Traton SE

Good morning everyone and welcome to Trayton's Q2 2025 results conference call. My name is Ursula Caret and I am Head of Investor Relations at Trayton SE. With me on the call today is Christian Levin, our CEO, who is 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 second quarter, And Michael will guide you through the financial performance and our adjusted outlook in more detail. As always, we will conclude the call with a Q&A session, open to financial analysts, investors, and media representatives. Camilla Devon, our head of corporate relations, is available to handle media inquiries. 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 2025 Half-Year Financial Report, 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 3 of our presentation. And with that, I hand it over to Christian.

Great. Thank you very much, Ursula, and welcome, everyone, also from my side. So, as many of you remember back in Q1, we talked about a slow start into the year with declining deliveries, revenues, and margins, but we nevertheless maintained our full-year outlook. Now, in Q2, we see deliveries picking up by a good 9% over Q1, but Year over year, unit sales only grew by 1%. So this, paired with a 2% drop in sales revenues, indicates ongoing market challenges and unfavorable mix effects. In fact, we're facing both a tough and uncertain environment. While we see first signs of improved transportation activities in Europe, registrations are still sharply down. and order activity not yet high enough to signal a stable path back to growth in north america ongoing customer hesitancy significantly affecting international although direct impacts from the u.s tariffs have so far been manageable in south america especially in brazil we face high dealer stocks, extreme interest rates, inflation, and increasing diesel prices. On the back of these challenges and more, we decided to lower our full year outlook for Trayton. And Michael will give you more about that in detail in a minute. At Scania, we decided to further reduce our global production capacity, which will lead to less output than originally planned in the second half of the year. production in both Germany and Poland is back after the short-term work during the beginning of the year. Okay, let's turn to the third KPI on the slide, adjusted return on sales, the year-over-year decline. to 6.4% in Q2 is first and foremost due to volume effects. Good news, however, thanks to MIN's solid performance, we saw a better group margin sequentially, Q2 over Q1. And we saw a good net cash flow development at trade and operations in Q2, resulting in a net inflow for the first half of the year and actually being slightly better than what we saw in 2024. The last KPI on this slide is also a growth figure, incoming orders. They're up 11% thanks to a strong order intake in Europe, which year over year increased with 27%. This 27%, however, is lower than the 56% growth in European orders that were recorded in Q1. And as we already mentioned back then, in March we started to see a declining momentum in European orders on a month-to-month basis. And this trend, combined with the decline in the North American market, led to our book-to-bill ratio again dropping below one. let's move to the next slide and talk about more of the long-term transformation we're in in the trayton group so um the transformation towards um A sustainable world and the transforming transportation, as we say, our purpose is continuing. And in June, Scania launched its high-capacity charging solution for our heavy-duty e-trucks, capable of delivering up to 750 kilowatts. That's actually twice the speed of today's CCS2 standard. this so-called mcs mega charging solution enables an 80 battery charge in below 30 minutes which aligns perfectly with driver rest periods and makes long-haul electric transportation more viable and hence supports our electrification strategy in europe also in june mion started the serious production of its heavy-duty electric trucks, the ETGX and the ETGS, in our Munich facility. This marks an important milestone in our transformation towards zero-emission transport. And with a range up to 500 kilometers in long-haul applications and already over 700 orders placed, MIN is now on track to deliver up to 1,000 units by the end of the year. This ramp-up is already supported by MAN's in-house battery pack production in Nuremberg, which I also mentioned back in our Q1 earnings call. Earlier in April, International also officially launched its all-electric Class 8 tractor at the ACT Expo in California. This e-truck is made for regional fleets and for so-called last mile use cases from ships or trains to their next destination. And it offers up to 300 miles of range with advanced safety features with ergonomic design and with a tight turning radius. This launch is nicely completing the rollout of the S13 integrated powertrain, because together these innovations perfectly reflect our transformation, delivering zero-emission solutions while at the same time maximizing efficiency and customer value in our combustion engine platforms. And last but not least, Also, Volkswagen truck and bus began circulating now its first electric bus model, the so-called e-Volksbus, amongst customers in the Sao Paulo region. Four units