Knorr-Bremse AG Business report FY2007

Business Highlights

Financial overview

In million euros FY2007 FY2006 Rate of change(%) Factors
Sales 3,250.6 3,120.6 4.2 -
Net Income 197.8 185.5 6.6
Sales result for Commercial Vehicle Systems 1,966.4 1,967.8 (0.1) See note (1).

Note (1)

The Company's European companies succeeded in boosting sales by 120%, largely compensating for the decline in the USA.

As expected, the introduction of stricter exhaust emission standards in the USA on January 1, 2007 caused a sharp decline of about 400% in commercial vehicle production. Many logistics companies had stocked up on vehicles immediately prior to this date in a bid to avoid additional costs. Bendix was well prepared for this development and adjusted its capacity accordingly, but the company's sales nevertheless declined by almost 30%.
The US truck market is expected to recover over the next few years.

A significant rise in South American vehicle production (28%) was driven mainly by higher demand from the agricultural sector and stronger exports. The Company increased sales in the region by some36%.

India and China continued to invest considerable sums in expanding their road networks. The high demand for commercial vehicles is currently largely being met by local manufacturers, who are also aiming to increase their export volumes in the medium term. The greater focus of original equipment manufacturers on export markets has brought with it a heightened awareness of quality issues. For the Company, this trend has been particularly noticeable in the compressor segment: During 2007 an order for 100,000 compressors was received from Dongfeng/Cummins.

Buoyant sales in the region (+25%) were driven above all by Japan, India and China. In China, the Company considerably expanded its business in Shanghai and Dalian, and in Japan, production at the Sakado plant, which opened in 2006, continued to rise.

Access to the Russian market

Early in 2007, Hasse & Wrede took over STE SchwingungsTechnik GmbH, the world's third-largest manufacturer of visco-dampers. Acquisition of this company, which is based in Klieken, near Berlin, boosted Hasse & Wrede's 2007 sales volume by some 25%. The move is highly significant for access to the Russian market, as STE is the sole supplier of visco-dampers to KAMAZ, Russia's biggest truck manufacturer.

Joint venture
In December 2007, the Company and KAMAZ, the biggest truck manufacturer in the CIS states, signed an agreement setting up a joint-venture for the manufacture of complete truck braking systems in the Russian market. Under the terms of the agreement, KAMAZ will incorporate its existing drum brake production into the new company, and the Company will set up a production facility for disc brakes, torsional vibration dampers and other components on the KAMAZ site. Both partners will hold a 50% share in the joint-venture, with the Company responsible for industrial management. The new joint venture will exclusively equip all KAMAZ trucks but will also supply other commercial vehicle manufacturers in Russia and neighboring countries. By the end of 2007 KAMAZ will have produced a total of 55,000 heavy trucks, especially three-axle vehicles. (From a press release on Dec. 5)

The Company has set up a global sourcing team for China, Taiwan, Vietnam, Korea and Thailand that greatly expanded its activities in 2007. Part of the team is based in Shanghai, with responsibility for exports, and the other part in Dalian, where it focuses on purchasing for local production. A similar team already exists in India.


Euro in million 2007 2006 2005 2004 2003
R & D overall expenditure 159 141 133 124 120

Expanded development center at Budapest
In this favorable environment, the existing development center at Budapest is being expanded to enable a consistent focus on preparing new truck Platforms for series production. Staffing in Budapest is being boosted by almost 100 new engineers, and the resources already available for developing electronic systems are to be supplemented with additional capacity for design.
The main customers of the development center will remain the Electronic Systems and Air Supply and Treatment CoCs.

Product developments
Second generation of EAC electronic air treatment system
Commercial vehicles use oil-lubricated compressors for their air supply. This means that in addition to moisture, the air also contains oil residues. In 2007, a system for cooling the cylinder casing was introduced that reduces this environmental pollution to less than one-fifth of the customary level.
The second generation of EAC electronic air treatment system also uses intelligent compressor control and regeneration to achieve greater energy savings.

New model of rear axle disc brake
The new model of rear axle disc brake-the SN7-25-is considerably lighter than its predecessor, saving fuel and increasing the truck's potential payload. The amount of material and energy required to manufacture the spheroidal graphite castings has been reduced by some 1096, and further savings in weight and materials are currently in the pipeline.

New solution for emissions legislation
Knorr-Bremse Japan has developed a solution for regenerating diesel particulate filters and reducing emissions. This takes the form of a special valve that holds back the exhaust gases, thereby ensuring that the right temperature for soot combustion is reached.
Suitable for both passenger cars and commercial vehicles, this technological solution has considerable market potential and has already made a breakthrough in Japan, where emissions legislation is particularly strict. The introduction of tighter regulations in Europe and the USA could well result in it becoming established there too.

Investment Activities

Capital expenditures by division

Euro in million 2007 2006 2005 2004 2003
Commercial Vehicle Systems 72.3 69.5 62.4 45.0 43.0
Rail Vehicle Systems 67.9 36.8 50.4 30.3 23.9

Overseas Investment
In April 2007, the U.S. joint venture Bendix Spicer Foundation Brake LLC started the process of transferring wheel brake production from its two sites in Glasgow and Frankfort to Bowling Green, Kentucky. Until then, drum brakes had been manufactured in Glasgow in a plant belonging to joint venture partner Dana, and disc brakes had been produced in Frankfort. Merging the two operations generated considerable synergies-and Bowling Green also offers better transportation links. The layout of the new plant has been planned to offer improved material flows, shorter throughput times and optimum use of available space, with flexible options for further expansion. More than 700,000 drum brakes and 100,000 disc brakes can now be manufactured annually on a production site measuring just under 30,000 square meters.