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spk04: Good day, ladies and gentlemen, and welcome to today's Iveco Group 2024 first quarter results conference call and webcast. We would like to remind you that today's call is being recorded. After the speakers remarks, there will be a question and answer session. If you wish to ask a question during the Q&A session, please press style one on your telephone keypad. At this time, I would like to turn the call over to Federico Donati, Head of Investor Relations. Please go ahead, sir.
spk05: Thank you, Laura. Good morning, everyone. We would like to welcome you to the webcast and conference call for Iveco Group first quarter financial results for the period ending 31st March 2024. This call is being broadcast live on our website and is copyrighted by Iveco Group. Any other use, recording or transmission of any portion of this broadcast without the express written concept of Iveco Group is strictly forbidden. Hosting today's call are Iveco Group CEO Gareth Marks and our CFO, Anna Tanganelli. Gareth and Anna will use the material made available for download on the Iveco Group website early this morning. Additionally, please note that any forward-looking statement we might be making during today's call are subject to the risk and uncertainties mentioned in the safe harbor statement, including the presentation material. Additional information pertaining to factors that could cause the results to differ materially is contained in the company's most recent annual report as well as other recent reports and filings with the authorities in the Netherlands and Italy. The company presentation may include certain non-IU IFRS financial measures. Additional information including reconciliation to the most directly comparable IFRS financial measures is included in the presentation material. Reiterating here again what we already disclosed during our recent Capital Market Day in March, Iveco Group and Mutares announced the signing of a definitive agreement for the transfer of ownership of Magirus and all of its asset and legal entities performing the firefighting bodyworks and superstructure business. Subject to the regulatory approval, the transaction is expected to be completed no later than January 2025. In accordance with IFRS 5, as the sale was signed in March, Magirus met the criteria to be classified as a business held for sale. It also met the criteria to be classified as discontinued operations. As a consequence, from now on, 2024 financial data shown in the press list and this presentation include Magirus and refer to continuing operations only, unless otherwise stated. In accordance with applicable accounting standards, the figures in the income statement and the statement of cash flow for 2023 comparative periods have been recast consistently. I will now turn the call over to our CEO, Gerrit.
spk02: Thanks Federico and welcome to all of you joining our call today. 2024, our third year as a listed group, is headlined acceleration. After we delivered our foundational and transformational years in 2022 and 2023 respectively. Today, we will provide you with commentary around our results for the first quarter of 2024. This follows our capital markets day that we hosted in Turin on the 14th of March. We outlined our revised ambitions for the 2024 to 2028 period and disclosed for the first time more granular data on our truck, bus and defense business units previously grouped along with the firefighting business unit now reporting as discontinued operations under one single reporting segment called commercial and specialty vehicles. Individual ambitions and pathways were provided live on stage by the P&L and cash flow accountable presidents of each business unit, including powertrain and financial services, of course. From now on, we will provide you with revenues and EBIT margin performance for each of our five distinctly different business units which follow specific seasonality throughout the year. As you can see in the materials on our website regarding our historical quarterly financial performance from 2022 and 2023. As we announced in our press release issued earlier this morning, we started the year with consistent profitability improvements across all our business units, leading to an adjusted EBIT margin for the industrial activities at 6.1%, 170 basis points above the first quarter of 2023. During these first months of the year, we did not experience any unusual increase in order cancellations or net price erosion above and beyond expectations in light of the slower market. As anticipated, we opened the order book for our new model year 2024 lineup in all truck segments, managing the transition from our model year 2022 while continuing to cautiously shorten our order books in the normalizing market environment, particularly as regards heavy duty trucks. The order backlog in trucks remained rather high with around 18 weeks of production already sold for light commercial vehicles and around 14 to 15 weeks for medium and heavy duty trucks at the end of March 2024. When looking at our bus business unit, our order backlog covers all of 2024 and is now stretching well into 2025, covering almost entirely the first half of next year. In defense, we already disclosed that our order backlog referring only to orders already funded by our customers covers basically the entire top line for the business plan period with a solid potential upside at the back end of our plan as allocated. Multi-year spending for military vehicles by European countries is projected to increase in the near term. Finally, in powertrain, we are well on track to reach our target of 100 basis points margin increase per year in line with the commitment we made during our recent capital markets day on the back of our efficiency plan and a greater contribution from aftermarket activity. When looking at our financial services business, delinquencies on book for less than 30 days remained at a historically low 2%, which is sequentially flat and 50 basis points better than last year. As already discussed extensively in our interactions with sell and buy side, the supply chain situation is admittedly still a source of minor surprises, although much more predictable when compared to the first half of 2023. This is enabling us to manage our production schedule quite smoothly with no major disruptions. Any potential indirect negative impact from the U.S. and Ukraine and Palestinian conflict need to be constantly and carefully monitored, as well as the Suez and Panama channel situation, although at the moment none of the above has caused any material slowdowns or