Traton SE

Good morning, everyone, and welcome to Triton's Q1 2020 Fixed Results Call. My name is Ursula Perrette, and I'm Head of Investor Relations at Triton SE. With me on this call 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. Michael will then guide you through the through the financial performance in more detail. As always, we will conclude the call with a Q&A session open to financial analysts, investors, and media representatives. To register for questions, please click the blue Q&A button on the webcast and follow the instructions. If you want to enter the queue via phone, please dial one of the country-specific numbers and enter your individual PIN, followed by the hash key. To register your question via phone, you need to press 01 on your keypad. To cancel the question, press 01 again. Please note that this call, including the Q&A session, will be recorded, and the replay will be made available on our website later today. You can find our three-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'm handing over to Christian Levin. Christian.

Thank you, Ursula, and welcome also from my side, everyone. Yes, as you saw already from our unit sales Pre-release, we have a somewhat slow start of this year. You could see unit sales falling by 6%, so minus 6% to 68,600, largely coming from last year's and the hesitation in the U.S. demand, which we then later saw starting to turn up, but more of that later. But the decrease is also marked by a continued difficult South American market environment with low order intake scaling over from last year. Looking at sales revenues, we saw a somewhat smaller decline with a minus 4% to 3.2 billion euros. So keeping up compared to unit sales, mainly thanks to good growth in our services business. Operating profit and net cash flow declined over proportionally as anticipated. So our adjusted return on sales came in at 5.7%. That's at the lower end of our guidance for the full year, but still somewhat better than expected. Earnings per share were very low in Q1 due to certain items that were adjusted, but fully impacted our net result. We come back later. these adjustments. The highlight of the quarter is the significant increase in water intake with an increase of 80%, as you see on the slide, up to 87,800 units. So let's turn to the next page and have some more details on the growth of water intake. We saw encouraging demand increase in all three of our core geographical regions, although Germany, which everyone keeps asking about, is still somewhat lagging. Also, across all of them, order intake exceeded deliveries in Q1, supporting a raise in our books to build ratio up to 1.3. Starting in Europe, then, in a year-over-year comparison, Truck order intake in Europe remained stable at around 29,000 vehicles. But remember, this compares to a very strong start of Q1 also last year, which was before the tariff announcements from the U.S., and it was also marked by initial German market stimulus . Turning to North America, truck order intake nearly doubled, up to 18,800 units in Q1. And after more than four months of consistently strong U.S. demand, we are increasingly confident that we have passed the trough of the cycle for this time. Finally, in South America, truck demand was boasted by the so-called Move Brazil program, which provides subsidized truck financing in this unusually high interest rate environment. So strong starts in both the agriculture and the mining sector supported the higher truck order intake in Q1. And as a result, we recorded around 15,000 trucks, 25% up, despite the ongoing broader economic challenges in this region. But as explained before, while our group order intake grew by 80%, global deliveries fell by 6%, which was sharply driven down by lower deliveries in both North and in South America. Meanwhile, Europe recorded a significant increase in deliveries on the back of healthy water intake starting already in 2004 last year. The group was led by a man and especially strong in the truck segment. So before we continue, let me also clarify that the Iran war just had a minimal effect on the Q1 delivery and order impact figures, as you see on this slide. Two deliveries in the Middle East were postponed, and only a few markets, in a few markets, customers showed hesitation when placing new orders. Let's take the next slide. So despite this rising geopolitical challenge, we remain focused on our long-term success. Hence, we continue to drive our group-wide technology initiatives, such as the development of a unified software-defined vehicle platform that will eventually be implemented across all of our brands. In partnership with Flight Integration, this platform is