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

Welcome to Knorr-Bremse's Conference Call for the Second Quarter 2026 Results. This conference is being recorded. [Operator Instructions]. Let me now turn the floor over to your host, Andreas Spitzauer, Head of Investor Relations.

Thank you, operator. Good afternoon as well as good morning, ladies and gentlemen. I hope all of you are very fine. My name is Andreas Spitzauer, Head of Investor Relations. I want to welcome you to Knorr-Bremse's presentation for the second quarter results of 2026 and our midterm update. Today, Marcus Llistosella, our CEO; and Frank Weber, our CFO, will present the results of Knorr-Bremse, followed by a Q&A session. The conference call will be recorded and is available on our home page in the Investor Relations section. It is now my pleasure to hand over to Marcus Llistosella. Please go ahead.

Thank you, Mr. Spitzauer. The past quarter was very strong for Ben. By the way, I assume that most of you in the call, I will see tomorrow anyway. So it's a little bit redundant. Hopefully, we can share them the time with some additional questions and discussions. Both rail and truck contributed to the good performance. Organic growth accelerated in RVS, while CVS benefited from the successful execution of the transformation measures as shown by organic revenue growth and increase in profitability. Given the first half year results of '26 and the positive outlook for year-end, we increased our full year 26 guidance. We have also successfully signed the agreement for the sale of our HVAC, as always told, and expect the closing of the deal by the end of this year. With this transaction, we have completed exactly our sellout program what we declared in Boost. And in total, we have sold companies with a combined revenue of approximately EUR 750 million, as also predicted. Looking ahead, Boost has transformed Knorr-Bremse into a stronger, more resilient and more profitable company. I think this is very open and very clearly to be decided. Building on this robust foundation, we are launching our Growth Beyond program now, the next strategic chapter focused on accelerating margin accretive growth while safeguarding the efficiency that we gained via Boost. Finally, we will present the financial targets that define our path towards 2030. Before turning to our performance, let me briefly touch on the market environment on Page 4. As all of you are aware, the overall picture remains supportive of Knorr-Bremse. In rail, demand continues to be robust. Order books across the industry remain at extremely high levels, well supported by strong passenger business and activities in signaling despite mixed freight markets. In truck, we are increasingly seeing signs that the market is finding its footing. Whatever that means in Europe, the market sentiment is rather supportive when it comes to Western Europe, where we generate most of our revenues. China continues to develop well, and they recover in North America that we anticipate this taking shape. While truck production rates were still mixed in the first 6 months, the underlying demand and the orders picked up nicely. For '26, we expect continued positive demand for aftermarket and our estimates regarding truck production rates are fully in line with our OEM customers. Looking ahead, we continue to expect a supportive rate environment and further normalization in truck, especially in North America, which represents a very solid base for our guidance. On Page 5, order intake increased year-on-year, reaching a solid level of more than EUR 2.2 billion. Group revenues amounted to EUR 2.1 billion, representing organic growth of more than 6% year-on-year. The operating EBIT margin was particularly pleasing in the past quarter, which increased by 110 basis points year-on-year to 14.2%. This number is the highest quarterly figure in the last 5.5 years, and we reached our current midterm margin target with the result. It not only reflects supportive markets, but even more the structural improvements we have implemented across the group over the past years which we always kept you updated. Free cash flow amounted to EUR 62 million, a remarkable improvement year-over-year. All in all, we delivered a very strong group performance, combining good growth with another significant step-up in profitability. With that, I would like to hand over to Frank.

