A n n u a l R e p o r t | 2 0 0 7 AT A GLANCE€¦ · Microelettrica Scientifica S.p.A. (I) Oerlikon-Knorr Eisenbahntechnik AG (CH) Sociedad Española de Frenos, Calefacción y Señales,

Income before taxation EUR mill. 158 211 246 294 310

Net income EUR mill. 108 130 154 185 198

Personnel costs EUR mill. 488 508 538 592 622

Balance-sheet total EUR mill. 1,291 1,438 1,607 1,646 1,735

Capital expenditure * EUR mill. 70 78 114 107 140

Depreciation * EUR mill. 79 94 97 104 113

Incoming orders EUR mill. 2,265 2,447 2,849 3,541 3,767

Research and development EUR mill. 120 124 133 141 159

AT A GLANCE

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KNORR-BREMSE GROUP 2003 2004 2005 2006 2007

Sales EUR mill. 2,206 2,423 2,743 3,121 3,251

Employees (as per Dec. 31) 10,763 11,143 12,119 13,035 13,943

* not including investments in financial assets

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A n n u a l R e p o r t | 2 0 0 7


Sales EUR mill. 2,206 2,423 2,743 3,121 3,251



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Indústria Freios Knorr Ltda. São Paulo (BR)

Knorr Brake Holding Corporation Watertown, NY (USA)*

Knorr-Bremse Systeme für Schienenfahrzeuge GmbH Munich (D)

Knorr-Bremse Systeme für Nutzfahrzeuge GmbH Munich (D)**

Knorr-Bremse Asia Pacific (Holding) Ltd. Hongkong (CHN)

The Americas Europe – Middle East – Africa Asia – Australia

Knorr-Bremse AG

* Minority holding in subsidiary by non-Group companies

** 20% stake held by Robert Bosch GmbH, Stuttgart (D)

As at December 31, 2007

CONTACT

Knorr-Bremse AG

Moosacher Straße 8080809 MunichGermany

Corporate Communications

Tel: +49 89 3547-0Fax: +49 89 3547-2767E-Mail: [email protected]

Additional information about Knorr-Bremse:www.knorr-bremse.com

Knorr-Bremse Sistemas para Veículos Comerciais Brasil Ltda. (BR)

Knorr-Bremse Sistemas para Veículos Ferroviários Ltda. (BR)

Freinrail Systèmes Ferroviaires S.A. (F)

Frensistemi S.r.I. (I)

Knorr-Bremse Ges.m.b.H. (A)

Knorr-Bremse Nordic Rail Services AB (S)*

Knorr-Bremse Systemy dla Kolejowych Srodków Lokomocji PL Sp. z o.o. (PL)

Knorr-Bremse Rail Systems (UK) Ltd. (UK)

Knorr-Bremse S.A. (Pty.) Ltd. (RSA)

Knorr-Bremse Vasúti Jármű Rendszerek Hungária Kft. (H)

Merak Sistemas Integrados de Climatización, S.A. (E)

Microelettrica Scientifica S.p.A. (I)

Oerlikon-Knorr Eisenbahntechnik AG (CH)

Sociedad Española de Frenos, Calefacción y Señales, S.A. (E)

Dr. techn. Josef Zelisko Ges.m.b.H. (A)

Bost Ibérica S.L. (E)

Hasse & Wrede GmbH (D)

Knorr-Bremse Benelux B.V.B.A. (B)

Knorr-Bremse Fékrendszerek Kft. (H)

Knorr-Bremse KAMA Systems for Commercial Vehicles OOO (RUS)*

Knorr-Bremse Polska SfN Sp. z o.o. (PL)

Knorr-Bremse Sistemi per Autoveicoli Commerciali S.p.A. (I)

Knorr-Bremse Systèmes pour Véhicules Utilitaires France S.A. (F)

Knorr-Bremse System för Tunga Fordon AB (S)

Knorr-Bremse Systems for Commercial Vehicles Ltd. (UK)

Knorr-Bremse Systémy pro užitková vozidla, ČR, s.r.o. (CZ)

STE Schwingungs-Technik GmbH (D)

Bendix Commercial Vehicle Systems LLC (USA)

Bendix Spicer Foundation Brake LLC (USA)*

Di-Pro Inc. (USA)

Hasse & Wrede North America Inc. (USA)

IFE North America Inc. (USA)

Knorr Brake Corporation (USA)

Knorr Brake Ltd. (CDN)

Merak North America Company (USA)

New York Air Brake Corporation (USA)

Hasse & Wrede CVS Dalian China Ltd. (CHN)*

IFE-VICTALL Railway Vehicle Door Systems (Qingdao) Co., Ltd. (CHN)*

Knorr-Bremse Australia Pty. Ltd. (AUS)

Knorr-Bremse Brake Equipment (Shanghai) Co., Ltd. (CHN)

Knorr-Bremse CARS LD Vehicle Brake Disc Manufacturing (Beijing) Co., Ltd. (CHN)*

Knorr-Bremse Commercial Vehicle Systems Japan Ltd. (J)**

Knorr-Bremse India Pvt. Ltd. (IND)

Knorr-Bremse/Nankou Air Supply Unit (Beijing) Co., Ltd. (CHN)*

Knorr-Bremse Rail Systems Japan Ltd. (J)*

Knorr-Bremse Rail Systems Korea Ltd. (ROK)

Knorr-Bremse Braking Systems for Commercial Vehicles (Dalian) Co., Ltd. (CHN)

Knorr-Bremse Systems for Commercial Vehicles India Pvt. Ltd. (IND)*

Knorr-Bremse Systems for Rail Vehicles (Suzhou) Co., Ltd. (CHN)

Westinghouse Platform Screen Doors (Guangzhou) Ltd. (CHN)*

Photography

Most of the photos in this year‘s Annual Report were taken as panoramic shots by a station-ary camera that rotates through 360 degrees or more. The optical outcome is like the interior of a cylinder which, projected onto the rectangular surface of a page, presents an unusual perspective. Panoramic photos are not just eye-catchers; they invite viewers to think their way into the scene. The arch formed by the projection of a curved surface onto a flat one is mirrored in the arch of the corporate design guidelines for Knorr-Bremse publications. This, in turn, stands for the curve of a road or railroad track – the two areas in which the company does business.

K n o r r - B r e m s e G r o u p MAIN MA JORIT Y-OWNED SUBSIDIARIES







Knorr-Bremse AG




CONTACT

Knorr-Bremse AG


































Di-Pro Inc. (USA)





















Photography



04 | 2007 at a glance 06 | The Executive Board and Supervisory Board of Knorr-Bremse AG 10 | Report of the Supervisory Board 12 | The State and Development of Knorr-Bremse AG and the Knorr-Bremse Group 34 | Highlights 2007 72 | Report

CONTENTS

Consolidated Financial Statements of Knorr-Bremse AG

120 | Notes to the Consolidated Financial Statements136 | Consolidated Cash Flow Statement 137 | Segment Reporting138 | Statement of Changes in Group Equity139 | Independent Auditor‘s Report140 | Consolidated Balance Sheet141 | Consolidated Statement of Income

�

February

Order for supply of door and braking systems for 2,800 cars (incl. option) to Bom-bardier for “Ile de France“ project.

Trade fairs: Knorr-Bremse attends the IREE 2007 (India).

Hasse & Wrede acquires STE Schwingungs-Technik GmbH.

April

Heinz Hermann Thiele becomes Chairman of the Supervisory Board; Dr. Raimund Klinkner becomes Chairman of the Executive Board.

Inauguration of joint venture IFE-VICTALL in Qingdao (China).

June

Knorr-Bremse Commercial Vehicle Systems named “best brand“ for second consecutive year.

Inauguration of new road in Berlin named after Georg Knorr.

Trade fairs: Knorr-Bremse attends Metro fair in China, Commercial Vehicle Show in Birmingham (UK) and “transport logistic“ in Munich.

TIP Trailer Services Europe presents Knorr-Bremse with its Partner Award.

Knorr-Bremse wins Handelsblatt newspaper‘s IT Strategy Award.

January

Order to supply braking systems for 400 new electric multiple units for Deutsche Bahn AG.

Knorr Excellence kicks off; PROGRESS rolled out in Germany.

Knorr-Bremse wins Bavarian Quality Award.

March

Installation of second cold chamber in Munich, to test systems and components for use in Russia.

Trade fairs: Knorr-Bremse attends UITP 2007 in Hel-sinki and Motorshow 2007 in Poznan (Poland).

May

2007ataglance

�

August

Knorr-Bremse Global Care organizes collection of clothing at Munich site for aid projects in Ethiopia.

Bond issued by Knorr- Bremse in 2002 comes up for repayment.

October

Suzhou II: Knorr-Bremse starts production at new plant in China.

Knorr-Bremse initiates “100 Vacancies for Engi-neers“ PR campaign.

Trade fairs: Knorr-Bremse attends NordicRail in Jönköping (Sweden) and Transpotec in Milan.

December

Joint venture agreement signed with KAMAZ in Na-berezhnye Chelny (Russia).

Spanish subsidiaries Frenos and Merak come together at new plant in Getafe.

1-millionth electronic brak-ing system (EBS) produced at Aldersbach plant.

Heinz Hermann Thiele receives Bavarian Order of Merit.

July

Hejnice plant turns out 10-millionth air filter cartridge.

Knorr-Bremse launches “Supplier Early Payment Program“ (SEPP).

Fifth international Knorr-Bremse Sports Weekend in Vienna.

September

Knorr-Bremse is Computer-woche magazine‘s “User of the Year“.

Order to supply braking and door systems to Downer EDI Rail Australia for 78 trains for Sydney suburban network.

Bendix Spicer Foundation Brake moves to new plant in Bowling Green, Kentucky.

November

� �

TheExecutiveBoardofKnorr-BremseAG

Jens Theuerkorn Dr. Raimund Klinkner

Chairman since April 1, 200� (Member of the Executive Board since January 1, 200�)

Chairman until March 31, 200�: Heinz Hermann Thiele

E x e c u t i v e B o a r d E x e c u t i v e B o a r d

� �

Dr. Dieter Wilhelm Jan Peter Nonnenkamp

E x e c u t i v e B o a r d E x e c u t i v e B o a r d

� �

TheSupervisoryBoardofKnorr-BremseAG

Klaus Gegenfurtner*

Aidenbach

Toolmaker

Elfriede Hilger*

Munich

Chairperson of the General Works Council of Knorr-Bremse Systeme für Schienenfahr-zeuge GmbH

Chairperson of the Works Council of Knorr-Bremse AG, Knorr-Bremse Sys-teme für Schienen-fahrzeuge GmbH, Munich Plant, and KB Media GmbH

Werner Ratzisberger*

Aldersbach

Chairperson of the Works Council of Knorr-Bremse Systeme für Nutz-fahrzeuge GmbH, Aldersbach Plant

Dr. Kurt Kiethe

Munich

Attorney at law

Daniela Fischer*

Bruckmühl

Head of the legal Office of the IG Metall Trade Union, Munich Office

Heinz Hermann Thiele

Munich

Chairman since April 1, 2007

Chairman of the Executive Board of Knorr-Bremse AG until March 31, 2007

S u p e r v i s o r y B o a r d S u p e r v i s o r y B o a r d

� �

Dr.-Ing. E. h. Wilfried Lochte

Groß Schwülper

2nd Deputy Chairman

Retd. Chairman of MAN Nutz-fahrzeuge AG and retd. Member of the Board of Management of MAN AG

Heinz Hausner*

Salzweg

Assistant Repre-sentative of the IG Metall Trade Union, Passau Office

Dr. Hans-Peter Binder

Berg

Chairman until March 31, 2007

Retd. Member of the Board of Management of Deutsche Bank AG, Munich Branch

Dr. Eduard Gerum*

Rosenheim

1st Deputy Chairman

Vice President R&D Brake Systems, Knorr-Bremse Systeme für Nutzfahrzeuge GmbH

Dr. h. c. Horst Zimmer

Lamper theim- Hofheim

Retd. Member of the Board of Management of Mercedes-Benz AG

*elected by the employees


Report of the Supervisory Board


10 11

By concluding new framework agreements with major vehicle manufacturers, the Rail Vehicle Systems division strengthened its position in the mass transit, regional and high-speed train sectors in a European market that showed renewed growth. To meet growing demand from the Chinese market, which con-tinues to post strong growth, production capacity in China was increased through the completion in October 200� of a new wholly-owned produc-tion facility at the Suzhou site.

The Commercial Vehicle Systems division benefited from positive market trends in Europe, South America and Asia that fully offset the anticipated market down-turn in the North American OEM market. One important strategic step toward strengthening the division‘s position in the high-growth Russian market was the signing in December 200� of a joint venture agreement with KAMAZ, the leading com-mercial vehicle manufacturer in the Russian Federation.

In 200�, assuring the quality of our products and improv-ing logistics processes were again assigned top priority.

Along with important individual transactions and human resources decisions, this also included consideration of fundamental aspects of strategic direction and corporate planning. In addition, the Supervisory Board received regular reports from the Execu-tive Board either in the course of its meetings or in written form. The Supervisory Board examined important individual transac-tions, as well as deciding on items of business that required its approval either by law or in line with company statutes.

In 200�, the Knorr-Bremse Group sustained the positive growth pattern of previous years. Sales increased to over EUR 3.2� bil-lion. This new all-time high was achieved despite the predicted marked downturn in the North American OEM commercial vehicle market. Competitiveness was also strengthened through further improvements in inter-nal processes and structures in 200�, providing the platform on which both divisions were able to post substantial growth in their European business. Across the Group, productivity measures were initiated to ensure that, in the future, the Group remains competitive in the marketplace.

IN The couRse of fIscal 2007, the Supervisory Board con-cerned itself in detail with the state and development of theKnorr-BremseGroupandallitssubsidiaries.

,

The auditors attended the meeting of the financial state-ments committee on February 2�, 200� as well as the meeting of the Supervisory Board on March 1�, 200�, reported on their key findings and answered outstanding questions.

KPMG Deutsche Treuhand-Gesell-schaft AG Wirtschaftsprüfungsge-sellschaft, Munich, also examined the Executive Board‘s report on relations with affiliated compa-nies, drawn up in line with Para-graph 312 German Corporation Law (AktG). The auditors endorsed this report with the following opinion:

“Having audited and assessed this report in accordance with professional standards, we con-firm that: 1. The factual contents of the report are correct. 2. The consideration furnished by the Company in the legal transac-tions set out in the report was not unreasonably high.“

The Supervisory Board has also examined the Executive Board‘s report on relations with affiliated companies and has no objec-tions to the concluding state-ment by the Executive Board or to the auditors‘ findings.

The 200� Financial Statements and the Management Report on Knorr-Bremse AG, as well as the 200� Consolidated Financial Statements and the Manage-ment Report on the Knorr-Bremse Group drawn up by the Executive Board and the com-pany‘s accounts were examined by the auditors elected by the Annual Shareholders‘ Meeting, KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesell-schaft, Munich, and endorsed with their unqualified opin-ion. The Supervisory Board also examined the Financial Statements for fiscal 200�, the Management Report, the proposed allocation of unap-propriated retained earnings, and the Consolidated Financial Statements and Management Report on the Knorr-Bremse Group. No objections were raised. At its meeting on March 1�, 200�, the Supervisory Board approved the 200� Financial Statements, which thereby became legally binding. The Supervisory Board concurs with the Executive Board’s proposal for the allocation of unappro-priated retained earnings. The Consolidated Financial State-ments were also approved.

Effective January 1, 200�, Dr. Raimund Klinkner was appointed to the Executive Board of Knorr-Bremse AG and assumed worldwide responsibility for the Commercial Vehicle Systems division. Effective April 1, 200�, in addition to his existing duties, Dr. Raimund Klinkner took over from Heinz Hermann Thiele as Chairman of the Executive Board of Knorr-Bremse AG. At the same time, Heinz Hermann Thiele joined the Supervisory Board of Knorr-Bremse AG, where he became Chairman, succeeding Dr. Hans-Peter Binder. The Supervisory Board wishes to thank Dr. Hans-Peter Binder for his many years as its Chairman and welcomes his decision to remain a member of the Supervisory Board.

Munich, March 1�, 200�

The Supervisory Board

Heinz Hermann Thiele

Chairman


10 11

The State and Development

M a n a g e m e n t R e p o r t

12 13

In fiscal 2007 the Knorr-Bremse Group successfully maintained the growth pat-tern of previous years. Sales rose 4.2% to a new record level of EUR 3.25 billion (2006: EUR 3.12 billion). Adjusted for exchange rate fluctuations, this equates to growth of 6.6%. Strong growth in Europe, South America and Asia more than offset the downturn in sales in the North American commercial vehicle sector. Net income for the year increased from EUR 185 million to EUR 198 million.

M a n a g e m e n t R e p o r t

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of Knorr-Bremse AG and the Knorr-Bremse Group

The Knorr-Bremse Group: An overview

M a n a g e m e n t R e p o r t M a n a g e m e n t R e p o r t

14 15

The State and Development of Knorr-Bremse AG and the Knorr-Bremse Group

The Knorr-Bremse Group is the world‘s leading manufacturer of braking sys-tems for rail vehicles and commercial vehicles. Knorr-Bremse has also estab-lished a prominent international market position in the rail vehicle on-board systems segment, particularly in the fields of automatic door systems, air conditioning and power supply. The same applies to the platform screen doors segment. In the commercial vehicle sector, the product portfolio also includes vibration dampers for internal combustion engines, des-tined for worldwide applications.

The structure of the Knorr-Bremse Group is based on the regions Europe, North America and South America, and Asia/Australia. The development of the Group is geared to meeting the requirements of the respective mar-kets and customers within the above regions. This regional organizational structure is designed to offer globally active customers uniform technical platforms worldwide, while at the same time taking specific local needs into account. It also ensures that custom-ers who operate on a regional basis are supplied with globally tried-and-tested systems and components.


14 15

General economic developments

Net income

Key indicators for the Knorr-Bremse Group in EUR millions

was able to sustain moderate growth of 2%, although domestic investment activity was weak. The economy of the Eurozone remained buoyant in 2007, with GDP growth in line with expecta-tions at 2.5%. The major econo-mies of Western Europe – Germany, France and Italy – showed steady growth. In Eastern Europe, the new EU member states and Russia remained on course for further growth, stepping up their eco-nomic performance by approxi-mately 7%.

In the USA, by contrast, the pace of growth slowed. The slump in the real estate market triggered by the mortgage crisis had a tangible impact on the development of the economy. Following on from almost 3% growth in 2006, gross domestic product rose by just 1.9% in 2007. In Latin America, the Brazilian economy continued its recovery, supported above all by

The overall business environment showed largely positive develop-ments in the year under review. The strong global economic growth of the previous year contin-ued in 2007. According to current estimates, global gross domestic product (GDP) increased by 5.2% in 2007. Despite rising prices in the international energy and raw materials markets, global growth remained strong. However, in recent months the mortgage crisis in the USA has had a negative impact on the global economy. The regional and structural differ-ences in economic development are reflected in the development of Knorr-Bremse‘s business.

The main drivers of growth in 2007 were once again the Asian coun-tries, led by China, where GDP grew by over 11.5%, and India, where GDP was up by more than 9%. On the back of robust foreign demand, the Japanese economy

strong domestic demand. Overall, the South American economy posted growth of over 5%.

The price of steel was volatile in 2007, with the annual average emerging well above the previ-ous year‘s high level. The prices of individual metals also rose sharply, with nickel, for example, reaching an all-time high of USD 51,560 per tonne in May 2007. The price of crude oil rose continuously in 2007 from under USD 60 per bar-rel at the start of the year to over USD 90 per barrel in December.

The U.S. dollar, which lines up alongside the euro as the most important currency for the Knorr-Bremse Group, weakened against the euro by more than 11% in the course of 2007, falling to almost EUR 0.68. The drop was at its sharp-est in the final quarter of the year under review. As an annual average, the U.S. dollar was worth EUR 0.73.

2001 2002 2003 2004 2005 2006 2007

3.251

1982.118

69

108

59

130

154

185

2.206

2.423

2.743

3.121

1.653

Sales

Development of the Knorr-Bremse Group in 2007

vehicle market showed only a slight downturn, the OEM market for commercial vehicles in the USA witnessed the an-ticipated sharp drop of around 40% as a result of the introduc-tion of stricter exhaust emission standards on January 1, 2007. In South America too, both sec-tors showed divergent develop-ments. The rail vehicle market was subdued in 2007, while the commercial vehicle sector saw significant growth, driven by rising demand for transport in the agricultural sector and increasing exports. Market developments in the Asia/Aus-tralia region were positive for both divisions. The rail vehicle market in particular, which in China continues to show very dynamic growth, contributed to an upward trend in this region. But the major Asian commercial vehicle markets also achieved a welcome overall increase in production output.

The negative impact of higher material and en-ergy prices made itself felt across the Group and in all regions in 2007. At the same time, the pace of competi-tion once again increased.

In 2007, the Knorr-Bremse Group was again able to sus-tain the positive growth pat-tern of previous years. Sales totaled EUR 3,250.6 mill ion in the year under review, which equates to year-on-year growth of 4.2%. Adjusted for exchange rate fluctuations, the growth rate was 6.6%. Strong growth in Europe, South America and Asia more than offset the downturn in sales in the North American commercial vehicle sector. The Rail Vehicle Systems division contributed EUR 1,304.1 mill ion to consolidated sales (2006: EUR 1,173.6 mill ion) and the Commercial Vehicle Systems division EUR 1,966.4 mill ion (2006: EUR 1,967.8 mill ion).

The business environment by sectorThe European market showed a positive development for both divisions. In the rail vehicle sector the subdued scenario of 2006 gave way to a far more buoyant market in 2007. The commercial vehicle sector bene-fited from a sharp rise in vehicle production in Europe. In North America, the relevant markets for the two divisions presented different pictures. While the rail

Acquisitions, additions and joint venturesThere was major progress for both the rail vehicle and com-mercial vehicle divisions in Russia. The year under review witnessed the founding of Knorr-Bremse Rail Systems OOO, Moscow, and Knorr-Bremse Systems for Commercial Vehicles OOO, Moscow. In addition, at the end of 2007, Knorr-Bremse Sys-teme für Nutzfahrzeuge GmbH, Munich, (SfN GmbH) signed an agreement to set up a joint ven-ture to manufacture complete commercial vehicle braking systems in the Russian market in conjunction with truck manu-facturer KAMAZ. To be known as Knorr-Bremse KAMA Systems for Commercial Vehicles OOO, the company will be based in Naber-ezhnye Chelny. Knorr-Bremse is to set up production operations for disc brakes, torsional vibra-tion dampers and other compo-nents at the KAMAZ production site. Each partner owns a 50% stake in the joint venture, while industrial management is in the hands of Knorr-Bremse.

Also in 2007, Knorr-Bremse Sys-teme für Schienenfahrzeuge GmbH, Munich, (SfS GmbH)


MF MF

16 17


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Knorr-Bremse Asia Pacific (Hold-ing) Ltd., Hong Kong, acquired a further 10% stake in Knorr-Bremse Rail Systems Korea Ltd. and now holds 100% of the stock.

Major projects In 2007, the rail vehicle division successfully drove forward the expansion of its market position in China. Construction of a new plant belonging to the divi-sion had begun at the Suzhou site (around 120 km northwest of Shanghai) in 2006 and was completed in October 2007. By year-end the transfer of opera-tions from the existing plant in Suzhou had already been com-pleted. The new plant, which complies with the global Knorr-Bremse Standard, currently em-ploys a workforce of 400 manu-facturing braking systems for rail vehicles. Along with production and sales activities, over the next few years the new plant will also be developed into a Brake Engi-neering Center, employing some 50 engineers.

Further contributions to the positive developments for Knorr-Bremse in the region came from the successful start-up of the four joint ventures founded in

China in 2006 for the produc-tion of compressors, brake discs, door systems and platform screen doors and the associated increase in local production for the Chinese market.

In Spain, Frenos and Merak, both subsidiaries of Ibero Holding, moved to a shared site at the end of the year under review. The relocation from their two former sites to the new plant in Getafe means that both compa-nies now benefit from optimum production structures.

