Traton SE

Good morning everyone and welcome to Trayton's Q3 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 some introductory remarks and will present the key results and highlights of the third quarter. Michael will then guide you through the financial performance and outlook in more detail. As always, we will conclude the call with a Q&A session, open to financial analysts, investors and media representatives. You may already queue for questions during the presentation by pressing the blue Q&A button in the webcast and following the instructions. Please note that this call, including the Q&A session, will be recorded and a replay will be made available on our website later today. You can find our nine-month interim statement, which we published this morning, and the slides to this call 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.

Excellent. Thank you very much Ursula. Welcome also from my side, everyone. So the third quarter was marked by significant challenges, including the political unrest and regulatory changes in trades and emissions. leading to some customer hesitancy across all our core markets, but especially in the United States. But despite these setbacks, we remain firmly committed to our growth strategy, which we, as many of you remember, outlined at our 2024 Capital Markets Day. International Motors is an iconic American company with a very strong brand and with an enhanced product offering, it is really ready for a next chapter. Just two weeks ago, I hosted the opening celebration of Scania's new industrial hub in Rougao in China. And that installation is much more than a factory. It's a strategic, complete innovation and industrial hub. It produces Scania's to start with, but serves all of Trayton brands and adds features to the Trayton modeler system. Meanwhile, our newly established group R&D team is working to launch MI and Scania trucks with a lot of communality in the EE architecture, in chassis and on cabs, building on what will be Trayton modular systems at the end of this decade. This is a crucial part of our future efficiencies and bringing faster innovation to the market. Today's figures will show that our strong and expanding services and solutions portfolio is vital for customer loyalty and for the resilience of our business. At our bankers day, On the 8th of October, the CEO Mats Gunnarsson of Trade and Financial Services presented how we are delivering on our growth plan with real success stories emerging from the financial services business. And on several occasions during the quarter, we advocated for EU policy actions. Our focus is on the enabling conditions for faster adoption of electric commercial vehicles, staying true to our sustainability mission. So, yes, the transformation comes with high investments and challenges, but I remain confident in our company, in our people and in our future together. Let's move to the next slide. I also want to express our confidence in delivering on this year's guidance, despite the ongoing North American market uncertainty and the Section 232 proclamation. So let me walk you through the key figures on this slide. First, unit sales. which were down 16% to 71,400 units in Q3. That's seasonally weak, but the decline was driven solely by North America and Brazil. In fact, both Scania and Amazon delivered growing unit sales in Europe. And with intensified sales efforts, the year-end rally is underway to finish the year with a strong Q4. In terms of sales revenues, we were down 12%, 10.4 billion euros in Q3, while our services business provided solid support. Also, thanks to a favorable product and regional mix, our revenue performance held up better, as you can see with the minus 12 versus the minus 16 that our unit sales number suggested. The margin, though, is suffering. The adjusted return on sales declined by 3.2 percentage points to 6.4%, which is mainly due to lower volumes and under absorption and fixed costs. That said, we have taken several steps to manage costs better, like postponing projects, reviewing our IT spend, implementing hiring freezes, and of course, reducing production capacity. Net cash flow at the trade and operations level remains at low levels. If we look at the nine month level, we are slightly positive at 28 million euros. So there is definitely some catching up to do in the fourth quarter. But as most of you know, and as we have always said, cash flow is back and loaded. Earnings per share, of course, also declined much in line with the operating result. And the last figure on this slide, the incoming orders, like in the previous quarters, order momentum has leveled out in Europe in Q3. While the European order income was still up 21% year to date, it dropped 5% sequentially compared to Q2, which to at least some extent is a summary effect. However, we saw a mixed picture. Scania actually saw European orders pick up sequentially, whereas MAN experienced a downturn trend from Q2 to Q3. Finally, the weak markets in North America and Brazil led to the overall decline of order intake by 3% and to the figure you see here on the slide, 62,500 units. However, the