we are already now in August, we have take in basically already kind of six to eight months into our actual results, that it will not make a big difference, so to say, for our guidance levels, whether it will be closed in August or in October or so. If we could, so to say, close the deal, as soon as possible, there would be a slightly positive effect for the remaining months to come. That is clear, but, this is not the make or break point for, reaching our guidance. Thank you. Thank you, Akash. The next question comes from Jorge Gonzalez. Please go ahead. Oh, thanks, very much. Good afternoon, everybody. I have two questions, please. The, the first one is, about CVS. If you can't quantify or at least provide more color on the magnitude of the wave two pricing agreements, which were concluded in the first half. The second question is, on the, the strategic program and, and following the, the, the update, you had in July. I think it would be useful if you could provide some color and maybe regular updates on the growth and margin performance of the EUR 1.4 billion of revenue that's under review and, and perhaps starting now. Hi, Gerd. Thank you for your questions. First, first, I mean, the, the, wave two that we're currently basically finalizing as we speak, this is in the dimension of similar magnitude like we have had in last year, so to say. Comes needless to say, on top as last year's negotiations have been also sustainably increased in the price levels. Similar amount to what we were talking about last year. Last year we were with that kind of 2/3 of the inflation compensated by pricing only on the group level. 2/3 of that last year came from trucks, and in that similar amount, we are talking year-over-year than for the CVS colleagues in 2023. That's the wave two. In regards to the EUR 1.4 billion that we talked about in the strategy update, it's like you can also see back in the days on the slides that we showed in the margin walk, is we roughly expect a level of 200 base points of EBIT margin improvement out of the respective countermeasures in those non-performing units that we're having. They could either be selling those units or fixing them, bringing them up to the levels that we strategically target. We confirm it. We confirm what we said back then, 100 base points target. Okay, I will do that. Thanks very much. You're welcome, Gerd. The next question comes from Vivek Midha. Please go ahead. Thanks very much, everyone. Good afternoon. I have two questions on demand. The first question's on rail. The rail orders have remained at a high level so far this year. Do you expect to be able to continue to get orders at around that EUR 1 billion per quarter run rate in RVS for the rest of the year? Maybe, if you could give any update on how your order pipeline is developing. Thank you. Thanks for the question. we also do think that up to now, very, I think more than four, five quarters in a row with more than EUR 1 billion of order intake on the RVS side. you know, also, kind of, this project business is not kind of, sustainable, where you can, like, cut performance forecast into the future. We do expect that order intake should be a bit lower, moving in, well, given all the tenders that are out there, we have some transparency basically all around the world in regions. Just given the tenders that are out there, we do expect order intakes to go a bit down, going into the next quarters. This does not at all fundamentally change our core and strong belief of a fully intact growing market in RVS, in basically all regions, like we said, except for maybe China, if you take or India as a case. This is the situation. A bit, bit less order intake to be expected, but not, not at all a change in the fundamentals. That's very helpful. Thank you. Now- The next question's on trucks. We see comments on trucks remaining at a, a good level. I was wondering if you could give any latest thoughts on where the truck cycle will develop into 2024, if you have any. Thank you. When you speak about trucks, you speak about regions, right? In Europe, we see stabilization on the high level. In North America, we see it the same. In Asia, mainly on, in India and especially in China, we see extremely recovery. The question is now we see a slight slowdown in the recovery in China. We see a steady increase in India, which is ourself. Unfortunately, not that important so far for us, because content per vehicle in India is not a third of what we are used in other markets. So the, the, significance of this market will be an upside for the near future and the next future, but it will not be a game changer for the next six or 12 months to come. What we see in China is that it will be the question when the Chinese truck market is picking up the level of the cars, and that is something which will come, from our point of view, relatively aggressive. It can be faster, it can be slower than expected, so we cannot say where it is coming. One thing for sure, we see the explanation in the truck market by volume, and now the question is: When is the acceleration coming by content per vehicle and by the level of technology? That is the name of the game in China. It's less the volume itself, whether it's 700,000 or 800,000 units this year. It's more the question: When do we see that the latest technology will be built in? That's more a driver for the Chinese market. The others, we are always, and you know that now for at least like six months, last six months, we have been a little bit modest and a little bit moderate