Traton SE

Good morning, everyone, and welcome to Trayton's Q1 2025 results conference call. My name is Ursula Caret, and I'm head of investor relations at Trayton SE. With me on the call today is Christian Levin, our CEO, who's dialed in from Sweden. Dr. Michael Jagstein, our CFO and CHRO, is here with me in Munich. Christian will start today's presentation. with the key results and highlights of the first quarter, and Michael will guide you through the financial performance and our outlook in more detail. Some of today's KPIs are already known to you, as they were pre-released on the 9th of April. 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. A recorded version of the call will be made available on our investor relations website as soon as possible after the event. You can also find our three-month 2025 interim statement, which we published this morning, and the slides to this 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.

Thank you very much, Ursula. And good morning, everyone on the call, also from my side. Well, most of the numbers that you can see on this page were no surprise to you as we communicated that through an ad hoc earlier in April. Actually, on April 9, we published our delivery figures. The decline by 10% is mainly due to challenging market conditions in our key truck markets in both Europe and North America. And it reflects normalized order book in times where we are not operating at full capacity. Sales revenues also declined by 10% in line with our unit sales. However, our vehicle services and bus business provided some positive effects. Also on April 9, we pre-release our operating result as it was below analysts consensus at that time. The decline of our adjusted return on sales to 6.1% was mainly due to volume effects. But in addition, foreign currency had wins and the higher R&D expenses weighted on the Q1 margins. Net cash flow of the trade and operations was also including in this pre-release the decline to minus 111 million euros, primarily results from the lower operating result and from higher future investments. All the effects mentioned also impacted our earnings per share for the first quarter, which came in at one euro per share. The last figure to the right on this slide is at least not known to you or was not known to you. And it is a healthy growth figure. As in Q4, we saw a continued strong water intake in Europe actually increasing by 56%. This growth effectively overcompensated the decline in orders in North and South America. So our total incoming orders grew by 12% to 74,300 units. While this is promising and aligns with our outlook for a stronger performance in the second half of this year, we are, of course, monitoring the current market and geopolitical uncertainties very closely. to adjust our production planning when and if necessary. Within this geopolitically turbulent quarter, we stayed focused on our business development. In mid-March, we announced the strategic partnership between Trayton and Applied Intuition on software-defined vehicles. Like in all industrial goods, the truck industry is gradually shifting from hardware-centric products to software-driven electronic devices. To remain at the forefront of development and reduce time to market, we decided to join forces in this strategic area. Within days of signing the partnership with Applied, a team of engineers from their US offices were on-site working with our trade and engineers. We're now integrating existing trait and technology with applied solution stack targeting our next generation of ee and software architecture another crucial technology focus area is autonomous driving where we are dedicating substantial r d efforts and here we also work in collaboration with partners min for example is engaged in several projects aiming at introducing full automated city buses to public transport one of these projects is called be and telly where since the start of the year an automated emma and ebus is on the streets of berlin's city center to collect valuable data and experience This project involves an interdisciplinary team from science and industry with the aim of developing an intelligent transport system with automated vehicles. End of February, Scania announced its largest orders since the 80s from the Swedish Defense Administration. Products for the defense industry currently only represents or less than 1% of the trade-on group revenue. But we are convinced that the planned ramp-up of European defence industry will boost general transportation needs besides incremental demand for our defence products, which will both enhance our future revenues and margins. The present Scania order consists of 475 vehicles to be delivered between 2025 and 2027. These vehicles can transport cargo, military units and defence systems and are designed for challenging conditions. This point, please let me note that sales for Defence Force are always preceded by the due diligence and risk assessment in line with expert regulations to ensure responsible and sustainable business. Last but not least, Trayton Finesse Services continued its successful journey to ramp up our captive offering. We had three new markets going live during Q1 this year, Mexico, France and Italy. In Mexico, we expanded on the foundation of international financials and now also offer captive financing for MAN and Volkswagen truck and bus customers. This positions Mexico to become the first market where we offer financial services for all our four trade and brands. under the Trayton Finances Services umbrella, once Scania is also integrated in the coming months. And by April 1st, MIM Finances Services was successfully launched in both France and Italy, expanding our footprint to two of Europe's key commercial vehicle markets. A clear proof that our integrated approach is scaling fast and delivering results is Spain. Spain was one