Knorr-Bremse AG (KBX) Earnings Call Transcript & Summary

Hello, ladies and gentlemen, and welcome to Knorr-Bremse Q1 2025 Financial Results Conference Call. [Operator Instructions] Let me now turn the floor over to Andreas Spitzauer, Head of Investor Relations.

Thank you, operator. Good afternoon as well as good morning, ladies and gentlemen. I hope all of you are very, very fine. My name is Andreas Spitzauer, Head of Investor Relations. I want to welcome you to Knorr-Bremse's presentation for the first quarter results of 2025. 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. It is now my pleasure to hand over to Marc Llistosella. Please go ahead.

Many thanks, Andreas. Ladies and gentlemen, welcome to our capital markets call for the first quarter 2025 results. Let's start with the key takeaways for today on the Page 2. To keep it short and crisp, Knorr-Bremse is in a good shape. Quarter 1 developed as expected. We demonstrated resilience in ongoing challenges time and ability we have maintained for more than 2 years now due to the decentralized setup of Knorr-Bremse, our strong local for local production and business approach. We have limited cross-border shipments and high localization rates in all important regions. The overall balanced regional mix of group revenues limits tariff risks, which will all have to face and which we all currently face. Additionally, we have a solid foundation with strong customer elevations, a superior financial position, industrial backbone, leading technologies and most importantly, the right people at the right positions and locations. The new U.S. tariffs, if they will come, clearly don't make our lives easier. But we are confident and have the options to pass on these extra costs via price increases to our customers. Further potential implication effects of the tariffs cannot fully be assessed at this point of time as you and us know best that it is unpredictable what will come from this President, but we monitor the situation closely and have a task force in place to react quickly if necessary. Back to the part that is in our hands and that we control completely our BOOST program. We are fully on track, continue to execute the implemented measures. You know that we are in the process of selling 2 more assets, and the respective carve-outs are ongoing as we speak. KB Signaling integration proceeds according to plan. We are working on further aspects of greenfield, and we'll provide an update on this topic in the course of the year. Our vision is clear: develop KB into a leading enabler for sustainable mobility and transportation in order to make it a high-quality capital goods company again that creates value, confirm our guidance for 2025 and are confident to reach our medium-term '26 targets as well. Let's now take a look at the market situation for rail and truck. Looking at the rail market, we can see that underlying demand remains very strong in all regions, also reflected in the high order intakes and record order books of RVS and its customers. We assume that demand will remain strong in the coming quarters, leading to an expected book-to-bill ratio of above 1 on a full year base. A good market development in China and the expectation that 2025 should be as good as '24 for our rail division are particularly pleasing for us. Please also bear in mind that rail's legacy business, meaning the inflation burden business, has been reduced to a smaller residual amount, which is margin supportive as well. The truck markets continue to be challenging in all major regions. We expect the market environment to remain weaker in the first half of the year and still assume higher truck production rates in the second half of the year. Currently, it looks like Europe should develop slightly better and North America worse than originally expected. Both effects should balance each other out. Our assessments are based predominantly on many discussions with customers, but also on analysts' forecasts. As a result, we lowered our assumption regarding truck production rates in North America for '25. In contrast to the weaker OE business in trucks, we expect resilient growth opportunities in the aftermarket based business. However, we also see opportunities in the current tense truck markets. Overall, we are executing cost measures in our truck division and want to use the current situation to strengthen them. Our focus is on further optimizing our costs and structures. Let's now turn to Slide 4 and look at the first quarter financials. Some of them have already been published with the preliminary release on April 29. Order intake achieved a strong result with a 12% increase year-on-year to almost EUR 2.4 billion. Both divisions contributed to this growth. Knorr-Bremse generated revenues of almost EUR 2 billion, more or less a stable development year-on-year. RVS compensated for CVS market-driven top line performance last year. From a regional point of view, the APAC region, especially China, but also North and South America contributed to the revenue increase, while Europe reported a decline. Our operating profit -- operating EBIT margin benefited from the rail division, too, in particular, from a strong aftermarket business, operating leverage in general as well as our BOOST efficiency measures. Consequently, operating EBIT margin was stable year-on-year. At our quarter 4 results, we already announced potential restructuring measures, which we now intend to increase to EUR 75 million. So far, these efforts have become more concrete and expenses of around EUR 23 million were already realized in the first quarter of this year 2025. The development of rail's operating EBIT margin was solid, seeing an increase of 50 basis points to now 15.6%. CVS operating EBIT margin decreased by 150 basis points to 9.5%. Frank will provide us with more details later. Cash flow, usually negative in the quarter 1 due to overall business dynamics amounted to EUR 50 million plus, well supported by strong operations. I would like now to hand over to Frank, who will outline more financials and dive into the divisional group. Frank?

