Traton SE

Good morning, everyone, and welcome to Trayton's third quarter. I'll start again. Good morning, everyone, and welcome to Trayton's third quarter 2024 earnings call. My name is Ursula Keret, and I'm head of investor relations at Trayton F.E. With me on the call today are Christian Levine, our CEO, and Dr. Michael Jagstein, our CFO and CHRO. Christian will kick off the presentation with the key results and highlights of the third quarter, and Michael will guide you through the financial performance and outlook in more detail. As always, we will conclude the call with a Q&A session where we welcome questions from financial analysts, investors, and media representatives. To handle potential media inquiries during the Q&A session, Camilla Devon, our Head of Corporate Relations, is also present. This session will be recorded and a replay will be made available on our Investor Relations website as soon as possible after the call. You can also find our nine-month 2024 interim statement, which we published this morning, and the slides to this call on our Investor Relations website. Before we start, let me remind you of the disclaimer with respect to forward-looking statements on page three of our presentation. And with that, I hand it over to Christian.

Thank you very much, Ursula. Good morning. Good day also from my side. So yes, we have a slide up. Very good. So we could say with a backdrop of a more normalized market, we did again manage to deliver a strong quarter. And let's go through the figures here, starting from the left, moving towards the right. Our Q3 delivery volumes amounted to 85,000 vehicle sales. This is 5% up over the same quarter last year. And the sequential versus Q2, it's actually 8% up. The main driver there is the delivery catch up from international. You all remember the fire at the plant supplying us rear view mirrors, which disrupted production and delivery process in the second quarter. And as a result of this catch-up, nearly 40% of our group's total deliveries of trucks in Q3 came in from international, which is, if you compare to the second quarter, being just 20%, where we would say somewhere 30 would be normal. nine-month perspective, you could say that this mirror supply issues has largely balanced out. And that goes for all of our KPIs, the unit sales mansion, but of course also revenue, return on sales, and also importantly on cash flow, where you saw a strong net inflow of 1.3 billion euros in Q3. That's the fifth box, and I'm jumping a little bit here too. We will of course go deeper into the cash flow generation in Michael's session a little bit later on. But continuing to sales revenue then, you can see that we grew that in line with the unit sales. We're up 5% in Q3, reaching almost 12 billion euros. And if we exclude the international mirror effect, This growth was driven by a very good regional price and product mix within the group, and especially at the Scania brand. Otherwise, the highlight I would say on this slide is clearly the next box again, which is our return on sales figure, now being up to 9.6% in the quarter. We, of course, very proud of this achievement, but of course, we're recognizing that it's also partly inflated due to the catch-up effect at international. And Michael will later show you that them alone, so international, our brand in North America alone achieved a 10.7% adjusted return on sales in Q3 after a week 2.7 in Q2. Continuing to move to the right, we have the net cash flow I already mentioned. And in the fifth box, you have the earnings per share that continue then to improve 5% up to 1.45 euros in the third quarter. And last on this slide and the forward-looking KPIs being order intake is at 64,000 vehicles showing stability compared to last year's Q3. but it's actually 9% up sequentially. And as where I started, we see this as a good figure given the current market environment where customers in both Europe and in North America remain cautious. At the same time, we continue to see a strong market in South America, both for Volkswagen truck and bus and for Scania. October has started with a positive momentum in terms of order intake, although we have not yet closed the month. And we're also looking forward to the Fenetron Fair coming here in the early November as the big buy-yell event in the South American space. So, summing up this slide, we had a strong third quarter. We managed to resolve our supply issue at international. Customers in some key markets remain cautious, but they do appreciate our product lineup, and we see particularly positive effects coming out of the Scania Super and the twin AT International's S13 product. Let's move on and talk more about products and how we continuously work to enhance our product and our total solutions offering. And here you see how just examples, of course, but how all of our brands are contributing, starting to the left. At Scania, we showcase the EAA in Hannover in September, a full range of both electric but also biofuel heavy trucks, highlighting the biofuel as an ideal bridging solution for sustainable transport. Also, Skåne introduced, and for the services which are so important to our bottom line and to our earning stability, a new portfolio. We call it Services 360, which is a modularization, same way as the product. but also a simplification of our service portfolio. This helps our customers to improve efficiency and profitability, and at the same time promoting a cleaner, a safer, and a more sustainable transport. One cool example there is the so-called ProDrive app, which helps a driver to save fuel, and as a consequence, of course, CO2. by incorporating a gamification, so it's a competition on fuel efficiency in real time in your instrument cluster. Moving on to MAN, here we presented also at the IEA the new electric TGL, the ETGL, which is a light distribution truck, 12-tonner. And it is a significant step forward for urban logistics offering all the way up to 235 kilometers of range, fast charging in only 30 minutes, and a payload capacity of up to 6.6 tons. With that, MIM can now offer a complete portfolio of e-trucks starting from 12 tons and moving up to 42 tons meeting diverse transport needs from for example, for nighttime deliveries to the heaviest duty transport. Number three on this page is international, where we announced the rebranding at the end of the Q3. And at our capital markets day, October 1st, Mattias presented how international aims to position itself more as a solution provided to the North American customer base going forward. Volkswagen Trucking Bus, who just introduced their new e-Volksbus in the quarter, making that the official start of their journey into electromobility for also passenger transport. Production with test units for selected customers is already ongoing. And on that theme of electric transport and on the next slide, And as mentioned at the IAA, we showcased our expanded range of both fuel efficient, but also zero emission trucks. And I can confirm that the customer interest remains high and more and more of them are considering adding one or several battery electric vehicles to their fleets. However, we continue to emphasize the important need for government and anybody to provide a support to accelerate the deployment of charging infrastructure. We continuously stress that, and so we did at the IA and in continuous dialogue with policymakers all over the world, but especially in Europe. On this slide, you can see that orders for full electric vehicles do increase on the first nine months of the year, but however, lower than the pace that we expected. At the same time, we experienced a minor drop in deliveries of battery electric vehicles, which apart from the underdeveloped infrastructure is mainly due to the phase out of the MAN EVAN at the end of last year. To add, also reduced bus sales in connection with the implementation The European Cyber Security Directive, which is holding MAN back, continues to contribute to this decline. With that, let us move on to page eight, where we will talk more about our total unit sales and orders for all our trade on group brands. So it's a very comprehensive slide with a lot of useful information. And it starts, or I would like to start to talk about the order intake, which normalized in most of our market. And you can see well reflected in our historical order intake development as showed with the light blue figure here in the graph. You see in Q3, a quarter over quarter uptick, and as I mentioned before, while in the year-over-year comparison, income orders remained stable, exactly more or less as last year with 64,400 . Those of you who follow us, you know that the third quarter is usually a weak quarter due to summer holidays on the northern side of this planet. But this year, we had a positive effect out of the IAA, which helped our European order intakes at the end of the quarter. Said that, we should note that, especially at MAN, we continue to suffer from a particularly weak German market, and both MAN and Scania are faced with a weaker demand coming out of East and Europe. In a third quarter in the US, order intake for international was marked by a healthy demand, especially for medium and severe trucks, while the demand for on a highway class eight remained weak. In South America, then, the market, as I already indicated, remains strong, which clearly benefiting Volkswagen truck and bus order intake in Q3. For Scania, and this is important, we did restrict our order intake into our Brazilian factory, preparing for also there the introduction of the new software platform, which is also complying with the cybersecurity regulation. And on top of that, in both Volkswagen truck and bus and Scania, we are awaiting order intake openings for the fair Fenerfran coming on here early November. Moving over to deliveries, and as mentioned before, the Q3 increase of 5% year over year was mainly driven by the catch up from international as mirror issue. Overall, that took the book-to-bill figure up to 0.8, which is similar to our number in the second quarter. And if we adjust that for the Uber delivery at the international and the lower than normal order intake for Scania in Brazil or in the Brazilian production system, the order, the book-to-bill ratio would have been higher. If we also look to the inventory levels, and again, due to the cybersecurity and the new software platform introductions, both at Skåne and MIM, we see that inventory levels remain high, while delivery times are coming down to normal levels, i.e., in Europe, in the range two to three months. Actually, where we prefer to have them at Volkswagen truck and bus, around two months. and international in the range between three and six months, depending on specification of vehicle. Order books for 2025 are now completely open at all of our brands. Okay, let's move over to the next picture, which is my last one. After nine months of this year, we start to have a very good picture of how this 2025 year will turn out in terms of global truck markets. Considering the year-to-date developments, which we have now added to this slide with a range, you can see that it's narrowing and we remain very close through our initial year forecast. In Europe, We now see a declining market with our range being minus 10 to minus five, which corresponds to a midpoint of minus 7.5. That aligns very well to where we stand after the first nine months of the years of this year being minus seven. Those of you who are more familiar to the only the heavy duty part of the market, you need to deduct 50,000 from this figure, and you see that we're coming in in and around the 300,000 figure. We see a similar range for North America, including Mexico, where we saw a year-to-date development of minus six here. To come to only the class eight, you need to deduct around about 130,000 vehicles for class six and seven, which indicates then a class eight or heavy duty volume of somewhere in the range to 70 to 290,000 units. Lastly, we do expect South America to grow and end up somewhere between plus five and plus 10% on the full year basis. So to sum it all up, despite a rather weaker market and the economic environment, especially in Europe, we and the Trayton Group managed to deliver a strong Q3 performance, and on a nine-month basis, we evened out most of our supply chain issues. We did trigger good customer demand at the EAA, and we extended, we continue to extend our BEV portfolio while claiming need of support from policymakers for infrastructure and cost parity. We did, however, continue to heavily invest in our future product and service solutions offerings. And with that, I would like to hand the word over to our CFO, Michael. Michael, please.

