Traton SE

Good morning, everyone, and welcome to Trayton's Annual Results Conference 2024. My name is Ursula Caret, and I'm honored to host Trayton's earnings call for the first time today. Even more so because today we present you a strong set of results for the fourth quarter and full year 2023. On a quick personal note, I joined Trayton Group in January in my new role as Head of Investor Relations. And I am looking forward to being your contact person on the capital market side going forward. I already met some of you virtually or in person, and I am very much looking forward to a more regular exchange in the coming weeks and months. I am joined here today by our CEO, Christian Levine, and Dr. Michael Jagstein, our CFO and CHRO. Also present is Camilla de Boon, Head of Corporate Relations to take care of media inquiries. Christian will kick off the presentation with the key 2023 results and highlights. Michael will then guide you through the financial performance in more detail. In the last section, they will present you our outlook for 2024. As always, the presentation will be followed by a Q&A session where we are looking forward to questions from financial analysts, investors and media representatives. Before we start, please be aware of the disclaimer with respect to forward-looking statements. And with that, I hand it over to Christian.

Wonderful. Thank you, Ursula. And also from my side, good morning. To everyone, yes, 2023 was indeed a very successful year for the Treighton Group. And I think it's reflected in all the major KPIs that you see on this slide. With close to 340,000 vehicles delivered, we delivered more vehicles than ever before. It's actually 11% up. And that resulted in even higher growth in sales revenue 47 billion and 16% year-on-year improvement. And with that, you can draw the conclusion that we were also successful in realizing higher pricing. Adjusted return on sales came in at 8.6%, already very close to our 9% adjusted ROS ambition for 2024 that we launched back at the Capital Market Day in 2022. What we're most proud of is probably the cash flow focus throughout the year that resulted in a stunning 3.6 billion euro result. And earnings per share finally came in on a more than double level, 4.9 euros, the highest EPS since the IPO of Trayton. So this success is coming on the back of a strong market tailwind and really high truck demand. Now, this allowed us to continue to significantly increase production in 2023. But remember, we still struggled with bottlenecks in the supply chains, even though we managed and have managed to build out a much more resilient system compared to 2022. So gradually reducing our high order book, especially in Volkswagen truck and bus, MAN and Scania, and by that decreasing lead times that is so important for our customers down to almost normal levels. But more importantly, this success is based on our strong brands, satisfying our fantastic customers with a strong portfolio of services and products, and our today more than 100,000 Tritonians, all fully committed to growing together as one group. Moving over to the next slide, where this team effort not only delivered on our financials, but also on many of our milestones in our strategy, the so-called trade-on way forward. Four of them on this slide, starting with the MAN restructuring, Finally successfully executed. And I really want to give praise to the management of MAN that after so many attempts finally carried this home. This is, of course, a crucial step for MAN and its profit margins, but also very important for the entire Trayton group. And remember, the full effect will be seen first in the calendar year of 2024, as we still have cost effects in 2023. Now, make no mistake, MIN, of course, continues to focus on costs through continuous improvements, as all of our companies are doing. Another highlight is the creation of the Trayton Financial Services based on the successful Scania know-how as a global captive and integrated business unit established and expanded. Scania's financial services activities were in April fully transferred into Trayton Financial Services. We continued in July with signing a framework agreement with Volkswagen Financial Services to gradually take over the rights to provide financial solutions for MAN and Volkswagen truck and bus customers. And finally, in October, the exclusivity agreement with Bank of Montreal expired and we could start up Navistar Financial Services retail business, which is fantastically already contributing to our bottom line results. Super important also point number three here, the trait on modular system. We continue, of course, to drive forward. So after the successful launch of our CBE, common base engine and the common powertrain launched in Scania 2021, we last year delivered the first units with the name S13 in the Navistar as an integrated powertrain, and the feedback from customers have been overwhelmingly positive. We are actually overachieving compared to promises on fuel savings. We also finally set up our global product management organization, in itself a big step forward to foster cross-brand collaboration in the area of R&D and our products. Finally, sustainability stands at the heart of our strategy and we have clearly defined three impact areas. It goes about decarbonisation, it goes about circularity and it goes about human rights. Under the topic decarbonisation, we are intensively working on the transition into battery electric vehicles, which leads me into the next slide, slide number seven, with a few highlights from 2023, from our journey to the battery electric world. Starting with MAN, where we have prepared serious production of the upcoming e-trucks in our Munich plant. We had a market launch at the end of October. We will be rolling out the first e-trucks to selected customers already this calendar year. We managed, based on a high interest, to already book 700 pre-orders, and then we go for full industrialization and ramp up in 2025. We were also very proud to receive based on the MAN e-truck, the prestigious Red Dot Design Award in June last year. In Volkswagen truck and butts, we started up the production of the series production of e-trucks in our plant in Resenda. By doing that, we are actually the first manufacturer in Brazil to produce zero emission vehicles on a large scale. We use the same strategy as in our other brands. We are blending in production of the battery electric vehicles on the