Traton SE

Good morning, everyone. Welcome to the Trayton 9 Months 2023 Interim Statement Results Conference Call. Thank you for joining us today. Before we start, let me first make you aware of the disclaimer. As always, you can find all relevant documents on our 9 months and third quarter performance on our website, trayton.com.ir, including the slides of today's presentation. Together with me are Christian Levine, our CEO, and Michael Jagstein, our CFO and CHRO. I'm also joined by Camilla Devonen, head of profit relations. Christian will start with an overview. Michael will then explain the financial performance in the third quarter in more detail before we conclude the presentation with a full year outlook. After the presentation, we look forward to answering your questions. We will start with questions from analysts and investors. And in the final minutes of our call, we will open the floor for questions from the media as well. With that, I hand it over to Christian.

Excellent. Thank you very much, Thomas. And thanks, everyone, for being with us this morning. So, yeah, let's have a look at the third quarter of this year. Evidently, we are in a tricky geopolitical environment. Macroeconomics are not particularly in favor anymore. We see weakening trends in global economy, and as a result, we start to see lowered transport activities, but not in all markets as we're coming back to. Despite that, we still have a robust demand. We, of course, live partly from the high pent-up demand, but we also see a decent transport activity in most of the markets. So you could say that we're returning to something that could look like more of a normal situation after these last years of ups and downs. In this challenging environment, I think we have performed an excellent performance in Q3. We see a lower order intake on three of our brands at least, but still on a high comparable level and with a very strong order book with reduced lead times, but still too long lead times to be really where we want them. Unit sales are up. We continue to increase our production volumes with the exception of Volkswagen Truck & Bus in Brazil. Thanks to improved supply chain situation. So we still see an upside here as we are working hard to decrease the order book. So sales revenues continue to increase. We have higher volumes. We have a positive mix. We see really good price realization. and as a result a very solid and also to the result a very solid vehicle services business so all in all if we summarize we are achieving a 955 million euro which in adjusted terms return on sales takes us to 8.4 percent so SEO I'm happy with the result in our first nine months and what we're now doing is that We of course have full focus on continuing to deliver towards our full year guidance. And of course for next year, trying for the first time ever to achieve our strategic target. On the next page, let's also have a few looks at the perhaps not direct financial results, but other other positive developments in the group so far this year and a few highlights first of all looking at the financial services side where you're well aware that we have grouped all the brands under trade and financial services umbrella and we went live now in north america with navistar financial services meaning that we are coming back in the market with a captive financial services organization which is so important in the overall services business where we can make tailor-made solutions for customers and by that grabbing a bigger part of their wallets on top of that this is of course a way to leverage our our competencies and our systems and and you can call that of course synergies On the sustainability journey, I think many of you noticed that we opened up a new battery assembly plant in Södertälje, where we will assemble the cells, the unique cells coming from Northvolt, where we have also seen fantastic results, bringing lifetime up to 1.5 million kilometers. We have also stopped the line of assembly in Södertälje throughout summer. And as we're speaking, we're just restarting in order to adapt it to full serial production of a mix and actually any mix between zero, 100, 0% BEVs and ICE vehicles. We also in Volkswagen truck and bus brand delivered our first full BEV, 100% BEV in Argentina to Express Logistics. It was an e-delivery. uh with the higher tonnage the 14 ton version with the range up to 250 kilometers and that's of course an important market of oxfam truck and bus uh their biggest export market and we're seeing then finally ambitions also in argentina to go with electrification another immobility adoption is the first delivery of an mi e-bus outside of europe where we in South Africa are delivering the first e-bus. Also Navistar joining in on the pathway towards sound space targets have now signed with UNGO Global Compact, which is underlining that we as a group are all in on the sustainability journey that started many years ago in Scania. Finally, I think worth noticing that the super power train continue its long straight of winning press tests this time the so-called european track challenge which is a multi-magazine multinational test run out of germany and we did that with quite a distance in terms of fuel consumption to the next brand and That is, of course, extremely promising for the ongoing launch in the United States with the so-called S13, which is the same engine in international products. On next page, we look a little bit more into our figures and seeing the incoming orders at 64,400 units, which, yes, it is a decline to the very high prior year level and it's giving us a book to build ratio of 0.8 at the same time we managed to increase quarter to quarter to quarter last year q3 to q3 our unit sales uh another two percent up to eighty one thousand four hundred uh and as i said we're doing that despite still challenging market environment but also challenges in the supply chain yes it's better We see a further stabilization, but we have disruptions, and especially in the United States, where the supplier market is extremely stretched, we do continue to experience regular bottlenecks. With that, we were then able to shorten down delivery times. So we are going towards normalization, but we still in most of our brands experience a six months waiting time for customers, meaning that we're very well into 2024 and in some cases all the way up to next summer for new orders, which leads me into the next page. Where you then see that overall demand remains on a high level. Europe is weakening, there's no doubt about it. We've previously talked about markets bordering to Russia, but now we see a general weakening throughout most of the markets in Europe and especially the big and important market of Germany is seeing a more pronounced decline. Why is this? Well, obviously, we have grown the rolling fleet already, and we have, of course, the interest rates that are making financing more expensive, and on top of that, very high diesel prices. MIN being more exposed to the European market is here experiencing a tougher situation than Scania. Scania having a very good run in Latin America, where we In the segments where Scania is present, see a strong recovery. Means in, for instance, this important agricultural segment, but also mining and forestry. And therefore, as a result, you actually see Scania overall order intake continuing to grow in the third quarter. In North America, we see a gradual normalization of the demand and i'm sure we will come back to this in the questions and answer session but on navistar we see then a rather sharp decline in order intake remember we still have the long order book we have the biggest challenges to deliver vehicles but at the same time and perhaps a paradox we see market shares for international continuing to grow and according to plan South America, we've talked about that in previous quarters, is affected by the challenges after the elections, the Konoma P8, the new emission legislation, and overall economic weakness but good news we see on the heavy end and as i went into specific segments of stabilization and actually even an increase whereas in the medium duty and latter duty segments we still are on lower level which is reflected in the order intake and delivery results from Volkswagen truck and bus. So that was the quick fly in. And with that, I will leave over to Michael to go more into the financial outcome on this third quarter. And then I'm coming back to you in a moment. Michael, please.