of the first markets to go live under the Trayton Financial Services umbrella in 2024, and it is soon celebrating its first year of operations with already over 2,000 contracts signed for MAN customers. We're also making good progress with our battery electric vehicle offering, both on the demand and on the delivery side. The increase in order intake by 18% in Q1 was mainly driven by demand for e-trucks. Unit sales of electric trucks and buses almost doubled year over year. This coincides well with the fact that two weeks ago, MIN officially launched its battery pack production in Nuremberg. In the current expansion state, 50,000 battery packs can be produced per year on this site. But it is already designed and prepared to increase that up to 100,000 units per year. And to put this number into perspective, MAN has recently delivered its first MAN ETG-X from a large order placed by the French Jacqui Perrineau group. In a standard long-haul application, this electric truck is equipped with six battery packs which offers a driving range of around 500 kilometers, of course, depending upon usage. At our annual results conference, I mentioned how I am constantly advocating for charging infrastructure for heavy duty vehicles in the EU. And in my current role as chair of the ASEA Commercial Vehicle Board, I'm also working hard to influence the entire commercial vehicle ecosystem with the EU automotive dialogue. Over the last weeks, my colleague Alexander Flasskamp, the CEO of MAN, and myself had several meetings with the EU commissioners, including Commission President Ursula von der Leyen and the EU Transport Commissioner Apostolos Tsitsikostas. Besides addressing the improvement of enabling conditions, we continue to discuss an earlier review of CO2 emission reductions to ensure Europe's commercial vehicle manufacturers remain competitive. To sum it up, we're making comprehensive efforts internally and externally to increase the demand for electric commercial vehicles. This should ultimately lead to significant trade on BEV sales, aligning with our purpose of transforming transportation together for a sustainable world. So let's turn Back from our future plans to the current market situation on slide eight. I already talked about a slow start into this year with declining deliveries in both Europe and North America. These regions are burdened by macroeconomic challenges and respective low transportation activity, although it is steadily improving in Europe. In the US, uncertainties about tariffs, economic outcomes and inflation add to the negative market sentiment. In addition, the dealing with the EPA 27 emission regulation remains unclear. In this environment, our customers are not willing to make larger investment decisions. Consequently, our North American order intake dropped by 35% to 12,400 vehicles and unit sales decreased by 12% to 17,800 vehicles. On the back of this, it will be no surprise to you that we had to adjust our manufacturing capacity for class eight trucks and removed our second shift in our Escobedo plant in Mexico. In contrast, Our European order intake was 56% up in Q1, resulting in 38,900 orders thereof 29,300 trucks. This translates into European book-to-bill ratio of 1.3. While looking at the overall trade on book-to-bill, it's coming in just above 1%. This is, of course, a great achievement of our European sales team, and it supports our more optimistic outlook for the second half of 2025. However, we must recognize that this brings us only back to historic average levels. Hence, this positive momentum is mainly replacement driven and can be explained by catch up effects after having processed last year's strong order books. In South America, we've seen a mixed picture. Despite the declining market momentum with lower order activity, especially in Brazil, Volkswagen truck and bus delivered an increase in unit sales, while Scania saw slightly declining volumes in South America, driven mainly by Brazil. On the other hand, strong sales in Argentina had a positive offsetting effect. So how does these q1 experiences in our brands operation reflect on our total market outlook well starting with europe to the left on this slide where we foresee a decreasing truck market within the range of minus 15 to minus five percent in this year the lower end of that range aligns with european registrations in q1 both for the trucks above 6 tons and trucks above 16 tons, which were down both by around 15% in a challenging economic environment. However, with the positive truck order momentum continuing throughout the first quarter and improved transportation activity in Europe and lowered interest rates, we are more optimistic about the second half, which would justify the minus 5% in the upper end of the market range. Notably, The formation of the new government in Germany and the decision to increase investments into defense and into infrastructure also on an EU level may create more positive momentum. The second graph and the one in the middle shows our North American track market outlook. Due to further uncertainties and under the updated assumption of no sizable EPA 27 pre-buy, we now expect the North American market to be closer to the lower end of the minus 10 to 0% range. This would mean that the class eight volumes would fall below the 300,000 mark to around 280,000 vehicles. In fact, according to our market intelligence, class eight registrations in January and February were down by minus 11%. But we do anticipate a slight recovery in the second half of 25, whereas the medium duty segment continues to cool down. With what we saw at Volkswagen Truck & Bus in Scania in South America in the first quarter, our outlook for that region remains unchanged with a range from minus five to plus five percent. And with that short run through, I hand it over to Michael for the financials. Michael, please.