Thanks, Marc. And let's move to Page 6. CapEx amounted to EUR 70 million, representing 3.3% of revenues. We continue to invest in a disciplined manner, balancing productivity improvements, maintenance requirements and targeted growth opportunities. Net working capital improved to EUR 1.43 billion. At the same time, scope of days improved significantly to 63 days, demonstrating the sustainable focus on working capital management across the group that we perceive. Free cash flow developed very strongly and reached EUR 262 million in the first -- in the second quarter and EUR 294 million in the first half year. This increase primarily reflects higher earnings, but also slightly improved working capital. Net working capital, the reported figure includes a positive one-off effect of around EUR 20 million related to the reimbursement of previously paid tariffs in the U.S. Return on capital employed increased further to 23.8%, up 250 basis points year-over-year. This reflects the higher profitability driven by our business activities as well as the benefits from our asset-light strategy. We remain firmly committed to disciplined capital allocation while continuing to invest selectively in margin-accretive growth. Let's take a closer look at the RVS performance on Page 6. Order intake in RVS decreased by 12% and reached around EUR 1.14 billion in the second quarter, resulting in a book-to-bill at 0.96. Rail demand remains healthy and continues to be supported by strong underlying market fundamentals. As we regularly emphasize, rail is a project-driven business with inherently uneven ordering patterns, making quarterly order intake figures less meaningful than in other industries. For the current quarter, we expect that RVS should be able to post good order intakes being on a similar level quarter-over-quarter or slightly higher with a book-to-bill ratio of around 1. Order backlog increased by 6%, reaching nearly a new record level with more than EUR 5.9 billion. The high order backlog and its good quality provide a strong foundation for '26 and beyond. While quarterly order intake can fluctuate significantly in Rail, the continued growth in our record order backlog is the best indicator for the sustained strength of the business and the future revenue visibility. Let's move to Page 8. Revenues increased by 7% to EUR 1.18 billion in the second quarter. On an organic basis, growth was around 5%, reflected the anticipated acceleration. The OE and aftermarket business contributed to this positive development. Absolute aftermarket revenues increased slightly to EUR 628 million, well supported by Europe and North America, which led to a revenue share of 53% in the past quarters. OE revenues grew by 24% to EUR 557 million, supported by strong project execution and continued healthy demand in all the regions. From a regional perspective, Europe remained the key growth driver with all major regions contributing positively. In Europe, revenues increased strongly, supported by both OE and aftermarket activities. The region continues to benefit from favorable market dynamics and strong project execution. North America returned to growth, driven by both OE and aftermarket business. The APAC region also delivered solid growth with contributions from business segments. China was lower year-over-year as expected and due to tougher comps. Operating EBIT margin increased by 100 basis points to 17.5%, driven by operating leverage and continued benefits from our boost efficiency measures. In a nutshell, RVS delivered another very strong quarter with higher organic growth and order backlog almost on record level and higher profitability as well. In the current quarter, we expect that revenues should develop on a similar level to the second quarter and profitability should see a slight increase quarter-over-quarter. For the full year, the operating margin of RVS should reach around 17.5%. Let's continue with the Truck division on Page 9. In a still challenging market environment, order intake reached EUR 1.06 billion, resulting in a book-to-bill ratio of 1.11. This underlines the solid demand driven by all regions globally currently. Regionally, Europe was significantly better, also supported by low comps in the previous quarter. In North America, order intake was very significantly higher, driven by the improved market situation. In APAC, order intake increased nicely as well, supported by China. Order intake in the current quarter should be around EUR 1 billion. Our order book at almost EUR 2 billion at the end of June was 12% above last year's level. Let's move to Page 10, which demonstrates the impact of disciplined execution and the tangible benefits of the measures we have implemented. Revenues increased to EUR 959 million in the second quarter, a nice step-up year-over-year with an organic increase of 8%. Both businesses contributed to growth. OE revenues increased by 5%, while aftermarket grew even stronger and was up by 12%. It is particularly encouraging and worth noting that the OE and aftermarket business grew in all regions and in China during the past quarter. Also worth mentioning is that North America delivered a particularly encouraging performance. Revenues grew by 6% despite still challenging truck production levels, demonstrating our ability to outperform the underlying market trends. Operating EBIT increased significantly to EUR 114 million, and the EBIT margin improved to 11.8%, up 150 basis points compared to the prior year quarter. The continuous improvement in profitability reflects the successful transformation of CVS and the ongoing benefits from our Boost initiatives, operational discipline and a favorable business mix. Therefore, higher organic revenues should support the bottom line even more by operating leverage due to the lower cost base. In a nutshell, CVS delivered another strong and resilient quarter, combining margin accretive growth with further margin expansion despite still challenging truck production rates in the second quarter of '26. In the current quarter, revenue should be flat and profitability is to be expected slightly increasing quarter-over-quarter. Unchanged is our assumption for the full year. We expect organic revenues to grow low to mid-single digit compared to '25. And as a result, our Truck division then should be able to reach an operating margin EBIT of around 12%. With that, I hand over to Marc again.