Yeah, thank you very much, Christian. And also a good morning from my side. As Christian said, let's dive into our financial performance. On slide 10, you can see our sales revenue development. Sales revenue increased by 7% to 11.3 billion euros compared to a high prior year basis. This development was mainly driven by the growth of new vehicle sales and favorable mix effects. In addition, we continued to benefit from the successful realization of higher vehicle prices. Another factor continuing to support our top line is the vehicle services business. Demand for spare parts and repair and maintenance service remains high given aged fleets and strong utilization. Moving on to slide 11 and the bottom line performance. As you can see, the trading group continued its strong earnings momentum, both in absolute and relative terms, even though slightly not reaching the Q2 level. The adjusted operating result again came close to the 1 billion euro mark. This corresponds to a strong adjusted return on sales of 8.4% up by 320 basis points year over year compared to an admittedly low comparison base in the prior year quarter. The positive development was in particular due to the higher utilization of our production capacities, higher vehicle deliveries, and the associated better fixed cost absorption. In addition, thanks to the successful execution of pricing initiatives for new vehicles across all our brands over the last quarters, we're able to compensate for the significantly increased prices for energy, raw materials, labor costs and bought-in components. Not to forget our strong focus on cost management. A side note. In the third quarter, we had adjustments of 59 million euros for the provisions for civil lawsuits against Scania and MAN in connection with the EU truck cases in individual countries. These were recognized as a consequence of the update remeasurement of risks. overall another strong quarter which impressively underlines that the trading group is on track towards the strategic adjusted return on sales target of nine percent by 2024. let us now have a closer look at the performance of our brands and segments In the third quarter, all brands except for Volkswagen truck and bus benefited from robust volumes and therefore good production capacity utilization. Sales revenues in the vehicle service business continued to expand at both Scania and MAN, while Navistar recorded a decline mainly due to the sale of MWM in late 2022. Another common theme across all our brands with different dynamics was successful pricing initiatives, which helped to compensate for strong input cost pressures. On a brand level, Scania achieved 11.5 ROS, clearly up year over year, but weaker than the exceptionally strong H1 figures. Scania was influenced by the typical vacation effects and a different market mix, as the proportion of the European unit sales went down quarter over quarter, and South America, where the penetration of the new Scania Super is lower, went up. After an already strong first half, MAN truck and bus recorded another impressive step up to an adjusted return on sales of 7.8% in the third quarter. despite the usual production pause in the summer. One more proof point that MAN is on track with the execution of their realignment program. Navistar showed a robust performance at a return on sales of 7.3%, outgrowing the margin levels achieved in the past quarters. Better pricing as well as better cost control gained traction and helped to increase return on sales, despite lower unit sales compared to the third quarter last year. Within the group, Navistar was most affected by supply chain constraints, which limited their ability to deliver higher volumes. Volkswagen truck and bus continuously facing challenging market conditions, however, recorded a remarkably strong return on sales of 10.1%, despite significantly lower unit sales. This is another proof of the brand's ability to master stormy markets with its highly flexible business model. Finally, trade and financial services recorded a double-digit percentage growth on the back of an expansion of its portfolio and increased interest income. Higher funding costs and lower spreads had a counteracting effect on profitability. This leads me to our net cash flow development on the next page, page 13. Trayton Operations recorded a strong net cash flow of 649 million euros in the third quarter bringing the nine months figure to plus 2.4 billion euros excluding the special effects highlighted in the first and second quarter net cash flow of Trayton Operations amounted to 1.5 billion euros in the first nine months reflecting the strongly improved operating performance Nevertheless, net cash flow is still held back by an increase in working capital. 1.4 billion euros cash was tied up in the nine month period because of the strong expansion of production volumes and ongoing logistics shortages. This also ensures that we can keep our delivery promises to our customers. On a positive note, in the third quarter, the negative effect of working capital was much less pronounced. with 0.2 billion euros and cash conversion has been gradually improving quarter over quarter this year. A note on this, with adjusted operating profit nearly unchanged from first quarter, we were able to almost double our net cash flow, excluding special effects in the third quarter compared to the first quarter. Optimizing working capital and reducing our net debt position remains a key priority for us. Which brings me to the next page. During the first nine months, we were able to reduce the net financial debt of trade and operations, including corporate items, by about 1.1 billion euros to 6.6 billion euros as per end of September. In the third quarter alone, we were able to reduce net debt by more than 400 million euros. The main driver was the strongly improved operating performance, partly compensated by the just mentioned working capital development. While the net debt position benefited from the 400 million euro proceeds from the sale of Scania Finance Russia early in the year, the impact from the intragroup transfer of Scania Financial Services was neutral. Also important to notice that we paid out the dividend for fiscal year 2022, amounting to a cash out of 350 million euros in the second quarter. With that, back to you, Christian.

