KION GROUP Aktie

Ladies and gentlemen, welcome to the KION's New Segmentation and IFRS 18 Reporting Implications Call. I am Mathilde, the Chorus Call operator.

[Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christian Harm. Please go ahead.

Yes. Thank you, Mathilde, and welcome, and thank you all for joining today's call. Today, we want to provide you with an early and detailed introduction to 2 important changes that will affect how you see and model KION from 2027 onwards. First, we are introducing a dedicated Financial Services segment. And second, IFRS 18 becomes effective from the 1st of January 2027 and changes the presentation of our financial statements. These changes will have visible effects on several of the metrics you are familiar with, including revenue, profitability, free cash flow, ROCE, indebtedness and leverage. However, one message that is important from the outset, these are primarily changes in segmentation, accounting presentation and KPI definitions. They do not change the underlying economics of our business. Our objective today is, therefore, to give you sufficient transparency to understand the mechanics and prepare your models ahead of the transition.

Now let me start with the key messages on Slide 2. From 2027, KION will report 3 operating segments rather than 2: ITS, IAS and the new Financial Services segment, with the acronym FS, and plus the Corporate Services segment as before. The majority of our leasing business will be separated from ITS into Financial Services. This reflects the increasing importance and specific economics of leasing and gives us greater transparency, more dedicated steering and additional flexibility in funding.

In parallel, IFRS 18 changes the structure of the income statement. The familiar EBIT subtotal will disappear and operating profit will become the relevant subtotal under IFRS for KION. The important modeling point is that several headline KPIs will mechanically look different. Based on the pro forma 2025 numbers, revenue will be higher, the operating margin will be somewhat lower, while ROCE and leverage will be higher than we have originally reported on 2025.

None of those movements in themselves represents a deterioration or improvement in the underlying business. For the new Financial Services segment, we will introduce return on equity as the core profitability and capital efficiency measure. And if you again remember one point from today's presentation, it should be this: the economics stay the same, but the way those economics appear in our reporting changes materially.

Now Slide 3 lays out today's agenda, and we will proceed in 3 steps. First, I will explain the rationale for Financial Services and the relevant IFRS 18 changes. Second, we will go through the reporting implications in some detail. This is the most important section for your models because we will bridge the existing KPIs to the new definitions. And then finally, we will summarize the key points and explain the transition timetable through our 2026 full year results into the first quarter of 2027.

Moving on now to Slide 4. Let me start with why are we making this change. Leasing has become a significant business for KION. Leasing-related assets increased from approximately EUR 2.4 billion in 2018 to almost EUR 4.9 billion in 2025. So that is a compound annual growth rate of around 11%. Today, leasing-related assets represent approximately 27% of KION's total assets, while leasing-related revenues represent approximately 22% of ITS revenue, but size is only part of the argument.

Leasing also has fundamentally different economics than our industrial activities. It is a long-duration, asset-backed, resilient business model with distinct funding requirements and cash flow profile. It allows us to optimize economics over the entire truck life cycle rather than simply at the original point of sale. That increasing scale and the different economic profile led to the decision to establish a separate segment. From the 1st of January 2027, the dedicated Financial Services segment should therefore give you a better visibility into both the industrial businesses and the economics of the leasing portfolio. It should also improve our own steering and broaden the options available to fund the business.

I now continue on Slide 5, which shows the organizational change. Today, KION has 2 operating segments, ITS and IAS, with Financial Services economically embedded within ITS. From January 2027, Financial Services will become our third operating segment. Initially, this segment will comprise the existing Financial Services captive entities. I will explain captives in more details on the next page.

The so-called captives will account for around 70% of the leasing business at the start, with that share expected to increase over time. Whenever we refer going forward to the industrial business, we mean KION excluding the Financial Services segment. There's an important math here for your models. Financial Services and leasing are not completely synonymous. A portion of the leasing business will remain in ITS. We will explain that distinction on the next slide because it becomes important when interpreting cash flow and segment performance.

Slide 6 lays out what we mean with captives as not all of you may be familiar with the concept. A captive is an -- sorry, a captive is an entity dedicated to financing the products of one manufacturer or brand. This is quite frequently seen with automakers or heavy truck companies. Our Financial Services captives are dedicated entities through which we provide financing and leasing solutions for KION equipment. Currently, these captive entities exist in 7 European countries. Around 70% of KION's leasing-related assets are already held in these entities.

This structure provides several benefits. It allows specialized contract and risk management, and it enables funding structures such as asset-backed securitization, which can provide attractive funding costs. Our intention is to increase the captive share over time. In countries where we already have a captive, the non-captive leasing business can migrate as contracts expire. We may also add captive entities or branches in further geographies. Leasing business and sales and service entities will continue to be reported in ITS.

Now continuing on Slide 7. As said, FS initially won't include every leasing-related activity, and this distinction is important. The new FS segment captures the long-term leasing activity that is transacted through our captive entities. The conventional industrial activities remain in ITS, direct sales of new trucks, aftersales, short-term rental and used truck. And as I mentioned earlier, leasing conducted outside our captives will initially also remain within ITS. So please do not model FS simply by carving all leasing revenue and assets out of ITS. This is particularly relevant when looking at the new industrial free cash flow KPI later in the presentation. FS cash flow is not identical to total leasing cash flow because some leasing activity continues to reside within ITS.

Continuing on Slide 8. This slide explains one of the most important mechanics following the introduction of the Financial Services segment. Today, the direct sale business and the leasing business are both reflected within ITS. This means that truck economics and leasing economics are combined within one segment. Going forward, when ITS truck -- when an ITS truck enters a lease through Financial Services, ITS will sell the truck to FS. ITS, therefore, recognizes the truck sale as new business revenue and recognizes the associated product margin upfront. Financial Services then holds the leasing contract with the customer and earns the corresponding finance or interest margin over the contract term.

At KION Group level, the intra-group revenue between ITS and FS is eliminated. Reporting of the external business of ITS with end customers remains unchanged. At segment level, this will provide a much clearer picture. ITS generates and reports the industrial products margin, while FS reports the economics of financing and managing the lease portfolio. For analysts, that means ITS segment revenue will mechanically increase because transactions with FS become segment revenue even though they are eliminated in the consolidation for the group.

I'm now on Slide 9. Because FS is fundamentally a capital and balance sheet business and operating margin alone would not give us the best measure of performance, we will, therefore, use return on equity as the core KPI for Financial Services. We define FS return on equity as the last 12 months profit before tax, divided by the average equity based on the last 5 quarterly reporting dates. On a pro forma 2025 basis, the return on equity of FS would have been 12.3%.

Now why return on equity? Because it combines profitability with capital efficiency. Our objective is to optimize the interest margin and efficiently manage the portfolio and customer risk while using an appropriate amount of equity. We currently envisage a debt-to-equity ratio of around 9:1 based on assumed volume growth and without requiring equity injections from the industrial business. The actual FS return on equity target will be communicated in March 2027 together with our 2027 outlook. For modeling purposes, I would encourage you to think about FS primarily as a spread, risk and capital efficiency business rather than benchmarking its operating margin directly against ITS or IAS.

We now move from segmentation on to the topic of IFRS 18 on Slide 10. IFRS 18 replaces IAS 1 and becomes effective on the 1st of January 2027. Importantly, our 2026 comparative information will therefore also need to be presented on the new basis. There are 3 elements relevant for today's discussion. First, the income statement gets a new structure, including mandatory operating, investing and financing categories and 2 new required subtotals, operating profit and profit before financing and income tax. Second, IFRS 18 introduces enhanced aggregation and disaggregation requirements. And third, there are additional disclosure requirements for management-defined performance measures.

For KION specifically, one particularly important conclusion is that under IFRS 18, our leasing activity qualifies as a so-called specified main business activity. As a result, certain leasing-related interest income and expenses that previously set in the financial results now become part of operating profit. This classification drives several of the changes in revenue and operating profit that you will see in the following slides.

So now this Slide 11 shows what the new income statement will look like. The operating category runs from revenue through to operating profit. The investing category then captures items such as the results from associates and joint ventures and other investment income such as interest income on cash or from financial assets. Below that, financing expenses are shown before profit before tax. Therefore, the familiar EBIT subtotal disappears from the statutory P&L.

For KION, the most important practical impact is that leasing-related interest moves into gross profit and therefore into the operating result because, as I said before, leasing is a specified main business activity. This means that comparisons between historical EBIT and future operating profit need to be made carefully. The important point to stress again, this is about the presentation of income and expense. It's not about changing profitability. Finally, it all comes together again on the profit before tax line, which will remain unchanged and continue to be comparable to historical figures.

Now with that foundation in place now, let us move to the most important part for your financial models. We will now translate the segmentation and the IFRS 18 changes into the impact on reported revenue, adjusted operating profit, free cash flow, ROCE, debt and leverage. The examples use pro forma 2025 data so that you can see the mechanics on a concrete numerical basis.

We're continuing on Slide 13, which is effectively the map for the reporting framework from 2027 onwards. At group level, revenue remains with the new definition, but adjusted EBIT is replaced by adjusted operating profit. For cash generation, today's KION free cash flow will be replaced by industrial free cash flow, separating the Financial Services cash flow from the industrial businesses. We will retain ROCE as a KPI, but with a revised denominator, consistent with the new operating profit definition and the new capital employed definition. Our indebtedness presentation will also change.

At the segment level, ITS and IAS will report revenue and adjusted operating profit. Financial Services will most importantly report FS return on equity. So when you roll your models from 2026 into 2027, you should not simply rename the historical KPIs. In several cases, the definitions and calculation bases generally change. We will provide restated 2026 comparatives alongside with the 2027 outlook in March and the new reporting structure so that you have an appropriate basis for comparison.

Slide 14 now presents the impact on revenue. On the reported 2025 basis, KION revenue was approximately EUR 11.297 billion. Under IFRS 18, approximately EUR 194 million of finance lease interest income moves into revenue because leasing is one of our specified main business activities. The corresponding amount previously appeared in financial income. For operating lease contracts, all income, including the interest component, was already presented within revenue and therefore remains unchanged under IFRS 18.

That brings IFRS 18 restated revenue to approximately EUR 11.491 billion or 1.7% higher. Again, this is purely presentational. It does not mean an additional EUR 194 million of customer activity or economic value has suddenly been created. So for your historical comparisons, please normalize for this effect rather than interpreting the uplift as organic growth. Furthermore, there is no change in the fundamental revenue recognition timing logic for the underlying lease contracts.

Continuing on Slide 15 with the profitability bridge, which is slightly more complex. We start with the 2025 reported adjusted EBIT of EUR 789 million, representing a 7% margin under today's presentation. We then add approximately EUR 194 million of leasing interest income relating to finance lease. We also bring approximately EUR 195 million of leasing-related interest expense relating to both finance and operating lease into the operating performance.

So as a reminder, for operating lease contracts, all income, including the interest component, was already presented in the operating performance, and therefore, that remains unchanged under IFRS 18. We then remove around EUR 11 million relating to equity accounted investments from the operating category, and there is another approximately EUR 11 million of other changes. The result is a pro forma adjusted operating profit of EUR 766 million and an adjusted operating profit margin of 6.7%.

So compared with today's 7% adjusted EBIT margin, the new margin is mechanically lower. Again, that should not be interpreted as 30 basis points of operational deterioration. The classification boundary has changed and revenue has increased while adjusted operating profit is lower than adjusted EBIT. That is an important point when assessing both historical performance and our future outlook. Profit before tax remains unaffected by these IFRS 18 and segmentation changes.

Now let's talk about free cash flow on Slide 16. The cash flow presentation will also change quite materially. So this is another area where historical comparisons need to be made carefully. Reported fiscal 2025 operating cash flow was approximately EUR 1.132 billion. IFRS 18 related reclassifications reduce that by around EUR 192 million. You see this in the second column from the left. And we will discuss these reclassifications in more detail on the next slide.

These reclassifications result in an IFRS 18 restated operating cash flow of approximately EUR 940 million. IFRS 18 has only a minor impact on the investing cash flow so that KION's free cash flow moves from approximately EUR 710 million reported to approximately EUR 518 million on an IFRS 18 restated basis. Now the segmentation of Financial Services allows for separation of the majority of the lease business from KION's industrial business. Accordingly, we separate the free cash flow of the Financial Services segment. And on this pro forma basis, Financial Services free cash flow is approximately minus EUR 280 million. Adding positive EUR 307.5 million cash flow from financing activities, the total cash flow of the FS segment is slightly positive at EUR 27.5 million.

Now removing Financial Services from KION's free cash flow gives us the industrial free cash flow of approximately EUR 797 million. From 2027, industrial free cash flow becomes the key KPI for KION for steering cash generation and liquidity. We want the KPI to give us and you a meaningful view of cash performance from the industrial operations under the new reporting architecture. One-off is very important. The free cash flow of the Financial Services segment is not the same as KION leasing free cash flow because as we explained earlier, some leasing activities remain in ITS.

Slide 17 lays out the changes in the operating cash flow that we referred to on the previous slide. Going forward, KION will use both special purpose refinancing instruments as well as general purpose instruments to fund leasing and rental assets. Due to IFRS 18, the presentation of leasing and rental-related funding cash flows will change and move from operating into financing activities. Investments in the lease and rental portfolio, though, remain in the operating activities.

For the 2025 example, the principal movements include EUR 426.2 million of changes in lease liabilities being reclassified to financing activities, together with changes in rental liabilities in the amount of EUR 8.1 million, the interest expenses related to leasing and rental of EUR 213.5 million as well as smaller other effects in the amount of EUR 13.1 million. The net effect is a reduction of approximately EUR 191.5 million in operating cash flow with the offset in financing cash flow.