disruptions in the supply chain. Finally, as anticipated in our previous earnings calls, together with our partners, we have made significant efforts to solve bodybuilder capacity bottlenecks that slowed down the timing of deliveries to customers and affected other OEMs as well. We still have some work to do in the second quarter, but we expect the situation to level out soon with normalized deliveries throughout the third quarter. Let me now provide some numbers from the first quarter of 2024. Our free cash flow absorption was at 436 million euros compared to last year's recast absorption of 546 million euros. Our available liquidity level remained solid at 4.7 million euros, broadly flat-ish versus the end of December 2023. Anna will provide more details on this later in the presentation, also highlighting the free cash flow delta performance on a -over-year basis. Looking at the IVECO Group financial performance for the first quarter of 2024, our consolidated revenues were in line with last year and the consolidated adjusted EBITX margin was at 6.9%, up 170 basis points versus first quarter 2023. Our adjusted diluted EPS was at 57 cents at the end of the first quarter 2024, which is 32 cents more than first quarter 2023. During the annual general meeting held on the 17th of April 2024, the shareholders approved our proposal to cash-dividend of 22 cents per outstanding common share. This was paid on the 24th of April 2024. The board also authorized the repurchase of up to 10 million common shares with a maximum total allocation of 130 million euros for a period of 18 months from the date of the AGM. The new authorization replaces the previous one granted by the annual general meeting of shareholders on the 14th of April 2023. As you have seen from our press release issued on the 21st of April 2024, Olaf Persson will succeed me as the CEO of IVECO Group starting the 1st of July 2024, where I will take my new role as CEO of CNH based out of Chicago. I will comment more on this transition in my closing remarks, but let me just say upfront that Olaf has been not only a valued member and the commercial vehicle expert of our board since January 2022, but also has been a close mentor to me and to the senior leadership team as we navigated these past years and crafted our pathways forward. This extensive executive leadership experience, deep industry knowledge and understanding of our group will ensure continued strong momentum for the plans we recently presented. This handover is a consistent continuation of all the work the IVECO Group team has delivered so far and presented at our capital markets day in March. Let me go now to the next slide, number four, on which we have highlighted IVECO Group's main achievements in the first quarter of this year. All of these items related press releases are already public, so I will draw your attention to just a few of the key achievements. In January, we announced the selection of our first partner for recycling the lithium-ion batteries of the electric vehicles, BASF, the world's leading chemical company and biggest chemical supplier for the automotive industry. BASF will mechanically process the batteries to blood mass and then extract raw materials for use in manufacturing new batteries. Working together will reduce our CO2 footprint and push forward a circular economy, which is at the heart of all our thinking when it comes to sustainability. As mentioned earlier, we held our capital markets day on the 14th of March, where we unveiled our new 2024 to 2028 strategic business plan and the unlimited pathways for each of our five business events. As you know, the decision to hold the event just two years after our first investor day in November 2021 was driven by the group's recent achievements. By the end of 2023, we had already met our key targets set for 2026 or were ahead of post trajectories. Also in March, we announced the expansion of our group-wide partnership with Jundal Motor Company. Together, we signed an enlarged letter of intent to explore innovation in the electric heavy-duty truck sector for both battery electric and fuel cell electric vehicles. In line with our new reporting structure, I will spotlight the primary achievements in the first quarter of each of our industry business units, beginning with the truck business unit. Last February, we signed a new supply agreement with Hyundai for an Iveco-batched all-electric light commercial vehicle for Europe. The new chassis cat, for which we are going to define yet another iconic Iveco brand name, will be supplied by Jundal Motor Company from its global eLCV platform and will be exclusively customized, distributed, and serviced in Europe by Iveco Group through its sales channels. This will extend our light commercial vehicle chassis cap range for goods transport to an even lighter category of less than three and a half tons in gross vehicle weight. Also in February, Iveco received an order to supply 178 S-Way compressed natural gas trucks equipped with our FPT industrial engines for DHL's post and parcel of Germany division. The order will make use of the most mature solution on the market for reducing emissions while securing highly efficient performance. It might be worth highlighting that today, an LNG-powered heavy-duty long haul truck offers a TCO advantage over its diesel version of about 1,000 euros per month with normalized petrol prices. This segment will continue to play an important role in the decarbonization of transport as Iveco always said. Furthermore, Iveco entered into an important partnership with Ford Trucks, signing a memorandum of understanding in March to explore collaboration in developing a new heavy-duty truck cap structure, compliant with upcoming regulations, and capable to efficiently host all future powertrain choices for on-road heavy-duty trucking. The non-binding MOU is a preliminary step in assessing the potential for co-development of new products and technologies. As regards our bus business unit, we won two large tenders during the first quarter of 2024. In January, Iveco Bus won its largest zero-emission vehicle contract in Italy for the supply of 411 battery electric buses to Rome's public transport company. The tender also comprises a 10-year full-service maintenance plan for each. Then in February, Elie secured a contract to supply 200 e-buses to the public transport operator of Marseille. This order will help the city advance on its energy transition goal of becoming 100% electric by 2027. Looking now at defense, in March we had the official handover of the first unit to Austrian Minister of Defense, our IDV 4x4 multi-utility vehicle. The