In April 2007, the Bendix Spicer Foundation Brake LLC joint venture in the USA, which manufactures drum and disc brake systems and components, began the integration of its two production plants in Glasgow (drum brakes) and Frankfort (disc brakes) at the new wheelend factory in Bowling Green, Ken-tucky. The transfer of operations will be completed in March 2008. Also in the year under review, compressor production was transferred from the Frank-fort plant to the Bendix facility in Acuña, Mexico.

acquired the outstanding shares in Knorr-Bremse Systeme für Schienenfahrzeuge Ibero Hold-ing GmbH, Munich, as planned. Ibero Holding owns the shares in two Spanish companies in the European rail vehicle sec-tor: Merak Sistemas Integrados de Climatización S.A., Pinto, (Merak) and Sociedad Espa-ñola de Frenos, Calefacción y Señales S.A., Pinto, (Frenos).

In the commercial vehicle sector, the torsional vibration damp-ers business also saw further expansion. In the spring of 2007, Hasse & Wrede GmbH, Berlin, a subsidiary of SfN GmbH, ac-quired STE Schwingungs-Technik GmbH, Klieken (STE). STE comple-ments the product portfolio of Hasse & Wrede in the viscous damper segment. This acquisi-tion is of particular importance with a view to penetrating the Russian market and strength-ening the customer base.

In Italy, Frensistemi S.r.l., Flor-ence, a subsidiary of SfS GmbH, acquired the remaining shares in Microelettrica Scientifica S.p.A., Rozzano, (Microelettrica). Microelettrica is active in the power supply segment.

16 17


Quality and processes For some time now, Knorr-Bremse has been targeting best-in-class processes to lay the foundations for its further growth. To reach this strategic target, in 2007 processes and structures were reviewed and enhanced across the Group. The harmonization of the existing divisional busi-ness models – “Rail Excellence“, “Truck Management System“ and “Corporate Excellence“ within the shared “Knorr Excellence“ (KE) model was initiated in the year under review. All operative units at Knorr-Bremse have contributed their experience of the respec-tive management systems to the new business model, which has been taken forward with the aid of outside experts and inter-nal process managers, and by a process of external benchmarking. The outcome is the KE business model, a standardized Group-wide reference system.

Along with business process harmonization, in 2007 KE also refocused the numerous existing process optimization initiatives by integrating them into eight

18 19

cross-divisional Knorr Excellence programs. The previous initia-tives in the Quality, IT, Production, Strategy, Project Management and Procurement sectors were com-plemented by two new projects targeting greater efficiency in the supply chain and optimization of the product creation process. The focus on eight KE initia-tives will facilitate the exchange of best practices between the regions and divisions, as well as identifying weak spots in existing processes and fostering process optimization.

Another key component of KE is that it sets a zero defect target. The aim is to improve all process-es to such an extent that defects can be identified and remedied as they occur, with the resul-tant positive impact on product and process quality. As the new Group-wide goal, “zero defects“ gives Knorr Excellence a strategic direction that will extend Knorr-Bremse‘s competitive lead in the long term.

On the road to optimized and harmonized processes, SfN GmbH

in Germany and Bendix in the USA reached important milestones in 2007 in the context of the PROG-RESS project: Operating proce-dures were completely converted to an SAP-based standardized process model.

External confirmation of the process optimization capabilities of the IT organization came in the shape of the “IT Strategy Award 2007“ for the Knorr-Bremse Group at the “Strategic IT Management“ conference organized by the Handelsblatt business newspaper, and the “User of the Year“ title awarded by the German magazine Computerwoche. The Handels-blatt jury praised Knorr-Bremse‘s globally-oriented IT Management System as transparent, efficient and closely geared to the business strategy of the group.

The Rail Vehicle Systems divi-sion successfully introduced the STRONG FOCUS program already implemented by the Commercial Vehicle Systems division. The program controls and monitors all productivity enhancement projects worldwide.


18 19

Assets, financial status and profitability

The Knorr-Bremse Group’s busi-ness showed positive overall development in 2007. Consoli-dated sales moved ahead 4.2% to EUR 3,250.6 million (2006: EUR 3,120.6 million). In Europe, con-solidated sales rose 10.4% to EUR 2,181.7 million (2006: EUR 1,975.6 million), which corresponds to 67.1% of the consolidated total (2006: 63.3%). The Americas contributed EUR 751.3 million (2006: EUR 942.1 million) or 23.1% (2006: 30.2%) to consoli-dated sales. In the Asia/Australia region, sales amounted to EUR 317.6 million (2006: EUR 202.9 million), which equates to 9.8% (2006: 6.5%) of the consolidated total.

Incoming orders were valued at EUR 3,767.0 million (2006: EUR 3,541.1 million), again well ahead of annual sales. Orders on the books at the Knorr-Bremse Group moved ahead 21.1% to EUR 2,635.7 million (2006: EUR 2,175.8 million).

Net income for the Knorr-Bremse Group rose in the year under review to EUR 197.8

million (2006: EUR 185.5 mil-lion). Net return on sales reached 6.1% (2006: 5.9%). The European region contributed EUR 152.2 million to net income, corresponding to a net return on sales of 7.0%. Net income from the Americas totaled EUR 37.4 million, with a net return on sales of 5.0%. The Asia/Aus-tralia region posted net income of EUR 8.2 million, which equates to a net return on sales of 2.6%.

The consolidated balance sheet total rose 5.4% in 2007 to EUR 1,735.3 million (2006: EUR 1,646.4 million). At year-end 2007, total assets represented 53.4% of sales. As a proportion of the balance sheet total, intan-gibles, fixed assets and invest-ments remained at the prior-year level of 44.5% (2006: 44.4%). Working capital, defined as the sum of inventories and accounts receivable, minus accounts payable trade, totaled EUR 371.0 million at year-end (2006: EUR 361.9 million) or 41.1 days’ sales (2006: 41.8 days). The equity ratio rose from 30.0% to 32.6%.

Of the Group’s total assets, 56.6% are in the European region, 31.8% in the Americas, and 11.6% in the Asia/Australia region.

The low increase in net indebt-edness from EUR 126.9 million to EUR 131.4 million was achieved by the healthy development of gross cashflow and the further drop in working capital. Substan-tial capital requirements were generated by the marked rise in investments (EUR 140.5 million) and the acquisition in the year under review of shares in the companies Ibero Holding, Micro-elettrica and STE GmbH. As a result, the ratio of net debt to shareholders‘ equity (gearing) stands at 23.2% (2006: 25.7%).

Since 2000, the Knorr-Bremse Group has been rated by the external rating agencies Stan-dard & Poor’s and Moody’s. Both rating agencies maintained their rating in the year under review (Standard & Poor’s BBB+, and Moody’s Baa1). Knorr-Bremse thus retains its investment grade status.


20 21

Overall assessment of the economic position of the GroupWithin the general economic environment described above, the Knorr-Bremse Group has further strengthened its overall position with regard to assets, financial status and profitability. The Group’s profitability was again enhanced by rigorous cost management, rising out-put volumes, and above all by internal process optimization. With an equity ratio of 32.6% and a gearing of 23.2%, the structure of the Group’s assets is very stable, so that it can readily meet its financial obligations.

Knorr-Bremse AG As the parent company, Knorr-Bremse AG performs the role of a holding company as well as a strategic management func-tion on the operational side.

Higher income from invest-ments in associated and related companies meant that income before taxation increased to EUR 94.7 million (2006: EUR 84.8 million). However, despite the rise in net income, higher divi-dend payments meant that the unappropriated retained earn-ings of Knorr-Bremse AG fell to EUR 120.4 million (2006: EUR 124.3 million).

Along with interests in affiliated companies, the balance sheet of Knorr-Bremse AG largely reflects receivables from and payables to Group companies and these are centrally administered, partly within the framework of the cash-pooling process managed by Knorr-Bremse AG. July 2007 brought the sched-uled repayment of the EUR 175 million bond issued by Knorr-Bremse. Repayment was funded by EUR 100 million from the European Investment Bank (EIB) loan offered at favorable terms by the EU. The remainder was largely financed out of current loans from the Group‘s princi-

Structure of assets, liabilities and finances of the Knorr-Bremse Group

Assets Liabilities

Balance sheet total 1,646.4 1,735.3 1,735.3 1,646.4 Balance sheet total in EUR millions in EUR millions

Fixed assets/intangibles Shareholders´ equity

Liquid assets Borrowings

Current assets/RAP Short-term debt

Investments Pension accruals

43% 43% 33% 30%

4% 3% 10% 12%

52% 53% 47% 46%

1% 1%10% 12%

2006 2007 2007 2006


20 21

of EUR 120.4 million in 2007 (2006: EUR 124.3 million). The Annual Shareholders’ Meeting will be asked to approve the proposal that an amount of EUR 101.4 million from the unap-propriated retained earnings of Knorr-Bremse AG be used to pay a dividend of EUR 39.00 per dividend-bearing share with a par value of EUR 26.00, with the balance to be car-ried forward to new account.

Relations with affiliated companiesKB Holding GmbH, Grünwald, directly holds more than half the share capital of Knorr-

pal bankers. At present, Knorr-Bremse has no intention of issuing another corporate bond.

All business processes within the parent company Knorr-Bremse AG are analyzed, docu-mented and optimized with the help of the Knorr Excellence (KE) project mentioned earlier. KE has now succeeded the Cor-porate Excellence project that was initiated back in 2003 and had run successfully ever since.

Appropriation of retained earnings Knorr-Bremse AG posted unap-propriated retained earnings

Bremse AG. Pursuant to § 312 German Corporation Law (AktG), a report on relations with af-filiated companies has been drawn up which includes the following statement: “In the legal transactions listed in the Report on Relations with Affili-ated Companies, in accordance with the circumstances known to us at the time at which the said transactions took place, our company received appropriate counter-performance in each case.” The report was audited by the Auditors and received their unqualified opinion.

strengthening the company‘s market leadership in this field.

In the high-speed train air conditioning segment, Merak was able to boost its market position substantially thanks to an order from France. 2007 brought further expansion for the automatic door sys-tems business, branded as IFE Automatic Door Systems, as well as a significant year-on-year increase in orders on the books. Along with supplies of braking systems and on-board systems to OEM clients, the aftermarket also posted strong growth. Enhanced schedule effectiveness, short turnaround times, and a clear operational focus on current market requirements enabled the division to show sustained growth in this area too.

Commercial Vehicle SystemsIn 2007, production of com-mercial vehicles and buses with air brakes in Western Europe again outpaced the previous year ’s high level to reach ap-proximately 567,000 units, an increase of 12%. This increase was largely driven by high de-mand for commercial vehicles in Eastern Europe and the CIS states. On account of its strong market position and flexible production capacities, Knorr-Bremse was able to benefit from the growing volume of freight being transported.

The Rail Vehicle Systems division contributed EUR 1,304.1 million (2006: EUR 1,173.6 million) to consolidated Group sales and the Commercial Vehicle Systems division EUR 1,966.4 million (2006: EUR 1,967.8 million). The development of the two divi-sions is set out below for the individual regions that make up the Group.

EuROpE

Rail Vehicle Systems The European rail industry market experienced an upturn in the year under review, and Knorr-Bremse‘s rail vehicle business was among the ben-eficiaries of this market growth.

The Rail Vehicle Systems divi-sion‘s strong market position in the regional multiple unit segment was further enhanced in 2007 through the acquisition of additional orders. In France, for example, Knorr-Bremse won the order to supply advanced door and braking systems for 2,800 cars (including options) for a project in the Greater Paris area. In the mass transit sector too, the market position was reinforced by a framework agreement to supply advanced braking systems to the French “tram train“ operated in sev-eral French cities. In the high-speed sector, trains in Russia and Turkey are being equipped with braking systems from Knorr-Bremse, thereby further

Regional developments by division


22 23

The Americas23%

Asia, Australia

10%

Europe, Middle East, Africa 67%

Consolidated sales by region

-


22 23

of more than 30%. Sales were also up in the aftermarket sec-tor. Contributory factors here included the expansion of the service network and the grow-ing proportion of vehicles that are fitted with Knorr-Bremse products as original equipment, as well as high production vol-umes at commercial vehicle manufacturers in recent years.

STE Schwingungs-Technik GmbH, the world‘s third-largest manu-facturer of vibration dampers, was successfully integrated into the Commercial Vehicle Systems division of Knorr-Bremse in 2007. This led to a 25% increase in sales at Hasse & Wrede GmbH. Hasse & Wrede was also able to secure a substantial increase in market share for passenger car visco-dampers in the year under review.

NORTh AMERiCA

Rail Vehicle Systems The North American passenger transportation market showed a moderate downturn in the year un-der review, as did the Knorr-Bremse Group’s business in this sector. Nev-ertheless, Knorr-Bremse was able to further reinforce its market position in the North American OEM sector, not least by winning a major order from Connecticut to equip 300 carriages with braking systems.

The freight car sector was also in recession in the year under review,

The largest contributor to Knorr-Bremse‘s sales in the European region in 2007 was the disc brake, with 2.8 mil-lion units manufactured (2006: 2.3 million). December 2007 witnessed production of the 15-millionth disc brake. In re-sponse to a surge in demand compared to the previous year, capacities were expanded at the Aldersbach plant. To master the rise in customer demand, particular attention was paid to supplier management and the security of material supplies.

In the air supply and treatment sector, September 2007 brought production of the 10-millionth air filter cartridge at the Hejnice plant, documenting the success of this product in the market-place. The Electronic Systems sector also reached several im-pressive production milestones in the year under review. In October, for example, the 3-mil-lionth anti-lock brake system (ABS) was supplied to customers, while July saw production of the 1-millionth electronic braking system (EBS). Rigorous imple-mentation of the quality initia-tive launched in 2005 brought a further rise in the quality level at Knorr-Bremse, despite produc-tion running at high capacity.

The overall positive market development in the OEM sector also benefited the trailer busi-ness at Knorr-Bremse, which was able to report sales growth

with sales in North America drop-ping to around 60,000 units. The locomotive segment, however, re-mained stable, with over 1,200 units being sold for the domestic market. The division‘s strong market posi-tion in the OEM and aftermarket sectors and the successful launch of new products and growing market shares for existing ones meant that sales at Knorr-Bremse nevertheless moved ahead in this sector. The EP-60 electro-pneumatic freight train brake was launched in the North American market and the market position of the LEADER engineer as-sistance system introduced in 2006 was greatly reinforced. Growth was also supported by direct exports to China, South Africa and Brazil.

The door systems business of the IFE brand, under the regional management re-sponsibility of Knorr Brake Corporation, developed well.

Commercial Vehicle SystemsAs expected, the US OEM market for commercial vehicles includ-ing buses showed a sharp drop of approximately 40% from 520,000 units in 2006 to 312,000 units in 2007. The downturn was due to the introduction of strict-er exhaust emission standards on January 1, 2007. Knorr-Bremse‘s North American commercial vehicle operations were not immune to this negative de-velopment and posted a 29% year-on-year downturn in sales.


24 25

ever, buoyant global demand for ore is widely expected to generate a marked upturn in the freight car market in 2008.

In the mass transit sector, investments in 2007 focused primari ly on overhauling com-muter trains already in ser vice. The next few years are ex-pected to br ing a pronounced increase in investments in the mass transit market, par ticu-lar ly in Brazi l . The São Paulo metro, for example, wil l be opening a new l ine in 2008 and modernizing two others.

Commercial Vehicle Systems Production of commercial ve-hicles including buses in South America showed a 28% year-on-year increase in 2007, reaching a total of 175,000 units. Brazil was the largest and thus most important commercial vehicle market in the region in 2007, with Argentina, Columbia, Chile and Venezuela representing smaller markets. Driven by healthy OEM and trailer business, as well as ris-ing exports and a buoyant after-market sector, regional sales at Knorr-Bremse moved ahead 36%.

At Knorr-Bremse, all locally re-quired OE products and all com-ponents destined for the local aftermarket are largely manufac-tured in Brazil. The company‘s strong position was further rein-forced by expansion of its existing

Success stories in the North American market came in particular from the elec-tronic systems sector. 2007 brought a significant increase in the number of commer-cial vehicles for which Bendix supplied the ESP electronic stability program, document-ing the reliability and techni-cal maturity of this product.

The aftermarket remained unaf-fected by the slump in the OEM sector, as sales increased 5%. The brake cylinder business of Di-Pro, acquired in 2006, was also inte-grated into the product portfolio of the Bendix-Spicer Foundation Brake joint venture, leading to a further strengthening of the market position in the brake cylinder sector, particularly in the North American aftermarket.

SOuTh AMERiCA

Rail Vehicle Systems In South America, both the freight car and mass tran-sit sectors were weak in 2007, with a sl ight nega-tive impact on the devel-opment of Knorr-Bremse‘s business in the region.

Following a drop in 2006, production of freight cars fel l once again in 2007 to a total of 1,600 units. This downturn was due to strong investment in 2005, when freight car produc-tion hit an al l-t ime high. How-

disc brake and compressor busi-ness. The introduction of innova-tive products such as pedal units in the Brazilian market helped open up new market segments.

ASiA/AuSTRALiA

Rail Vehicle SystemsThe rai l vehicle market in the Asia/Austral ia region contin-ued its ver y posit ive develop-ment in the year under review. The main dr iver was once again the high-growth Chinese market. In addition to the ongoing growth of the mass transit sector, the market for locomotives and high-speed trains continued the dynamic development that had begun in the previous year.

The expansion of the Rail Ve-hicle Systems division’s activi-t ies in China cal led for special effor ts in the year under re -view. As already mentioned above, October saw a new plant come on stream at the Suzhou site. The move from the existing production faci l i-t ies to the newly-built plant with its advanced production technology and process engi-neering has more than dou-bled capacit ies at the site. Through the four joint ven-tures established in 2006, Knorr-Bremse also maintains production faci l it ies at other locations in China. Production at the var ious sites was suc-


24 25

particularly in Japan, India and China, the Commercial Vehicle Systems division of Knorr-Bremse was able to post substantial sales growth year-on-year.

In Japan, overall production of trucks and buses with air brakes fell 4% in the year under review to 185,000 units. However, this downturn in the domestic mar-ket was offset by rising exports. The production plant in Sakado, which was opened in 2006, ensured a continuous rise in local production in 2007 and developed well, not least on account of the market launch of a control unit for diesel particu-late filters.

The Indian market remained stable in the year under review, with commercial vehicle produc-tion rising by around 4% to 288,000 units. Knorr-Bremse moved to reinforce its market position in India by launching new products and localizing its product portfolio. The successful production start-up of the auto-matic slack adjuster for drum brakes and the roll-out of ABS in India are just two examples of progress in the year under re-view.

With production output surging 39% to 836,000 vehicles in 2007, the Chinese commercial vehicle market exceeded expectations in the year under review. The com-panies in Dalian and Shanghai

cessful ly star ted up in the course of the year under re -view and local projects can now increasingly be handled on site, responding to local customer needs.

The other Asian markets also developed well. In Austral ia , the Rail Vehicle Systems divi-sion won an order to supply and maintain brak ing and door systems for the RailCorp PPP-Project in Sydney worth EUR 140 mil l ion for Knorr-Bremse. Knorr-Bremse Austral ia also obtained its f irst order to sup-ply electronic freight car brakes (ECP) for the iron ore trains of the For tescue Mining Group – two exceptional proj-ects that wil l fur ther strength-en the company ‘s posit ion.

The Indian rai l vehicle market continued to grow in impor-tance in 2007. Through its local subsidiar y, Knorr-Bremse is benefit ing from this posit ive development and has prepared for the anticipated r ise in demand by extensively ex-panding and modernizing its production plant and equip-ment.

Commercial Vehicle Systems In the Asia/Australia region, unit output in the major commer-cial vehicle markets showed an overall increase. As a result of intensified business activities,

posted a substantial increase in business. The main contributory factors here were the successful start-up of compressor and damper production at the plant in Dalian, which was opened in 2006, and the rapid integration of the brake cylinder business of the Di-Pro brand. In addition, a major order for the supply of compressors laid the cornerstone for future growth in China.


26 27

In the year under review, the Knorr-Bremse Group invested EUR 140.5 million in fixed and intangible assets, substantially more than in the previ-ous year (2006: EUR 107.0 million). At EUR 103.0 million, 73.3% of the com-pany‘s capital expenditure was invest-ed in Europe. EUR 26.0 million (18.5%) was invested in the Americas and EUR 11.5 million (8.2%) in Asia/Australia.

Allocation of capital expenditure was such that the Rail Vehicle Systems division benefited to the amount of EUR 67.9 million (2006: EUR 36.8 million) and the Commercial Vehicle Systems division to the amount of EUR 72.3 million (2006: EUR 69.5 million). A breakdown of depreciation shows that EUR 43.6 million (2006: EUR 39.6 million) was account-ed for by Rail Vehicle Systems and EUR 65.2 million (2006: EUR 55.8

Consolidated capital expenditure and depreciation in EUR millions

Capital Expenditure

Depreciation

million) by Commercial Vehicle Sys-tems.

Capital expenditure measures were used to underpin Knorr-Bremse‘s strategy of sustained and profitable growth. In 2007, investment activity focused primarily on the expansion of production capacities and replace-ment investments, as well as on the construction of new plants in Hun-gary, Spain and the USA, and on IT projects in Europe and the USA.

Depreciation, including regular amor-tization of goodwill from acquisitions, increased from EUR 103.7 million in 2006 to EUR 113.1 million in the year under review. With EUR 75.0 million, Europe accounted for the majority of depreciation, followed by the Ameri-cas with EUR 33.0 million, and Asia/Australia with EUR 5.1 million.

Capital expenditure/ depreciation

2003 2004 2005 2006 2007

150

120

90

60

30

0

7079 78

94

114

97107

104

140

113


26 27

As befits a technology group, in the year under review Knorr-Bremse again stepped up its research and development ac-tivities. Expenditure on research and development and project planning increased to EUR 158.7 million (2006: EUR 140.8 million) or 4.9% of consolidated sales.

As the technology leader in the fields of braking systems for rail and commercial vehicles, as well as on-board systems for rail vehicles and torsional vibration dampers, Knorr-Bremse devel-ops innovative products distin-guished by their safety, high quality and reliability. For some years now, the predominant trend among European rail and commercial vehicle manufactur-ers has been toward innovative modular and system solutions, with a preference for mecha-tronic systems. The direct combi-nation of electronic, pneumatic and mechanical systems within an integrated and largely autono-mous unit will form a crucial part of all future development efforts.

The highly qualified efforts of the Group‘s research and develop-ment engineers have led to the creation of innovative products in both divisions that will con-tribute to the Group‘s market success over the next few years. In 2007, development work in the rail vehicle sector focused, for

Research and development

example, on systems and prod-ucts that meet the specific needs of the Russian market (i.e. reliabil-ity in cold conditions) and in the commercial vehicle sector the focus was on innovative systems in the drivetrain environment.

Today, Knorr-Bremse has al-ready made all the necessary preparations in order to con-tinue supplying the market with such future-oriented systems and to extend the company‘s market and tech-nology leadership. To further reinforce engineering expertise at Knorr-Bremse, early in 2007, within the framework of Knorr Excellence, the COPE project (Competence in Product Engi-neering) was started, targeting the Group-wide optimization of the product creation process.

The development of sophisti-cated and increasingly complex modules and systems and the ever-earlier involvement of sup-pliers in the development pro-cess require a growing number of suitably qualified employees.

As at December 2007, 1,682 (2006: 1,567) highly trained staff in the research, development and project planning functions across the Knorr-Bremse Group were responding to this chal-lenge. A large proportion of them work on electronic systems.

In order to optimize cost struc-tures without compromising performance quality in the development sector, Knorr-Bremse is actively promoting the integration of development activities across its various sites. By encouraging the exchange of staff between different pro-duction sites and using state-of-the-art communications, the company is boosting the efficiency of its development activities and enabling work on carefully coordinated projects to proceed simultaneously at different locations. This leads to innovative solutions being developed for local market and customer requirements, which are then continuously enhanced to the benefit of the customer.

Consolidated research and development expenditure in EUR millions

160

140

120

100

80

60

40

20

02003 2004 2005 2006 2007

120 124133

141

159


At year-end 2007, the Knorr-Bremse Group employed a total of 13,943 persons or 7.0% more than at the end of 2006. All regions except the Americas contributed to this increase, as a result of the respective growth in their volume of busi-ness.