The key analytical point is that the reclassification between operating and financing cash flow does not change the total cash flow. Again, this change is the reason why we are introducing industrial free cash flow as the core KPI. We want the KPI to give you a meaningful view of cash performance from the industrial operations under the new reporting architecture.

Slide 18 presents the new ROCE definition. ROCE also needs to be adjusted because both sides of the equation have to be aligned. Going forward, the profit numerator becomes adjusted operating profit rather than adjusted EBIT. We then adjust capital employed so that the denominator corresponds to the items represented in operating profit. In particular, leased assets are excluded from capital employed. Since the associated financing cost is reflected within operating profit under the new approach, the interest for the associated liability has been covered so that the assets can be deducted from capital employed. Associated companies are also excluded from capital employed because the corresponding income is no longer part of operating profit.

The result is somewhat counterintuitive. Despite the lower profit KPI in the fiscal 2025 example, ROCE is structurally higher because the reduction in the capital employed denominator is proportionately larger. This is another metric where the direct comparison between the old and the new KPI definition would therefore be misleading. The higher ROCE is not evidence that KION suddenly became more capital efficient overnight. It is simply the effect of a different KPI definition.

This brings us to indebtedness on Slide 19. Today, our debt table starts from corporate debt as financial debt and goes down to industrial net debt that excludes lease liabilities funded through special purpose refinancing instruments. In the table to the right, we have added those lease liabilities to arrive at net debt. From 2027, the mechanics change because leasing will be financed through both special purpose and increasingly through general purpose instruments. We will, therefore, start from a broader definition of interest-bearing liabilities, excluding pensions. We then derive net debt, excluding leasing business by deducting liabilities used in refinancing of leasing business from both the Financial Services and ITS from net debt.

An important modeling point is that this new measure is above the current industrial net debt measure indicated by the values in the green circles in the chart. A key reason relates to the allocation of the Financial Services cash pool within intergroup financing of EUR 300.5 million in 2025. That excess cash at FS was lent to Corporate Services and used for general group financing purposes. Going forward, FS will use this cash for refinancing its leased assets and therefore, reducing its liabilities related to leasing business. The overall net debt is identical under the new presentation of indebtedness. So it is clear that KION did not suddenly take on additional economic debt on day 1 of the new reporting structure. Rather the starting point and the allocation framework for the KPI have changed.

Moving on to leverage on Slide 20. The changes in the indebtedness presentation naturally flow through into leverage. Under the current presentation, the pro forma 2025 leverage ratio is 1.4x. Under the future methodology, it becomes approximately 2.1x. There are 3 main drivers for this change. First, the starting level of industrial net debt is higher under the revised definition. And this goes back to what has just been explained on the previous slide.

Second, the denominator changes from EBITDA to OPDAI, or operating profit before depreciation, amortization and impairments, which is structurally lower comparable to the difference between adjusted EBIT and adjusted operating profit as explained earlier. And third, the contribution of the leasing business from both Financial Services and the portion that remains in ITS is deducted from the denominator to create a like-for-like comparison between the industrial debt measure and industrial earnings. The move from 1.4x to 2.1x should therefore not be interpreted as a sudden deterioration in KION's credit profile. It is predominantly the mathematical consequence of changing both the numerator and the denominator to align them with the new segmentation.

Now this table on Slide 21 brings all effects together at group and segment level. The key point is that the changes do not affect all parts of KION equally. At group level, IFRS 18, including the reclassification of the leasing business as a consequence, affects the presentation of revenue, operating profitability and capital efficiency, while the Financial Services segmentation changes our presentation of cash flow, leverage and indebtedness. For ITS, the creation of FS changes the perimeter and introduces additional internal transactions with Financial Services, affecting presentation of revenue and operating profitability. Financial Services will be disclosed separately with its own revenue and profitability profile and most importantly, its own return on equity KPI. IAS remains unaffected from these changes.

Finally, you should expect the Corporate Services and consolidation column to become more important mechanically because creating FS generates additional intercompany transactions between ITS and FS that have to be eliminated at group level. Reporting of the external business of ITS with end customers remains unchanged. With regard to profitability, the eliminations relate to the factory margin of ITS from operating lease contracts that are sold to FS and where revenue and margin is recognized over the contract term. This is particularly relevant in building some of the segment models. Segment revenues cannot simply be added together without consolidation eliminations.

Now that concludes the detailed mechanics. Now let me pull the key points together and importantly explain what information you will receive from us to enable the transition of your models. Please turn to Slide 23 for a quick summary then. There are 5 messages I would like you to take away from today. First, from 1st January 2027, KION will report a dedicated Financial Services segment alongside ITS and IAS. Second, the majority of the leasing business will be separated from ITS, improving transparency and allowing us to manage both the industrial and Financial Services activities with KPIs suited to their respective economics.

Third, IFRS 18 changes the structure of our income statement and makes operating profit the relevant new profitability subtotal. Fourth, several of our KPIs consequently change. Financial Services gets a dedicated return on equity and our definitions of free cash flow, ROCE, indebtedness and leverage are adapted. And fifth, and the most important message, the numbers will look different, but the underlying economics of KION do not change as a result of the new reporting framework. That distinction should remain front of mind when moving from historical reported figures into your 2027 models.

Now Slide 24 lays out what you can expect next. We acknowledge that there are quite some changes here and that you maybe need a second or third review to understand them. That is why we have decided not to provide a Q&A directly within this call. Instead, I would like to ask you to go through the pages once they are published at your own speed and time and then direct your questions to our Investor Relations team over the next days. We will collect and group these questions and provide an FAQ on our IR website. We imagine many of you will have similar questions and where questions are different, you may benefit from each other's questions. This is probably more efficient than answering questions on a bilateral basis.

Then on March 4, 2027, we will report full year 2026 under the current reporting structure. We will also provide full year and quarterly 2026 comparative figures in the new reporting structure so that you will have the comparative information needed to recalibrate your models before the first 2027 quarterly results. We also intend to update this presentation based on full year 2026. And finally, we will provide our 2027 outlook in the new reporting structure. Then on the 29th of April 2027, Q1 2027 will be the first regular quarterly reporting under the new structure.

Thanks again for your time, and thanks again for your patience today. I know this is neither an easy, nor an entertaining topic. Please remember to connect with our IR team with your questions. I'm looking forward to seeing them and you as well. And now I hand back to Mathilde to close up this call, please.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Ladies and gentlemen, welcome to the KION GROUP quarter 3 2026 update conference call and live webcast. I am Chloe, the conference call -- Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast.

At this time, it's my pleasure to hand over to Rob Smith. Please go ahead.

Thank you, Chloe. Good afternoon, ladies and gentlemen, and welcome to our update call and our webcast on the Q3 2026 results. Please refer to our update call presentation on our IR website if you're joining by telephone.

I'm going to start with a quick summary of the third quarter and some recent business developments, and Christian will then take you through the detailed Q3 financials and talk about our outlook for 2026, which we updated on October 14. Then I'll be back with some key takeaways, and we'll start the Q&A session.

Let's start on Page 3. Order intake was EUR 2.7 billion, 1% lower versus last year. This was driven by ITS where order intake in EMEA fell behind our expectations as well as market growth, especially in the value and the economy truck segments. In contrast, we're showing outperformance in APAC, particularly in China, which shows that we can succeed in a very competitive market environment. It also shows that we need to further leverage our existing capabilities in China even more to reverse the developments in EMEA.

Revenue was up 5% to EUR 2.8 billion, driven by both segments. Adjusted EBIT increased 7% to EUR 203 million, driven by IAS. And the adjusted EBIT margin was 7.2%. Free cash flow was positive at EUR 99 million and included cash out for M&A.

With physical AI, KION is creating measurable value in real supply chain operations. Artificial intelligence, digital twins, autonomous vehicles and technology partnerships help customers deploy automation faster, improve safety and boost performance. At GXO's site in Epinoy, France, KION has integrated autonomous vehicles into daily warehouse operations. The deployment reduced on-site implementation time by more than 60%. And with further new AI capabilities, we expect to further reduce implementation time beyond that point.

KION used AI-powered digital twins and simulation technologies to test, validate and optimize autonomous systems before the physical deployment. This cuts commissioning time from weeks to just a few days. KION is working with NVIDIA on AI-based safety concepts using the NVIDIA Halos blueprint to support safe operation of autonomous vehicles alongside warehouse staff. We're collaborating with NVIDIA, Accenture and other partners to combine expertise in simulation, computing, spatial intelligence, perception and autonomous operations. At our ROSSMANN regional warehouse, KION delivered the Robotic Case Picker in October 2026. The AI-enabled autonomous truck identifies, picks and stacks packages in a challenging commissioning environment. Following strong pilot results, ROSSMANN is increasing the on-site fleet.

So let me take over then. Let's go to Slide 6 for the key financials for the ITS segment. Order intake in units in the third quarter 2026 increased by 13% and was mainly driven by warehouse equipment and regionally, the APAC and Americas. Order intake in value terms was 1% lower year-on-year. Service growth of 5% almost entirely compensated for the mix-driven 9% lower new truck orders. Revenue increased 1% year-over-year. Service growth of 4% more than compensated for the 3% lower new truck revenue. Adjusted EBIT reached EUR 163 million, mainly due to lower capacity utilization and adverse currency exchange effects, offsetting savings from the efficiency program and lower expenses for long-term incentive programs. The adjusted EBIT margin was 8.3%.

I will now continue on Page 7, which summarizes the key financials for IAS. Order intake showed a slight increase of 1%, driven by a 7% growth in services, which benefited from a double-digit increase in modernizations and upgrades in particular. Orders from the pureplay e-commerce vertical more than doubled and accounted for 61% of business solutions orders. IAS also grew its orders in the general merchandise and apparel verticals. Overall, revenue increased by 16% year-over-year due to higher order intake in recent quarters and driven by a 22% growth in business solutions. Service revenue increased by 8%. Adjusted EBIT showed a strong increase of 39% year-over-year to EUR 66 million, and the adjusted EBIT margin increased by 120 basis points to 7.4%. Higher revenues as well as lower expenses from long-term incentive programs contributed to the increase in profitability.

Now let's quickly run through the key financials for the group on Page 8. Order intake reflects the development in the two operating segments. Revenue growth of 5% was driven by both operating segments. Adjusted EBIT increased 7% to EUR 203 million, corresponding to an adjusted EBIT margin of 7.2%. The profitability improvement was driven by the IAS segment and slightly lower expenses in the corporate services and consolidation line.

Page 9 shows the reconciliation from adjusted EBITDA to group net income. The only thing that may stand out here is the asymmetrical development in the earnings before and after tax. This is due to the unusually low tax rate in the prior year quarter. Last year, there was a benefit from a onetime revaluation of deferred tax liabilities resulting from Germany's federal government's decision in June 2025 to reduce the corporate income tax rate starting in 2028.

Let's now continue with the free cash flow statement on Page 10. Free cash flow in the quarter reached EUR 99 million. The increase in net working capital is due to higher trade receivables in IAS from outstanding milestone payments. A large part of these receivables are expected to be paid by the end of this year. Free cash flow included EUR 53 million M&A cashout, especially for the 70% stake in Smart Innovation NV and the strategic expansion of the portfolio of product solutions for warehouse automation and supply chain robotics.

Moving on to Page 11, which shows the development of net financial debt and our leverage ratios. Please let me remind you that beginning June 30, 2026, the calculation of industrial net operating debt was adjusted and deducts the EUR 495 million financial debt used for the refinancing of the leasing business that is included in the net financial debt. We had a slight decrease in net debt and in the INOD as of September 30. Leverage ratios remained unchanged compared to the level as of June 30.

Slide 13 then lays out our updated guidance for fiscal year 2026, which we published on October 14. For ITS, we have lowered the midpoint of the guidance range based mainly on the order intake in the third quarter and its expected impact on Q4 revenues as well as on the adjusted EBIT. We expect revenue between EUR 8.1 billion and EUR 8.3 billion and adjusted EBIT between EUR 690 million and EUR 740 million in the full year 2026.

For IAS, we have narrowed the guidance brackets based on better visibility on the remaining weeks of the year. We expect revenue between EUR 3.35 billion and EUR 3.45 billion and adjusted EBIT between EUR 230 million and EUR 250 million for the full year 2026. For KION, this results in narrowed guidance ranges with lower midpoints in all outlook metrics. Please note that also the slide on the housekeeping items in the appendix, you will find that we have made a minor adjustment to our full year expectations for nonrecurring items.

With that, I hand back to Rob for our key takeaways.

Thank you, Christian. Let's turn to Page 14 to our key takeaways. KION grew revenue and adjusted EBIT in the third quarter of 2026. Our IAS segment showed another strong quarter with double-digit growth in revenue as well as adjusted EBIT and developed in line with our profitable growth strategy. Order intake in ITS segment remained below expectations in EMEA, especially in the value and economy truck segments, while APAC showed strong performance.

This shows that we can succeed in a competitive market. It also shows we need to further leverage our existing capabilities in China even more to reverse the developments in EMEA. With 9 months in 2026 behind us and increased visibility on the remaining weeks of the year, we've narrowed and lowered our guidance ranges for revenue, adjusted EBIT, ROCE and free cash flow.

This concludes our presentation. Thank you for your interest, and now we're looking forward to taking your questions. Back to you, Chloe. Let's open the line, please, for Q&A.

[Operator Instructions] The first question comes from the line of Sven Weier from UBS.

So I'll start with the first one is on the truck EBIT. When I take the midpoint of the new guidance, we are down slightly year-on-year despite the fact that you had more than EUR 100 million of cost savings and double-digit help from the share price. I was just wondering, if I look into next year, you don't have these factors probably from today's point of view. Does it mean that we should prepare ourselves for a declining EBIT next year? Or what could be the potential countermeasures? That's the first one.