Thanks, Marc. Let's directly move to Slide 5. CapEx amounted to EUR 53 million, which represents in relation to revenues only 2.7%. This is EUR 19 million and 90 basis points below previous year's level. Following several years of higher CapEx, we adjusted the target range of CapEx to revenues going forward from 5% to 6% now to 4.5% after the completion of several projects that we had at hand. You all know that we want to increase CapEx efficiency at the same time, which is what we are driving with the optimization of our global footprint initiatives. We have further improved our net working capital efficiency on an apples-to-apples basis by roughly 2 days down to 67.2%. Including KB Signaling, we are now at a level of EUR 1.56 billion and 71.6 days. All improvements are a result of the collect program measures and strongly supported our free cash flow development as well. Due to the rather stable and the acquisition-driven higher capital employed, working capital, ROCE slightly decreased from 19.7% to 19.5%. You know that ROCE has a high priority for us with a target of more than 20%, a level which we are planning to achieve again in the coming quarters, driven by foremost a higher level of profitability. Marc already mentioned our strong free cash flow. Consequently, the cash conversion rate was also quite high, reaching 10%. It is a very strong first quarter cash flow performance and clearly shows the success of our collect initiatives bottom line. The result was also supported by an expected onetime cash tax reimbursement that supported a better tax result of over EUR 30 million net. But even without the tax effects, free cash flow would have been strong at only minus EUR 18 million. Let's take a closer look at the RVS performance on Slide 6. In terms of order intake, RVS again recorded a very strong quarter. We won contracts with a total volume of more than EUR 1.3 billion, representing a growth of around 24% year-over-year, well supported by KB Signaling. The pure organic result with a growth rate of 19% was also quite strong. Rail demand overall remains very strong, supported by all major regions and should continue throughout the whole year. As mentioned at our full year results, based on the existing tenders in the market, we assume that regarding our order intake, half year 1 will be stronger than half year 2. For the current quarter, we also expect that RVS should be able to post an order intake nicely above EUR 1 billion again. As usual, my reminder on rail's order intake dynamics for you. Please keep in mind that it's a lumpy project business in general, and it does not fit well into quarterly reporting structures. Book-to-bill stood at 1.23, which means RVS reached a book-to-bill ratio at or above 1 for 14 quarters in a row now, again, a new record in KB's history. In '25, we assume that rail's book-to-bill ratio should, as Marc mentioned, be above 1 again, which should also be the case in the second quarter. As a result, the order backlog increased by around 17%, reaching a strong level with more than EUR 5.5 billion. The high order backlog and the good quality of it provides a strong basis well into '25 and beyond. Let's move to Slide 7. Quarter 1 revenues amounted to EUR 1.07 billion, an increase of 10% year-over-year. Our aftermarket business developed nicely in Europe and APAC, while OE business slightly decreased year-over-year. In North America, we saw an organically stable development. The very profitable aftermarket revenue share of RVS grew to 55%, well supported by the acquisition of KB Signaling. From a regional point of view, revenue growth was fueled by all regions, including China. In Europe, good aftermarket business more than compensated for slightly declining OE sales. Driven by KB Signaling, North America recorded strong increases in both segments. The APAC region, similar to Europe, saw a slight OE decline, while aftermarket grew. China also saw growing revenues in both OE business and the aftermarket. Especially pleasing is the increase in high-speed revenues year-over-year. Operating EBIT margin recorded an increase of 50 basis points