In the Europe/Africa region, there were 9,009 employees on the payroll at year-end (2006: 8,282). At 64.6%, the proportion of employees in Europe re-mained steady (2006: 63.6%). The workforce in Germany to-taled 3,398 employees (2006: 3,100), which equates to 24.4% of the total Group payroll. 3,342 people were employed at the Group‘s plants in North and South America (2006: 3,511), or 24.0% of the total payroll, down from 26.9% in 2006. In Asia/Australia the size of the work-force increased from 1,242 to 1,592. This represents 11.4% of the total number of employees, up from 9.5% in the previous year.

In the Rail Vehicle Systems division, the number of employ-ees at year-end 2007 had risen to 6,959 (2006: 6,329). In the Commercial Vehicle Systems division, the size of the work-force increased to 6,843 em-ployees (2006: 6,588).

14,000

12,000

10,000

8,000

6,000

4,000

2,000

02003 2004 2005 2006 2007

10,763 11,14312,119

13,03513,943

Knorr-Bremse Group workforce (Dec. 31)

human resources

Knorr-Bremse competes world-wide with a large number of other major technology compa-nies. As the Group continues to grow, special efforts are required to recruit highly qualified manag-ers and other employees and to retain them within the Group. To this end, a number of measures have proved useful: maintaining contacts with universities, provid-ing generous support for voca-tional training and continuing professional development pro-grams, offering performance-related income incentives, and providing for global staff ex-changes. Once again in 2007 the company and its employees made every effort to maintain and improve the competitiveness of Knorr-Bremse. This led to agreements being concluded with employee representatives at various plants regarding process optimization in the interests of greater competitiveness.

We would like to thank the com-pany‘s employees for their com-mitment and hard work in fiscal 2007, through which they made a very decisive contribution to the success of Knorr-Bremse. Their dedication and their ideas shape the future competence of our company. Our thanks also go to the employee representatives for their part in maintaining an atmosphere of mutual trust.

28 29

Knorr-Bremse Group workforce by region (Dec. 31)

Asia, Australia

11%

The Americas24%

Europe, Middle East, Africa 65%


28 29

In the year under review, Knorr-Bremse continued to provide fi-nancial support for the non-profit association Knorr-Bremse Global Care e.V. The association was set up in re-sponse to the tsunami catastrophe of December 26, 2004 to help persons in need as a result of environmen-tal catastrophes, accidents, armed conflict, poverty or disease. Knorr-Bremse Global Care now supports people in need on three continents, in line with the motto “helping them to help themselves“.

In 2007 the association continued to benefit from funding of EUR 1 million per annum from the Knorr-Bremse Group and its work in the year under review focused on Africa. Knorr-Bremse Global Care e.V. has published its own separate report.

Knorr-Bremse has a long tradition of social and cultural commitment. Providing rapid and unbureaucratic assistance to those in need is part of what we consider the social re-sponsibility of an internationally active corporate group. Almost all national Knorr-Bremse companies also demonstrate social responsibil-ity at local level by making charitable donations, and by employees making an active commitment on behalf of Knorr-Bremse to help people in need.

No events of special importance and with a material influence upon the assets, financial or earnings position of the Group at the bal-ance-sheet date took place after the conclusion of fiscal 2007.

Social responsibility Follow-up report


30 31

The Knorr-Bremse Group oper-ates an established, multi-stage, worldwide planning, reporting and controlling system. Standard reporting periods and report con-tents have been defined across the Group, and these formal reports are supplemented in greater depth by presentations on routine and special subjects during the course of monthly review meetings.

In addition, the Knorr-Bremse Group has put in place a standardized risk management system at top manage-ment level. This is based on a semi-annual risk report that is discussed at regular Executive Board meetings and used as a basis for introducing appropriate measures. This ensures that the operational risk manage-ment system is duly complemented at strategic level. In its entirety, this control system has proved an effec-tive, close-knit network for the early identification and remediation of po-tentially undesirable developments.

Risk assessment and risk man-agement also form an important part of the process of describ-ing, documenting and continu-ously improving business processes across the Knorr-Bremse Group (Knorr Excellence model).

Report on risks and opportunities

Business risks The Knorr-Bremse Group is active in business segments that for years have been characterized by a dy-namic process of consolidation on the customer side. This has resulted in powerful leverage on the demand side, with corresponding pressure on prices. Knorr-Bremse responds to these factors with innovative products and systems, positioning itself as a partner for long-term relationships that target cost-effective solutions for customers. The earlier Knorr-Bremse is involved in the customer‘s project as a whole, the better the chance of attaining that target.

Regional commercial vehicle and rail vehicle markets are subject to regular cycles. Market volatility and fluctuating growth can affect indi-vidual suppliers, market segments or entire regions. With its current market position and corporate struc-tures, Knorr-Bremse is exceptionally well placed to offset fluctuations in market segments within the Group.

In the course of its dynamic growth in recent years, Knorr-Bremse has integrated a number of companies or shareholdings into the Group. In the past, the financial and cultural risks typically associated with such


30 31

integration processes were minimized by means of systematic analysis and assessment of the target companies. When it comes to overcoming cultural barriers, Knorr-Bremse can look back on 20 years of experience with integra-tion processes related to the acquisi-tion of over 40 substantial companies and joint ventures in which the com-pany holds a majority stake and is re-sponsible for day-to-day management. This experience will pay dividends in any future mergers and acquisitions.

Knorr-Bremse and its systems are regularly at the leading edge of tech-nological development. This also en-genders risks which, because of the safety-critical nature of the application concerned, require particularly careful monitoring. To this end, Knorr-Bremse routinely employs comprehensive quality planning, quality assurance and testing procedures. To ensure continu-ous improvement of its quality proce-dures, Knorr-Bremse takes its lead from international standards. The individual plants regularly undergo internal and external audits in this context. Above and beyond this, despite having al-ready attained a very high level of quality, both divisions work intensively to continuously improve the quality and reliability of their products with the aid of the “Quality First“ program.

Operational risks Risks due to production down-times are covered by commer-cially appropriate insurance contracts. Flexible working time models enable unexpected shifts in capacity requirements to be accommodated efficiently.

Knorr-Bremse maintains a close working relationship with many suppliers and service providers. In order to avoid delivery delays or quality defects, which in turn could lead to lost production time and have a negative impact on earn-ings, Knorr-Bremse attaches great importance to careful supplier se-lection procedures. Suppliers are also continuously subjected to technical and commercial audits.

Exchange rate risk is not of crucial importance for the Knorr-Bremse Group because geographic diver-sification over recent years has enabled the Group to establish a high proportion of local manufac-turing and local suppliers within the respective currency zones.

In order to limit the residual ex-change rate risk related to trans-actions across different currency zones, Knorr-Bremse is increasingly


32 33

identifying opportunities to exploit compensatory supply volumes within the Group. In selected cases, currency risks are also hedged by means of derivatives. Such measures, however, serve exclusively to hedge underlying transactions within the scope of normal business operations.

The basis for managing foreign exchange risks is provided by the Knorr-Bremse Guidelines on Man-aging Currency Exposure, which set out the procedures to be fol-lowed and the necessary scope of hedging transactions in binding form for all Group companies. The monitoring of compliance with these Guidelines is part of the rel-evant Knorr Excellence process.

Business processes within the Knorr-Bremse Group are supported by pow-erful and state-of-the-art IT systems. In order to avoid malfunctions, Knorr-Bremse attaches great importance to harmonization of the hardware and software architecture, the integrity and security of existing data, appro-priate back-up solutions, and careful management of access control. Com-pliance with the IT Security Guidelines is comprehensively monitored with the aid of internal and external audits at all major sites around the world.

The Corporate Data Center in Munich, Germany, meets the very highest requirements (industry standard) in terms of efficiency, reliability and security. Based on this platform, the required level of global transparency and integration of all corporate sites – and of recent additions in particular – are being further en-hanced.

In response to increasingly strin-gent environmental requirements, Knorr-Bremse has aligned its ac-tivities with the international stan-dard ISO 14001. A number of the company’s sites have already been certified or re-certified accordingly.

In Asia, as well as in the other re-gions, imitation and counterfeit products remain a serious threat to business in the commercial vehicle and rail vehicle sectors. Counter-ing this threat is Knorr-Bremse’s technical competence, which on account of the safety-critical ap-plications of its products is both recognized and appreciated by most customers around the world.

Going-concern riskCareful analysis of the Group-wide risk profile has revealed that no identifiable risks exist that would threaten the survival of the company or have a substantial impact on its assets, financial standing or profit-ability. Nor are any such risks current-ly expected to arise for the future.


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For the planning period 2008 to 2010, the Knorr-Bremse Group generally expects to see its business develop positively. Fundamental risks exist in terms of the development of raw material and energy prices and in the form of economic downturns result-ing from the financial crisis in North America, the total impact of which cannot currently be predicted.

In Europe, both divisions are expect-ing the market environment to remain positive in 2008, with the commercial vehicle market likely to sustain or ex-ceed the very high level attained in 2007. For both divisions, the biggest challenge of fiscal 2008 will be to set up local structures in Russia. The joint venture with the Russian commercial vehicle manufacturer KAMAZ is an im-portant step in setting the stage for the future development of Knorr-Bremse‘s commercial vehicle systems activities in the Russian market. The European rail vehicle market has recovered from its 2005 low and is expected to con-tinue its upward progress throughout 2008 and beyond, particularly in the freight car and multiple unit segments.

In North America, 2008 is likely to bring a drop in sales for the Rail Vehicle Systems division. The downturn in the freight car market is set to continue. However, in North America Knorr-Bremse is benefiting from growing de-mand for electronic freight train brakes, and sales in the mass transit sector are expected to show moderate growth. The traditional cyclical development of the North American commercial vehicle market is being reinforced by the pro-gressive introduction of stricter exhaust emission regulations. The OEM mar-ket for commercial vehicles in North

America is expected to stage a modest recovery in 2008. In South America, Knorr-Bremse is projecting a stable volume of business for both divisions.

The Asian market continues to pre-sent good opportunities for growth for both divisions. For the Rail Vehicle Systems division, the signs in China, the largest market in Asia, are set for further growth. Thanks to the con-sistent expansion of its production capacities, Knorr-Bremse is now able to meet the increasing demands in terms of localization. Along with pro-duction and sales, the coming year will see the establishment and expansion of local engineering capacities. The Indian market, which is becoming increasingly technologically sophis-ticated, is also heading for further growth. The Japanese market will remain stable at its current high level and the Korean market at its current low level. In the commercial vehicle sector, too, Knorr-Bremse will be forg-ing ahead with its strategy for growth. The ongoing localization of produc-tion operations and the consistent product focus on local market needs will open up new market segments and make for larger market shares.

In the planning period 2008 to 2010, all of the Group‘s regions are again expected to post further growth. The aim is to boost sales through better penetration of mature markets, by opening up new markets such as Rus-sia, by introducing innovative products, and through selective expansion of the company’s fields of activity. Greater benefits for the customer are at the core of all growth projects, with top pri-ority being assigned to the quality and reliability of each and every product.

Outlook

A record to be proud of

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A record to be proud of

Behind the financial results – the figures for sales and earnings – lies the hard work of a Knorr-Bremse workforce that now numbers almost 14,000 men and women. Without their skills, creativity and commitment, the company could not be so successful. On the next few pages we present nine highlights from 2007 – together with the Knorr-Bremse people involved.

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On track for growth in China

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The Chinese rail markeT is developing aT full speed. Orders received from China by Knorr-Bremse Rail Vehicle Sys-tems during 2007 alone were worth over EUR 130 million. With sites in Beijing, Hong Kong, Shanghai, Dalian and Suzhou, and joint ventures in Nankou, Daxing, Guangzhou and Qingdao, the company is well placed to respond to business growth in China. And it is continuing to expand: A new production plant in Suzhou came on stream in October.

As Managing Director, Frank Liu supervised construction of the new plant in Suzhou.

The Suzhou plant – currently Knorr-Bremse‘s biggest in China – originally opened in October 2005 with just 25 employees, but within a year buoyant orders prompted the Executive Board to transfer operations to a larger site. Construction of the new plant was completed in less than 12 months and it is now fully opera-tional, with a workforce of 400 producing braking systems for rail customers in China and the Asia/Australia region. In addition to housing production and sales operations, the site is also to be developed over the next few years as an engineering center, with

some 50 engineers working to meet growing customer demand. 2007 also saw further expansion of the four joint ventures that Knorr-Bremse had established in China in 2006. More trains, More speed, More Knorr-BreMseThe pace of urbanization in China has led experts to predict an increase in rail passenger volumes from 1.3 billion in 2007 to 1.9 billion by 2010. Under its current Five-Year Plan, China aims to invest massively in its railroad system and is to order 5,000 new metro cars, 1,000 high-speed trains and 5,000 locomotives. The Ministry of Railway plans to expand the rail network from 73,000 kilometers to more than 100,000 by 2020, and will be investing huge sums in modern trains to speed up traffic on these new routes. Knorr-Bremse has established an extremely favorable

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C h i n a

position in the braking systems field and is set to profit strongly from the Chinese market over the next few years. The company also expects to considerably expand its business in on-board systems for urban and mainline trains. “Suzhou can be seen as a symbol of growth in China,“ comments Frank Liu, who has been Managing Director of the plant from the outset. He was originally attracted to Suzhou by Knorr-Bremse‘s ambitious plans in China. “I was impressed by the company‘s targets. And I felt challenged to come on board. The train to the future is just setting off – but at high speed and with braking systems from Knorr-Bremse,“ says Liu with a smile.

At the 2008 Olympic Games, China is determined to present a progressive face to the world, and this includes having a modern

transport infrastructure. Decision-makers in politics and business are putting their faith in state-of-the-art technologies – but at the same time, economic policymakers are insisting on a high local content in any value-added operations. This means that pro-duction of vehicles, systems and components is increasingly tak-ing place within the country itself. In 2007, Knorr-Bremse‘s strate-gic response to this trend was to open its new plant in Suzhou.

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Knorr-Bremse employs a total workforce of 1,000 in China – some 800 in its rail division.

octoBer 11, 2007: Knorr-BreMse celeBrates in suzhouSuzhou is one of modern China‘s boom cities. If you include all the suburbs, more than six million people now live there, 2.2 million of them in the city center. The many canals that criss-cross the city have resulted in it being dubbed the “Venice of the East“. So it was appropriate that water provided the background for the celebra-tions that marked the opening of the new Knorr-Bremse plant – re-flecting the lights of the magnificent firework display that rounded off an evening of artistic performances attended by high-ranking representatives of business and politics. One of the high points came when Heinz Hermann Thiele, Chairman of the Supervisory Board of Knorr-Bremse AG was awarded the Freedom of the City of Suzhou. “Suzhou has only a handful of honorary citizens,“ comment-

ed Frank Liu, “so this indicates the importance attached to Knorr-Bremse‘s operations in China. It was a real highlight – and I am sure there will be many more for Knorr-Bremse.“

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C h i n a

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Aldersbach: Braking systems and

breaking records

Franz Josef Birkeneder (4th from l.) is in charge of the Knorr-Bremse plant in Aldersbach. Faced with booming orders, he and his colleagues ensure quality and delivery reliability.

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T h e C u r r e n T b o o m i n T h e e u r o p e a n Co m m e r C i a l v e h i C l e m a r k e T h e l p e d k n o r r - b r e m s e To aC h i e v e u n u s ua l ly h i g h l e v e l s o f g r o w T h i n 2007 – b u T T h i s a l s o b r o u g h T C h a l l e n g e s f o r T h e Co m pa n y. Faced with a mass ive surge in demand, management had to ensure that produc ts were st i l l del ivered on t ime and in the usual h igh qual i t y. At K norr-Bremse’s plant in Alders-bach, Lower Bavar ia , no fewer than 2 .8 mi l l ion disc brakes came off the produc t ion l ine – a new record.

C o m m e r c i a l V e h i c l e B o o m

Keeping pace with growth in the trucK sector 2007 saw commercial vehicle production including buses reach 567,000 units in Europe. Faced with overflowing order books, many truck and trailer manufacturers and systems suppliers found themselves operating at full capacity and recruiting large numbers of additional employees. “The commercial vehicle seg-ment is currently the main growth driver in the automotive in-dustry,“ commented Matthias Wissmann, President of the German Automotive Industry Association ( VDA). According to the VDA, other factors in addition to the booming economy and an overall increase in transportation volumes included the development of new vehicle concepts, an upturn in the construction industry and a wave of fleet renewals triggered by the introduction of stricter emissions legislation. But a strong export performance, especially to Eastern Europe, was also a factor in the record production levels attained in the industry – and at Knorr-Bremse’s Aldersbach plant – in 2007.

aldersBach – synonyMous with growth and quality Aldersbach – where on earth is Aldersbach? In geographical terms, the answer is simple: thirty kilometers west of the German city of Passau. But in terms of the commercial vehicle industry, Aldersbach occupies a central position for truck and trailer manu-facturers. Knorr-Bremse’s Aldersbach plant is one of the leading modern facilities for production of disc brakes and electronic sys-tems in the entire industry. The name Aldersbach is synonymous with strong growth and top product quality. In 2007, no fewer than 2.8 million disc brakes left the plant – 30 percent more than the previous year.

defect rate halvedFranz Josef Birkeneder is Managing Director of the Knorr-Bremse plant in Aldersbach, which means he is responsible not only for millions of disc brakes but also for more than one thousand em-ployees – and the numbers are increasing monthly. Growth was the order of the day throughout 2007, and sales rose 16 percent. To achieve this, Knorr-Bremse invested EUR 15 million in ma-

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chinery and assembly-line equipment. Production at Aldersbach runs on a seven-days-a-week basis, and over one hundred new employees were taken on in the course of the year. 2007 also saw a seventh disc brake assembly line come on stream – and an eighth will soon follow. The layout of the plant was also modified to improve internal logistics and free up new capacity. “Despite this huge growth, everyone at the plant managed to hit their productivity and quality targets, and we were able to fulfill all orders to our customers’ full satisfaction. We also managed to cut the product defect rate even further and came out best in the division’s product safety audit. All this was achieved despite the additional challenge of migrating our planning system to SAP in the spring of last year,“ says Birkeneder.

And Knorr-Bremse is continuing to invest in Aldersbach – ex-panding plant, processes and structures and securing supplier production capacity so that the planned growth to 3.6 million disc brakes can be achieved in 2008 without any concessions in terms of quality or safety.

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A Knorr-Bremse disc brake.

C o m m e r c i a l V e h i c l e B o o m

LEADER combines ecology and economy

to save fuel

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Marshall Beck, Head of Sales, and Mike Hawthorne, Project Manager LEADER – both from New York Air Brake – have no doubts: The LEADER train control system will soon prove a worthwhile investment for any customer.

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fuel CosTs are soaring, as is The global demand for TransporTaTion. The rail freight sector worldwide has responded with heavier, longer freight trains with higher axle loads, which translates into higher fuel costs and greater train-handling challenges. In this world of increasing energy costs a new train management technology called LEADER addresses these issues, providing optimized train management to improve the efficiency of train movements.

E n e r g y - e f f i c i e n c y

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fuel savings of up to 15 percentA LEADER-equipped heavy freight train consumes up to 15% less fuel than a similar train for identical loads and track topology. LEADER also improves the overall train safety and through reduced in-train forces reduces wear on couplers and draft gear. The system was originally developed by Knorr-Bremse subsidiary New York Air Brake to help manage the long and heavy freight trains operated in the USA under American Association of Railroads (AAR) rules and standards. Today its positive effects can be felt on railroad networks worldwide.

operating proMpts for the train driver LEADER has its own special “leadership qualities“. The locomo-tive cab display provides the engineer with key operating in-formation, including track topology, speed, fuel consumption and in-train forces. The on-board, real time system generates driver prompts to enable the engineer to optimally manage his train in terms of energy and minimized in-train forces. The fuel savings also contribute to reduced greenhouse gas emissions. LEADER continuously computes the train‘s energy balance and calculates the optimal train-handling every few seconds as the train navigates its route. Through tuning algorithms, LEADER also

New York Air Brake‘s Watertown plant.

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accounts for changing train braking performance. If the driver‘s performance is suboptimal, the system will recommend throttle and brake settings. LEADER‘s back-office tools allow managers to track driver‘s trip-to-trip performance and build a database of overall operating performance. The operational database and the engineer‘s performance metrics are archived for post-trip analysis. As a result, each trip becomes a coaching opportunity and longer range data analysis provides insight into operational trends.

fast payBacKMike Hawthorne is Director of Train Dynamic Systems ( TDS) responsible for LEADER activities at Knorr-Bremse subsidiary New York Air Brake and he knows how LEADER motivates engi-neers to adopt a fuel-saving and equipment-friendly approach. “Good trips can earn a bonus, and less experienced engineers learn quickly how to make an optimal run,“ says Hawthorne. So the payback on the initial investment is typically measured in months. Then there are the benefits in terms of reduced life-cycle costs. As Hawthorne sums it up: “LEADER combines ecol-ogy with economy.“ Marshall Beck, VP Marketing/Sales expects application on thousands of locomotives over the next three to ten years in the USA alone.

E n e r g y - e f f i c i e n c y

New milestones for truck safety

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Kevin Romanchok (5th from l.) is Electronics Product Line Director at Bendix.

safeTy is a CruCial issue for TraCTor uniTs and Trailers. Electronic stability programs such as ESP and TEBS G2 (a further devel-opment of the first generation of trailer EBS) offer ample proof that in-telligent braking systems can boost performance in international com-mercial vehicle markets.

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avoiding accidents – saving lives Black ice, snow-cover or wet and slippery road surfaces offering poor tire adhesion can cause accidents, particularly with heavy trucks. But it is not always road conditions that are to blame – some-times drivers can misjudge a situation. Excessive speed or lack of driver experience can be factors. This is where electronic systems can play an invaluable role in assisting the driver. ESP – three simple letters that stand for Electronic Stability Program – is of enormous significance. In critical situations, the ESP stability system actively intervenes in the vehicle‘s braking and engine management system and helps the driver maintain control. If there is a risk of rollover or loss of control, the system automatically reduces the vehicle‘s speed, defusing a potentially dangerous situation and, in many cases, avoiding disaster. In Europe, statutory requirements state that, beginning in 2009, ESP is to be phased in for trucks and buses. The numbers speak for themselves: Current estimates show that if all trucks and buses in the EU were fitted with ESP, 500 deaths and 2,500 serious injuries could be avoided each year.

ESP for truck-trailer combinations will become available shortly. Knorr-Bremse has spent between four and five years working with leading commercial vehicle manufacturers to develop a suitable system – a complex task, as, unlike individual vehicles or semitrailers, truck-trailer combinations have two articulation points instead of one. The new ESP system can also be fitted to multiple trailers (so-called EuroCombis).

C o m m e r c i a l V e h i c l e S a f e t y

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short-terM safety gains – long-terM savingsESP is also important for the North American market. Every day, somewhere in the U.S., over 40 heavy truck loss-of-control rollovers take place. U.S. government studies report that over 80,000 fatal and injury-related crashes involving large trucks occurred in 2005. Government estimates show that large-truck accidents involving injury can cost an average of more than USD 200,000 per event, while those involving fatalities result in average costs of more than USD 3 million. A consistently increasing number of safety-con-scious operators across North America have elected to invest in full stability systems, like Bendix ESP, as a means to provide an even greater margin of safety for their fleet. With many large transport companies self-insured against accident damage – which means they bear the full cost should an incident take place – the incre-mental benefit of the technology is far greater than the cost of its implementation. Often fleets indicate that the prevention of just one major accident covers the cost of equipping the entire fleet with ESP.

Although ESP is not yet a statutory requirement for U.S. trucks, sales figures for North America reflect a growing availability and acceptance of full stability systems. According to Kevin Roman-chok, product line director for electronic systems at Knorr-Bremse subsidiary Bendix Commercial Vehicle Systems LLC, “In 2007 ESP unit sales grew 40%, while truck unit sales dropped 40% from 2006 levels.“

Martin Mederer spends part of the winter in Arjeplog, northern Sweden, where Knorr-Bremse tests its safety systems.

