Welcome to Knorr-Bremse's conference call for the second quarter 2026 results. This conference is being recorded. At this time, all participants have been placed on a listen only mode. The floor will be open for questions following the presentation. 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, Marc 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 homepage in the Investor Relations section. It is now my pleasure to hand over to Marc Llistosella . Please go ahead.
Thank you, Mr. Spitzauer. The past quarter was very strong for Knorr-Bremse. By the way, I assume that most of you in the call I will see tomorrow anyway, so it is a little bit redundant. Hopefully, we can share then 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. Giving the H1 year results of 2026 and the positive outlook for year end, we increase our full year 2026 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 sell-out program that we declared in BOOST.
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 four. 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 the recovery in North America that we anticipated is taking shape. While truck production rates were still mixed in the first six months, the underlying demand and the orders picked up nicely. For 2026, 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 rail environment and further normalization in Truck, especially in North America, which represents a very solid base for our guidance. On page five, 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 five and a half 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. Let's move to page six. 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 second quarter and EUR 294 million in the H1 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 six. 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 2026 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 eight. Revenues increased by 7% to EUR 1.18 billion in the second quarter. On an organic base, growth was around 5%, reflecting 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 nine. 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 base 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 the 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 2026. In the current quarter, revenues 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 2025, 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 seven. We increase our outlook for 2026, given the good performance in the H1 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-EUR 8.3 billion. Operating profit between EUR 1.4 billion and EUR 1.45 billion. Free cash flow, EUR 750 million- EUR 850 million, through 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 Knorr-Bremse.
Early 2023, you asked what we will do, and we did a deep dive analysis of our company, challenged 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 ROSI and free cash flow with our bonus systems. Major financial key figures defined in the 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 2023 of cleaning and Fix It. We started our portfolio rotation. We sold five 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- 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, Sell 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 strength 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 through 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 KB universe. This chart visualizes the businesses as galaxies.
It reflects the way we look at our portfolio now 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 six 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. A star important element of our future portfolio strategy will center on the concept of smart capital allocation. That is, directing organic and non-organic investments toward those business 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 is about actively shaping our portfolio towards the most attractive growth and margin opportunities while maintaining the financial disciplines 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 rails vehicles to power and grid applications. With Zelisko, 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 all internal business units active in the energy sector, Microelettrica and Zelisko, 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 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 technology skill, offering both vertically and horizontally.
In addition, we are 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 accretive growth in the 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 energy 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.
Our 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 roadmaps, 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 four 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 by 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 us, 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, an operating EBIT margin of around 16%, and we want to achieve a cash conversion rate of more than 90%. This is, I repeat, only our organic plan. Importantly, the revenue targets reflect organic growth only. Any 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 by continuously increasing shareholder value. Our Growth Beyond strategy program, the continued value increase of KB 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 a 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 2023, 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 significantly stronger headwinds than originally anticipated. The biggest challenge clearly came from the truck market.
At the time of the strategy update in July 2023, we conservatively expected the market to grow by only 1%, whereas both Europe and North America ultimately turned materially negative with roughly -5%. We also faced significant headwinds in FX, which cost us about EUR 500 million in revenue from 2022 actuals to 2026 expectations. Against this backdrop, CVS did not fully achieve its organic growth ambition. The organic revenue growth of rail was stronger than expected with 8%, significantly outperforming underlying market growth of around 3%-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 five 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 ROSI, which is a central management metric and is directly embedded in our long-term compensation system, LTI. 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, ROSI, and cash conversion have all developed in line with or above the ambitions we communicated in 2023.
Another clear example, I think, of walking the talk. Let me briefly touch on Railway Vehicle Systems in general on page 25. RVS is already a very strong and robust business. Its attractive market exposure provides a high level of recurring revenues, resilience, and visibility. While long-term mega trends 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, railway side, meaning our signaling business, smart electronics, like Marc 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%+ 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%+ 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 2023, we assumed that our rail revenues in China Mainland would only reach around EUR 600 million by 2026 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, both are highly accretive for Knorr-Bremse. As a result, we now expect 2026 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 positions have improved quite considerably.
