Traton SE

Good morning, everyone, and welcome to Trayton's Q1 2024 earnings call. I am Ursula Keret, Head of Investor Relations. As published in our press release early this morning, we had a strong start into the year. And in a minute, we will present to you the respective Q1 financials. I am joined here today by our CEO, Christian Levine, and Dr. Michael Jagdstein, our CFO and CHRO. Also present is Camilla Devon, Head of Corporate Relations, to handle potential media inquiries during the Q&A session. Christian will kick off the presentation with the key Q1 results and highlights, and we'll wrap it up at the end. Michael will guide you through the financial performance in more detail. 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. With that, I hand it over to Christian.

Very good, thanks Ursula and welcome also from my side to this call. And yes, as you see on the slide, sometimes the numbers speak for themselves. A really strong start into 2024 for the Trayton Group. And just reflecting on our major financial KPIs, as you see here on the slide, it's really a robust level of deliveries with more than 81,000 vehicles delivered to customers throughout the group. continued disturbances in some of our brands in terms of supply chain and production as we already reported back in the full year report our markets are normalizing our big markets europe and north america whereas we benefit a really strong bounce back in latin america which of course benefits both volkswagen truck and bus and Scania, so a well-balanced market mix that we benefit a lot from. So despite the small decrease in unit sales, as you can see, we are increasing our total revenue, meaning that we have a really good price and mix effect coming in into the result. And the result then, 9.4% of return on sales, that is the highest ever. for Trayton Group and we are of course happy about that, feeling however that we can do even better. We generate a positive cash flow, we're coming in at a solid 440 million euro on the back of these strong earnings and to hopefully happiness of our shareholders, we do generate a net profit already in the first quarter On 1.5 euros per share, which is an increase by 35%. Now, this is, of course, the super average of everything. And you will get from Michael much more details into these KPIs, both on trade level, but also per brand. But let me kick you off by looking a little bit also into the more operational and strategic highlights of the first quarter. We are on a major transformation journey and we're driving this forward at the fastest possible pace. And it's really about two things. One, you can call our internal transformation. We're a young group. We started as a collection of brands and we have promised each other that we should really grow into, together, one group. And that means that we're on an internal transformation journey that is huge. You can imagine 108,000 employees over many locations. But on top of that, we have the challenge of the industry, which is the external transformation, i.e. digitalization and electrification mainly. So in Q1, what I'm most proud of is that we have, in the end, finally come to decide on one R&D organization. We have talked about that ever since the IPO back in 2019 as some kind of a North Star. We have managed to come to the decision on one common product system, i.e. let's expand the Skåne Modellersystem into a Trayton Modellersystem. That is happening. You have seen the common base engine as the first start of that. But the next logical step is that we also merge the R&D organizations into one meaning that we expand the group capacity by 15, 20, 25, maybe even 30% by eliminating double work, friction coordination internally. And as a result, we'll improve both speed and capacity, meaning more and faster solutions to customers for all our brands. Of course, to balance against the so important brand positioning in markets where we're in market areas where several brands are present. So a big step forward under the leadership of Niklas Klingenberg. Since when we move over to Navistar, the second picture here, since the start of 2024, we now accelerate the rollout of the common based engine and the entire powertrain S13 at Navistar. And the feedback from customers overwhelming, confirming up to 15% fuel efficiency compared to its predecessor. And as a result, already by February, we were completely sold out for 2024. We are, of course, doing everything we can, again, acting as a group to then transfer production capacity to the colleagues in avistar and we're working currently with trying to to supply that out of sconia's latin american operation in the third picture we look a little bit into the future emission zero emission technologies and here is about an out layer we are investing in man in the h2 combustion engine As you might remember in the new legislation for CO2 reduction, hydrogen burners or hydrogen internal combustion engines are classified as zero emission vehicles. And we use the opportunity to experiment through our MAN brand with an initial test fleet build up on our biggest engine, six-cylinder engine platform. However, I continue to say everywhere I can, That the TCO advantage of the battery electric vehicle in the long term will determine that that will be the prevailing technology. But it might not be the only one and therefore we need also to explore more technologies. Moving to Scania, we took further steps in expanding the battery electric modular system, meaning that we're adding more performance steps to the portfolio so that when demand is coming and when our industrial system is ready to ramp up, we can supply even more different applications and solutions to our end customers as full electric. Another transformation in our industry where we continue to invest, but that we talk less and less about, or the market is talking less and less about, but where progress is really fast, is autonomous driving. In the first quarter, we announced the partnership with the US-based company Plus, which will be our partner to take us to level four and beyond. And again, we're building on one platform, meaning that our autonomous-based vehicle, as we call it, will be the same regardless of which brand it is coming out from. We have started sales for the confined areas, i.e. mines, through the Scania brand already. But when it comes to hub-to-hub and the bigger volumes, we are still in development mode. So summing it all up, we are really establishing a top-notch R&D organization and process to accelerate innovation, reaching end customers faster, and really taking market demands from all brands into account. So let's shift slide and have a look at the current market situation. How does demand really look like? So first thing to say is that we can confirm what we already said in the full year report. Markets in North America and in Europe are normalizing, which means that they are expected to be lower than last year. Our incoming orders are than slightly below last year, but still on what I would call a very solid level. There are very different dynamics into this. Europe, the truck business is down and especially Germany and Central Europe, which gives a bigger impact on MAN. In North America, we enjoy higher orders. We have a very strong order book Whereas the demand is changing away from the heavy on highway, so-called class eight applications. And we benefit being really strong in the medium and the severe segments. South America already mentioned, but demand is coming back very, very good. And especially in the extra heavy segment, where we see investments into agriculture and mining, giving the biggest effect on Scania, but also on folks going truck and bus. We see all over the segments that increase in demand is coming through. So to summarize this, our book to build ratio continues to be below one. The order book, however, is strong, although normalizing. And we are capitalizing on it, as we've said, over summer, but also partly into the second half of this year. So with this, let me hand over to you, Michael, to take us deeper into the financials.