Thank you, Frank. Let's move to Page 7. We increased our outlook for '26 given the good performance in the first half of the year and the positive outlook for the end of the year. Our guidance is generally based on the expectations. The geopolitical and economic conditions remain largely stable under the assumption that the crisis in the Middle East does not escalate or continue for a longer period, particularly regarding supply chain disruption. We now expect the following: revenues between EUR 8.1 billion to EUR 8.3 billion, operating profit between EUR 14 million and EUR 14.5 million, free cash flow of EUR 750 million to EUR 850 million we expect rather the upper end of the range. Let's continue with the second part of our presentation on Chart 13. Before talking about growth beyond, let's briefly reflect on what and where we started the transformation of Knor-Bmse. -- early 2023, you asked what we will do. And we did a deep dive analysis of our company, challenge every aspect and topic. While our market positions, technologies and end of markets were strong, we identified a significant untapped potential, especially in the field of efficiency. This led to the Boost program. We set clear priorities, made difficult decisions and focused relentlessly on execution. As a result, we streamlined the portfolio, improved productivity, strengthened capital allocation, significantly increased profitability by 300 points, cash generation and capital efficiency. Most importantly, we did not just announce the program, we made it. We made commitments and we delivered. Page 14. This is what we achieved since 2023 with Boost. We implemented a broad set of measures. We streamlined our portfolio, adjusted organizational structures and further increased our manufacturing footprint in best countries. At the same time, we revitalized our high-performance culture and focused the organization on value creation, which includes the increased share of ROCE and free cash flow with our bonus systems. Major financial key figures defined under Boost have significantly improved. Importantly, Boost does not end here. The management discipline and steering mechanism that have been driven so far will remain, especially when it comes to headcount and capital. Page 14. A significant part of the structural improvements comes from optimizing our portfolio. We started in '23 of cleaning and fixing the start of our portfolio rotation. We sold 5 companies, which together generated annual revenues of roughly EUR 750 million. At the same time, however, we also significantly reduced our fixed costs and cut the number of employees substantially from 33,000 to 30,500, including HVAC. Without HVAC, we are now at 29,200 people. In addition, we have also implemented other structural measures such as increasing the share of best cost countries. Overall, [ Sen ] it and fix it improved our operating EBIT margin by more than 200 basis points, in fact, certainly a remarkable achievement by the entire KB team. Moving to Page 16, which illustrates the journey we have been on since our IPO. In recent years, Knorr-Bremse has demonstrated that we can manage global crisis, in some cases, problems we have created ourselves. However, it was the stability of today's management team, our clear strategic plan and its rigorous implementation that restored our company to the former strengths for which we were recognized during our IPO from the capital markets. Restoring the economic strengths we had many years ago was, therefore, our duty. At the same time, our targets go beyond former levels. We see significant opportunities to create additional value for organic growth, further portfolio rotation and where it makes strategic and financial sense through disciplined inorganic growth. Our vision is clear. We want Knorr-Bremse to be recognized as a top-notch modern, high-quality capital goods company, combining market leadership, operational excellence, innovation and attractive shareholder returns. Ultimately, shareholder value creation remains the guiding principle behind everything we do. Slide 17. Let me explain how we want to steer our company going forward. First and foremost, Knorr-Bremse is already much more than just a brakes company. Over the past years, we have increasingly managed the business from a portfolio perspective. Today, we operate across several attractive technology and service domains, each with different growth profiles, profitability levels and strategic opportunities. This is the so-called JV universe. This chart visualize the businesses as Galaxy. It reflects the way we look at our portfolio and how we allocate resources across the company. As part of the greenfield strategy within Boost, we conducted extensive deep dive assessment across a much broader set of potential markets and business areas -- the 6 galaxies shown here represent the fields where we see the most attractive combination of market growth, technology leadership and value creation potential. Each business unit has its own strategy and financial targets. However, all of them share the same foundation, customer focus, technological leadership, globalization, operational excellence, entrepreneurship and