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safety systeMs prove an export hit Bendix and Knorr-Bremse Europe are increasingly working to-gether to develop braking systems – particularly for trailers – that can be marketed worldwide. A braking system for trailers has to automatically adapt to the specific electric voltage in a region and must be easily modified to comply with local statutory regu-lations – two requirements that only Knorr-Bremse‘s second gen-eration trailer EBS system TEBS G2 (marketed in North America as TABS-6 Advanced trailer stability system) can meet.

The product family is fully functional with power supplies ranging from eight to 32 volts and can, therefore, be used in any country in the world. That is why the second-generation TEBS is highly anticipated in the USA, Canada, and Australia in particular. Brake control systems for trailers in these countries usually run on a twelve-volt power supply, whereas in Europe, trucks drive – and brake – using 24-volt systems. TEBS G2 takes this in its stride, as it is designed on the plug & play principle and automatically adjusts to the local voltage. Martin Mederer is responsible for trailer brake control systems at Knorr-Bremse, working in concert with col-leagues in North America. Mederer and his team have subjected the new TEBS G2 to a series of grueling tests, including putting it through its paces at Knorr-Bremse‘s test circuit in Arjeplog, north-ern Sweden. His summary of the results: “This is an excellent brake control system for truck trailers. Provided the brakes are properly balanced, it is able to deliver a shorter braking distance.“

C o m m e r c i a l V e h i c l e S a f e t y

EDT 101 – or how to derail

a fully loaded freight train

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Development engineer Gerd Buchmeier at the Berlin derailment experiment.

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some 80 perCenT of railroad aCCidenTs resulTing in spillage of hazardous goods are Caused by derail-menT. And in some 40 percent of all cases the engineer in the cab is not initially aware that anything is wrong. But if a derailed wheelset hits a set of points, the wagon can roll over and cause a serious accident or – if it is carrying a hazardous load – trigger a major disaster. Whatever the outcome, the track will be seri-ously damaged and may have to remain closed for weeks. But now Knorr-Bremse has developed a derailment detector that automatically recognizes when derailment occurs and rapidly brings the train to a halt. Following field testing of the detec-tor in Berlin, specialists from the international RID Committee of Experts were convinced that derailment detectors should be made mandatory from 2011 onwards for all newly-registered tank wagons used to transport certain categories of hazardous goods.

R a i l V e h i c l e S a f e t y

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the edt 101 success story Locomotives generate so much motive power, and the resistance caused by a derailed wagon is so slight, that the engineer some-times is completely unaware that a derailment has occurred. Up front in the cab, he‘s paying close attention to the signals along his route, watching for other trains and keeping an eye on the track ahead. As he approaches a set of points he begins to slow down to the appropriate speed. As far as he can tell, everything is still just fine. But further back – maybe in the center of the train – only a few seconds after the locomotive has passed across the points, the derailed bogie hits them. Still the engineer notices nothing: His mind is on getting his load of liquid chemicals to its destination safely and on time. But further back, a catastrophe is looming. This is precisely what happened in Affoltern Station in Zurich on March 8, 1994, in the days before derailment detectors: A few kilometers outside the station, one of the cars in a freight train with a hazardous load lost a wheel bearing and one axle was derailed. For several kilometers the wheelset ran alongside the track with the wheels bouncing over the sleepers. But then the train reached a set of points at Affoltern station and the de-railed tank car rolled over and exploded, igniting four others, all of them filled with gasoline. The accident left three people seri-ously injured and caused millions of dollars worth of damage.

froM setBacK to BreaKthroughIn the aftermath of the accident, Swiss Railways approached vari-ous companies to ask if they could develop an automatic system that would immediately brake a train to a standstill if derailment occurred. “The idea was that the mechanics of the system should be simple and the whole thing shouldn’t cost too much,“ remem-bers Gerd Buchmeier of Oerlikon-Knorr Eisenbahntechnik AG, one of the engineers responsible for developing the first derailment detector for freight trains. “Freight wagons don’t have a power supply, so we designed a mechanical/pneumatic system from the outset.“ The EDT 100 derailment detector – the precursor of the EDT 101 – reacted, as intended, to the strong vertical motion caused by derailment, but it was also occasionally tripped by or-dinary jolts and bumps. This was a bit of a setback. The Oerlikon-

Knorr engineers quickly identified a link between the tempera-ture-sensitive trip threshold and the number of times the system was tripped and set about finding an optimized setting for the EDT 100. Like a ski binding, a derailment detector must not be so sensitive that any shock will set it off ; on the other hand it has to be sensitive enough to be triggered by every derailment. EDT 101 brought the breakthrough. octoBer 2007: the Berlin derailMent experiMent In order to demonstrate the system’s functionality, Knorr-Bremse joined forces with Berlin Technical University to carry out a pio-neering derailment experiment. “There was dust everywhere and it made an incredible noise,“ remembers Gerd Buchmeier with a broad grin. “It was every engineer ’s dream to witness a practical demonstration of a theoretical idea.“ The experiment was carried out on October 11, 2007 at the Schönweide marshalling yards in Berlin and involved a diesel locomotive, three old tank wagons and a crane that could lift heavy rolling stock back onto the rails. But how do you deliberately derail a train? You have to lift the wagon and put one of the wheelsets on a second, parallel track that has been laid 20 cm to the side of the main one. After 200 meters this second track ends in a ramp leading down to the track bed. “We were determined to show that the EDT 101 works perfectly – particularly in the case of a gentle derailment, as that is the most difficult kind to detect. The ramp made for a gradual descent to the track bed.“

The train moved off and accelerated to 50 km/h. After 200 meters the paral-lel track came to an end, and the test wagon was derailed, but within 200 milliseconds the detector triggered the brakes and the wagon came to a standstill after plowing through the track bed for precisely 71 meters. It was fully loaded for the experiment – although only with 50,000 liters of water.

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Reducing the risks of hazardous goods transportation: EDT 101 – compulsory from 2011 onwards on all newly-re-gistered wagons in certain hazardous goods categories.

R a i l V e h i c l e S a f e t y

But what makes a particular brand special? “People associate it with quality, reliability, economy and innovation, and every year it gains greater customer confidence and worldwide recognition,“ says Astrid Müller, who is responsible for internal and external communications at Knorr-Bremse Systeme für Nutzfahrzeuge GmbH. In 2007, for the second year running, the readers of three trade publications – “lastauto omnibus“, “trans aktuell“ and “FERN-FAHRER“ – selected Knorr-Bremse Commercial Vehicle Systems as the best brand in the “Brakes“ category. Its total of 61.8 percent of the votes represented a 3.2 percentage point increase com-pared with 2006, further widening its lead over the rest of the field. “That‘s a very good result,“ comments Müller, adding in the same breath: “But very good is not good enough for us. Our goal is excellence in all processes, from development via production through to logistics and service. That’s the only way to maintain best-brand status in the future.“

Knorr-Bremse voted “Best Brand“ for second

year running

Astrid Müller, responsible for communications at Knorr-Bremse Commercial Vehicle Systems, is

proud of the renewed best-brand status.

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whaT is The advanTage of being designaTed a “besT brand“? The answer has to be that brand value boosts market value. Brand culti-vation and brand management are the name of the game, with a view to continuously improving brand performance and value, to build a com-petitive edge and lay the foundations for further success.

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hard worK Behind the scenes Cultivating and managing a brand is a worthwhile pursuit – not just because it brings in awards. A company like Knorr-Bremse can use its brand reputation to increase the yield from its prod-ucts. “But of course this involves a lot of work behind the scenes,“ says Müller. “Hard work by everybody involved at the product, strategy and service levels.“ Knorr-Bremse invests huge sums in product research and development, and it is important for this process to go hand-in-hand with close consultation with the customer. “We listen very carefully to what they have to say,“ says the communications expert. “But we also try to anticipate the needs of the market. Customer benefit comes at the top of the agenda – any increase in customer satisfaction boosts our brand.“ Knorr-Bremse has a very clear strategy in this respect: “We go where our customers go and our products are designed to be adaptable to regional requirements.“ The third crucial element in Knorr-Bremse‘s brand management is service. Here the main

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focus is on developing strategies to provide commercial and technical support to customers as they use Knorr-Bremse products. Other important aftermarket activities include developing a ser-vice organization that offers training sessions, documentation and a customer hotline. And a quarterly customer magazine reports on topical issues geared to trailer and aftermarket customers.

Astrid Müller is aware that mere brand perception is not enough. At best, perception leads to recognition. The value of the brand also has to be appreciated. “It’s all a question of the level of trust invested in a brand – trust that is well placed if the brand deliv-ers on its promises.“ She is delighted with the latest “Best Brand“ designation. “It shows we are on the right track with our products and programs for boosting customer satisfaction. And it motivates us to work hard to remain the preferred partner for our customers and continue to set the benchmark for innovative, reliable prod-ucts.“

B r a n d s

Siberia in Munich – the order that came

in from the cold

Two men who have warmed to the Russian market: Stefan Aurich, Project Leader Velaro Russia (r.), and Karl Hering, Product Manager Air Supply.

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knorr-bremse’s braking TeChnology for exTreme TemperaTures is proving inCreasingly suCCessful in The russian markeT. The greatest technical challenge in this respect can be summed up with two figures: -50°C in win-ter, +40°C in summer. The company’s engineers swiftly came up with a solution, and Knorr-Bremse received an order for braking systems for the new Russian high-speed train.

R e s e a r c h a n d D e v e l o p m e n t

BraKing systeMs for the new russian velaro high-speed trainSiberian temperatures – the mere idea is enough to send a shiver down your spine. But Stefan Aurich, Project Leader Velaro Russia at Knorr-Bremse, warmly welcomes this chilly challenge: “Mos-cow to St Petersburg – 700 km of straight track, top speeds of 250 km/h, winter temperatures below that of the average freezer – low enough to turn grease into soap and make rubber as hard as wood.“ European braking systems are usually designed to cope with temperatures down to -40°C, but any system used in Russia has to be able to take -50°C in its stride. And that is not all: Summer temperatures frequently top the +40°C mark. “The sheer range of temperatures poses a difficult but interesting problem,“ grins Aurich. He knows that any system that functions in high temperatures doesn‘t necessarily do its job properly at extreme minus temperatures. “To achieve certification for the Russian market we had to do some hard thinking.“

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An oil-free compressor.

extreMe tests for extreMe winters To find a solution, Knorr-Bremse created 20 cubic meters of Sibe-ria in a purpose-built cold chamber at its Munich site for all the preliminary and endurance testing. Equipment, components and materials were frozen and their characteristics examined. Cold starts were also tested, as was continuous running at extremely low temperatures. Particular attention also had to be paid to the start-up performance of the oil-free compressors. With conven-tional compressors, the problem of cold starts in icy conditions is solved by pre-heating the oil. But how was the oil-free compres-sor supposed to start at temperatures below -50°C? To find out, Knorr-Bremse used elaborate testing equipment that enabled the relevant parameters – including operating pressure, air volume, noise generation, time to operating temperature and the extent and impact of mechanical vibration – to be examined in detail. The compressor passed with flying colors. The cold test facility also proved an ideal way of checking all the certification-test-ing criteria: The Russian authorities did not have the necessary regulations in place to apply Russian quality criteria to the new technologies when Knorr-Bremse applied for certification of the compressors for the Russian Velaro, so the company worked with the Russian authorities to develop an appropriate certifica-tion process. “It wasn‘t always easy,“ comments Aurich. “Russian bureaucracy and formalities are not the same as ours. You have to adapt, not only to the technical requirements but also to the demands of the authorities. The route is not always as direct as the line between Moscow and St Petersburg.“

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Knorr-Bremse and KAMAZ – accessing the Russian market

together from Tatarstan

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knorr-bremse firsT gained aCCess To The russian TruCk markeT in 1995. Back then it was still operating from its Hungarian base, but a new joint ven-ture set up in December of last year with KAMAZ, Russia‘s leading truck manufacturer, has now enabled the company to adopt a different approach. From their base in Ta-tarstan, Knorr-Bremse and KAMAZ are together embarking on an exciting new project aimed at improving drum brakes and introducing the disc brake to Russia.

Knorr-Bremse is investing more than EUR 12 million in the joint venture with KAMAZ. Two of the prime movers: István Lepsényi (r.), Managing Director of Knorr-Bremse‘s Hungarian

subsidiary, and Harald Schneider (l.), who handled negotiations in Naberezhnye Chelny until the contracts were signed.

froM village to industrial centerUntil 1976, this was just another insignificant village. Then the Soviet Union set up an industrial enterprise here to build trucks, buses and diesel engines. Today the town is called Naberezhnye Chelny and has grown into a fully-fledged industrial center with a population of half a million. The first KAMAZ truck came off the assembly line here on February 16, 1976, and the company now builds more than 50,000 per year. “I had been running our Russian operations from Hungary since 1995,“ explains István Lepsényi. “During that time I was able to establish good contacts with Rus-sia and had effectively built up Knorr-Bremse‘s Russian business for the company.“ Lepsényi‘s good relations with Russia and Knorr-

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Bremse‘s experience with the drum brake at Bendix Spicer in the USA were the decisive factors in the company‘s decision to offer its technology and experience to KAMAZ. Initial discussions looked into the possibility of jointly developing and producing brakes for KAMAZ and other potential customers. “You can imagine how difficult the process was. We are not only talking about two very different systems but also two very different ways of thinking,“ says Lepsényi. Nevertheless, the talks culminated in the signing of an agreement on December 4, 2007 to set up the joint venture Knorr-Bremse KAMA Systems for Commercial Vehicles OOO.

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KaMaz, Knorr-BreMse and the huge russian MarKetThe Russian market is currently developing at high speed, with recent annual growth rates of up to ten percent, and production of commercial vehicle systems is keeping pace with expansion of the country‘s infrastructure. KAMAZ is the country‘s leading commercial vehicle manufacturer, producing 53,000 vehicles in 2007, and already controls about one third of the market. But its medium-term goals are even more ambitious: Truck production

66 67

is set to double over the next few years, and the company aims to expand its market share to forty or fifty percent. It will start by contributing its drum brake production to the joint venture, which will then become the exclusive supplier to KAMAZ, as well as selling to other truck manufacturers in Russia and neighboring countries. “Having this joint venture with KAMAZ is quite unique in that sense. It means we are immediately in a leading position in the Russian market,“ explains István Lepsényi. “We will continue to improve the KAMAZ drum brake, while phasing in the disc brake at the same time.“

B r a k e s f o r R u s s i a

Easing the transition – support

program for employees working abroad

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Travel is The besT way To expand your horizons, and knorr-bremse has de-veloped a program ThaT provides full supporT To employees while They are working abroad and afTer Their reTurn home. More than 150 expatriates are currently on short-term assignments to one of the company’s foreign locations – play-ing their part in bringing the world of Knorr-Bremse closer together. One of them is Dr. Jörg Sandig from Berlin, who has been helping to build up the company’s business in China.

Dr. Jörg Sandig, now Managing Director of Hasse & Wrede GmbH, Berlin, returned to Germany from his Chinese “excursion“ having gained a lot of valuable experience.

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one foot still in dalian Knorr-Bremse is active all round the globe, with employees at more than 60 sites in 25 countries, and has therefore developed an international transfer program to support those who wish to work abroad for a limited period. The idea is to ensure that things run as smoothly as possible for expatriates from the very out-set, and also to help them find their feet again when they return home after several months or years abroad. Exactly what is in-volved is illustrated by the example of Dr. Jörg Sandig, now back from Dalian, where he lived with his family. “One thing we miss is Chinese food, which is much better, more varied and healthier. All the ingredients are fresh and everything is freshly prepared,“ says Sandig. He almost sounds homesick when he speaks of his years in China. “But some aspects of doing business there are harder to digest. The Chinese are extremely competitive, and the business world is incredibly volatile. I am not talking about

fluctuations of two or three percent, but rather plus or minus 50 percent from one month to the next. The situation is constantly changing, and you have to react fast.“ Sandig enjoys coping with such challenges – he is a development worker in the best sense of the word. And he is also a pioneer who is not afraid of rolling his sleeves up and helping out. It was this attitude that helped him build up a production facility in Dalian for Hasse & Wrede‘s torsional vibration dampers for trucks and stationary applications

I n t e r n a t i o n a l T r a n s f e r s

H i g h l i g h t s

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in just three-and-a-half years. “People still think the Chinese restrict your room to maneuver – there are a lot of clichés about the place. But the fact is that it‘s a totally free market. China is going through a period of incredible upheaval.“

Sandig brought across some of the specialists he needed for his pioneering work in Dalian from Berlin: young engineers from Ber-lin Technical University, all of them Chinese. “They had studied in Germany and had learnt a little bit about the German mentality, which was very helpful for building up the business in China.“

dalian – More than just a seaside industrial city Dalian is a city with a view of the sea, but also with a vision of the future. With more than 6 million inhabitants, over 2 million of them in the four downtown districts, it lies at the southern end of the Liaodong Peninsula between the Yellow Sea and the Gulf of Bo Hai. I ts temperate climate has made Dalian one of China‘s most popular summer resorts. The city ‘s harbor plays an important role for its booming industries and at the same time is home to a major naval base. Investors and visitors from all over the world are made very welcome in Dalian – and they enjoy going there. Jörg Sandig arrived in 2004 together with his family, full of enthusiasm, and has since experienced the coun-try ‘s opening to the Western world. “ The atmosphere was and

Shanghai.

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still is incredibly positive,“ he says. Knorr-Bremse was attracted to Dalian because of its location, and chose Sandig as its local site manager because of his experience with visco-dampers.

“For me and my family, Knorr-Bremse was a great help in prepar-ing for our stay in China. We were given intercultural training, my wife and I attended language courses, and of course we were also helped to find accommodation. Even so, things seemed very exotic in the early days: the whole way of life, the culture, the food, the shops, the traffic. I t all took some getting used to.“

into the wide world and BacKThe Knorr-Bremse International Transfers team provides a con-tact point for expatriates all over the world – not least after they return home. Sandig too was helped to settle in again when he returned to Berlin, as the company helped with his job, moving house, red tape, etc. As a result, he not only came back to Berlin with valuable experience under his belt but also had the impres-sion that everything was just right for him and his family. “I really had a good feeling about returning to Germany. And I was able to bring a lot of positive ideas with me,“ he says. “Production is now running extremely smoothly in China. And the company‘s Chinese experience will also be valuable to Knorr-Bremse at home.“

I n t e r n a t i o n a l T r a n s f e r s

R e p o r t

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ReportThe growth in sales posted in 2007 by Knorr-Bremse demonstrates the positive impact of global trends on the markets for rail vehicle and commercial vehicle systems. Knorr-Bremse’s customer focus and policy of continuously improving its processes has clearly paid dividends. Other factors that will affect the compa-ny’s success in the future include staff recruitment and retention, environmental protection and social responsibility.

Trends

R e p o r t T r e n d s

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EnErgy EfficiEncy Energy-efficient technologies are becoming increasingly impor-tant. Industrial expansion in Asia is combining with shrink-ing global fossil fuel reserves to push up oil prices. At the same time there is growing political and public pressure for climate change to be combated by using fuel-saving technologies and for pollution from fine dust particles to be reduced. As a manufactur-er of systems that use innovative technologies that make efficient and eco-friendly use of resourc-es, Knorr-Bremse is well placed to benefit from this situation.

SafEty Making transportation safer is increasingly an issue in today’s world. The traveling public is forced to cope with crowded conditions, truck drivers have to meet strict delivery dead-lines on increasingly congested roads, and railroad engineers are bound by ever tighter schedules.

At the same time, the emerg-ing economies of the world are showing an increasing willing-ness to invest in safety measures. All of these factors are boosting demand for safety systems from Knorr-Bremse. The company not only provides tried-and-tested braking technologies but is also a market leader in electronic ac-cident avoidance, driver informa-tion and vehicle stability sys-tems. Mechatronic systems for intelligent networking of safety-critical systems are also becom-ing increasingly important.

globalizationWorldwide trade is set to in-crease, boosted in many coun-tries by government deregula-tion measures. China, India and Russia, but also other Asian and Eastern European countries, are rapidly catching up with estab-lished markets. The econom-ic dynamism of the threshold countries is boosting transpor-tation volumes, and this is hav-

R e p o r t T r e n d s

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ing a positive impact on Knorr-Bremse’s business. The quantities of freight carried by road and rail continue to grow through-out the European Union, even in countries with highly developed economies such as Germany.

PoPulation growth and urbanization The world population contin-ues to expand, particularly in Asia and Africa, but also – marginal-ly – in the USA. Although Europe is currently experiencing an over-all minus trend, the urban pop-ulation here is expanding, as in all other regions of the world. Whereas in 1970 one in three people lived in a town or city, the proportion will have doubled by 2030. The pull of the city is stron-gest in Africa and Asia. Particu-larly in China and India, the mo-bile urban middle classes are growing in importance, and both countries continue to invest large sums in their transportation infra-structure.

Above all there is a need to ex-pand rail networks in and around urban centers if rapid traffic growth is not going to result in gridlock. Over the next few years, China alone will be pur-chasing 5,000 new metro cars, 1,000 high-speed trains and 5,000 locomotives. Transporta-tion volumes are increasing as the urban population expands – and there is growing demand for the type of modern braking and on-board systems produced by Knorr-Bremse.

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R e p o r t | R a i l V e h i c l e S y s t e m s M a r k e t s

MarketsThe overall developmenT of rail vehicle markeTs was posiTive during The year un-der review, alThough There were regional differences.

ly replacing their antiquated ve-hicle systems with state-of-the-art technologies offering greater safety and comfort. In this con-text, it is particularly significant that Knorr-Bremse managed to gain a foothold in the Polish mar-ket during 2007. The compa-ny’s first order from Poland was for complete braking systems for eleven multiple units from vehi-cle manufacturer PESA.

Knorr-Bremse also received its first order from the Russian high-speed sector: The company is to supply the new Russian Velaro with doors, braking systems and air-conditioning.

thE aMEricaS In North America, the mass transit market experienced a slight over-all downturn during fiscal 2007, with the freight segment failing to match the high levels achieved the previous year and sales of lo-comotives remaining constant. Knorr-Bremse benefited from the launch of the LEADER locomo-tive engineer assistance system and also from increasing demand

EuroPE 2007 saw strong expansion in the multiple unit and freight car seg-ments and also moderate growth for metros, streetcars and loco-motives. Developments were boosted in particular by the mar-ket in Western Europe, but there was growth in the East as well. Knorr-Bremse benefited from this positive trend and posted sales growth of 11%.

Increasing freight movements, congested roads and higher vol-umes of container traffic through European ports have led to pre-dictions of significant growth in rail transportation in Europe, a trend supported by the progres-sive integration of Europe. If the existing rail network is to be used to its full capacity, speeds, axle loads and train lengths will have to increase, and this will make even greater demands on the safety and environmental perfor-mance of braking systems.

Eastern Europe The expanding economies of Eastern Europe are increasing-

2005 2006 2007

1,400

1,200

1,000

800

600

400

200

0

991

1,174

1,304

Worldwide sales by the Rail Vehicle Systems division in EUR millions

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R e p o r t | R a i l V e h i c l e S y s t e m s M a r k e t s

for newly-developed products such as the EP 60 electro-pneu-matic freight car brake. Increas-ing numbers of these units are currently coming into operation, particularly on long block trains in North America and South Afri-ca. Another product – the CFCB compact freight car brake – helps cut maintenance costs and vehi-cle weight.

While in North America Knorr-Bremse reported a slight 1.5% in-crease in sales in 2007, in South America a further downturn in freight car production led to a 10% drop in sales.

aSia/auStralia China remains the biggest Asian market, with volumes continuing to increase. During the year under review Knorr-Bremse met grow-ing localization requirements by expanding its production facili-ties: In Suzhou, operations were transferred to a newly-built plant, and the four joint ventures set up in 2006 were also further expand-ed. The increasingly technolog-ically sophisticated Indian mar-

ket also picked up, while in Japan sales remained at their previous high level. In Australia, the orders were placed for the Rail-Corp PPP project for which Knorr-Bremse is to supply brakes and doors, as well as maintenance services. The company recorded overall strong sales growth of 85% in the Asia/Australia region during the year under review.

croSS-bordEr SyStEMS As cross-border traffic increases, the issue of standardization and interoperability is becoming in-creasingly relevant. Knorr-Bremse is heavily involved in this devel-opment, for example through its leadership of the European MODBRAKE project, which aims at standardizing future braking systems in the high-speed sector. On January 31, 2007 the Techni-cal Specification on Interoper-ability (TSI) for freight cars came into force, but Knorr-Bremse had been able to supply fully TSI-cer-tified systems and components even before that date. The new generation of TRAXX locomotives

manufactured by Bombardier, for example, is designed for freight and passenger operations in several European countries. Knorr-Bremse supplied these locomo-tives with RZS compact wheel brake calipers, oil-free compres-sors and MBS – the standardized locomotive brake control system for cross-border use in Europe.