Thank you very much, Christian. Of course, a warm welcome from my side as well. So Christian just already mentioned the main effects leading our unit sales growth of 5% in Q3, which are, a strong South American market, and international unit sales catch up after the mirror supply issue, both of which more than often, the lower demand truck unit sales due to the weak European market environment, especially in Germany. On a nine-month basis, unit sales slightly decreased by 2%. turning to sales revenue, which also grew by 5% in the third quarter and 3% on a nine-month basis. Besides the factors influencing unit sales, our revenue also benefited from a good product mix and pricing tables. However, we must recognize that the effects of price carryover are now tapering off. Our revenue growth was also driven by trade and financial services, which saw a 60% rise in Q3 with a higher portfolio volume. Vehicle services revenue increased slightly due to sustained high customer demand. Let's move to the next slide where we see our profitability development. As you can see, In the third quarter, the adjusted operating result rose by an impressive 19%, leading to a very high adjusted return on sales of 9.6%. We already pre-released that number last week because it was higher than consensus had expected it. On the one hand, this margin reflects a continued high unit price realization. particularly benefiting from a favorable price-cost spread at Scania. On the other hand, the Q3 margin was clearly boosted by a faster-than-anticipated international catch-up effect. Therefore, we must recognize that this is a peak margin unlikely to be repeated within the next quarters in the current market environment. MAN in particular is suffering from the weak demand in Europe and Germany, which also affects their margin, despite an improved cost structure following the realignment program. As I already noted during our capital markets day and our Q2 call, MAN will not be able to sustain its first half-year levels around 8% return on sales in this market environment. In Q3, MAN achieved a return on sales of 5.6%, and flexibility measures such as short-time work have been extended. Let's take a closer look now at each of our brands in a little bit more detail. As always on this slide, slide 13 this time, we demonstrate the benefits from having diversified brands, markets, and products. Despite a decreasing sales revenue at MAN in the third quarter, the trade and operations revenue increased by 4% and trade and financial services by 16%. The return on sales of trade and operations increased by 1.5 percentage points to 10.7%. As already previously mentioned, international was the main driver of the group's revenue growth. after the mirror supply issue was resolved and the respective inventory delivered. This boosted international's return on sales to 10.7% in Q3. Although the sales of the new school bus are now ramping up, the vehicle services business remains weaker year over year due to lower transport activity in the United States. Turning to Scania. where the sales revenue was up 5% in Q3 due to the strong heavy-duty truck business in Brazil, which more than offset the European decline. Additionally, with a strong vehicle services segment, good pricing, and growing Scania super sales, Scania's return on sales increased by 2.5 percentage points to reach 14% for the quarter. I've just mentioned MAN and the market challenges. The brand also faced delays regulations under EU safety laws. As a result, and despite the improved resilience from the realignment program, MAN's margin dropped due to reduced volumes and capacity utilization. increased its sales revenue by 40% year over year. Like in the previous quarter, this was driven by strong market tailwinds and better product positioning and realization. And Volkswagen trucking has increased its adjusted return on sales to 12.2% in the third quarter. I also already mentioned revenue growth at 16%, which is linked to a larger portfolio volume. As more countries join the MAN Financial Services Network, the ramp up brings higher costs. Funding and risk costs have also increased during the quarter. Return on equity reached 10.9%, and it's worth noting that last year's return on equity was lower due to the sale of Scania Finance Russia. Let's move on to the next page, to page 14, where I'm pleased to report that we are making good progress towards reducing our industrial net debt again at the end of 2024. Over the nine-month period, there was still a slight increase in the combined net debt of trade and operations and corporate items, but we expect this to reverse within the final quarter. Completing and delivering the inventory affected by the mirror supply issue at international had a significant positive impact on the net cash flow of trade and operations. This came in at 1.3 billion euros for the nine-month period after a strong operating performance of the branch. However, the software challenges related to safety regulations resulted in higher inventories, both at MAN and Scania. This contributed to a working capital buildup of 1.3 billion euros, with respective effects on the nine-month net cash flow. Higher capital expenditures also had a dampening impact. These mainly relate to future investments discussed at our Capital Markets Day, including the construction of our production facility in China. Speaking of the future, let's now turn to our 2024 full-year outlook, which remains unchanged. we reiterate our unit sales and sales revenue outlook in a range of minus five to plus 10%, corresponding to a midpoint of plus 2.5%. Looking at the nine month development, unit sales decreased by 2% year over year, while sales revenue increased by 3%. This could suggest that full year unit sales might see a small decline compared to last year, while full-year revenue may see a slight uptick. We also confirmed the trading group's fully adjusted return on sales guidance of 8% to 9%. But as I said at the Capital Markets Day and in all the quarters before, we are targeting at the upper end. Regarding the trade and operations net cash flow outlook of between 2.3 and 2.8 billion euro, we are a little bit more cautious now and expect it closer towards the lower end of the range. This is due to higher than anticipated working capital situation alongside higher capital expenditures. Before we soon start the Q&A session, let me say the following. As outlined at our Capital Markets Day, we have a well-defined strategy. With that, we are focused on growth and higher sustainable margins. Temporary market fluctuations will not affect our future growth plan. And with that, I would like to hand it back to Ursula to open our Q&A session.