So Sven, you make a reference now in terms of the development of the EBIT and also the adaptation of the outlook as we have published that a few weeks ago, right? Now if I look at that and I look at sort of the implied margin, as we have shown that gives sort of the view that we have at -- in today's perspective and it gives our best view. We would actually not expect for ITS in 2027 that the adjusted EBIT margin that we are showing for the fourth quarter would differ actually from what we have now in the implied exit for the fourth quarter. So that gives our view in -- from this perspective and reflects our view as we see it at this point.

So basically, this like 8.5% exit rate is also a fair assumption for next year from today's point of view?

As I said, from today's perspective, we would not expect an improvement from that exit rate that you rightly referred to as an implied rate for Q4.

And what do you do about the risk of a decline? Because, as I said, this year, you had this huge tailwind from cost savings and the share price. What other measures do you have to mitigate then next year instead of those?

Sven, let me pick that up. And let me step back just a second and talk about the order intake and growing in the EMEA market not as fast as the market's going. And then let me talk about some countermeasures. But let's differentiate the answer by market segment. And let's start in the premium segment.

In the premium segment, we kept our pricing discipline in the third quarter and have positive price assertion to show for that. On the other hand, the negative impact it had was on order intake, which lagged behind the market. In the value and eco segment, it's clear we're not sufficiently addressing the value and eco segment in EMEA, and this is where the market did grow the fastest.

So now, what are we doing about that? In the premium segment, we'll be very carefully reviewing the full portfolio of sales measures, including pricing, to ensure competitiveness in that premium market. And for the value and eco segment, Sven, our outperformance in China is proof that we have the right capabilities, and we are able to perform and even outperform in the most competitive market in the world. So what we need to do is further leverage our own China capabilities to grow the market share in EMEA.

And maybe just to follow up on that when we think about the counterbalance trucks because, when we look at other industrial companies, some companies have started to benefit from economic upswing in Germany in Q3, I think your counterbalance truck numbers have not shown it yet. I mean, is it still a utilization problem of your clients that the utilization is still not high enough to buy new counterbalance trucks? And what you reckon out of your service activities, how far are we from that point that they start to buy new counterbalance trucks?

Sven, let's be clear, the market grew. And our performance, we kept our pricing discipline in the third quarter in the premium segment, and we have good price assertion to demonstrate that. But we didn't get an increase in order intake year-on-year. Do we get counterbalanced orders? Sure, we did, but we didn't get a year-on-year growth. As we reevaluate all the different commercial measures, including pricing, we expect that we will be very competitive in that market, and we expect that we'll be growing with the growing market, which, as you point out, is indeed growing. It's actually growing in each of the regions, including EMEA.

Now I have a question from the line of Fangmann Tore from Bank of America.

Two from my side. The first is on your strategy in ITS. It sounds to me like you're aiming to import more from your own Chinese plant into Europe. And my question here would be, how long would it take for you to see a positive impact or like a change to the growth versus the European market that's from your side?

Good question. You picked it up -- picked up on that right. We expect we will be ramping up the production of our China factory footprint even further, and we'll be using that to be addressing the value in eco segment in EMEA. And I would expect you'll be seeing impact there during the course of next year.

I appreciate this. And then second question would be a little bit on the pricing, pricing strategy here. Could you comment on how you currently see inflation impacting your business? And at the same time, how are you seeing your own pricing strategy? Are you pricing through? Or are you rather tapping this a little bit more similar to one of your European competitors with selective price decreases? And then, just as a clarification, following up on Sven's question here, did I understand correctly that you would say it's fair that the 8.5% EBIT margin from Q4 is a rate that you could see in 2027 as well?

So let me dissect your question a bit, Tore, right, into the different pieces, right? I mean the one element you started with costing. The question was sort of how do we see costing, right? And so basically, what we've seen in the course of the third quarter, the costing impact that we've also identified as a potential consequence out of the Iran War so started to hit us, but a bit slower than we initially expected when we put the price increase in April into place. But in the course of the third quarter, as expected, impact started to hit us. We've talked about it initially. We obviously had the direct consequences of freight costs and fuel costs and so on. But now it also comes through with some selective material costs. So that's starting to hit us.

However, I want to reiterate what Rob just said before, right, because we've put that price increase in April in place. And so far, we have actually maintained that and asserted that price increase in our order intake. So basically, we were covering the cost development that we are having, but obviously, that has a consequence on the order intake.

Now your third element was just a follow-up question, I think, to the one from Sven. And again, just let me repeat here. From today's perspective, I think the exit rate from the first quarter is what we also would see going forward. We would not have an indication right now for anything different than that.

We now have a question from the line of Akash Gupta from JPMorgan.

I have two as well. My first one is on restructuring. I was a bit surprised that you lowered your guidance for full year restructuring, while I think a lot of people were anticipating you might increase a step-up restructuring to optimize your cost base further. So maybe if you can talk about what drove that change? Is it because people are leaving on their own or maybe you are more optimistic on recovery? So yeah, thoughts on what's driving this change in restructuring charges this year? That's first one.

So you make the reference to the change in nonrecurring items in the appendix. Basically now like, every quarter, basically, we will make an assessment. We also made an assessment after now 3 quarters of the year for the remainder of the year and sort of the assessment came -- we came to the conclusion that we actually don't need the nonrecurring items as such as we had prior in our housekeeping [indiscernible] we don't need that for the remainder of this year. And maybe, Rob, do you want to add on?

Yes, Akash. Good questions. Appreciate that. Look, as I just described, we've got a review underway of the full measures of different sales measures we can take, the full portfolio of those, including pricing, to ensure competitiveness in the market. And we need to see how effective these different measures are going to be and how that's driving the demand. And based on that, we will continue to do what we always do, which is be very focused on cost.

You're right, we did complete the efficiency program in 2025. It delivered sustainable indirect cost savings of about $150 million per year by changing organizational structures and business processes focused in the ITS segment in the EMEA region. And we continue to review our efficiency and continue to drive our efficiency and review the cost structure in all footprint elements, Akash. So we'll continue to do that.

And my second question is on the portfolio. I think when we look at your portfolio, you have a business -- forklift business where I think a lot of people in the market see some structural headwinds. On the other hand, you have a portfolio of warehouse automation business where I think when we look at some of the peers, they have traded quite well this year and outlook is quite different. And when we look at current share price, it looks like you are not getting benefit of some of the growth prospects in warehouse automation that we see ahead of us. So the question is that, if this low valuation persists, would you be more open to also look at the structure of the company or that is not going to be on the agenda?

Good question. Look, what you're actually asking is all the rest of the analysts to start doing the sum-of-the-parts analysis, which we would highly encourage as a matter of fact. Because we see clear growth in both of our segments, and we see a very exciting orchestration capability to help our customers benefit from KION solutions, whether it's in fully mechanized start-up and flexible automation, large-scale automation all the way up to lights out automation. And most of our customers have in their footprint that entire portfolio of automation needs. And so our addressing those automation needs across the full portfolio with a very strong orchestration capability is a fundamental part of KION becoming the supply chain solutions company. And we're clearly on that route, and we are excited about the journey we're on and the prospects it has for us and for our share price and for our shareholders.

A question from the line of Gael de-Bray from Deutsche Bank.

As you've been losing market share in the premium segment in Europe, it's pretty obvious, right, that you've priced yourself up a bit too much. So the question, I guess, is by how much? I mean, what could be the magnitude of the pricing concessions you're ready to make to regain the loss of ground?

You see -- you got to be kidding, Gael. Come on now. Look, we're reviewing all our commercial measures. We're looking at the whole portfolio, also including pricing, but it's a very competitive market and we're going to be competitive in that market. We did sell trucks in the third quarter. We just didn't grow year-on-year as fast as the market shall. We'll continue to sell significant trucks in the fourth quarter and going beyond in the next year or 2, and we'll be calibrating to make sure that we're doing that and taking advantage of a market tailwind.

So let me try perhaps maybe from a different perspective. So then, I mean it -- I suspect you need obviously a new round of cost-cutting initiatives to achieve the medium-term margin objective of about 10% for the ITS division. So how long do you think you need to sort of prepare a more comprehensive plan to get back to the 10% margin level? I mean could you elaborate perhaps on what can be done to further reduce the breakeven point?

So Gael, you're asking a really good question about the midterm targets here. And I'm looking forward to addressing that one, and I appreciate you bringing it up. Look, our IAS segment is improving. The improving performance in our IAS segment is on a very good way. And for our ITS segment, as our measures gain traction, we'll be back in position to be talking about the timing for the updated midterm targets -- for the midterm targets. So as we get that traction and as we bring that traction in the ITS segment, we'll be back talking about the timing for delivering on our midterm targets.

I have a question from the line of Philippe Lorrain from Bernstein.

I wanted to follow up a little bit on the order intake trend in ITS in Q3. How do you reconcile the fact that units were up 13% year-on-year, that it was driven, of course, by warehouse equipment, but also to some extent by e-trucks, i.e., counterbalance trucks that were also up 13% year-on-year. Yet the new business order intake was down 9%. So that's a pretty steep gap that we have between plus 13% and minus 9%. I understand that there are mix impacts and so on and so forth, but I would like to get a bit more color on that piece.

No, Philippe, I take that fair enough, right? A very good question, and I think that's on many people's minds, right? So very obvious here. I think the word that I'm going to use repeatedly now is mix, right? Because basically, that's what we have. But we don't just have one mix. We actually have several mixes overlaying each other and all playing into the development that we have seen.

The first one is actually a regional mix in the third quarter, right? Because basically, we've seen a very different development in the third quarter in the growth versus last year, versus prior year from our 2 largest regions, EMEA and APAC. And so the share of EMEA this year in the third quarter and the order intake is significantly lower than the share was a year before. So that's the regional mix because we were growing in APAC actually pretty well, and we had a comparatively low growth year-on-year in EMEA.

The second one is, and we have been talking about for a while now is the product mix, which is basically, again, a growing share of the warehouse entry-level trucks that have a significantly lower price point compared to the entire portfolio, and that share again grew. The third element, and that comes back, if you just think back in terms of also the initial statements that also Rob did, I think we need to understand the segments in the market, right, and the price segments in the market. We have a premium segment, we have a value in the eco segment that also command different price points. And they -- and we have that not just in Europe, we actually have that in the different markets. So that's the third mix element. We actually have seen significant growth also in the lower -- the, value eco segments, but again, than in APAC. And if you combine all those elements, the result then is that basically in value terms, we have a significantly different development than we have on the -- in unit terms.

So maybe a follow-up on that. First, did you have significant impact as well from the rental fleet ordering into -- and leading to volumes, but no monetary impact and maybe as well from the partnership that you have with EV equipment? So has this been also distorting the picture or not really?

No, that has not a major impact.

And the last follow-up on that, and I'll be back in the queue, is would you expect that negative combination of mixes at different levels, so to say, to continue also in Q4 and maybe up to Q2 next year because that's when we really started to have this very, very big headwinds.

No, I think, [indiscernible] but I would like to relate that also again to the statement that Rob made before, right, in terms of the measures, the sales measures that we are going to take and the measures that we take to leverage also our China capabilities in the market overall. So obviously, that should help us play sort of in the regional mix. I mean the product mix has been a longer term development, and that probably is going to continue, but our development across the regions and then across the price segments in the different product segments is also a function of how our measures actually gain tractions to address that.

But I guess these are actually like -- especially the price segment stuff is the one that is going to probably hit a bit more or a bit longer?

There is this market development that we have also said that the value and eco market basically has shown stronger growth than sort of the premium segment. So that market implication or so is probably also a persistent development, at least over sort of the more near term, right? And then it will depend on our performance in terms of how to address this.

Question from the line of Martin Wilkie from Citi.

You've had a few press releases in the last few weeks on your physical AI offering. I just wanted to understand a little bit more about whether we're now sort of ready for this to really sort of scale and to what extent this is still in the sort of early stages of pilot testing? And obviously, we read a lot about the capabilities of introducing physical AI into logistics systems and elsewhere. But just to understand sort of where we are in the adoption phase for that, can we see that becoming quite a big tailwind as we go into 2027?

Good question, Martin. Yes, we're very excited about the developments there. And as a matter of fact, what we just demonstrated with our customer GXO in their France location was very exciting, being able to commission trucks on site much, much faster because we had basically done the commissioning virtually as a simulation using the digital twin in advance of bringing the customer or the trucks on site. And therefore, the fine-tuning of the commissioning was very significantly reduced.

And as AI develops further, each of these new foundation models that are coming out are helping us even further reduce that by heightening -- by accelerating the speed in which we're able to put the digital twin together in an operation and to enhance the simulation capabilities of that twin. I still expect it's back into next year that it will be starting to come into our financials. But it's -- the trend is on the right track. The developments are on a good track, and the trick is taking those very impressive results and then scaling them, and that will take a period of time.

And another question on projects. In the past, I think we've seen that high interest rates really limit the number of large projects because customers want to do more sort of bite -- a series of bite-sized projects because of the interest rate environment rather than sort of one big scale up, upfront. Are you seeing that again this time around? And is that sort of limiting the number of large orders you get in IAS because customers really just want to make smaller investments with a short payback given the interest rate environment and perhaps we have to wait for rates to come down before we begin to see lots of larger projects?

That's a good question as well, Martin. We have not yet seen any change in customers' appetites on starting projects based on interest rates. And we're looking for that, and we're monitoring that carefully, but our pipeline is very good, and that behavior has not manifested itself. You have to ask yourself if people think that getting in now is a good idea because they might go up further, right?

