Capital Markets Day: Vossloh presents corporate strategy and considers itself ideally positioned for the future

• Railways attracting increased attention worldwide as the most environmentally friendly mode of transport
• Increased levels of rail traffic will have a significant positive influence on Vossloh’s business in the medium and long term
• Continuous monitoring of the condition of rail infrastructure with sensors enables a significant increase in the efficiency of track maintenance
• Strategic orientation based on combining the existing core business with innovative digital business models
• Preliminary outlook for 2021 with significantly improved operational profitability
• Medium and long-term financial ambitions anticipate above-average growth and further increase in profitability

At today's virtual Capital Markets Day, the Executive Board of Vossloh AG presented the company's most recently adopted corporate strategy. The Executive Board also presented and discussed its preliminary forecast for the coming 2021 fiscal year as well as its medium and long-term financial ambitions.

Greater levels of rail traffic
Megatrends such as population growth, urbanization, the globalization of trade flows, digitalization and the increasingly important topic of sustainability make it essential to markedly accelerate the shift of passenger and freight transport from roads to rails. Expansion of existing rail networks in proportion to the increasing level of traffic is not possible in practical terms. Therefore, it will become a matter of key importance to increase the availability of rail infrastructure, and tracks in particular. Modern train control systems such as ETCS and the increasing shift to digital interlockings will facilitate increased traffic density on rail lines in the medium term. This additional rail traffic will inevitably lead to increased wear, and thus to greater demand for rail infrastructure components. Vossloh currently generates roughly 90 percent of its Group sales with such components. As the level of rail line utilization increases, the amount of time available for maintenance measures decreases. This means that maintenance models need to become much more efficient, ideally identifying and remedying defects before they lead to serious problems. Increased network capacity utilization results in increased economic damage due to the unavailability of rail line sections. Furthermore, fast preventive maintenance technologies will become even more important in the future. Vossloh’s patented high-speed grinding, for example, makes it possible to perform maintenance work almost entirely without rail line disruption and reduces the likelihood of severe rail defects when used on a regular basis.

Three strategic pillars
The strategy presented can be roughly divided into three subsections. Firstly, the existing business with products and conventional services relating to rail infrastructure will be expanded and further strengthened with a view to their profitability. The related package of measures includes the sustainable reduction of production costs, increased sales focus on growth regions, and expansion of the offering portfolio with complementary products and services as well as an entire series of selective innovations.

At the same time, in the future Vossloh will increasingly target its customers’ steadily growing need for more track availability in light of the anticipated growth in traffic. The collection of condition data, both directly on the track and through Vossloh’s own fleet of track maintenance machines, and the derivation of condition-based, predictive maintenance programs through artificial intelligence, provide customers with great efficiency potential.

Among other things, the new strategy focuses on accelerating the development of digital expertise, including through relevant partnerships, and emphasizes the importance of sustainable management more strongly than before. At the same time, a Group-wide system for continuously increasing efficiency in all areas of the company has been designed and implemented.

Differentiation by a systemic understanding of the rail track
After successfully completing the process of focusing the company on the core business of rail infrastructure in May of this year, Vossloh today distinguishes itself from its competitors mainly through its uniquely comprehensive range of track-related products and services. Vossloh understands the physics of all significant track components as well as their systemic interaction. This comprehensive understanding of rail track serves as the foundation for the derivation of relevant maintenance recommendations for customers from the data collected.

“Realistically, climate protection targets cannot be achieved without shifting greater levels of traffic from roads onto rail networks. Therefore, in light of the diverse and obvious limitations on the expansion of rail networks, the focus should be on significantly increasing the availability of existing networks,” explains Oliver Schuster, CEO of Vossloh AG. “Vossloh has more than 130 years of experience in the development and production of track components. By combining cutting-edge measurement and analysis technology, a purpose-built data platform and a comprehensive range of services, we are able to offer our customers unique comprehensive solutions with regard to availability. Switches are the most complex and maintenance-intensive element and are particularly important in this context. With the order we recently won for the data-based condition monitoring of switches in Sweden, we and our strategic partner Deutsche Bahn Systemtechnik booked a major success.”

Vossloh’s existing business with products and conventional services forms the basis for the development and expansion of the digital-based service business. The conventional hardware business and the constantly growing service business form an inseparable unit. The new possibilities afforded by digitalization and, most importantly, the efficient processing and analysis of large amounts of data serve as the link that joins the business models.

Preliminary outlook for 2021 and medium and long-term ambitions
For the coming 2021 fiscal year, the Executive Board currently anticipates Group sales within a range of €850 to 925 million as compared with the €870 million most recently projected for the current 2020 fiscal year. With regard to EBIT and EBITDA (earnings before interest, taxes, depreciation and amortization), the Executive Board anticipates margins for 2021 of between 7 and 8 percent and between 13 and 14 percent, respectively. Adjusting for this year's one-time effect of roughly €15 million from the transitional consolidation of a joint venture in China, this corresponds to a significant year-on-year increase in operational profitability. The preliminary outlook for the 2021 financial year is subject to no significant new, unplanned impacts related to the COVID-19 pandemic.

Against the backdrop of the successful implementation of the strategy presented and based on the information currently available, the Executive Board expects Vossloh AG to achieve average annual sales growth of 4 to 5 percent in the medium term. This is significantly higher than the average market growth anticipated by relevant market studies. With regard to the operating result, EBIT (earnings before interest and taxes), the Executive Board is aiming for double-digit margins in all divisions of the Company in the medium term. This is an intermediate step toward the long-term goal of a double-digit EBIT margin for the Group, corresponding to an EBITDA margin of roughly 16 percent.