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Annual report 2023

Annual financial statements and combined management report of Vossloh AG for the 2023 fiscal year

2

Combined management report

of the Vossloh Group and Vossloh AG as of December 31, 2023

  1. Business and market environment
  1. Economic report
  1. Macroeconomic and industry-specific conditions
  2. Company acquisitions
  1. Results of operations
  1. Financial position and investing activities
  1. Asset and capital structure
  1. General statement on the business performance and economic situation of the Vossloh Group
  2. Business performance Core Components
  1. Business performance Customized Modules
  2. Business performance Lifecycle Solutions
  3. Vossloh AG - Analysis of the separate financial statements
  1. Statuary takeover-related disclosures pursuant to Section 289a and Section 315a HGB
  1. Workforce
  2. Research and development
  1. Risk and opportunity report
  1. Internal control system
  1. Outlook
  1. Nonfinancial Group statement

3

Business and market environment

Segmentation and competitive position

Vossloh is active in rail infrastructure markets worldwide. The Group provides a wide range of rail track- related services under one roof: rail fastening systems, concrete ties, switch systems and crossings as well as innovative and increasingly digital-based services for the entire lifecycle of rails and switches. Vossloh's customers are public and private local, freight and long-distance transport operators who make capital expenditures after predominantly long-termdecision-making processes and as part of long-term financing. Vossloh accompanies its customers as a partner over many years. Together with them, the company plans and develops solutions for their individual product and service requirements. This usually leads to delivery and project periods of several months to several years, with long-term framework agreements often being agreed with customers. Vossloh is committed to sustainable governance and climate protection and plays an important role in sustainable passenger and freight mobility with its products and services. Its business activities are organized into three divisions - Core Components, Customized Modules and Lifecycle Solutions. The Core Components division is made up of two business units, Vossloh Fastening Systems and Vossloh Tie Technologies. The other two divisions comprise one business unit each: Vossloh Switch Systems is part of Customized Modules and Vossloh Rail Services is part of Lifecycle Solutions. You can find detailed descriptions of the individual divisions on page 16 et seq.

Vossloh holds the following competitive positions in the rail infrastructure sector:

  • Vossloh is a leading global supplier and technological leader in rail fastening systems.
  • Vossloh is one of the global market and technology leaders in the switches and crossings segment.
  • Vossloh is a leading supplier of innovative technologies and services for the entire lifecycle of rails and switches.
  • Vossloh is a leading manufacturer of concrete ties in North America and Australia.

Organization

The Vossloh Group is active around the world. Local presence and customer proximity are integral elements of our business activities. Important production sites for the rail fastening systems produced by the Fastening Systems business unit are located in Germany, China, Poland and the USA. The Tie Technologies business unit manufactures concrete ties in the USA, Mexico, Canada and Australia. The switch systems in the Customized Modules division are manufactured primarily in France, Sweden, Luxembourg, Poland, Australia, India, Finland, Portugal, the UK, the Netherlands, Serbia, Malaysia and China. The majority of rail services in the Lifecycle Solutions division are provided in Western and Northern Europe, in addition to China.

Vossloh operates globally via sales companies and branches. The company enters into joint ventures and cooperation agreements with expert local partners on a case-by-case basis. Key Group companies and management companies are:

  • Vossloh Fastening Systems GmbH, Werdohl, Germany, and Rocla Concrete Tie, Inc., Lakewood, Colorado, USA, for the Core Components division
  • Vossloh Cogifer SA, Rueil-Malmaison, France, for the Customized Modules division and
  • Vossloh Rail Services GmbH, Hamburg, Germany, for the Lifecycle Solutions division.

4

Controlling system

The most significant financial performance indicators for the Vossloh Group are value added, sales revenu- es, EBIT (earnings before interest and taxes) and EBIT margin (EBIT/sales revenues). While the company uses sales, EBIT and EBIT margin as key performance indicators for short-term planning, the long-term management of the business units within the framework of the value-oriented growth strategy has a focus on value added. Value added is the key earnings indicator for the divisions and business units within the framework of external reporting.

