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.