a high-performance culture. As important element of our future portfolio strategy will center on the concept of smart capital allocation that is directing organic and nonorganic investments towards those businesses opportunities that offer the most attractive returns. At the same time, we safeguard our existing leadership positions in every business in which we operate. Our ambition is to be a technology innovation and market leader. Ultimately, growth beyond about actively shaping our portfolio towards the most attractive growth and margin opportunities while maintaining the financial discipline that we established through Boost. Let me illustrate our portfolio thinking on Page 18 with one concrete example, Energy Technologies. Energy is a particularly attractive field because it builds on capabilities that have already existed with Knorr-Bremse for many, many years. We have been active in energy-related applications for more than 50 years. Our expertise ranges from energy management systems and rail vehicles to power and grid applications, where Cisco, a sub-brand of our house, has established itself as a respected Tier 1 supplier to rail and leading energy OEMs, especially in Europe. As part of our greenfield analysis, we looked far beyond our traditional business boundaries, assessing different markets and technologies. This analysis confirmed energy technology is one of the most attractive growth areas within our current and future portfolio, combining strong structural growth, attractive margin potential and continued opportunities arising from electrification and energy infrastructure investments. Let me now show what this means in practice on Page 19. We have already taken an important first step by merging our interest internal business units active in the energy sector, Microelectrica and Cilisco into a single business unit. In other words, we have created a new Galaxy within the Knorr-Bremse universe. Going forward, we see substantial opportunities to expand this platform both organically and selectively through disciplined M&A. Organically, we plan to accelerate growth through targeted investments in R&D and CapEx, allowing us to move further along the value chain and broaden our technological offering, both vertically and horizontally. In addition, we're actively evaluating selected M&A opportunities to further strengthen our product portfolio and gradually move towards a more comprehensive business and system approach. We believe this business represents an excellent example of the type of growth. We are seeking margin-accreting growth in an attractive market supported by long-term trends such as electrification, grid modernization, energy transition, particularly in Europe and North America, our core markets with our experiences. Our ambition is clear to build a larger technology-leading N technology platform while maintaining attractive margins and creating sustainable shareholder value. On Slide 20, let me briefly connect the dots regarding the growth beyond. This -- and the reality is our current traditional markets alone will not entirely fulfill the growth ambitions we have. Growth Beyond is our answer to do and to face this challenge. Growth Beyond is our strategy to take Knorr-Bremse to the next level. The objective is clear to create sustainable shareholder value for margin accretive growth while preserving the operational excellence and financial discipline we have reached so far. We know where we want to grow. We know where and which technology fields and business areas we want to prioritize. This is not a high-level vision. Growth Beyond is supported by detailed road maps, clear responsibilities, measured targets and dedicated governance structures across the organization. Boost improved the quality of our business, Growth Beyond will now accelerate Knorr-Bremse's margin accretive growth dramatically. Growth Beyond is built on our 4 pillars: accretive growth, cost efficiency, one team and artificial intelligence as an enabler and facilitator across all activities. Our ambition is clear. We want to accelerate market outperformance via profitable growth. At the same time, we will continue to strengthen our technology and innovation leadership while pursuing selective value-accretive acquisitions and disciplined portfolio rotation. A key principle remains unchanged. Capital follows returns. We will allocate resources to those businesses and opportunities that create the greatest value for our customers and specifically shareholders. Page 22. Our targets are ambitious for 2030, but they are firmly grounded in the market opportunities and the chances across our portfolio companies. We aim to reach organically, only organically around EUR 10 billion in, an operating EBIT margin of around 16%, and we want to achieve a cash conversion rate of more than 90%. This is and repeat, only our organic plan. Importantly, the revenue targets reflects organic growth only, and value-creating M&A activity is on top. Ultimately, our goal is clear to build an even stronger, high-quality capital goods company and create sustainable shareholder value over the long term. Frank, our CFO, will provide you now with more financials.