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R e p o r t | R a i l V e h i c l e S y s t e m s

Strategic Projectsi n e u r o p e , T w o i m p o r Ta n T s T r aT e g i c d e c i -s i o n s r e l aT e d To co m pa n y s i T e s T h aT w e r e Ta k e n b ac k i n 2006 p r o v e d To h av e b e e n T h e r i g h T d e c i s i o n s i n T h e y e a r u n d e r r e v i e w.

tranSfEr of Production at ifE Since the end of 2006, door sys-tems manufacturer IFE has been operating its two biggest plants on a new basis. The company’s main site in Waidhofen an der Ybbs, Austria, with its extensive engineering and R&D resources, is now functioning as a technol-ogy center. Sales, service and part of the procurement func-tion are also based here. As a re-sult, the total Waidhofen work-force now amounts to some 255 employees.

Production, assembly and the related procurement activities have been completely trans-ferred to the facility in Brno, Czech Republic, boosting the size of the workforce there from 271 to some 390. Production of

aftermarket products now also takes place in Brno, although management of the aftermarket business remains in Waidhofen.

This transfer of production resulted in a reduction of about 100 jobs in Waidhofen, although the company took measures to soften the impact of this down-sizing and virtually all those affected were re-employed else-where. The new division of labor between Waidhofen and Brno has proved successful: Concen-tration of manufacturing activi-ties at one site has generated useful synergies, and orders can now be handled more flexibly.

Waidhofen still has all the resources at its disposal that it needs to provide competent support to the Czech site. The

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S t r a t e g i c P r o j e c t s

reallocation of tasks has helped the company to cut costs and at the same time maintain its highly successful and innova-tive engineering department in Waidhofen.

Mödling tEchnology cEntEr The new Technology Center in Mödling, near Vienna, started up operations early in 2006. Using local resources, contacts and market access, its task is to achieve rapid and efficient implementation of complex projects in close liaison with cus-tomers, while at the same time maintaining the highest stan-dards of quality.

The main focus of the Mödling Technology Center was origi-nally on five projects related to

vehicle equipment and infra-structure, with product devel-opment and sales tasks being carried out in collaboration with Knorr-Bremse Group subsidiar-ies and the company’s Munich headquarters. The success of its operations can be seen from the remarkable international sales figures it has achieved.

The Technology Center was subsequently charged with responsibility for three further product lines: At the end of 2007, it took on projects related to sanding systems, flange oilers, air-conditioning systems, toilets, windscreen wiper and washer systems, safety technology, fare management and dynamic pas-senger information systems.

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Success Storieswhen iT comes To meeTing demanding challen-ges, leading manufacTurers and operaTors know They can rely on Their parTnership wiTh knorr-bremse. here are some examples:

Talgo has a long history of close cooperation with brake manufacturer Frenos and this was successfully continued when Frenos became the Span-ish brake subsidiary of Knorr-Bremse. Recent commissions include the 2007 order to sup-ply the brake equipment for 30 Type S112 high-speed trains.

SncfThe French state railroad com-pany Société Nationale des Chemins de Fer Français (SNCF) carries 632 million passengers every year in the Paris region alone. Rail vehicles used in this densely populated area have to have extremely robust slid-ing doors that open and close rapidly, offer adequate disabled access and have good noise in-sulation. The doors also have to operate on internal rails so that

talgoRail vehicle manufacturer Talgo is based in Madrid and famous for its ultra-comfortable articu-lated sets and hotel trains based on a special design principle: To reduce the overall weight of the sets and permit the conve-nience of low-floor access, the cars do not run on bogies but are suspended on wheelsets installed between the cars. While one end of the car hangs from its own wheelset, the other end hangs from the adjacent car.

The wheels run parallel to the rails at all times, making for smooth, comfortable running on bends. Another factor that re-duces the weight is the integral lightweight aluminum design, made possible by the fact that Talgo cars are shorter than the cars in other comparable sets.

train surfers have no possibility of holding on to the outside.

Having convinced SNCF that it can meet these requirements, IFE is now equipping 172 mass transit trains manufactured by Bombardier with a total of 2,642 access systems and 3,330 step systems – the biggest single order ever received by this Knorr-Bremse subsidiary. The contract includes an op-tion on 200 further trains.

traXXBombardier ’s TRAXX locomotive platform is becoming increas-ingly popular in Europe, with well over 1,000 locomotives sold since 2003. The TRAXX platform is particularly economical, main-tenance-friendly and flexible thanks to its standardized layout and many standard components


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S u c c e s s S t o r i e s

that cover a wider range of dif-ferent locomotive types than any other platform.

Customers can choose between various different drive systems and country-specific packages ranging from AC (alternating current), MS (multi-system) and DC (direct current) to DE (diesel- electric). All vehicles are fitted with GPS tracking systems, remote diagnostics and video cameras and are also capable of operating with the forthcom-ing European Train Control Sys-tem ETCS.

Knorr-Bremse has supplied the TRAXX platform with eco-friendly, low-maintenance oil-free compressors, RZS com-pact wheel brake calipers and MBS Europe – the modular brake control system for Europe. Like

TRAXX itself, MBS Europe com-bines the advantages of stan-dardization with maximum flex-ibility.

boMbardiErFor the first time in its history, Knorr-Bremse has signed a frame-work agreement with a single customer covering seven proj-ects involving a range of different products. As part of a contract worth more than EUR 300 million, Bombardier Transportation is to order braking systems for region-al and suburban trains in France, multiple units in Germany, subur-ban trains in London and projects in South Africa, the Netherlands and Switzerland. It is also pur-chasing door systems for four of these projects. If all the options are included, Knorr-Bremse will be supplying systems for more than 1,100 trains and 140 inter-

mediate cars for multiple units. Most the systems will be manu-factured in Berlin, Budapest and Brno (Czech Republic), with some local content coming from Reims (France). The company’s sites in Mödling (Austria), Munich, Getafe (Spain) and Florence will also be directly or indirectly involved. The project will run until 2014, or lon-ger if the options are taken up.

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Productsknorr-bremse rail vehicle sysTems is The leading developer and producer of brak-ing sysTems for mass TransiT and mainline Trains ranging from urban sysTems via freighT Trains To high-speed Trains. the com-pany also produces on-board systems for rail vehicles such as doors, air-conditioning, toilets and passenger information systems. here is a selection of successful products in 2007:

wEStinghouSE PlatforM ScrEEn doorS (wPSd) WPSD systems provide a bar-r ier between passengers and train and track . This means greatly enhanced passenger safety as well as cleaner and quieter platforms. The use of WPSD door systems also al lows air conditioning of platforms. Platform screen doors or gates open and close in harmony with the train doors, defining the boarding area of the train for passengers and al lowing operators to maintain sched-ules. Demand for WPSD sys-

ifE door SyStEMSProjects such as the Siemens Velaro high-speed train for China and Russia and the new Bombardier urban trains for the Paris region demonstrate IFE’s worldwide reputation for sup-plying efficient, reliable door systems for sophisticated mass transit and mainline train appli-cations. IFE is continually im-proving the reliability, durability and ease of maintenance of its door systems. Every operating situation makes different de-mands, and the company flexibly adapts its modular components to customer requirements.

tems is growing, with al l new-build metros around the world specifying platform screen systems and many being retro-f itted to existing metros.

Eddy currEnt brakEGrowth in the high-speed sec-tor in many countr ies in 2007 resulted in increased demand for the eddy current brake. Unlike other brak ing systems, this operates without fr ic-t ion between wheel and track , achieving the brak ing effect through magnetic induction in the track itself. The brake is par ticular ly effective at


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P r o d u c t s

high speeds, operates noise-lessly and does not emit any f ine dust par ticles. Because it can ease the load on other brak ing systems that involve wear components, payback is achieved within a few years.

ElEctroMagnEtic track brakEThe attraction of the electromagnetic track brake was increased in 2007 by the introduction of a new magnet design with sintered pole shoes that makes maintenance even easier than before. An innova-tive electronic system reduces

the amount of testing required and facilitates diagnostics. And an integrated feedback system enables the locomotive engineer to monitor correct lowering of the magnets without the help of a second person outside the vehicle. Orders have already been received from Stadler and Siemens together with a large number of enquiries.

Sanding In poor weather conditions, sanding systems improve adhe-sion between the wheels and the track, ensuring safe, eco-nomical and ecological vehicle

operation, particularly for urban transportation systems. Knorr-Bremse’s new traction and brake management system reduces the amount of fine dust gener-ated, as the system accurately delivers the precise quantity of sand required for safe start-off and braking. Further options include drying and loosening of the sand in the sand box, sand pipe heating, after-blow and blow-out functions and filling level control and display.

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Serviceduring The year under review, knorr-bremse furTher expanded and improved iTs service porTfolio. this included the introduction of a custom-ized service center software application and a new con-cept for the management of overhaul projects.

This concept has proved an eco-nomical way of servicing freight car components, thanks to the fact that the Budapest Service Center is able to carry out the overhaul work to above-average quality standards and at high-ly competitive prices. The spe-cialists at Knorr-Bremse‘s Hun-garian site are highly qualified and have state-of-the-art equip-ment at their disposal. As a re-sult, their work is increasingly in demand – more than three times as many valves were refurbished in Hungary in 2007 than in the previous year.

This combination of the new lo-gistics concept with the advan-tages offered by the Budapest site has proved extremely pop-ular with customers. Following

cuStoMEr-friEndly containEr concEPtThe market for overhauling brake components for freight cars in Europe is extremely com-petitive, and there is strong pres-sure on prices. In 2007, Knorr-Bremse succeeded in expanding its share of the overhaul busi-ness by approximately 25% thanks largely to a new market-ing concept.

The company has set up a logis-tics service that regularly deliv-ers containers with OEM-quality refurbished control valves direct-ly to the customer‘s repair shop. The customer removes the com-ponents it needs, replaces them with the same number of parts requiring overhaul, and returns the container to Knorr-Bremse.

selective piloting in Germany, the service is now being offered throughout Europe. nEw SErvicE Soft warE aPPlication Since 2007, three further service centers in England, Australia and China have been working with a new software package. The application, which is now used by a total of ten service units in Asia, Europe and Amer-ica, is helping the company achieve its ambitious aftermar-ket customer satisfaction goals.

The application has consider-ably improved communication with customers. As soon as parts or components are re-ceived by the service centers, the customer receives confirma-


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tion by e-mail, fax or letter. Sup-port for materials, order and capacity planning has also been optimized. By linking up to cen-tral technical databases, engi-neers can access maintenance instructions that ensure glob-al adherence to uniform quality standards. The various different forms of support provided by the system help reduce repair shop throughput times and en-hance the schedule effective-ness and quality of the service offered.

Introduction of the system is also an important step toward worldwide standardization of the aftermarket IT landscape, which has now been seamless-ly integrated into the Knorr-Bremse Group’s SAP R/3 system,

considerably simplifying cross-border communication and co-operation.

The experience of the local ser-vice centers confirms that the new software has significantly improved performance, custom-er-friendliness and the transpar-ency of service operations.

Budapest Chain Bridge.

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Research and Developmentas The russian economy expands, The coun-Try is increasingly invesTing in iTs rail infra-sTrucTure. knorr-bremse has the necessary expertise to develop products suited to the particular demands made on them.

PrEParing for low tEMPEraturESRail systems and components in Russia have to cope with ex-treme weather conditions. Con-ventional systems designed for operation in temperatures down to -40°C are inadequate – in the Siberian winter the thermometer can sink to -60°C. At such low temperatures, many materials undergo changes: Oils and lubri-cants become viscous, and met-al and rubber components be-come brittle and can fracture under strain. In such conditions, conventional electronic systems cannot operate reliably with-out special measures to protect them.

In addition to extremely low temperatures in some parts of the country, Russia also has sub-tropical regions. And tempera-tures do not just fluctuate be-tween climate zones – in Siberia, ice-covered freight trains oper-ating in winter temperatures of -60°C are rapidly thawed in sheds heated up to 80°C. This is a temperature difference that many conventional materials would not withstand.

high-PErforMancE cold tESt facilitiESTo gain access to the Russian market it is therefore essential to carr y out exhaustive mate-r ials testing under extreme cl i-


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matic conditions. Organizing the necessar y init ial and en-durance testing in the f ield would be inordinately expen-sive, so the R&D depar tment has had to construct cold test faci l it ies that simulate the con-ditions of a Russian winter as real ist ical ly as possible.

In Januar y 2007 a second, 40kW cold test chamber that is considerably more power ful than the existing one was put into ser vice at the Munich site and used to test a wide range of systems and components for the Russian market. The tests were designed to meet the requirements of the Rus-

sian authorit ies and provide a basis for Russian cer tif ication.

thE firSt coMPrESSor cErtifiEd for ruSSia The first product for the Russian railways that was tested and subsequently certified in the facility was the VV 180-T oil-free compressor. Cold testing was particularly important in this case: Unlike conventional com-pressors, which have a pre-heat-ing system, oil-free compressors have to be able to cope with cold starts.

Thus the ground was prepared for gradual adaptation of com-ponents to meet the specific

UIC test rig in Munich for simulating braking of complete trainsets.

requirements of rail vehicles in Russia, while at the same time fulfilling the usual rigorous Knorr-Bremse quality standards.

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R e p o r t | C o m m e r c i a l V e h i c l e S y s t e m s

MarketsThe year under review broughT a sTrong overall increase in demand for commercial vehicles, parTicularly in The new eu member sTaTes of easTern europe buT also The cis sTaTes and in china. the north american market showed a sharp decline.

EuroPE The European commercial ve-hicle market strengthened sig-nificantly in 2007, driven in particular by high levels of de-mand in the new EU member states and the CIS states. With the global economy continuing to expand, the medium-term prospects for the European truck market remain good.

Knorr-Bremse‘s European com-panies succeeded in boosting sales by 12%, largely compen-sating for the decline in the USA.

north aMErica As expected, the introduction of stricter exhaust emission stan-dards in the USA on January 1, 2007 caused a sharp decline of about 40% in commercial ve-hicle production. Many logis-tics companies had stocked up on vehicles immediately prior to this date in a bid to avoid addi-tional costs. Bendix was well pre-pared for this development and adjusted its capacity accordingly, but the company’s sales never-theless declined by almost 30%. The US truck market is expect-ed to recover over the next few years.

Worldwide sales by the Commercial Vehicle Systems division in EUR millions

2,200

2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0

2005 2006 2007

1,773

1,968 1,966

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M a r k e t s

South aMErica A significant rise in South Amer-ican vehicle production (28%) was driven mainly by higher de-mand from the agricultural sec-tor and stronger exports. Knorr-Bremse increased sales in the region by some 36%.

aSia/auStralia India and China continued to invest considerable sums in expanding their road networks to cope with the sharp increase in traffic volumes triggered by rapid economic growth. The high demand for commercial ve-hicles 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 origi-nal equipment manufacturers on export markets has brought with it a heightened awareness of quality issues. For Knorr-Bremse, this trend has been particularly noticeable in the compressor segment: During 2007 an order for 100,000 compressors was re-ceived from Dongfeng/Cummins.

Buoyant sales in the region (+25%) were driven above all by Japan, India and China. In China, Knorr-Bremse considerably

expanded its business in Shang-hai and Dalian, and in Japan, production at the Sakado plant, which opened in 2006, contin-ued to rise.

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Strategic Projects2007 once again saw The launch of a large number of projecTs aimed aT furTher improv-ing producTion and making the most of market op-portunities worldwide.

ing Green, Kentucky. Until then, drum brakes had been manufac-tured in Glasgow in a plant be-longing to joint venture partner Dana, and disc brakes had been produced in Frankfort. Merg-ing the two operations generat-ed considerable synergies – and Bowling Green also offers bet-ter transportation links. The lay-out of the new plant has been planned to offer improved ma-terial flows, shorter throughput times and optimum use of avail-able 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.

global Sourcing EStabliShEd in aSiaChina and other Asian coun-tr ies are becoming increasing-

haSSE & wrEdE ac-quirES StE Schwing-ungS-tEchnik gMbhEarly in 2007, Hasse & Wrede took over STE Schwingungs-Technik 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 vol-ume 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.

nEw Plant for bEndiX SPicErIn April 2007, the U.S. joint ven-ture Bendix Spicer Foundation Brake LLC started the process of transferring wheel brake pro-duction from its two sites in Glasgow and Frankfort to Bowl-


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S t r a t e g i c P r o j e c t s

ly important as locations for commercial vehicle industr y suppliers. In response, Knorr-Bremse has set up a global sourcing team for China, Tai-wan, Vietnam, Korea and Thai-land that greatly expanded its activit ies in 2007. Par t of the team is based in Shanghai , with responsibil ity for exports, and the other par t in Dalian, where it focuses on purchas-ing for local production. A sim-i lar team already exists in In-dia.

The global sourcing team works in close collaboration with Knorr-Bremse’s European, American and Asian sites. The response from customers who have experienced the team’s activit ies at local level has been extremely posit ive.

Together with the relevant Knorr-Bremse par tner, the sourcing team selects suppli-ers, manages purchasing, qual-ity and logistics and is re -sponsible for auditing local suppliers and organizing ap-propriate training measures. Al l its activit ies adhere to the high international standards laid down by the Knorr-Bremse Truck Management System.

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Success Storiesevery company sTands or falls by iTs abiliTy To saTisfy cusTomer needs. customer surveys and the various awards won by the company in 2007 confirm the strong reputation of the knorr-bremse brand in the commercial vehicle sector. knorr-bremse‘s activities in the drivetrain and damper segments are also increasing-ly appreciated by customers.

of AS-Tronic automatic trans-missions produced by market leaders ZF. The feasibility of this highly innovative concept was demonstrated in 2007, and an interdisciplinary team from Knorr-Bremse is currently de-veloping the electronic, mecha-tronic, pneumatic and mechani-cal components. Knorr-Bremse’s exceptional systems compe-tence undoubtedly played a role in winning the order from ZF.

haSSE & wrEdE EXPandS MarkEt PoSitionDuring the past year, Hasse & Wrede succeeded in signifi-cantly expanding its share of the market for passenger car visco-dampers. The company, which is headquartered in Berlin, started to manufacture dampers for premium car engines back in 1999, but since 2007 has also

autoMatic tranSMiS- SionS gain ground The new Euro 6 emissions standard for Europe and EPA10 for North America, Mexico and Australia have prompted major commercial vehicle manufactur-ers to start developing a new generation of enhanced drive-trains. In this context, automatic transmissions are becoming increasingly important, as they reduce consumption, improve performance, prolong the life of clutch, shafts and joints, and ease the strain on the driver.

In recent years Knorr-Bremse has been looking beyond its tradi-tional business segments and engaging intensively in drive-train development work. The company is now the exclusive supplier of a mechatronic actua-tor unit for the new generation

been supplying a much larger segment – the new generation of BMW four- and six-cylinder diesel engines. This has enabled the company to enhance its competitiveness vis-à-vis es-tablished damper suppliers in the passenger car segment.

cuStoMEr SatiSfaction rEachES nEw hEightS A central focus of the manage-ment system operated by Knorr-Bremse Commercial Vehicle Systems has always been the evaluation of customer satisfac-tion. In 2007 a detailed customer survey was once again carried out – by Knorr-Bremse itself for the OEM market and aftermarket outside Germany, Austria and Switzerland, and by the Deutsche Gesellschaft für Qualität (DGQ) for the German-speaking coun-


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S u c c e s s S t o r i e s

tries. For the first time ever the survey also covered trailer customers.

Independently of each other, both Knorr-Bremse and the DGQ found there had been a highly positive trend since the first sur-veys started back in 2000, with overall customer satisfaction improving by eight percentage points worldwide. Responses to questions on quality were particularly gratifying – a clear indication that the company’s internal measures are having an impact – but Knorr-Bremse has also considerably improved its performance in terms of inno-vative capability, expertise and customer focus.

knorr-brEMSE winS tiP PartnEr awardOn January 16, 2007 Knorr-Bremse was honored with a Partner Award for joint projects by leasing company TIP Trailer Services Europe, a subsidiary of General Electric. The award was presented during the European Leadership Meet-ing in Sotogrande, Spain.

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in 2007, The commercial vehicle sysTems division successfully conTinued iTs policy of developing, manufacturing and marketing braking systems and technologies that are either globally applicable or pre-cisely tailored to specific regional requirements. local production resources for supplying regional markets were expanded. in growth markets, knorr-bremse adopted a new approach to helping vehicle manufacturers introduce new technologies for their vehicle platforms: in addition to supplying complete braking systems, the company now also offers to design the piping layout and even supply the piping itself. 2007 also saw the company successfully develop innovative products to minimize environmental impact and reduce resource consumption, pointing the way forward.

Products

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P r o d u c t s

diSc brakESSeries production of Knorr-Bremse disc brakes started in 1996, and they continue to be popular with customers world-wide for a broad range of ap-plications. They are particularly valued for their low-wear prop-erties, short braking distance, high quality and robust design. Demand for these products remains buoyant, topping the 15 mill ion mark in Europe. The production facilities set up in 2004 in São Paulo, Brazil and the Bendix Spicer Foundation Brake joint venture, which has been producing these brakes for North America since 2005, also posted strong per formanc-es. Since April 2007, Bendix Spicer has also been supplying a special equipment package for Category 8 tractor units comprising aluminum wheel

hubs, splined discs and ADB22X disc brakes – a special adap-tation of the European disc brake for the North American market. In combination with aluminum wheel hubs, these offer considerable weight sav-ings and have helped estab-lish the splined brake disc on the North American market.

This new generation of ADB22X brakes is Bendix Spicer ’s re-sponse to calls from the U.S. National Highway Traffic Safety Administration (NHTSA) for shorter permissible braking dis-tances for commercial vehicles. Together with Bendix, the joint venture is focusing its prod-uct development and testing activities on achieving a re-duction of 30% – the most am-bitious target within the range considered by the NHTSA.

ElEctronic Stability PrograM The ESP electronic stability program that Knorr-Bremse has been manufacturing since 2003 in the form of its EBS electronic braking system has proved a huge international success. EBS has now replaced ABS as the preferred electronic brak-ing system for heavy trucks in Western Europe. In 2007, production of EBS at Knorr-Bremse’s plant in Aldersbach/Lower Bavaria topped the one million mark .

ESP has also proved highly suc-cessful in the USA, where sales have increased in conjunction with the Bendix ABS6 Advanced system. This is currently the only ABS-based electronic stability program in the world that enables extreme driving

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situations such as emergency braking or sudden swerving to be brought under control, even on wet, snow-covered or icy roads.

This globally applicable ABS system for trucks is also highly popular in Europe, particularly among Eastern European manufacturers. The total number of ABS systems pro-duced in Aldersbach by the end of 2007 amounted to more than 3 mill ion.

ElEctronic air trEatMEnt The electronic air treatment unit (EAC) is suitable for a wide vari-ety of different vehicle config-urations. This highly integrated

mechatronic module generates and regulates the vehicle’s com-pressed air supply on the basis of current driving status. The lat-est version also offers extend-ed diagnostic functions to pro-vide warning of critical system failures.

local Production In order to offer vehicle manu-facturers high-quality, locally-based expertise, Knorr-Bremse is increasingly establishing regional manufacturing facilities to serve local markets. At the end of 2007, Hasse & Wrede became the first manufacturer of visco-dampers to set up production in Brazil – at the local Knorr-Bremse plant. Since November of last year, the Brazil plant has also been produc-

ing the two-cylinder compressor. Regionalization of further prod-ucts is seen by Knorr-Bremse as a way of expanding its customer base: The plan is to offer a full range of air supply and treatment products, including one- and two-cylinder compressors, air dryers, air treatment units (APUs) and multi-circuit protection valves.

innovationS to ProtEct thE Environ-MEnt and conSErvE rESourcES Commercial vehicles use oil-lu-bricated 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


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cylinder casing was introduced that reduces this environmen-tal pollution to less than one-fifth of the customary level. The second generation of EAC electronic air treatment system also uses intelligent compres-sor control and regeneration to achieve greater energy savings.