In short, the turnaround in China has been achieved. 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 pre-buy effect in 2029, driven by the introduction of Euro 7 a year later in Europe. The truck market in 2030 is expected to be only at the rather similar level as in 2026. 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 R&D ratio of around 6% of revenues and the CapEx ratio of 4%-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 place, our share buybacks and special dividends. Moving to page 29 and coming to our non-organic 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. 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 non-negotiable 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 from slightly above EUR 8 billion in 2026 to around EUR 10 billion by 2030. Please keep in mind that in 2026, our HVAC business is still fully included with approximately EUR 360 million because we expect to close the deal only by year end 2026 due to antitrust regulations. The main contributor regarding growth remains rail, supported by good market growth, aftermarket expansion, and our Growth Beyond initiatives. CVS 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 targeted 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%-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%-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 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%-14.5% in 2026, 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. 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 2022, it is 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, 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. Three 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. So what? We delivered. Today, we are 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. By doing so, we create sustainable shareholder value. Our 2030 targets are clear, they are not based on hope. They are also built on a solid track record of execution and in belief.
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, we will now answer your questions.
Ladies and gentlemen, we will now start the Q&A session. Due to timing, please limit yourself to one question. To ask a question, please press star nine and pound key on your telephone keypad. I repeat, star nine and pound key. If you would like to revoke your question, press star three and pound key. You can also use the dial-in function in the webcast and raise your hand if you would like to ask a question by phone. We already have quite a few questions. The first question is from Sven Weier from UBS. The floor is yours.
Sven, thanks for taking the question. Question is around CVS target setting for 2026 and 2030. On 2026, 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. Why are you still so cautious? 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. 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.
Thank you very much, Sven, for that question. First of all, I think w e need to mention that we have no limitations in terms of our capacity in North America. Regarding whatever the market ultimately turns out to be, we will be harvesting the potentials. Yeah, I agree that we might be a bit more conservative when it comes to truck production rate expectations in the H2 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. It's a bit of hope in there, in all the expectations out there. 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, of course. We have had in times where there was not yet investments being done, especially R&D spending and R&D engineers in a significant amount for autonomous driving, for electrification. Some maybe 10 years ago, there was one, two years where truck also was able to reach 15% of return. It's 10 years ago, 10 years of inflation.
Against that, of course, a lot of efficiency work. We have, in the meantime, spent a lot and fostered the company around technology drivers. We have invested a lot in the meantime in software engineers, R&D engineers, in order to cope with what's coming up with the demands, what's coming up on electrification and autonomous driving. On the revenue side, we don't see it at all. As you all know, 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. In the revenue, you don't see the numbers, but in the cost, you have it. That's a bit of a burden for very innovative companies, clearly. When we will harvest on those technologies going into the future, whenever the penetration rates go up.
Is there also an element, 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. That didn't come to reality. It was a +1 what we assumed. The markets came in with -5 ultimately, and even worse, the two years before, we were disastrous in Europe, as you know, in 2024 and in the U.S. in 2025. That definitely didn't help. I would say yes, on the conservative side, knowing or having the empirical evidence of last year, last time's guidance. You're right.
Understood. Thank you, Frank.
You're welcome, Sven.
The next question is from Gaël de Bray, Deutsche Bank. Please go ahead.
Good morning, everybody. You said that M&A would come on top of your EUR 10 billion revenue objective. What do you consider is your firepower for acquisitions? Since CVS is obviously expected to remain a drag to the group's overall performance in terms of both margins and growth, do you even need to be exposed to that business? Why not fully allocating capital to RVS? Thank you.
Thanks, Gaël. First of all, 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, yeah. I will not, for whatever you ask for the theoretical, just to get us all here 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. With that, you can calculate also the 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, brake, of course, I told you also many times here, that there is a company foundation that is built on synergies between the two businesses of truck and rail when it comes to braking systems, technology-wise, system-wise. 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. 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.
There was never, ever a compromise in the development of the two divisions or the group being made. 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. We see the fundamentals of this company intact with the synergy base that we have. This is for the time being, the situation that we have. At this point in time, no need to think about the split of the two divisions.