That is true.

No I have a question from the line of Adrian Pehl with ODDO BHF.

Actually, one on ITS. I think the topic on how to leverage your Chinese footprint is, I don't know, probably not well understood in the sense of what are you doing there already in terms of exports from China into Europe and maybe you're also doing some component manufacturing that you're also exporting? And what are the plans, for example, is it more component content that is going into your high-end trucks? Maybe you could give some examples on what your thoughts are, what you're going to do where we currently stand at that line?

And the second one is on IAS, given also that now the order intake last 12 months is waning a little bit. On the other hand, you still have these loss-making contracts to be worked through. I just wanted to hear your directional thoughts on the current level of revenues and how we should think about 2027 and your ability to increase the adjusted EBIT margin from these potential effects? That's it from my side.

Another very good question. Look, our European factories are primarily addressing the premium segment in Europe. And as we adjust our -- and calibrate our commercials there, I think that will benefit the orders going to those European factories. You're asking about how do you leverage the China footprint. And I think that's a very good question. We've got a very, very strong footprint in China. We're the only non-Chinese company that has a footprint there. And it's substantial, it's profitable, it's a very good size and it's -- the whole value -- whole value stream from design and development or development -- R&D and design and development to the supply chain and to production, and we have a very strong sales and service network there. As a matter of fact, we're the third largest player in the China market. And so we've got a very strong capability there.

And you saw a 36% growth in the third quarter was the order intake growth in APAC. That was very substantial. And our expectation when this comes out 3 months from now is we will have outperformed the market there. We are performing head-to-head with the same players that we're competing against in other regions in China, and we're doing a good job there and are competing well there. So I expect as we leverage further those capabilities to benefit largely the value and eco segment is we're underrepresented there in the sales channel and bringing those -- bringing the value and eco products to the market in EMEA. And we'll be working very hard on doing that. And as fast as we can do so, we'll be increasing that flow from China to the value and eco segment.

But you've got another very good point, which is the whole supply chain cost and componentry, componentry can affect and benefit all product, all market segments. And we've got a very strong cost driving efficiency program across the company, Christian runs that. And we're making very good productivity on cost reductions on existing models, too. A good example is taking a significant amount of cost out of the battery for the ECB counterweight trucks across our whole portfolio. That's a benefit that's helping the whole portfolio there. So we'll be using the China footprint to further benefit components. We'll be using it for full trucks and full machines for the value and eco segment. And as we ramp that up, we'll be playing very strong in all segments in the EMEA market, and I expect we'll be doing so in a winning fashion.

Now you ask about IAS too, and you ask me to tell you about next year before March. And so I'm not going to do a lot of that. But what I will tell you is, we had -- I mean, go back to 2024 with $2.6 billion of order intake and then fast forward to '25 with $3.6 billion of order intake. If it even just stays flat this year, that's 40% over 2 years, that's 20% year-on-year-on-year and it's a very good order intake performance. We're not guiding on that, but we're very confident that the market that we see is continuing to be very strong and very active. The pipeline is certainly strong. I mentioned before that we're not taking -- we're not seeing customer hesitation in terms of interest rates being the case.

So I expect that we will maintain a very good trajectory and a very good momentum in our IAS segment. And we've talked multiple times about the different levers that drive the profitability in the IAS segment. You correctly point out, burning through the legacy projects and closing those off, and we've got a bunch more this year closed off, and there's a nice trajectory on finishing those up. That has a -- you can see it in the margins. So then, there's the execution and the project processes and project execution, which has tightened up very nicely and continues to be on a good track. And we've underpinned that with hard-coated measures to make that efficiency work well.

And then you've got driving the service business, which is a nice growing piece of the work, and that's continuing on a good way. And then you see we've got good order intake in the previous quarters, which will benefit future quarters. So our confidence in the trajectory and continued performance in IAS is very good and you should be as well.

Just a very quick follow-up. So the working through on those legacy contracts margin-wise, would this more than compensate any kind of cost inflation you were referring to? I think Christian was referring to the ITS division on higher cost, but you should have that also in IAS going up at least to some degree. So would that net be a positive margin effect for you?

We -- it's been quite a while since we needed to talk about this, but you bring it up. And so I just remind you, back in the third quarter of 2022, as we recognized we had no inflation protection against hyperinflation and very significant project interruptions in the IAS segment projects. We put in place commercial agility measures that enabled us to, for all the contracts we've taken since then, protect ourselves from hyperinflation and significant product -- project deviations.

And we continue to do so. And so clearly, there's a range in a band, et cetera, but we don't see ourselves in a similar situation back in 2022, where we had no protection at all and could only work on productivity. We drive productivity, and we have contractual clauses that protect us from significant deviations in cost development.

I have a question from the line of Timothy Lee from Barclays.

My first question is again on the measures that you can do on your China resources. And I think one element is actually on, from your major shareholder, Weichai. I'm not sure whether there will be anything that you believe Weichai can do a bit more on helping on your production costs or anything that can help on leverage your benefits in the China market and eventually help your EMEA business? So that's my first question.

So you're referring to our anchor shareholder, Weichai Power in China. They give us -- I just talked about this great footprint that we have in China being the third player -- third largest player in the entire market. It's a home game for us in China. And Weichai being an anchor shareholder for us is a good part of that, enabling market access. You'll recall that back in 2021, we built a brand-new factory during COVID in less than 1.5 years, if you will, and ramped it up with very good support with -- from Weichai, especially in terms of zoning and permits and things like that, making it work well. There's good market access to -- through their customer base, et cetera. So you're asking if there's more, there's already a lot of very good benefit from their anchor shareholding, especially in the China market.

Got it. But do you think any further step-up in terms of what Weichai can do, can help your business further? Any color on that would be helpful.

As I say, there's already a very good collaboration and good market access and good support when we have projects underway there, capital projects, et cetera. So no, I don't see additional measures that you would want to factor into any models that you're driving.

And my second question is on IAS. I think you kind of mentioned in the previous question, you are expecting the order intake this year could be kind of flattish compared to last year. Is that still your expectation? And -- because if I look at the year-to-date order intake, it is still down year-on-year. And I know the order intake is still kind of lumpy quarter-on-quarter. But how are we seeing the order intake in the next couple of quarters in order support our revenue for the next year as long as if we don't see order to pick up meaningfully in the next 1 or 2 quarters, then probably in 2027, we may not see a meaningful revenue growth on the IAS segment? So I would like to get a little color on that.

Let's go back to that last question. It's a good point. What I was describing is even if it were flattish this year, it'd be up 40% over 2 years, which is about 20% year-on-year, which is demonstrating very substantial growth. I talked 8 quarters ago now about the trough in the market being behind us. We've been on a -- in a growing market now for at least that amount of time. We expect it's a growing market going forward. So then we expect to -- we're the leader in that market worldwide, and we expect to continue to participate well in the growth in that market. And so that's what I'm expecting.

You put a good finger on one point there about lumpiness. Yes, some orders drop into one quarter, some orders push into another quarter. So it is on a quarter-on-quarter basis a bit lumpy at different points in time. But go back to that over the course of 2 years, a very good order intake trajectory is what we've been able to demonstrate. And as I say, continuing to be the leader in a continuing growing market gives us expectations that we'll continue to be growing our business.

We now have a question from the line of Alexander Hauenstein from DZ Bank.

First of all, coming back to the medium-term target of 10% plus margin, I was wondering whether you could share some of your views or underlying assumptions when you roughly intend to reach this goal and maybe on ITS, but also maybe on IAS, which is probably not going in line into the 10% range on the same year. But maybe, yes, you can just share some views about beyond what we have been talking about all today, just to get a bit of a feeling on the time-line. And looking into all that, is it possible to give us some kind of a bridge here, what the big elements could be and then maybe where you set the focus on and where you see it a bit of a less relevant part? So just to get a better feeling about -- what we should really focus on, what your way of thinking is on that?

Second question with regard to the competitive position, I'm wondering whether you could comment a bit about whether you see multiple Chinese players entering the EMEA scene more aggressively here? I'm wondering whether there's some kind of initial push more into this EMEA region now taking place. Is that something which you see increasing going forward, which you see a bit of a less of a pressure environment within the next 12 months or if you think it will increase this pressure over the next 12 months?

Let's answer your questions maybe in reverse order there, Alex. If you look at a lot of different industries and you look at the growth, the GDP growth in China, there's kind of an inverse correlation between if it's going down, the focus on export is going up. And so you're asking about what kind of a trend we should expect in our industry as well. If China GDP is on a downward trajectory, there's a lot of pressure in that. It's the most competitive market in the world. There's a lot of pressure for companies to export. And so I would think that an inverse correlation between the amount of exports going out of China into different markets is the right correlation to understand with the China GDP.

Now if I were going to come back to your question on midterm targets, our objective, our target in the midterm is to have both our segments and the group KION over 10% EBIT -- adjusted EBIT profitability. And you ask my view, my view is it's clearly a doable set of midterm targets. As I described a couple of minutes ago, our IAS segment, I think as you rightly pointed out, is got -- improving performance. It's on a very good way, and we think the market is going in the right direction to be supportive of that. I just described also some current term challenges we're facing in our ITS segment. I also described to you that with the -- with a good understanding in the market and a differentiated approach in the premium and the value and eco segments, that we're confident that we can be handling those challenges as well.

In the premium segment, we think there's a lot of -- there's a portfolio of different commercial measures we can take to make sure that we're good and effective. We've got a very good cost driving efficiency program on a constant basis, all different elements of cost across the company. So there's a good underlying capability there. And we have the only Western company with an outstanding footprint [ indiscernible ], with a footprint in China, and we have an outstanding one. We're the third largest player there, and we're very confident we can ramp production in that -- from our footprint there and have the capabilities of our China footprint benefit our businesses worldwide, including certainly here in EMEA to get a good trajectory there.

I think that as we get good traction on those ITS measures, we'll be in a position to come back and talk to you about timing of midterm targets. I think that the drive -- the fact that we've got a very strong service business in both segments and are able to continue to drive our installed base in both segments and service that with an extremely competent service workforce in both segments worldwide is a very important element of this underpinning tailwind. And as we drive the software capabilities and the orchestration capabilities to be giving customers a smooth orchestration across their full range of automation, I think that will have a good element of that trajectory as well. So primarily as we're getting the good traction in the ITS segment, we'll be back and we'll be talking about those midterm targets.

But you would probably still need quite some sound on market improvement overall to reach the 10% in ITS, right? So how big -- it's difficult to quantify, I know that. Just to get a feeling, how big are you betting on a market recovery here in order to reach this ITS goal? Or is it more or less purely reachable within the next [ indiscernible ] you have been speaking about?

Let me help to that. Look, the market is doing well in the ITS segment, actually in each of the regions. And we want to perform -- we want to participate strongly in that market growth on a go-forward basis and need to be addressing that and are addressing that.

So put it differently, if the market keeps growing as it is, you're confident to reach the target with the self-help and internal measures, right? So you don't need any incremental, bigger push from the market side to reach it? Is that the correct way to interpret it?

Thanks, Alex. If you look in our different elements of the IR pack, you'll see our long-term strategic planning horizon, expectations of the market growth in the ITS market and the IAS market. And current -- this year, the ITS segment is above those growth expectations. And on the basis of those long-term growth expectations is what I'm basing my confidence in the ability to perform better than 10% in that segment. So I hope that helps you understand the answer to the questionnaire.

And maybe a very quick follow-up on the physical AI thing. You were talking or referring to the ROSSMANN case here specifically and just spoke about physical AI and the AI-enabled Robotics Case Picker. Is that specifically referring to the use of humanoids? Or is that some other kind of robotic physical thing?

That's a very exciting commissioning machine that is driven and autonomously operates in the ROSSMANN factories. Look, we've got a couple of pieces more information we want to get out to everybody before they got to go pop on a 16 call. If you'd like to follow that one up with our IR team, we'd be more than happy to. Chloe, it's time to get it back to you, so you can give it back to Christian, and we can share the rest of the information we want to put out to everybody.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Christian Harm for closing remarks.

Thanks, Chloe, and many thanks to everybody who participated in the call today. In addition to the call, we have an announcement to make. KION will separate most of its leasing activities into a new Financial Services segment from the first quarter 2027 onwards to improve the transparency, the steering and the funding flexibility. In connection with the mandatory application of IFRS 18, the presentation of the income statement, of the balance sheet, and of the free cash flow statement, will change.

Now to help you understand the upcoming changes, we are offering a teaching call on November 5, where we will outline and explain the reporting implications to you based on fiscal year 2025 figures. Should you not be able to participate, you will find the presentation and the transcript posted on our IR website. On March 4, 2027 then, we will provide further information based on the full year 2026 figures, and we will go live with the new reporting structure then with the Q1 2027 results. The link to register for this call, which is primarily targeted to our analysts, will be posted on our IR website in the financial calendar shortly after today's call.

And with that, I now hand back again to Rob for his closing remarks.

Christian, thank you very much, and thanks to all of you for joining today's call and your many good questions. We look forward to continuing the dialogue with you, and we'll see you back here for our full year 2026 results and our guidance for fiscal year 2027 at the beginning of March. Until then, all the best. Thank you very much. Bye-bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Ladies and gentlemen, welcome to the KION Group Quarter 1 2026 Update Call and Live Webcast. I am Chloe, the Chorus Call operator. [Operator Instructions]

At this time, it's my pleasure to hand over to Rob Smith. Please go ahead.

Thank you, Chloe, and good afternoon, ladies and gentlemen. Welcome to our update call and webcast on the first quarter of 2026. Please refer to our update call presentation on the IR website if you're joining by telephone.