The new model of rear axle disc brake – the SN7-25 – is consider-ably 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 10%, and further savings in weight and materials are currently in the pipeline.

Knorr-Bremse Japan has devel-oped a promising solution for regenerating diesel particulate fi lters and reducing emissions. This takes the form of a spe-cial valve that holds back the exhaust gases, thereby ensur-ing that the right temperature for soot combustion is reached. Suitable for both passenger cars and commercial vehicles, this technological solution has considerable market poten-tial and has already made a breakthrough in Japan, where emissions legislation is particu-larly strict. The introduction of tighter regulations in Europe and the USA could well result in it becoming established there too.

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Service The large number of differenT producTs, sysTems and Technologies currenTly used in The european markeT has led To an increasing diversiTy of service concepTs. knorr-bremse‘s approach is to create product platforms and structure its services according to the lifecycle phase of the products concerned.

completed and the relevant criteria reliably met. When such components are serviced, the replacement product also has to be calibrated – which can be done using the NEO System Diagnostics platform. A returns system ensures that used com-ponents do not find their way into the market, as there could be risks involved if they have not been expertly repaired.

Standardization of Product PortfolioS A central focus of Knorr-Bremse’s strategy is on standardization of older, diverse product portfolios with wide market coverage, the aim being to enhance customer benefit by improving parts avail-ability, reducing capital tied up in distribution, simplifying tech-nical handling processes and reducing repair times in service centers and repair shops. Follow-ing standardization of actuator units, last year saw the market launch of a restructured air treat-

SErvicE StratEgiES for ElEctro-PnEuMatic ProductS Products and systems based on electro-pneumatic principles call for a new approach to af-termarket service solutions, as conventional service kits are less suitable for ensuring appropriate and efficient servicing of what are usually safety-critical compo-nents. As a result, series-equiva-lent replacement modules are now being offered for electro-pneumatic products on a plug-and-play basis, with diagnostics and used parts management playing an important supporting role. For example, the electronic clutch activator, which was launched on the market back in 2000 and is a key element in the increasingly popular automatic transmissions, is only available on the aftermarket as a com-plete component, as it is during the assembly process that the necessary safety tests can be carried out, the documentation

ment (APU) program, brake cyl-inders for disk brake applications and ABS pressure control valves.

dEvEloPing a coMPrEhEnSivE SErvicE organizationIn addition to product-related aftermarket concepts, tar-geted technical support for customers is becoming more and more important in view of the increasing complexity and heterogeneity of Knorr-Bremse systems and products. The company is currently channel-ing its wide-ranging expertise into a special technical service organization that will offer customers advice on systems and diagnostics, training ses-sions and a technical hotline. By networking its technological know-how, the company can offer customers competent, targeted and efficient support. The new structures were intro-duced in the German market in 2007 and are now being


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rolled out successively in the Group’s European companies.

Strong EXPanSion of SErvicE nEt work in EaStErn EuroPE The increasing number of West-ern European commercial vehi-cles on Eastern European roads, together with closer links with local manufacturers in the re-gion, means there is likely to be a sharp rise in demand for after-market services over the next few years. Knorr-Bremse is re-sponding to this by comprehen-sively expanding its regional service network, which consists of distributors and repair shops mainly in the Eastern European EU member states as well as in Russia and Ukraine. The idea is that local service partners should in future be provided with technical support based on detailed knowledge of the di-verse fleet of locally-built, West-ern European, North American and Asian vehicles currently

operating in Eastern Europe. The support to be provided includes technical documentation, local training courses and an expert technical hotline.

Knorr-Bremse Hungary is playing an important role in develop-ing the Eastern European service network, as it is the central hub for spare parts delivery and in-stallation in the region. The cus-tomary European requirement profiles are applied when poten-tial partners for distributors and repair shops are being identi-fied, with Knorr-Bremse putting the emphasis on standardized profiles so as to offer custom-ers reliable aftermarket servic-es. Internal contacts within the service network are encouraged – through joint training or ex-changes of experience – in order to expand and strengthen the specialist knowledge base.

SuccESSful diStribu-torS in north aMErica rEwardEd On April 1, 2007, Bendix intro-duced its new “Premier Dis-tributor“ partnership program. This differs from those of other manufacturers in the American truck industry in that it evaluates the performance of all distribu-tors in six business-relevant categories, irrespective of their sales volume.

Distributors are divided into four classes: Bronze, Silver, Gold and Platinum. With this program, which is based on annual target agreements between the part-ners, Bendix is aiming to intensi-fy cooperation with its partners. During the year under review, 22 distributors gained “Platinum” status.

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Research and Developmentknorr-bremse commercial vehicle sysTems operaTes a highly efficienT global neTwork of research and developmenT resources. the company is currently focusing on expanding budapest as an r&d center.

processes and ensuring a clear distribution of responsibilities for international projects. A new, globally standardized de-velopment process and project management system ensures that engineers can work simul-taneously on the same develop-ment project at several different sites. The high quality standards laid down by Knorr-Bremse are adhered to in all cases.

When individual customers or suppliers are involved in the development work, contact is established by the nearest company site, which has access to all the necessary expertise through the Knorr-Bremse global development network.

EXPanding dEvEloP-MEnt rESourcESIn order to ensure future growth, the Commercial Vehicle Systems division is significantly

dEvEloPMEnt nEt work Development activities in the commercial vehicle segment are based on the Centers of Competence (CoCs), in which Knorr-Bremse concentrates all activities related to particular product groups. It is these cen-ters that decide which projects should be launched and which sites are to be involved in the development work. Their deci-sions are made on the basis of a comprehensive study of market demand, technical feasibility and available development capacity. All those involved use methods and tools that guaran-tee a consistently high level of collaboration.

The company‘s worldwide distribution of development resources has proved to be advantageous in establishing precisely-defined development

expanding its development capabilities, launching new initiatives aimed at further process improvement. The number of employees involved in development tasks has also been increased on the basis of existing local structures.

EXPanSion of budaPESt aS a dEvEloPMEnt cEntEr Over the past twelve years, Budapest has proved an excel-lent location for research and development activities, with highly qualified specialists avail-able at reasonable cost on the local labor market.

In this favorable environment, the existing development cen-ter is being expanded to enable a consistent focus on preparing new truck platforms for series production. Staffing in Buda-pest is being boosted by almost


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100 new engineers, and the re-sources already available for de-veloping innovative electronic systems are to be supplement-ed with additional capacity for design, testing and technical calculations.

The main customers of the de-velopment center will remain the Electronic Systems and Air Supply and Treatment CoCs, but the Hungarian engineers will also be working on products from other segments, including compressors, drum brakes, vi-bration dampers and systems design.

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Knorr ExcellenceiT goes wiThouT saying ThaT safeTy is The Top prioriTy for knorr-bremse as a manufacTur-er of safeTy-criTical sysTems. Excellent systems and processes are essential if the group is to reinforce its outstanding technical and market position. knorr-bremse welcomes this responsibility as an opportunity and is linking all its previous and new process optimiza-tion initiatives within the group-wide knorr Excellence (kE) system. in the final resort, excellence in all process-es means outstanding performance for customers.

taking thE bESt aS a yardStick In the past, the efforts made to achieve best-in-class processes already laid the foundations for the positive development of Knorr-Bremse. This was con-firmed by successful participa-tion in international assessments such as the EFQM award in Europe. Knorr Excellence not only consistently continues this approach but also takes it a step further.

An analysis of the criteria used in these assessments showed that there was still some scope for improvement in product devel-opment and supply chain man-

agement processes. The COPE (Competence in Product Engi-neering) and SCE (Supply Chain Excellence) initiatives were therefore launched precisely to strengthen these processes.

SuPPly chain EXcEllEncESuccessively, all the Group‘s sites will participate in the Sup-ply Chain Excellence (SCE) pro-gram launched in July 2007. This program is targeted at opti-mizing the entire supply chain from the supplier through the various production stages at Knorr-Bremse to the delivery of products to the customer. SCE will ensure a further significant

improvement in service in all sales channels, especially in the areas of delivery reliability, de-livery quality and delivery times. Optimization will not only cover processes at the sites but also interaction between processes. Methods and processes will be standardized and geared to the SAP software. Topics covered by the program include design pro-cesses, service levels and inven-tory management. The Develop-ment, Purchasing, Production, Sales and Financial Controlling departments coordinate their plans regularly and adapt them to customers‘ requirements. Sup-pliers are also integrated and can adapt rapidly and flexibly to

R e p o r t | G r o u p

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the current demand profile of Knorr-Bremse and its customers thanks to efficient communica-tion structures.

coMPEtEncE in Product EnginEEringThe Competence in Product En-gineering (COPE) program aims to standardize product develop-ment processes in the Group‘s two divisions. The new joint pro-gram incorporates project man-agement mechanisms ensuring identical processes throughout the Group‘s companies. Interfac-es to all the disciplines involved in a development project are in-tegrated in a clear and transpar-ent way.

An analysis of the Rail Vehicle Systems division indicated poten-tial for improvements in product and systems engineering as well as with regard to the incorpora-tion of customer requirements and customer interfaces in proj-ects. Clear plans of action were drawn up in cooperation with IT. The activities cover sales and systems for project engineering, product engineering in the Cen-ters of Competence (CoCs) and business segments, and employee training for systems engineering. In this way, the development departments can make a key con-tribution to enhanced customer satisfaction in the form of zero-defect products.

zEro dEfEct viSionOne of the key elements of KE is the zero defect philosophy. The aim is to improve all relevant processes in such a way that any defects are detected immediate-ly as they arise and eliminated. As a new Group-wide objective, “zero defects“ gives Knorr Excel-lence a strategic orientation that will secure a sustained and in-creasing competitive edge.

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knorr-brEMSE Production SyStEMIn the production sector, the zero defect objective is pursued by applying the tried and tested methods of the Knorr-Bremse Production System (KPS). For example, a detailed process FMEA (Failure Mode and Effects Analy-sis) is prepared as part of preven-tive quality assurance. Any risks which have been identified are then eliminated or at least mini-mized, preferably by redesigning the process or by adopting Poka-Yoke solutions. Where this is not possible, 100 percent testing is strictly applied with the aim of en-suring that no defective product can be delivered to the customer. Any deficiencies which are identi-fied are analyzed as soon as pos-sible by interdisciplinary teams to determine the cause, which is then eliminated to prevent a recurrence of the problem.

SuPPliEr ManagEMEnt A comprehensive Global Purchas-ing Excellence program (GPE) has been launched for supplier man-agement. Under the program, suppliers are selected and con-tinuously appraised on the basis

of clear criteria. Targeted support is given to high-performance partners. This program takes up Knorr-Bremse‘s tradition of suc-cessful supplier management. For example, in the Rail Vehicle Systems division, the Group has achieved an 85% improvement in the quality of products delivered by suppliers over the past few years. The consistent further de-velopment of processes, methods and resources will lead to contin-uous efficiency and quality im-provements in the future.

quality firSt Quality First includes a raft of measures in the fields of man-agement, human resources, de-sign, suppliers, production and customers with a view to achiev-ing the zero defect objective. These measures form part of a number of Group-wide initia-tives under the overall umbrella of Knorr Excellence.

quality first Maturity ModelIn the Commercial Vehicle Sys-tems division, the Quality First initiative was supplemented by the Quality First Maturity Mod-el in 2007. This model defines a

zero defect strategy with mea-sures implemented at the vari-ous sites. Quality First Maturity replaces Business Excellence as-sessment using the model of the European Foundation for Qual-ity Management (EFQM). The high quality and safety stan-dards already achieved by Knorr-Bremse in connection with this assessment are confirmed by the Group’s successful participation in the European Business Excel-lence Award over the past ten years. In the second half of 2007, a number of the Group‘s Euro-pean sites were assessed for the first time using the new model. At all the sites investigated, the results confirmed the high lev-el of maturity in converting cus-tomer requirements into prod-ucts that are safe and reliable. In 2008, this model is to be applied to all sites. In China and India, certification to TS 16949 will lay the foundations.

Despite the boom in the com-mercial vehicle sector and the resulting high capacity utiliza-tion at the Group‘s plants, the Commercial Vehicle Systems di-vision achieved a significant fur-ther improvement in its quality

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indicators in the year under re-view. One of the key factors in this achievement was a quali-ty initiative for all the European sites which had been introduced in 2005. Extensive measures were taken to optimize quality and product safety and verified by interdepartmental audits.

capability Maturity Model integration The Electronic Systems Centre of Competence (CoC) of the Com-mercial Vehicle Systems divi-sion has based its development work on software-intensive prod-ucts and systems on the demand-ing Capability Maturity Model In-tegration (CMMI) as part of the Quality First program and has re-defined and organized its pro-

cesses on this basis since 2005. The process maturity model pro-vides guidelines for process im-provements, makes best-prac-tice solutions available and allows comparative assessment of de-velopments at Knorr-Bremse. The transparent processes achieved throughout the Group also en-hance customer confidence. In the year under review, the current status was thoroughly analyzed during a four-week investigation. This confirmed that the Electronic Systems CoC can meet the prod-uct liability requirements of IEC standard 61508 for safety-critical electrical and electronic systems.

iriS auditing and certification standard An effective quality manage-

ment system was already in place within the Rail Vehicle Systems division before Knorr Excellence was introduced. Based on the internal Rail Excellence manage-ment system REX, all processes were thoroughly optimized by means of the various business excellence programs, giving comprehensive consideration to customer requirements. This laid excellent foundations for the introduction of IRIS, the new in-ternational auditing and certifica-tion standard for the rail industry, developed by UNIFE (the Union of the European Railway Indus-tries) on the basis of a maturity model. IRIS takes up the require-ments of ISO standard 9001 and adds rail-specific requirements in areas such as project, design


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and change management. The pilot certification of the division‘s Munich headquarters, which had been involved in the drafting of the standard, was completed in December 2006. Worldwide intro-duction of the standard started in 2007. In the year under review, five companies were certified and eight further companies success-fully completed the preparatory stage.

complaint managementKnorr-Bremse welcomes all feed-back from customers, whether positive or negative, as an oppor-tunity to secure further improve-ments in product and process quality. This is why the Rail Vehi-cle Systems Division, for exam-ple, not only offers customers rap-


fore makes a key contribution to achieving Knorr-Bremse‘s am-bitious target of only supplying products with zero defects to cus-tomers.

changEovEr to SaP with ProgrESS The global growth of the Commer-cial Vehicle Systems division and the limited functionality of the planning system installed in Europe were the reasons that led to the decision, taken as long ago as 2004, to har-monize business processes world-wide and to implement them on a joint planning platform. In 2007, the ERP systems of German sites within the Commercial Vehicle Systems di-vision and Bendix of North America, with a total of 1,800 users, were

id remedial action in response to complaints but investigates each complaint systematically in a con-tinuous “lessons learned“ process, to determine the cause of the problem and any potential for op-timization. In the process, all cus-tomer complaints worldwide are recorded and processed using the SAP system. The resultant exten-sive database not only permits the processing of the complaints themselves but also enables the overarching main problem ar-eas to be identified and appro-priate product improvements ef-fected. This systematic approach is extremely effective, a fact that is confirmed by the positive feed-back received from major cus-tomers such as Alstom Transport. Complaint management there-

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changed over to SAP. The migra-tions, which were precisely planned and completed with considerable commitment on the part of the employees concerned, are part of PROGRESS, the largest optimization program to date in the history of Knorr-Bremse. By mid 2010, all of the Group‘s other European sites and companies will be working with SAP, too. PROGRESS is there-fore an essential prerequisite for the Supply Chain Excellence (SCE) program. Knorr-Bremse is one of the first corporate groups to undertake such a complex harmonization of its business processes across so many companies and countries. The sys-tem covers all processes in the areas of finance and controlling, materials management, inventory manage-ment, production planning, quality management, maintenance and sales. On the one hand, PROGRESS fosters the growth of the individual

companies into one group. On the other hand, the objective is to se-cure a quality edge over the Group‘s competitors by implementing more efficient procedures. In January 2007, German business newspa-per Handelsblatt presented its IT Strategy Award to the company. In October Knorr-Bremse also received a User of the Year award for 2007 in the business change category from specialist computing journal Computerwoche.

a world-claSS coMPany now and in thE futurEKnorr Excellence describes a clear vision: In future, the Group is to progress from very good to excel-lent performance in all areas in or-der to reach its strategic objectives. The approach adopted in pursuit of this goal is to harmonize the existing business models of the divi-

sions within a joint model: The TMS (Truck Management System), REX (Rail Excellence) and CE (Corporate Excellence) models have been com-bined to form Knorr Excellence (KE). In addition, the Group is focusing existing programs on eight Group-wide Knorr Excellence initiatives, mainly concerning development, production and logistics processes. The findings of these initiatives are flowed back into the KE model as a means of process enhancement.

grouP-widE buSinESS ModElKE will ensure that best prac-tices are exchanged between Group companies and any defi-ciencies in the processes previ-ously implemented are identi-fied. However, before launching Group-wide or international ini-tiatives, Knorr-Bremse needs a shared Group-wide business mod-


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el in which all procedures are de-fined and can be jointly improved. A shared model means setting the right priorities together, find-ing a common language, defin-ing a common target and devel-oping a shared understanding of the way in which this target is to be reached.

This is the approach adopted by KE: All units within the Knorr-Bremse Group – Rail Vehicle Sys-tems, Commercial Vehicle Sys-tems, the parent company and subsidiaries, as well as national companies, have contributed the experience gained with their own management systems (REX, TMS and CE) and compared these systems with each other and with external benchmarks with the aid of expert consultants and internal process owners. The result is the KE model, a Group-wide standard-

ized system that guides all pro-cesses in the right direction and helps in analyzing and transfer-ring best practices and proven concepts from all parts of the Group.

Business success is achieved by highly motivated, creative and qualified employees. The fact that Knorr-Bremse once again succeeded in improving its earn-ings in 2007 despite even tough-er competition is mainly due to the extraordinary commitment demonstrated by the workforce.

EMPloyMEnt Situation By the end of fiscal 2007, the number of employees had ris-en from 13,035 at year-end 2006 to 13,943. The Knorr-Bremse Group therefore employed 7% more people than in 2006. The main reason for the increase was strong growth in the regions of Asia/Australia and Europe/Africa.

In the Commercial Vehicle Sys-tems division, employee num-bers rose from 6,588 to 6,843 in 2007 (+3.9%). The workforce of the Rail Vehicle Systems division expanded from 6,329 to 6,959 people (+10.0%).

EMPloyEES in thE rEgionSAt year-end 2007, 24.4% (2006: 23.8%) of the Group‘s work-force was employed in Germa-ny, where employee numbers rose by 9.6 % to 3,398 (298 employees more than in 2006). The proportion of the work-force employed in the rest of Europe, the Middle East and Afr ica was up to 40.2% (2006: 39.8%); the absolute r ise in these regions was 8.3%. At the end of the year under review, some 64.6% of the Group‘s workforce was employed in Europe and Africa (2006: 63.6%).

The share of the workforce in Asia/Australia increased to 11.4% (2006: 9.5%), correspond-ing to a further r ise of 1.9 per-centage points following 3.2 percentage points in 2006. In absolute terms, employee num-bers grew by 28.2%.

Growth in Asia/Australia and a larger workforce in Europe/ Africa resulted in a shift in the percentage distribution of the workforce in the other two re-gions. The proportion of em-ployees in North America fell to 19.4% (2006: 22.2%), while the figure for South America was also slightly lower at 4.6% (2006: 4.7%).

Productivity To remain well-positioned for strong market growth in Asia/Aus-tralia, Knorr-Bremse was quick to develop a strong workforce in 2007. As a result, for the Group as a whole, sales per employee fell slightly to EUR 242,000 (2006: EUR 250,000) as an annual average. However, structural improvements and the long-term training of em-ployees will ensure sustained pro-ductivity increases in the long term. In absolute terms, Group personnel costs rose to EUR 622 million, a 5.2% increase over the

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Employeesin order To recruiT and secure The besT employees as a global player, knorr-bremse moTivaTes iTs employees wiTh challenging and aTTracTive Tasks, international development prospects, targeted continuing professional develop-ment, and performance and profit-oriented remuneration systems.

ManagEMEnt Evolu-tion PrograM (MEP)The MEP training program meets Knorr-Bremse‘s increasing require-ments for high potentials. In three to four internationally oriented projects, the trainees gain a vari-ety of insights into technical and commercial work within a leading international company. They per-form a variety of different tasks in many different regions, ensuring a demanding challenge at the high-est level. For one-and-a-half years, they have an opportunity to put their ideas, specialist knowledge and initial experience, if available, into practice, to demonstrate their dedication and to pursue their in-dividual development. Apart from practical project work, the train-ees benefit from the support of experienced mentors. The experi-ence gained is steadily enhanced by targeted training, both on and off the job.

previous year (2006: EUR 592 mil-lion). This amount includes wage and salary payments.

huMan rESourcES dEvEloPMEntOutstanding products, process-es and services call for target-ed, systematic human resources development. Knorr-Bremse has oriented its extensive training program to these requirements and offers appropriate train-ing measures. The objective is to build on the individual strengths of our employees and to devel-op the skills they will need in the future. Within the COPE project, for example, the Group provides targeted training in sales and systems for systems engineering personnel, ensuring that internal system know-how is maintained and transferred to other employ-ees. Apart from enhancing tech-nical competence, this also im-proves product quality.

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E m p l o y e e s

North America 19%

South America 5%

Asia, Australia 11%

Germany 24%

Europe except Germany, Middle East, Africa 40%

Employees by regions (December 31) (rounded figures)

There have been several chang-es to MEP for 2008; the pro-gram now has an even more pronounced international orien-tation and the trainees will be prepared in an even more target-ed way for the challenges and leadership roles they will take on in the future.

EMPloyEE SatiSfaction SurvEyThe Group‘s third worldwide employee satisfaction survey, conducted in 2006, was evaluated in 2007. Apart from assessing employee satisfac-tion, the objective of these regular surveys is to gener-ate suggestions for improve-ments in working conditions.

In an agreed, well-defined pro-cess, the results of the survey were announced to the work-force and then processed to-gether with the employees in workshops in order to define in-dividual measures which were then recorded in a central on-line database for the first time. Throughout the world, 73 different teams have already defined 90 suggestions and 449 improvements.

Employee surveys are now well-established at Knorr-Bremse and allow differentiated assess-ments and evaluation. The rela-tive trend in these surveys since 2002 has been decidedly posi-tive. In almost all the areas con-

sidered, Knorr-Bremse is above the benchmark mean. The next employee survey is planned for 2009.

nEw iMPEtuSUnder changing social conditions, traditional recruitment work is no longer an adequate means of contacting suitable candidates. In response, Knorr-Bremse launched a rather unusual campaign at its Munich site in 2007. The façade of the company building on busy Moosacher Strasse was covered by a giant poster bearing the slo-gan “Top technology starts here. Apply within, come aboard and launch your career“.

112 113


ty of Cooperative Education to its training portfolio. The objective is to recruit tomorrow‘s engineers as they leave school, thus ensur-ing a secure future for the Group‘s German facilities.

Competition for the top talent calls for the targeted, strategic development of a brand as an at-tractive employer. Following the intensification of human resourc-es marketing, especially the ex-pansion of contacts with univer-sities, the career pages on the Internet are being given a more international orientation in con-nection with the relaunch of the website. In this context, Knorr-Bremse is facing up to changing challenges and creating a recruit-ment platform that will be avail-able worldwide.

In addition, the Group is effective-ly targeting the increasing need for technical specialists and en-gineers by adding the Universi-

E m p l o y e e s

This poster at the company site on Moosacher Strasse, Munich, announced 100 local vacancies for engineers.

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Trade FairsThe new sTand design successfully introduced at the three key trade fairs in 2006 (iaa, innotrans and automechanika) proved its worth around the world at a number of other major shows and events in 2007.

cuStoMEr-oriEntEd PrESEntationThe changeover from a cool blue to a more appealing bright red not only marks a decisive change in terms of appear-ance. It is no longer individual products that are at the heart of trade fair presentations but answers to the challenges faced by customers in the mar-ketplace, such as economic cost-effectiveness, quality, reli-ability, safety and environmen-tal compatibility. Presentations under the motto of “Answers for a World of Mobility“ reflect the customer focus of every-day work at Knorr-Bremse.