current order book, our inventories, our production pace should be strong enough to support the year end sales push that I mentioned earlier. Delivering on our promised financials and on our equity story will only work if we keep investing into our future. In my introduction, I also mentioned our Scania China plant opening on the 15th of October. The total invest into this new production hub will amount to around 2 billion euros. It gives us access to the world's largest commercial vehicle market and substantially shorten our lead times to key Asian export markets. And by being in China, we also get access to the new technical capabilities that make us stronger all over the world in areas such as electrification, digitalization, automation and connectivity. We also strengthen our regional supply chains and thereby increase our resilience. The production plant will be running on 100 percent renewable energy, supporting our decarbonisation strategy for both scope one and for scope two. Two complementary commercial offerings were revealed at the launch I mentioned earlier. Scania with its global premium solutions that can be customized for all demanding applications for both tractors and chassis. And we had a pre-peak, a preview of the next era, which is a tractor with more limited specification range and specially developed for China's volume long haulage segment. So yes, production just about started and we're aiming to come up towards a thousand Skåne tracks by the end of this year. But of course, the proof of the pudding, the real ramp up starts in 2026. The next highlight of the quarter features MIN and our participation in the Bus World Europe exhibition. in Brussels at the beginning of October this year. The spotlight was on Amion's very first fully electric long distance coach. And I'm very proud to say that it won the Sustainability Bus of the Year 2026 award. Which is not all. Our innovations in safety and digitalization were also recognized and our MIN received also the Digital Bus World Award for its safe stop assist system. These achievements really show how across all our brands we're committed to leading the transformation to sustainable mobility through electrification but also smart technology. And smart technology also characterize the third highlight on this page. In September, International launched real-world fleet trials of its second generation autonomous tractors in the state of Texas. The trials are conducted in partnership with Plus AI and the vehicles incorporate AI software developed by Plus. They also feature multimodal sensors for safe autonomous operation. To support this initiative, International has also established an autonomous hub in San Antonio to collaborate with fleet customers and speed up the adoption of autonomous technologies in real world logistics operations. finalizing volkswagen truck and bus is always committed to enhancing its offering both in terms of sustainability and efficiency and with the recent launch of trade on financial services brazil we can now also provide tailored financing solutions to support customers and dealers locally. And I'm super proud to share that just three months into operations, the Banco Trayton Brazil earned a AAA rating from the local modus agency, reflecting the high standarding of our commercial vehicle finance offering. So let's look at our BEV progress. I spoke earlier about our efforts to advocate for battery electric vehicle growth in Europe's commercial vehicle sector. And a key moment in that sense was the Heavy Duty Vehicles Roundtable, a very focused discussion on the EU Commission level, where only the commercial vehicle OEMs and infrastructure operators were present. This took place just a day before the broader automotive strategic dialogue with Commission President Ursula von der Leyen, where we of course also participated. Our industry needs and our customer industry in the transport logistics sector needs incentives such as tax breaks, toll exemptions and low emission zones. More charging stations require investments and needed grid upgrades. We also need faster homologation and certification processes for new BEV variants. All of this would give us planning certainty and boost innovation in our industry. Year to date, September, Trayton's European battery electric vehicle sales ratio is approaching the 2% mark. This is not even close to where we need to be to meet the EU's CO2 reduction targets. And if we look globally, we sold around 2,100 BEVs in the first nine months up until September, which is an increase of 83% year over year. which only corresponds to a global battery electric vehicle sales ratio of 1%. In fact, regulatory changes in the US have impacted our sales in this region. And we cannot expect our ratio to rise there soon. Also because of this, we decided to discontinue a specific battery electric vehicle development project for the region. Demand simply isn't there right now. But let me be crystal clear, we have not abandoned the market. We are convinced that total cost of ownership parity will come, also in the North American region. At the same time, in China, adoption