Good, thank you, Michael. And then we're stepping into the section where we talk a little bit about the outlook for the rest of the year 2023 here in our main region, starting with Europe. where we continue to see increases to exceptionally high levels and our expectation for 2023 is continue to see a growth in the range of 10 to maybe 20%, which would mean that we most probably see an all-time high, all times, real all-time high in the European market this year, 2023. Interesting dynamics in the North American market, where we have a range of plus 10 to to plus 20, whereas we've already been into here several times, we're held back by supply chain issues. And I guess that is the same for most players in the market as our market shares at the same time continue in a good direction upwards. We also have different dynamics here in different parts of the market. We see a stronger development in the severe and the mid the class six and seven, the medium duty trucks, then in the heavy duty trucks. And finally, South America, where we have seen a rather sharp decline, and we're talking now about the minus in the range of even minus 25. Even if, as I said, we also see some lights at the end of the tunnel here, where the heavy part of the Brazilian market, for instance, is showing recovery and so does Chile, whereas most other markets remain low. We should also mention here Mexico that is actually developing at a very, very good pace. So let's see where that brings us. I think the essence of this whole section is that it's very difficult to predict And we need to be prepared also when entering into 2024 to react both to ups and downs in different parts of the world.

So with that, Michael, back to you. Thanks, Christian. And then we move to the next slide. And here in the light of the strong results in the third quarter, We are raising our forecast for the full year outlook, which we had upgraded in May with the release of the first quarter results. Based on the current high order backlog and the rising production volumes resulting from the improved supply chain situation, we continue to expect to grow both unit sales and sales revenue by 5 to 15%. overall for the group we are raising our forecast for the adjusted operating return on sales in the full year 2023 and now expecting a range of 7.5 to 8.5 percent from 7.0 to 8.0 percent before for the trade and operations business area we're now anticipating an adjusted operating return on sales of between 8.0 and 9.0 percent also we're increasing the forecast range for the net cash flow of trade and operations to 2.3 to 2.8 billion euros. Please bear in mind that the effects from the Scania Financial Services intra-group transfer and the sale of Scania Finance Russia are included. On the back of a strong financial performance in the first nine months of the year with an adjusted operating return on sales of 8.6%, We expect to close the full year rather towards the upper end of guidance range. With that back to you, Christian, for the final remarks.