unit is configured as a radio command post vehicle designed to meet the customer's broad spectrum of operation requirements while complying with NATO standards. This is the first of a total of 260 vehicles and marks a new segment for IDV, with many other customers showing a great deal of interest in cost-effective and versatile platforms to replace large fleets of dated legacy vehicles. Our powertrain business unit saw important accomplishments as well. In January, FPT Industries supplied -the-art engines for power generation at the construction site for the Seemann Belt tunnel, an 18-kilometer tunnel that will provide the fastest connection between Scandinavia and Central Europe and become the world's longest immersed tunnel. In March, FPT Industries set a new record with the production of its 200,000th engine in Cordoba, Argentina. This milestone came just two years after reaching the 150,000th mark and reflects the strategic partnership we have in the area. The Cordoba plant is recognized for its operational excellence and sustainable processes. Moving on to slide seven, we show the industry volume percentage change versus first quarter 2023. As you can see, we have not changed our disclosure regarding industry changes, considering the sensitive data of the defense segment, which at par with other industry businesses is not disclosable. Moving to the quarterly performance of the industry, Europe excluding the UK and Ireland was up double digits in light-duty trucks, while medium and heavy duty were down 3%. For buses, the industry in Europe was flat versus the previous year's first quarter. Latin America industry volumes were down by double digits in both light-duty trucks and buses and saw a single-digit decrease in medium and heavy-duty trucks. On a worldwide basis, the market experienced double-digit volume growth for light-duty trucks and was down by single digits in both medium and heavy-duty trucks and buses. The next slide, number eight, has our recurring quarterly update on channel inventory statistics. Company inventories were sequentially up both in light-duty trucks and medium and heavy, reflecting our normal seasonality. Looking at dealer inventory, as anticipated in my opening remarks, our teams have already done a very good job in this first quarter. We expect the Bodybuilder bottlenecks to level out progressively during the third quarter, allowing us to finally deliver the products currently held up in Bodybuilder activity for end customers. As you can see from the takeaway message at the bottom of the slide, the percentage of dealer and company inventories already sold to customers across segments has remained solid at around 70% of the actual dealer inventory and 76% of the company inventory. Lastly, looking at production activity versus retail, we overproduced retail sales of both light-duty trucks and medium and heavy by 29% and 9% respectively, responding to our still long order books and preparations for cutting over from model year 2022 to model year 2024. Let's move on to the next slide with order intake and delivery statistics as of the end of the first quarter of 2024. We still have a rather large and strong order book in trucks covering almost 18 weeks of production in light-duty trucks and around 15 weeks for medium and heavy-duty trucks. Our model year 2024 has been very well received by customers. Orders are at 80% of the total collected during the quarter for light-duty trucks and at more than 40% for medium and heavy-duty trucks, where we delayed the opening of the order book to fully leverage on our successful model year 2022. Deliveries of the new model year will gain momentum in the second half of 2024 as we proceed with the rollout of customer engagement. We are continuing to work to lower weeks of production already sold with the aim of reaching an optimal level of 8 to 10 weeks for light and 10 to 12 weeks for medium and heavy-duty trucks. In our bus business, the book to bill was at 1.21, covering all of 2024 and almost the entire first half of next year. Looking at deliveries in the first quarter, trucks were up 9% on a worldwide basis versus first quarter 2023, with light commercial vehicles up 32% and medium and heavy-duty trucks down 26%. Buses were down 7% versus last year. Europe was up 15% in trucks with light-duty trucks up 34% and medium and heavy down 25% versus first quarter 2023. Bus deliveries in Europe were up 4%. When looking at order intake level for trucks, it was down by design versus last year, mainly on the back of our continuous effort to purposely lower weeks of production already sold through a tight pricing discipline. This was to preserve profitability on the back of a very solid historically high order book and to accommodate the phase out and phase in of model year 2024. As a result of this effort, worldwide total book to bill truck and bus was at 0.73 at the end of the first quarter. The next slide, slide 10, shows our market share performance in Europe, excluding the UK and Ireland in our truck segments and buses. Starting with light-duty, we ended the quarter solid at 13% of the market share in the .5-ton to .49-ton segment. We maintained our market share leadership in the chassis cab sub-segment, ending the quarter at .4% and solidified our historical leadership in the upper end of the light-duty .5-ton segment with a market share of 64%. In heavy-duty, we ended the first quarter with a broadly flat market share versus the first quarter of 2023 at 7.5%. In medium and heavy combined, market share was up 20 basis points to .7% versus the same period of last year. In heavy-duty trucks running on CNG and LNG, we ended the quarter at .2% of the market share in this cautious sub-segment of the market, despite compelling TCO advantages. The registrations were rather low in the previous quarters and quite spotty by country, leading to volatility in our market share, where we traditionally hold 50% and more of the segment. For bus, we increased market share both for intercity buses and city buses. In intercity, we further solidified our leadership, closing the quarter at .5% market share in Europe, up 130 basis points versus the period last year. In city bus, we closed the quarter at 13.7%, up 90 basis points versus first quarter 2023. Not on the slide, but important to be mentioned, our electric city bus segment closed the quarter at about 10% market share, up 200 basis points versus last year, demonstrating the strong success of our product in the market. I will now hand the call over to Anna, who will take you through our first quarter financial highlights, after which I will conclude with final remarks.