I'm going to start with a quick summary of the first quarter of '26 and talk about some recent business highlights. And then Christian is going to take you through the detailed Q1 financials and reiterate our guidance for 2026, and I'll be back for some key takeaways, and we're looking forward to the Q&A thereafter. 

Starting on Page 3, please. KION had a positive start into 2026, in line with our expectations. Order intake was EUR 3 billion, driven by both segments. Revenue was slightly below the prior year quarter level. Adjusted EBIT was EUR 205 million, corresponding to an adjusted EBIT margin of 7.4%. Both ITS and IAS segments contributed to the increased profitability. And free cash flow was positive at EUR 47 million and included the cash out for the efficiency program and higher incentive payments. 

On Page 4, let's talk about the exciting things that are going on at KION right now. In the context of our strategic collaboration with NVIDIA and Accenture, Lighthouse physical AI projects moved from simulation last year into live warehouse operations, showing how advanced AI is turning into measurable value for customers. At the GTC Conference in San Jose, California, with NVIDIA in March of this year, we showcased two core applications: an autonomous industrial truck supporting day-to-day warehouse operations and AI-based safety-certified human detection, enabling automated trailer loading. 

We've deployed these at a warehouse of GXO Logistics, the world's largest pure-play contract logistics provider, in their warehouse in Épinoy, France. This pilot makes an important step forward in demonstrating physical AI solutions and how they deliver clear, tangible value for our customers. 

Another highlight in the first quarter was the LogiMAT in Stuttgart, where we presented a true milestone in intralogistics, the first market-ready serial-produced solution for the autonomous loading and unloading of trucks. We demonstrated how the receipt and dispatch of goods practically takes care of themselves, thanks to the new product called the AXL iGo from STILL, leaving employees' hands and minds free for more value-added tasks in the warehouse. 

In addition to these two great milestones, we also made an exciting addition to our start-up automation portfolio and deepened our technological footprint in warehouse automation through an M&A action. With a strategic equity investment in ZIKOO Robotics, a leading provider of pallet storage robotics based in China, we marked the next step in building an ecosystem of automated technology partners. 

The partnership brings together KION's extensive experience in industrial trucks, intralogistics solutions, and orchestration with ZIKOO Robotics innovation in warehouse robotics, a six-way pallet shuttle, and high-density storage technology. Through an expanded portfolio of automation warehouse solutions, KION will deliver warehouse offerings that provide higher efficiency, better space utilization, and greater flexibility.

And the investment is already bearing fruit. Last year, we jointly unveiled the next- generation pallet warehouse solution, the AI Smart Warehouse. The solution integrates ZIKOO Robotics' latest pallet handling robots, high-speed lifting systems, and AI intelligent software platforms.

I'll now hand it over to Christian, and he'll take you through our detailed Q1 financials.

Thank you, Rob. Let's go to Slide 6 for the key financials for the ITS segment. Contrary to our earlier expectations, order intake increased by 11% year-over-year to almost 73,000 units. The increase contains significant pre-buying activity in the later part of March, following a price increase announcement becoming effective on April 6, 2026. This is a good example of our agile pricing strategy, where we regularly review the appropriateness of the current pricing. This price increase was announced to cover expected increases in material and energy costs resulting from the war in Iran. 

New orders in value terms increased 4% year-on-year. The slight decline in the service business was substantially more than compensated by the 12% growth in the new truck business, which also points towards a good product mix in the quarter. Revenue was down 5% year-over-year, driven by the 9% decline in new truck revenue, which was due to the lower order book at the end of 2025 compared to the end of 2024.

Adjusted EBIT was EUR 183 million and was comparable to the prior year level. Savings from the efficiency program and lower share price-driven expenses for the long-term incentive programs were offset by the continued insufficient fixed cost absorption. The adjusted EBIT margin increased to 9.1%. 

I will now continue on Page 7, which summarizes the key financials for IAS. For the fifth quarter in a row, order intake showed year-over-year growth. The increase of 26% was driven by a 56% growth in Business Solutions. Main verticals contributing to the growth were purely e-commerce, 3PL, and food and beverage. Order intake in services was slightly down due to the positive one-time effect in the spare parts business in the prior year quarter. The order book increased 23% year-over-year due to the increased order intake, as well as to a lesser degree, positive foreign currency effects. 

Overall, our revenue increased by 12% year-over-year, driven by a 30% growth in Business Solutions. The sequential development follows the order intake development with approximately six months time lag. Adjusted EBIT increased strongly year-over-year to EUR 46 million, corresponding to an adjusted EBIT margin of 6%. Higher revenues, the further reduction in legacy projects, improved project execution as well as lower expenses for the long-term incentive programs contributed to the increase in profitability. The sequential decline in adjusted EBIT is a result of the sequentially lower revenue.

Now let's quickly run through the key financials for the group on Page 8. Order intake reflects the growth in the new business in both operating segments, which also had a positive impact on the development of the order book. Revenue in IAS continues to benefit from the order intake recovery since the beginning of 2025, offset by the expected revenue decline in the ITS new truck business. Adjusted EBIT increased to EUR 205 million, corresponding to an adjusted EBIT margin of 7.4%.

Profitability improvement was driven by both operating segments, supported by savings from the efficiency program, lower expenses for long-term incentive programs and slightly lower expenses in the corporate services and consolidation line.

Page 9 now shows the reconciliation from the adjusted EBITDA to group net income. Nonrecurring items in the first quarter included only EUR 5 million expenses relating to the efficiency program. You may recall that we said that out of the total expenses of EUR 180 million, EUR 169 million were expensed in 2025 already, and a small remainder will follow this year.

PPA items were in line with the usual quarterly levels. Net financial expenses improved year-over-year, mainly due to the lower interest expenses on financial liabilities and the improved net interest result from the rental and leasing business, partially offset by costs in relation to foreign currency and interest hedging activities. Pretax earnings, therefore, increased to EUR 141 million. Tax expenses of EUR 49 million in the quarter corresponded to a tax rate of 35% and thus are in line with our full year expectations. Please refer, as usual, to the slide in the appendix with the unchanged housekeeping items. Accordingly, net income attributable to shareholders reached EUR 90 million, corresponding to earnings per share of EUR 0.69.

Let's now continue with the free cash flow statement on Page 10. Free cash flow in the quarter reached positive EUR 47 million despite the cash out for the efficiency program as well as higher incentive payments. Lower capital expenditure is in line with our full year expectations as the larger footprint projects of the last years are coming to a conclusion. The increase in net working capital is seasonal and should reverse again over the course of the year. There was no material cash outflow yet for mergers and acquisitions in the first quarter of 2026.

Moving on to Page 11, which shows the pretty stable development of net financial debt and our leverage ratios. In March of this year, we successfully placed a corporate bond with a total volume of EUR 500 million using the public capital market under our established EMTN program. Despite the challenging environment, the issue attracted a great deal of attention from investors. The unsecured bonds, which matures in March 2031 was issued at a price of 99.487% and has an annual coupon of 4.125%. From Q2 onwards, the proceeds from the bonds will be used to refinance existing liabilities in the short-term rental and leasing business to create opportunities for future growth.

Slide 13 lays out our guidance as presented with the full year 2025 results. Since we provided a detailed walk-through of our guidance at the full year 2025 update call at the end of February, we will skip it here in the interest of time. For those of you who are interested in the explanation, please refer to the transcript, which is posted on our Investor Relations website.

The geopolitical risks have heightened since we published our full year 2026 guidance at the end of February. In effect, the war in Iran started just two days after our results publication. We have limited direct impact as our revenue in that region is around 1% of total KION revenue. However, we do see potential impact from higher material and energy costs and vulnerabilities in the supply chain.

Many capital markets participants have drawn parallels to the situation in 2022 with the start of the war in Ukraine, which was also characterized by inflation and supply chain disruptions. We here at KION had learned many lessons in 2022 and expect the measures we developed to increase our agility and resilience in volatile times to surface now in 2026. The April price increase in ITS is one such measure. The inclusion of price adjustment clauses in the terms and conditions and contracts is a further measure as is the building of safety stock and developing additional supply sources for key affected components. We, therefore, confirm our outlook for fiscal year 2026 for the group and our two operating segments as of today, subject to the condition that no additional significant burdens arise from the current geopolitical situation.

On one hand, these could result from significant disruptions to our supply chains for example, due to trade tariffs or shortages of important components or from a decline in demand due to a significantly reduced willingness of customers to invest. On the other hand, the guidance assumes that the steps carried out to counter cost increases will have the anticipated impact.

And with that, I now hand back to Rob for our key takeaways.

Thank you, Christian. On Page 14, let me walk you through our key takeaways. KION had a positive start to fiscal year 2026 with order intake and profitability increasing in both operating segments and a positive free cash flow. We are actively steering the organization with our operational and commercial agility measures to limit potential impacts from the war in Iran. KION is making significant advances in developing innovative physical AI solutions for our customers. In March, we presented the first Lighthouse project with customer GXO as a next step in the strategic collaboration between KION, NVIDIA and Accenture. We also launched the first market-ready series produced solution for the autonomous loading and unloading of trucks last month. And this month, we made a strategic equity investment in a leading provider of pallet storage robotics, ZIKOO Robotics.

We confirm our outlook for fiscal year 2026 for the group and our two operating segments, subject to the condition that no additional significant burdens arise from the current geopolitical situation.

This concludes our presentation. Thanks for listening so far, and we're looking forward to taking your questions. Chloe, let's open the line, please.

[Operator Instructions] The first question comes from the line of Sven Weier with UBS.

I'll start with trucks and thanks for pointing to the price increase in the prebuy. As you imagine, I would be curious how you have orders -- seen orders developing after the price increase. I mean, have you seen like a sharp normalization or is business as usual? And I also wonder, of course, if you look at the guidance for trucks and you take the midpoint of that, I guess it also assumes kind of a better mix in the coming quarters. Now in Q1, I think the mix has improved year-on-year, but not sequentially. So how do you see that mix support for making that EBIT increase possible in the coming quarters? That's the first one.

Sven, we're going to double team on this. I'll give you some insights on the price increase and the developments, and Christian is going to talk you through the mix calculations for your model here. As you know, we put up the prices. We only did at 3%, and we put it for the 6th of April. And there was a prebuy effect for sure. How much that is, we're still in the process of working out. And we shall see as things develop through end of this month and going into next month. So it's a bit early to tell. But clearly, there was an element to that. And Christian is going to talk you through the mix.

Yes. So Sven, as I said in my commentary to the numbers already, right, the numbers in the first quarter actually indicate that we had a positive mix in the quarter, that will support revenue in the following quarters, obviously, right, as it turns into revenue going forward. And that's also sort of how we would look at the development now going forward actually, right, in terms of mix. So that should actually be in line and is in line with what we have set out in our guidance for this segment.

And I mean, can I just ask a follow-up on this? In terms of the difference I mean, because in trucks, you also have price indexation clauses. So you could say, well, do you really need a price increase? Or are you not covered by the price indexation on the truck anyhow and you don't need to bother with price increases anymore? Or do you still prefer like a general price increase like you just did?

Yes. Just let me sort of go back two or three years just that the comparison is clear, right? In 2022, we were actually sitting on an order book where orders were placed for shipments almost with 6, 8, almost 12 months' time delay. So there were some even longer, right? So the point was the time when the order was placed, which then contained the price of that to the time of the shipment, which is then where the costs were relevant, actually was extremely long, right? And we were actually exposed to the material cost inflation risk, if you will, over a pretty long period of time. Now the point right now is with our order book having normalized, that period is significantly shorter.

So yes, we do have clauses, right, that would allow sort of between the timing of placing the order to the shipment order when that is beyond certain thresholds, but everybody should be reminded that is then based on an average now three to four month period and not like what we had before. Now when we see developments coming, and that's what I said in my commentary before, when we do the assessment in the HL pricing in terms of what we feel is coming up to us in terms of energy cost, material costs, we are actually looking way beyond this time of just three months, four months going forward. And that needs to be covered then in the pricing of the trucks as such. And therefore, we have actually changed or increased our list prices at this point in time.

And can I just ask one question on warehouse automation? Because obviously, you had a very good order intake in the quarter. And usually, when we had this in the past couple of years, the next quarter tended to be quite a bit lower. I mean, should we now see a more stable range, say, between EUR 800 million and EUR 1 billion to achieve your full year target of flat orders? Or would you still guide us to this like extreme lumpiness that we've seen in the past two, three years?

Sven, you did a triple dip on us, and you're asking me about order intake again. But let me pick up on it. I mean the whole point is that I'd like to make here is you'll recall last year, we had a fantastic second quarter order intake. It was an all-time high, clearly over $1 billion. My recollection is $1.4 billion. So, as we go into the second quarter, if you're looking for year-on-year comparisons, that was a tough comparison.

What I would say is shout out five quarters in a row now, there's some very good order intake coming through in our -- IAS business. I told you a couple of calls ago that we think the trough in the market is clearly behind us. We continue to see the market moving in a direction that's good on order intake for our Intelligent Automation Solutions segment. And we would expect to have a continued good performance there, potentially a little bit less lumpy than in previous times when there was a whole bunch of volatility in the market. I wasn't exactly sure where the trough was. As I say, the trough is behind us, maybe a little bit less lumpiness. I think it will be a real tough comparison versus the all-time record. But I would expect we have a good Q2.

I'd also hauler out as long as we're talking about it, four out of the last five quarters, Christian talked about our 73,000 trucks sold in order intake in the ITS segment. That's four out of five quarters that we beat Toyota in terms of order intake in units. And I think that's a nice strong performance. So a little triple dip from my side, too.