Thank you, Christian and Michael. And I already see some questions lined up from the audience. But before we start explaining the rules, this Q&A will be recorded and the replay will be made available today. If you want to ask a question, please press star 1 on your telephone keypad. If you want to cancel your question, you can dial star 2. If you need operator assistance, press star 0. and limit yourself to two to three questions. Now, let us take the first question, which comes from from UBS.

Good morning, and thank you for taking my questions. from UBS. First question, I just wanted to ask about the new orders that you're taking for 2025. Could you tell us a bit about the pricing dynamics you've seen in North America and Europe, and then, Given the strong margin performance here today, and I appreciate your comments on Q3 being peak margins, I was wondering what you're currently thinking or seeing that may be holding you back from raising that FY24 guidance. Is there anything that we should be mindful of for Q4? Thank you.

Okay. Should I start, Ursula, with the first one?

The pricing one, yep.

yeah thank you uh thanks jamal so uh of course we are monitoring uh the gross margins of vehicles thoroughly in all our brands personally it's the first figure i look at when uh looking at the closing not only of the quarters but also of the months and uh I must say that we see continued solid levels of pricing, both in North America and in Europe, even though, as always, when the market moves downwards, you see some, let's call it bad examples of poor discipline from competition. We stay determined that we are not... going to move into any sort of price war. And on the other hand, if you need to do something, then it's on supplying more content, like service content, into the deal to make sure that we remain fully competitive. And I think this is a good heritage of the Scania school, where we always stayed determined to keep up pricing and not playing with that. in order to gain volumes. And I think that has been thoroughly implemented by all the brands in the Trayton group. And I see no difference in that in this quarter. I hand over to Michael for the question on the guidance for 2020 for Q4.