Thanks, Marc, again. Let me now briefly outline the Fostered financial strategy of Growth Beyond. At its core, our objective remains unchanged to deliver sustainable and profitable growth while continuously increasing shareholder value. Our Growth Beyond strategy program, however, the continued value increase of KP shares should be driven much more by margin accretive growth and operating leverage. We expect revenue growth to be well supported by our attractive product portfolio, technology leadership positions, long-term customer relationships and attractive markets. Consequently, we see further potential to expand profitability through operating leverage, well safeguarded by ongoing efficiency improvements and active portfolio rotation. Hand-in-hand with this goes with continued focus on excellent cash generation and capital efficiency, achieving a cash conversion ratio of above 90% and the ROCE of more than 25% are therefore, the key objectives of our financial framework. At the same time, these KPIs have high shares within our KB bonus system across the board. M&A remains an interesting add-on of our growth beyond strategy. We will continue to pursue a disciplined and transparent approach, focusing on transactions that are strategically sound, financially attractive, value accretive at acceptable multiples in the sector. Finally, sustainability remains an integral part of how we manage the company and create long-term value. Moving to Page 24. Back in '23, as Marc said, we set ambitious growth targets for our company. Looking at where we stand today, I believe the overall conclusion is clear. We largely delivered what we promised despite significant stronger headwinds than originally anticipated. The biggest challenge clearly came from the truck market. At the same -- at the time of the strategy update in '23 July, we conservatively expected the market to grow by only 1%, whereas both Europe and North America ultimately turned materially negative with roughly minus 5%. We also faced significant headwinds in FX, which cost us about EUR 500 million in revenue from '22 actuals to '26 expectations. Against this backdrop, CVS did not fully achieve its organic growth ambition. However, the organic revenue growth of rail was stronger than expected with 8% significantly outperforming underlying market growth of around 3% to 4%. In short, despite weak truck markets and FX headwinds, we can confidently say promised and delivered regarding the growth and profitability of the group. The achievement is even more encouraging when it comes to profitability. In Q2, the group operating EBIT margin exceeded 14% after 5 years again, and we are confident regarding the expected level for the full year, visible via the increased guidance. Importantly, this margin improvement is primarily self-help driven. Portfolio optimization, rigorous cost management and headcount reduction have been key contributors to this improvement. We are pleased with the development of ROCE, which is a central management metric and is directly embedded in our long-term compensation system, LTI. And finally, cash generation remains a key strength of Knorr-Bremse. Our cash conversion has improved significantly over the past years and demonstrates the discipline with which we manage our operations. That's why we also increased the target level to above 90% cash generation. The bottom line is simple. Profitability, ROCE and cash conversion have all developed in line with or above the ambitions we communicated in '23. Another clear example I think, of walking the talk. Let me briefly touch on Rail Vehicle Systems in general on Page 25. RVS is already a very strong and robust business. It's attractive market exposure provides a high level of recurring revenues, resilience and visibility, while long-term megatrends like green mobility and public infrastructure investments continue to support market developments globally. It is particularly encouraging that RVS has not only delivered strong growth in recent years, but has constantly outperformed its underlying markets. Looking ahead, we see further opportunities to continue this outperformance. The growth beyond analysis identified several highly attractive growth platforms like aftermarket, railways side, meaning our signaling business, smart electronics, like Mark mentioned, power and grid, the freight segment and last but not least, opportunities to grow in China again. I will come to that later. Together, these initiatives provide clear visibility for around about 7% plus revenue growth, joined by margin growth over the coming years. In short, RVS combines the characteristics of a high-quality cap goods company already today and is pretty close to the club of '25 regarding revenue growth and EBIT margin. With a target EBIT margin of around 20% in 2030 and an average annual revenue growth of around 7% plus until then, our Rail division will become a member of this club in the future. Let me now turn to China on Page 26, which remains a strategically important market for our Rail business. At our strategy update in '23, we assumed that our rail revenues in China Mainland would only reach around EUR 600 million by '26 and gradually increase thereafter. Looking at where we stand today, we are ahead of our assumptions. This improvement is based on many different things, a supportive market development, good ridership developments, the strategy change of how we approach the market is important to mention the fact that our technology is still ahead of our local competition, our strong customer relationships also in export and last but not least, the constant launch of our attractive innovations by our Rail division. We see good opportunities in key segments such as high-speed and aftermarket, but are highly -- both are highly accretive for Knorr-Bremse. As a result, we now expect '26 revenues to be meaningfully above our original assumptions. Looking ahead, -- we are, therefore, more optimistic for 2030 with around EUR 900 million of revenues to be achievable with still accretive margins. We also see promising opportunities in freight applications, more or less for the first time and other new business segments where our position has improved quite considerably. In short, the turnaround in China has been achieved, and we should be back to growth in China. Let me now turn to CVS on Page 27. CVS will remain a bit more in the boost mode going forward, where the division has achieved significant success in the field of efficiency. Truck has been transformed very successfully over the last years, but we continue to see further opportunities to improve efficiency, productivity and profitability. This is a helpful prerequisite due to an expected prebuy effect in '29 driven by the introduction of Euro 7 a year later in Europe, the truck market in 2030 is expected to be only at a rather similar level as in '26. But CVS is not dependent on market growth alone. Growth will be supported by our expanding aftermarket business and continued content per vehicle increases. Due to the slower-than-expected adoption of e-mobility growth, our content per vehicle is lower today than anticipated