This approach had already resulted in a thoroughly posi-tive response at IAA, InnoTrans and Automechanika in 2006. Experience in 2007 confirmed that the new concept could also be put to very effective

use at smaller fairs and events around the world. Customer needs are interpreted as ques-tions to which Knorr-Bremse provides the answers.

Knorr-Bremse’s presence at trade fairs in different countries proved to be an attraction for decision-makers and experts alike. The Group received the award for the best stand at two trade fairs held in 2007, Trako Gdansk and the Ninth Interna-tional Conference on Rail Trans-portation in Iran. Knorr-Bremse also attended Transpotec Milan, Equip‘Auto Paris, UITP Helsinki, Modern Railways Beijing, and Suissetransport Berne, as well as shows organized by key after-market customers and special events focusing on logistics and vehicle interior equipment.

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114 115

T r a d e F a i r s

Health, Safety and Environmental ProtectionhealTh, safeTy and environmenTal proTecTion are Top prioriTies aT knorr-bremse; they are firmly anchored in the group‘s processes and are the object of a wide variety of activities.

hEalth and SafEtyThe sensitivity of employees to health topics was heightened by events such as the Health Day held at the Group‘s Munich site on November 8, 2007. More employees than ever be-fore took part in the medical and sports program offered. On October 11, 2007, Bendix also held a Family Health Event at the U.S. plant in Elyria, Ohio. Bendix offers its employees wellness courses and access to a compa-ny gym throughout the year. As a result of the services and facilities available, as well as the attractive working conditions, Bendix Elyria was honored by the Ohio Chamber of Commerce as a “Great Workplace“ in 2007 for the fourth year in succession.

The joint Safety Culture Program was launched in 2005 to pro-mote health and safety in the

Commercial Vehicle Systems di-vision and at Bendix. Since then, the number of accidents result-ing in lost working hours at the production plants has fallen by more than 42%. The program includes activities such as train-ing sessions, information cam-paigns, risk classification, and added protective measures in ar-eas with high accident rates. The health and safety management system at Aldersbach, the larg-est production plant in the Com-mercial Vehicle Systems division, was successfully certified in ac-cordance with the Occupation-al Health and Risk Management System (OHRIS) of the Bavarian state government.

In the Rail Vehicle Systems di-vision, preparations started in 2007 for the introduction of the Safety Culture Program in 2008. Following the start of certifi-

cation for the health and safe-ty management system at the Munich plant in 2006, roll-out measures began at other sites and the Spanish subsidiary Frenos was certified to interna-tional health and safety standard OHSAS 18001 at the beginning of 2007.

EnvironMEntal ProtEctionEnvironmental protection crite-ria are a key element in product development at Knorr-Bremse. Weight reductions cut energy consumption, environmental-ly harmful materials are largely avoided and preference is giv-en to materials that can be recy-cled in an environmentally com-patible way.

Environmentally compatible in-novations such as the compact freight car brake CFCB, which is

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Elyria (USA) for implementing an ergonomic workplace design method. Second prize was awarded to Frankfort (USA) for introducing specially trained health and safety teams. Acuña (Mexico) took third place for im-provements in machine safety.

certified since September 2007. In the Rail Vehicle Systems divi-sion, Knorr Brake Corporation in Westminster was the company’s first U.S. site to be involved in certification to ISO 14001. Com-pliance with environmental and quality requirements is audited simultaneously by interdisciplin-ary teams. The very good results achieved the previous year were exceeded and Knorr-Bremse was once again awarded “Best in Class“ status on the QSA inter-national ranking scale.

bESt PracticE award hSEIn order to foster internal knowledge transfer in health, safety and environmental pro-tection, Knorr-Bremse also pre-sents its annual Best Practice Award in this field. In 2007, first prize went to the plants at Aldersbach (Germany) and

not only lighter but also boasts considerably higher efficiency than all its predecessors, also play a key role. Apart from prod-uct optimization, energy-effi-cient production processes are another key focus. By 2007, CO2 emissions per EUR 1,000 of sales had been reduced by more than 50% compared with 2000.

At the sites which had already been certified, compliance with the 2004 amendment of inter-national environmental protec-tion standard ISO 14001 was verified by the external certi-fication agency Bureau Veri-tas Certification (BV-Cert). Oth-er sites are being certified in an ongoing process.

In the Commercial Vehicle Sys-tems division, for example, the new Japanese production plant at Sakado near Tokyo has been

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H e a l t h , S a f e t y a n d E n v i r o n m e n t a l P r o t e c t i o n

Social Responsibility knorr-bremse supports a wide variety of social and cultural organizations and activities.

The activities range from as-sistance for children, the sick and the elderly to support for science, sport, music and inter-cultural exchange. Frequently, the assistance provided ben-efits projects in the vicinity of Group sites. In addition, the non-profit organization Knorr-Bremse Global Care e.V. helps people in need throughout the world to help themselves.

knorr-brEMSE global carEFounded in 2005 in response to the tsunami catastrophe in Southeast Asia, the Knorr-Bremse Global Care e.V. associa-tion once again helped many people around the world to escape from need due to causes beyond their control and gave them a new start. In the third year of its activities, the asso-ciation continued to support a number of projects for tsunami victims. These included a schol-arship program for students, sponsorship for children and running a center for traumatized young people. The reconstruc-

tion of 75 houses in Sri Lanka was completed in July 2007.

For some time now, the orga-nization has also been active in other parts of the world where poverty is rife. In Cambodia, together with German and lo-cal partners it supported the construction of a school, to improve the career prospects of children in a rural area. In India, Knorr-Bremse Global Care is building a hostel for vocational school students from families in need. Since the second half of 2006, the organization has also stepped up its activities in Africa. In Ethiopia, for example, Knorr-Bremse Global Care provided support for the construction of a school which was opened by Karlheinz Böhm, Chairman of the Menschen für Menschen char-ity, in June 2007. In Tanzania, a youth center for AIDS orphans was constructed, while a pri-mary school was refurbished and expanded in Mali. In South Africa, the organization financed equipment for an operating theater at a children‘s hospital.

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S o c i a l R e s p o n s i b i l i t y

K o n z e r n a n h a n g

118

K o n z e r n a n h a n gN o t e s t o t h e C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s

Notes to theConsolidatedFinancial Statementsof Knorr-Bremse AG

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N o t e s t o t h e C o n s o l i d a t e d F i n a n c i a l S t a t e m e n t s

(1) PRINCIPLES ANDMETHODS

The consolidated financial state-ments have been drawn upin accordance with generallyaccepted accounting principles,complying with the accountingrequirements of the GermanCommercial Code (HGB) andadditional statutory provisions.Figures in the consolidatedfinancial statements are shownin thousands of euros (TEUR).Certain items on the balancesheet and in the statement ofincome are combined for the sakeof greater clarity. These items areexplained separately in the Notesto the Consolidated FinancialStatements.

Accounting and valuationThe financial statements of thecompanies included in theconsolidated financial statementsare prepared according to uniformprinciples of accounting andvaluation applied to the Group.For the purposes of consolidationaccording to the equity method,any valuations in the financialstatements of the associatedcompanies that deviate from theuniform principles applied to theGroup are retained.

Intangible assets are valued atacquisition cost less schedu-led depreciation; additionaldepreciation is taken wherenecessary.

Property, plant and equipmentis recorded at acquisition orproduction cost, less schedu-led depreciation in the case ofitems subject to wear and tear;additional depreciation is takenwhere necessary. In the case ofcompanies in the Federal Republicof Germany, the scheduled

depreciation is largely calculatedusing the declining balancemethod to the extent permissibleunder fiscal legislation, switchingto the straight-line methodas soon as the latter resultsin higher depreciation. Minorfixed assets with acquisition orproduction costs less than orequal to EUR 410 are reported infull under expenses.

Interests in affiliated, associatedand related companies andmiscellaneous investments arestated at cost or, in the event of aprobable sustained diminutionin value, at fair value (where thelatter is lower).

Materials and supplies are carriedin inventories at the lower ofacquisition cost or replacementcost. Provision against realizationrisks is made where necessary.

Work in process and finishedproducts are stated at productioncost, but in no case higher thanthe projected sales revenues lessany costs accruing prior to sale.Production cost includes directcost of materials and labor, aswell as production overhead. Areasonable allowance is madewhere there is a risk of a decline ininventory values.

Receivables are stated at theirnominal value, less any neces-sary provisions against specificdebts. Receivables bearing no orlow interest are stated at theirdiscounted cash value. Generalcharges have been made to coverthe general credit risk.

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Other assets are stated at thelower of acquisition cost, netpresent value or fair value.

Foreign-currency items are valuedat the rate on the balance sheetdate.

Accrued liabilities include reaso-nable and sufficient allowancefor all perceivable risks andany contingent liabilities. InGermany, pension plan accrualsand similar commitments areset up according to actuarialprinciples, using the method ofcomputation provided for in theGerman Income Tax Act, basedon a rate of interest at 6 percent.For the year under review, theywere calculated on the basis ofthe mortality tables published byProf. Dr. Heubeck in July 2005. Ourforeign subsidiaries cover pensionplans and similar commitmentsby accruals which are calculatedaccording to principles similar tothose used in Germany.

Liabilities are stated at the amountsrepayable.

Consolidated companiesIn addition to Knorr-Bremse AG,a total of 15 German and 75foreign subsidiaries over whichKnorr-Bremse has uniform controlare included in the consolidatedfinancial statements.

Investments in one German andone foreign company are shownin the consolidated financialstatements as investments inassociated companies. Six foreignsubsidiaries have not beenincluded in consolidation becauseof their minor significance withrespect to the net worth, financial

position and results of the Group.For the same reason, two Germancompanies are not shown asassociated companies.

During fiscal year 2007, the Groupset up or acquired the followingcompanies, which are included inconsolidation: STE Schwingungs-Technik GmbH, Klieken/Germany;Knorr-Bremse Rail Systems OOO,Moscow/Russia; Knorr-BremseSystems for Commercial VehiclesOOO, Moscow/Russia.

Microdigit S.r.l., registered at Lodiin Italy, has been merged withMicroelettrica Scientifica S.p.A.,based at Rozzano in Italy.

KB Beta Beteiligungs GmbH, inMunich, Germany, was renamedKnorr-Bremse US InvestmentGmbH, Munich/Germany. ZeliskoInstrument Transformers Gesell-schaft mbH, Berlin/Germany, wasrenamed KB Delta BeteiligungsGmbH, Munich/Germany.

This means that compared tothe previous year, the numberof companies included in con-solidation has increased by oneGerman company and twoforeign companies. One foreigncompany has been merged. Inthe case of the three companiesincluded in consolidation forthe first time, the investmentshave been consolidated byapplying § 301 (2) of the GermanCommercial Code (HGB) relatingto the first-time inclusion ofsubsidiaries in the consolidatedfinancial statements, based ontheir values as at December 31,2007. This approach divergesfrom GAS (German AccountingStandard) 4, which does not

provide for a voting option asspecified in § 301 (2) of theGerman Commercial Code (HGB).A detailed list of affiliated andassociated companies appearsin a separate breakdown of theGroup’s shareholdings.

The above-mentioned changes inthe scope of consolidation had nosignificant impact on the Group’snet assets, financial position andoperating results. As a result of thechanges detailed above, figuresunder the consolidated balancesheet headings listed belowshowed the following increases asat the balance sheet date:Intangibles, fixed assets andinvestments EUR 2.5 million; Cur-rent assets EUR 0.5 million; Cash orcash equivalents EUR 0.2 million;Accruals EUR 0.8 million; Accountspayable (trade) and Other liabili-ties EUR 2.9 million; Balance sheettotal EUR 3.0 million.

In order to make the acquisitionsand set up the new companiesdetailed above, the Group paidout EUR 6.2 million in fiscal year2007.

Principles of consolidationIn consolidating our investmentsin subsidiaries, we offset the bookvalues against the value of ourinterests in the shareholders’ equi-ty of the subsidiaries at the timeof the initial consolidation. Since2002, any resulting goodwill hasbeen capitalized in compliancewith GAS standards, subject toscheduled depreciation overa period of not more than 20years. Any goodwill resultingfrom first-time consolidationsin the years preceding 2002 isoffset against retained earnings.

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Wherever possible, a negativegoodwill resulting from theconsolidation in investments isreleased for the year in which itarises, as permitted by Germancommercial law and accountingstandards.

Associated companies are consoli-dated using the equity method,with goodwill generally includedas part of the cost of acquiringinterests in associated and relatedcompanies. Our share in theannual results of companiesconsolidated in accordancewith this method, includingamortization on goodwill, isshown in the statement of incomeunder Investment performance.

Receivables and liabilities areoffset between consolidated com-panies. Unrealized intercompanyprofits resulting from intercompa-ny trade in goods and services areeliminated in the consolidatedstatements. In the consolidatedstatement of income, earningsfrom intercompany sales andother intercompany income areoffset against the correspondingexpenses. If consolidation entriesaffect income, deferred taxes areacknowledged in compliancewith GAS 10.

Foreign currency translationIn the individual financial state-ments included in consolidation,receivables and liabilities in for-eign currencies are translated atthe rate existing at the transactiondate or - if less favorable - at therate at the balance sheet date.Where foreign currency itemshave been hedged, they arevalued at the correspondinghedging rate.

The balance sheets of the foreigncompanies included in theconsolidated financial statementsare translated at the year-end rate(median price). The revenues andexpenses shown in the state-ments of income are translatedat the average rate in euros(the Group parent company’sreporting currency) for the year.The year-end rate (median price)is used to calculate depreciation,earnings and employment ofearnings. In this sense, GAS 14 hasnot been applied for purposes offoreign currency translation.

Any translation differences bycomparison with the previousyear’s figures are offset againstretained earnings; differencesbetween the rate at the balancesheet date and the average rateare shown under Other operatingincome or Other operatingexpenses, thereby diverging fromGAS 14.

Deferred taxesDeferred taxes as defined under§§ 274 and 306 of the GermanCommercial Code (HGB), resultingfrom temporary differencesbetween the amount stated in thetax accounts of individual groupcompanies and the amountstated in the consolidated balancesheet (including differencesarising as a result of accountingand valuation adjustments orduring the consolidation process),are offset in Prepaid expenses.Quasi-permanent differencesbetween consolidated and taxaccount values are treated astemporary differences accordingto the provisions of GAS 10.

In the individual balance sheetsprepared according to the uni-form principles of accounting andvaluation applied to the Group(“Financial statements II”), theoption to capitalize assets to theamount of probable tax relief inthe following years in accordancewith § 274 para. 2of the GermanCommercial Code (HGB) is used.The calculation of deferred taxes isbased on the tax rates that areexpected to be valid at the time oftheir realisation.

Deferred taxes on losses carriedforward are capitalized wherethere is sufficient probability thatthe tax benefits can be realized.At each balance sheet date, thebook value of deferred tax assetsis reviewed and, if necessary,adjusted as appropriate.

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(2) Changes in intangibles, fixed assets andinvestments

in EUR thousands (TEUR)

Industrial property rights/trademarks

Goodwill

Intangible assets

Land, equivalent rights to real property, and buildings,including buildings on land not owned

Technical equipment and machinery

Other equipment, plant and office equipment

Advances to suppliers and construction in progress

Fixed assets

Investments in affiliated companies

Investments in associated companies

Miscellaneous investments

Investments

Intangibles, fixed assets and investments

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Costs of acquisition or production

CarriedforwardJan. 1, 2007

Additions Reclassi-fications

Disposals Currencydifferences

BalanceDec. 31,2007

Accrueddepreci-ation/amor-tization

Net valueDec. 31,2007

Net valueDec. 31,2006

Depreciation/amortiza-tion duringthe fiscalyear

234,549 13,569 (6,602) (3,347) (12,208) 225,961 117,241 108,720 122,631 19,138

238,784 51,581 0 0 (15,705) 274,660 58,453 216,207 190,363 13,660

473,333 65,150 (6,602) (3,347) (27,913) 500,621 175,694 324,927 312,994 32,798

252,599 3,550 1,991 (3,437) (4,372) 250,331 109,045 141,286 151,441 8,772

330,013 48,514 (519) (15,645) (6,578) 355,785 227,769 128,016 120,891 37,105

257,821 33,012 25,053 (14,018) (6,163) 295,705 196,408 99,297 92,661 34,401

36,027 49,746 (19,923) (1,273) (1,075) 63,502 4,034 59,468 32,002 0

876,460 134,822 6,602 (34,373) (18,188) 965,323 537,256 428,067 396,995 80,278

5,227 367 0 0 (402) 5,192 703 4,489 4,521 0

202 20 0 0 0 222 0 222 202 0

32,566 60 0 (542) (1,342) 30,742 16,899 13,843 15,700 33

37,995 447 0 (542) (1,744) 36,156 17,602 18,554 20,423 33

1,387,788 200,419 0 (38,262) (47,845) 1,502,100 730,552 771,548 730,412 113,109

Investments in fixed and intangible assets for the operational side of the business amounted to TEUR 140,492 in fiscal year 2007,or TEUR 199,972 if non-operational items are included.

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(3) Intangible assetsThis item is mainly accounted for by the acquisition of goodwill, patents, rights to the use of names and trademarks, andIT software. The rise in goodwill derives primarily from increased shareholdings in Knorr-Bremse Systeme fürSchienenfahrzeuge Ibero Holding GmbH, Munich/Germany and Microelettrica Scientifica S.p.A., Rozzano/Italy, raisedfrom 70 to 100 percent in each case.

Any resulting goodwill is subject to scheduled depreciation over a period of not more than 20 years. Other intangibleassets are subject to scheduled depreciation over periods of between 3 and 10 years. No additional depreciation wasapplied during the fiscal year.

All intangible assets capitalized under Intangibles, fixed assets and investments have a limited useful life.

(4) Fixed assetsMovements of fixed assets are presented in the compilation on the preceding pages. To take technical and economicfactors into account, scheduled depreciation was applied to acquisition costs. Additional depreciation amounting toTEUR 4,422 was applied during the fiscal year.

(5) InvestmentsInvestment movements are also set out in the compilation above.

Miscellaneous investments consist of loans to affiliated companies (TEUR 11,214), long-term investments (TEUR 1,869),miscellaneous loans (TEUR 583) and investments in associated and other companies (TEUR 177).

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List of shareholdings

1. Consolidated affiliated companies Share incapital in %

Albatros GmbH, Munich/Germany 100.0

BCVS Canadian Holdings LLC, Anjou, Quebec/Canada 100.0

BCVS Mexican Holdings LLC, Cd Acuña, Coah/Mexico 100.0

Bendix Commercial Vehicle Systems LLC, Elyria, Ohio/USA 100.0

Bendix CVS Canada Inc., Anjou, Quebec/Canada 100.0

Bendix CVS de Mexico SA de CV, Cd Acuña, Coah/Mexico 100.0

Bendix Spicer Foundation Brake Canada, Inc., Kingston, Ont./Canada 100.0

Bendix Spicer Foundation Brake LLC, Elyria, Ohio/USA 80.0

Bost Ibérica S.L., Madrid/Spain 100.0

BSFB Holdings, Inc., Elyria, Ohio/USA 100.0

Di-Pro, Inc., Fresno, California/USA 100.0

Dr. techn. Josef Zelisko Ges.m.b.H., Mödling/Austria 100.0

Freinrail Systèmes Ferroviaires S.A., Reims/France 100.0

Frensistemi S.r.l., Florence/Italy 100.0

Hasse & Wrede CVS Dalian, China Ltd., Dalian/China 70.0

Hasse & Wrede GmbH, Berlin/Germany 100.0

Hasse & Wrede North America Inc., North Aurora, IL/USA 100.0

IFE CR a.s., Brno/Czech Republic 100.0

IFE North America LLC, Westminster, Md./USA 100.0

IFE-Tebel Australia Pty. Ltd., Granville/Australia 100.0

IFE-Tebel Technologies B.V., Leeuwarden/The Netherlands 100.0

IFE Victall Railway Vehicle Door Systems (Qingdao) Co. Ltd., Qingdao/China 59.0

Indústria Freios Knorr Ltda., São Paulo/Brazil 100.0

KB Alpha Beteiligungs GmbH, Munich/Germany 100.0

KB Delta Beteiligungs GmbH, Munich/Germany 100.0

KB Gamma Beteiligungs GmbH, Munich/Germany 100.0

KB Media GmbH Marketing und Werbung, Munich/Germany 100.0

Knorr Brake Corporation, Westminster, Md./USA 100.0

Knorr Brake Holding Corporation, Watertown, NY/USA 89.3

Knorr Brake Ltd., Kingston, Ont./Canada 100.0

Knorr Brake Truck Systems Company, Watertown, NY/USA 100.0

Knorr-Bremse / Nankou Air Supply Unit (Beijing) Co., Ltd., Nankou/China 55.0

Knorr-Bremse Asia Pacific (Holding) Ltd., Hong Kong 100.0

Knorr-Bremse Australia Pty. Ltd., Granville/Australia 100.0

Knorr-Bremse Benelux B.V.B.A., Heist-op-den-Berg/Belgium 100.0

Knorr-Bremse Beteiligungsgesellschaft mbH, Munich/Germany 100.0

Knorr-Bremse Brake Equipment (Shanghai) Co., Ltd., Shanghai/China 100.0

Knorr-Bremse Braking Systems for Commercial Vehicles (Dalian) Co., Ltd.,Dalian/China

100.0

Knorr-Bremse CARS LD Vehicle Brake Disc Manufacturing (Beijing) Co. Ltd.,Daxing/China

50.0

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1. Consolidated affiliated companies(continued)

Share incapital in %

Knorr-Bremse Commercial Vehicle Systems Japan Ltd., Tokyo/Japan 80.0

Knorr-Bremse Fékrendszerek Kft., Kecskemét/Hungary 100.0

Knorr-Bremse Ges.m.b.H., Mödling/Austria 100.0

Knorr-Bremse India Pvt. Ltd., Faridabad/India 100.0

Knorr-Bremse Investment GmbH, Munich/Germany 100.0

Knorr-Bremse Nordic Rail Services AB, Lund/Sweden 75.0

Knorr-Bremse Polska SfN sp.zo.o., Warsaw/Poland 100.0

Knorr-Bremse Rail Systems Japan Ltd., Tokyo/Japan 94.0

Knorr-Bremse Rail Systems Korea Ltd., Seoul/South Korea 100.0

Knorr-Bremse Rail Systems OOO, Moscow/Russia 100.0

Knorr-Bremse Rail Systems (UK) Ltd., Melksham, Wiltshire/Great Britain 100.0

Knorr-Bremse S.A. (Pty.) Ltd., Kempton Park/South Africa 100.0

Knorr-Bremse S.R.L., Bucharest/Romania 70.0

Knorr-Bremse Sistemas para Veículos Comerciais Brasil Ltda., São Paulo/Brazil 100.0

Knorr-Bremse Sistemas para Veículos Ferroviários Ltda., São Paulo/Brazil 100.0

Knorr-Bremse Sistemi per Autoveicoli Commerciali S.p.A., Arcore/Italy 100.0

Knorr-Bremse System för Tunga Fordon AB, Malmö/Sweden 100.0

Knorr-Bremse Systeme für Nutzfahrzeuge GmbH, Munich/Germany 80.0

Knorr-Bremse Systeme für Schienenfahrzeuge GmbH, Munich/Germany 100.0

Knorr-Bremse Systeme für Schienenfahrzeuge Ibero Holding GmbH,Munich/Germany

100.0

Knorr-Bremse Systèmes pour Véhicules Utilitaires France S.A., Lisieux/France 100.0

Knorr-Bremse Systems for Commercial Vehicles India Pvt. Ltd., Pune/India 74.0

Knorr-Bremse Systems for Commercial Vehicles OOO, Moscow/Russia 100.0

Knorr-Bremse Systems for Commercial Vehicles Ltd., Bristol/Great Britain 100.0

Knorr-Bremse Systems for Rail Vehicles (Suzhou) Co., Ltd., Suzhou/China 100.0

Knorr-Bremse Systemy dla Kolejowych Srodków Lokomocji PL Sp. z o.o.,Cracow/Poland

