Volvo Car AB (publ.)

Good morning. It's been two weeks since we revealed the EX60 to the world, and the verdict is loud and emphatic. It is the very best in class, a car that has been designed, engineered, and manufactured right here in Gothenburg, where we are coming to you from this morning. A warm welcome to our fourth quarter of financial results. My name is Ron, and as always, I'm joined by our President and Chief Executive, Hawken Samuelson, and our CFO, Frederick Huntsman. At the top of this earnings call, Hakan and Frederick will walk us through our performance during this period. And thereafter, we'll throw it open for a question and answer round. You can either type in your questions, and I'm going to read them out for you, or simply use the phone lines to call in. But I'll come back with more information closer to the Q&A round. But for now, I hand it to you, Hakan. Good morning.

Good morning. And welcome also from me to this quarterly presentation. So if we go back a bit to the year where we started the year, we had a very challenging starting point. We had the sales dropping. We had low profitability and a negative cash flow. So we set out a program really to reset the company and put it on track. And we identified three areas which we'll come back to a bit. And the first one was then profitability. We need to fast bring the company on the track to profitable growth. We defined an 18 billion package. It was seen as very challenging. We thought that internally as well. And we can see now that that has really been done faster than we thought also internally. So we had a good cost saving of... indirect cost and variable cost of around 8 billion, which we have done. We have done cost actions to improve our cash flow. We also introduced a more leaner organization. We reduced the headcount with around 3,000 positions, which we also have done with very little disturbances and frustration from people. It has worked very good. And we also have brought down our investments to an affordable level. So I think even though this not have brought the bottom line that we would see internally, we have had really improvements faster than we thought. The second area which we set out as very important was to bring back the company on the direction to electrification. And there, of course, we need new products. And very importantly, in China, we launched the first second generation of plug-in hybrids because this company should be ready to be all electric 2030. But we are also realistic for those regions and customers still not ready. We need a bridge solution, which we call the second generation plug-in hybrids, really an electric car, but with a backup engine to get the longer range. That has been launched in China. It's a success on the market. And then, very importantly, we have brought out the Spa 3 to launch that. You saw in the video here starting a very important car because it shows the future of Volvo as an all-electric, absolutely top player in the all-electric premium segment. And we have nothing to shy away from with this car. We are absolutely leading in performance with that car. So it will be a game changer for Volvo. And it will also increase the addressable market. And last but not least in electrification, we now have the 90 segment is really complete with customers. We have the SUV EX90, but we also have a sedan, the ES90. Both selling and both are really Volvo flagships. And third area we defined then in the beginning of the year is we need to be more regional in our business. And this is really the necessity for us to maintain a strong global brand. Then we need to be regional in our tactical approach to the market. China is the first where you can see effects from this. I think we have now Even though on a very tough market where our European colleagues are really struggling, we have increased our market share in the premium segment and we have a more solid volume is kept on this level. And now we also are introducing the XC70, which is a driver for growth. In the US, we will localize more cars XC60 will be the first one, the best seller in the US. But we also said there will be a next generation hybrid coming there also. And this is, of course, to build where you sell, avoid tariffs, but also really the best way to avoid the currency fluctuation, which is now a problem for us in the US. We need to have a natural hedging and that you can do with more local production. And last but not least, Europe, we have ramped up the E830. Now it's built in Ghent. It's not imported from China. And now we will boost the volumes of that car in the next step. So a year of a strategic reset. And if you look now into the more financial figures, what did we deliver during the year? Volume was in the quarter down, also down. even more for the full year, so at least we have a lower trend in the reduction. And more importantly, the best sales is up 12%. I think that was also one of the ambitions we had with the year. Pricing pressure increased, of course. We have lost some incentives in the US for EV cars, also in China. The EBIT was also down to 2%, which of course is not the level where we want to be, but we have some external factors, tariffs and exchange rate on top of a very tough price competition, of course. What I think is positive is that we returned to positive cash flow. That was really internally the number one target for the company. We need to stop earning money. We need to come to positive cash flow. And that we did for the full year. We came back to 2.5 cash flow for the year and very solid in the last quarter with 8.8. And altogether, we had an EBIT margin of 3.5% for the year. So, of course, not where we want to be. But if you look at this really severe headwind on the market external factor, I think it's still a reasonable result. And I think it's a good base to build from now when we enter into 2026. If you look into electrification, I think it's also good signals and showing that we are on the right way. The percentage of electrified cars up to 46%, close to half of our cars are now chargeable. I think that shows we're on the right way and very promising for the future with the EX60, we are increasing the addressable market segment with 200%. And that's of course, with a very strong game-changing technology in that car. It's a good driver for future growth. So if you look into the EX60, very successful launch. This car has an all-new, no-compromise architecture for an all-electric car, introducing some really game-changing technologies, megacasting, aluminum, part in the ear, casted part, replacing hundreds of sheet metal parts. It has cell-to-body technology. I think it's the first one in this class in the market that does that, lower weights and increases the range. And also for this segment, first car with the central compute. which we call Hygien Core. And that is a carryover from our SPA2 cars. And now we have the same software pack for all our electric cars, which I think is a really important thing if we want to come up with quality and have a very rapid development of new features. Production starts in April. Everything is on track and the first cars will reach customers in June. in the summer, I should say. So with that, thank you, and I leave it to you, Fredrik, to go into the financials.