spk08: Thank you, Gerrit, and good morning, everyone. Let's now take a look at the highlights of our first quarter 2024 financial results on slide 12. Before we start, let me please remind you that all the financials shown in the next slide refer to our continuing operations only, as our firefighting business unit has been classified as discontinued operations following the signing of a definitive agreement for its transfer of ownership in March of this year. As a result, in accordance with applicable accounting standards, also 2023 figures have been recast consistently. Q1 2024 closed with consolidated net revenues of 3.4 billion euros, and net revenues of industrial activities of 3.3 billion euros, both in line with prior year, supported by a continuous positive price realization mainly in trucks, which fully offset the negative effects impact, as well as impact of decreasing volumes in powertrain and in South America. Financial services net revenues totaled 145 million euros in the quarter, up .5% compared to prior year. Consolidated adjusted EBIT was up 59 million euros, or plus 34% versus Q1 2023, closing at 233 million euros with an adjusted EBIT margin of .9% up 170 basis points year over year. Adjusted EBIT of industrial activities reached 201 million euros, up 55 million euros versus prior year, posting a record first quarter at .1% margin, up 170 basis points versus Q1 2023. Financial charges decreased substantially in the quarter, closing at 21 million euros, thanks to the positive impact of hyperinflationary accounting in Argentina. And as a result of the series of action we have implemented to contain our foreign exchange exposure in the country, as well as to reduce our overall cost of hedging following the devaluation of the Argentinian peso occurred in December last year. In light of this positive first quarter result, while we remain cautious on the evolution of Argentinian economics, namely foreign exchange rate and inflation for the remaining part of the year, we now expect full year 2024 financial charges to be below 2024 levels at around 350 million euros. Reported income tax expenses for 2021-2024 were 53 million euros with an adjusted effective tax rate of 28% in line with full year 2023. Consolidated adjusted net income for the period closed at 153 million euros, up 77 million euros compared to prior year, and including 115 million euros of negative one-off impact related to the transfer of ownership of Maguiro's. As a result, adjusted diluted EPS was 57 euro cents, up 32 cents compared to first quarter 2023. As usual in this slide we report the adjusted net income attributable to Iveco Group, which totaled 156 million euros in Q1 2024 and excludes the profit attributable to non-controlling interests. Moving to our free cash flow performance. In this first quarter of 2024 seasonal absorption was 436 million euros, 110 million euros lower than prior year, thanks to the remarkable profitability uplift across all our businesses, combined with a disciplined cash flow management which partially offset our structural business model cyclicality. Finally, available liquidity including undrawn committed credit lines remained solid at 4.7 billion euros, substantially flat versus 2023 year-end. Let's now focus on net revenues of industrial activities on slide 13. Looking at Q1 2024 net revenues split by region, as you can see from the pie chart on the top right hand side of this slide, Europe and rest of the world were flat or slightly up year over year, while net revenues in South and North America decreased by 31 percent and 6 percent respectively compared to prior year. As for the net revenues evolution by business unit, all our businesses, with the exception of powertrain, posted a growth in sales versus the previous year. In particular, truck net revenues were up 2.3 percent year over year, totalling 2.3 billion euros, mainly driven by a continuously positive price realization in both live commercial vehicles as well as in medium and heavy. Bus net revenues increased by 1.7 percent to 414 million euros, also on the back of a positive price realization and a favorable mix. Net revenues of defense grew substantially compared to prior year, at plus 34 percent, reaching 230 million euros thanks to higher volumes and a positive mix. Power train net revenues were down 12.9 percent year over year to 969 million euros, mainly due to a decrease in volumes in the period with sales to external customers accounting for 45 percent in Q1 2024. Turning to slide 14, let's now briefly comment on the main drivers underlying the year over year improvement in our adjusted EBIT of industrial activities. As previously highlighted, net pricing continued to be positive in the quarter, and combined with a substantial reduction in product costs across the board, more than offset the negative impact of lower volumes, mainly as said in South America and in powertrain, and