Yeah, thank you. Thank you very much, Hamal, for your question. And well, let me maybe fly in, and you were into this, I think, also with your question. that we have to take into account that the Q3 margin was really boosted by international. I mean, we had the, let's call it the hiccup here in Q2, and now we saw the catch-up effect faster than anticipated, but also was one part, as we said, why we published the ad hoc release. And this is why I mentioned during the presentation that that was really a peak margin. And let me put this a little bit into context one more time. As you heard before, we are slightly, because we have a better, clearer picture now at the end of the year, we slightly, in a way, improve our outlook, or we narrow it down for Europe and for North America. But this doesn't take away that we see that these markets remain challenging, especially in North America when we look at Class 8. And when we look at Europe, then, As we are saying since quite some time, particularly the German market is difficult. And coming from the markets here, translating that into the brands and the performances of the brands, then let me also reiterate when we look especially at MAN with the exposure in Europe and especially in Germany, that we mentioned we don't see that the margin from the first half could be sustained in the second half as we see the situation right now. I mean, we told you this already in Q2 and mentioned that the capital market state that we will see a drop in the margin of MAN in the second half of this year. We said we likely will see MAN in the, let's call it, ballpark of last year's figure. So as we potentially even see it now, We cannot outrule that we see the margin at MAN falling maybe even slightly below the 2023 margin. I'm saying slightly below. So there was a question before in the calls, will we see full year margin of 5% or something? No. Clearly, clear answer no. It will be in the ballpark of last year one more time, maybe slightly below. And then coming to international, Yes, for more time, international showed this margin because the catch-up race was much faster, which clearly also indicates that we will not see and we don't expect at all a similar margin in Q4 as in Q3. To give you maybe a little bit of a guidance, when you look at the nine-month figure for international, we believe that this is probably also a good indication for the full year may be a slight uptake. So more in that range. And then last but not least, and then I stop, but also as I mentioned during the presentation, we are ramping up trade and financial services quite successfully. But the ramp up comes along with higher funding and ramp up costs, which is also an explanation for our full year guidance. And if you take all of this into account, Then again, we stick to the 8 to 9%, aiming for the upper end. But it also, I think, gives you quite a good picture why we keep on aiming for the upper end, but not more than that.

Thank you, Michael. Thank you. Good. Let's take the next question from Hampus Engelau from Handelsbanken.

Thank you very much. Two questions for me. Maybe starting off on production rate, Christian, do you think, are you where you want to be in terms of run rate and adjustments for where you see demand in each of the markets and also by brand? Second question is from Scania. Would it be possible for you guys to maybe give us some more details on when you say positive price mix? Is it good pricing in Latin America? What's behind this mix? I'm curious given operating leverage. Thank you.

Okay. Christian.

Yeah, I guess you would say that, so I'm ready. Yeah, so it's, of course, a constant work to level production versus demand. or all the demand in the coming months. And right now, I'm as comfortable as I was in the capital markets day that we are on the right level. So if I take brand by brand, starting in North America, we are on the right level. We're geared to continue to grow, however carefully. So after this hiccup, we're determined that next year, again, we're going to take market shares. And we're geared for that in our planning. In Europe, Scania did decrease production rate, as we discussed at the CND, and we see order intake meeting that up neatly. So no reason right now to do any change there. MAN, where we have introduced short-term work in order to then handle the downturn and The cost situation right now is filling to that level. But as Michael was saying, of course, Germany remains a question marker. Let's see where that market really levels out, but right now comfortable. And then finally in Brazil, we're doing what we can to maximize our production rate. We're running close to Close to maximum in Scania. We have a little bit more space to grow in Volkswagen truck and bus, which we're not utilizing right now as the medium and light duty segments are not or have not been growing as fast. But I'm very much looking forward to the Fenerfair and see. That always comes with kind of delayed order intake, and then you get a very hefty effect during the expo. So that's something about production rates. And then you were into the Scania mix. And I'd point to two things. One, you mentioned excellent price-cost ratio in the Latin American production system with really good outcome, even if we, of course, always remain a bit worried about the currency. But really good outcome in Q3. And then we continue to grow the portion of super engines coming now very close to 60%, meaning there is even more to go. But customers continues to be really excited about the performance of this product, and they are prepared to continue to pay the premium all over the world. So as important in the European production system as in the Brazilian production system. On top of that, we are seeing really good interest for our V8, which is something we have not talked about previously, but we see that in the product mix we're selling more and more V8s, which is also typical for when the market is slowing down a bit. Then you see special applications and really demanding customers are the ones who continue to buy, and they are typically in the Scania customer base. And that's why you typically see less of a downturn in Scania order intake than you see with competitors. So with the mix, you get an additional bonus, so to say, in Scania. So this, I would say, are the main things in the mix effect. Hope that answers your question. Absolutely. Thank you.

Thank you. Then the next question comes from Daniel Acosta from Goldman Sachs.

Morning. Thank you. I just have one question. It is more regarding sort of how you think about capital allocation and especially cash to shareholders going forward. As you mentioned, you're doing the investments in China on CapEx. You also have a slide talking about sort of wanting to reduce net debt this year. Does that change how you think about sort of like cash to shareholders this year versus how you thought about last year and previously? Thank you.

