Traton SE

Good morning, everyone, and welcome to Trayton's Annual Results Conference 2025. My name is Ursula Caret, and I am Head of Investor Relations at Trayton. I am joined here today by CEO Christian Levine and Dr. Michael Jagstein, our CHRO. The film you've just seen provided various examples of how our brands contributed to the group's success throughout the year 2024. In today's presentation, we will focus a bit more on what drove our performance in the fourth quarter and how we are looking into 2025. Christian will start with the Q4 highlights and our view on the current demand situation. Michael will then guide you through the financials in more detail, and both will conclude the presentation with our outlook for 2025. As always, the presentation will be followed by a Q&A session where we welcome questions from financial analysts, investors, and media representatives. To handle potential media questions... During the Q&A session, Camilla Devon, our head of corporate relations, is also present. A recorded version of the webcast will be made available on our Investor Relations website as soon as possible after the event. You can also find our 2024 annual report, which we published this morning, and the slides to the event on our IR 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. Over to you.

Great. Thank you, Ursula, also from my side. Good morning. Yes, I am extremely proud of what we managed to achieve in 2024. Despite declines in both of our key markets, Europe and North America, we delivered an increase in revenues and more importantly, most importantly, an adjusted return on sale exceeding our target of 9%, to be exact, 9.2%. This was also the figure that you can see for our quarter four. Result here on the slide. Looking again to the full year, you can see that we... Did 334,000 vehicle delivery. Again, in a declining market, you can draw the conclusion that we did gain market share in most of our region with most of our brands based on that good result. And you can see an increase in a record again on total turnover of 47.5 billion. A bit lower in Q4, explained by Mix. And Michael, you will come back more later. to the details on that. More positive though, cash flow, where you can see in Q4, we did a fantastic job using all the instruments we have in the toolbox to bring up the full year to a 2.8 and a bit more billion of euros. So more than half of that actually achieved in the fourth quarter. So great achievement by the team. And to looking then to what is perhaps most important to you listening in today, our earnings per share. They did grow significantly, 47 cents up to 1.49 in Q4, given a full year EPS of 5.61 euros. And consequently, we are planning for an increased dividend payout for the year 2024. And again, Michael, you will come back more on that in a moment. What I will do now, I will give you a few examples of how our different brands are fundamentally driving the trade to shareholder value, which also leads to the possibility to pay increased dividends. So in the film, we highlighted lots of great activities which influenced our performance in Q4. I would like to highlight specifically for Scania and starting there, We achieved record high sales and earnings and for the first time ever exceeded 100,000 vehicles in deliveries, despite macroeconomic and geopolitical challenges. How was that possible, you could ask? Well, we resolved many of the supply chain issues that have been haunting us throughout the last years, leading to our most stable production flow since actually before the pandemic. We also captured market shares, both in Europe and in Latin America, which do reflect the superior quality of the Scania Super driveline. Speaking of which, in Q4, the share of our super sales in relation to total 13-litre truck sales was now up to almost 70%. That's good, but it also shows that there is more potential as we are aiming for 100%. MAN, as seen in the film, delivered its first full electric heavy duty truck in Q4 while preparing for series production, which will already start in the first half of this year. At the same time, MAN continued working hard on cost efficiency to cope with the weaker customer demand and pricing pressure they get in Europe and particularly in Germany. That is so important to MAN. Besides various general and administrative cost measures, the German plants of MAN continues to use short-term work to lower labor costs. At its Krakow plant, MAN also reduced production capacity. With that, and as a result, year over year, I managed to keep up the good adjusted return on sales, almost at par with the 7.2% return on sales. This focus on cost discipline and margin resilience will continue to be crucial as we progress throughout 2025. In North America, where truck demand also remained weaker, International put special focus on sales of the F-13 integrated powertrain. In Q4, and as part of a targeted marketing initiative, International highlighted the fuel economy advantages to convince more customers of the benefits of the new engine and driveline generation. The share of on-highway tractors delivered with our proprietary S13 powertrain increased and went up to 35% in 2024. Previously, the average mix of 13-liter versus 15-liter engines was about 25% over the past five years average. On the back of volume growth, we aim to reach at least the industry average of 50-50 with international in the upcoming years. Volkswagen Truck & Bus was, as always, very actively engaged in marketing activities, also in Q4, at Fenatran in Sao Paulo. One of the world's most significant transport trade shows, Volkswagen Truck & Bus team presented its comprehensive range of product. Focus