Positive value added is generated when a premium is earned on top of the return claimed by investors and lenders (cost of capital). This premium is the difference between the return on capital employed (ROCE, calculated as EBIT/average capital employed) and the cost of capital, which is calculated as the weighted average cost of equity and debt. Multiplying the premium by average capital employed (working capital plus fixed assets) gives the value added over a period in absolute terms. For internal controlling purposes, ROCE and value added are calculated before taxes.

Cost of equity is largely composed of a risk-free interest rate plus a market risk premium. The interest rate factor is adjusted according to the result before taxes. Cost of debt is calculated on the basis of the Group's average financing terms. The ratio of equity to interest-bearing debt, which is used to determine the weighted cost of capital, is not derived from balance sheet data since it is not only predicated on a benchmark for the funding structure but also because equity is based on target market values in this case and not the carrying amounts recognized on the balance sheet. A weighted average cost of capital before taxes (WACC) of 8.5 % was used as the yield expected by investors and lenders for the purposes of intragroup controlling in the 2023 fiscal year (previous year: 7.0 %).

There are two ways of increasing value added: increasing EBIT and optimizing capital employed. ROCE is derived from both values. Vossloh seeks to improve the parameters it can influence to optimize this performance indicator. As a result, the company also focuses on working capital, working capital intensity (average working capital/annual revenue) and free cash flow.

Management uses nonfinancial performance indicators for the purpose of managing the company and making long-term strategic decisions. However, nonfinancial performance indicators do not play a central role in the management of the company. Instead, they provide information about the situation within the Group and are used as a basis for decisions. Accordingly, the Vossloh Group does not use nonfinancial performance indicators in the sense of Section 289c (3) sentence 5 HGB. Nonfinancial performance indicators that are not primarily relevant for management purposes are provided in the nonfinancial Group statement, which begins on page 46.

The management of Vossloh AG considers monthly financial reporting to be a central element for the ongoing analysis and control of the divisions, business units and the Group itself. To this end, the financial statements and key performance indicators prepared by the group companies are consolidated and analyzed in the same way as the annual forecast updated each month. Deviations are investigated in relation to their effects on the financial targets. The monthly updates to annual projections are supplemented by risk reports that aim to identify any potential reductions or increases in assets. The effectiveness of measures aimed at ensuring targets are met is continuously analyzed. The figures of the operating units are intensively discussed by their respective management and the Executive Board with the involvement of the relevant central departments of Vossloh AG.

Business and market environment

5

Economic report

Macroeconomic and industry-specific conditions

Investments in rail infrastructure are generally made around the world on the basis of long-term decision- making processes. For this reason, short-term economic developments are only reflected in the sales markets for rail technology to a limited extent. More significant is the development of debt levels in Vossloh's sales markets, as the overwhelming majority of the Group's clients are public-sector customers. The debt ratio (the ratio of public debt to GDP) of the euro countries at the end of the third quarter of 2023 was 89.9 % according to the statistical office of the European Union (Eurostat). This was the most recent figure available when this annual report was prepared. At the same time in the previous year, it was 92.2 %. At the end of September 2023, the debt ratio for the entire EU was 82.6 % compared to 84.6 % in the previous year. The decline in debt ratios was driven by GDP rising at a faster rate than government debt.