of immobility in the trucking industry is racing ahead. And Europe, well, we find ourselves in the middle, searching for the clear path forward. Nevertheless, in Treton, we stay focused, we adapt and we continue to push for sustainable transformation in our sector. Okay, let's turn into page number nine with the good news that both European order intake and deliveries were up by around 20% year over year in Q3. So starting on Europe, the growth in unit sales was strongly driven by an outstanding performance of bus sales at MIM. Also van sales strongly supported the growth. At the same time, the European truck market remained subdued, but with some encouraging signs. Truck registrations were gradually improving. In September alone, we saw an increase by 13%, which brought the year-to-date number down to or up to minus 11% from the minus 16% it was standing by the end of June. At Trayton, we reported a 7% year-over-year increase in truck deliveries in Q3. While the absolute number was lower than the previous quarter, it still reflects a resilient demand base. In contrast to the deliveries in European order, the European order intake was mainly driven by trucks. Here, the order intake rose 24% year over year. However, we must note that the quarterly momentum is slowing, especially in Germany. In Q2, our truck order intake in Europe was up by 44%, in Q1 by 62%. Turning to North America, the picture is very challenging. We saw a sharp decline in our deliveries, particularly in trucks, which fell by 64% year over year. This drop was amplified by a negative base effect following, if you remember, the resolution of the mirror supply problem that we had and which inflated our Q3 2024 figures. Incoming orders also reflected this weakness in our truck market with truck orders down 30%. While September brought a strong improvement, there is additionally uncertainty now after the Section 232 announcement. And to finalize with South America, the downturn is less pronounced. Truck deliveries declined by 9% in Q3 and incoming orders fell by 5%. Brazil remains the primary driver of the decline as economic headwinds and policy uncertainty weigh on fleet investments. So one region where we experienced an encouraging performance and two regions where we could say, well, not as good performance. So let's have a look at the overall market performance on the next page. As usual with our Q3 results, We present the refined outlook range for our core regions. So start again with Europe 27 plus 3. As of September, track registrations above 6 tons reached 2047,000 units. As mentioned before, that corresponds to an 11% drop. Looking ahead to the full year 2025, we expect registrations to end up somewhere between 320,000 and 340,000 trucks, which means a year over year decline on around 10% or in the range 12.5% to 7.5%. I know that there's a lot of interest in where we go from here. We will be publishing our market outlook for 2026 in March next year. But let me say this much. The recent demand signals, the planned infrastructure investments in Europe, and the push towards regionalization suggest that the slightly growing truck market is the most likely outcome for 2026. Okay, let's turn to North America. In July, we shared a reduced outlook for the Class 6-8 truck market. We stick to it, but we narrowed down the forecast to a decline in the range of minus 15 to minus 10. While the midpoint level remains at minus 12.5 then, we have adjusted our expectations for Class 8 to a bit lower, to 272,000 units. So we're seeing a bit more resilience in the medium-duty truck development. And at the end of September, class eight retail sales in the US, Canada and Mexico reached 200,000, representing a year over year decline of 12%. So there is quite some catching up needed before reaching year end. Here, we need to consider that there is still a high level of dealer inventory, which is expected to meet retail demand. Prospects for 26 in the North American truck market remain highly uncertain. While supportive business policies such as deregulation and tax incentives could encourage growth, ongoing concern around the impact of tariffs have a negative impact. The unclear scope and timeline of the EPA 27 emission regulations further adds uncertainty. And finally, in South America, year-to-date track registrations above 6 ton at the end of September stood at 131,000 units, which represents a year-over-year increase of 6%. Due to the strong divergence between market developments in Brazil and the rest of the continent, we decided to maintain the original larger outlook range for the South American market, which forecast registrations to come in between minus five and plus five in 2025 compared to last year. But given the ongoing political and economic uncertainties in several South American countries, including Brazil, we see no real growth prospect in this region for 2026. So before I hand it over to Michael, Let me just reaffirm that despite the current market headwinds, our commitment to the transformation to sustainable growth and to partnership with our customers keeps us firmly on track. Michael, over to you.