was on sustainability-oriented offerings, such as the biomethan-powered Constellation truck and the hybrid Meteor concept truck. Last, but certainly not least, Trayton Financial Services made enormous progress in ramping up especially the MAN Financial Services offering. In Q4, there we implemented MAN Financial Services businesses in the UK and Ireland and completed the big rollout in Germany. With that, Trayton Financial Services delivered according to the planned geographic expansion for calendar year 24, with nine out of 14 countries, as we promised back at the CMD in Munich in October. The plan going forward for 2025 is to complete the rollout in all the remaining countries and continue geographic expansion. This will enable us to grow our financial services portfolio and provide integrated captive financing to customers across all of our brands and most of our markets. A great example of the value of having captive financing and rapid market scaling is Poland. MIM started to offer financial services under the Triton Financial Services umbrella in Poland mid of last year. By the end of the year, they had already achieved a record penetration rate north of 40%. This success demonstrates how financial services drive brand success, but also ease customer investments. Okay, let's have a look at the BEVs. We also made significant progress in our offering in line with our trade and purpose, transforming transportation together for a sustainable world. MIN is preparing as a self-series production of its heavy-duty truck, and Scania is broadening its electric truck offering further. Now expanding our range while also including more electric machines and axle configurations, but also cab alternatives. Our customers appreciate our offerings as seen by a very promising order intake trend. In Q4 alone, we received orders for roughly 1,500 electric vehicles. The decrease in deliveries is partly due to supply chain issues, but also the phase out of the MAN EVAN and temporarily reduced e-bus deliveries caused by challenges in the cybersecurity software introduction at MAN. Although we recognize that current BEV figures for us and by the way generally in the entire market are still too low we firmly believe in an electric future. To get there we clearly need enhanced charging infrastructure in the form of more charging points and more charging power but of course also green electricity. We are actively working to influence the entire commercial vehicle ecosystem and appreciate a lot participating in Commission President Ursula von der Leyen's EU Automotive Strategic Dialogue. The action plan to strengthen competitiveness while supporting the transition was presented last week. Good to see more concrete actions, though they focus far more on light-duty vehicles than on heavy-duty vehicles. As the current chair of the ASEA Commercial Vehicle Board, I will continue to advocate for heavy-duty vehicles in these dialogues, including pushing for an earlier review of CO2 enabling conditions. While advocating for governmental support, we also invest ourselves in the enabling infrastructure. Examples include our newly established Irenion depot charging entity, our trait on charging solutions and the ongoing development of the mileage joint venture. We also explore creative interim solutions until we get to a fully electrified world. Under the motto, perfect must not be the enemy of the good, Scania recently announced in collaboration with DHL the testing of an electric pilot truck equipped with a fuel-powered range extender. To sum it up, we do everything we can to stimulate the demand for electric, for low and for zero emission commercial vehicles, ultimately translating into growing sales and into growing order volumes. Talking about sales and order volumes, let's have a look at what our brands have achieved over the last years and quarters. Despite challenging markets, we have seen stable unit sales year on year. So on this graph, here comes a lot of data. Let's start up with Europe and with the European deliveries. And here we look at the dark blue line. In Europe, where customer remained hesitant, we delivered fewer trucks and buses in Q4-24. than in 23. However, with 37,000 vehicles sold this period, achieved the highest quarterly sales in the year. In the US, Q4 deliveries were also down year on year in a declining market. But International performed well in the vocational truck segment and returned to a healthy level in buses. In Mexico, Scania, Volkswagen Truck & Bus and International, all three benefited from a pre-buy effect due to the introduction 1st of January of Euro 6. In South America, Scania and Volkswagen truck and bus both showed a very strong performance in the fourth quarter, with a 30% increase in vehicle deliveries over the previous year. And our growth in Brazil alone reached 25%, outgrowing the total market. Incoming orders. Now, you need to look at the light blue line in the graph. It appears, as you can see, promising. In Europe, Q4 truck orders were up more than 40%, reaching over 25,000 vehicles, the highest since Q1 23. Around 60% of this growth was actually driven by Germany, by France and by Poland, hence the big markets in Europe. This positive development also continues throughout January and February this year. While this development is encouraging, we believe it's too early to declare a trend or a turnaround in Europe at this point in time. Looking then to North America, although the summer numbers from the ACT Research Institute suggested an increasing trend for Class 8 in the US, Internationals figure did not come up to expectations. In addition to customer hesitation, arising from reduced transportation