Volvo Car AB (publ.)

Good morning and welcome to Volvo Cars Headquarter here in Torslanda, Gothenburg. My name is Jon Anander from the Investor Relations team here at Volvo Cars and today we're here to present and discuss our second quarter result just released today. With us today we have our President and CEO Håkan Samuelsson and our CFO Fredrik Hansson. The procedure will be as per usual. We will start with the presentation from Håkan and Fredrik and then we will move into Q&A. If you want to ask a question, you can either chat in, use the chat window and write in your question at the bottom of the screen. Or if you prefer to call in, you scan the QR code, register and then press star one one to ask a question. With that, I will give the word to Håkan to start the presentation.

Thank you and good morning to all of you listening. I'm here now to present my second quarter, more or less in line with our expectations. a very challenging quarter. So what we saw last quarter is more or less continuing. The volumes are still under pressures and that, of course, influence the pricing on the market. Pricing is, of course, also influenced by new competitors, especially in the EV segment. And on top of that, we are also seeing tariffs for imports into both Europe from China and also from imports Europe to US. So a very challenging environment. So here it's, of course, important to focus on what we can do. And that is really our turnaround program, which we presented already in the last quarter. And that is based on three areas. It is electrification, really utilizing this transformation to create a stronger Volvo. I think the electric market is maybe not growing as fast as we thought some years ago, but it's still growing and it's definitely big enough for Volvo. be successful on that market. Regionalization, we need to come back to growth in China and US and that we believe will happen if we empower the regions more and give them more autonomy to react to local conditions and that's happening also. And then of course we need to really concentrate on profitability and we have our program with the 18 billion where we are fully on track and we are beginning to see the very first results from that. So let's look into then these areas and where we are and what we have done since last time we met. electrification fully electric and of course also pragmatically plug-in hybrids plug-in hybrids with longer range as a solution that probably we will need for some more years than we thought but it's very important here to really have the cars for electrification and then We are very glad that the EX90 now, which has been delayed more or less two years, is now finally ready for a ramp up after some considerable improvements of the software quality in the cars. The same is valid for EX30. It's also now ready for ramp up after the localization in Ghent. So we don't need to import this car from China anymore. So now we can avoid the tariffs and now we are ramping up the volumes as we speak. We also have a brand new sedan coming in in production at the end of the year. And in China, we are also launching our very first long-range PHEV, which will go into production in the third quarter. And this is one of the most important things for us to come back to volume growth in China. And very important is the EX60, which will be our bestseller. produced here in Gothenburg and will be our very first electric car with a very competitive cost positioning and is also then making it possible for us to really get high volumes electric cars but also good margins on electric cars. The regions I said the objective here is of course to have stronger regions and come back to growth through more local decision making and more local accountability. And what we have done in China, we have established a more a new governance model, which means that China will be more run like a daughter company through a board. Of course, in following certain corporate guidelines and so on regarding a brand and other things, but much more freedom to adapt to local condition and to be able to grow faster. And we are also increasing the synergies with Geely. One example is, of course, we can introduce cars based on Geely platforms. The XC70 is one example, but we can also lower our costs by having cooperation on more parts and components level. So that is happening in China. In Americas also new leadership, more autonomy, more empowerment to really come back to growth in Americas as well. And we have then also decided to move the XC60 from being imported into US to being built. in our Charleston plant and that is a car which will bring high volumes to the factory together with the increase of the EX90 will give that factory much better utilization in the second half of 26. Here in Europe, we are introducing and producing the X30, as I said, which is a possibility for us now to come back in this very important electric segment in Europe, where we have been low for some months, waiting for local production in Ghent. And very important also in Europe, we have decided for cooperation with Polestar to build their new Polestar 7 and engineer it also in cooperation with Polestar. And we will here build that car in our new Kosice plant in Slovakia, which is under construction right now. And then, of course, the third area is the turnaround plan, the 18 billion cost and cash measures. And that is well under track. But I will leave that to Fredrik. He can explain that better. So please, Fredrik.