Thank you, Michael. Just a few words before we go into the Q&A. So as we said last year and at the beginning of this year, we have now a new management team fully on board. Our focus has been to deliver. and enforce execution of the strategy, the so-called trade the way forward. And I think this quarter is yet another proof point that we're moving in the right direction. And I think we do that by succeeding in a rather challenging market environment. So a strong performance, I would say across all of our four brands and in several of our segment, the focus continues to be on the customer, the customer needs, and of course, creating flexibility depending on the market development we see. A very good net cash flow development and our net debt position, which we know is stretched, is, however, thanks to our own performance, now a little bit improved. And I think there is, as Michael was into, going into the fourth quarter room for further improvement. We're raising our positive full year 23 outlook, retargeting the upper end of that guidance range. for adjusted return on sales and I really look forward to ending this year with that very positive outcome. driving strategy execution uh and by developing both the companies the product and the services portfolio few highlight lately taking new technology uh to the streets and further expanding our electric vehicle portfolio we started sales of the new man e-track end of october here this month and we delivered the first truck as i already mentioned for vox one truck and bus in in argentina and we see Further increased demand on electric vehicles albeit with still small transformations into orders and deliveries. We have established trade on charging solutions, something that enables the most extensive network of public charging locations with right now 11 countries and the first customers to benefit this will be coming from the Scania brand. Navistar starts up production right now of the S13 international integrated powertrain. based on our common base engine in the group and we will shortly see that on the roads and get the first real customer feedbacks so extremely exciting times in the us in the upcoming months our captive financial services business has now rolled out in the us and canada sorry in us and we are aiming also for canada and as already mentioned this uh Navistar Financial Services retail business is a great complement to growing our overall service business in the American market where we see so much potential. So to keep it short and summarize, I think we keep on delivering as Trayton, both in operating terms, in financial performance, and finally in executing on our strategy. So with that summary, I hand back to Thomas to lead us into the Q&A.

Great, thank you, Christian and Michael. Let us now open the floor for the Q&A. As said, we will start with questions from analysts and investors and we'll take questions from media at the end. Just as a reminder, if you want to ask a question, please press star one for register a question and star two to cancel your question. The first question comes from Hampus Engelau from Handelsbanken. Please go ahead, Hampus.

Thank you very much. Two questions from me. First question is if you could share some thoughts on how you see next year development. We had Volvo talking about 290,000 units for Europe and North America. We had PACCAR yesterday talking about 280 for Europe and 280 for US and Canada, so ex-Mexico. Second question is, is this also coming on your guidance? and still a quite big range five to fifteen percent we have one quarter less uh should we read that as as if this is the supply chain and component availability that makes you still keeping this big range given that's only one quarter left those are my two questions thank you okay thanks uh campus uh christian here um i can take the first one yeah we're very much in line with both what you heard from from volvo and car in terms of total market outlook um

And to put that a little bit into context, if we start with US or North America, including Mexico, there is a very good momentum in the market. We see the big fleets continuing to buy. We see a little bit of weakening in the class eight, as I was into, but we see class six and seven with at least a flat outlook compared to this year. And on top of that, with all the construction initiatives now happening as a result of the IRA, There is massive investments into the severe segment, as it's called in the US, basically construction vehicles, construction material vehicles. So I'm looking very positively to the development in the US. And of course, we're also aiming to grow market shares there as we are still under critical, I would say. But we stick to our plan. We've said 1% to 2% per year is what we should take. And with the launch of the S13, I think there's a good chance. so so uh really i think more confident that the us market keeps up um in europe we rely more on the pent-up demand you know we will for sure see some kind of weakening downwards we will not see an all-time high like this year but if we are in the range 280 to 90 i think that's still a very high good european market our order book takes us well into the first half of the year up towards summer Question is, of course, and I said that in the last Q call as well, what is going to happen in the second half of the year? But when we look to the last four years where demand have been suppressed by COVID and then later by shortages, it's reasonable to believe um that with the new more efficient machines that we put into the market the pent-up demand will be compensated and there will not be so much hesitation for customers just to shift over it will make sense for them still financially when the interest rates for them are now in the range of six or even six and a half percent for for their for their financing costs so Yeah, that's to give you a little more flesh on the bones when it comes to total market development, US and Europe. Your second question was a bit on our guidance, and I hand that over to Michael.