activities and uncertainties about EPA 27, our EU sales team face challenges due to our customer structure dominated by the bigger fleets. So Q4 order intake in North America was down by more than 40% year over year. However, this needs to be measured against, and I think you remember, a very strong Q4 23 which was positively influenced by an unusually late order book opening. In contrast then to Europe and the US the Q4 truck order intake development in South America was very strong with an increase by almost 20% year over year. Nevertheless we should mention slowing market dynamics in Brazil that really start to become apparent. The total trade on bus order intake remained low in Q4 last year. In Europe, our bus demand is still impacted by the cybersecurity software updates, but we expect a gradual improvement in the next months and a complete normalization throughout the second half of 2025. Overall, the book-to-bill ratio stopped at 0.83, which is eight basis points above Q2 and Q3 and one basis point above Q1. And lead times? For trucks now remain in Europe between two and four months and in the US with international at three to six months. So we believe that to declare a general market turnaround we need to see a book-to-bill ratio by one and we need to see it not for one but for two and perhaps even three consecutive quarters. On that journey, it is crucial that the right political actions are taken, I'd say on both sides of the Atlantic. Geopolitical easing would clearly improve the macroeconomic sentiment. Also, further interest rate cuts could and would stimulate investment appetite among our customers. It cannot be ruled out that longer-term US import tariffs may impact the truck markets, especially in North America. And Michael, you will come back and elaborate a little bit more on that later on. While these external factors are, of course, beyond our control, internally we do what we can to streamline our organization and mitigate risks to achieve sustainable growth and, as a result, profitability. Let me sum it up with the next slide. Growing our business goes hand in hand with an efficient internal organization. Our 2024 annual report just published this morning, great reading, features the motto together. It highlights the benefits of increased collaboration in the back end between and among our brands, ensuring that we provide our customers in the different brands with the best products and services. And to facilitate collaboration in Trayton, we are establishing new group industrial functions, forming strategic partnerships and driving cross-brand services. The foremost example of such a new group function is the Trayton R&D. The main objective for them is to enhance product development efficiency and create more customer value by leveraging the diverse skills, of the highly talented developers from all our brands from Scania, MAN International and Volkswagen Truck & Bus. It is both logical and beneficial for these teams to collaborate, join forces and truly work as one team. And this concept of the One R&D organization was born actually some years ago and I'm very pleased to announce that we finally made this baby walk. A common governance structure is now in place And during this year, around 9,000 of our colleagues in R&D will have transitioned into the new group function, which will be organized globally along R&D technology areas and technology domains. This increased collaboration will support the implementation of the Trayton modeler system, which will solve customer needs of different performance steps once and for all for several brands at a time. This will ultimately boost organizational efficiency and, in the end, profitability for the Trayton Group. And on this positive note, I would like to hand it over to you, Michael, to guide us through our Q4 and the full year. And you will also give an outlook of 2025.

Thank you very much, Christian. And, of course, a warm welcome from my side as well. Christian already mentioned the key factors behind the stable but robust unit sales development in Q4 year over year. A strong South American market, higher unit sales at international due to the pre-buy effect in Mexico, both of which offset lower unit sales due to the weak European market. On a full year basis, unit sales slightly decreased by 1% to 334,000 units. turning to sales revenue shown in the graph on the right. This reflects a less favorable market product and price mix towards the end of the year, resulting in a revenue decline by 4% in the fourth quarter. The slight 1% increase to 47.5 billion euros on a full year basis indicates more favorable conditions in the first month of the year due to the strong order book at the start of the year. Our vehicle services business remained strong in Q4 and throughout the year, positively contributing to our margin development, which I want to talk about on the next slide. As you can see, our adjusted return on sales came in at 9.2% on a Q4 and full year basis. With that, we slightly exceeded our guidance and achieved our strategic 9% target. Now, while we are proud of this achievement, we remain humble and want to manage expectations for 2025, given the current market situation. Our Q4 2024 margins were strong despite the market weakness in Europe because of the strong Brazilian business of Scania and Volkswagen Truck and Bus. In addition, international performed well due to positive volume effects, especially as sales of the new school bus have increased. MAN was suffering most from the weak demand in Europe and Germany, and as anticipated, they were not able to sustain their first half-year return on sales levels around 8% in the second half. But, as