with all numbers, because if it gets better, it's good for you, it's good for us, and if it gets what we expect, then it's okay, that's the baseline. We say we see no significant acceleration in growth in the key markets, Europe and NAFTA, but we see a massive interesting shift will come up the next five years in China. For the next 6 months, we could not see, but it could be very, very easily the case in itself for 18 months. Thank you very much. The next question comes from Lucas Ferhani. Please go ahead. Good morning. Thank you. My first question is on RVS. The results are sequentially in the pattern. How do you see the, the margin moving, going forward? Is it likely to be a, a bit more stable? Could it be a bit lower? I think you said there was some kind of push forward of aftermarket demand in China, for example, that potentially could, could impact in H2. How, how do you see a little bit the, the margin development in RVS, specifically in H2? Okay, thanks, shall we... Andreas? Andreas. Yeah. I would like to start that. As you rightly said, we had a certain form of surprising uprise of the aftermarket in China, which was a, in fact, good for our margin. In order to be also very clear, even there is a certain form of downside in this, like a pre- we can say that in the overall business, in the overall OE business, we see a release of the pressure, because now more and more of the new orders are coming into -- in, all into place. That means, as you rightly know, because we communicate this very clear, from the activated OE business we see as 31% of this business in RVS was to price, to prices before Ukraine, but costs after Ukraine. This was a certain form of burden to the business. More and more in the year to come, we will see a release of this 31% for the whole year, and we will see new contracts coming into and falling into place. We still have a bit more tailwinds. Yeah, and you see the, the performance of the aftersales market in, and the orders, and the billing in, in China for RVS has over a slight headwind price in the next six months to come. This would be a slight tailwind to come. In 2024, we have only 10%-50% of the so-called pre-inflated pricing orders. That means the real kick in of the margin improvement will come then, the next months to come, especially the next years to come. For the next half year, we don't expect any big acceleration of our margin, but we don't see a massive increase of the margin. What we see then for next year is supported by what I just described. Frank, please add to this. Thanks, Mark. Absolutely correct. I mean, going towards the half year two, I would guide you with the kind of level that is roughly on the half year 1 level, which is potentially in a quarter, even below quarter two level, but definitely above quarter one level. This is what we can see. As it's a project business, it's totally different kind of revenue scope that you would potentially have in the first quarter compared to the one that you would have in the fourth quarter. That's just the kind of volatility that you have in the structure of the product mix. Okay. Thank you for, for that. My second question is on kind of the, the guidance. Again, you increased the, the revenues, very strong orders in H1. That gives you visibility into H2. You kind of know the moving parts in terms of what's going to be the, the margin. I'm just surprised you're not narrowing maybe a little bit the margin guide. You're quite conservative now to kind of be at the, at the lower point. So what risk specifically do you see, which would lead to kind of a, a lower margin in H2, or you not being towards kind of the, the, the mid of top half of the range, by, by the end of the year? Basically, this is due to the fact that, let's just say that, all of after the negotiations, phase I, phase II, you have, in the meantime, a very good. ... kind of back-to-back insurance in regards to inflationary cost increases, but at the same time, also in regards to cost reductions that you could potentially see. You have to give away then also certain pricing once costs come down for compared to your assumptions, like energy costs or personnel costs on your, our supplier side, tier two, tier three, tier four. What have you, if this is coming down, then you also have to reduce the price levels again towards the end customer. That's just the nature of the game. As this is kind of still a situation that is ongoing, there's not so much fluctuation around the margin anymore. I think with the, with the midpoint, as a result of this, with the midpoint of the margin, you're on a, on a, on a safe side, so to say. Narrowing it down further compared to this, I mean, there's still issues out there with, in regards to the project dimensions on the RVS side, more or less, which is, of course, not that plannable, as there are peak tenders usually out there, and peak deliveries out there, which can easily, so to say, cause a 50 basis point up or 50 basis point downside. That's the reason. Okay, perfect. Thank you. Okay, at the moment there seem to be no further questions. If you would like to state another question, please press nine and the star key on your telephone keypad. I will leave the line open for a couple more seconds. Okay. In case there are no further questions, then thank you very much for your time, and your attention. We wish you a great summer holiday. Looking forward to your back that we talk to each other again, and thanks a lot. Bye-bye. Bye. Bye. Bye-bye. The conference is no longer being recorded.