But Angela, maybe I can start. Actually, I don't see that there is any change here compared to what we have communicated actually in the past. You know, in general, I mean, our aim is to reduce our net debt level. That's clear when we talk about the dividend. um let me reiterate also what i said at the capital markets day um we have a dividend payout strategy of 30 to 40 percent um and we are quite clear that the the top aim for us is to be reliable partner of course we take into account that we want to do the investments that we want to reduce our net debt level. And this is when you look at how we decided for this year regarding the dividend that, of course, on purpose, we chose a payout ratio at the lower end of the range with 31%. Nevertheless, as I said before, being a reliable partner and sticking to the policy we have in place to find a payout between the 30 and 40%. So, as we mentioned, we have a clear growth strategy. We presented it at our capital markets day. So, we want to increase the net profit, and by doing this, we also see that we increase the return for shareholders, even if we stick to a constant payout ratio. So, no changes here regarding capital allocation.

Thank you. Next question from from Citi.

Thank you. Hi, Christian, Michael. So first on international, on the margin side, Michael, you answered my question there backwards in the fourth quarter to perhaps around 6% to 7%, the nine-month level. But just on unit sales, I think last call you said that volumes should bounce back. from the supply ratio around 8,000, and just confirm if that was the level. And now into the fourth quarter, what kind of quarter-on-quarter development, given the current order book, should we look at? I mean, I could try and back-calculate that to get to 6,000 margin, but any help there would be much appreciated. Thank you.

Yeah, let me say the 8,000 figure that we mentioned there during the capital markets day, there was, let's say, the open spot where we see that we're able to fill them. When we look at our backlog and our order books overall, then they lead now into the first half, into the first quarter, sorry, into the first quarter of next year. So that's the situation at international, a little bit forward-looking. What we see when we look at the order intake, maybe to give you a little bit better feeling, is that we see actually quite good order intake when it comes to two segments, to the severe segment, occasional segment, and the medium duty segment. We see that the Class VIII segment was quite weak and remains at this point at a weak level. So nothing has changed here, which is correlated, of course, to the difficult freight situation in the United States. So, also as indicated, let's see what happens potentially after the U.S. election. Again, what we heard and what we hear out of the market, which is not an official evaluation, but it seems like customers are a little bit hesitant right now and wait for the outcome of the election. Yeah, I could maybe complete the picture to give you a little bit better feeling, even more to the question also is how is the situation regarding cancellations? And here I can maybe give you a little bit better feeling and say that also here when we look at the class six to eight truck and bus market, that's quite normal levels. So, I hope that gives you at least some feeling.

Yeah. No, thank you. Now, I was after maybe an indication on the fourth quarter unit sales there after this bounce back, but maybe that's a bit too much detail to give.

I don't know. You are right. That's a little bit too much. All right. Thank you for answering that question. But, I mean, I can say that we saw really the catch-up effect in Q3, which was stronger than expected, especially the unfinished goods. They came down completely to a normal level. So, we have, let's say, a little bit more inventories here at International. And, of course, the clear aim is to deliver them to customers. And this is why I indicated that when you look at the full year margin of international, then you should look around in the range of the nine-month figure with potential slight uptake. So, I think this gives you also an indication regarding our unit sales that we expect.

Yeah, all right. My second one is on the ASPs. Tiscania ASP is obviously impacted by geographical mix with Brazil doing much better than Europe. And I guess in MAN, you saw this big shift towards higher price trucks relative to buses with bus deliveries. They're being very weak in the quarter because of the earlier software implication. But what was pure pricing in MAN in the P&L in the quarter? I mean, still positive, I assume, but by how much? I'm just curious to what extent Your pricing in MEN is turning lower relative to Scania here, given the tough trading backdrop there in Germany. Thank you.

I don't know, Kirsten, if you want to chip in, Klaus, but maybe from my side, what we typically said in the previous quarters is still the case now that overall we see pricing on a stable level, so with only minor concessions. As I said, I believe in a call before, we potentially look at some service offers also to give you a little bit more details here. And also, as I mentioned during the presentation, we see to some extent that price carryover is starting to taper off. But as Christian also was into when he talked about prices before, we aim overall to have stable selling prices. So I think this is what we can say here.

Thank you. Maybe I'll just say that I think the MIM team has been really disciplined here keeping up pricing, and you can see that that has to some extent costed them market shares in Europe, or you can see that they have slightly lost or level out on a level which is a bit on the low side. I think that demonstrates that they stick here to the group philosophy to work with other means than pricing in order to win contracts. But of course, the situation is challenging for their core market. Thank you, Christian. Thanks, Klaus.

Okay, then let's turn to Nikolai Kemp from Deutsche Bank.

Yeah, thank you. Good morning. Nikolai Kemp here from Deutsche Bank. Let me start by saying congrats to a strong quarter. Also two questions from my side. First, it's the supply chain, which hit Navistar quite strong international in H1, but he managed that very well in Q3. Are there anything that we should keep in mind for Q4? Because, you know, maybe the hurricane in the U.S. had some impact there. And on my second question, yes, you mentioned MN. One of your peers in Germany actually stated that they would stop short-time work measures from November onwards. Are there any signs you see Germany improving, or still just remains very soft?

Okay. Okay. But Nicolai, Christian, I can take that. So on the supply side, we have seen a really good and stable situation in Europe and in Latin America, despite also here having some both natural disasters and impact by the war. But there it seems that we have found the right level of stability, partly helped by the markets leveling out on a lower level. In the U.S., it's still a little bit shaky, not saying that we expect anything particular to happen, and we will counteract that when we work with our procurement and our introduction. It's really, really hard to create more resilience. But it is a tricky situation when volumes are shifting quickly away from Class 8 and then shift over to the vocational segment and also medium-duty trucks because, of course, completely for the supplier change their mix and they have to adapt. So there we shouldn't be too cocky saying that we have completely sold this. I think we will see disturbances not just in Q4 but for a couple of quarters until the situation is stabilized and until we as an organization have improved in handling these situations. But right now there's nothing on the radar. So fingers crossed that we can continue the home stretch here in the same good way as in the U.S. So that's that. And remind me, what was your second question?