From a global perspective, the rail technology market has been growing steadily for many years. This is the result of rising demand around the world for environmentally friendly, safer and more economical mobility for both people and goods. The driving forces for this development include megatrends such as population growth, urbanization and, most significantly, increasing environmental awareness. No other means of mass transportation has a better eco-balance than rail. Both passengers and freight need to be shifted onto the rail network if the aim is to increase their mobility while also reducing their environmental footprint in the interest of combating climate change. There are investment programs around the world to promote rail as a mode of transport. The programs mentioned above play an important role for Vossloh as they affect markets in which Vossloh holds a strong competitive position with at least one business unit. In its "Green Deal" climate protection program, the European Union has set itself the goal of reducing transport-related CO2 emissions by 90 % by 2050 (already by 55 % by 2030). To achieve this, the European Commission wants passenger rail traffic in the high-speed sector to double by 2030 and triple by 2050. Rail freight transport is set to increase by 50 % by 2030 and double by 2050. The objectives of the European Green Deal will have a positive impact on the rail industry in the coming years and decades. Other examples of investment programs include the "Strong Rail" program adopted in Germany in 2020. The government and Deutsche Bahn have agreed to jointly invest a record sum of €86 billion in the maintenance and modernization of the existing rail network by 2030. In addition, over €30 billion is currently set to be invested in rail infrastructure over the next few years despite the difficult budget situation. In 2021, Congress in the USA passed an investment program that earmarks USD 66 billion for the rail industry. The "Egypt Vision 2030" infrastructure investment plan envisages Egypt investing almost €50 billion in the expansion of the rail network by then, including a 1,800-kilometrehigh-speed line. Indian Railways wants to be climate-neutral by the end of 2030. The Indian state railroad is therefore investing heavily in the expansion of the huge rail network on the subcontinent, in the modernization of rolling stock and in wind and solar parks to electrify the lines. The railway industry is also undergoing a profound transformation beyond this. Digitalization and automation, artificial intelligence and the standardization and liberalization of rail transport are changing the framework conditions significantly. Innovations are becoming increasingly important.

A number of studies regularly analyze developments in the global rail technology market. The most important publication is the "World Rail Market Study", published by the European rail industry association UNIFE. The study is updated every two years. The findings from the most recent study were published in September 2022 at InnoTrans, the world's largest trade fair for transport technology held in Berlin. According to UNIFE, the current global volume of the rail market is around €177 billion per year. UNIFE currently considers about 61 % of the total volume of the rail market - some €107 billion - to be accessible. In this case, accessible means that this market is, in principle, open to European suppliers and market demand is not exclusively met by domestic manufacturers.

6 Macroeconomic and industry-specific conditions

Vossloh focuses on rail infrastructure products and services. The market segments of infrastructure and infrastructure services are therefore of particular importance for Vossloh. According to UNIFE data, €22.8 billion of the infrastructure market is accessible each year. UNIFE estimates that around €6.1 billion of the market for infrastructure services is currently accessible.

Company acquisitions

With effect from September 1, 2023, Vossloh RailWatch GmbH, which was previously acquired as a shelf company and then renamed, acquired a business operation. The acquisition significantly expands the digital monitoring portfolio in terms of camera-based technology by using optical and acoustic sensors to record information on wheel damage and brake blocks, among other things. This provides crucial insights into wheel-rail contact, which has a significant influence on the condition of the rail track over time. The company is not assigned to any business unit.

Results of operations

Vossloh divisions - Orders received and order backlog

Orders received

Order backlog

€ mill.

2023

2022

2023

2022

Core Components

542.7

554.4

262.1

285.4

Customized Modules

524.1

563.3

461.3

488.1

Lifecycle Solutions

175.5

162.3

40.8

37.5

Consolidation

(24.9)

(33.0)

(3.0)

(11.4)

Group

1,217.4

1,247.0

761.2

799.6

In the 2023 fiscal year, Vossloh once again achieved a very high level of orders received and order backlog.

Orders received

Orders received were only 2.4 % below the previous year's record figure, marking the second-highest figure

again at a high

in the infrastructure business in Vossloh's history. Orders received in the Core Components division fell

level

slightly by 2.1 % compared to the previous year. This was mainly due to the Fastening Systems business unit

(-9.1 %), which, following major orders in Egypt and China in the previous year, now recorded a decline in

these two regions in particular. In contrast, Vossloh Tie Technologies, the second business unit in the Core

Components division, exceeded the previous year's figure by 20.1 % due to a significant increase resulting

from a major order in Mexico. The 6.9 % decline in the Customized Modules division was due in particular

to lower orders received in the Middle East, Italy, India and Egypt. On a positive note, there was a pleasing

increase in the important markets of France and Germany. The Lifecycle Solutions division achieved a

noticeable increase of 8.1 %, mainly due to continued high demand in Germany. The book-to-bill ratio at

group level, i.e. the ratio of orders received to sales revenues, was 1.00 (previous year: 1.19).