scheduled for launch in the year 2028. Also, Our brands continue to make good progress within their various strategic initiatives. Scania delivered the first Next Era trucks according to plan in the Chinese market and started to receive first positive customer feedback. MIM launched the so-called MIM 2030 Plus, a program to continue to drive efficiency gains and enhance competitiveness for future vehicles based on our Phaeton Modular System. International partnered up with Ryder to launch a Level 4 autonomous truck pilot, deploying factory-integrated autonomous vehicles in the state of Texas. Volkswagen Truck & Bus celebrated its 45th anniversary, aiming for continued growth and success, remaining true to their philosophy, less you don't want, more you don't need. And then finally, take on financial services, expanding again into two new markets, this time Belgium and Lithuania. We're now also supporting MIM, thus underlining our consistent geographical growth strategy. At the same time, and turning the page, we continue to advance on our battery electric vehicle transformation journey. Total BEV unit sales rose by 38% in the first quarter to 857 units, and incoming orders increased even more by 45%, reaching a total of 1,252 units. In Europe, our BEV ratio therefore reached 1.9% of total European vehicle sales. Given the lack of speed, In this transition of this comprehensive planning, I'm pleased to report that the EU Commission finally decided on a so-called targeted amendment to the CO2 rules, acknowledging the specific needs of the truck industry ecosystem. In practice, it encourages early market adoption of heavy-duty vats through a more flexible credit mechanism in operation already from this year. while at the same time maintaining the long-term decarbonization trajectory. Nevertheless, or even more so, we need a faster rollout of charging infrastructure, and we need policymakers' support to address the TCO challenge. A good initiative by our Milo joint venture mid-April, where several heavy-duty e-trucks drew 1,000 kilometers, an all-electric route from Paris to Berlin, drew a lot of attention exactly to this point. With great public visibility, it highlighted the urgency for clean transport corridors and demonstrated that long-haul rail transport is feasible. And it underscored that establishing a Europe-wide fast charging network for heavy-duty vehicles is both achievable and critical for an energy-secure Europe. Meanwhile, on the operational side, MIM secured its largest electric bus order to date in Austria, underlying growing confidence of public transport operators in our bad solutions. Also in the U.S., more explicitly California, international secured a large number of electric school bus orders. And in China, where bad adoption is rapidly increasing, Scania continues the development of an all-electric next-era truck. So in summary, our battery electric vehicle transformation strategy is on track. But as is typical for emerging technologies, development risks are higher. Changing conditions require selective readjustments. And in our case, this has led to one of the one-off effects, as I mentioned earlier, and which Michael will come back to in just a moment. But before handing to Michael, Also a few words on our truck market outlook. Although there are signs of recovery, both in the European and North American truck cycles, we leave our forecast ranges unchanged for now, as uncertainty remains elevated. In April, Scania, but now also in Miami observed some cases of classroom hesitancy, bit slower order intake that is connected to high fuel prices and related to the uncertainty coming from the war in Iran. But so far, less than what I feared. So overall, though, good order intake momentum, which supports our confidence in a growing European truck market this year. At the midpoint of our outlook, we see European tracks above 6.0 at 345,000 units, and heavy-duty tracks also well over the 300,000-unit mark in 2026. In North America, the significant ordering inflection since end of last year is indeed promising, but the downside risk remains, especially given conflicting signals from both manufacturing and consumer demand. Following record track order intakes in March, international is seeing healthy volumes also in April. Main reason being higher transport pricing and better balance between capacity and transport demand. The magnitude of EPA 27 pre-buy within these orders is at the moment probably minimum, but also difficult to assess. At the midpoint of our unchanged North American market outlook, we assume a 2.5% growth, which would translate into 265,000 cross-age trucks in 2026. And with that, Michael, I hand over to you.