We now have a question from the line of Akash Gupta with JPMorgan.

I got two as well, and I'll ask one at a time. The first one is on ITS. So when we look at your Q1 orders, you are highlighting that there is some prebuy effect and that is in relation to your price increases, which is increasing your cost base. The question I have is that when these orders will be turned into revenue, is there anything we should look after in terms of impact on margin from this cost increase, which is leading to price rises? Or do you have some mechanism like hedging or inventory in place so you can mitigate the impact? So question is, to cut it short, like how should we think about Q2 or maybe Q3 margins from these Q1 orders given the price cost dynamics?

So Akash, happy to take this one, right? So I mean, it's essentially the essence of the price increase sort of in this, what I described as the HL pricing forward-looking to actually cover the price increases that we, at this point in time are looking at to sort of keep our margins, right, and not take a margin hit from potential price increases. So therefore, from this perspective, from what we have seen, right, we have not yet seen material effects in the first quarter yet, right, in the sense that we already see effects on our cost base but we expect that is going to happen. And therefore, we have increased the prices.

So when costs will hit us through material costs, energy costs coming up, our price increases that we have put in place should also hit us in a positive sense, right, because by then sort of the orders giving again an order book of three to four months there will turn into revenue, right?

Akash, as long as we're on that one, I'd point out to you that we had a lot of talk about pricing and costs in '22, '23, where KION was forced to be reactive and putting up pricing after the costs had already come into the picture substantially. And I'm really pleased with our business' proactivity and embracing -- the long-term embracing of the agility on the commercials and the operations. Very good teamwork between our supply chain team and finance team and business team to project what could be the case and proactively in advance, adjust the pricing. And we've got the whole supply chain and operations team working hard to mitigate the cost impacts coming towards us. So I think that we're nicely ahead of the game now, and it's very -- it feels real good to be proactive on these things.

So can we say that your ITS backlog margins are not really far off from what they were three months ago at the end of full year?

Yes, that I think is a fair statement, Akash.

And then my second one is on IAS. I mean, if you look at your service revenues here, they were down almost 10% year-on-year to EUR 286 million, which I think in absolute term is the lowest since first quarter of 2024. Can you talk about what's driving that? And maybe a follow-up. When we look at your e-commerce order pipeline, is there anything to highlight there?

So, just if you take the year-on-year comparison, right, in the service sector, right, I mean for -- in prior year, we actually had, like I said in my commentary in the first quarter, right, we had sort of a onetime spare parts stocking event from a major customer that happened in that quarter, right? So that is, if you will, a one time in a particular quarter. And also, we commented last year, we actually had a very strong quarter in terms of modifications and upgrades. That is a continuously good business, but it was exceptionally strong also in the first quarter last year. And if you would go to the brand script, you probably will see that we have commented on a 100% increase year-on-year in the first quarter last year in the mods and upgrades, right? So that calls out sort of that one in terms of comps. But we continue to be positive about the development of the service on IAS.

We now have a question from the line of Tore Fangmann from Bank of America.

Two questions from my side. First question would be your competitor has profit warned talked last week and was flagging very intense competition and price pressure as well. So would just like to hear from your side, how do you view the incremental, is there even an incremental pickup in competition and also thinking about competition from China, just what is the market picture right now?

Sure, Tore. I appreciate the question. We have an extremely strong footprint in China. It's a home game for us, and we're able to leverage that strength to benefit all of our regional performances in China for China, in China to benefit our businesses in Europe and the Americas, too. So I think that's a very unique and important element of our business model and certainly helps us be very good and competitive in our pricing. As I say, we only put them up 3% in the first, on the 6th of April. And we see people acting rationally. And there's always competition in the market, but we don't see it particularly intensifying vis-a-vis this time versus previous times.

And Tore, happy to have you back actually. One maybe point to add here. In 2022, inflation was basically a European phenomenon. This time, this is energy cost driven, which is actually a global phenomenon, right? So that's also in terms of relative also for what to be expected kind of pricing development. This time inflation have actually hit everybody.

Very, very well understood. And then my second question would be on the profit outlook for IAS. And just generally, what do you think can you deliver basically throughout the year, should we see further sequential step-ups? And together with this, we had a recent change in Section 232 tariffs now also including Canada and Mexico. And I know you have a facility in Monterrey. So could you just comment on are all these prices covered by your price increase clauses? Does this have any effect on margins or on demand in the segment?

Yes Tore. So on the outlook first, right, and sort of the step-up to the midpoint of the outlook and the outlook overall, right? Like we said before, I think it's exactly the same drivers that are in place there as well and I can remind everybody on those, right? But within the year, it's particularly we are working through the legacy project. We've closed in the first quarter, we continue to close and that will have a contribution throughout the year just as the development of the service business and the execution of the projects, right? But we are looking forward to continue closing legacy project as we speak throughout the year. And that will obviously have a positive contribution.

Now on the tariffs, basically, also there, maybe as a reminder to everybody, I mean, as everybody knows, there is just two sorts of tariffs, right? There is the one with this strange acronym, but everybody calls them the reciprocal tariffs, right? And that's the one that were affected also by the recent verdict from the U.S. Supreme Court. And then there's the Section 232, which we're not affected by that particular ruling. So our guidance that we have put out or the outlook that we have put out at the end of February and that we are confirming right now is including the effects that we have seen from those two types of tariffs in our IAS business and also in our ITS business as far as North America is concerned.

Now what -- has changed now, right? The one thing is the reciprocal tariffs sort of were taken up or removed from the U.S. Supreme Court. And obviously, we have filed for a refunding as far as we think the refunding belongs to us. That is a recent process. On the other hand, the Section 232 methodology has adapted a bit, so has broadened the base for the tariff. And sort of we are looking at a low double-digit amount for a potential refund following the ruling from the Supreme Court. But at the same time, we're also looking at the low to mid-single-digit incremental effect that we see from the changed ruling on the Section 232. So very long story short, that's basically a wash as we are looking at it right now. And therefore, we feel with the guidance that and the outlook we have put out in February, that's well covered.

We now have a question from the line of Lucas Ferhani with Jefferies. Please go ahead.

I just wanted to come back on the start from Sven regarding the prebuy. Just can you talk around maybe what you've seen into your proposed the price increase? Was it really a prebuy and so then there's a bit of normalization? Or was it maybe just a bit better demand than what you expected? How can you kind of differentiate? Thank you.

Luca, so let's talk about that. As I said, we put up -- we announced in March a 3% price increase that will be effective -- that was going to become effective on the 6th of April. Last time we did a first quarter price increase back in 2022 when there was a substantial effect, we had put it up. My recollection was high single digits, almost 9%, 10%. There was a substantial prebuy effect back then, but that was good four years back or more. It was only 3% this time. We put it in place for the 6th of April. There maybe was more prebuy than we anticipated when we had our pre-close call, but there still was a certain amount of prebuy effect. How much we're still in the process of figuring that out. And we'll only know as we look at how it really comes back, how the orders are coming in April and May.

The point I guess I would get to is with the prebuy effect that we saw, maybe the usual quarter distribution where Q2 is often larger than Q1 in past times, maybe it might adjust the quarterly progression during the course of this year. And as I say, we'll have a feel for how much of that prebuy is as we get through the next weeks and get through the month of May and have a view. But it wasn't massive, but it wasn't marginal either. It was a little more than we thought it might be. And how much we'll see as we get through May. Does that help you?

Very clear. And then on the IAS, the order intake, I think also in Q1, it's relatively better than maybe what we saw at the pre-close. So wondering a little bit if maybe things finished the quarter a bit better than expected from kind of things falling maybe this quarter or roughly in line with what you had in mind. It just seems that the pre-close, we didn't expect this type of growth in that segment -- in orders.

So I think we feel -- we said that actually also in the pre-close call leading indicating high double-digit growth, right? And so I think that's in line with how we talked about that.

Okay. Perfect. And the last point was just on the M&A. There's a part of the kind of free cash flow that is set aside for that. I was wondering if that strategic investment that was made, I mean, some of that money was kind of used as part of that or that EUR 200 million is set for something different?

Yes. So yes, again, also to remind everybody, we said in the outlook for the free cash flow that about EUR 200 million are earmarked for M&A activity throughout 2026. Now actually, in the first quarter as such, following the closing of transaction, only a very small amount of that has actually been used. The ZIKOO Robotics transaction that Rob made a reference to earlier is actually -- has actually closed in April, right? So in that sense, it's not in the first quarter cash flow, but the deal is closed, right? And the money has flown, right? And the equivalent, we have had an investment of RMB 235 million, roughly EUR 29 million. So that's an amount that is going against those EUR 200 million that we have earmarked in the cash flow in the outlook.

And I think it's a great example of what we told you we were interested in doing, M&A on, very strategically interesting software and robotics kind of companies, where we see ourselves as a very logical, good fit owner of that business and able to scale that business. It's a great example of exciting technology that fits very, very well into our overall solution and that we can scale on a worldwide basis.

We now have a question from the line of Lasse Stueben with Berenberg.

I have a question about IAS. LogiMAT this year seems to have been busier than prior years, at least that seems to be the anecdotal feeling. So I mean, generally, what is the message you're getting from customers in terms of -- we've spoken a lot about hesitancy to invest in a lot of early conversations, but no one is really pulling the trigger. So I'm just wondering what the key messaging was from customers at LogiMAT because it did seem to be a bit more upbeat than it did in prior years.

And then the second question is to some extent related to that. I think in the Q4 call, you talked about the need for, I think you said win and do orders, if I remember correctly, particularly in the context of reaching that kind of EUR 4 billion revenues in '27. Have you seen any signs of some of those maybe coming through, maybe also since LogiMAT? Or what's the update on that front?

Yes, Lasse, you're right. There was good resonance at the LogiMAT. There was the week after a really good resonance at the ModeX in Atlanta, following the -- ModeX in Atlanta followed the LogiMAT in Stuttgart. Good resonance and good customer feedback in both good sentiment. I think that the quote that you're talking about was actually multiple quarters ago and back earlier last year, when we were talking about customers being quite hesitant about starting brand-new big projects in the IAS business based on uncertainties and volatilities. 

We have updated that now and are saying that the -- that trough -- the trough in the market is behind us for both of our segments. Certainly, in the IAS segment, customers across the patch in multiple verticals have been coming back to the table and placing and pushing the button on starting those new orders. And so I think the trend you're describing is behind us now. for several quarters now. We've been calling that out. You can follow up with our IR team to get the detail of that timing. But that's behind us, and the [indiscernible] -- the resonance is good, and the customers are coming back and placing good orders now.

And Lasse, I'll take the other one on the win and do. So let me maybe clarify one point first. When we talk about win and do, we talk about the order intake that is translating into revenue in the year of the order intake, right? So that is on 2026, right? Because you made a reference to sort of EUR 4 billion revenue. Actually, we have no outlook to have EUR 4 billion revenue in 2026, right, just to clarify this.

So when it comes to win and do, which is sort of order intake still to get for the revenue outlook that we have taken out, given out to the street. It's actually a very small manageable amount of win and do, and that we expect to have in the second quarter, with the order intake that we look at with the order book and the small win and do still to get, I think we are covered actually for having the 2026 outlook there. And 2027, we'll talk when we talk 2027 as always.

We now have a question from the line of Timothy Lee from Barclays.

So my first question is about the price increase in ITS again. Can I just confirm, is the price increase of 3% is similar for everybody in the suite? And how about the Chinese players? Are they also making the price increase because of inflation this time? And also in terms of competition, have you seen the Chinese players moving towards the higher-end products? That means whether you are seeing like a step-up in terms of competition in the high-end products that you used to be -- have a much better position?

Timothy, a little bit of difficulty hearing exactly on the line, but I think you asked if our 3% price increase applied to all our customers. And most certainly, it does. Indeed, we increased the list price for all our goods in the ITS EMEA business, where we had the most concern about potential cost changes coming from inflation.

We increased our pricing in China as well, or have one coming up very soon. The agility measures I'm talking about, we do on a worldwide basis. We've been adjusting pricing in North America as appropriate, too. The 3% call out was our ITS business here in Europe. But we are adjusting pricing as appropriate, like Christian was saying earlier, in all regions on a very regular basis.

As opposed to commenting on pricing by competitors, let me just say the market is acting very rationally, and competitors continue to act rationally. And KION has a very strong footprint in China and has a very good offering in all the market ranges for our trucks. We do see as many industries in China are becoming -- are bumping up against the growth limits that they'd like to have; they're looking externally and are taking -- moving to other regions in the world. And I think that continues. And there's very good technology in China, and we take that very seriously and take our competition very seriously.

Sorry, actually, I would like to clarify a little bit about my question. I was actually wondering if your competitors are also making similar price increase of 3% as what you did, and also whether the Chinese players have also increased the price this time?

Yes. Look, our observations looking into the market is that pricing is done on a rational basis. We were on a rational and proactive basis and took very good account of our own projections of expectations on inflation and potential impacts coming from the war in Iran. And on the basis of our expectations, we made the pricing change. But in terms of commenting anybody else's, that's not our approach.

Understood. And then my second question is about the margin development for ITS in the rest of the year. So, in the first quarter, you have 9.1% margin and the midpoint of the full year guidance is 9.7%. So, I'm just wondering what would be the key drivers for margin improvement further in the coming quarters given that you have a price increase to offset the cost? You may have the utilization rate to improve in the second quarter because of the strong order this quarter -- strong quarter in Q1, but then in Q3 because of the prebuy normalization in Q2, then utilization may probably drop a little bit in third quarter. So, I'm just wondering what were the moving parts to help your margins to improve, let's say, in the rest of the year, especially in the second half?