same assembly line as where we produce ICE vehicles. Of course, we do that based on flexibility and the difficulty to predict the adaptation of battery electric vehicles in our markets. Now, in Södertälje at Scania, we started operations of our battery assembly plant. This is a key step for continued ramp-up and industrialization at scale of Scania's battery electric vehicles in the coming years. We also marked another milestone. Together with Northvolt, we presented the jointly developed battery cell for heavy electric vehicles that gives a 1.5 million kilometers life length, give or take the same as the vehicle, and taking away any doubt around the business model for trucks and battery electric vehicles of the future. Also in MAN, we are investing into in-house battery pack production, and we performed a groundbreaking ceremony in the Nuremberg plant, or close to the Nuremberg plant, back in 2023, and our aim is to start up serial production here in 2025. Now, as all of you know, transformation and battery electric vehicle rollout is only possible on the back of a significantly built out infrastructure and more partnerships at the extreme, even between competitors. And we've already talked a lot about the Mylan's partnership, but we were proud to see the first charging hub open up. for heavy duty vehicles in Venlo in the Netherlands in December. And as many of you already know, we're aiming having 1,700 chargers up and running by 2025. Also in North America, we're taking steps in this direction. Navistar is partnering up with the company Quanta, a speciality engineering group that build out charging infrastructure solutions. And finally, on the new or under the headline of new business model. Scania, together with Sender, established a joint venture called Juna, which is a pay-per-use model only for battery electric vehicles. And the first vehicles are up and running. And this is, of course, another way to accelerate the adoption, taking away risk for customers moving into battery electric vehicles. On page eight, we move away from the market dynamics and have a look on the general market development throughout last year and the influence on our incoming orders and deliveries. So overall, as you can see, demand remained on high levels. We could significantly increase production through our more resilient supply chains, leading to higher deliveries and reduced lead times but still elevated levels for most Trayton brands and especially for Navistar. During the year, the market started to, let's say, normalize in Europe, affecting then MIN and Scania's order intake and order books, taking the Trayton book-to-bill ratio in the last quarters down to below one. US and the North American market, we also saw a normalization of demand. However, in Navistar, we continued to only accept limited amount of orders due to the too high order book, the too long lead times, and still having a number of supply chain constraints. Truck demand in South America were weak throughout the year, affecting especially Volkswagen truck and bus. Good news, however, there are clear signs of recovery in the heavy duty segment, especially throughout the second half, benefiting then mainly Scania. Now, overall, Trayton started this year with very well-filled order books, lasting into the second half of And with this good news, let me now hand over to Michael. The stage is yours.

Thank you, Christian, and a warm welcome from my side as well. On slide 10, you can see how the high demand and production levels Christian just mentioned positively affected our 2023 unit sales and sales revenue development. 11% growth in full-year deliveries and a 16% sales revenue growth marked a very successful year for Trayton. This development also implies an improved unit price realisation, admittedly on the back of strong market tailings, but also due to our high-quality product offering. Sales revenue in the fourth quarter increased by 8% to 12.7 billion euros compared to a high prior year basis. This brought us to an all-time high revenue level of almost 47 billion euros for the full year. Besides a favorable market and product mix, our revenue also benefited from a continued high demand for our vehicle services given age, truck fleets and high utilization. Moving to slide 11, which shows a continued strong earnings momentum and hence a big step forward to reach our group profitability targets. On a full year basis, the adjusted operating result almost doubled to reach 4.0 billion euros at a margin of 8.6%. This was significantly higher than what we had guided at the beginning of the year. In Q4, the adjusted operating result rose by more than 50% year-on-year to 1.1 billion euros, reaching an 8.7% adjusted return on sales. On the one hand, this positive development is driven by the top-line effects I mentioned before, general market tailwinds, a favorable market and product mix, and better unit price realization. On the other hand, despite increased R&D and input costs, our cost base profited from scaling and saving effects. So, besides a better fixed cost absorption, the cost work accomplished by our brands, especially by MAN, had a positive impact. As you know, we are continuously driving self-help and cost efficiency initiatives as we grow closer together as one group. Let us now have a look at the individual brand performance and their top and bottom line impacts on page 12. During 2023, all brands, except for Volkswagen truck and bus, benefited from increased new vehicle sales, better price realization, and higher capacity utilization. At the same time, throughout the year, Navistar suffered from supply chain disturbances, limiting their ability to deliver even higher volumes. Last, this was visible in Q4 2023, where units were short versus prior year's fourth quarter. Sales revenue in the vehicle services business continued to grow at both Scania and MAN, while Navistar recorded a decline mainly due to the sale of MWM in 2022. On the profitability level, Scania delivered a 12.7% adjusted return on sales for the full year, clearly up year on year. The ramp-up of the new 13-litre engine Super and the associated higher price realisation were key drivers in 2023. R&D costs, which not only relate to Scania but also span for the group, had a counteracting effect on Scania's profitability. MAN Truck and Bus achieved a strong 7.3% margin in 2023, significantly up by 6 percentage points year on year. The exit margin in Q4 was even higher at 7.6%. We