CEO, Kontron AG
Kontron Aktie: Vom IT-Dienstleister zum IoT-Unternehmen! CEO Hannes Niederhauser im Gespräch.
In unserer neuesten Doppelfolge (Folge 22 & 23) haben wir (Volker Glaser und Lukas Spang) den CEO der Kontron AG, Hannes ...
About Hannes Niederhauser
Hannes Niederhauser, CEO of Kontron, described the company as a technology firm with over 7,000 employees that connects machines and devices to the internet, focusing on expensive equipment such as high-speed trains, aircraft, and welding robots. In a podcast, he stated that Kontron is one of only three providers in its market and, following Huawei's retreat from the European market, is winning 70 to 80 percent of tenders. He said the company buys hardware firms, adds its own software, and has increased gross margins from 30 to 36 percent in the first six months of the year. Niederhauser noted that Kontron is focused on five key technologies and predicted strong development if even two of them succeed. Niederhauser also discussed past challenges, including a short-seller report in December 2021 that he said was addressed through forensic investigations by Deloitte and an unmodified audit opinion. He mentioned that chip shortages had created 108 million euros in undelivered orders and that paying premium prices on the spot market had reduced EBITDA by 1.1 million euros. In earlier interviews, he highlighted the benefits of the merger between Kontron and S&T, stating that the combined company could offer integrated hardware and software solutions. He also expressed a preference for the Austrian business environment, citing labor freedom and consensual unions, and criticized the ratio of lawyers to engineers in the United States.
Transcript (51 segments)
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Narrator0:00
Disclaimer: The stocks or funds discussed in this podcast do not constitute a buy or sell recommendation. The hosts are not liable for any losses resulting from the implementation of the thoughts or ideas.
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Volker Glaser0:15
Welcome to Glaser and Spang, the stock market podcast on stocks and shares with a focus on Germany. I'm Volker Glaser, and with me is Lukas Spang. We are delighted to have a very special guest today: Hannes Niederhauser, CEO of Kontron AG. Hello Mr. Niederhauser.
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Hannes Niederhauser0:54
Good day Mr. Glaser, good day Mr. Spang.
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Volker Glaser0:56
Thank you for joining our podcast today. Let's jump right in. Most people know Kontron as a long-time listed company, originally on the Neuer Markt, with a turbulent history. I must mention that our fund holds a significant position in Kontron, so please consider this for disclosure – this podcast is for advertising and marketing purposes only.
Mr. Niederhauser, can you explain in simple terms what Kontron does?
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Hannes Niederhauser2:04
Kontron is a technology company with over 7,000 employees, many engineers. We connect machines and devices to the internet – the Internet of Things. Not Alexas or fridges, but expensive equipment like high-speed trains, aircraft, and welding robots.
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Volker Glaser2:42
Can you give a practical example to make it clearer?
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Hannes Niederhauser2:48
Why connect devices? So they can talk to each other, like robots in a production line, improving synchronization and efficiency. We call it 'grid' – up to a million units. You see our systems in trains, planes (Lufthansa's FlyNet), autonomous mining trucks, and medical devices. During COVID, we connected over 50% of known respirators. We don't make the devices; we connect and remotely control them.
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Volker Glaser4:33
What are your key industries? Aviation and trains seem important.
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Hannes Niederhauser5:00
Trains are a big business. The EU program aims to connect all cities over 100,000 with high-speed trains by 2030 – that's 30,000 km of rail, up from 11,000 today. Kontron is one of only two European suppliers, and we win 70-80% of tenders. The market is about €500 million, with margins above corporate average. After the installation phase, service contracts over 5-10 years bring high recurring revenue.
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Volker Glaser9:42
What about defense and aerospace?
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Hannes Niederhauser12:19
Defense is growing fast – our VPX system handles encrypted data at 25 Gbps. Sales have doubled in 12-15 months to €150 million, with margins even better than trains. However, due to ESG constraints, we keep it under 5% of total revenue.
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Volker Glaser15:56
What about smart factories?
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Hannes Niederhauser16:06
Smart factories connect machines in production. The ROI typically amortizes in 3-6 months. This trend is key for reshoring manufacturing to Europe. Our customers include Kuka robots and other automation firms.
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Volker Glaser18:34
And medical technology?
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Hannes Niederhauser19:00
Medical tech is stable. Our largest customer is GE Healthcare. We also developed the first surgical robot with Medtronic – already generating €10 million in sales this year. Robots reduce errors in surgery.
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Volker Glaser22:11
What about autonomous driving?
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Hannes Niederhauser22:38
We supply test systems for autonomous vehicles, including companies like Waymo and Zoox. A typical self-driving unit costs €150,000. With Foxconn (26% owner of Kontron), we aim to bring costs down to €3,000 for mass adoption. I expect this to become standard within 5 years.
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Volker Glaser28:23
Are there other important areas?
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Hannes Niederhauser28:36
Yes, smart energy and e-mobility. We developed intelligent charging systems for Volkswagen that communicate with the car and the cloud. It optimizes charging when electricity is cheap or solar power is available, and can even extend battery life. VW is our biggest customer, and we also have a Nordic and a Swabian luxury carmaker coming soon. This year, we've already received €350-400 million in orders from this sector.
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Volker Glaser34:00
And the home energy management system?
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Hannes Niederhauser34:15
Our Home Energy Management System integrates EV charging, photovoltaics, heat pumps, and the grid. Next year, we'll enable cars to power homes during a blackout. It's a mass-market product.
You can supply yourself from the AIP station without buying an emergency kit; we provide the device. We work with the largest German mass manufacturer, and they sell to end customers. Every car is matched with a charger – with one sports car brand you cannot buy the car without the charger. VW has become a power supplier like EnBW.