Yes. So, let me start with the end first, right? Because basically, if you look at the margin development for the remainder of the year, we would sort of expect that as we go now into the next quarter, we would be sort of close to the level that we have seen in the first quarter. Third quarter is always a summer quarter, right? That has some implications in particular also when it comes to the service contribution to the business that is natural in the summer quarter.

In our business, in the ITS business, the fourth quarter always tends to be the strongest quarter in the margin. We don't think that 2026 will be different from that perspective. And so that already describes also the margin drivers because the one is the volume that is going through the system, which is a consequence of the order intake as it translates into revenue.

And the other element is the services business in the various pieces and that's sort of growth in the after-sales segment, continuous growth in the rental business at which we look. But also in the ITS segment, we do a fair amount of automation, right, that will also translate into revenue as we speak in the coming quarters.

So, all this will contribute to the top-line development and then consequently also to margin development that, again, just to remind everybody, will be back-end loaded as it was also in prior periods where the fourth quarter is the strongest, and we expect that again.

Last question comes from the line of Philippe Lorrain with Bernstein.

I'll start with one for Christian. Are you going to earmark in the balance sheet notes the exact amount, for instance, of financial liabilities, e.g., for instance, the bond that you've placed in Q1 and that is related to leasing and short-term rental activities because the disclosure so far in Q1 it looks a little bit different. So, I'm wondering about the year-end reporting that will help to determine the industrial net operating debt levels by ourselves.

And then the second question, more for Rob. If we speak about, for instance, players in the contract logistics space and take into account your former at least, let's say, largest customer in IAS, Amazon. Apparently, these guys are also outsourcing some distribution centers and so on to contract logistic players in North America now, which was a trend that was observed already in Europe. Would you expect this to have a material impact or not on your own business in that very special e-commerce vertical?

Philippe, thanks for the question on the bond and the use of the proceeds of the bond. Yes, we will disclose it in the context of the use of the funds, right? That's exactly why we have also together with the outlook said that there will be an adjustment to the free cash flow so that you can actually transparently see how the proceeds of the bond, the EUR 500 million have been used. And as that will happen, right, then you will also be able to see what -- to the extent that, that is actually not financial debt in the classical sense as you made the reference to, but it's actually used for the leasing and rental business. So that disclosure will follow once we use the proceeds for the leasing and the rental business.

And Philippe, on your question, we haven't seen any particular impact as of now. I would remind you that all those warehouses and distribution centers and cross-dock centers and fulfillment centers need first-class automation solutions in them and need first-class automation solutions and then updated on a every -- once they -- when they're greenfield, they need to get a great solution in there in the first place, and that's a big piece of our contribution. And then over a period of time, they'll need some brownfield upgrades, too.

And we do very good green and brownfield with the -- all the customers and certainly the one that you're talking about, whether they're in-sourced or outsourced or resourced or it's all good automation solutions coming from KION. So no, I don't think that that's an impactful trend, and I would encourage you not to be too concerned about that one.

Ladies and gentlemen, in the interest of time, that was the last question. I would now like to turn the conference back over to Rob Smith for any closing remarks.

Thank you very much, Chloe. And ladies and gentlemen, thank you all for joining us for today's call and the many good questions. We look forward to continuing the dialogue with you and face-to-faces over the next weeks in the different conferences, and we look forward to being back here with our Q2 results at the end of July. Thanks very much, and have a good afternoon. Bye-bye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

Ladies and gentlemen, welcome to the Analyst and Investor Update Call Q3 2025. I'm Serge, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions]

At this time, it's my pleasure to hand over to Rob Smith. Please go ahead. You can go ahead, Mr. Smith.

Serge, It's Rob. I lost your introduction. Maybe you've you got to switch line now?

You can go ahead, Mr. Smith.

Operator?

Can you hear us, Mr. Smith? We lost connection to the speakers. Please stay on the line.

[Technical Difficulty] Shanghai, China, where KION is at the CeMAT trade fair, which is currently taking place here in Shanghai. But I'll tell you more about that later. Please look for our update presentation on the IR website for today's call.

I'm going to start with a summary of our third quarter 2025 results and several exciting business highlights. And then, Christian will update you on the efficiency program before taking you through the detailed Q3 financials and our updated outlook for 2025. And then, I'll be back for our key takeaways before we open the line for questions and answers.

Starting, please, on Page 3. The third quarter was another solid quarter, in line with our expectations. Group order intake was EUR 2.7 billion, a 10% increase compared to the prior year. Revenue was flat at the KION level with the increase in Supply Chain Solutions compensating for the anticipated decline in the ITS segment. Adjusted EBIT was EUR 190 million, corresponding to an adjusted EBIT margin of 7%. Year-over-year, while the SCS continued to improve its profitability, profitability in ITS reflected the expected negative impact of lower volumes. Both operating segments improved their adjusted EBIT margin sequentially. Free cash flow was a strong positive EUR 231 million. And earnings per share was EUR 0.87, an increase of nearly 60%.

On Page 4, I'll share with you some recent business highlights. In September, Linde Material Handling announced its partnership with the European aircraft manufacturer, Airbus, for the deployment of automated logistics solutions on the Jean-Luc Lagardere site in Toulouse, where the aircrafts of the A320 family are assembled. A range of robotic solutions designed to help optimize the efficiency and safety of Airbus' logistics processes have been commissioned. These innovations include the R-MATIC trucks, retractable mast autonomous guided vehicles, or AGVs, for a much more reliable material flow management and improved working conditions, helping Airbus build the 320 family.

Also in September, KION Group received the highest award, which is a Platinum rating, from EcoVadis for the first time. This places KION among the top 1% of the more than 150,000 companies rated by EcoVadis. KION joined its well-established brands, Linde Material Handling and STILL, which were awarded the Platinum award from EcoVadis again in 2025. This positive group-wide development highlights KION's steadfast commitment to our sustainability strategy.

And here at the CeMAT in Shanghai, China, KION is showcasing an advanced physical AI-powered Omniverse solution as part of the large-scale collaboration with NVIDIA and Accenture to reinvent industrial automation. CeMAT fair visitors are experiencing how AI-driven industrial trucks and digital twins can transform supply chain operations. The showcase is a milestone on KION's path to an adaptive autonomous material handling standard for customers worldwide. And Dematic unveiled the first demonstration of the FD system, showcasing its end-to-end workflow and innovative evolution of Dematic's multi-shuttle technology. It's ideal for a wide range of industries, including third-party logistics, supermarkets, e-commerce, apparel, pharmaceuticals and electronics.

CeMAT is a truly inspiring experience for us: for me, personally inspiring, for our Board members, for our teams. I'd like to share with you our mutual impression of an atmosphere that's very powerful here. Our supply chain solutions industry is an industry of the future, and we are all in the middle of the beginning of this future at this point with lots of excitement still to come. CeMAT is a strong manifestation of the trends we at KION identified that are driving our business and our own innovation, especially electrification, the increased demand for warehouse trucks, e-commerce, automation and robotics. Yesterday, at the CeMAT, we signed 7 ecosystem strategic partnerships with highly innovative players that are outstanding in their respective fields of the supply chain solutions industry. With win-win partnerships like these, KION is enhancing its ecosystem focus on innovation, advanced robotics and automation technologies. With all what we've seen during these recent days, I'm very convinced KION is well positioned to shape the supply chains of the future.

I'll hand now over to Christian, and he will take you through an update on the efficiency program, our detailed Q3 financials and our updated outlook for 2025.

Yes. Thank you, Rob. As promised over the last months, we are providing you now with an update on the efficiency program that we announced in February of this year to achieve a sustainable annual cost saving of around EUR 140 million to EUR 160 million from 2026 onwards. For the implementation of those cost-saving measures, nonrecurring items of approximately minus EUR 240 million to minus EUR 260 million were initially expected.

I'm sure, you have all seen our announcement last week. Following the constructive and effective teamwork with our works council labor representatives, we have made substantial progress in the negotiations in most jurisdictions, particularly in Germany, giving us a better view on program instruments, financials and timings. We still have some jurisdictions in which we are still negotiating, which is why we don't have a final number yet. But we can now more precisely quantify the expected expenses, and we are now able to lower them to between EUR 170 million and EUR 190 million in 2025.

The savings target remains largely unchanged at between EUR 140 million and EUR 150 million. We are able to achieve almost the same savings with much lower expenses, mainly because many employees accepted our voluntary redundancy package. As a consequence, we don't need additional redundancy schemes. We expect the savings to start impacting the bottom line already in the fourth quarter '25 with a small amount and anticipate the majority of the savings to become effective in 2026 and the remaining will then support earnings in outer years.

Of the EUR 197 million efficiency program-related expenses recorded in the first half of 2025, we were able to release approximately EUR 34 million in the third quarter. Many leavers have, for personal tax reasons, opted for the severance payment to be paid out in the first quarter '26 rather than at the end of this year. Accordingly, this will shift a significant portion of the lower-than-initially-expected cash out for the efficiency program from the fourth quarter to the first quarter of next year.

Let's go now to Slide 7 for the key financials of the ITS segment. Order intake reached 60,000 units in the third quarter, which is a sequential decrease of 14%, a pretty normal seasonal development in the third quarter. Year-over-year, the increase was 17%, an acceleration of the growth rate seen in the first 2 quarters, which is also due to the lower prior year base. New orders in value terms increased 8% year-on-year, driven by a 17% increase in the new truck business. The service business also showed continued growth at 1%. The order book reflects ongoing lead time normalization, and its margin quality is in line with our expectations, as reflected in our outlook.

Revenue declined by 3% year-over-year to EUR 1.9 billion. The 3% growth in service partially compensated for the expected 9% decline in the new truck business. Again, remember that in 2024, the new truck business revenue significantly benefited from the tailwind of a high order backlog. Adjusted EBIT at EUR 171 million and the corresponding adjusted EBIT margin at 8.8% reflected the expected impact from lower volumes, resulting in lower fixed cost absorption in a year-over-year comparison. The sequential improvement in the adjusted EBIT margin, despite the usually weaker summer quarter, is supported by a slightly higher gross margin.

We will now continue on Page 8, which summarizes the key financials for SCS. Following the record order intake in the second quarter, which was also impacted by the favorable timing of some order signings, orders in the third quarter declined by approximately 50% sequentially but still representing a 16% increase year-over-year. This year-over-year growth was once again driven by a 46% increase in business solutions orders, while the order intake in customer services was down 12% on a strong prior year quarter. Remember, we had flagged in the second quarter update call to not extrapolate the record order number for every quarter going forward. While we may have passed the trough, we are still in a lumpy recovery trajectory, and we are also likely to see the next quarter below the EUR 1 billion mark again. While last quarter's increase in order intake was very much driven by the pure-play e-commerce vertical, their share in this quarter's business solutions orders was 24%, meaning that the growth was fueled by customer in other verticals.

As a result of the growth in order intake, the order book increased 16% year-over-year, and that year-over-year increase would have shown an even higher growth rate of 22% without the adverse foreign exchange translation effects. Overall, revenue increased both sequentially and year-on-year and is starting to benefit from the recovery in the order intake, which increased the business solutions revenue by 15% year-over-year in the quarter. The adjusted EBIT improved strongly year-on-year to EUR 48 million, with adjusted EBIT margin increasing to 6.2%, following higher revenues and improved project execution.

Let's quickly run through the key financials for the group now on Page 9. Order intake benefited from the improvement in demand in the new business in both operating segments. The order book reflects the increased demand in SCS, partially offset by the continued lead time normalization in ITS and FX translation losses in SCS. Revenue in SCS is starting to benefit from the order intake recovery since the beginning of 2025, offset by the expected revenue decline in the ITS new truck business. Adjusted EBIT at EUR 190 million and the adjusted EBIT margin at 7% was impacted mainly by the lower fixed cost absorption in ITS and the normalized EBIT in the Corporate Services Consolidation segment, which was partially compensated by the strong earnings improvement in SCS.

Now Page 10 shows the reconciliation from the adjusted EBITDA to group net income. Nonrecurring items in the quarter included approximately EUR 34 million release of provisions for the efficiency program. Please note that due to the overall lower-than-initially-expected expenses for the efficiency program, we have revised our full year 2025 expectations for nonrecurring items to between minus EUR 210 million and minus EUR 230 million from between minus EUR 240 million and minus EUR 275 million. You will find this information on the housekeeping slide in the appendix. In this quarter, [ PPA ] items were at the usual quarterly level.

Net financial expenses improved year-over-year, mainly due to the positive impact from the fair value of interest derivatives and the lower net interest expenses from lease and short-term rental business. We have also adjusted our expectations for full year 2025 net financial expenses to between minus EUR 140 million and EUR 160 million from previously between minus EUR 170 million and EUR 190 million.

Pretax earnings grew 9% to EUR 142 million in the quarter. Tax expenses of only EUR 23 million in the quarter corresponded to a tax rate of 16%, significantly lower than in the prior year quarter. The main driver for the lower tax expenses in the quarter resulted from a revaluation of the deferred tax liabilities amounting to EUR 38 million, following a June 2025 resolution of the German government on the lowering of the federal corporate tax rate from 2028 onwards. And then, the net income attributable to shareholders increased disproportionately by 58% to EUR 114 million, corresponding to earnings per share of EUR 0.87.

Now, let's continue with the free cash flow statement on Page 11. Free cash flow in the quarter reached positive EUR 231 million, substantially driven by an improvement in net working capital in ITS. In contrast to the prior 2 years, we had a EUR 50 million cash out in -- sorry, where we had a EUR 50 million cash out in the fourth quarter for additional pension funding, we funded [ EUR 50 million ] in the second quarter and EUR 35 million in the third quarter.