Thank you very much, Christian. And of course, a warm welcome from my side as well. So let's have a look at slide nine, where you can see how the demand dynamics translate into first quarter 2024 sales figures. Despite the decrease in unit sales, Christian just mentioned, we were able to grow our sales revenue by 5%, a really good achievement. This development implies our successful pricing strategy, but we also profited from a favorable market and product mix, hence our diversified business model. Besides that, we benefited from a continued high demand for our vehicle services, given age truck fleets and high utilization. Let's move to the next slide, slide 10, which shows that the increased revenue per unit combined with our improved cost structure led to a record margin level for trading. As you can see, in Q1, the adjusted operating result rose by more than 18% year on year to 1.1 billion euros, leading to an outstanding 9.4% adjusted return on sales. While this number is above the upper range of our annual return on sales guidance, please bear in mind continued conservative market assumptions for Europe and North America in 2024 and potential risk from further supply chain disruptions and geopolitical uncertainties. But let me also point to the efficiency gains accomplished by our brands, which are here to stay. With the completion of the realignment program, MAN clearly contributes to an improved margin resilience of the trading group, and all brands have further cost efficiency initiatives in place. Let us now look into the individual performance of our brands on the next slide, on slide 11. Here you can see how mix effects within and between our diversified brands resulted in a combined upwards performance of our industrial business. The trade and operation sales revenue was up 5% year on year at 11.5 billion euros and the respective return on sales came in at 10.4% plus 1.3 percentage points compared to the year before. As you can see, the main contributor to the industrial revenue growth in the first quarter was Scania. Here, sales revenue increased substantially by 17%, mainly due to the strong growth of the brand's heavy-duty truck business in Brazil. The new vehicle business in Europe also increased year on year. Concerning the return on sales, Scania is well on track to best-in-class performance, reaching a record level of 14.3% in the first quarter. MAN Truck & Bus reached 3.5 billion euros in sales revenue, an increase of 3% despite lower unit sales year-on-year. At the same time, return on sales improved by 2.1 percentage points to 7.9%. I already mentioned the successful realignment program and its impact on margin resilience. A stronger bus business performance also positively contributed to MAN's margin development. Navistar sales revenue declined by 11% due to two factors affecting new vehicle sales. We saw continued challenges from supply chain disruptions, hindering us to produce the truck volumes we had initially planned for. Second, we underwent a slower than expected ramp up for our new school bus, resulting in a delay of deliveries to customers. Both developments also influenced Navistar's bottom line in the first quarter, but We were able to offset some of the impacts through better pricing, and we already saw evidence of a higher production rate in March and April. As of today, I can say that we have fixed most of the issues, but we remain cautious as the supply chain in North America still has not fully stabilized. Volkswagen Truck & Bus increased sales revenue by 9% year-on-year despite lower unit sales. This was driven by a better product positioning and unit price realization. Hence, based on its excellent product offering and its leading position in a growing market, Volkswagen Truck & Bus was able to increase its return on sales to 11% in the first quarter. Besides trade and operations, trade and financial services recorded a 29% revenue growth in the first quarter. This was mainly due to a larger portfolio volume and higher interest income. Profitability also improved significantly year on year to 13.2% return on equity. Last year's return on equity was negatively impacted by the sale of Scania Finance Russia. I already mentioned in our annual results call in March that we will gradually increase our financial services business with MAN and Volkswagen Truck and Bus on the basis of a framework agreement signed with Volkswagen Financial Services. During the first quarter, we prepared for further important country rollouts starting in the second quarter. And Scania and Navistar will continue to grow their portfolios with a growing business activity. So the ramp up of our captive financial services offering for all trade and brands is a strategic priority for 2024 and beyond. Let's move to the next slide, page 12, where I'm happy to announce that we achieved a further reduction in net debt in the first quarter. The net cash flow of trade and operations reached a solid amount of around 440 million euros on the back of our strong earnings. And this despite a typical seasonal working capital build up in first quarter, mainly due to increased inventories. Therefore, we continue to reduce our net debt, this time by around 300 million euros versus year end 2023. As I already mentioned at our annual results conference, by further reducing our net debt, we aim to achieve two main effects, increasing our equity value and reaching a standalone investment grade rating for more flexibility in our financing efforts. With this, let's directly move over to our full year outlook. Based on our strong start into the year and unchanged expectations regarding the truck and bus markets, we remain optimistic and confirm our forecast for 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. Let me quickly repeat our main guidance parameters. we 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%. As mentioned before, although in first quarter the margin came in above the 9%, the lower end of the full year margin forecast considers conservative market assumptions for both Europe and North America. For the remainder of the year, we still do not rule out further supply chain disruptions and risk arising from economic and geopolitical uncertainties. Finally, we expect net cash flow for trade and operations still to range between 2.3 and 2.8 billion euros. With this, I hand back to Christian for our truck market outlook and some concluding remarks.