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Volker Glaser37:07
The charger business should reach 190 million this year. Where will it go in 2025 and 2026?
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Hannes Niederhauser37:23
I think it will at least double by 2026. We have about a one-year software lead.
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Volker Glaser37:39
The charger business you took over from Ktec was rather low-margin. How much can you add to the Kontron margin?
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Hannes Niederhauser37:57
We will reach 40 to 50 percent gross margin, compared to about half at Ktec. The difference is the intelligent, connected charger – that's the value add. The sports car order came in only two months ago; it's brand new.
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Volker Glaser38:35
This is the game changer you mentioned before: taking a rather boring hardware business, putting your technology into it, and making it intelligent and margin-attractive.
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Hannes Niederhauser38:54
That's the DNA of Kontron. When we took over S&P in 2016, it was pure hardware; we connected everything and lifted margins from 22 to 34 percent within a year. We bought the Zug business for €3 when it was near bankruptcy – three companies for €1 each – and it now has extreme margins thanks to our FMCS standard. The same is happening with Ktec: last year 30 percent gross margin, now under Kontron 36 percent, and chargers above 40 percent.
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Volker Glaser40:08
On the other hand, Ktec also has a solar business that is not doing well this year. Have we hit rock bottom? What's the current situation?
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Hannes Niederhauser40:25
Solar sales have halved, but that doesn't matter much for the whole group because other areas doubled. The market is not good, but it could hardly be worse. We've adjusted costs. Photovoltaics will bring little joy this year, but in two to three years it will flourish because we combine it with our HEMS software – solar, auto charging, heat pump – so we minimize grid feed-in. We have our first major pilot customer and are working on bidirectional charging. This year Q3 likely a loss, Q4 break-even, while the charger business is already making double-digit margins.
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Volker Glaser43:16
The solar weakness is due to massive overcapacity after huge demand, plus expensive electricity after Putin's attack and the construction downturn.
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Hannes Niederhauser43:44
The solar market has had such peaks and dips before, but on a smoothed curve it's a nice growing market. We differentiate through technology, intelligence, and connectivity. Ktec's electronics manufacturing business (about €200M) is not problematic but not exciting – it earns a bit but never a lot. We can optimize to around 10% EBIT.
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Volker Glaser45:46
Does it make strategic sense to keep that manufacturing business or is it a divestiture candidate?
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Hannes Niederhauser47:04
It's not decided yet; it could be a sell candidate. We deliberately kept the Ktec name. We're bringing more production in-house because customers want fewer Chinese-made products. As Kontron grows 20% per year, we may need that capacity anyway.
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Volker Glaser48:18
There are still some holdover activities from the earlier divestiture – Austria and a part in Romania. Can we expect them to be sold soon?
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Hannes Niederhauser48:41
Romania is now our center for public transportation software – ticketing for subways etc. Revenue there has shrunk, but we expect good earnings next year with the new system. In Hungary we will sell part of the artificial intelligence center and keep the rest. Austria may also be sold. The IT services business, once €220M, is now about €150M.
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Volker Glaser50:10
The third quarter just ended. How did it go?
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Hannes Niederhauser50:22
Q3 is on track for our aggressive targets: net income from €75M towards €100M, EBITDA from €130M to €190M. We will meet them without a profit warning. Book-to-bill remains above one. We are now negotiating our first billion-euro order – our largest before was €250M.
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Volker Glaser51:22
On cash flow and allocation: last year you released working capital, and you've said M&A is paused to integrate Ktec. But looking to 2025, what should investors expect regarding dividends, buybacks, and capital allocation?
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Hannes Niederhauser51:52
We will certainly pay a dividend, likely higher than 2024. Share buybacks make sense at our current valuation – we've bought back 10% over four years. For now we want to reduce debt from the Ktec acquisition. From next year we may resume buybacks and do some small acquisitions. I personally favor stable dividends plus buybacks.
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Volker Glaser54:20
There was a short seller attack a few years ago. Do you think that still weighs on the stock?
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Hannes Niederhauser54:28
Yes, some investors are still wary. But all allegations proved baseless – a forensic audit cleared us. There have been no short attacks for two years, but the memory lingers.
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Volker Glaser55:00
The 2025 plan targets €140M net income. Is that still on track?
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Hannes Niederhauser55:16
That plan was made in 2021. Now revenue of €2B is close, but growing net income 40-50% next year is unrealistic in this environment. We will not hit €140M, but we will publish a new Agenda 2028 and give a detailed 2025 forecast in January. Profit will continue to rise strongly.
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Volker Glaser57:20
When can we see that update, and what might it contain?
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Hannes Niederhauser57:42
It will be published with the 2025 plan in January. It will show significantly higher profit growth than revenue. Key goals include 40 million installations of our operating system, further growth in recurring revenues, and five growth engines: FMCS railway standard, Kontron Grid as the Windows of machines, VPX defense communication, HEMS energy management, and cost-efficient AI for machines (not Nvidia-scale). The software and solutions segment should reach 50% of revenue and 70-80% of profit by 2028.
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Volker Glaser59:50
So the software segment target of 50% revenue and 70-80% profit by 2028 is realistic?
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Hannes Niederhauser1:00:02
Yes.
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Volker Glaser1:01:34
Good – Kontron is on a good path. Thank you. Lukas, any question? No? Then thank you for the conversation. Have a great day, and we'll repeat the podcast with you in 2025. Best wishes.
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Narrator1:03:04
That was Glaser and Spang, the stock market podcast on stocks and shares with a focus on Germany. Subscribe now and don't miss an episode.