On Germany and MN, because one of your peers sees maybe some signs of improvement. Would you share that?

Yeah, I did not see that, but that's interesting information. We do see a somewhat, I mean, what, Situation has been old I must say we have had very high interest so the level of I mean typically you can follow your purchase funnel and see that that you have a certain ratio of you know in fact that the funding to offers and offers that are turned into what offers and then they turned into into closures and this but we have just Continued to have very very high level of interest, but but no transformation into offers or on the low level But that has actually started to change. We have seen a little bit of an improvement in September, and that continues in October. But still not enough for us to change our setup with short-term work, so we stick to that. And then, of course, we evaluate every month, as we do in all our brands, the situation, and can quickly adapt if needed. Looking Tuscany order intake figures here in October, I would also say that it's not as bad as it might seem in Germany. And the replacement need is, of course, what is pushing sales back. So I think lower interest rates, when that will gradually materialize, the replacement need and, of course, the overall sentiment in Europe will be the key drivers for the markets to increase again. Got it. Thank you.

Thank you. Then the next question comes from Eric . Yes, thank you.

Eric? Yeah, can you hear me? Yes. I think I have two questions that haven't been asked. First one, something about the service business in the presentation, but any more color you can give there on Europe, North America? mileage, truck utilization, if you're sending specific regions where you're seeing something against the general trend would be much appreciated. And then secondly, on cash flow, lower end of the guidance for the full year, you talked about working capital and CapEx. What is it on the investment side that you have added to the pipeline recently? Thank you.

Okay. I guess I'll take the first one. Yeah. Good, Eric, for asking about the so important services business. So we continue to grow the service business overall, albeit not as fast as we did last year. We see one very positive thing, and that is that the bus sales are growing consistently. You see that in Scania MAN, you see stable but high level in international, and you see it growing also in Volkswagen truck and bus. This is very good base for services business as we have traditionally more sales of parts per product, but also more hours in the brands having their workshops. We have, of course, not been able to grow the vehicle park as quickly as we had anticipated. We've had the supply chain problems in We talked a lot about that, but we also have had that in Scania and Myanmar with the war in Ukraine, cable harness in Scania's bottleneck with resulting in low deliveries of vehicles a year and a half, two years ago. And of course, that is putting a little bit of a break on the services growth. But overall, we expect to see in local currency 3-4% growth this year. which is, of course, great, and we're planning for similar growth in the years ahead. A big part of that will be what I touched. It will be more modularized and proactive services, so helping the customers to have more uptime, being more on the roads and less in the workshop, and secondly, being more loyal to us, i.e. doing less work in their many times old and less efficient workshops and more of their work in our premises. So, and then the big services lever is, of course, international. So as we start to build the park of vehicles with the super driveline, the S13 driveline, as it's called in international, there is a really good chance to substantially increase. As you know, we do not have any own workshops in US and Canada, but we have a loyal network, and with these components, which are built only in-house, we will also be able to substantially increase both volume and especially margins of these important engine parts. We have the same strategy then moving on into battery electric vehicles in the future. So a big part of our drive lines, of our control systems, of our gear sets, our axles will be made in-house in order to protect the so important parts business. So I don't feel the least bit worried about the service business actually. I think we are going to continue to see this as a stabilization of the business and an area where there is much more business potential than what we have been able to realize so far.

Okay. Super, Erik. Then I'm happy to take the second question. Thanks for that regarding the cash flow. And maybe let me first of all start and say, Of course, we stick to our guidance, the 2.3 to 2.8. As I was into during the presentation, we're, let's say, a little bit more cautious, and this is why we indicated that we might end up closer towards the lower end of the range. And let me, first of all, start with when we looked at the guidance, what did we expect? Well, we did expect expenditures for future investments, and this is also let's say on the positive side. So we invest in our future. This includes the China production plan. This also includes the cabin development for our international heavy duty truck. And this also includes the ramp up of our capital, the trade and financial services business. So here we see slightly higher capital expenditures because you can say, Maybe we're even on a little faster path to invest here. What has changed a little bit compared to when we issued the guidance are some challenges, as we mentioned, regarding the software based on EU regulation. And this leads, as we see it right now, to a little bit higher than anticipated working capital. And if we take this all into account, again, to be a little bit more cautious on our net cash flow guidance, this brought us to the conclusion that we indicate that we might end up closer to the lower end of the range we are still sticking to.

Thank you. I hope that answered your question. We have three questions still lined up. Next one would be from Miguel Bojega from P&P Paribas. Miguel.

Hi. Good morning, everyone. Thanks for taking my questions. I've got two on international and one on MIN. So just in terms of production rates, you've already announced a 10% cut at Scania and also at MIN. I was wondering what you think about international and North America. because of what we are seeing in terms of significant levels. So wondering if that concerns you, and how are you thinking about production from Q4 onwards?

I'll start there. Thanks, Miguel. Right now, we don't see any reason to rebalance our production rates, or rather We do rebalance between class 8 and severe and class 6 and 7. But if you look at the total output, we do not see any need to adjust right now. Okay, thank you. Yeah.

Yes. And then just to understand the Q3 margin a little bit better, can you kind of break down ballpark the impact from the volume catch-up on the margin and what you think was the natural development of the operations. In other words, assuming volumes were stable, as you're kind of saying into Q4, what do you think the margin would have been? Do you think Q4 is the new normal?