they continuously adverse foreign exchange rate scenario compared to prior year. As a result, adjusted EBIT margin of industrial activities closed with a record 6.1 percent, up 170 basis points versus the same period of last year. Let's now take a look at each industrial business unit adjusted EBIT margin performance in the quarter on slide 15. First of all, all our businesses posted a robust profitability uplift, both versus prior year, as well as compared to the last 12-month period, confirming the growth path outlined in our strategic business plan. In particular, starting from track, adjusted EBIT margin was up 130 basis points year over year, reaching a record 6.5 percent, thanks to a significant improvement in product costs over the period, combined with a continuously positive price realization, only partially offset by lower volumes in South America and in medium and heavy duty vehicles in Europe, and the still adverse effects impact mainly in Argentina. As for the funds, adjusted EBIT margin posted a remarkable 650 basis point increase versus prior year, crossing the double-digit threshold to a 10.3 percent, driven by a favorable mix, higher volumes, as well as a positive pricing. Bass adjusted EBIT margin closed at 5.1 percent, up 190 basis points versus Q1 of last year, driven by a positive mix and also on the back of a solid price realization. Finally, powertrain adjusted EBIT was up 70 basis points, reaching a 6.2 percent, thanks to lower product and structure costs, which fully offset the impact of the volumes. Let's now briefly comment on the performance of our financial services business unit during the quarter on slide 16. Q1 2024 adjusted EBIT closed at 32 million euros, up 4 million euros versus prior year, supported by an increase in the managed portfolio, including unconsolidated joint ventures, which reached 7.9 billion euros as of 31st March 2024, of which retail accounted for 39 percent, and wholesale for 61 percent, and up 1.3 billion euros compared to 31st March 2023. Worthwhile to highlight here is that the stock of receivables passed due by more than 30 days, as a percentage of the overall on-book portfolio remained at a historical low of 2 percent versus 2.5 percent of 31st March 2023. Finally, return on assets, as shown in the chart on the top right-hand of this slide, remained solid at 2 percent. Moving to our Q1 2024 free cash flow and net industrial cash evolution on slide 17, as said, in the first quarter of this year, free cash flow of industrial activities was negative at minus 436 million euros. In line with our historical seasonal working capital evolution, we're partially upset by a significantly positive contribution from adjusted EBTA of 413 million euros, up 74 million euros compared to last
spk09: year,
spk08: and by a strong reduction in our financial charges, as a result, as said, of the series of actions we have implemented to contain our foreign exchange exposure in Argentina and to reduce our overall cost of hedging. Cash out for taxes and pure interest income and expenses were 37 million euros in the period, substantially in line with prior year, with the increase in base rates accounting for 9 million euros versus Q1 2023. Our seasonal working capital absorption was broadly at the same level of last
spk09: year,
spk08: with Q1 2024 inventories negatively impacted by the phase-out, phase-in of our model year 24 in trucks, as well as by the order book growth in bus and defense, combined with a lower contribution from the change in trade payables versus last
spk09: year,
spk08: mainly as a result of the higher payments due in the quarter, linked to the increase in investment in Q4 of last
spk09: year.
spk08: Changing provisions and similar contributed positively for 126 million euros compared to prior year, thanks, as said, to the strong reduction in financial charges, including the positive impact of the Argentinian hyperinflationary accounting. Investments in the quarter were 125 million euros, substantially in line with Q1 2023, with total investments for the full year 2024 confirmed at around 1 billion euros. Finally, please note that the foreign exchange and other line item includes the purchase in period of certain U.S. linked bonds in Argentina, namely the BOP Royale, as part of the previously mentioned actions and hedging strategy implemented in the country. Moving now to my last slide for today, page 18, our available liquidity is of 31st March 2024, stood at 4.7 billion euros. This includes 2.6 billion euros in cash and cash equivalents, and 2 billion euros of un-drawn committed facilities. Looking at our debt maturity profile, it is immediately visible from the chart with our cash and cash equivalent levels continue to more than cover all the cash maturities foreseen in the coming years, totalling 1.7 billion euros. Thank you, and I will now turn the call back to Garrett for his final remarks.