The Vossloh Group's order backlog as at December 31, 2023 reached the second-highest level in the company's history at the end of a year. Only at the end of 2022 was a higher figure achieved.

Due to the high number of framework agreements, the order backlog performance indicator is only of limited significance, as the order volume from acquired framework agreements is usually only recorded in orders received at the time of the respective requests.

Results of operations

7

Sales revenues

The Vossloh Group achieved a significant increase in sales revenues in the 2023 fiscal year. After €1,046.1

significantly higher

million in the previous year, sales revenues rose by 16.1 % to €1,214.3 million. This was well above the

than expected at

originally expected forecast range of €1.05 billion to €1.15 billion and at the upper end of the forecast range

around €1.2 billion

of €1.175 billion to €1.225 billion, which was raised at the end of 2023. All divisions achieved strong sales

growth.

Vossloh Group - Sales by region

€ mill.

%

€ mill.

%

2023

2022

Germany

141.8

11.7

101.7

9.7

France

95.1

7.8

89.7

8.6

Rest of Western Europe

101.6

8.4

87.7

8.4

Northern Europe

139.9

11.5

130.1

12.4

Southern Europe

116.5

9.6

101.9

9.8

Eastern Europe

88.4

7.3

78.9

7.5

Total for Europe

683.3

56.3

590.0

56.4

Americas

189.5

15.6

122.6

11.7

Asia

215.1

17.7

204.6

19.6

Africa

14.7

1.2

22.3

2.1

Australia

111.7

9.2

106.6

10.2

Total

1,214.3

100.0

1,046.1

100.0

Significant increase

Compared to the previous year, sales revenues in Europe increased by 15.8 % in the year under review. The

in sales revenues in

Lifecycle Solutions division achieved higher sales revenues, particularly in Germany. The Customized

Europe; Germany up

Modules division and the Fastening Systems business unit also contributed to the increase in sales. Sales

almost 40 % on the

revenues in Northern Europe exceeded the previous year's level by 7.5 %, in particular due to higher sales in

previous year

the Customized Modules division. This division was also largely responsible for the 13.1 % sales growth in

Southern Europe and 12.1 % in Eastern Europe, with a significant increase in sales in Italy and a new

construction project in Serbia.

Sales revenues in the

In the Americas, sales revenues increased by 54.6 % year on year in 2023. The increase was largely due to

Americas up by more

higher sales revenues in the Core Components and Customized Modules divisions in connection with a new

than half

construction project in Mexico. Sales revenues in the USA also exceeded the previous year's figure thanks to

the performance of the Tie Technologies business unit.

Sales in Asia slightly

In Asia, the group's sales revenues were 5.1 % higher than in the previous year. This was largely due to

higher year on year

higher sales revenues in the Customized Modules division in the Middle East region.

Sales in Australia

Group sales in Australia exceeded the previous year's already high level by 4.8 %. The slight increase in

up slightly

sales resulted in particular from higher sales revenues in the Customized Modules division.

Sales in Africa below

In Africa, the Vossloh Group recorded 34.3 % lower sales revenues. The decline was mainly due to lower

previous year's level

sales revenues in the Customized Modules division and the Fastening Systems business unit in Egypt.

The Vossloh Group's cost of sales amounted to €898.3 million in the year under review and was thus significantly higher than in the previous year (€809.3 million), in line with the sales trend. The cost of sales as a percentage of sales revenues amounted to 74.0 %, primarily due to a lower cost of materials ratio as a result of an overall improved project mix compared to the previous year (77.4 %). The Vossloh Group's selling and administrative expenses increased from €163.7 million to €214.4 million.

8

This increase was mainly due to higher logistics costs as a result of higher freight prices. In addition, higher consulting costs due to the implementation of group projects and increased personnel expenses also contributed to this, as a result of which the share of these expenses in sales revenues rose to 17.7 % compared to the previous year's figure of 15.6 %. The other operating result - the balance of other operating income of €17.7 million (previous year: €20.9 million) and other operating expenses of €10.9 million (previous year: €11.3 million) - amounted to €6.8 million. This figure was lower than the previous year's figure of €9.6 million.