Yeah, and happy to answer that question, of course. I mean, we left the range. There was your question, let's say, by one percentage point, and we raised it. to seven point five to eight point five percent. As said before, we expect to close the full year rather towards the upper end of this guidance range. But nevertheless, there are quite some some elements, some cost elements which are typically higher in the fourth quarter compared to the nine months before. And we all know that we are still in an inflationary environment. And then, as already mentioned during the call and as said by Christian also, there are still high macroeconomic uncertainties. We still have, as you mentioned, vulnerable situation in the global supply chains. Overall, we see an ease, but it's still and it remains challenging, will remain challenging in the next year too. We still have tight logistic capacities and we see movements and prices for energy, raw materials, water and components. So, there are a couple of factors also, why we think that this is the right range, 7.5 to 8.5%, but again, we expect to end rather towards the upper end of the guidance.

I can just add on one thing when you're into the supply chain there, Hampus, and I mean, and you've seen it in our stock build up, I mean, We're stabilizing production and we're doing rather good runs now on the much higher levels in all the three big brands, but we're not getting the vehicles through to end customers and out of our books. And why is that? Why is it so difficult to get the vehicles through? Well, it is really still about the supply chain because yes, we managed to produce, but we don't produce in the sequence and in the time slot that we had planned, meaning that the bodybuilder or the dealer that is supposed to receive the vehicle where the customer is waiting doesn't get it in the right time, which creates tremendous planning problems in the other, which is kind of an industrial flow as well. I mean, you're doing hundreds of operations on a vehicle when it's after it has left factory. And they need to be planned, of course. There are parts to be purchased. There are paint shops to be booked. There are workshops to be booked. There are technical controls to be booked. And not least to talk about all the bodybuilders. So with a very short planning horizon, we keep changing the dates. And this is now our challenge here for the coming six months. We have stabilized production. Now we need also to stabilize the delivery functions in all our dealers. That's a huge job. It'll take time. And that... gives us, there's a big risk that we're not getting the complete volumes through. And that will then, of course, have an effect on the results. So that's why the supply chain is really creating uncertainty for the Q4. Production-wise, we're aiming at very high volumes. I stop there. Thank you.

Thanks. Great. Thank you very much. Next question comes from Michael Trax from Bank of America. Michael, please go ahead.

Hi, good morning. Thank you for taking my questions. I'll limit myself to two. Maybe just firstly, are you able to perhaps quantify the benefits expected next year from restructuring that's now been implemented at MAN and rising commonality across the group? I'm just trying to get a feel for the level of internal buffers that you might have to offset any expected volume declines into next year. And then just in terms of the common base engine rollout at Bavistar, I appreciate that order books aren't fully open yet, but should we expect a fairly strong uptick in orders here in the fourth quarter already, or would you expect that sort of truck market normalization effects will be the more dominant force? Thank you.

Okay. Thank you very much, Michael. If I start with your second one on the common base engine, which we call S13 in Navistar. We're starting with a small volume of deliveries during Q4 that will not have any impact on our volumes, but it will have a good impact on these vehicles on profitability. As you might remember, we have talked about fuel savings in the range of 15, even 16%. So basically the double from what we managed to get out on the Scania product. On the Scania product, we're getting an average €3,000 extra per vehicle based on that, so we are expecting to get an even better price leverage when we start to deliver these vehicles in the international chassis. Moving into next year, we're of course increasing production, but there are, as always in industrial projects, there are a number of constraints. So we're looking at total volumes of the S13 next year in the range of 15,000 to 20,000. So meaning somewhere up to a quarter of the Navistar volumes. I'm not expecting, the team is not expecting that either to drive order intake. And I know that you see a sharp decline in our order intake figures in the US, which is a paradox. Because we really are filling and we are full up until summer. um but so i think we will use this more to make sure that we increase profitability uh and that of course this product has to prove itself in the market but uh but we really predominantly use it in order to gain uh to gain profitability and then market share ambitions if we're able to end this year uh in the range 15 and a half to 16 percent then we We follow the path since our takeover of Navistar to gain 1% to 2% per year. If you remember, we were down to 11% when we finalized the takeover. So if we're up towards 16% this year, I would be very happy. Could we then continue next year by hopefully then further stabilization of the supply chain to gain market share at 17% would, of course, be fantastic. then we with a good price realization we will get a really really good leverage uh from our us business so that's a few words around the cbe launch uh in in avistar i could expand that also by saying or by reminding you that with the launch we also go kind of what i would say go european in terms of services sales meaning we we start to commercialize full Repair and maintenance contracts also financed over the Navistar financial services in the US, meaning that we try to bundle in with the S13 product more service content to move towards the European way of selling trucks, where you know that on an absolute majority there are several services contracts adapted or added to the vehicle, which brings a lot of profitability. to the brand. So that's to be said in addition. So we really use this for a double leverage, not volumes, but price realisation and services sales. Good. Your first question was really on MAN and I leave that over to Michael to elaborate a little bit.