Let me maybe start you, Miguel, first. I mean, you remember Q2 was 2.7. Q3 is 10.7. If you build the average, it's 6.7. When you look at the nine-month figures, it's also in this ballpark. And you also recall that we said, I would say during the entire year, that we are aiming for international to see a full year margin that is above the margin that we have seen last year, and last year was 6.6%. So, this is, first of all, what we are aiming for this year. For the next year, let's see, I would say a little bit too soon to tell. During the capital markets day, we intensively discussed the new target, and we heard from many of you saying we would like to see, the achievement of the 9% of international first. I mean, now you've seen in the Q3, which you can take as a normal quarter, clearly more than the 9%. Of course, it's a little bit based on the market situation next year. And we come back, as we also said, during the capital market stay then with a guidance for the North American market in particular for next year. And then let's see how the margin development should look like. But, I mean, indication is clear, taking into account the new targets that we have laid out that, of course, the goal is to increase the margin at international over time. And coming back to our product offering and introducing the S13, Christian talked about the percentage, the share of the Scania Super at Scania. which obviously, as we say, has positive impact on the margin. So, you can expect a similar development the further we roll out the S13 at international, where we said right from the start that this is not a game changer. This would have been exaggerated, but it will play a significant role for increasing the margin at international over time. what's about to come then in the next year.

Thank you. And then just one last one on MIN. I think you mentioned already you were cutting production and reduced temporary headcount and maybe even expand beyond that. Can you give us a flavor on what kind of potential savings on what you're working on apart from all the realignment measures? So everything related to a slower market environment, what are you kind of working on and when would we expect to see those measures visible on the P&L? Thank you very much.

I mean, maybe I can at least start and say clearly the aim of the team there at MAN and let me really say that they are doing a fantastic job. They are working on continuous improvements. So, of course, cost optimization is one of the fields where they look at practically all the costs, material costs, factory costs, warranty costs. So, this is one aspect. Another aspect, of course, as we say also for quite some time, we are growing even closer together as a group. And I would say it comes without saying that we can constantly and we will optimize synergies within our group. And, you know, we talked a lot about the trade modular system at the Capital Markets Day as one of the big levers, but also going into more integrated functions, as we say, for quite some time where we took a major decision bringing or establishing a group R&D function. This is also part of, of course, improving situation constantly and then we are looking for of course a healthy volume and price level so those are a couple of things short term man also looked at the parcel hiring freeze so where it's necessary of course they will continue on hiring but they have taken the necessary measures and Let me just, as a final comment, put this into context. I would say it's quite clear we said last year quite frequently we will see the full effects of the realignment program for the first time completely this year. And we completely stick to this because if we had seen the same volume at MAN as last year, I would say it's quite obvious we would have seen a significantly better margin. Now, we see a margin pretty much likely as we indicated in the ballpark of last year, but with a significantly lower volume, which I believe shows really what a fantastic job the team at MAN has done and is doing on a constant basis. So, to further improve, and we are on this journey.

Thank you, Michael. Then let's turn to from Morgan Stanley.

Good morning, Shaquille, from Morgan Stanley. Thanks for taking my question. Just to follow up on that, so, you know, given we now have the full impact of the realignment, how should we think about MAN's trough margin in weaker European demand environments like we have now? And also, how much of the weaker margin was driven by the bus production delays, and when should that catch up?

I'm sorry if I have to disappoint you a little bit, but as you know, we don't break this down into trucks, buses, and into vans and so on. What we see at MAN as the full liner. So, it was some impact. That's quite clear. And this is why the team is working there, of course, in improving the situation. I cannot give you an exact date once we are over, completely over the mountain here to say so. But once this is completely solved, we will see a more positive effect. And then when we talk about next year, as we already indicated with the markets, we will come back to this at our annual press conference when we have a clearer picture.

Okay, thank you. And then some of your peers have come out with market outlooks for 2025, which embed a pre-buy in the second half, which is obviously expected to continue in 2026. Are you having extra discussions with your suppliers to make sure that you don't end up at the back of the queue and can take full advantage of the upcoming market environment?

I can confirm that from my end. Christian. So, of course, we are planning for also a scenario where the pre-buy, and you think of the U.S. now, would be starting already at the second half or probably fourth quarter of next year. So we're not going to be caught again. Let's put it like that. Fantastic. Thank you.

Okay. Then we have one last question from the media. For that, I'll hand over to Camilla.

Thank you so much. We appreciate also the questions from media. So, by that, Wilfried from Bloomberg News. Go ahead, please. No? We don't have any Wilfried here? Yeah. Seems like we might have lost Wilfried.

I think so too. We have one question now from Thomson Reuters, which I also see. Is there still anyone in the line?

Yes, hello. Here's Alexander Hüttner from Thomson Reuters. Can you hear me?

Yes, absolutely. Please go ahead. Okay.

Okay. I've just got one more exotic question. Electric vehicles weren't mentioned much in this call up to now. I just wonder whether this decline in battery electric vehicles has something to do with the situation at Northvolt. Can you please elaborate a bit on how you see the situation at Northvolt? evolving as a kind of shareholder as well. Thank you.

Absolutely. We hand over that to Christian.