already mentioned the positive effects of the MAN realignment program. Navistar showed a robust performance with an adjusted return on sales of 6.6% for the full year, outgrowing the margin levels achieved in previous years. Better pricing as well as a more robust production system helped to increase profitability. At the same time, despite disruptions in the supply chain, we managed to increase our truck market share in the US. Volkswagen truck and bus faced relatively challenging market conditions in 2023, however, recorded a remarkably strong adjusted return on sales with 8.8%, despite significantly lower unit sales. This is proof of the brand's high flexible production system. Finally, Trayton Financial Services recorded a 20% revenue growth in Q4, and plus 23% for the full year. This was mainly due to an increased financing portfolio and higher interest income. Higher funding costs and increased bad debt allowances had an offsetting effect on profitability. Christian mentioned earlier that under the framework agreement signed with Volkswagen Financial Services in July, Trayton will gradually increase its financial services business with MAN and Volkswagen truck and bus customers and Navistar relaunch their retail financial services business in October. Let us now move further down the profit and loss statement. The starting point of the earnings bridge on the left is the adjusted operating result of 4.0 billion euros for the Trayton Group in 2023. Deducting the adjustments brings us to the operating result of 3.8 billion euros, which was more than 2 billion euros higher than the year before. Please note that our operating result does not account for the earnings of our equity investments, which amounted to 124 million euros in 2023. If you included these, the figure would be accordingly higher. Earnings before tax came in at 3.3 billion euros and after tax we achieved a profit of 2.5 billion euros. Hence, our strong operating performance resulted in earnings per share of 4.90 euros, up from 2.28 euros in the previous year. This is the second year in a row that we were able to more than double our earnings per share. So, our strategic goal to create value clearly also holds true for shareholder value. Based on this, the Executive Board and the Supervisory Board of Trayton will propose a dividend payout of €1.50 per share to the annual general meeting in June. This corresponds to a payout ratio of 31%. we deliberately placed ourselves at the lower end of our intended payout range, as the reduction of net debt is a core financial priority for us. Still, with a 7% yield, we think that we offer a highly attractive dividend to investors. Another attractive investment argument for Trayton is our high cash generation. Trade and operations achieved an exceptionally strong net cash flow of nearly 1.2 billion euros in the final quarter of 2023. In addition to the strong operational performance, we benefited from a seasonally better working capital development in the fourth quarter. Inventories were down and liabilities up. This brought the full year number to 3.6 billion euros of net cash flow. Please bear in mind that this includes positive effects of 899 million euros from the sale of the Russia activities and the adjustment of the ownership structure of the financial services business. Still, over the full course of the year, despite the positive fourth quarter effect, the working capital increased by around 700 million euros, mainly due to higher inventories. In the current environment, where we still face some supply chain risks, these additional inventories serve us as a safety cushion. Here, we clearly see improvement potential. Therefore, an enhanced working capital management is a key priority, alongside further reducing our net debt position, which leads well to the next page of our presentation. As you can see on page 15, we significantly reduced the net debt of trade and operations, including corporate items, by 2.0 billion euros to 5.8 billion euros by year end 2023. I already mentioned the positive cash inflow from our brands, which was partly compensated by the just mentioned working capital development. While the net debt position benefited from the 400 million proceeds from the sale of Scania Finance Russia early in the year, the impact from the intra-group transfer of Scania Financial Services was neutral. Also important to note is the dividend payout for fiscal year 2022, amounting to a cash out of 350 million euros in the second quarter. By further reducing our industrial debt, we aim to achieve two important effects. First, increasing our equity value and second, reaching a standalone investment grade rating for more flexibility in our financing efforts. With this glimpse into the future, let's directly move to the outlook section. which I would like to kick off with an overview of the trading group financial guidance for 2024 on page 17. Despite a more challenging market environment in 2024, which Christian will comment on in a minute, we're overall optimistic about 2024. and we remain committed and we will work diligently to reach our strategic goal of 9% return on sales for the trading group in 2024. But it is clear that we are facing a normalizing, declining market environment in Europe and North America, which we will tackle by capitalizing on our high order backlog and by a favorable market and product mix. We therefore see unit sales and sales revenue developing in a range between minus 5 and plus 10%. Our ambition to reach a 9% adjusted operating return on sales is reflected in the upper end of our margin guidance, which ranges from 8 to 9%. The lower end considers conservative market assumptions for both Europe and North America, as there could be risk arriving from further supply chain disruptions and economic and geopolitical uncertainties. Finally, we expect net cash flow for trade and operations to range between 2.3 and 2.8 billion euros. When comparing this guidance with 2023, please note that net cash flow in 2023 was positively impacted by 899 billion from the sale of the Russia activities and the adjustment of the ownership structure of the financial services business. It goes without saying that we will continue to invest into our future. especially into the transformation of our industry through battery electric vehicles. Hence, we expect both CAPEX and R&D to increase. With this, I hand it back to Christian for our truck market outlook and some concluding remarks.