Agreed. 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 targets 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, it's definitely not the major KPI because you always have to see this KPI in combination with the other profitability KPIs. The revenue per FTE KPI is one KPI to look at. Imagine a company that has a fantastic revenue and a high efficiency on the personnel side, doesn't earn a single penny of EBIT. You can have the most fantastic revenue per FTE in the world, you don't earn a penny. Within our guidance of achieving certain margins, we want to also increase definitely revenue per FTE, and we want to go definitely beyond 300,000 levels. That's clear. A clear target is only sensible if you combine it with other strategic KPIs that you strive for. Definitely beyond 300,000, very clearly.
Ladies and gentlemen, just as a reminder, in terms of fairness and timing, please limit yourselves to one question only. The next question is from Vivek Midha from Citi. Vivek?
Thank you very much, everyone. Good morning. Hope you can hear me well. My question is to clarify around BOOST versus the new program. If I look on slide 15, it says that you're most of the way through the Fix It 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. 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. Could you maybe give us more color on perhaps what those are or how you think of? Thank you.
Okay, I just asked Andreas quickly, because I couldn't hear it properly, the question. The question was more focused on the low 10% that you mentioned here. This is clear. We always said that we had a part of the BOOST program, which was called Fix It and Sell It, as we discussed about it, we are ahead of the curve when it comes also to the Fix It initiatives, we're not perfectly yet done. We still have tiny bits and pieces in the business portfolio where we still need further improvements. This low is, of course, relative to how we rate the others in terms of their absolute performance. I would not say they are really low in terms of negative or what have you. They are lower than the others.
I told you three years ago that we do basically benchmarking to other companies in the respective sectors or business fields. Those business who are not yet on benchmark levels, we continuously drive towards benchmark levels.
Understood. Thank you.
Next question is from Akash Gupta, JP Morgan.
Yes. Hi, good morning, thanks for your time. My question is on CVS segment. In the past, there was an emphasis on moving to advanced driving assistance systems or ADAS to help boost your medium-term growth prospect. Clearly, development on this side in the industry has been slower than what was anticipated over five or 10 years ago. I wanted to ask, you are guiding for -2% content per vehicle growth on slide number 31, maybe you can help us with the moving parts. What's going in favor? What is not going in favor? Is there any opportunity to surprise on that -2%? Because that looks a bit under review. Thank you.
Okay. The first part I forgot, the -2 . I'm not sure which -2 you mean actually, but maybe come to that in a second. Yeah, it's pretty clear. Of course, I cannot tell you, and I will not tell you all the product ideas we are having as Knorr-Bremse, for an autonomous world of the future or for electrified truck. Some of the examples that we also want to market, we will show you at the respective fairs, also the IAA coming up. You can be assured that I'm not telling a secret here, if you're the world market leader in brake systems and in steering systems, that you want to have a fair share in redundancy systems around those, going into the future that come with autonomous trucks in the future. That is definitely not a surprise.
Therefore, we see value as one example, and you asked for examples how to look at things, that is definitely a growth area for us, and revenues are just not there yet as market penetration, except for some mining yards or maybe for some harbors, yet are not really in play. Those are areas where we really expect to grow and add content per vehicle here, or e-compressors. When electrification becomes a broader phenomena, those are product fields where we expect quite some growth in content per vehicle, which was just not there yet, as every OEM pushed out the stuff into the further years.
Thank you.
Next question comes from Ben Uglow of OxCap Analytics. Ben?
Yep. Thank you. Good morning, guys. I wanted to dig a little bit into the energy technology examples that you put out on slides 18 and 19. It's pretty interesting. I want to make sure I kind of understand the strategy. I'll try and roll a few questions into one if I can. You've combined Microelettrica and Zelisko under one roof. I want to know, is that a sort of formal combination? Are you changing kind of the actual setup and reporting lines, or is that just on paper? Secondly, the areas that you've talked about, things, well, instrument transformers, that is very much what I would call a specialist market. When you talk about expanding, are you thinking about other areas, distribution, switching, even larger transformers? How are you thinking about that business?
Finally, I don't know if I've understood it right. Are you saying that you're targeting EUR 500 million in 2030 or more than EUR 500 million? The question is, there are lots of small assets out there are big assets as well, and what is the game plan here? Those are my questions.