to 15.6%, driven by operating leverage, fueled by a strong APAC region and the positive aftermarket development as well as KB Signaling being as strong as expected. In the quarters ahead, we strongly believe in acceleration of the RVS profitability. In a nutshell, our last quarter overall developed as expected. And as a reminder, quarter 1 is usually the weakest quarter due to Chinese New Year and the similar typical seasonality in our North American aftermarket business. In the current quarter, we expect that the profitability of RVS should see a significant increase quarter-over-quarter and for the full year '25. The operating margin of RVS is still expected to be well above 16%. Let's continue with the truck division on Chart 8. Order intake in CVS amounted to EUR 1.06 billion, an increase of 1% year-over-year, which is a strong result in these tense truck markets around the world. Organically, order intake increased by 5% and on a quarter-over-quarter level, it was even up 20%. Order intakes from North America and APAC came in as weak as expected, while Europe and South America increased. Order intake in the current quarter should be below last year's level, driven especially by increased uncertainties related to tariffs and weaker economic developments, especially in North America. Nevertheless, we still believe in a sequential pickup of truck demand in Europe, while North America remains very difficult to fully assess from today's point of view. We are still confident to successfully fight current market challenges with our BOOST measures, our robust pricing power and our resilient aftermarket business. Nevertheless, with reduced market numbers in North America, this is definitely getting more difficult. Book-to-bill reached 1.19 in the past quarter. Our order book of more than EUR 1.9 billion at the end of March is 4% below the previous year level, but considering our 2 divestments of GT and Sheppard, it was at a stable development. Quarter-over-quarter, it even increased. Let's move to Chart 9. Revenues declined by 12% to EUR 849 (sic) [ EUR 894 ] million, which represents an organic decline of 8%. This development was as expected and represents a rather solid performance in a challenging environment. Thereof, the OE business in CVS decreased as expected in Europe and North America, whereas the APAC region saw a stable development. Our aftermarket business was robust again and saw a stable or increasing development in all regions, except North America, where it slightly declined. In the European market, our organic revenues have experienced a 12% decline in line with the continuously weak market in both the truck and the trailer segment. Revenues in North America declined organically by minus 6%, primarily driven by the OE business. CVS was able to show strong resilience here, considering a decrease in heavy-duty truck production rates by more than 15% in the same quarter. Coming to the bottom line. Operating EBIT of our CVS division amounted to EUR 85 million in the past quarter, down around 24% year-over-year. As a result, the operating EBIT margin declined by 150 basis points to 9.5%. The lower margin was mainly impacted by lower volumes and an unfavorable regional and product mix, which impacted the profitability of our truck division as well. Our resilient pricing stands, the success of our efficiency measures and the higher share of revenues in the aftermarket were in total unable to offset the previously mentioned burdens. For '25, we continue to expect almost flat revenues compared with the reported figure for '24 given our exchange rate premises. As a result, CVS should be able to reach a slightly improved EBIT margin towards 11%. This is a bit lower than our previous expectations due to the current economic challenges in the U.S., which are, as said, currently difficult to fully assess. Profitability should improve going forward, but more in the second half of this year. The margin in the current quarter is expected to be only slightly better, primarily due to the forecasted weak truck market in North America. With that, I hand over to Marc again.