Thank you, Åge. So let's come to that, but let's first start with a bit of a financial update. And if we take the quarterly financials in brief, I think it has been a challenging quarter for many reasons, but we are operationally better than in Q1. We have a strong positive cash flow and importantly, our turnaround plan is fully on track. We also have some very big non-cash items, which is impacting the bottom line. If we start with double-clicking on the one-off, so we had two big items impacting profitability. Firstly, it's the impairment of the EX90 ES90 platform. And this is really about right-sizing the assets to the known realities we see, mainly driven by delays and tariffs. And here, the EX90 first car out, it is a fantastic car. It's the best car we've ever built. I drive it myself and I'm extremely happy. It's also been awarded the World Luxury Car of the Year. That said, it did suffer from quite significant delays and software quality issues. And that's really from us introducing this car as the first car with Core Compute, climbing that mountain of technological leadership, if you will, Very few or even no traditional Western OEM has done yet with cars in production. But with this recent update, and that's been challenging, but with recent updates to the car now, it's actually significantly improved and it is ready to scale up. But it has been delayed for almost two years, and that means lost volumes and it means increased engineering costs. The other big part impacting here is tariffs, and I think especially for the ES90, where it will not be feasible to sell that in the US. It's a sedan well suited for the US market, but with the tariff situation, we don't see a path forward. Also in EU, the profit equation has shifted since the program was accepted as this car is produced in China and exported. So this results in a total in a one-off non-cash impairment charge of 11.4 billion, which basically means that we take more costs now that we otherwise would have taken in the future. This also means that it reduces depreciation and amortization, i.e. improves EBIT going forward by roughly 1.2 billion per year. Secondly, we have the restructuring cost, and that's really linked to the turnaround program we announced earlier this quarter, with a reduction of 3,000 white-collar headcounts. It's a one-off charge impacting EBIT now in the quarter with 1.4 billion, and we will start to see the profit effects of this coming into force throughout the year, but especially in the fourth quarter, and the whole program is geared towards 2026 profitability. So with that, let's jump to the financials. So retail sales was down 12%, wholesale down 13%, revenue down 8%. And I'll come back to the details of this, especially the revenue. But a key thing to note on this page is that we now see retail and wholesale in imbalance. We had a big imbalance in Q1, but we're now back to normal levels where we expect it to be. We see EBIT down, also excluding the one-offs. It is a very challenging market with US tariffs kicking in at full force. And noting here, we're comparing this to Q2 last year, which was an all-time high EBIT quarter for the company. So it's a tough comparative set. I think there's a very positive note, though, in this quarter, and that is the cash flow. We had a very strong cash flow, 4 billion. And that's really from improved working capital, lower investment levels and showing the first signs of our turnaround plan starting to materialize where we get the first effects on cash. If we look at things a bit sequentially, so a quarter by quarter view comparing versus Q1, we see that we are sequentially improving on all parameters. Now, to be clear, there's some seasonality in this, but we also see some of the first effects of the turnaround plan starting to materialize. On cash flow, disregarding the seasonality, we are 10 billion better. In Q1, we also had 6 billion inflow from the Lincoln Co. sale. So if I adjust for that, it's a 16 billion improvement quarter on quarter. Going into some of the details then on revenue. So if we compare to Q2 last year, the decrease is mainly explained by lower volume, and that is driven a lot by lower EX30 sales. So in Q2, we are still importing the car from China, which means that we had a 19% higher tariff than we had last year. FX was also negative due to the strong SEC and this was partially offset by used car sales, which have now reached normalized levels. And we had revenue in the other bucket there, which in part is inflated by a big one-off transaction linked to used UK subscription cars of 3 billion, which is included in that other bucket. A key thing to note here is that this inflates revenues, but it's both profit and cash flow neutral in the quarter. But so in total, we landed revenues at 90.5 billion, excluding the contract manufacturing, which is an 8% decline as compared to last year. If we turn to EBIT, Q2 last year, again, was all-time high, so a tough quarter. If we look at this year, we see a challenging market and price pressure that has now rolled for 12 months, basically, meaning that 2.5 billion is lost from volumes, 3 billion is lost from sales mix and pricing. We do see some positives from FX, but this also includes positive effects from our hedges. And we are quite well hedged also for the coming 12 months ahead. Other minus 0.5, it's a negative, but it's only slightly negative despite the fact that this includes a massive impact from the u.s tariffs and increased depreciation and amortization and this was basically offset by lower indirect costs and quite significant variable cost reductions so all in all we have an adjusted group a bit of 2.9 billion or 3.5 percent despite the somewhat inflated revenue number back on the back of the the uk transaction i just described If we include the one-offs then and the non-cash impairment, we land at minus 10 billion on a group EBIT level. Turning to liquidity, we started the quarter with 47 billion of cash and ended with 56 billion of cash. So that's a strong 9 billion SEK improvement in liquidity, both from a strong free cash flow improvement of 4 billion and then a bond of 5 billion that we issued in the quarter. On free cash flow, we see that EBITDA contributes 8 billion. Networking capital improved 11 billion on all the underlying parameters, including very well executed production planning and inventory management. We had investments of 14 billion, but that includes transactions done within the quarter linked to UK and basically the change of our financial services setup, which technically was us buying a company, i.e. an investment, and then selling the car, i.e. a networking capital reduction. So if you normalize for this, you can say that the investments ended at 11 billion, and network 11 billion negative, and networking capital at plus 8 billion, which is a more fair view to look at. Importantly then, and as we see the first effects of our cash flow in this quarter, the 18 billion cost and cash action plan is fully on track. We announced these targets in Q1. A 3 billion variable cost reduction in 26 as compared to 2024 absolutes. A 5 billion reduction in indirect spend in 26 full year as compared to 2024 absolutes. And then on capex and working capital, a 10 billion reduction beyond the planned reductions we already have as we're stepping down the capex mountain. If we look at the developments here, we see on variable cost, we have during the quarter initiated with force joint procurement activities together with Geely, really leveraging the scale of the total group in our negotiations with suppliers. On indirect spend, we announced a 3000 headcount reduction and we've already started to execute on that. So by today's date and as we go into vacation here in Europe, 1100 people have already left the company. On CapEx and working capital, we do see effects. We've had lower investments in the first half of this year as compared to the first half of last year. And we also see a reduction in working capital, a very big reduction in absolutes, but also in relatives as compared to where we are on sales pace. We see a real reduction coming in from this program. So with that, let's leave it to Håkan again to summarize.