before. But the long-term opportunity driven by the electrification of trucks remains fully intact. In addition, autonomous driving and software content will allow us to sell more and higher-value products per vehicle long term as penetration rates would go up. In the aftermarket segments, we expect good growth momentum driven by Cojali and our CVS service platform opportunities via Travis that is currently being expanded. This gives us confidence that CVS can continuously outperform its underlying markets while further strengthening its earnings profile. Moving to Page 28. Our capital allocation framework was established many years ago and remains unchanged. Our priority is the organic growth of our business and attractive dividend for our shareholders. Consistently with growth beyond, we want to drive innovation and technology leadership of Knorr-Bremse to support our organic growth with an R&D ratio of around 6% of revenues and a CapEx ratio of 4% to 5%. In addition, the dividend should be growing with a payout ratio of around 50% of our net income. As a floor, the dividend should be at least stable in absolute terms year-over-year. Our second priority is M&A, which I will outline in more detail in the next chart. In the third phase are share buybacks and special dividends. Moving to Page 29 and coming to our nonorganic growth. Our M&A strategy and its criteria have not changed. We have followed the same strategic focus and financial guardrails for many years now, and they remain fully in place. We continue to focus on attractive businesses in the field of capital goods with strong growth and attractive margin profiles where Knorr-Bremse can be clearly the best owner. Our priorities are clear. First, we look at opportunities within rail and truck with rail generally offering more attractive market opportunities and higher financial returns. Second, we consider adjacent areas such as signaling and truck aftermarket. Thirdly, we evaluate selected new fields where we already have capabilities and market access such as energy technology. Most important, every transaction must pass our strict financial guardrails. -- value creation, profitability, cash generation and capital efficiency are nonnegotiable entry criteria for the KB Club. In short, we are willing to do more M&A, but if it creates value at acceptable acquisition multiples in the respective sector. It is important to mention that Knorr-Bremse is not in a forced position, and we can do most of it ourselves. However, M&A can play a crucial role in significantly accelerating development processes to boost growth and capitalize on future opportunities. Moving to Page 30. Marc has already provided a deep dive into Energy Technologies, which is one good example. Across Knorr-Bremse, we have several attractive segments and business fields where we see growth opportunities doubling down via organic and inorganic investments. Our portfolio management approach is straightforward. We will continue to invest in businesses that combine higher growth rates and higher margins while managing more mature businesses with a strong focus on cash generation and returns. Excellent capital allocation, therefore, remains an important lever within growth beyond. In simple terms, capital follows returns and returns drive the value creation. Moving to Page 31 to walk you through our revenue bridge towards 2030. Based on our current assumptions, we expect group revenues to grow organically -- we expect group revenues to grow organically from slightly above EUR 8 billion in '26 to around EUR 10 billion by 2030. Please keep in mind that in '26, our HVAC business is still fully included with approximately EUR 360 million because we expect to close the deal only by year-end '26 due to antitrust regulations. The main contributor regarding growth remains rail, supported by good market growth, aftermarket expansion and our growth beyond initiatives. TVS is expected to outperform the underlying truck market through aftermarket expansion and higher content per vehicle. Importantly, these figures reflect our organic growth ambition only, excluding HVAC. Any value-accretive M&A would come on top. Overall, this gives us a clear path reaching around EUR 10 billion of revenue by 2030 with a mid-single-digit organic growth rate every year for the group. Let me now turn to our profitability targets on Page 32. Based on our initiatives under Boost and Growth Beyond, we should be able to expand margins further in both divisions. In Rail, we target an operating EBIT margin of around 20% latest in 2030, driven by continued margin accretive growth, operating leverage and further efficiency improvements. In CVS, the opportunity ranges from approximately 12% to 14%, depending on the respective market developments, predominantly in Europe and North America, of course, also China plays a certain role, which together account for roughly 80% to 90% of our divisional revenues. For this reason, we use different market scenarios in our planning assumptions. Importantly, most of the improvements are driven by measures within our own control, operational excellence, portfolio optimization, fixed cost efficiency, disciplined investment management and footprint optimization, including the potential -- including potential one-off effects on net income further down the road maybe. Taken together, this provides a clear path towards an operating EBIT margin of around 16% at the group level by 2030. Let me now turn to the overall group view on Page 33. Our financial ambitions and the bridge that takes us there. Starting from operating EBIT margin of 14% to 14.5% in '26, we have a clear plan to reach around 16% in 2030, around 200 basis points from growth and resulting operating leverage, around 100 basis points from operating excellence, continued efficiency improvements, white collar optimization and disciplined capital allocation, partially offset by around about 100 basis points for investments into the future growth footprint and AI capabilities. We target mid-single-digit organic growth, which should lead to around EUR 10 billion in revenues, again, without HVAC. -- a ROCE of above 25% 5 percentage points higher than our current target and a sustainable cash conversion rate above 90%, also 5 percentage points above our current cash conversion target. And just as with our revenue ambitions, any M&A would be additional to these targets. Let me close with a simple vision for Knorr-Bremse from a financial point of view. Compared to where we started in '22, it's our goal that Knorr-Bremse will become more railish, more resilient, a highly profitable cash machine and ready for the future regarding our investments in technology. In addition, we will add potentials from our future growth field expectations, meaning we expect a larger share of revenue, stronger returns on invested capital and higher cash generation. At the same time, we will not stop investing into our future. We will continue to invest in absolute terms in innovation and growth opportunities than our competitors. But in future, we will do so even with a more targeted and smarter way. With that, back to Marc.