Christian mentioned at the beginning, The MAN team is working on cost discipline wherever they can, while short-time work was kept up in Q4. Let's take a closer look at each of our brands in more detail. As always on this slide, we demonstrate the benefits of having diversified brands, markets, products and services. In short, Benefits from working together, which is the motto of our 2024 annual report. Let's first look at the combined performance of our four brands, which is reflected in the segment trading operations. And allow me to pick the most important factors that led to the increase of trading operations Q4 adjusted return on sales to 10.1%, despite a 4% drop in sales revenue. Number one. Scania increased their adjusted return on sales despite stable revenue in Europe. The main reasons were Scania's strong heavy-duty truck business in Brazil and their pricing power resulting from the enhanced Scania Super offering. So, Scania ended 2024 with a Q4 margin of 13.4% and a full-year margin of 14.1%. Number two, MAN's successful realignment program and continuous cost optimization supported their margin on the downside. Also, the Q4 margin benefited from volume effects as MAN delivered the highest number of units in this quarter. MAN ended 2024 with a Q4 margin of 6.5% and a full year margin of 7.2%. Number three, International benefited from a pre-buy in Mexico and from demand for the new school bus ramping up. International's Q4 margin was at 7.9%. They achieved 7.1% on a full year basis. And number four, Volkswagen truck and bus excelled due to market tailwinds in Brazil and effective containment of variable costs. They achieved 12% adjusted return on sales for Q4 and the full year. Trayton Financial Services saw a 21% revenue increase in Q4 due to a larger portfolio volume. Also, the ramp-up of the MAN Financial Services Network comes with higher costs. Return on equity rose to 10.8%. Reason is that last year's figure was negatively affected by the sale of Scania Finance Russia. Christian already mentioned our dividend proposal and the underlying shareholder value creation. Central to this is the execution of our strategy and our equity story, which we outlined at our Capital Markets Day in October last year. The execution of our strategy resulted in the 2024 financial outcomes we have just reviewed, with one of the key indicators being the adjusted operating result. This slide shows the bridge from the 2024 adjusted operating result of 4.4 billion euros for the trading group to the earnings after tax. Deducting the adjustments brings us to the operating result of 4.2 billion euros, which was 12% higher than the year before. Please note, that our operating result does not account for the earnings of our equity investments, which amounted to 238 million euros in 2024. If you included these, the figure would be accordingly higher. Earnings before tax came in at 3.6 billion euros. After tax, we achieved a profit of 2.8 billion euros or 5.61 euros per share, reflecting a 14% increase from the previous year. Based on this, the Executive Board and the Supervisory Board of Trayton will propose a dividend payout of 1.70 euros per share to the annual general meeting in May. This corresponds to a payout ratio of 30%. Just like last year, we deliberately placed ourselves at the lower end of our intended payout ratio, as the reduction of net debt is a core financial priority for us. Still, with a 6.1% yield, we think that we offer a highly attractive dividend to investors. Another attractive investing argument for Trayton is our cash generation. The vast majority of the 2024 net cash flow of trade and operations of 2.8 billion euros was generated in the second half of the year. The first half was impacted by a volatile working capital development, mainly due to the mirror supply issue at international and EU safety related software issues at Scania and MAN. The 2024 cash flow development was also characterized by higher investment activity. This mainly relates to future investments discussed at our Capital Markets Day, including the ramp-up of our production facility in China. Compared to the previous year, if we adjust for one-time effects of 899 million euros, the net cash flow of trade and operations increased by 139 million euros. Please note, that the one-time effects resulted from the sale of Russia activities and from the changed ownership structure of our financial services business. In Q4 2024 specifically, the net cash flow came in stronger than expected. Besides the operating performance, this was due to substantial inventory reductions at our brands. Only MAN alone reduced the amount of its inventories by around 480 million euros. As a result, the net cash flow of trade and operations reached the upper end of our guidance range, which also had a positive impact on our net debt reduction efforts, which leads me to the next page of our presentation. As you can see on this slide, we reduced the net debt of trade and operations, including corporate items, by around €900 million to €4.9 billion by the year end of 2024. This was mainly due to our strong operating performance and the resulting net cash flow, which I just commented on. By further reducing our industrial debt, we aim to achieve two important effects. First, increasing our equity value and second, reaching a standalone investment grade rating for more flexibility in our financing efforts. As discussed also at our Capital Markets Day, we want to achieve net debt zero at the latest by 2029 with a strong ambition to reach this goal already by 2027. With this, let's directly move over to the outlook section where Christian will start with the track markets.