spk02: Thank you, Anna. Let's conclude with the industry and financial outlook, as well as some final takeaway messages. Our preliminary industry volume outlook for 2024 reflects our current visibility and is broadly in line with what was already disclosed by some of our peers who released their financials before us, as well as what was already disclosed in our full year earnings call. On a worldwide basis, both light-duty trucks and buses are forecasted flat or slightly up year over year, and heavy-duty trucks are expected to down at least 10 to 15 percent, with larger variances of such decline by markets. Europe, excluding the UK and Ireland, is expected to range from flat to slightly up in both light-duty trucks and buses, and heavy-duty trucks are expected to be down at between 15 to 20 percent. The next slide, number 21, has our full year 2024 preliminary financial guidance. As stated at the top of the slide, this financial guidance excludes Megiros, our firefighting business unit, and has been confirmed in its entirety in what was disclosed during our capital markets day. Based on the strong start of the year, the current industry outlook, solid order backlogs, and no signs of unusual levels of order cancellations, the company is confirming its guidance as follows. At a consolidated level, Group Adjusted EBIT add between 920 and 970 million euros and for industrial activities, net revenues, including currency effects, to be down around 4 percent. Adjusted EBIT from industrial activities add between 790 and 840 million euros. Industrial free cash flow add between 350 and 400 million euros. Investments in property, plant, and equipment, and capitalized intangible assets add around 1 billion euros. In conclusion, let me summarize the messages we gave today in our presentation, providing some takeaway messages. First, our current full year 2024 estimate preliminary financial guidance has been confirmed on the back of a convincing start of the year and evolving order backlog. This guidance includes a prudent view of the second half of the year as we need more visibility on how the market decline, particularly in heavy duty trucks, unfolds in pricing, pressure, and volumes. Additionally, our industrial activities free cash flow full year expectation mindfully includes a certain level of prudence, particularly when looking at the still unpredictable dynamics in hyper inflationary countries predominantly Argentina. Second, as already disclosed in our previous earnings call, embedded in our guidance is profitability improvement for our powertrain, bust, and business units. While our truck business unit will leverage on model year 2024 and on the sustained performance of the light commercial vehicles to mitigate the negative impact of the European market slowdown in heavy duty trucks. We will take decisions on how to navigate our production capacities, especially in Q3 to sensibly manage cost and cash in the seasonally weak quarter ahead of us. Third, we will continue our efforts to manage our order books and preserve profitability as well as further reinforce our control over cash. We expect bodybuilder bottlenecks to level out gradually starting from the end of second quarter and into the second half of the year, depleting the related inventory. Our model year 2024 across truck segments is receiving very good feedback from customers with deliveries to gain momentum in the latter part of 2024. Robust order books for both our bus and defense business units are continuing reinforcing expectations. Fourth, our commitment to maintain a sound level of available liquidity is continuing and intact. The same applies to our firm objectives to maintain positive cash generation every year, which includes a sound level of investments synergistically optimized through our delivering partnerships with strategic friends. Fifth, the transfer of ownership of McGirus GmbH and its affiliate performing firefighting business is proceeding and subject to regulatory approval. The transaction is expected to be completed no later than January 2025. And six, the recent announcement about the change of Iveco Group's CEO will not trigger any change in our medium and long-term targets. These are all confirmed in their entirety, crafted and carried by strong independent leaders and management teams pursuing individual pathways for each of our business units. Since the foundation of Iveco Group, Olaf Persson has been deeply involved in every major decision we have taken as well as in the preparation of our updated strategic business and recently presented to you. The transition will be smooth in full continuity with what we have promised to the market. Each of our business unit presidents own their respective pathway and is accountable for their individual P&L and free cash flow. Given this is my last earnings call as CEO of Iveco Group, I would like to add a few personal words before opening up the microphone for questions. I joined Iveco back in 2019 when our Iveco Group businesses were embedded in the CNH industrial structure of that time and from there many transformations have happened. We began operations two years ago as an independently listed company, perceiving some skepticism at the time about us and our ability to deliver. Quarter after quarter everyone at Iveco Group has gone beyond the obvious to build our credibility, always delivering what we promised and often exceeding it. I'm really proud to have led such an incredible team of humble fighters and fearless creators collectively. We outpaced and here and there also outsmarted much larger groups whom we cannot and do not need to outspend to compete. Our team repeatedly demonstrated that we have what it takes to skillfully turn every challenge into an opportunity. It is not easy for me to leave such an incredible group but I'm happy to pass it on to Olaf, his extensive executive leadership experience, deep industry knowledge and profound understanding of our group will keep the company on the pathway to success. I know that Olaf, the senior leadership team and all of Iveco Group's people will continue to go beyond leveraging on the solid foundations that we have built together to ensure continued profitability and market growth. I'm sincerely grateful to every colleague for sharing your talent and solidarity and I look forward to seeing how far beyond you will go from here. From the 1st of July on I will return to CNH as CEO continuing the journey Scott Wine and the CNH global leadership team have laid out with three consecutive years of record earnings and a very strong product and digital pipeline to come. As Iveco Group's FPT customer for Powertrain Solutions and financial services partner for EMEA, CNH and Iveco Group will remain connected for more fearless co-creations to come. I'm truly humbled and excited about this next chapter in my professional pathway. This concludes our prepared remarks and we can now open it up for questions. To be mindful of the time we kindly ask you that you hold off on any detailed modeling and accounting questions on which you can follow up directly with Federico and the investor relations team after the call. Operator please go ahead with questions.
spk04: Thank you. As a reminder if you would like to ask a question please press star 1 on your telephone keypad. Thank you. We will take our first question from Daniela Costa of Goldman Sachs. Your line is open please call a height.
spk10: Hi good morning thank you. I have three questions if it is possible. I'll ask them one at a time but first on your commentary regarding the guidance and the uncertainties in the second half. Also wanted to understand in the market guidance you're actually slightly upgrading the LCV in Europe so why don't we see a sort of a reflection that on the company guidance? Is this related to the pricing side or something else sort of that you view could be off in the second half? I'll elaborate first on that.
spk02: Hi Daniela. The markets uptick in light I think we are taking a pretty cautious view on how the heavy duty market is going to unfold in the second half. I mean as we walk into this year further we do see some markets developing quite differently in this decline. All of them are down but hence we have seen some opportunities on the light and we are remaining quite cautious on the heavy. So I think those two in our forecast are offsetting each other.