Thank you. If I start with the general question on battery electric vehicles, and we had a few figures here showing you the deliveries in the first nine months, which are picking up, but of course it's very low level compared to where we would like to be, and you also see order intake. Partly this is related to challenges in general on the supply chain side, and I would not point only in the direction of Norfolk, but predominantly it is a question of creating a market that is not yet where it should be. So we are in deep discussions with lots of customers. They hesitate, and they hesitate because of the cost parity question. flexibility question, charging infrastructure question, to some extent green energy availability and grid where they operate. So this is an ecosystem turnover. It's not just us manufacturers that can change this ourselves, even if we have good products and even if we manage to make them available. And I think this is very important. also that we cover this in media, that this needs to be done together. So anything from policymakers to energy producers, energy suppliers, vehicle manufacturers, customers, and customers, you know, customer, the ones who actually order the transport, we need to see more companies coming through and saying, we would like this transport to be done in a CO2 neutral way. And that is not happening at the speed we would like to see. You asked also specifically on Northvolt. I would just say that we work very close to them, as we do with all suppliers who are in distress. Right now, we actually get battery cells according to the latest agreement that we cut with them in the early part of this year, which is good. Of course, as everyone is reading the newspapers, you see that they are in also liquidity squeeze or financial difficulties. And that I will not comment upon, but that you have to talk directly to NUATVOLT about. But right now we get cells and that is of course super important to us. And we do support them also in their industrialization and ramp up process with our best engineers that are onsite in Skellefteå. I stopped there. I hope that answered your questions. Thank you.

Thank you so much, Kristina. And now we have Bloomberg news back on track, I think so. Yes. Go ahead.

I hope you can hear me well. Sorry about that earlier. Mr. Labene, I have a couple of questions related to Northworld as well, as we were talking about this, or Alex Hübner actually asked a couple of questions. Actually, Scania said in its interim report, if you look at that, that you bought smaller volumes of Northworld battery this year. Can you be a bit more specific for how many of Scania's electric trucks actually run on Northvolt batteries. If you look at the numbers, I think Scania delivered 189 electric vehicles in the first nine months. Is Northvolt responsible for all of those batteries used in there? Also, second question, Scania said that the IAEA show that Northvolt is now delivering batteries in line with the plan. Can you indicate right now that you get deliveries can you elaborate a bit what that plan actually entails and how this is going forward? And I have another question, one more, on what kind of role does Northvolt actually play as a battery supplier for Scania's EVs right now? Is Northvolt the only supplier, or have you already diversified sourcing for the truck batteries? And sorry, once again, on Northvolt as well, on... as North World is right now discussing a rescue package including depth and equity that is set to amount to 300 billion. As an investor, how to what extent is actually Scania going to be part of that rescue package and what amount and what form of financial contribution is actually Scania willing to provide to North World at the moment? And then one more question not related to North World. like to hear a bit more about your alpha filtration on the truck market in 2025. I've been missing that so far in the statements, so that's about it from my side. Thanks.

Thank you so much. If we'd hand over to Christian to elaborate on Norfolk.

Yeah. I'll do my very best, and I can already now say I will not be able to answer all your questions. To your first one, no, not all Scania trucks delivered this year are coming with Northvolt batteries. We are in a changeover process from what we call the BEV 1.0 to the BEV 3.0. And the BEV 1.0, which is predominantly in that inner city short distance, came with batteries from another Asian supplier. But we are now shifting over, so for the future, all of our currently sold battery electric vehicles are of the Super Bowl III version, which are coming with Northvolt cells. Yes, they are delivering according to plan. I will not share that plan with you, but that is a plan that is satisfactory to us, given the total market right now. When it comes to the rescue package, I think it would be wrong of me to talk about that right now. It's, of course, a very critical point in time for the company, and questions related to their liquidity, you have to direct to them. I stop there with no effort and continue and thank you for the question on 2025. So the way we do it in Trayton is that we are sharing our total market outlooks when we meet in the beginning of the year, when we also have the full year figures. So for precise indications where we believe the total markets are going to go, we will come back. But I can say that we, of course, look forward to 2025 a lot. We're going to continue to roll out our super or driveline or the or I should say the common base engine and the combined gearbox and rear axle, which will then find its way also into MAN and further grow volumes and scale effects for both Scania International and MAN. We hopefully see a year where Europe is coming back thanks to decreased interest rates and replacement needs. And we already mentioned for North America, there's some important pre-buy ahead of the 2827 that we expect to come into the market and could give a bit of a boost. Brazil, as always, is difficult to predict, and we're going to come back because it swings up and down. But right now, it's, of course, very positive to see Latin America. Big question mark, I guess, will remain around China. And Asia, and China has big impact on the great Asia. And right now, it's rather depressed. But as we are investing into our new factory in China, which will be operational at the end of next year, we think the timing could be rather positive there as we start to ramp up really big volumes in 2026, when hopefully then the Chinese and the Asian market, which is targeted for this investment, should be able to point in a more positive direction. So a bit of a flavor, but we see positive on the upcoming years in general for the Tretton Group and its brands. Also a bit of a flavor to 2025.

Okay. And once again, getting back to Northwell, we can't comment on anything, what kind of contributions Scania will actually make. make to Northwood's, you know, going forward liquidity crisis rescue plan.

Let me just say that it definitely lies in our interest to make sure they can continue to deliver sales to us so that we can continue to deliver vehicles to our customers where we have a customer contract and a promise which is related to our brand. But I will not give you any details. Okay, thank you.

Thank you so much, Wilfried. And by that, there are no more questions, so I hand over to Ursula to conclude our call.

Yes, thank you, Camilla. With this, we are concluding our event. Thank you, Christian and Michael, for explaining and discussing the strategy, recent operations and results. Thank you, everyone, for joining us today. As we near the end of the year, we still have some conferences and roadshow activities planned. Looking forward to meeting some of you during these events, which are summarized on the last slide of our presentation. And please, as always, reach out to me or Camilla or our respective teams if you have further questions. With that, we wish you all a nice remaining day. Goodbye.