Thank you, Frank. Let's have a look at our guidance for 2025 on Page 10. Based on the assumptions outlined on the right side of the guidance page, we expect the following for full year 2025. A revenue range of EUR 8.1 billion to EUR 8.4 billion, which should lead to an operating EBIT margin between 12.5% and 13.5%. As a result, our cash flow should then reach EUR 700 million to EUR 800 million. Compared to the first announcement of this guidance, we see that our expectations regarding RVS remains strong and unchanged. For CVS, our expectations are slightly more conservative due to lower market expectations for North America. Nevertheless, group level guidance ranges remain unchanged. Due to the weak economic conditions in some regions, we see opportunities and need to increase our restructuring efforts. Therefore, the potential costs could now be around EUR 75 million. As mentioned during our full year 2024 results presentation, the guidance is based on the exchange rate levels of February 2025. Therefore, due to foreign exchange movements, translation effects can occur. It also does not include larger impacts from tariffs, for example, burdens on important economies, and it is based on stable geopolitical as well as macroeconomic conditions. Thanks a lot for your attention. We are now available for your questions.

[Operator Instructions] The first question comes from Akash Gupta, JPMorgan.

I got 2, and I'll ask one at a time. My first one is on truck business, and this is for Frank. Frank, when I look at the drop-through in the quarter, you had like 43% organic drop-through on revenue decline of EUR 76 million in the quarter, and this is somewhat weaker than 21% we had in Q4 and 17% in Q3. So my first question is that, was there anything that you can highlight behind this higher drop-through that we have seen in the quarter? Any mix or any one-off impact? And how should we see this drop-through in second quarter? So that's the first one.

Thanks, Akash. Rightly pointed out, as our rail drop-through is quite nice, exactly in the targeted range that we are having, the truck one is a weaker one, has basically 3 impacts to that. One is the general mix effect that we're having. It's not only a regional effect as North America has been dropping further than the European market. So this is a negative market mix effect for us. Then also some product mix effects occur when several customers are hit in a different way than the other or in the previous quarter. So that's the one element of mix effect in products and regions. The second is, of course, that we are having definitely some start of productions for major projects in the truck division over the last months like the GSBC, the NexTT and the SYNACT products where amortization for R&D kicks in, so cost increases that also didn't help us ultimately. And then we, of course, also have with us the combination of our BOOST program, some investments into further efficiency measures that will then kick in later on. So these 3 things, mix, cost increases on the R&D side, regular amortization and investments into the future. Those 3 things, Akash.

And my second one is on the rail business. So I think in your prepared remarks, you said that rail OE business was down in Europe, while aftermarket was up. I mean if we just touch base on rail OE business on what's going on in Europe because in Q1 earnings season, we have heard from a couple of other rail suppliers like SKF as well that saw that their growth rates in rail Europe kind of come down versus what it was in the last few quarters. So maybe if you can touch base a bit or elaborate a bit more on what's going on in rail OE Europe? And when do you expect this market to return to growth?

The European market is rock solid still for us. If we look at our tenders that are out there in the market and where we have been participating, we are still not seeing a single project being canceled. This holds true now since 5 years. We do see some pushouts in the one or the other project from one quarter to another or even 2 quarters. This is definitely something. If we look at the freight segment, if you search for some negatives, freight market per se is a bit weaker than it was, but not different to what we expected it to be. But we don't see there any big drop on the growth momentum in the market demand side, not at all.

So maybe we can say that this European OE slowdown in revenues in rail is just phasing of backlog or timing effect and should be corrected in the coming quarters?

I don't know whether I can judge on that hypothesis because I don't know the root cause of their revenues, but this is a hypothesis that might be a valid one. But I can't judge on their revenues -- root causes, so to say.

The next question comes from Sven Weier, UBS.

I have 2. The first one is a follow-up, Frank, on your statements regarding CVS margins in the full year, where you said you're working towards 11%. So shall we take that as a 10.5% to 11% guidance? And I was also wondering, I mean, with that, that would obviously imply that the margin in the second half would be like 11.5% or higher. I mean, do you assume that the kind of tariff uncertainties are done after the 90 days and things are back to happy days in the second half? Or what are you currently assuming there? And are your restructuring measures of EUR 75 million, are they consistent with this scenario? Or are they more consistent with a darker scenario?

A lot of questions, Sven. Thanks.

Yes. Sorry.

It's okay. Totally okay. I would say, first of all, yes, purely mathematically, that's right, but this is not kind of hockey stick hope that we are having for CVS. But rightfully, we are seeing a bit of a better situation in the market in Europe and expect the market to grow sequentially. North America, as we said, it's a bit difficult to assess, but we currently see a more flattish development coming from the first quarter. So it should get from an operating leverage perspective also in Asia a bit better throughout the quarters of the year, which benefits, of course, a certain operating leverage on the profitability side. In addition, the more time, so to say, goes by until the decision for efficiency measures in the BOOST program. For example, the more effect it shows bottom line, of course, that's the implementation of the BOOST measures, which boosts our profitability as well. If you take both together and combine it, that speaks for itself that over time, our margin should improve according to the BOOST measures and the market support, so to say. We are not -- I would say we're not dreaming in regards to the market, like you said, we -- as I said, we even though it's hard to assess, we do believe that North America stays at the weak -- on a weak level like it was in the first quarter and Europe getting a bit better. As I said, China also stable to a bit better over throughout the year. This is a bit the scenario where also the EUR 75 million is based upon. And those EUR 75 million are also repeatedly, we are saying that not there to ensure our '26 numbers, but to strategically make this company even fitter. This has a more very strategic kind of focus. But nevertheless, it's a good opportunity also now given the market environment. That's the way I would judge it. That's okay, Sven? Or did I miss something out?