so far are now operating in real-world conditions, supported by services and a train dealer network to ensure customer readiness. And this milestone follows the introduction of the so-called e-delivery track and demonstrates Trayton's ongoing focus on sustainable mobility also in South America. Okay, let's turn thanks to page number seven where I have brought two examples for you from the second quarter demonstrating how we are also driving our internal transformation in Trayton Group. First, our trade on financial services, which completed the rollout of our integrated financial services backbone in 14 strategic markets, just as promised in our last year's capital markets day. In all of these markets, we now have a dedicated financial services structure that directly supports the commercial operations of Scania, of MAN, of international, and of Volkswagen truck and bus. and enables solutions for the different local customer needs. And more is coming. Further geographical expansion is underway with the Czech Republic going live already on July 7th. We then continue in selected countries among the already 67 where trade and financial services have active operations and business prospects are strong. In addition, the teams are working on more diversified funding sources, including more local funding solutions. Our integrated platform will also enable electric vehicle financing and vehicle as a service offerings, keeping us pushing the transformation of our industry. The second milestone is even more historic. 1st of July marked the operational start of our group research and development. Here we bring together around 9,000 R&D employees from Skåne MIN International and Volkswagen Truck & Bus under one trade-on umbrella. As you can imagine, creating this unified organization was a monumental transformation. It involved not only legal and operational integration, but also a full alignment of strategies, processes, and methods across Skåne MIN, International, Volkswagen, Truck & Bus. Now in place, this R&D powerhouse will enable higher efficiency and more customer value through more innovation. And it will further develop the Trayton Modeler System, which you know is aiming at providing standardized interfaces across all brands' products, using performance steps to differentiate our brands. This will avoid duplication of work and accelerate market entry of new products. So overall, these strategic moves in financial services and R&D will significantly contribute to our mission, transforming transportation together for a sustainable world. And on page eight, we provide some early proof points of this mission. still with highly volatile developments due to small absolute numbers. So while battery electric vehicle orders declined by around 40% in Q2 deliveries, increased significantly with 120%, mainly driven by electric bus sales. So during the first half of this year, we have delivered to customers 1,250 fully electric vehicles, of which 840 are e-buses and 400 are e-trucks. And as I mentioned before, with MIN's serious production for e-trucks now in place, we are in a position to accelerate deliveries, targeting up to 1,000 units by the year-end. Within the first half, MAN delivered already around 120 e-trucks and Skåne 220. Whenever I can, including today, I emphasize the need for charging infrastructure for heavy-duty vehicles in the EU. I do this in my role as CEO of both Skåne and Trejton, but also in my role this year as chair of the ASEA Commercial Vehicle Board. I also voice our industry's concern on penalty payments. Adjusted proposals are still under review, but I see an absolute must that heavy truck manufacturers also receive some form of relief. The market development is now dependent on factors outside of our control, what we call enabling conditions. And these are typically, as mentioned, charging solutions, but also the cost of ownership, which needs to come down below the one of fossil fuel use cases. Moving on and looking at page number nine, and as I mentioned earlier, our declining european order momentum in q2 versus q1 this year combined with a poor north american market development brought our book to build ratio below one i think it's 0.91 to be precise for the first half year but in europe we're seeing the first orders from the strong quarters in q4 24 and q125 translating into unit sales so Total Q2 unit sales in Europe were actually up by 3% to 36,600 units. And order intake was up by 27% to 31,400 units. Truck order intake even increased 44%. while bus order intake leveled out. In North America, high uncertainties prevailed with respective negative effects on orders and deliveries. The only reason why our unit sales in North America were up by 5% to 18,200 vehicles in Q2 was due to last year's mirror supply issue. This had caused a major decline in our international truck sales in Q2. Order intake in North America was down by 15% to 9,300 units, also driven by Mexico. We already told you back in Q1 that due to the poor demand, we discontinued our second shift in our Mexican production plant. In South America, we continue to see a mixed picture. The market in Brazil faces many challenges, especially in the heavy-duty segment. But the rest of South America is mainly growing with most pronounced growth in