Thanks, Frank. Moving to the last page of today. Let me close with the most important message. 3 years ago, I was an unknown person to you. The management team was new. We told you that Knorr-Bremse had to become more efficient, more profitable and more focused. And so what we delivered. Today, we're telling you the next aim for Knorr-Bremse that the next phase is about margin accretive growth, smart capital allocation, increasing our exposure to attractive markets and technologies. The formula is quite simple. We preserve the efficiency gains and the mindset of Boost. We allocate capital to the most attractive opportunities. We expand our presence in businesses with stronger growth and higher margins. And by doing so, we create sustainable shareholder value. Our 2030 targets are clear, and they are not based on hope. They are also built on a solid track record of execution and believe the belief in us and our strengths. The numbers shown today are our base. They are the fact, the evidence and also assurance to you that our ambitions, which are going beyond are reachable. Thank you very much for your attention. Thanks for your loyalty. Thanks for staying with us, and we will now answer your questions.

[Operator Instructions]. We already have quite a few questions. The first question is from Sven Weier from UBS.

Question is around CVS target setting for '26 and 2030. I mean on '26, you guide low to mid-single-digit organic, but with your Q3 guidance that you've just given, we're rather running in the high single digits. So why are you still so cautious? And also on 2030, when we look back in history, the peak margin in CVS was 16%. And undoubtedly, you've now streamlined the company much more than it was 10 years ago. So I was just wondering what are still the missing levers to get back there? Are there some measures that you are consciously not doing to improve margins?

Thank you very much, Sven, for that question. First of all, I think we need to mention that we have no limitations in terms of our capacity in North America. And regarding whatever the market ultimately turns out to be, we will be harvesting the potentials. Yes, I agree that we might be a bit less -- a bit more conservative when it comes to truck production rate expectations in the second half of the year. We see roughly heavy-duty trucks, Class 8 trucks at levels of 260,000 units, whereas some other competitors in ACT see it on the level of 270,000 or even 275,000. We would be happy if the market would go that direction. From today's point of view, we have seen a good truck production month of June. All the other months, as you very much know, and also all the institutes are telling you this, we are significantly down in truck production rates in the North American market in January, February, March, April and May. And it's a bit of hope in there in all expectations out there. So we think with 260,000, we are on the right side of things and happy to go further and also deliver operating leverage if the market allows. Expect that from us, clearly. Long term, yes, of course, we have had in times where there was not yet investments being done, especially R&D in R&D engineers in a significant amount for autonomous driving for electrification, some maybe 10 years ago, there was 1, 2 years where truck also was able to reach 15% of return 10 years ago, 10 years of inflation against that, of course, a lot of efficiency work. But we have, in the meantime, spent a lot and fostered the company around technology drivers. So we have invested a lot in the meantime in software engineers, R&D engineers in order to cope with the -- what's coming up with the demand that's coming up on electrification and autonomous driving. We -- on the revenue side, we don't see it at all. As you all know, a lot of measures, maybe except for China, where you have significant electrification penetration rates in the market already. But in the other markets, you don't see it. So in the revenue, you don't see the numbers, but in the cost, you have it. And that's a bit of a burden for very innovative companies clearly. And we will harvest on those technologies going into the future whenever the penetration rates go up.

