Knorr-Bremse Reiterates 2026 Goals and Considers Rail HVAC Unit Sale

Knorr-Bremse, a prominent leader in braking systems, recently reaffirmed its ambitious 2026 financial targets at the German Select Conference. The company aims for revenues between €8.0–8.3 billion, an operating EBIT margin of about 14%, and free cash flow of €750–850 million. A significant part of its strategy involves divesting its rail HVAC unit and implementing its BOOST program to boost profitability through efficiency measures and targeted growth in signaling.

During a detailed presentation at the German Select Conference, Katharina Kosate, Senior Manager of Investor Relations at Knorr-Bremse, shed light on the company's business model, strategic priorities, and financial outlook. Knorr-Bremse stands as a global leader in critical safety systems for both rail and commercial vehicles, offering comprehensive solutions that integrate hardware, software, and advanced brake control. This approach differentiates the company from competitors who primarily offer isolated components.

The company maintains a diversified portfolio across two primary segments: Rail Vehicle Systems (RVS) and Commercial Vehicle Systems (CVS), contributing approximately 55% and 45% of total revenue, respectively. The RVS segment typically exhibits higher profitability, boasting an operating EBIT margin exceeding 16.5%, significantly outperforming the truck business's operating EBIT margin of around 10.5%. Kosate highlighted this as a robust performance given the current economic climate.

A key aspect of Knorr-Bremse's strategy is its resilience, underpinned by differing economic cycles within its divisions and a vast installed product base. With its products integrated into over half of the world's trains, the company enjoys a stable aftermarket business. This segment provides significant, annuity-like cash flows, bolstered by long product lifecycles—trains often operate for 40 years or more, and trucks have relevant service windows of approximately 10 years. The company's net debt to EBITDA ratio is around 0.5x, reflecting disciplined capital management. The payout target is set between 40% and 50% of earnings, with share buybacks and special dividends not being a primary focus in the immediate future.

The BOOST program, initiated in 2023, is central to Knorr-Bremse's drive for margin expansion and strategic growth. This program encompasses two main components: 'Brownfield' initiatives, focusing on internal efficiency enhancements, cost reduction, footprint optimization, and the divestment of underperforming assets; and 'Greenfield' strategies, which involve expanding into attractive, high-margin growth sectors. As part of its 'Sell-It' actions, Knorr-Bremse is nearing the completion of several divestments, with the rail HVAC unit being the last remaining asset earmarked for sale due to its inability to meet the group's margin expectations.

On the greenfield front, the company's acquisition of Alstom's North American signaling business in 2024 marked a pivotal entry into the signaling market, establishing Knorr-Bremse as a market leader in wayside signaling in North America. This technology offers expansion potential in regions such as South Africa, Australia, and India. Additionally, the acquisition of Duagon in September provided a foothold in European signaling, with plans for further smaller-scale mergers and acquisitions in this area over the coming years. The company continues to prioritize profitable organic growth, margin enhancement, improved cost conversion, and disciplined capital allocation while maintaining a strong investment-grade profile. They anticipate a stronger second half of 2026, driven by an expected recovery in truck orders and potential market effects from North American EPA regulations.

Knorr-Bremse's financial outlook remains steady, with the company maintaining its full-year expectations for revenue, operating EBIT margin, and free cash flow. The rail segment has already surpassed its midterm margin target, with projections suggesting further improvements in the coming years. Despite a slow recovery in the truck business, management anticipates margin increases, aiming for around 12% in 2026. The company also continues to invest in digitalization, particularly in predictive maintenance and condition-based monitoring for rail, expecting significant impacts by the late 2020s. Smaller acquisitions, such as TruckServices and Duagon, are strategically positioned to enhance aftermarket services and expand into new technological capabilities.