Argentina, but also Peru. So in total unit sales in South America, we're down 8% to 16,600 vehicles and order intake down 7% to 16,300 units. On the back of the developments in the second quarter, we decided to keep our European South American market outlook unchanged. As of June, registration of trucks above six tons in the EU 27 plus three had dropped about 16% compared to strong figures last year. We expect this development to partially reverse in the second half of this year, hence confirming the range for the European truck market development over the minus 15 to minus 5%. We also believe that the decision of the new German government and several other European nations to increase investments into defense and infrastructure might create some positive momentum at least in the last quarter of this year. Registrations in Brazil were down by around 3% at the end of June, while most other South American markets performed better. Therefore, South America also remains within our original outlook with a range of minus 5% to plus 5%. However, coming to North America, we decided to lower our market outlook for trucks to a decline of minus 17.5% to minus 7.5%, with a midpoint of minus 12.5%. According to our market intelligence as of June, both class 6-7 and class 8 in the US and Canada truck markets were so far down 5%. Mexico included, the development looks even worse. And on top of that, poor order intake numbers we have recently seen suggest an even stronger market decline through year end despite elevated inventory levels that are expected to meet the demand from retail. On a more optimistic side, an improved U.S. industrial output and pro-business policies, such as deregulation tax reliefs, could also support the market towards the end of the year. With our new market outlook, we see close eight volumes in North America, including Mexico, now at around 275,000 units in 2025. And with that, I stop the introduction and hand over to you, Michael.

Thank you very much, Christian, and of course a warm welcome from my side to all of you dialed in as well. As Christian has already addressed some of the factors influencing our Q2 unit sales development, let me give you a brief summary and some further explanation. In Europe, The increased truck order momentum from Q4-24 and Q1-25 is starting to translate into growing unit sales, especially at MAM. But as order momentum has recently slowed again, there is no evidence yet for a sustained turnaround in the European market. The year-to-date unit sales in Europe mainly reflect replacement demand. In North America, with the ongoing uncertainty around US import tariffs, We are now even below replacement levels for Class 8 trucks. Nevertheless, international recorded increase in unit sales due to a positive base effect resulting from last year's mirror supply issue. In contrast, in Mexico, we had a negative base effect due to Euro 6 pre-buy last year. On top of this, we saw negative unit sales effects from the US trade politics. In Brazil, deliveries continue to decline, now also at Volkswagen truck and bus, which was partly compensated by other South American markets, as you just heard from Christian. On a positive note, our bus business grew across all regions except Mexico. Together, these factors led to a 1% increase in unit sales in Q2 to 80,000 vehicles. Total group revenue amounted to 11.3 billion euros, which represents a 2% decline year over year. This decline is mainly due to unfavorable mixed effects in an overall challenging market environment. Trade and financial services, however, saw revenues increase by 14%, thanks to our expansion strategy. Having said that, let's move to the next slide. The revenue decline coupled with an overall underutilized production capacity is the main reason for the lower adjusted operating result for the group. As shown on slide 13, our adjusted return on sales came in at 6.4% in Q2. This was 2.3 percentage points lower year over year. However, quarter over quarter, the margin slightly improved. Over the last month, our brands have implemented various cost measures with a key focus on adjusting production capacity. At international, as we have already said in Q1, we removed the second shift in Escobedo. Scania further reduced production capacity both in Brazil and in Europe. Volkswagen Truck and Bus has also initiated capacity adjustments, which will take effect within 90 days. MAN have actually increased their production levels. Short-time work was ended in the German locations following the encouraging order intake in Q4 last year and in Q1 this year. So, production here has returned to healthy levels. At the group level, adjusted return on sales remains impacted by currency headwinds and higher investments in the China production facility besides the negative volume effects. At the level of trade and operations, the adjusted return on sales came in at 7.6%, which is 2.6 percentage points lower year over year. Let's start with the performance of Scania on slide 14. Scania's Q2 revenue mainly suffered from lower sales in South America, and here especially in the heavy-duty truck sector in Brazil. The low 9% margin is a result of negative volume and currency effects, coupled with increasing expenses for the China project. The full focus at Scania is now on addressing