Dear Ben, good to hear you again. Let me start with the latter part of your question, maybe if you allow. The more technical aspects and reporting lines thing I will hand over to Marc. He's very deep into those topics, of course. Of course, we are, as you know, having currently around EUR 250 million of revenues in those two businesses. We told you so already, the margins as of today are already pretty accretive to the group's levels. We are targeting, you're fully right, an organic growth towards EUR 500 million. We intend to double over the next four years our revenues in that field from an organic growth perspective, absolutely right. We hope to, and will, maintain the margins on an accretive level for the group. That's the first answer.
Maybe Marc, if you won't mind something in regards to. Maybe I can also add before Marc joins in. Clearly we are changing the reporting lines when it comes to the substructures in rail, but we will not take that business out of the rail division. It's part of the rail division, and also on that path towards EUR 500 million, it will remain in the rail division. On the top level of the reporting lines, it will stay in RVS because there it was born and has been grown since.
Next question is from Meihan Yang.
I assume we will come tomorrow to this point.
My question, thank you for taking my question. Just want to ask a little bit of your China RVS upgrade. Do you factor any of the potential market share gain that you have been previously guiding on the high-speed railway? And also, can you give us a bit more color on this quarter's sequential decline in the RVS orders? Was it related to any of the OEM project delay or any of lumpy orders that slips through to the H2 ? Thank you very much.
Thank you very much. Let me also here start with the latter. I am sometimes even making a joke because Andreas is warning me each and every quarter to say something about the lumpiness of the rail business. There is nothing spectacular in terms of push-out. You have the one or the other push-outs on a quarterly basis that we see since now five, six years. To say also in this quarter, nothing really spectacular. We have had great quarter numbers with more than EUR 1.2 billion or above EUR 1.2 billion of order intake. In order to achieve our growth path into the future towards 2030, we would need, I would say, around EUR 1.1 billion+ of order intake in the respective quarters given the order backlog that we have already today. There is nothing at all to worry about. Nothing spectacular happened.
Not a huge order being pushed out. That's just the usual things that happen. It's just the regular lumpiness. Nothing to worry at all, so to say, in that regard. Coming to the first part of your question, we have never, at least not me, ever guided that we will increase market shares in the high-speed segment. We've said we are around 25%-30%, and this is what we intend to keep. Yes, with the new situation, where we are now seeing more chances overhang in China for us, there would be, for the first time now going into the future, a chance to increase that market share again. That's a great development that we are seeing, and that is to a very large extent also driven by the great relationship that we have built up with CRRC when it comes to the export business.
We are their foundation, so to say, to win orders in the Western world market, and it's great to see such a great relationship with CRRC. That could be now going into the future, be a chance for us to increase there the market share and get more back to the system competence, and the system market penetration that we once had and we have lost over the years. That's I think that example, but now towards 2026, we don't see any increase of market share in high speed. Going forward, this would be the situation, or that's what we're striving for.
Okay. Thank you very much.
Yeah. Before-
Sorry-
What we found out, colleagues, by the way, is that there is a data mashup in the Visible Alpha consensus data by one of the banks. There is totally incorrect data in, which is pushing the consensus up for 2030. I am not saying the names, of course, needless to say, if you look into it, there are only five or six analysts in Visible Alpha out of the 17 that are covering us. Five to six only, one is totally wrong and has us with EUR 12 billion and with 18.5% margin. I just want to point that out, everybody around this table here. Everybody knowing us knows that this can only be an error. The consensus is wrong in Visible Alpha. This is confirmed by the bank, just to let you know.
Thank you. Now, William Mackie from Kepler Cheuvreux.
Good morning, and thank you for the time and the question. I would like to ask a question about capital allocation, both historic and forward-looking. I guess historic, the first question relates somewhat to the results in that you have taken a write-down on Nexxiot, which perhaps signals underperformance in the business or perhaps there is not a realization of the digitalization strategy you were expecting. To speak to that. Also the numbers I can see from duagon, the acquisition you have just made appeared to have been slightly lower than the assumptions at the time of the deal. It is about capital allocation historically and how we should think about those deals in reference to your statements of 14%+ margins and accretion to the group.