No, no, you did not. So did I understand you correctly that for the U.S., you're also not assuming a pickup in the second half, so that kind of sideways from Q1...

No more. That's what Marc said and myself as well. Our market expectation, like we said, worsened for North America, where we were still thinking so at the right -- the very beginning of the year, but we now expect it a bit to be weaker and Europe a bit better.

And just on the truck order intake comments you made because I think you said it will be down year-on-year in Q2. I mean, I think it's probably a bit ungrateful to ask how trading was in April because of the Easter break, it's probably been -- would have been weak anyhow. But should we expect like a number that starts with an 8 -- or how bad could Q2 be on orders?

No. The April didn't have an 8 -- but April was not that bad despite Easter, but not bad at all. As the Americans say in regards to our German saying, one swallow doesn't make a summer yet, but April was rather good.

I would like to add something to Mr. Weier and also to Mr. Gupta's question because your question, of course, understandable. Nobody, and especially not in the banking environment, has any clue what will happen in the next 2 months. Nobody. I just remind you what we have seen and heard from our dear friends so-called experts. In January, we heard that the euro and the U.S. dollar will be at parity latest in the next 6 weeks to come. Now the dollar is $1.13 to $1.14 to the euro. So the experts were wrong. The experts said in January, U.S. is the capital market to be, right? That was the sentence. That was the expertise. Now everybody is fleeing from the American markets, and there is a rejustification to be in the European or in the non-American markets. Then in April, when the markets crashed temporarily, everybody was saying that the markets are just the beginning of a big, big, huge correction. Now just 4 weeks later, the market recovered, and we are even in Germany, better than we were at the beginning of April. Then we heard that Europe will lag that we heard in February. Now Europe is better in terms of progression of GDP than America. All the experts were wrong, 4x wrong within 4 months. In the next -- in the last, and then I will not bother you with this, the inflation will rise or stay high. And now we see by this unreasonable tariff conflict, we see a massive deflationary pressure from China because they will flat the markets, and that will bring down the inflation around the world, but U.S.A. So having said so, I understand fully your, let me say, uncertainty, what is now our plan. I tell you very clear, and I tried to do my best in the last 2.5 years. We do not care so much on others. We have to take care of ourselves. We have to bring down our costs. That's what is a fact. Everything else is a strategy. This is a fact. We have to address, and this is why we asked for EUR 75 million to spend. We want to make our personnel costs. We want to get it down. We want to make sure that our R&D process is only done in projects, which are having a return within 3 to 5 years. We want to make sure that our CapEx is absolutely to what we decide, and the CapEx will be lower this year because we are very stringent in this. So as you rightly said and some of you said it and wrote it very often and frequently, the self-healing is the one which is driving, and that is fully right. And that is absolutely what we want to do. We want to be prepared for the worst of the market. We want to be prepared when the markets are going up, but we cannot predict in this environment anything but ourselves. And what we can really work on is our self-healing, that's our cost. Our cost, we can work, where we can focus, and that's exactly what we do. We focus, focus, focus on execution on cost reduction programs. That's what we do. That's what we focus. And I'm sorry, there will be a lot of questions, how do you see when Russia is going to pace? Will Ukraine will be a rising market for our truck industry? Eventually, yes, eventually not, but the impact on our EBIT will be still insignificant. Sorry for that, but I think this was good to be set because that's the premise what we are planning. That's the planning what we're working, and that's the planning also in the communication with you what are you doing to face all that? You know what, we have to clean the house, we have to be prepared for the worst philosophy we have ever seen, and we have to make sure that we will survive every form of crisis, which will occur. Also when you ask us what is with your Indian growth plans when we see a war between Pakistan and India. We don't know so far how this works, but we know how to compensate it because India so far has not that dramatic impact.