yeah maybe maybe not too long but i mean you asked a question here uh regarding the realignment program of man uh and then what can we expect here next year uh even though let's say i cannot give you a concrete figure but uh i think i can describe a little bit what we uh also expect and anticipate here from man and uh first let me say uh of course the realignment program had various components uh typically it's not one single thing that you do it's many things and of course the man team has looked into typical topics like creating efficiencies looking for synergies of course working on costs what they keep on doing and then one of the big factors that you are well aware of course is the sale of the Steyr plant which took place already in 2022. We continue to get the trucks out of Steyr light and medium duty trucks until the end of September um which means that now in october we have shifted the production of light and medium duty trucks fully to our plant in krakow in addition to this we are not only talking about the shift from steier to the krakow plant partially we also shift volume from the munich plant to the krakow plant So you have to take that into consideration as well. Bottom line is when we talk about the Steyr plant, you can say that we now exploit the full financial benefit of the sale of the Steyr plant and the optimized production network. And then when we come to what do we have to expect for 2024? I mean, we want to really make the point that you have seen the figures of MAN in quarter one, two and three. We clearly believe this is sustainable and you know what MAN is aiming for for next year. Of course, as Christian has mentioned, when we look at the markets, the market environment is not getting easier, but we are quite confident that we see a sustainable development here at man for the the various reasons i mentioned and i can show you that the man management team here that they see what's what's happening right now and they clearly have the ambition um to keep that level or even increase it and to say they want more so um we're we're from my point of view on a good track And so we will see the positive effects of the realignment program continue next year. I hope that answered your question.

Yes, that's great detail. Thank you very much, Michael and Christian. Maybe just one quick follow up, Christian, on the first one. I hadn't fully appreciated the extent of the market share gains at Navistar over the last year or so. Are you able to just give a little bit of color behind that? What's driven this?

Yeah, of course. I mean, if you look historically, international, you know, it's an iconic brand with the biggest dealer network in the US was enjoying market shares in this class 6-7 up to 50% and in the class 8 up to 25% and has done throughout the challenges on the emission side with the A26, the derivative of the MIMD 26 engine problems challenged by EPA for emissions and customers having severe quality problems have then dropped. And when we took over, as I said, we were down to 11 point something percent, but that's of course not at all aligned with neither production capacity nor dealer capacity nor customer base. what what awaited us in the us when we started to travel there and when matthias carlbaum came as new ceo was really a dealer and customer base who just told us please you know give us good products give us a good service we want you back you know we we do not want this market especially on the fleet side to be dominated by freightliner we need you guys and that gave us a lot of energy to restart you could say Navistar with completely different ambitions and set up a renewal program on basically everything, starting with culture in the company, getting the dealers along. And we have now been voted by the dealer associations as the best supplier, actually. So we've done a good job there with the dealers. We're reviewing the product program. So we have now a very consistent roadmap, both for electric vehicles and buses and for trucks, which is, of course, giving a lot of hope to the dealer network. And we're working very hard to bring in the European way of thinking in terms of services and part of that, the financial services. And I think we're building trust. We're gradually delivering what the customers expect. uh from us uh including a lot of you know there's a lot of details in our industry i mean we we have parts available with shorter lead times better availability uh we're meeting with customers more often we are working hard with the methods in our workshops to get the vehicles out on the streets again after maintenance and repairs so so all of these differences are noted by the customer base and we see a very continued positive feedback At the same time, we must be very careful not to grow market shares too quickly, both because we might want to make sure we're not being accused of using the price weapon, which we certainly have not been doing. In this market, we're coming from the lowest price point of all brands. We, of course, have the ambition to up that as we deserve it. But also you need to have an organization that follows, because if you deliver too many vehicles in too short time, you will not give the service that the customer require. So I know it's not a very precise answer to your question, but we're working on all fronts to make Navistar the preferred supplier, not only for big fleets, but also for retail customers. And we're doing that, I think, with all the instruments that the big group, such as ours, and with a tremendous experience also from the European side can bring. um which i maybe should add that we have brought more than 50 people in from the other brands in the group to the us to support the navistar team on this journey so so the strategy is just to continue this growth and again i would be happy to see this year end towards the 16 and could we then gain another one or two percent next year i would be extremely happy with the outcome and and again this journey should continue thanks michael great helpful thank you christian

Great, thank you. Just as a reminder, if you want to ask a question, please press star one. Next question coming from Anthony Dick from Odo BIF. Anthony, please go ahead.