Yes. Thank you, Christian. And of course, a warm welcome from my side as well. You just heard the market and actual Q1 registration data from Christian. The weak market environment in Europe and North America affected three trading brands, MAN, Scania, and International, and therefore well explains the 10% decline in our group unit sales. In addition, the International brand was hit by the introduction of Euro 6 in 2025 in Mexico, which had led to a pre-buy in the previous year. On the other hand, much higher bus deliveries contributed positively to the international unit sales after last year's sales were affected by the delayed ramp-up of the new school bus model. While unit sales in Europe and North America together were down by 15% in Q1, sales in South America grew by 10%, which had a positive effect, especially on Volkswagen truck and bus. Total trade and group unit sales in Q1 amounted to 73,100 vehicles. Total group revenue amounted to 10.6 billion euros and was also down 10% year on year. The effect of lower unit sales could be partly mitigated by a strong vehicle services business. And in addition, trade and financial services contributed positively with a 17% revenue increase. Let's now have a look at the next page at the operating result on slide 12. With the decline in unit sales and revenues, the lower margin was expected by us. In fact, our internal margin forecast was in line with the outcome. Therefore, in our annual results conference, I stated that we see a weaker first half of 2025. So with unit sales and revenues down by 10% and weaker order book tailwinds, reduced capacity utilization and lower fixed cost absorption, our adjusted return on sales came in at 6.1% in the first quarter. This was 3.3 percentage points lower year on year. Besides the negative volume effects, higher R&D costs, increased investments into the China production facility, and foreign currency headwinds affected our group margin. Consequently, the adjusted return on sales of trade and operations was similarly affected and came in at 7.3%, three percentage points lower year on year. Only Volkswagen truck and bus contributed positively among our four brands. But let's start with the performance of Scania on slide 13. Scania's Q1 revenue and margin not only suffered from lower sales in Europe, but also in Brazil. Nevertheless, with its super engine offering, Scania profited from higher pricing for certain trucks. and an increased vehicle services share also had a positive impact on revenue and margin. On the negative side, as mentioned, Scania's margin was impacted by currency effects and China project costs. So, Scania ended Q1 with a margin of 10.5%. Next, MAN. Our full lineup brand with a strong European focus saw reduced revenues both for trucks and buses. Bus deliveries are still delayed due to higher regulatory software requirements, but normalization is anticipated in the second half of the year. The successful realignment program helped support the margin despite the lower unit sales. MAN's margin came in at 4.6% and showed gradual improvement within the three months of Q1, which gives us confidence for the next quarters. International delivered a margin of only 2.3%, and we have already explained the main reasons for the decline. Volkswagen truck and bus managed to deliver increasing revenues in Brazil and the rest of South America due to a solid truck business and improved product positioning. They achieved 13.1% adjusted return on sales in Q1, despite some negative currency effects. Trayton Financial Services saw a 17% revenue increase in Q1 due to a larger portfolio volume. As the ramp-up of the financial services network comes with higher costs, the TFS return on equity decreased to 9.1%. Other reasons for the margin decline were higher funding and risk costs, which came with a larger portfolio. Let's move on to the next slide, where we see that the lower operating result of trade and operations also affected its net cash flow and hence our net debt situation. As you can see on page 14, the net debt of trade and operations, including corporate items, increased by 282 million euros in the first quarter 2025 to end the quarter at 5.2 billion euros. The net debt increase was partly driven by a net cash flow outflow from trading operations of 111 million euros. This resulted from a working capital buildup and investment spent which exceeded the gross cash flow of trading operations. In addition, Other net cash outflows of 171 billion euros, including holding costs, led to the increased debt. With an improved operating performance, which we are foreseeing in the second half of this year, the cash flow from trade and operations is also expected to improve, which will enable us to continue our debt reduction journey. This leads me to the last page of our presentation. which is the 2025 outlook slide. I believe with our presentation, we explained the reasons for the slow start into the year. We did also give you some rationale why we are expecting a stronger performance in the second half of 2025. Therefore, we maintain our 2025 full year outlook and continue to expect unit sales and sales revenue for the trading group to come in between minus 5 and plus 5 percent. And Group adjusted operating return on sales between 7.5 and 8.5 percent. But please note that due to ongoing and changing tariff discussions, the potential outcome of U.S. import tariffs remains far too uncertain for us to quantify. Therefore, tariff implications are still not included in our 2025 outlook. so that it remains subject to future geopolitical developments, particularly in the US and their impact on trade and groups business. With that, I would like to hand over to Ursula to kick off the Q&A session.