The next question then comes from Vivek Midha from Citi.

I have a question around China, where, again, you've seen a good development in rail in the first quarter. On the last call, you commented that you expected a normalization in '25 after the strength in '24, something more like a flattish development. So should we think of this as phasing? Or are things developing better than you maybe expected?

You're welcome. I would say it's -- with the normalization, we mean that it's not maybe growing the way that it did in '24 on a year-over-year basis. So it's now absolutely delivering, the market is delivering what we expected it to do. So we have seen some good high-speed builds, some 60 high-speed trains being built. We have seen nearly 1,100 metros being built in China in the first quarter. We see that the ridership levels in the first quarter have been 2 to 3 percentage points higher than the ridership levels in the first quarter of last year. So that's not a significant growth anymore. If you just extrapolate it, and that definitely speaks for what we forecasted. It's a rather normalization, rather stable kind of development. So all is fine in regards to that speech back then.

The next question comes from Gael de-Bray, Deutsche Bank.

I have 2 questions, please. I mean the first one is, out of curiosity, what would the full year guidance for revenues and free cash flow look like if you had to update currency effects for today's level? And then the second question is rather on the M&A side. I mean we've heard from IMI this morning that they placed their transport business under review. Is this a business you could be potentially interested in?

Well, Gael, can you repeat the second part of your question, which company was that, that you mentioned? Or what was it?

It was IMI, which said this morning that they are thinking about potentially divesting their transport business. I think they do pneumatic and hydraulic valves and actuators and a few other things for the truck market.

Okay. Understood. Gael, thanks for that question. I mean, as you know, and we always disclose the numbers again this morning in the backup, you see the exposure that we are having in U.S. dollar, roughly $2 billion strong is our exposure. And if you assume a 10% volatility in the FX rate, you end up with roughly an impact of EUR 200 million in regards to the dollar. So in the first quarter, we had around EUR 1.04 -- EUR 1.05 euro to dollar. Currently, we are at 114 in this second as we speak, spot rates. So this is roughly, let's say, 10%. So if they would occur for a 12-month basis, it would be EUR 200 million. If they would occur for X months, you can calculate it, or we all have to calculate it by ourselves depending on how long these levels would stay. But this is always, so to say, our, so to say, service to you that we provide you with the exposures for all the currencies in the backup. But this is the number for U.S. dollar. IMI, I have not heard about this topic, and it's not on our table.

Okay. So not in your radar. Just coming back to the FX point, do you confirm you don't really have any transaction impact related to FX?

Not a big one. Of course, you always have to have a true-up on balances in each and every month end. That might be a bit of a transactional effect, but the rest of the transactional effects are minor to our understanding as of today, but only translationary effects that really count, maybe a bit of transactions in the moment that the FX rates drop significantly or at the month end where the FX drops significantly, then there might be a bit of a hiccup, but nothing else. The rest is basically translational.

Our next question comes from Lucas Ferhani, Jefferies.

I'll have 2. Maybe we do it one at a time. The first one is just on the restructuring. If you can give a bit more detail on what's behind that? How much is maybe for trucks or rail? Is it all clear kind of what you need to do? Is it mainly labor also looking at the footprint?

You're welcome, and thanks for that question. We have maybe not digged so deep in the past on that. But yes, it's rather comprehensive field of action that we are having on the plate here. It's a lot of footprint, plenty of footprint issues. I would say, even a bit more rail related than truck related. Shed some light on it would be like we are moving production basically as a headline from high-cost country -- countries out into more best cost countries, for example, from Germany to parts of Eastern Europe, from Spain or Germany or Austria to India as some examples that are -- that you understand what we are doing and also some capacity issues that we are facing given the market. There's also a part of it, but the bigger chunk of it is the pure footprint strategy realization that kicks off usually with adapting, so to say, your current labor workforce. So both elements, but the big chunk is footprint and a bit more rail than truck.

And then regarding the comments on rail orders and the kind of H1 versus H2. I guess that doesn't include the potential deal in signaling that you kind of mentioned before.