Vossloh Group - Sales revenues and earnings

€ mill.

%

€ mill.

%

2023

2022

Sales revenues

1,214.3

100.0

1,046.1

100.0

EBITDA/EBITDA margin

158.0

13.0

131.2

12.5

EBIT/EBIT margin

98.5

8.1

78.1

7.5

Net income

55.3

4.6

56.0

5.4

Earnings per share (in €)

2.21

2.38

In the 2023 fiscal year, Vossloh achieved a significant increase in earnings before interest and taxes (EBIT)

EBIT 26.2 %

compared to the previous year. EBIT improved by 26.2 %. This increase was primarily attributable to the

higher than in the

Core Components division. The Customized Modules division also made a significant contribution to the

previous year

increase. The improvement in group EBIT is all the more remarkable given that holding costs in 2023 were

extraordinarily high, particularly as a result of higher costs for individual group projects and increased

personnel costs. EBIT was well above the original guidance range of €79 million to €88 million and at the

upper end of the range of €94 million to €100 million, which was raised at the end of 2023. The EBIT margin

also exceeded the original forecast of 7.2 % to 8.0 % and was in the middle of the most recently adjusted

range of 7.8 % to 8.3 %.

Net interest income in the 2023 fiscal year fell to €(16) million compared to the previous year's figure of

€(10.6) million. This was mainly due to higher financing costs from financial liabilities as a result of the

general interest rate trend. Earnings before income taxes increased to €82.5 million in the reporting year

(previous year: €67.5 million).

Income taxes in the Vossloh Group amounted to €28.2 million in the year under review (previous year:

€12.5 million). The absolute increase was mainly due to the higher operating result and was also influenced

by higher non-tax-deductible costs. In addition, the tax rate in the previous year was unusually low, as

deferred tax assets were recognized in the domestic tax group, particularly as a result of a corporate

restructuring.

Net income for 2023 was roughly on a par with the previous year, mainly due to the higher tax rate. Net

Earnings per

income attributable to hybrid capital investors amounted to €6.0 million (previous year: €6.0 million), while

share 2023 at

€10.6 million was attributable to other shareholders (previous year: €8.3 million). Net income attributable

€2.21

to the shareholders of Vossloh AG amounted to €38.7 million, slightly below the previous year's figure of

€41.7 million. With an unchanged average number of shares outstanding of 17,564,180, this resulted in

slightly lower earnings per share of €2.21 compared to the previous year (previous year: €2.38).

Results of operations

9

Dividend of €1.05 The Executive Board and Supervisory Board of Vossloh AG are committed to ensuring that its shareholders per share planned benefit from the economic performance of the Group. The Executive Board and Supervisory Board will,

for 2023 therefore, propose an increased dividend of €1.05 (previous year: €1.00) for the 2023 fiscal year at the Annual General Meeting scheduled for May 15, 2024.

Vossloh Group - Value management € mill.

Average capital employed

ROCE (in %)

Value added

2023

937.2

10.5

18.9

2022

950.6

8.2

11.5

Value added

ROCE was significantly higher than in the previous year due to the operational improvement. The WACC

significantly

used for internal management purposes - the weighted cost of capital of equity and debt providers - was

increased in 2023

raised to 8.5 % for the 2023 fiscal year (previous year: 7.0 %) as a result of the general interest rate trend.

Nevertheless, value added significantly exceeded the previous year's figure as a result of the strong EBIT

development.

The following table presents a reconciliation of the ROCE and value added performance indicators to the

EBIT shown in the income statement:

Reconciliation of value added and ROCE to EBIT € mill.

Premium in % (ROCE - WACC)

Average capital employed

Value added

Cost of capital on the average capital employed

EBIT

2023

2022

2.0 1.2

937.2 950.6

18.9 11.5

79.6 66.6

98.5 78.1

10

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Vossloh AG published this content on 18 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 21 March 2024 08:58:03 UTC.