cost issues. Besides the capacity adjustments I just mentioned, various short-term measures have been put in place. These include hiring restrictions, reviewed IT spend, decreased marketing activities and postponement of projects, just to name a few. On the positive side, we have MAN, managed to deliver stable revenues year over year, thanks to the good order momentum seen in the two previous quarters. So MAN's adjusted return on sales came in at 7.9%. This is 3.3 percentage points higher over Q1 and just 0.6 percentage points lower than last year, despite continued market pressure in Europe. A product mix favoring buses and vans also influence this margin. Clearly, The successful realignment program supported the result as well as MAN's ongoing cost management process. Internationals margin came in at 3.3% in Q2, which was higher both quarter over quarter and versus the low phase in Q2 2024, which had been impacted by the mirror supply issue. The mirror issue also led to higher truck revenues at international year-over-year, although the North American market is in a weak state. Volkswagen truck and bus, like Scania, now also felt challenges from the Brazilian truck market in Q2. So revenues were down 13% year-over-year. Thanks to its flexible production system, Volkswagen Truck & Bus managed to contain variable costs and achieve the 12.9% adjusted return on sales in Q2, despite higher product costs and negative currency effects. Trayton Financial Services saw a 14% revenue increase in Q2 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 8.4%. Other reasons for the declining returns were higher funding and risk costs, which come with a larger portfolio, as well as increased competitive pressure, especially from the banking industry. Let's move on to the next page. The lower operating result of trade and operations in Q1 and Q2 also affected the gross cash flow, which came in at 2.0 billion euros in the first half of 2025. However, thanks to an effective working capital management, the net cash flow of trade and operations turned positive within Q2, despite the 1.2 billion euros investment spent. Net debt increased by 1.2 billion euros as a result of the dividend payout of 850 million euros and other net cash outflows of 427 million euros at trade and operations and corporate items. Despite the challenging market conditions Christian and I described before, we still expect a better operating performance and improved net cash flow situation in the second half of the year, also lower than originally planned. And this leads me to the last slide of my presentation, which is the adjusted outlook for 2025, which we already pre-released yesterday evening. I'd say we have clearly outlined the main reasons for the adjustments during our presentation. They are the continued uncertainties around the US tariff politics, a persistently weak market situation in Europe and economic challenges in Brazil. All this leads to greater than expected customer hesitancy. In particular, we lowered our outlook for the North American truck market and anticipate steeper year-over-year unit sales declines at international. So, despite cost and surcharge measures, this will also impact international's return on sales. Ghana has also taken steps to support its margin, but these measures will not fully offset the negative volume effects stemming from lower sales in Europe and in Brazil. Of course, we cannot plan the further development of foreign currency rates, but we assume that there will be a continued downward pressure on margins in the second half of 2025, especially from the Swedish krona. These additional facts explain why we have decided to lower our unit sales outlook for trade and group and also the revenue outlook for trade and group and trade and operations. Here, we now expect a decline between minus 10% and 0%. We also lowered our outlook for the trade and group adjustment return on sales to 6% to 7%. For trade and operations, the range is now at 7% to 8%. Despite the lower ranges, the new guidance assumes that a stronger performance in Europe will be required in the second half of the year to offset an ongoing decline in North America and Brazil. We also adjusted our net cash flow guidance for trade and operations, where the year-over-year decline mainly reflects the decrease in operating profit. We now expect the net cash flow of trade operations to come in between 1 billion euros and 1.5 billion euros. Of course, we will do our best to manage working capital effectively throughout the second half of the year. The slight increase in our projected primary R&D costs is mainly due to currency effects. The adjusted outlook, which you see on this slide, assumes that international tariff situation and USMCA compliance from mid 2025 will remain unchanged in the second half of 2025. It therefore remains subject to the effects of possible additional US tariffs or USMCA regulation changes, which we cannot quantify at this stage. This includes the recently announced rates of 50% for Brazil and 30% for the EU, which are still under negotiation. Unfortunately, we are still confronted with a high level of uncertainty. But I'm quite sure that you have a couple of questions for us. This is why I turn it back or over to Ursula to kick off our Q&A session.