spk10: Okay and then in terms of like you overproduced I think I believe you heard you earlier saying 29 percent in LCV. Can you talk about production plans for the rest of the year and what's been the margin implications of this overproduction in 1Q?
spk02: Well look we are in the in the cutover phase between the model year 2022 and the 2024 and right now particularly the third quarter to be more precise and parts of the third quarter sorry the second quarter and partially also the third quarter. These are the quarters when the two are basically sitting in our production lines side by side and with this you naturally focus on a high output in order to have both lines the one to run out the other one to up. So this is a bit why we have overproduced and this is very natural in a in a cut over between these these models that we are producing at fairly high volumes in our Suzada and Biodelec plant.
spk10: Thank you and medium and heavy duty finally just wondering if you could give us some color on where how the margin progression has been in there and I think in prior quarters you commented on the margin level so if you could help us there.
spk02: Medium and heavy when you take the the combustion engine which is the vehicles which we sell at this point predominantly they are holding up versus last year in despite a let's say increasingly challenging market environment as also our other market participants have commented and as you can see also from our book to bill ratio we we made pretty cautious on price versus volume being having benefits of a significantly smaller industrial machine that we need to feed in both of those segments. So we are cautiously shortening continuing the cut over from 22 to 24.
spk10: They're profitable in one queue in medium and heavy.
spk02: Medium heavy we are a low single digit profitable in clear.
spk10: Thank you for that then see you on the other side on CNHI. Good luck.
spk02: See you there Danila.
spk04: Thank you we'll now take our next question from Nikolai Kemp of Deutsche Bank. The line is open please go ahead.
spk11: Yes good morning Nikolai Kemp Deutsche Bank. Yeah first of all congrats to a strong start to the year. My first question would be on the momentum machines of America what I mixed pictures because some of your peers actually reported better volumes but I guess that's more referring to the heavy side and very heavy side. Would you expect that also Leiden, we can either pick up momentum in the coming quarters?
spk02: Well in Latin America your assumption is correct so the the market in very heavy is the segment that we have just recently re-entered with our S-Way launch and there we see the market to hold on a low level because the market in Latam is overly pretty suppressed today well last year already and in the light commercial vehicle business I think if you take the mix we are more on the volume point of view relatively more exposed to light and that's why our volumes roll up so I think your observation is pretty correct.
spk08: And then Gerrit if I may also integrate that we are also more exposed on Argentina versus most of our peers as you know the market is quite small so there are not many localized players and so as a result that's why we are quite prudent or more impacted from the downturn in Argentina predominantly as part of South America.
spk11: Okay thanks my second final one. Yeah I mean your market market guide implies that the volumes will come down further on H2 but on the other side you have more models coming up and is it then said you assume that this should help you on pricing as well as possibility in the second half of this year?
spk02: We well look the the model year 24 as I mentioned in other occasions and now also proven by competitive driving experiences we have done with all you know heavy duty truck brands, heavy duty truck vehicles of other brands in over the last couple of months with customers and our own dealers has proven that the model year 24 stands out in almost every aspect of a heavy duty truck and with this the feedback is very good to our model year 2024 and we have now delivered or in the process of delivering the first units to the dealerships and to our customers who placed already orders and we do expect the momentum around this product to increase once the vehicle is in fleets operating delivering the promises in the -to-day work. This is as expected and yes this is a strong product but let me just emphasize again that the heavy duty truck market particularly when you look at the German speaking and the Nordic countries is predominantly as it's predicted a lot impacted by a slowdown. So the average as I highlighted is around 15 to 20 percent down across Europe but there are certain markets that are impacted even harder and we are taking a pretty cautious view what kind of competitive dynamics this might unfold across the region hence our guidance hence our very consistent prudent view on pricing and our outlook for the remainder of the year.
spk11: Understood thank you and all the best in your new role. Thanks.
spk04: We will now take our next question from Shaquille Kirinda of Morgan Stanley. Your line is open. Please go ahead.
spk03: Good morning Shaquille Kirinda from Morgan Stanley. Garrett wish you all the best in a new role. So volumes in European and medium heavy duty fell three percent year in year by a veco delivery fell 25 percent. So in absence of any sort of major supply chain issues what drives this difference you know is the veco exposed to segments which are declining more or is it just a model changeover effect?
spk02: Predominantly the model changeover that we that we talked about and they are also right now in the heavy duty segment when you look at large fleets and they have usually very high levels of registrations by markets in any given month so there's quite some volatility at this point as the retail business and let's say small and national key account business for heavy duty trucks at this point is rather cautious.
spk10: So
spk02: it is predominantly the cut over and it is also related how we position ourselves in the markets and reposition ourselves in the market with the new model.
spk03: Got it thank you very much and what do you think about the disparity between the LCV market and medium and heavy in Europe? Are your LCV customers not concerned about the same macro conditions as your heavy duty customers? What keeps LCV growing?
