Knorr-Bremse AG Business report FY2006

Business Highlights

Financial overview

In million euros FY2006 FY2005 Rate of change(%) Factors
Sales 3,120.6 2,743.3 13.8 See note (1) below.
Net Income 185.5 154.1 20.4
Sales result for Commercial Vehicle Systems 1,967.8 1,773.5 11.0 See note (2) below.

Note (1)
-In 2006, the Company was able to sustain the positive growth pattern of previous years and for the first time sales revenues surpassed EUR 3 billion. Sales rose 13.8% year-on-year, to a total of EUR 3,120.6 million, with all regions except South America posting double-digit growth. Both the Commercial Vehicle Systems and Rail Vehicle Systems divisions were able to contribute to this positive development.

Note (2)

- During fiscal 2006, the Commercial vehicle System division posted worldwide sales of EUR
1,968 million - an increase of 11% over the previous year. This came against the backdrop of a generally positive economic climate in the commercial vehicle sector worldwide particularly in North America and Europe.

Developments by region (Commercial Vehicle Systems)
The sales of the European companies in the Commercial Vehicle Systems division achieved a further rise approximately 11% in 2006 to EUR 1,204 million. This was partly due to an increase of more than 6% in commercial vehicle production and buses with air brakes in Western Europe, outpaced the previous year's high level in 2006 to reach approximately 493,000 units, but was also a result of positive developments in the aftermarket and trailer segments. On account of its strong market position, the Commercial Vehicle Systems division was able to benefit from this robust economic backdrop. Incoming orders were more than 20% up on the previous year.
In January 2006, Aldersbach plant in Bavaria turned out the ten-millionth disc brake, providing impressive proof of this product's success in the marketplace. In all, 2.3 million disc brakes were manufactured in the year 2006, making this business unit the largest contributor to sales in the European region.
-In addition to increased sales of original equipment to vehicle manufactures, sales in the trailer market and aftermarket also showed an upturn owing to more intensive marketing efforts in these segments. The Aftermarket also benefited from the growing proportion of vehicles that are fitted with Knorr-Bremse products as original equipment.

The Americas:

North America:  
Production of commercial vehicles including buses attained a new record level of 512,000 units. In the process, many manufactures reached the limits of their capacity. The main reason for this development was the new EPA07 emission regulations that will apply from 2007 onwards, the requirements of which will make commercial vehicles more expensive. To avoid these additional costs in the short term, many fleet operators brought forward their planned purchases into 2006. Consequently, most market players are expecting to see a slump in the original equipment market of around 40% in 2007, and the Company has already adapted its planning accordingly.
-The Group's Bendix subsidiary successfully built on its strong market position and benefited from the robust economy in 2006. In the electronics sector in particular, sales moved ahead strongly, above all as a result of the market success of the new anti-lock brakes product family (ABS6) with integrated stability program.
-The Bendix-Spicer joint venture in the wheel-end segment, which is managed by Bendix, met expectations and attained its objectives in the year 2006. In addition, the joint venture acquired the US company Dipro. Dipro's brake cylinder business will complement the Bendix-Spicer portfolio and further strengthen the joint venture's position, particularly in the North American aftermarket.

South America:
-In 2006, Brazil remained the largest and thus most important commercial vehicle market in this region. Commercial vehicle output, including buses, fell by around 6% in the year 2006 to 137,000 units. The number of buses built showed a slight increase, while truck production fell-off sharply.

In this region, 2006 witnessed an overall rise in the output volumes in the major commercial vehicle markets. As a result of intensified business activities, in particular in India, the Commercial Vehicle Systems division of the Company was able to post an increase in sales of more than 6% in euro terms.
- In Japan, production of trucks and buses with air brakes fell 4% in 2006 to 185,000 units, a downturn that also impacted on business development for the local subsidiaries. To ensure the customers in this key market continue to benefit from efficient service, a new production facility complete with advanced logistics was opened in Sakado.
- In India, commercial vehicle production moved ahead by around 30% to 277,000 units. The Pune plant, which was opened in 2005 and belongs to the joint venture Knorr-Bremse Systems for Commercial Vehicles India Pvt. Ltd., Pune, has shown a positive development and has steadily increased local production output. The main customer is the Indian commercial vehicle manufacturer Tata Motors Ltd. A stake in this joint venture is held by Tata AutoComp. Systems Ltd. (TACO), a member of the Tata Group.
- In China, production of commercial vehicles and buses reached approximately 600,000 units and was thus well above the prior-year level. In addition to existing sales activities, the Company also opened its own production plant in Dalian in 2006. State-of -the-art production systems enable the manufacture of high quality compressors tailored to specific customer requirements.
In the torsional vibration damper sector, the Hasse & Wrede Dallian joint venture, which also operates a plant in Dalian, was able, among other things, to acquire an order for original equipment from Dalian Diesel, thus achieving a significant increase in production output and sales compared to 2005. Also in 2006, the new head office for commercial vehicle activities in China was opened in Shanghai

