Volvo Car AB (publ.)

Good morning and welcome to the presentation of the second quarter of financial earnings coming to you from our headquarters in Gothenburg. Those were, of course, some of the highlights from the big reveal we did last month of the small fully electric SUV, the Volvo EX30, one of the key highlights for this quarter. We'll talk more about that in the course of this earnings call. My name is Ron Banerjee. I'm in communications. And as always, I'm joined this morning by our president and chief executive, Jim Rowan, and our chief financial officer, Yuan Ekdal. It should be familiar to you by now, but we will start this earnings call with Jim and Yuan walking us through our performance during the second quarter, after which we'll throw it open for a live question and answer round. So if you have any questions, please send it to us. You can either use the chat window that you see at the bottom of your screen or else just use the phone lines and then we can hear you. But I'll come back with more details before that. But for now, Jim, over to you.

Thanks, Yuan. Hey, welcome everyone to our second quarter results. Let's categorise as Q2 full speed ahead in transformation with solid underlying business performance. The share of fully electric cars at 16% versus 7% in Q2 2022 with sales up 178%. Retail sales up 25% versus Q2 last year. Production volumes up 50% versus Q2 last year. A stable order book and we've maintained our premium pricing. Underlying EBIT has been improving, weighed down only by non-recurring restructuring costs, which Yuan will talk to in some detail in a moment. The UK transformation into fully direct sales has now happened, and we're starting to see the benefits of that come through. Strategic collaboration and agreements with leading semiconductors has helped to stabilize our manufacturing and our supply chain. And we have launched the EX30 with strong customer response. If we look to the financials, retail sales up 25%, revenue up 43%, and our EBIT margin, when compared to Q2 last year, has gone from 4.6 billion SEC to 7.3 billion SEC. Again, Johan will pull out the details on all of this in just a few moments. Despite multiple headwinds, we are tracking towards our mid-decade ambitions. And let me just frame what we mean by mid-decade ambitions. That is from the start of 2025 until the end of 2026. During that timeframe, we expect that we will reach 1.2 million unit run rate per month. that we will be 50% fully electric in our car sales, that we will be 50% online in our sales, that we will achieve between 8% and 10% EBIT margins, and our CO2 reduction will be at 40% when compared to our baseline of 2018. And we're starting to see the share of fully electric and plug-in hybrid cars now really start to explode through the world. It's a global phenomenon that is gathering pace. We're seeing companies like France, Belgium, the Netherlands, Ireland, all moving towards either full electric or plug-in hybrids. This means we have 15 countries which now show more than 74% of either plug-in hybrids or full BEV sales. When you look at BEVs in isolation, again, the story is the same. We see countries like Denmark now at 41%, the Netherlands at 50%, and of course, Norway over 80%. This is a phenomenon we think will gather pace over the next few years and positions as well to meet our end decade ambitions of being a fully electric car company. And on that, this will be boosted by the launch of our EX30. The EX30 we launched just recently and it is our smallest SUV to date. You saw some of the highlights already at the start of this presentation. So while the EX30 may be small, we think that it represents a huge opportunity for our company. With this car, we will enter an important new segment and a new demographic for the company, one that will help us grow rapidly in the coming years. The EX30 will also boost our growth and our profitability in the future of electric cars, with gross margins for this car expected to be in the range of 15% to 20%. We're also delighted to share today that the response to this car has been overwhelmingly positive and that the order intake for the EX30 has exceeded even our ambitious projections. And we're grateful for the warm welcome this car's received. This car will start its production life in Q3 and the customers will sit behind the wheel of this car before the end of this year. Again, something that's very exciting for us here at Volvo Cars. And with that, I will hand you to Johan who will take us through the financial update in some details. Johan.

Thank you Jim and good morning. On the financials, really a solid quarter with improving underlying operations. Retail sales up 25%, really showing the continuous improvement in our production and supply chain. and revenue up even more, 43%, also showing that we are still able to maintain a premium pricing level with revenue growing more than the sales volumes. On EBIT, if we concentrate first on the Volvo core underlying operations, excluding Javis & Associates, we increased the profit from 4.6 billion last year in Q2 to 7.3 billion this year, from 6.5% to 7.2% EBIT margin. The margin has then been affected by a one-timer non-recurring item related to our cost efficiency program of slightly less than 1 billion SEC, taking us then to 6.4 billion including non-recurring items, or 6.3%. On the full group, including Javis & Associates, 2022 Q2 was heavily positively affected by the accounting valuation effect related to the listing of Polestar of around 6 billion, which is then included in the 10.8 billion last year. So that's really important to bear in mind when comparing Q2 2022 to 2023. And on cash flow, a positive cash flow for the period, 1 billion SEK free cash flow, also then to some extent affected by structural investments during the second quarter of this year. So still a positive cash flow despite that. So all in all, a solid quarter. And if we look on revenue, we see a big effect of course from the increased volumes. We are more or less flat when it comes to mix and pricing in the quarter. We have a still quite nice tailwind from FX and also some contribution from the JV contract manufacturing on Polestar. and on other positive effects mainly also good deliveries of sales of parts and accessories taking us then in total to the revenue of 102 billion for the quarter or an increase of 43% compared to the same period last year. On EBIT, concentrating again on excluding Javis & Associates, 4.6 billion last year, then we see a big effect of course from the increased volumes on the back of the improved production and still healthy demand, 6 billion in effect. Sales mix and pricing slightly negative, really due to several factors, one being that on the Back of the improved production, we see a normalized mix, if you will, which have some effect and also the increased share of BEV cars compared to last year has a slightly negative effect. We'll come back more to the BEV margins shortly. And then slightly net positive on FX. And on other, the 2.3 negative year over year still consists to the largest part of elevated raw material prices. However, we expect now raw material prices to start materializing on a lower level into the second half of the year. That is then taking us to 7.3 billion or 7.2%. And then on top of that, we have the restructuring cost, a one-time cost in Q2 of 0.9 billion related to the redundancy program as a part of our cost efficiency measures that we are taking in order to be more competitive going into the future from a cost structure perspective. Then, including Javis & Associates, last year again heavily affected in 2022 Q2 by the 6 billion positive effect from the listing of Polestar, so that is really affecting the comparative number. On BEV margins then, 3% into the quarter and as expected really, our BEV margins in the second quarter were affected by a number of factors. One, the lithium and other raw materials used in these cars were sourced at peak levels in 2022. And also secondly, the effects of increased pricing on full electric cars that haven't really yet taken full effect. So, going forward, for our existing models we are introducing a considerably better range thanks to increased energy density and more efficient built in-house e-motors. And together this will really help to secure our premium position in the market. And as such, we expect BEV margins to improve considerably in the second half of the year. And this trend is expected to continue into 2024, also especially when EX30 start to hit markets with even better margins as we have seen previously. So the low level that we are at now is really a Q2 phenomenon, which we then expect to improve during the rest of the year. On liquidity, as I said, positive free cash flow in the quarter, which makes us still being at a very healthy liquidity level going out of Q2. Also considering that we do have a period of high investments, but also contributions from a positive EBITDA and working capital, which then is keeping us at a very healthy and solid liquidity level. So with that, I will leave back to Jim to summarize the quarter.