Is there also an element, I mean, as you mentioned, you didn't reach the 13.5% target for this year. So that this time, you consciously did a more conservative truck margin setting for the guidance?

As you see, to some extent, this is pretty clear. We have back in the days, also been trying to do a bit conservative expectation for the market itself. Also, that didn't come to reality. It was plus 1%, what we assumed. The markets came in with minus 5% ultimately and even worse the 2 years before, we were disastrous in Europe, as you know, in '24 and in the U.S. in '25. So that definitely didn't help. And we are a bit, I would say, yes, on the conservative side, knowing or having the empirical evidence of last year -- last time's guidance. Yes, you're right.

And the next question is from Gael de-Bray, Deutsche Bank.

You said that M&A would come on top of your EUR 10 billion revenue objective. So what do you consider is your firepower for acquisitions? And then since CVS is obviously expected to remain a drag to the group's overall performance in terms of both margins and growth. I mean, do you even need to be exposed to that business? I mean, why not fully allocating capital to RVS?

Thanks, Gael. First of all, the firepower depends, of course, what's your appetite for risk in regards to the ratings. We have always said, and this has not changed that we always have our red line when it comes to investment-grade levels. And I will not -- for whatever you ask for the theoretical just to get us all on the same page, you ask for the theoretical firepower that we have, we would never ever doubt the red line of investment grade, we would always keep a buffer in regards to the investment-grade level. That's pretty clear. And with that, you can calculate also to scale, you are very smart. You can calculate the numbers by yourself, but we have EUR 5 billion easily of firepower, but that's only the theoretical mentioning. We have no plan at this time on hand that we would need that amount of money, but that's the theoretical firepower that we have going down to a BBB+ level or what have you, theoretical example. Truck track, of course, I told you also many times here that there is a company foundation that is built on synergies between the 2 businesses of truck and rail when it comes to braking systems, technology-wise, system-wise and approach-wise, and whenever we would be seeing as a management team that this level of synergy going forward would not be enough, we would definitely consider other options. But this is the foundation that this company is built upon. We have never been limiting a rail growth path, a rail investment or whatever investment into rail opportunities because we would have needed the money for truck. So there was never ever a compromise in the development of the 2 divisions or the group being made. And also another triggering point in future could be, of course, if that limitation would come up and we would have to limit the one or the other division, then you have to make up your minds. But we see the fundamentals of this company intact with the synergy base that we have. And this is, for the time being, the situation that we have. So at this point in time, no need to think about the split of the 2 divisions.

Agreed. And if I may, just one more. Slide 15, I think it was, you showed the progress in terms of productivity realized over the past few years. Do you have any specific target on the revenue per employee that you could share with us for CVS and RVS by 2030?

Look, revenue per FTE is an important KPI for us that we look at, but it's definitely not the major KPI because you always have to see this KPI in combination with the other profitability KPIs and the revenue per FTE KPI is one KPI to look at. Imagine a company that has a fantastic revenue and high efficiency on the personnel side, but doesn't earn a single penny of EBIT, then you can have the most fantastic revenue per FTE in the world, but you don't earn a penny. So it's within our guidance of achieving certain margins, we want to also increase definitely revenue per FTE, and we want to go definitely beyond EUR 300,000 levels. That's clear. But a clear target is only senseful if you combine it with other strategic KPIs that you strive for. But definitely beyond 300,000 very clearly.

[Operator Instructions]. The next question is from Vivek Midha from Citi.

Hope you can hear me well. My question is to clarify around Boost versus the new program. So if I look on Slide 15, it says that you're most of the way through fix program, about 90% complete. If I look at Slide 30, it looks like there's still about 10% of the whole portfolio, which you see needing to be optimized on growth plus margin. So it does look like there are further parts of the portfolio, which, as you've looked at the business over the last few years, you believe you need to fix further. So could you maybe give us more color on perhaps what those are or how you think about...