Yes, hi, good morning. So you mentioned the higher interest costs in the financing environment. Could you maybe give some indication on what impact that will have on your own operation, on your own financial costs? Thank you.

Okay, thank you. I think that's a question for Michael. So, if I understand it, it was not for the financial services operation. It's really our own funding costs as Trayton. Am I right, Anthony?

Yes, exactly.

Okay. Yeah, I leave that to my CFO. Funding costs based on higher interest rates, Michael.

Well, I mean, the question is, I understand that you say, how do we refinance what we have out here in the market, right?

Yes, just a question on the impact of the high rates on your interest costs, basically, in your P&L, whether in the operations or the total group.

Um, I mean, I cannot, I cannot actually give you a concrete. Figure here, honestly speaking, um, I mean, in general, yes, we have, we have both effects. I mean, we have, uh, effects on the negative side and on the positive side. from the higher interest rate that we are seeing right now. I mean, what I can say is, I can give you an example to say if the market interest rates had been 100 basis points higher as of December 31st, 2021, then the earnings after tax would have been 41 million lower. In the previous year, that would have been 36 million lower. This is, I think, the best indication that I can give you to get some feeling regarding this question. I hope that supports what you're up to.

Okay, thank you.

Great. Okay. Thank you, Antony. Next question is coming from Nikolai Kemp from Deutsche Bank.

Yeah. Hey, good morning. Nikolai here from Deutsche Bank. Thank you for taking my question. Also two on my side. The first one would be on Scania. Scania seems a bit touch weaker here in Q3. We understand the summer break, we understand high input costs, but still, if you compare to your Swedish peers in Gothenburg, It still seems a bit soft. And my second one is also regarding 2024. And I'm looking at the overall production cost of a truck. If you think about the moving parts here, labor costs will probably go up, input price and aromatics like steel going down. So would you think that the overall cost of a truck will go up or down next year? Thank you.

Yeah. Okay. Thanks, Nicola. I guess I have to take that one as CEO of Scania. So yeah, you're right. I was not entirely happy with the 11.5 in Q3. I thought we could have done better, especially based on the good run in Q1 and Q2. What kept us back are a few things, which I can take you through. Then the first is that we, and I touched it earlier, we had to close one of the assembly plants in Europe, the one in Södertälje in Sweden, because we rebuilt it for a serial production of BEV vehicles. So we had it actually closed for almost three months. Normally we close three or four weeks for maintenance over summer holidays, but we had to put in new floors to cope with the higher weights and the new ATD systems and so on and so forth. So rather big investments we had to do. And therefore, our logistic flows had to be became more complicated. We had to shift production over to France and Netherlands and then shipped from there to customers in the north. And of course, we came also into capacity restraints, both in production and logistics. I mean, this was planned. So, as a consequence, we saw a lower volume output than what we would have seen otherwise. Most of that volume is now in Q4. And provided that, as it seems now, we have a one week delay, but as it seems, it's restarting in the way it should. We get out of these challenges. So, secondly, we had, as was into here, we've had the reduced capacity in Brazil. in production because of the very weak start of the year. But we see that now picking up in the third quarter. The but is that we there do not have the good product mix as we have in the European production system with high proportion of the new driveline giving us an average €3,000 only for the engine and on top of that actually a bit more because we have higher specification on the S13. And the third reason is that we see a quite high increase of R&D costs, R&D and related capex costs in Scania. Scania is now based on the decision to go with the Trayton Modular System, based on the Scania Modular System taking lead in a lot of the R&D work that needs to be performed for all the brands in the group. You are seeing the first results with the driveline on the combustion engine side, but of course, This will continue in terms of common chassis, common electrical system, common battery electric vehicles, both drives, software and the batteries as such. And a big part of that investments that we have to do now in the rather short term to quickly come common and ripe the benefits of scale are now taken on the Scania brand. Going forward, we will, of course, look into how we share these costs. And we are working on a new financial model that we will talk more about, Michael, in the upcoming calls later on. But that is the third reason why Scania's result is a bit weaker than what we perhaps all expected. I hope that's okay, Nikolai. And then your second question, I think, was on the product cost. In 2024, what do we really expect with all the pluses and the minuses and the big movements we see on energy cost, on raw material cost, on labor costs? And if I summarize our forecast, we actually see a slight, not big, but the slight reduction of costs. You see raw materials coming down, our contracts are long, so it's taking a long time. You see energy prices volatile, but in Sweden predominantly coming down. So for Scania positive, but of course you see labor costs coming up steeply. Not only what we agreed in negotiations, but also with the sliding, whatever you call that in English, but we see an increase of salaries beyond what we have agreed in central negotiations, which is hurting us. So all in all, summary of all of that is that we see slight decreases and your follow up question will then of course be, so is that reflected in negotiations with customers in terms of pricing? And the only thing I can say there is that we're holding up. We have a very good price positioning in all our brands and we have agreed to keep that up. And at the same time, of course, as the market is normalizing, and I'm expecting somewhere towards second quarter to see more of a tough market again, where you fight for every order, you never know. And that's how our industry always worked. But I think we're coming out of this period where customers just had to accept price increases. And we're more going to come into a period where we will try to hold our prices. I stopped there. I hope that was an adequate answer.