No. Thanks. Good question as well. The distribution of the order intakes throughout the year always depends on what tenders are in the market because it leads a long preparation time usually for tenders. So we know exactly which tenders are out there in the market and just seeing the distribution of those tenders and applying a certain percentage of how likely we will be able to win that contract. This implies the half year 1 and half year 2 thing. The big or potentially big North American project that's in the signaling market is further delayed as we know at this point in time. So it's definitely not a topic that is relevant if it would even come one day, not relevant for '25, maybe end of '26, but not earlier. It looks like it's further delayed due to political uncertainties more or less.

Okay. Understood. And just the last one on the German stimulus and what we're seeing in terms of the increased government spending. Obviously, it's not clear yet how it's going to be broken down, but most likely some of it will go to transport to rail. I mean it was mentioned by Deutsche Bank that they needed a lot more investments, part of it for kind of trucks, also part of it for equipment. Just what's your view on when we could see that be unlocked and whether you think it's going to be kind of a big impact for rail or you don't necessarily see it as a huge support for you?

Yes. So definitely, this is very helpful for us, very clearly. We mentioned that beforehand. It's nothing that we ever expect it to happen, so to say, within the next month with an impact on our P&L. But definitely, midterm, this will help us this whole program. It will help us, by the way, not only in rail, but because everybody is usually talking about rail impact only. It's also road infrastructure taken in the mouth of the politicians. We don't have the clear plan, but what some are uttering, this also relates to truck in future. So in general, this is a very good thing basically for us, and we will be definitely also in the eye of the storm of that. But it's nothing that will happen now over the next month and don't expect EUR 1 billion of additional revenue kicking in, but it's slowly, so to say, helping the markets to grow for us. yes, I mean, some are clearly saying that also, of course, the Deutsche Bank demand is there and the investment need is there. But again, as I said, it's too difficult to really assess. There is not a clear plan existing yet. I think we have to wait knowing the politics or the, let's say, political processes here in Germany. I think we have to wait another 1, 2, 3 months maybe until it's pretty clear what the plan is. By the way, a similar procedure like we had with the green deal, I think in 2022, it was or '21. It also took quite a long time in order to get the real clarity what's behind the measures. And then I think we can discuss further if you agree. Thank you.

The next question comes from Claire Liu, Morgan Stanley.

My first one is just on rail. Obviously, excellent results on rail. And you mentioned support from signaling business. So I was wondering if you can quantify a little bit more in terms of how much signaling business grew in Q1 in both order intake and sales? And what do you see as a reasonable growth level for the full year, please?

Yes. Thank you, Claire. It's pretty easy for me to answer that question because in Q1 '24, we didn't have the KB Signaling business. So it's the first time in our books regarding the P&L and regarding the balance sheet, needless to say. So you see in our walks that we are regularly providing basically the effect of the signaling business, if you look under the section of M&A. We have acquired that business with a return of around 16% EBIT margin and a $300 million return revenue for a full year. We are on a level of around EUR 70 million of revenues in the first quarter, and the margin is a bit better than what we bought. And so I gave you already a full year indication, right...

Okay. And the second question is just on M&A pipeline. Given the current macroeconomic environment, is there -- do you see in your conversations in M&A, is there any slowdown or potential kind of delay on anything? Any comments there would be helpful.

I mean you, of course, feel also a bit the uncertainty talking to the, of course, M&A banks and listening to what the market is doing and not doing currently. Uncertainty is definitely a factor, but we don't see any slowdown in the process of the 2 assets where we are still in the works in regards to selling them. We still believe that it's possible to get a signing done towards year-end, both longer procedures are not driven by the fact that there is a bit of something going on in the market uncertainty, but it's rather a more technically complicated carve-out process for at least one of the businesses, the bigger one, but has nothing to do with the hesitation in the market or that the market would be collapsing the M&A market. No, we don't see -- a bit of hesitation, yes, but not a significant shift in patterns.

Okay. Thank you, everyone, for this Q&A session. I'd now like to hand it back to the speakers for some closing remarks.

Okay. Thank you very much for all your questions. If you have further ones, please get in contact with us. And we wish you a great afternoon. Thanks, and bye-bye.

Thank you. Bye.