Thank you very much, Christian, and good morning, good day, warm welcome from my side as well. As already mentioned, unit sales dropped minus 6% in the first quarter, while the decline in revenues was less pronounced, mainly due to a growing vehicle services business. MAN delivered a strong top line performance, especially in European truck sales, which increased by 31% year over year in the first quarter. German truck sales were up 14% at MAN. Scania with a different customer and product mix, still lacked European growth in the first quarter. This, combined with significant declines in North and South America, prevented a positive group top-line performance in Q1. But, as Christian showed before, the order book is developing well, resulting in a book-to-bill ratio of 1.3 in Q1, last seen during the post-COVID catch-up. These orders will translate into unit sales and sales revenue in upcoming quarters, helping us to recover from the slow start. And let's not forget, Trayton Financial Services are constantly delivering on their growth strategy. The next slide shows that more factors than declining volumes contributed to our lower operating results. While revenue decreased by 4%, the adjusted operating results declined by 10%, resulting in a 0.4 percentage point lower return on pay of 5.7%. That is at the lower end of our guidance range, yet somewhat better than expected. It was clear that U.S. tariff costs would hurt our Q1 results, especially with Section 232 U.S. content approval still pending. Section 232 and IEPA tariffs totaled 110 million euros in the first quarter, compared to 6 million basic import tariffs a year before. Higher foreign currency headwinds, mainly from the Swedish krona and the US dollar, negatively impacted our year-over-year results by 84 million euros. And increased R&D needs also led to higher expenses. they were partially offset through capitalization. Positive effects came from a better price mix and improved fixed-cost absorption. Scania's China plant was roughly cost-neutral vis-à-vis last year's first quarter. In addition to the just-mentioned effects, our profitability was burdened by certain items, which were adjusted and summed up to 521 million euros. So, Trayton Group's unadjusted operating result was €60 million in the first quarter, corresponding to an operating return on sales of 0.6%. The four main adjustment items were, first, write-offs and supplier claims following adjustments to individual e-mobility projects. Second, impairments and labor expenses in connection with the sale of international Springfield sites. Third, expenses for civil lawsuits in connection with the EU truck cases consistent with previous quarters. Fourth, provisions for the announced restructuring at international. These items are non-operational in nature and do not change our underlying long-term view on the business. Therefore, let's concentrate again on the adjusted return on sales and how each of our four brands performed on the page you see now. As in Q4, MAN, with its strong focus on Europe, was the only brand to see a year-over-year increase in sales revenue. The 8% revenue growth in the first quarter contributed to a 2.9 percentage point higher adjusted return on sales, leaching This result was supported by ongoing cost management measures and a solid vehicle services business. Scania saw lower sales in Brazil, but stable units in Europe. Revenue decreased by 4% in the first quarter, while the margin remained nearly stable at 11%, with lower fixed costs year over year and a higher vehicle services business. As anticipated, international reported a negative margin, decreasing by 5.6 percentage points to minus 4%, while sales revenue declined by 19%. Although fixed cost absorption was reduced due to the low production volumes, the recent restructuring of central functions contributed to lower absolute fixed costs. Volkswagen truck and bus also recorded a severe revenue decline of 18% year-over-year. At the same time, the adjusted return on sales fell by 2.8 percentage points to 10.2% in Q1. Trayton Financial Services delivered a 9% return on equity while sales revenue increased by 13% with the ramp-up of the business. The weak early-year operating performance also weighed on our cash flow and Section 232 tariffs even more heavily as we paid the full 25% amount until a U.S. content agreement is reached. At the same time, the negative working capital performance in Q1 reflects typical seasonality. The investing cash flow is half-half influenced by capex and capitalized R&D. The position, other changes in cash flow includes net proceeds of 170 million euros from the sale of Sinotrack shares in January. So while net cash flow at Trayton Operations was negative 240 million euros, overall, we managed to achieve a slight reduction, our net debt by 10 million euros at the end of the first quarter. Looking ahead now, we have nine months remaining to deliver on our 2026 full-year outlook. I reiterate that the second half is expected to show a stronger performance than the first half of the year, as the higher book-to-bill ratio clearly indicates increasing top-line performance, especially at international. Scania and Volkswagen truck and bus will benefit from the so-called Move Brazil orders converting into revenue. And there is good order momentum in Europe, except for Germany, where we are still waiting for the anticipated demand recovery. Discussions regarding our U.S. content rate with the U.S. administration are still ongoing, so second quarter will still be affected by higher tariff costs with our prudent accounting approach. The economic impact of the Iran war is yet difficult to assess. Although, we already plan for higher input costs taking effect towards mid-year. While unexpected geopolitical effects are excluded from our full-year guidance, nevertheless, at this point, we feel confident with our full-year guidance, which is based on broader forecast ranges. So, we maintain our unitary and base revenue outlook between minus 5 and plus 7%, we still see an adjusted operating return on sales for the trading group between 5.3% and 7.3%, where the midpoint is at last year's level. And trading operations net cash flow is expected between 900 million and 1.7 billion euros. And with that, happy to hand it back to you, Ursula, to moderate the Q&A session.