100.0

Knorr-Bremse Systémy pro uzitková vozidla CR s.r.o., Hejnice/Czech Republic 100.0

Knorr-Bremse US Investment GmbH, Munich/Germany 100.0

Knorr-Bremse Vasúti Jármü Rendszerek Hungária Kft., Budapest/Hungary 100.0

Knorr-Bremse Verwaltungsgesellschaft mbH, Munich/Germany 100.0

Maquiladora de Acuña SA de CV, Cd Acuña, Coah/Mexico 100.0

Merak North America LLC, Albany/USA 100.0

Merak Railway Technologies (Shanghai) Co., Ltd., Shanghai/China 100.0

Merak Sistemas Integrados de Climatización S.A., Pinto (Madrid)/Spain 100.0

Microelettrica Power Devices (Pty) Ltd., Johannesburg/South Africa 95.0

Microelettrica Power (Pty) Ltd., Johannesburg/South Africa 74.0

Microelettrica Scientifica (Pty) Ltd., Johannesburg/South Africa 100.0

Microelettrica Scientifica S.p.A., Rozzano/Italy 100.0

Microelettrica USA LLC, Randolph, New Jersey/USA 100.0

MicroEner S.A.S., Noisy le Grand/France 89.9

M.S. Resistances S.A.S., Saint Chamond/France 51.0

New York Air Brake Corporation, Watertown, NY/USA 100.0

128


1. Consolidated affiliated companies(continued)

Share incapital in %

Oerlikon-Knorr Eisenbahntechnik AG, Niederhasli/Switzerland 100.0

Skach Ges.m.b.H., Mödling/Austria 100.0

Sociedad Española de Frenos, Calefacción y Señales S.A., Pinto (Madrid)/Spain 100.0

Stahlwerk Volmarstein GmbH, Wetter (Ruhr)/Germany 100.0

STE Schwingungs-Technik GmbH, Klieken/Germany 100.0

Unicupler GmbH, Niederurnen/Switzerland 100.0

Westinghouse Brakes Australia Pty. Ltd., Granville/Australia 100.0

Westinghouse Platform Screen Doors Ltd., Walsall/Great Britain 100.0

Westinghouse Platform Screen Doors (Guangzhou) Ltd., Guangzhou/China 65.0

2. Associated companies valued using the equity method Share incapital in %

Gorilla Brake & Components, Inc., Brantford, Ont./Canada 20.0

Webasto Kiekert Bustüren GmbH, Karlsfeld/Germany 50.0

3. Affiliated companies not included in consolidation Share incapital in %

Black River Air Logistics Corp., Watertown, NY/USA 100.0

Freios Knorr Argentina S.A., Buenos Aires/Argentina 100.0

Knorr-Bremse KAMA Systems for Commercial Vehicles OOO, NaberezhnyeChelny/Russia

50.0

Knorr-Bremse RUS OOO, Nizhny Novgorod/Russia 100.0

KB Investment UK Ltd., Chippenham/Great Britain 100.0

Metco Technical Consulting AG, Zug/Switzerland 100.0

4. Associated companies valued without using the equity method Share incapital in %

Megalith Grundstücksverwaltungsgesellschaft mbH & Co. Vermietungs KG,Mainz/Germany– Deutsche-Anlagen-Leasing GmbH holds majority voting rights –

100.0

Sanctor Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Marzahn KG,Düsseldorf/Germany– Deutsche-Immobilien-Leasing GmbH holds majority voting rights –

99.0

5. Interests (exceeding 20%) in associated and related companies Share incapital in %

OLB Oberlandbahn Fahrzeugbereitstellungs GmbH, Munich/Germany 24.8

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(6) Inventories

2007TEUR

2006TEUR

Materials and supplies 163,138 140,015

Work in process 50,855 69,123

Finished products, merchandise 142,937 126,489

less advances received on orders (116,383) (112,217)

Total 240,547 223,410

(7) Receivables and other assets

2007TEUR

2007TEUR

2006TEUR

Remaining termmore than 1 year in total in total

Accounts receivable, trade 1,271 528,139 488,065Other assets 4,968 97,579 89,524

Total 6,239 625,718 577,589

(8) Cash and cash equivalentsThis item includes cash at bank, checks and cash on hand.

(9) Prepaid expensesGroup prepaid expenses amounting to TEUR 46,846 (2006: TEUR 52,426) include deferred tax assets totaling TEUR 60,684(2006: TEUR 69,793) as well as deferred tax liabilities totaling TEUR 20,558 (2006: TEUR 23,349), which, as in the previousyear, were offset against this heading in the year under review, in a departure from the provisions of GAS 10. Of the totaldeferred tax assets, TEUR 5,107 (2006: TEUR 10,809) relate to consolidation adjustments affecting net income and TEUR35,019 (2006: TEUR 35,635) relate to deferred taxes on individual balance sheets of group companies.

Tax on consolidation adjustments has been reduced from approx. 40 percent to approx. 36 percent, based on theprojected tax rate at the time of realization. Changes to fiscal legislation in Germany and abroad made it necessary toreduce the tax rate applied, resulting in a one-time expense of TEUR 4,500.

Of the residual amount totaling TEUR 6,720 (2006: TEUR 5,982), TEUR 0 (2006: TEUR 168) relate to a debt discount.

(10) Capital stockThe capital stock of Knorr-Bremse AG is divided up into 2,600,000 bearer shares, each with a nominal value of EUR 26.Stella Vermögensverwaltungs GmbH and KB Holding GmbH, both based in Grünwald, have informed Knorr-Bremse AGthat directly or indirectly, they hold a majority interest in Knorr-Bremse AG.

(11) Capital reservesCapital reserves totaling TEUR 153 are unchanged from the previous year. Like the legal reserve, they are subject to therestrictions of § 150 of the German Corporation Law (AktG).

(12) Retained earningsIn addition to the legal reserve and a statutory reserve, Retained earnings include the accumulated earnings of thecompanies included in consolidation, where these have not been distributed. Furthermore this heading reflects allGroup items that exert an influence on shareholders’ equity, while Capital stock and Capital reserves correspond to therelevant parent company items.

130


(13) Other accrued liabilities

2007TEUR

2006TEUR

Provisions for taxes 25,318 27,882Miscellaneous accruals 311,242 298,786

Total 336,560 326,668

The taxation provisions include projected income tax payments for the year under review (2007), as well as preceding assessmentperiods.

Miscellaneous accruals relate primarily to warranty and product liability commitments, personnel costs, anticipated losses oncontracts and other risks in connection with current operations, as well as invoices outstanding.

(14) Liabilities

2007TEUR

2007TEUR

2006TEUR

Remaining termless than 1 year in total in total

Bonds and loans 0 0 175,000

Accounts payable, banks 77,970 182,093 14,381

Accounts payable, trade 397,277 397,659 349,549

Other liabilities:

Liabilities from accepted bills 1,370 1,370 1,298Miscellaneous liabilities 75,072 77,751 92,327

(thereof for taxes) (15,157) (15,157) (13,205)

(thereof for social security) (9,514) (9,514) (7,659)

76,442 79,121 93,625Total liabilities 551,689 658,873 632,555

(thereof with a remaining term of more than 5 years) (101,133) (1,505)

As at the balance sheet date, there were no liabilities secured against real property liens or similar property charges.

131


(15) Contingencies and miscellaneous financial commitments

2007TEUR

2006TEUR

Contingent liabilities on notes 46 824Warranties 11,369 10,279Guarantees 5,156 7,862

Land charge 11,000 11,000

Leasing commitments 176,412 189,857

A long-term purchase agreement exists between Group company Bendix Spicer Foundation LLC, Elyria, Ohio/USA and GorillaBrakes & Components, Inc., Brantford, Ontario/Canada. Under the terms of this agreement, Bendix Spicer Foundation LLCundertakes to purchase from Gorilla Brakes & Components, Inc. 85 percent of the spare part deliveries made within the lattercompany’s regional sphere of influence.

(16) Other operating incomeOther operating income consists primarily of rental income, insurance compensation, gains on currency exchange,income from disposals of fixed assets and income from the reversal of reserves.

(17) Cost of materials

2007TEUR

2006TEUR

Expenditure on materials, supplies and merchandise 1,753,066 1,674,782

Expenditure on services purchased 39,470 39,337

Total 1,792,536 1,714,119

(18) Personnel expenses/staff

2007TEUR

2006TEUR

Wages and salaries 506,280 469,382Statutory social welfare contributions and expenses relating to pensions and employeebenefits 116,176 122,170

Personnel costs 622,456 591,552

(thereof for retirement benefits) (18,236) (26,954)

Average number of employees during the fiscal year Number Number

Wage earners 6,653 6,356

Salary earners 6,632 6,013

Apprentices 141 125

Total 13,426 12,494

(19) Depreciation

2007TEUR

2006TEUR

Depreciation on intangibles and fixed assets 113,076 103,728

In addition, rental and leasing expenses totaling TEUR 43,094 (2006: TEUR 43,072) were incurred during the reporting period.

132


(20) Other operating expensesOther operating expenses consist primarily of maintenance costs, direct sales costs, legal and consulting fees,commissions, travel expenses and miscellaneous administrative expenses.

In the year under review, translation differences arising from the translation of the profit and loss account at the rate onthe balance sheet date and the average rate for the year amounted to TEUR 6,667 (2006: TEUR 3,860) and are shownunder Other operating expenses.

Other taxes for the Group amounted to TEUR 10,007 (2006: TEUR 7,814).

(21) Financial results

2007TEUR

2006TEUR

Financial resultsIncome from other marketable securities and loans from financial assets 454 414Miscellaneous interest and similar income 6,833 8,930

Depreciation on Miscellaneous investments (33) 0

Interest and similar expenses (22,095) (22,345)

Income from associated companies 26 (46)

Total (14,815) (13,047)

(22) Net income

2007TEUR

2006TEUR

Net income 197,842 185,499

Minority interests in earnings of consolidated subsidiaries (25,208) (32,169)

Retained earnings brought forward from the previous year (after distribution of dividends) 33,332 44,332

Transfers to retained earnings (85,534) (73,330)

Unappropriated consolidated net income (Knorr-Bremse AG unappropriatedretained earnings) 120,432 124,332

(23) Financial derivativesForward exchange and option transactions are performed purely and exclusively in order to hedge current and futureforeign currency payables and receivables. The aim of hedging operations at Knorr-Bremse is to reduce the risks posedby foreign exchange fluctuations to the ordinary course of business. Currency hedging is based on the volume of opencommitments arising or expected to arise from core business activities. Maturities are based on the life spans of the un-derlying business transactions. Knorr-Bremse AG hedges foreign exchange risks by trading in forward exchange contractsand currency options. In addition, Knorr-Bremse AG makes use of interest rate options and interest rate swaps in order tominimize the negative impact on Group funding of possible interest rate fluctuations. Financial instruments are not heldfor trading purposes.

133


The nominal and market values of financial instruments as at December 31, 2007 are shown below:

TotalDec. 31, 2007

TotalDec. 31, 2007

TotalDec. 31, 2006

TotalDec. 31, 2006

in EUR millions Nominal value Market value Nominal value Market value

Foreign exchange contracts

Forward exchange transactions 370 10 264 10

Currency options 235 12 266 16

Interest rate contracts

Cross currency swaps 15 2 134 15

Interest rate swaps 0 0 183 4

Interest rate options 50 1 75 0

The market value of financial derivatives is best defined as the price one party is prepared to pay in order to assume the rightsand/or obligations of another party. Market values are calculated on the basis of market information available at the balance sheetdate and by applying standard market valuation methods as follows:

Currency hedging contracts are valued on the basis of reference rates, taking account of forward premiums and discounts.Interest rate contracts are valued on the basis of discounted, projected cash-flows, using market interest rates for the remaininglife spans of the instruments.Options are valued using recognized models for calculating option prices (e.g. Black-Scholes).

Market values are calculated by independent financial services companies. Financial derivatives carry a credit risk equivalent to thepositive market value of the derivatives in question.

Paid option premiums are shown under Other assets. As at the balance sheet date, the book value of call option premiums paidout amounted to TEUR 3,818.

(24) Research and development expenditureIn fiscal year 2007, Group expenditure on research and development amounted to TEUR 158,668 (2006: TEUR 140,798).

(25) MiscellaneousThe Group financial statements are published in the official electronic Federal Gazette and in the Commercial Register atthe local first-instance court in Munich. Under the terms of § 264 para. 3 of the German Commercial Code (HGB), thesubsidiary companies Knorr-Bremse Systeme für Schienenfahrzeuge GmbH and Knorr-Bremse Systeme fürNutzfahrzeuge GmbH, both based in Munich, are exempt from the obligation to publish their figures as required under§ 325 of the German Commercial Code.

134


(26) Total remuneration of the Supervisory Board and Board of ManagementThe total remuneration of members of the Supervisory Board amounted to TEUR 243 and the total remuneration of theBoard of Management to TEUR 10,596. Pension commitments to former members of the Board of Management and theirsurviving dependents are covered by an accrual of TEUR 18,349; payments in the fiscal year amounted to TEUR 1,580.

Munich, March 3, 2008

Dr. Raimund Klinkner Jan P. Nonnenkamp

Jens Theuerkorn Dr. Dieter Wilhelm

135

C o n s o l i d a t e d C a s h F l o w S t a t e m e n t

Consolidated cash flow statement in compliance with GAS 2 (German Accounting Standard)

2007TEUR

2006TEUR

Profit for the period (including minority interests in results of consolidated subsidiaries) 197,842 185,499

Depreciation and amortization on intangible fixed assets and tangible assets 113,076 103,728

Changes in accruals 3,525 (12,861)

Miscellaneous expenses unrelated to disbursements 397 0

Profit/loss on disposals of intangibles, fixed assets and investments (3,822) 1,957

Changes in inventories, receivables and other assets not related to investing or financingactivities (51,814) (49,084)

Changes in payables and other liabilities not related to investing or financing activities 39,847 52,975

Cash-flows from operating activities 299,051 282,214

Purchases of intangible assets (13,272) (12,029)

Purchases of fixed assets (127,220) (94,926)

Proceeds from disposals of fixed and intangible assets 10,399 5,767

Purchases of non-current financial assets (447) (719)

Proceeds from disposals of non-current financial assets 671 418

Purchases involving the acquisition of companies included in consolidation (63,399) (99,641)

Proceeds from the sale of companies included in consolidation 1,115 0

Cash-flows from investing activities (192,153) (201,130)

Dividends paid (109,332) (94,845)

Repayments of borrowings (6,628) (9,046)

Cash-flows from financing activities (115,960) (103,891)

Change in cash funds resulting from exchange rate movements and changes in groupstructure (2,785) (808)

Changes in cash funds resulting from cash-relevant transactions (11,847) (23,615)

Cash funds at the beginning of the period 62,513 86,128

Cash funds at the end of the period 50,666 62,513

Cash funds are comprised of the Group’s cash and cash equivalents, and marketable securities.

136

S e g m e n t R e p o r t

Segment report in compliance with GAS 3 (German Accounting Standard)In order to comply with GAS 3, Knorr-Bremse AG has compiled the following report on three segments that are subject to reportingrequirements. The breakdown by segment is based on the Group’s activities in the three major geographical regions that provide thegeographical framework for the Group’s internal organizational and reporting structures. The operating segments cover three regions:Europe, the Americas and Asia/Australia, each of which is characterized by different market and customer demands. The Knorr-BremseGroup’s main product lines – braking systems for rail and commercial vehicles – are represented in all three regions.

Fiscal year 2007 Europe America Asia/Australia Knorr-Bremse AGGroup

in EUR thousands (TEUR)Sales by region 2,355,785 791,229 330,087 3,477,101

thereof net sales with third parties 2,181,735 751,323 317,537 3,250,595

thereof net sales with other segments 174,050 39,906 12,550 226,506

Net income 152,226 37,438 8,178 197,842Income tax charge 86,045 21,162 4,623 111,830Investments (excluding financial investments) 103,041 25,953 11,498 140,492

Depreciation (excluding financial investments) 74,956 33,025 5,095 113,076

Assets 981,569 552,198 201,558 1,735,325

Fiscal year 2006 Europe America Asia/Australia Knorr-Bremse AGGroup

in EUR thousands (TEUR)Sales by region 2,105,602 960,383 208,020 3,274,005

thereof net sales with third parties 1,975,618 942,053 202,949 3,120,620

thereof net sales with other segments 129,984 18,330 5,071 153,385

Net income 137,092 49,612 (1,205) 185,499Income tax charge 79,934 28,927 (702) 108,159Investments (excluding financial investments) 68,237 30,058 8,660 106,955

Depreciation (excluding financial investments) 63,002 32,040 8,686 103,728

Assets 925,841 597,532 122,977 1,646,350

The analysis does not show borrowings or interest payable by region, because these items are controlled centrally across the Group bythe parent company, thus are not dependent on regional decisions associated with day-to-day business operations.

Fiscal year 2007 Net sales Investments (excl.financial investments)

Depreciation (excl.financial investments)

in EUR thousands (TEUR)Rail vehicle systems 1,304,107 67,931 43,650

Commercial vehicle systems 1,966,427 72,319 65,245

Miscellaneous/consolidations (19,939) 242 4,181Knorr-Bremse AG Group 3,250,595 140,492 113,076

Fiscal year 2006 Net sales Investments (excl.financial investments)

Depreciation (excl.financial investments)

in EUR thousands (TEUR)Rail vehicle systems 1,173,648 36,767 39,561

Commercial vehicle systems 1,967,781 69,502 55,759

Miscellaneous/consolidations (20,809) 686 8,408Knorr-Bremse AG Group 3,120,620 106,955 103,728

137

S t a t e m e n t o f C h a n g e s i n G r o u p E q u i t y

Statement of changes in group equity in compliance with GAS 7 (German Accounting Standard)

Changes in group equity 2007 Capital stock Capitalreserves

Retainedearnings

Net income Minorityinterests

Knorr-Bremse AG

Group

in EUR thousands (TEUR)As at Dec. 31, 2006 67,600 153 215,601 124,332 85,732 493,418Dividend payments (91,000) (18,332) (109,332)

Net income 2007 172,634 25,208 197,842Transfers to retained earnings 85,534 (85,534) 0

Currency fluctuations (3,105) (1,683) (4,788)

Other fluctuations (11,155) (11,155)As at Dec. 31, 2007 67,600 153 298,030 120,432 79,770 565,985

Changes in group equity 2006 Capital stock Capitalreserves

Retainedearnings

Net income Minorityinterests

Knorr-Bremse AG

Group

in EUR thousands (TEUR)As at Dec. 31, 2005 67,600 153 169,025 119,732 111,351 467,861Dividend payments (75,400) (19,445) (94,845)

Net income 2006 153,330 32,169 185,499Transfers to retained earnings 73,330 (73,330) 0

Currency fluctuations (26,754) (2,796) (29,550)

Other fluctuations (35,547) (35,547)As at Dec. 31, 2006 67,600 153 215,601 124,332 85,732 493,418

138

I n d e p e n d e n t A u d i t o r ’ s R e p o r t

Independent auditor’s report

We have audited the consolidated financial statements prepared by Knorr-Bremse Aktiengesellschaft, Munich, compri-sing the balance sheet, income statement, notes to the financial statements, cash flow statement, statement of changesin equity and segment report, together with the group management report, for the business year from January 1 toDecember 31, 2007. The preparation of the consolidated financial statements and the group management report in ac-cordance with German commercial law are the responsibility of the parent company’s management. Our responsibility isto express an opinion on the consolidated financial statements and on the group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with § 317 HGB [German Com-mercial Code] and German generally accepted standards for the audit of financial statements promulgated by theInstitut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the audit such that misstatementsmaterially affecting the presentation of the net assets, financial position and results of operations in the consolidatedfinancial statements in accordance with German principles of proper accounting and in the group management reportare detected with reasonable assurance. Knowledge of the business activities and the economic and legal environmentof the Group and expectations as to possible misstatements are taken into account in the determination of audit proce-dures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosuresin the consolidated financial statements and the group management report are examined primarily on a test basis withinthe framework of the audit. The audit includes assessing the annual financial statements of those entities included inconsolidation, the determination of entities to be included in consolidation, the accounting and consolidation principlesused and significant estimates made by management, as well as evaluating the overall presentation of the consolidatedfinancial statements and group management report.

We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements comply with the legalrequirements and give a true and fair view of the net assets, financial position and results of operations of the Groupin accordance with these requirements. The group management report is consistent with the consolidated financialstatements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities andrisks of future development.

Munich, March 3, 2008

KPMG Deutsche Treuhand-GesellschaftAktiengesellschaftWirtschaftsprüfungsgesellschaft

signed RupprechtIndependent auditor

signed SchmalzlIndependent auditor

139

C o n s o l i d a t e d B a l a n c e S h e e t

Consolidated balance sheet as at December 31, 2007Assets

Notes Dec. 31, 2007TEUR

Dec. 31, 2006TEUR

Intangible assets (3) 324,927 312,994

Fixed assets (4) 428,067 396,995

Investments (5) 18,554 20,423

Intangibles, fixed assets and investments (2) 771,548 730,412

Inventories (6) 240,547 223,410

Accounts receivable, trade (7) 528,139 488,065

Other assets (7) 97,579 89,524Marketable securities 9 20

Cash and cash equivalents (8) 50,657 62,493

Current assets 916,931 863,512

Prepaid expenses (9) 46,846 52,426

Balance sheet total 1,735,325 1,646,350

Equity and liabilities

Notes Dec. 31, 2007TEUR

Dec. 31, 2006TEUR

Capital stock (10) 67,600 67,600

Capital reserves (11) 153 153

Retained earnings (12) 298,030 215,601

Unappropriated consolidated net income 120,432 124,332

Minority interests 79,770 85,732

Group equity 565,985 493,418

Accruals for pension plans 171,705 190,422

Other accrued liabilities (13) 336,560 326,668

Accruals 508,265 517,090

Bonds and loans 0 175,000

Accounts payable, banks 182,093 14,381

Accounts payable, trade 397,659 349,549Other liabilities 79,121 93,625

Liabilities (14) 658,873 632,555

Deferred income 2,202 3,287

Balance sheet total 1,735,325 1,646,350

140

C o n s o l i d a t e d S t a t e m e n t o f I n c o m e

Consolidated statement of income for the fiscal year fromJanuary 1 to December 31, 2007

Notes 2007TEUR

2006TEUR

Net sales 3,250,595 3,120,620

Changes in inventories 17,674 11,498

Own work capitalized 442 277

Total operating performance 3,268,711 3,132,395

Other operating income (16) 127,882 82,534

Cost of materials (17) (1,792,536) (1,714,119)

Personnel expenses (18) (622,456) (591,552)

Depreciation and amortization on intangible fixed assets and tangible assets (19) (113,076) (103,728)

Other operating expenses (20) (544,038) (498,825)

Financial results (21) (14,815) (13,047)

Income before taxes 309,672 293,658

Taxes on income (111,830) (108,159)

Net income (22) 197,842 185,499

Minority interests in results of consolidated subsidiaries 25,208 32,169

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Knorr-Bremse AG




CONTACT

Knorr-Bremse AG


































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Photography



04 | 2007 at a glance 06 | The Executive Board and Supervisory Board of Knorr-Bremse AG 10 | Report of the Supervisory Board 12 | The State and Development of Knorr-Bremse AG and the Knorr-Bremse Group 34 | Highlights 2007 72 | Report

CONTENTS

Consolidated Financial Statements of Knorr-Bremse AG

120 | Notes to the Consolidated Financial Statements136 | Consolidated Cash Flow Statement 137 | Segment Reporting138 | Statement of Changes in Group Equity139 | Independent Auditor‘s Report140 | Consolidated Balance Sheet141 | Consolidated Statement of Income









AT A GLANCE

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A n n u a l R e p o r t | 2 0 0 7


Sales EUR mill. 2,206 2,423 2,743 3,121 3,251



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Documents

A n n u a l R e p o r t | 2 0 0 7 AT A GLANCE€¦ · Microelettrica Scientifica S.p.A. (I) Oerlikon-Knorr Eisenbahntechnik AG (CH) Sociedad Española de Frenos, Calefacción y Señales,