Thank you again. So summarizing Q4, I guess it was strong cash flow in a challenging quarter is the headline, which I think is very true. Retail sales were down 3%. That in the market, that was actually down even more. Our wholesale was down a full 8%. And that's really due to last year's push, which was quite unprecedented. We did a big one-off inventory reduction. And since then, we've kept our car inventory on much more control level. So that was more of a non-recurring thing, which happened last year. This translates to lower revenue, of course, with lower wholesale. But revenue was even more impacted by a strong currency in the ZEIT. In terms of profit, it's not unexpected, but it is a disappointing 2%. Q4 is typically a tougher margin quarter. But as previously indicated, we also foresaw a challenging market, which we now saw. And we have quite significant effects, both from FX and from tariffs. On cash, we are very proud of our result, and we have prioritized this. Yes, last year was stronger, but that was due to the one of inventory reduction, which was basically 18 billion of reduction. And we've kept our inventory lows in, so we couldn't repeat that this year. This year, instead, we see the cost in cash action plan really kicking in. This cash of 9 billion does include 2 billion of the last tranche of our Lincoln coal sales. But even if you exclude that, it is a very strong performance. If we turn to revenue and focusing on revenues excluding contract manufacturing, we were at 109 billion last year. Wholesale volumes being lowered naturally takes that down. We see a hit from sales mix and pricing as well. And then the biggest hit is really from FX and the very strong SIEC, which has a negative impact on our revenues. All in all, and this takes us to 92 billion in the quarter and 94 if we include the contract manufacturing. For EBIT, we started last year at 3.4%. Also then on the back of a somewhat suppressed gross margin, which we often have in Q4. Last year, we had a one-off item impacting comparability linked to NOVO. When we consolidated that, that negative effect is not hitting back this year in the 1.8 billion. If we look at this year, then, the volumes, which are lower, translates, of course, into a lower EBIT. We have a significantly lower sales mix in pricing coming from overall challenging markets across region. We have 45W consumer incentive uncertainties and backlashes in the US. In Europe, we've also repositioned the EX30 EBIT on a lower price point, but that is also on the back of the lower cost. that we have when we now have Europe for Europe production. FX year on year is negative, 1 billion. In Q4, if you look at the dollar, which is the real standout currency, it's a 13% weakening year on year and more than some of the other currencies. That said, if we look at the underlying flows, that's largely covered by the financial hedges we have, but these are quite large balance sheet revaluation effects we see here. On other, that is a positive, and it's a positive despite that it's significantly pushed down by negative effects from tariffs. This rose a higher in Q4, in part due to higher US sales. Importantly, this is being mitigated by our cost actions. So all in all, this leaves us with a 2% EBIT or 1.9 billion. Turning to cash. we see a strong cash flow from the cash actions we have, and this has been our priority. We start the quarter with 51 billion in cash, 8 billion contributed from EBITDA, and then a strong 10 billion from networking capital, both actually being able to squeeze out another 3.5 billion in terms of inventory from an already low level, but also improvements in payables and receivables. Investments takes it down 7 billion. That also includes a positive effect of 2 billion. So the net number is 9 billion if you exclude the Lincoln Co. payment. All in all, we end with a very strong liquidity. So 58 billion in cash, 81 billion in total liquidity as a year-end position. Very quickly on the full year, I think we have a similar story on top line. Retail sales is down, wholesale is down, and that translates to lower revenue. On EBIT, it is a similar story of FX, of tariffs, of pricing pressure, but also very much counterweighted by the successful delivery of the cost and cash action program. And on cash, the Q4 strong cash flow means we had a very strong ending of the year. so we are generating cash on a full year basis and we are generating more cash than we did last year and this is really a result of the cost and cash action plan talking about the cost and cash action plan we launched this program in q1 with the intention to save 18 billion of in 2026 versus a 2024 baseline so basically a 20-month program if you will we've now achieved this one year earlier. And this is a great testament to really controlling what we can in an uncertain environment. With laser focus, with dedicated follow-ups, with a lot of ideation, with a mindset shift across our company, we can achieve a lot in a very short time. And that's also why we want to build on that momentum as we go into this year. We are now stretching the bow here and taking further actions. If we look at variable cost and indirect spend, we see a great momentum and we see more opportunities in the programs we're already running. So we are adding 5 billion bottom line impact targeted for 2026, which means that versus the original baseline, we will now reduce cost by 13 billion in 2026 versus 2024. Again, controlling what we can in an uncertain near-term market. On CapEx and working capital, we talked about this in the strategic update we had in November, and we are now moving down to more affordable levels, which goes well beyond this 18 billion program. And this is a recap of what we said in November, but we will now in 2026, move down to affordable levels of investments. And this is really enabled by finalizing a lot of the one-off infrastructure investments like Cosset, like Megacosting, like Celta Body. It's about moving towards structurally lower investments in software, benefiting from the fact that we now, in all electrified cars coming, have the same Dugin Core software stack, which means that we can create better quality, better features at lower cost. And lastly, access to high-tech low-cost China for China technology through Geely. That said, 26 will not be linear. So we have quite high investments planned in the first half. We've finalized large stages of the cost of your plants, which we need to pay for. And we are also launching the EX60. Lifting our eyes a bit, we also want to remind you of our long-term strategy for value creation, which clearly remains We communicated this in November and we are building a company with above 8% EBIT and strong cashflow generation. And this turnaround is on track. The nature market is challenging, but we are executing towards this path. And on the highest level, we said, we're gonna reach this by doing four things. One is to reach affordable investments. And there we are clearly on track. Second was fixed cost discipline. there we are delivering and we are now aiming even higher. And we intend to make this a structural culture shift for the long run. The third was really Gili synergies and variable cost reductions. And there we've seen the first wins, but there's much, much more to come. We're only scratching the surface. And lastly, it's about electrified growth. And here we are laying the foundation with the best in class EX60 and a lot more to come. But as stated before, These are long-term building blocks. So Håkan, do you want to summarize and share a bit on 26?