Page 12 shows the development of net financial debt and our leverage ratios. We had a solid decrease in net debt to EUR 818 million at the end of the third quarter 2025. Consequently, the leverage ratios improved across both net debt definitions by 0.1x compared to the end of June 2025. Our leverage ratios continue to remain slightly lower than the level last seen post our December 2020 capital increase. But this time, we achieved the improvement entirely through self-help measures.

Slide 14 now lays out our updated guidance for the fiscal year 2025. I will quickly walk you through it. Based on the 3 solid quarters -- the first 3 solid quarters and our visibility for the fourth quarter, we have narrowed the guidance range for ITS. For SCS, the good year-to-date performance, including the growth in order intake since the beginning of the year, allows us to increase the lower end of both the revenue and adjusted EBIT guidance.

In addition to the above, the narrowed group guidance range reflects our expectations of more negative adjusted EBIT contribution from the Corporate [ Services ] Consolidation line. This difference is around EUR 10 million in the midpoint, driven by higher expenses for long-term incentive programs, resulting from the increased share price and for strategic projects.

And finally, as outlined earlier in this presentation, we expect lower expenses and related cash out for the efficiency program in addition to a significant portion of that cash out shifting from the fourth quarter '25 to the first quarter '26. Accordingly, our free cash flow guidance increased substantially to between EUR 600 million and EUR 700 million from previously EUR 400 million to EUR 550 million. As always, you will find the slide on the housekeeping items in the appendix.

And with that, now, I hand back to Rob for our key takeaways.

Thank you, Christian. Let's move to Page 15, where we have our key takeaways. KION achieved another solid quarter, completing the first 9 months of 2025 in line with our expectations. Both the industrial truck market, as well as the warehouse automation market, have passed through their troughs and are on a recovery path amongst geopolitical challenges. KION is growing order intake in both operating segments.

Following the constructive and effective teamwork with our works council labor representatives, we have made significant progress in implementing the efficiency program. With most jurisdictions having completed their negotiations, we're able to reduce our expected costs for the efficiency program meaningfully, while delivering the targeted savings. A significant portion of the associated cash out is shifting from the fourth quarter of '25 to the first quarter of '26, preserving cash in 2025.

With 9 months of 2025 behind us and increased visibility on the fourth quarter, we have narrowed our guidance ranges for revenue and adjusted EBIT. We've also increased our outlook on free cash flow for fiscal year 2025 due to the lower expenses for the efficiency program and the shift of the related cash out. Our outlook remains subject to no significant disruptions to supply chains as a result of trade barriers, especially tariffs and restrictions on access to critical commodities.

This does conclude our presentation. Thank you for your interest so far. We look forward to taking your good questions. Back to you, Serge. Let's open the line.

Thank you, Mr. Smith. Can you hear me? [Operator Instructions]

Serge, we can't hear you.

Can you hear me, Mr. Smith?

Nor can we hear [indiscernible].

[Technical Difficulty] Ladies and gentlemen, please hold the line. We will continue with the Q&A shortly.

I trust everyone has heard Christian and me for the last 15 minutes, but we don't hear any...

Can you hear me, Mr. Smith?

[ Haven't ] put on the other line yet.

Do you hear me now, Mr. Smith?

Okay. Raj is writing us the question and we're answering to that.

It's an outstanding solution.

Okay. We'll start with the Q&A. The first question comes from Sven Weier.

I hope you can hear me, Rob and Christian.

Please ask the question. We will forward it, Sven. It will take a bit.

Actually, now, I do hear you.

You can hear me? Okay. Great. So I have 2 questions, please. The first one is a more short-term question. And obviously, you had a great order intake development on the truck side in Q3 against what were, I guess, tough economic circumstances in Europe. So wondering if you could see a continuation of that also in the fourth quarter so far? That's the first one.

I'm sorry, I hear your voice, and there was some feedback on the line. If you would be so kind just to repeat that, maybe we'll get a better chance the second time.

Of course. Yes. I hope you can...

[indiscernible] will order intake continue like this in the fourth quarter?

Yes, sure. Let's talk about that, Sven. I mean, maybe we look at both segments. Historically, the fourth quarter is a very strong segment, probably the strongest segment for order intake in the ITS segment. Seasonally, the third quarter is usually a little lighter and the fourth quarter is a strong fourth quarter. I anticipate that will be a similar situation this year, no reason not to think it would. And as we say in both segments, we're past the trough. We're in a growing -- we're back into growth mode in the markets, and our order intake is certainly in growth mode. We have expected we got a better third quarter this year than we did last year in SCS. And as we described, we expect certainly a stronger second half this year than the second half last year. And we're looking for a good fourth quarter here.

Sven, I trust that answers your first question.

Yes, and I could hear you really well. So that's fine. The second question is a little bit more looking forward on the...

So, you had a second question as well, Sven?

Yes. Can you hear me? Can you hear me, Rob? Operator, can you pass it on?

Please ask your second question, and we will forward it to Mr. Smith.

Yes. So the second question is around the general sentiment among your clients, both in ITS and in SCS, in terms of their investment plans going forward. Do you sense they want to grow CapEx and it's just politics preventing them to do so, meaning that if there was any clearance on the political side, that this investment is released? Or what's the kind of general investment sentiment among both client segments?

The general sentiment, Sven? There we go. How about that? General sentiment among clients in ITS and SCS. Do we sense they want to grow CapEx and our geo -- let's talk about that. I think it's pretty exciting. I think everybody thinks it's exciting that President Xi and Trump came together today, shook hands, and it looks like there's a significant de-escalation of tensions there. And no one has seen any effect of that yet, but I do feel that that's a very good step in the right direction, and I think all our customers are going to feel that way, too, in all markets. I think it was positive. I think it was already priced into the markets, but I think it will be a positive thing for our customers, especially on the SCS side. The Fed has reduced the rates now again. So with 2% in Europe and the lowest rate in America over the last 3 years, that has to be a positive thing. And our customers have been very active with us in the pipeline. And it's just a matter of going through and converting those into orders now. We've talked about that being lumpy. But the trough is behind us. We're in an upward slope. And we're expecting to have a second half stronger than the second half last year. And we think we'll have a seasonal adjusted good fourth quarter as usual on the ITS side. So I think the sentiment is clearly much more positive post the meeting with Trump and Xi today than has been in the lead up to that over the last several months.

Ladines and gentlemen, please shorten a bit your questions since we're forwarding them to Mr. Smith. The next question comes from Akash Gupta from JPMorgan.

I have 2 as well. My first one is on the phasing of savings. So I think if you look at the savings, it translates to EUR 35 million to EUR 37 million per quarter, and you want to achieve fully in 2026. So maybe if you can give us some indication on how we shall think about phasing and by when do you expect the full run rate to be achieved?

The second question is on lower interest rates from lease and short-term rentals.

Okay. So the question was on the phasing of the savings for the efficiency program, right? Let me take this one. So, as I said, right, we will have a small part of the savings already in the fourth quarter of this year, and then the far majority of the savings then in 2026 and actually very much sort of forward-loaded in the year. And there will be a small remainder potentially in the following year. So we will have a small part right now and the majority in the beginning of 2026.

And my second question is on lower interest rates -- lower interest from lease and short-term rentals. I mean, your rental revenues were up 2% in the quarter. So maybe if you can elaborate what is driving this lower interest from lease and short term. Is this due to lower interest rates, or something changed in the way how you do business? And what shall we expect going forward in terms of the sustainable interest from lease and short-term rentals?

That's actually a consequence of the lower negative interest that we had against the prior year. We don't change the way we do the lease business. There is no structural change in how we perform the lease business or the short-term rental business. We have actually just a lower negative -- a lower interest against the prior year, and that's the consequence of that. Well, I mean, that will -- so, that sort of will potentially continue in the fourth quarter as a development. But then, sort of over next year, that effect will then actually disappear as the rates actually align themselves again.

Next question comes from Tore Fangmann from Bank of America.

Perfect. Trust, operator, you can hear me. One question would just be what is the reason for cutting down the upper end of the savings range from EUR 160 million to EUR 150 million? And I'll take the second question afterwards.

Okay. Yes. Well, okay. So I think cutting down the upper end is a pretty harsh wording actually on the adjustment, right? When we defined the efficiency program, we basically targeted the entire EMEA region and all the countries in the setup. Now, the EMEA region actually has not a consistent level of personnel costs, nor do sort of individual jobs and functions have all the same personnel costs. So, on the implementation, now, as we are sort of finishing sort of the execution of the program, the mix that we have between countries and between functions, as we have come to the end of that, is slightly different to the mix that we had planned initially. So that's the background of that slight adjustment, I would call that rather.

Understood. Second question would be on the higher gross margin in IT&S. Is this a question of mix? Or is there some pricing in there? Or is it just more efficient production?

So the question on the gross margin in ITS, it's basically a mix. I mean, we did not have issues in production throughout the year. We have been reporting in the past that production is actually running overall quite well. So there was no impact on that. So when we look at the gross margin impact there, that's mainly mix.

The next question comes from Martin Wilkie from Citi.

It's Martin from Citi. My question was on the pipeline in Supply Chain Solutions. There's a lot of debate across the industry as to whether the interest rate environment has prevented some projects going ahead, and we are now seeing rates coming down.

I appreciate the question. And you're asking on what's the pipeline in our Dematic business, our Supply Chain Solutions business. Very healthy pipeline, continued very active discussion with our customers. And I've been sharing that. It's stayed healthy. It stayed quite active pipeline. And now, as we've been talking for the last couple of quarters, customers are coming in and starting those projects. So the difference, I think, now to previous times is, we see ourselves and the market is clearly with the trough behind us and on an upwards order intake trajectory now. So the pipeline is good. The pipelines continue to be good, and it's very active with our customers.

The next question comes from Gael de-Bray from Deutsche Bank.

My question relates to SCS. And I was wondering why the gross margin was down so much sequentially in Q3? I think it was down 300 bps.

So the question was on SCS. Why is the gross margin down sequentially? So as we -- I mean, we have been talking about closing out the legacy projects over the recent months, right? Closing out legacy projects, as we close them, still comes with the cost, right? We had some costs in the third quarter that we had to reflect for the legacy projects in the business solutions margin, right? And that's reflected here in the gross margin development sequentially for SCS.

Now, on the legacy projects, maybe just overall, right, we are -- as I've said, we are continuously closing out those projects. Also in the fourth quarter, we will have a further closing out of legacy projects. There will be a very small number remaining for the next year. And again, as a reminder, that's also not new. There will be one large project that we have that will last into 2027. But we are closing the legacy projects out as we speak. And at times, that comes with costs. We had to reflect some in the third quarter.

Could you perhaps quantify this cost in -- I mean, in Q3 and maybe in the first 9 months so far?

Quantify the cost of the -- separate out the legacy cost development in the first 9 months.

The next question comes from Lasse Stueben from Berenberg.

Could you please share the verticals and regions in SCS that are driving the orders from the non-e-commerce side?

Sure, Lasse. Let me -- why don't I try it a little bit differently because orders are up well year-on-year in all 3 regions. What I'd call out is, if you want to talk verticals, the order intake in SCS, some good growth in the non-e-commerce verticals of third-party logistics, also food and beverage. And we also had

[Audio Gap]

in durable manufacturing. So those 3 really stood out.

[Technical Difficulty] Ladies and gentlemen, please hold the line. We lost the connection with the speakers. We'll shortly continue with the conference.

Ladies and gentlemen, please hold the line. The conference will shortly continue.

Can you hear us now?

Mr. Lasse , you can ask your question now.

[indiscernible] answering your question again. You were asking where are the pickup year-on-year in non-e-commerce. A matter of fact, all 3 regions are having good growth on a year-on-year basis. The strongest is in the Americas, but all 3 are making good year-on-year growth. And the verticals that are non-e-commerce pure-play verticals that are picking up in a good way would be the third party, the 3PL vertical. Food and beverage has a good pickup and durable manufacturing as well. I hope you caught all that.

The next question comes from Timothy Lee from Barclays.

So I just want to ask about the guidance for ITS. So the full year guidance is reduced in terms of range. And if we look at the midpoint of the guidance for the revenue number for ITS, that would imply, in the fourth quarter, revenue number could be down quite a bit, something like 8% if we take the midpoint of the full year guidance as a reference. That is a bigger decline compared to the previous quarter. Is that something you see to be fair? Or you're probably a bit conservative on your guidance for ITS revenue?

So the question is, whether the midpoint Q4 for ITS implies lower year-on-year, is that fair? Well, I mean, we had this development for 3 quarters now in a year, right? Also the fourth quarter will not be an exception to that, right? I said we will have small impacts from the efficiency program kicking in the fourth quarter, but that will not be sufficient to reverse that trend -- that will not be sufficient to reverse the trend already. So therefore, the fourth quarter, in that respect, has to be seen in the context of the entire year. And so, yes, we consider that actually fair.

The last question comes from Alexander Hauenstein from DZ Bank.

Ladies and gentlemen, there are no more questions at this time. I would now like to turn the conference back over to Rob Smith for any closing remarks.

Serge, thank you for helping us do the best that we could in the Q&A session and thank everyone for your patience during the Q&A session and your interest during our call. We're looking forward to continuing this dialogue with our investor conferences in November and early December. We'll be back in February for our full year results and our guidance for 2026 at the end of February.

Obviously, the Q&A session wasn't as easy as we expected it would be and as it normally is. And so, our IR team will be clearly available to everybody that has a question they'd like to get a little bit more detail and depth on in rest of today and the days to come to make sure that the messages that we've got are well understood and the results that we've brought are well appreciated. So thank you for your interest, and we wish you all a good weekend. Goodbye now.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.