Yeah, very well.

Thank you.

Great. Thank you very much. Next question coming from Eric Golwang from SAP.

Thank you, and I appreciate that call on the cost development. Two questions, Dan. First, on the full electric order intake, if you could shed some light on the composition of that. What's the heavy-duty share of it? And then secondly, on cash flow, 1.4 billion working capital built so far, what do you expect for the full year? And what's your basic thinking for how working capital develops next year in relation to sales? Thank you.

Are we on? Yeah, we're on. Yeah. Okay. Thanks, Erik. Yeah. Order intake on full electric vehicle is far from Satisfactory. I don't have the figure top of mind. I'm looking at my team here to see if they can get me that. But we have delays on the Scania side, which is supposed to be the front runner here in terms of battery electric vehicles. We have had challenges getting the cell supply from Northvolt coming up. as expected but the order intake that that you do have on the scania side which is a bit above 600 trucks is the entire order intake for electric trucks of the group there is no other brands am i only starting as i said this month uh to open up so we have i'm here in munich today actually and there's sales training ongoing for the battery electric truck range, but that will not be delivered in this year, but towards the end of next year. So that's the 650 trucks. You see on top of that, we have around about 1,000 pre-orders of electric trucks based on the new truck model that we will start to deliver here in November with the Northvolt sales. Hopefully coming to us now according to the final agreement. On top of that, You have 500 something electric buses. The majority of that is heavy buses. And then you have a small proportion of light, medium, so 12 or 14 ton trucks from Volkswagen truck and bus. I think overall, as I said, it's not satisfactory. We see too many hurdles in the customer base to go for electric fields. They are more expensive, quite much more expensive, two to three times. The charging infrastructure is not there. The electricity prices have been very volatile. And here our customers require stability. So, yeah, I hope and I continue to think we're at the beginning of an S curve where we will see in the coming two years a sharp increase up towards 10% of our total sales. The product is now here. The product is performing. But it's a whole system that we are changing. It's not just the truck that needs to be in place. So so that was I hope that answered your question, Eric. Thank you. I hand over to Michael for your question on the cash flow.

Yeah. So let me start with, let's say the situation in 2023. And then I will end with, to say a trend, because you asked for 2024. And then I come to 2024. So when we look at this year, then during the first nine months, about 1.4 billion euro cash was tied up in working capital of trade and operations. And when we look at this on the quarterly level, then the working capital increased by about 200 million euros in the third and by about 600 million euros in both the first and the second quarter. Of course, this was largely due to the higher inventories, which is obviously a result of the strong increase of the production volumes that we mentioned before. But also, there was a link to the ongoing outbound logistics shortages. At the same time, we recorded relatively minor movements in trade receivables and accounts payable compared to the year end 2022. So as I said at the beginning, and I think this is important here to mention that when we look at the cash conversion, that this rate has been improving quarter over quarter in 2023. And based on this trend, I think it's clear we want to continue the trend. Also, when we look at 2024, and I think that we can expect uh and an easier in the uh logistic and the outbound logistic constraints that we've seen this year um so i would say i'm slightly positive and optimistic that we will see a positive development here regarding our working capital in 2024 and that the the trend with the increasing rate of the cash conversion rate continues I stop here.

Great. Thank you very much. There are no further questions and no questions from the media. So I would say this concludes our nine-month results conference. As always, of course, please reach out to the team in case of further questions. Thank you for joining us today. We wish you all a nice remaining day. And goodbye and see you next time. Bye-bye.

Bye. Thank you. Bye-bye.