Forward-looking, I think you guide for a return on capital employed of 25%, you require your M&A to be above a return on capital employed of 20%. I just wanted to bridge the gap. Are you seeing that you should be able to make up the longer-term returns profile on the back of much stronger performance from the core business? Do you look to significantly improve anything you acquire going forward? Thank you.
Yeah, thanks, Will. Man, that's your job to dig into on a piece of paper, more nasty things than highlight the great ones. I will remind you a bit of our acquisitions in Cojali with the standalone EBIT margin of 40%, the acquisition of the signaling business, which is in the meantime, one and a half years after we bought it, at an EBIT margin of around 20%, we intended to get 16% out or 16%+ , maybe, hopefully one day out of it. Both fantastic acquisitions, and we also delivered here on what we expected and what we promised. Also, now I try to draw the bridge towards your questions.
Signaling, when we did the due diligence for signaling, we also found out that we need to, at first, in the first nine months of the business, we need to lay off more than 120 people, which we did. Nevertheless, we said that we will be achieving profitability of above 16%. By the way, we always, in the capital allocation principles, we always said, or in the financial guidelines, we basically said we expect those, so we don't buy anything that has less than 14% of return within the first two years that this company belongs to us. That was always what we said, and we repeat that here once again. Drawing the bridge to duagon, also here in the duagon due diligence, it was pretty clear for us, fantastic company, fantastic growth expectations going into the future.
Exactly from a system and product point of view, what we want to have, half of the business for signaling, half of the business, electronics, exactly what we wanted to have. We also saw here that we have to do significant restructuring. Contrary, as another example, contrary to the signaling business, also in the due diligence, we identified that not all, and not everybody in the top management of this company is worth being part of the top management team in Knorr-Bremse in the future. This is what we are currently doing at duagon. We are cleaning that stuff up. Here you have three business areas. You have a Swiss business, you have a Spain business, engineering services, basically, and you have a German business. Guess who? One part of the business is not where it should be, and that's where we are currently focusing.
Not a surprise at all. We had in the first quarter 10%. Second was basically zero, that you're rightfully pointing towards, but it will get better, and we will come to those levels that we have anticipated. We do the restructuring and the stuff that needs to be done, same like we did in signaling, and now we're 4% or 5% better in profitability in signaling, and you will see that happen with duagon as well. We will come to that levels that we promised. Nexxiot, we always said these financial guardrails for M&A are totally valid, if we're not talking about startups. Look at the old documents, we have clearly written that in. Nexxiot was a startup, minority share that we bought some five years ago, I'm not sure.
This was not at this margin level and technology, we tried to conquer with that minority investment, which in the meantime, we were also able to develop ourselves and don't need really the perfect collaboration with Nexxiot anymore, as we are also at, I would say on eye level, at least when it comes to those kind of sensor and data technology of Nexxiot. Given that there is for us not that USP anymore as like it used to be in the past, and that's why we have been very carefully as we are, been writing that minority stake off. That's the only thing.
The last question is from Bank of America. Alex, floor is yours.
Hello. Hi. Thanks for taking my questions. I have one on your midterm organic sales growth in trucks. You are guiding for 4% by 2030, with you're implying 3% content growth and are assuming around 0-1% volume growth despite I think we remain well below mid-cycle across different regions. Does this reflect your typical conservatism, or is there any reason you are more skeptical today on your market recovery?
There is of course one. I had this in my speaker notes in because it was important to me. For midterm guidance, you have to pick a certain year. We have picked 2030. We didn't want to pick 2029 because it sounds a bit awkward. 2030 we picked, we also make up the best of our knowledge when it comes to the market in 2030. Unfortunately, there is, so to say, this Euro 7 introduction, which will, to our expectations, cause quite a significant pre-buy in 2028 and 2029 in Europe, and the truck market in 2030 in Europe will be rather weak. That is the reason why maybe this 1% number appears to be pretty low, but that is especially driven by that expectation of Europe due to Euro 7 introduction. That's I think the only reason.
Of course, on the other side, we are never assumed as the organization in the capital market to have the most aggressive market views. The Europe effect is the biggest.
Thank you.
You're welcome.
Okay. Thank you very much for your participation. Thank you very much for your participation, and we look forward seeing you tomorrow, and have a great afternoon. Thank you, and bye-bye.
Looking forward. Thank you.