spk02: Well look when you when you check on the when you break down our cab chassis light commercial vehicle business you find a lot of sub-sectors that are not directly related to the transportation of let's say goods in for large piece goods or for for other types and so for example we have refrigerated goods transport we have construction applications in this we have specialty vehicles of all kinds like you know garbage collection of street sweepers the light commercial vehicle cab chassis segment is very very diversified across multiple sub-sectors and is way more let's say robust against one specific indicator when it when it comes for example to pen events in the last mile delivery or so yeah so if there was I'm not saying there is but if there was a slowdown in in last mile delivery e-commerce which is not to be expected it would immediately impact the the panel and business where we are not very strong while when there is let's say a slowdown in construction we have a nice exposure to food distribution and communal services or city applications and and so it carries a nice diversification inside of itself as a segment which makes it quite strong actually and this is why it is where it is
spk03: got it
spk02: very much
spk04: and we will now take our next question from martino de ambrochi of equita your line is open please go ahead
spk06: thank you good morning everybody first of all garry all the best for the new appointment also from my side three questions the first one is still on the new model year 24 what is the prices of acceptance is in line with your target to close the gap with competitors in terms of pricing could you remind us what are and what were the proportion and where you are moving in terms of closing the gap the second question is still on the profitability of medium and heavy trucks clearly q1 low single digit but assuming a more prudent view on the second half are you confident to remain profitable in in the for the full year for medium and heavy and the third is on ebit bridge you are presenting 94 million pricing effect for all the industrial activities could you split by division and provide an idea where this figure will move for the rest of the year and still on the ebit bridge there is a block of 92 million forex and other i suppose it's probably 100 for x or i don't know
spk02: thank you martino also for your words um and good wishes i think the bridge ana will take but let me quickly comment on the price gap and we narrow that that was always the the message i delivered we are narrowing further the price gap to competition this is the objective we had and the discussions we are having with customers when it comes to the model year 2024 i mean again i mean imagine you take a there's a certain scandinavian brand and they sell an equal product at let's say 140 000 retail price and and we today are sitting at whatever 115 or something 10 or 15 in an equal position the model year 24 will allow us to capture part of that gap with the product is consistently aligned with the functions of the very best in the segment so this is what the discussions are with the customers and when these promises and that for customers these are promises until they have the vehicles in their fleet running a considerable amount of mileage and once that is proven in their tco they do see that this vehicle is going to earn them the money we promise and hence the price gap for these orders is realized let's say the price gap is is narrowed to the best in class so we do not close the gap but we narrow them we close them to some other competitors but we will narrow them further to the very best in the segment where we have now a product that is fully aligned in again every aspect of what a heavy duty truck should provide to a customer in segment and on the medium and heavy yes i mean the medium and heavy for the combustion engine portfolio of medium and heavies that we are selling we expect for a full year profit positive profit territory for the for the combined medium and heavy to your segment yes so as we as we said last time and ana on the e-wit bridge
spk08: so for q1 out of the 94 million euros of profit positive pricing impact i would say the majority so around 80 percent is linked to trucks while the rest is evenly split between bus and defense for the full year the proportion is different in the sense that truck for the full year year over year will have an i would say a flattish pricing performance while we will start seeing in h2 as we commented also last when we gave the guidance for the full year we will start seeing a positive price realization in bus and in defense i would say predominantly in bass but a good chunk also on on defense
spk06: thank you and the forex other block
spk08: ah sorry you're right on for and on other is among for x and other i would say almost 100 percent or let's say substantially it's all for x as you correctly spotted
spk06: okay and if i may have just a flash on 10 plus profitability in defense is possible for the full year
spk08: as it was
spk06: in q1
spk08: well we will definitely be very high single digit let's see if we can exceed the threshold of a double digit but for now i would is high single digit
spk06: thank you
spk04: thank you our final question comes from virginia montrose of bank of america please go ahead
spk07: good morning and thank you for taking my question just a quick follow-up on defense can you just give us a little bit more color on the order momentum and the back look visibility that you have as of now given the very strong performance in q1 is there anything specific we should keep in mind for the year
spk02: hi so look the auto momentum is intact we keep you know gathering orders on the let's say more run rate business that we have like these truck derived military vehicles but also we keep having pretty good momentum on the existing contracts with with customers around the world so it's steadily tracking to plan and i think we're around four and a half billion order backlog at this point around that level so it's it's according to plan it's really the name of the game for our defense business is obviously to keep that momentum and to either one or the other fairly size of a large new big program coming up for award that will only impact the outer years of the of the the business now with this order momentum and as i mentioned in some other calls it was a 500 million revenue business in 2019 and it's doubled up to this point to one billion and it keeps growing and i think that demands us to make capacity investments technology investments and to keep everything else in the business growing from a before 500 million business to one that exceeds substantially a billion and i think that is going hand in hand with the increase of the order book and the confidence the customers have in us to deliver them products that keep us safe
spk07: thank you very much
spk05: so that's good today call so i would like to thanks everyone and have a nice day thank you thank you
spk04: thank you that will conclude today's conference thank you for your participation ladies and gentlemen you may now disconnect
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