Yes. Thank you very much, Christian. And as always, warm welcome from my side as well. Starting with the top line of our Q3 results on slide 12. As already mentioned, our unit sales declined by minus 16% in the third quarter. This was mainly due to a sharp drop in North American volumes, with the freight recession and tariff-related uncertainty significantly impacting demand. Additionally, negative base effects played a role, including the resolution of the mirror supply issue at international in Q3 2024 and the pre-buy in 2024 in Mexico ahead of the Euro 6 introduction. At the same time, we saw strong growth in European unit sales, which were up plus 20% for the quarter, led by strong bus deliveries. But this was not enough to offset the downturn in North America. In South America, the ongoing decline in the Brazilian truck market continued to weigh on our unit sales, affecting both Scania and more recently also Volkswagen truck and bus. However, this was partly offset by healthier performance in other South American markets, such as Peru, Chile, Colombia, and by a continued strength in bus deliveries. Group sales revenue fell by 1.4 billion euros, representing a minus 12% decline, as shown in the right-hand graph. The decline was less pronounced than in unit sales, largely because of a favorable product and regional mix. Moreover, our solid vehicle services business helped absorb some of the decline in new vehicle sales. And trade and financial services Thanks to the successful ramp up strategy, supported the group revenue development with a year over year revenue increase by 10%. Turning to the bottom line of our results on the next page, our adjusted operating result for Q3 decreased by minus 41% year over year, outweighing the decline in revenue. Clearly, The most important factor impacting our profitability was the decline in unit sales, with lower volumes leading to reduced fixed cost absorption across our production network. Customer and market mix effects also had a negative impact on the operating result. Additional negative effects came from ongoing foreign currency headwinds. Like in the previous quarters, We felt cost impacts from the China project. However, with the opening of the production facility, direct construction related expenses should fade out in Q1 next year. And last but not least, higher direct and indirect tariff costs in the US market are adding to our overall cost burden. Together, these factors contributed to the decrease in our Q3 margin. the adjusted return on sales dropped by 3.2 percentage points to 6.4%. On a more positive note, some of our recently initiated cost measures are now taking effect, influencing the sequential development of our quarterly RRS. Additionally, the sequential recovery in Scania's margin has provided support. For the first nine months, our adjusted RRS stood at 6.3%, which is well within our guidance range. But let me remind you that the challenges just mentioned will persist in the fourth quarter. In particular, tariff-related costs are projected to rise. To provide full transparency, the adjustments to our operating result are higher than last year's Q3. This is mainly due to the write-off of a BEF development project at International, as well as increased restructuring activities at Scania. Before we move to our usual brand and segment overview, let me briefly explain our updated segment reporting structure. This comes into effect now. that the carve-out of major parts of the brand's R&D development has been completed and the new group R&D organization is operational. Previously, until the end of June 2025, cross-brand R&D projects were led by a single brand, most often Scania. For example, Scania led the development of the common base engine. The associated R&D expenses were subsequently charged to the other brands through license fees during the use phase of the products. This legal entity view, as we call it, is illustrated on the left hand side on this slide. From 1st of July, such cross-brand R&D projects are now executed and recorded centrally by the new R&D organization. The cost of this development work is then allocated to the participating brands based on a predefined mechanism. This leads to the so-called management view, which is depicted on the right-hand side and shows how we will report from now on. So in principle, you will receive the same kind of segment transparency as before. In the restated figures on the next slide, you will see the effects of the new way of cost allocation. Starting with the restatement of Scania on the left. Let me focus on the third quarter numbers shown by the lower bars in the chart. Taking this year's management view, you can see that Scania delivered an adjusted operating result of 468 million euros in the third quarter of 2025. That's a margin of 11.1%. If the group R&D organization had already been operational last year, with the same kind of cost allocation, Scania's Q3 2024 adjusted operating profit would have been 618 million euros. This translates into a 14.7% margin according to the management view, slightly above the reported margin at that time of 14.0%. The reason for last year's lower margin under the legal view was because Scania carried a greater share of TMS development costs than other brands. new management view reporting comes at the right time as r d activities for tms are ramping up now let's turn to man if we had applied the management view already last year man's third quarter adjusted operating result would have been lower at 160 million euros with a margin of 5.3 percent The reported legal view at that time showed a slightly higher margin of 5.6%. International saw a similar effect. In management view, last year's Q3 margin would have been 10.3%, not 10.7%. I hope that this clarifies the new segment management. You can find more details with restated brand figures in the backup section of our Q3 results presentation. Before I pass to the next slide, one more important information. On trade and operations level, the brand restatement effects are eliminated. So management view and legal view are the same. Having said that, let's move on to the next slide. In the third quarter of 2025, Trayton operations achieved