Strategic Projects in 2006

Cooperation with Bosch
-Since early 2006, Robert Bosch GmbH and the Company have been collaborating on the development of commercial vehicle driver assistance systems. The starting point was the Bosch ACC Adaptive Cruise Control System that has been installed in passenger cars since 2000 and has now been adapted by the Company for commercial vehicles and will be sold worldwide under the Knorr-Bremse and Bendix labels. The next step will be a version of the Bosch PSS Predictive Safety System adapted for commercial vehicles. Systems such as ACC and PSS have an important role to play in reducing driver stress and increasing overall road safety. Adaptive Cruise Control monitors the vehicle in front, calculating its speed and automatically adjusting the brakes and engine output to maintain an appropriate safe distance. The Predictive Safety System emits a warning signal or briefly applies the brakes to alert the driver if there is any danger of a collision. Collaboration with Bosch enables the Company to further consolidate its lead in the driver assistance segment.

Wheelend development partnership
-In May 2006, Knorr-Bremse Systeme fur Nutzfahrzeuge GmbH signed a cooperation agreement with Georg Fischer Automobilguss GmbH and Schaeffler KG for the development, production and sale of wheelends for trucks, trailer and buses in Europe. The idea is to develop innovative solutions aimed, among other things, at prolonging the life of brake discs and wheel bearings, minimizing wheelend component weight and maximizing serviceability.
By working together with Georg Fischer, the leading European foundry for the production of wheel hubs, and Schaeffler, a major producer of wheel bearing units under the FAG label, the Company can improve the interaction of the braking system and wheelend.

New facility in Poland
-In July 2006, Knorr-Bremse Polska Sfn Sp. z.o.o. started up business on its own site in the Polish capital- the latest move in the Company's steady expansion of its Polish operation that began in the 1990s.There is already a nationwide network of over 20 Knorr-Bremse service centers operated by partners in Poland, but the company's strategic decision to establish its own facility underlines its determination to expand in the Polish aftermarket and also to develop the trailer segment.

Bendix takes over Di-Pro
- In Oct. 2006, Bendix Spicer Foundation Brake LLC (BSFB), consolidated subsidiary of the Company, acquired a 100% share in California-based Di-Pro Inc., a manufacturer of diaphragm and combination cylinders. Di-Pro's products are strategically important for Bendix in the American aftermarket and constitute an important element in the company's growth plans.

Collaboration benefits customers

- In March 2006, Bendix Spicer Foundation Brake LLC set up a strategic alliance with Gorilla Brake & Components Inc. in order to further expand its product and service portfolio. The partnership with the Ontario-based brake shoe remanufacturer will strengthen the position of both companies in the aftermarket, enhance the competitiveness of Bendix and further improve its high-quality customer service.

-Assuming that the development of the global economy remains stable, the Company is expecting sales for fiscal 2007 as a whole to be on the same level as in 2006. Within this picture, the generally positive forecasts for all other regions will be offset by the projected extraordinary downturn in the North American commercial vehicle market.


Euro in million 2006 2005 2004 2003 2002
R & D expenditure 141 133 124 120 119

R&D Structure
The newly built Knorr Bremse Technology Center (TCK) at the Group's headquarters in Munich was fully occupied by the end of 2005.

Investment Activities

Capital expenditure/Depreciation
Euro in million 2006 2005 2004 2003 2002
fixed and intangible assets 107 114 78 70 70
Depreciation 104 97 94 79 83

Capital expenditures by division

Euro in million

2006 2005 2004 2003 2002
Commercial Vehicle Systems 69.5 62.4 45.0 43.0 38.9
Rail Vehicle Systems 36.8 50.4 30.3 23.9 25.0

Overseas Investment
-New Compressor plant in Dalian

In Aug. 2006, the Company started to produce compressors in the Chinese city of Dalian.
The annual output capacity of the new plant is currently approx. 150,000 units. State-of-the-art production machinery facilitates the manufacture of high-quality compressors that are tailored to customers' requirements. The plant not only supplies the domestic market but also the entire Asia-Pacific region and other Company's market.

Production start-up in India
- In India, one of the world's major growth markets, a new Company's facility went into operation in May 2005. During the period of year 2006, a steady rise in local production helped to significantly strengthen the Company's market position in India. The plant in Pune is operated by Knorr-Bremse Systems for Commercial Vehicles India Pvt. Ltd., a joint venture between Knorr-Bremse Asia Pacific (Holding) Ltd., Hong Kong, and Tata Auto-Comp Systems Ltd. The operations of the plant include air supply and treatment systems, air brake valves and brake cylinders. From 2007 onwards it will also produce automatic slack adjusters and drum brake.