Knorr-Bremse at German Select Conference Reaffirms 2026 Targets, Eyes Rail HVAC Divestment

Key Points

• 2026 targets reaffirmed: Management reiterated midterm goals and full-year guidance of revenue €8.0–8.3bn, operating EBIT margin ~14% and free cash flow €750–850m, with rail margins expected to be above 17% in 2026.
• As part of its BOOST program, the company is close to selling its rail HVAC unit and is driving margin expansion through >12,000 efficiency measures, footprint optimization and targeted “greenfield” growth moves such as signaling acquisitions.
• Aftermarket resilience and disciplined capital allocation: Aftermarket represents roughly 46% of revenue (56% rail, 34% commercial vehicles) providing annuity-like cash flows; net debt/EBITDA is ~0.5x, the payout target is 40–50%, and buybacks/special dividends are not a near-term focus.

Knorr-Bremse ETR: KBX outlined its business mix, strategic priorities and full-year guidance during a presentation at the German Select Conference led by Katharina Kosate, Senior Manager of Investor Relations. The company is the global market leader in braking systems and other safety-critical systems for rail vehicles and commercial vehicles, Kosate said, emphasizing that Knorr-Bremse typically delivers full systems that combine hardware, software and brake control rather than “only” brakes.

Business profile and profitability mix

Kosate described Knorr-Bremse as operating a “balanced portfolio” across two divisions: Rail Vehicle Systems (RVS) contributing about 55% of revenue, and Commercial Vehicle Systems (CVS) contributing about 45%. Rail is structurally more profitable, with an operating EBIT margin of “more than 16.5%,” compared with about 10.5% in the truck business, which Kosate said is “quite a good figure” given the current cycle.

Geographically, she said the company is not overly dependent on any single region. Europe is its largest market, with “big operations” in North America and Asia as well. Kosate also highlighted the group’s aftermarket exposure as a key strength, accounting for roughly 46% of revenue.

For 2025, Kosate said Knorr-Bremse generated revenue of around EUR 7.8 billion and operating EBIT of about EUR 1 billion, corresponding to an operating EBIT margin of roughly 13%.

Aftermarket and barriers to entry

A central theme of the presentation was resilience, which Kosate tied to differing economic cycles across the two divisions and to the company’s installed base. She said Knorr-Bremse products are in “more than every second train worldwide,” supporting the aftermarket business.

Kosate pointed to homologation requirements in rail as a major barrier to switching suppliers, supporting high aftermarket share, particularly in rail. She described the aftermarket as “annuity-like in nature,” supported by long product life cycles, with trains typically lasting 40 years or more and trucks about 10 years for the company’s relevant service window.

She cited aftermarket shares of 56% in rail and 34% in commercial vehicles, adding that the aftermarket provides “strong margins, cash flow stability, and a significant future potential.” She also said digital and connectivity-based services can further enhance that growth potential.

BOOST program and portfolio actions

Kosate said the company’s BOOST program, launched in 2023, is designed to drive margin expansion through cost optimization and footprint improvements, while also expanding into growth areas. She described two components:

• “Brownfield” (housekeeping): efficiency measures, cost base improvements, footprint reorganization, and disposal of underperforming assets.
• “Greenfield” (growth): expansion into attractive, margin-accretive areas.

As part of its “Sell-It” actions, Kosate said the company is close to completing divestments, with one asset remaining: its rail HVAC (air conditioning) business. She said the unit is being sold because it is unlikely to reach the group’s margin expectations. “We will do it in the next couple of months and then sell it,” she said.

On efficiency, Kosate said the company has implemented more than 12,000 measures group-wide and characterized the work as ongoing.

In greenfield initiatives, she highlighted a signaling acquisition in North America purchased from Alstom in 2024, calling it the first step into signaling and stating that Knorr-Bremse became market leader in wayside signaling in North America. She said the technology can be expanded to markets such as South Africa, Australia and India, though not Europe. To build a European presence, Kosate pointed to the September acquisition of Duagon, describing it as a “first tiny step” in European signaling and adding that “one could expect some more smaller M&A regarding signaling in Europe in the next couple of years.”

Financial priorities, leverage and shareholder returns

Kosate said Knorr-Bremse’s financial priorities include profitable organic growth, margin expansion, improved cost conversion and disciplined capital allocation, while maintaining its investment-grade profile. She said net debt to EBITDA stands at about 0.5x and noted that leverage could rise for larger transactions, but a “superior financial profile” remains important.

In capital allocation, she listed priorities as investing in organic growth first, pursuing disciplined M&A second, and returning capital via dividends as a more distant third priority. The company targets a payout ratio of 40% to 50%. Share buybacks and special dividends are “nothing that we really have in a big focus at the moment,” she said.

Asked in Q&A whether buybacks or special dividends could change over time, Kosate said management discusses the topic but “for now, it’s not an option,” adding, “never say never,” while cautioning she does not see it “in the near future.”

Guidance, segment outlook and truck-cycle commentary

Kosate reiterated full-year expectations of revenue between EUR 8.0 billion and EUR 8.3 billion, operating EBIT margin of around 14%, and free cash flow between EUR 750 million and EUR 850 million. She said this is in line with the company’s midterm targets through 2026, and indicated an update to midterm targets could come with Q2 results “end of July.”

She said Rail has already reached its midterm margin target of 16.5% and is expected to be “definitely above the 17%” level this year. In Q&A, she added that rail margins could be around 17.5% in 2026, depending on the timing of the HVAC divestment.

On the truck business, Kosate said the segment is coming off a weak cycle but that the recovery is “rather slow” and “visible.” She said Knorr-Bremse expects to increase truck margins by about 150 basis points, from 10.4% in 2025 to about 12% in 2026, even in what she described as “still not so good” market conditions. Management has also said truck could reach 13% margin in a good market and 14% in a very good market, she added, while emphasizing this is not expected this year.

Regarding demand signals, Kosate said the company saw the “first kind of recovery” in orders in Q4 and expects a stronger second half of 2026 than the first half. She also said markets expect a potential “pre-buy effect” related to North American EPA regulation for 2027, though she noted the company does not include that in its budgets.

On digitalization investments such as predictive maintenance and condition-based monitoring—particularly in rail—Kosate said the company has multiple pilot projects and sees some early effects, but that the “bigger impact should be expected end of 2020s.”

She also provided color on smaller acquisitions. TruckServices, she said, is an app aimed at fleet and driver services that fits into a truck aftermarket ecosystem alongside Knorr-Bremse’s SafetyDirect condition-monitoring offering. Duagon, she said, brings both European signaling exposure and rail electronics capabilities that the company intends to combine with its existing electronics business.

About Knorr-Bremse ETR: KBX

Knorr-Bremse AG, together with its subsidiaries, engages in the development, production, marketing, and servicing of braking and other systems for rail and commercial vehicles worldwide. The company operates in two segments, Rail Vehicle Systems and Commercial Vehicle Systems. The Rail Vehicle Systems segment offers braking systems, entrance and HVAC systems, sanitary systems, coupling systems, digital solutions, smart services for optimizing rail traffic, power electrics, rail computing and communication (RCC)/TCMS, signaling systems, stationary and mobile testing equipment, windshield wiper and wash systems, and extensive aftermarket solutions.

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