a margin or an adjusted return on sales of 7.4%, 3.3 percentage points lower year over year. All brands contributed to that margin decline. The deltas versus last year on the slide are based on the restated management view, starting with Scania. Scania generated a year-over-year stable revenue development with a 3.6 percentage point lower adjusted return on sales of 11.1%. But compared to Q2, where the management view adjusted ROS was at 9.8%, Scania is back to a double-digit margin. I already mentioned Scania's positive margin effects, such as a supportive vehicle services business, cost containment measures and capacity reductions, and negative margin effects, such as the China project and currency headwinds. Let's have a closer look at MAN. In Q3, MAN impressed with a significant increase in sales revenue by 11%, driven by a strong momentum in the bus and van segments. Bus revenue actually more than doubled compared to the last year, now that the regulatory software issues have been resolved. Vans rose by more than 50%. However, on the truck side, Revenue decreased by 3%, where especially the German truck business contributed less. Despite these positive developments, MAN's margin felt some pressure, mainly due to the product and regional mix. On top of that, production costs went up because of lower capacity utilization and higher labor costs. Please note, last year MAN used short-time work to manage the declining demand. On a positive note, the vehicle services business helps offset some of these headwinds, and not to forget MAN's ongoing cost management measures. Turning then to international. Here, the third quarter sales revenue was sharply down by minus 49%, mainly due to trucks. But don't forget that Q3 of 2024 saw a strong revenue catch-up following the previous mirror supply issue. The weak market environment also comes with a decline in international service business. In addition to the top-line pressures, tariff costs are increasingly taking effect, also with suppliers now passing on higher costs. In Q3, the incremental tariff costs amounted to around 30 million US dollars. This, together with low capacity utilization, led to poor fixed cost absorption with international manufacturing operations. As a result, the margin came under more pressure. So the Q3 adjusted return on sales was at 0.8%. Looking ahead to Q4, the full run rate of 50% tariffs on steel and aluminum, as well as additional reciprocal tariffs, will now impact international. And Section 232 tariffs will lead to further margin pressure. However, we expect to reduce the Section 232 tariff impact through offsets and US content. Next brand is Volkswagen truck and bus. As in the second quarter, sales revenue declined in Q3 by minus 10%, reflecting the ongoing challenges in the Brazilian economy and truck market. Despite this and higher product costs and currency headwinds, Volkswagen truck and bus achieved high 11.3% margin, thanks to its flexible production system. Last segment on this slide is trade and financial services. Trade Financial Services delivered a 10% revenue increase in the third quarter, on the back of a growing portfolio. This portfolio growth mainly stems from the solid and continued performance of Scania Financial Services, while MAN Financial Services showed strong momentum as they scale up their operations. Additionally, following the start of operations in July, the trade and financial services set up for Volkswagen truck and bus in Brazil also contributed to the portfolio growth. That said, as we continue to ramp up these operations, higher costs are weighing on our results. Consequently, the Q3 return on equity stood at 9.1% in Q3, which is 1.9 percentage points lower year over year. Turning now to the cash flow and our balance sheet position. Over the first nine months of 2025, trade and operations generated a net cash flow of 28 million euros. This is significantly less than last year, mainly due to the business and market challenges we discussed earlier, which have put pressure on our profitability. A build-up in working capital of 1.3 billion euros also weighed on our nine-month cash flow, alongside our significant investment activities. When factoring in our dividend payout in May and other negative cash flow impacts, our industrial net debt position, including corporate items, increased by 1.7 billion euros in the nine months compared to the year-end 2024. Unfortunately, we also foresee an increasing net debt on a full year basis. Nevertheless, we remain committed to our net debt zero target towards the end of this decade. On the financing side, we have access to a variety of public and private funding sources. Additionally, as announced yesterday, we now also have a green finance framework in place. This new framework is specifically designed to support investments in battery electric mobility. Now let's move to our final slide, which covers our guidance. As Christian mentioned in his introduction, we are confirming our outlook. In July, as you recall, we had revised the outlook downward to reflect greater than expected customer hesitancy. driven by the challenging market conditions and ongoing uncertainty around US tariff policies. Even now that the Section 232 tariffs have been published, the uncertainty continues. It may take several months before the full impact is understood. The implementation of these tariffs and offsets will be crucial to define compliance strategies and evaluate ways to mitigate costs. Also, the mandatory review of the USMCA could introduce further changes and renewed uncertainty towards the end of next year. For this year, we believe we can manage the additional tariff costs expected in the fourth quarter, including additional Section 232 tariffs to a certain extent. However, This means that we are targeting the lower end of our guidance ranges, at least for adjusted return on sales and net cash flow. So the adjusted RRS for the Trayton Group at 6% and for Trayton Operations at 7%. And Trayton Operations net cash flow at 1 billion euros. For the unit sales and sales revenue outlook, we maintain the guided range of minus 10% to 0%. With that, I hand it over back to you, Ursula, to moderate our Q&A session.