AB Volvo

Very welcome to the Volvo Group third quarter press conference. My name is Kristi Johansson, heading up Investor Relations. And with me, I have our CEO, Martin Lundstedt, and our CFO, Jan Ytterberg. We will do as usual. We'll start off with presentations, followed by a Q&A session. And with that, Martin, over to you.

Thank you, Kristi, for that. And also from my side, most welcome to this business update related to the third quarter 2021. First and foremost, as a summary of the quarter, we continue to deliver a strong performance despite the ongoing and challenging supply chain situation. And this is really thanks to all employees and business partners in the entire group doing extraordinary efforts and really focusing on actually delivering both trucks, buses, and machines, but also our services. And that is also a true proof of why decentralization, accountability, and the ownership mentality is so important for the Volvo Group today. The strong customer demand for our products and services across business areas continues, and demand is stronger than supply right now, but we also anticipate that it will be so for the coming quarters here. Our operational focus is therefore on supply chain It is on production. It is also in the aftermarket activities to thereby manage our customers lead times and uptime since they have very high activity levels. The order board is very strong and it is now a balancing act between the order intake, the quality of the order board, production and deliveries. We have been and we will continue to be restrictive in our firm order intake into the manufacturing system related to the full order books. Visibility in the supply chain remains low with a high level of uncertainty, but we have a very good interaction and cooperation with our supply chain partners around the globe, and we will continue to gradually improve our output. So the pandemic and its ripple effect is not over yet. But at the same time, we see that demand for transport and infrastructure continue to be strong here and now, but also supported by several societal trends. E-commerce, for example, and with that comes also high demands on more sustainable solutions. Perform and transform at the same time. On the transformation side, our customers' interest to decarbonize their operation is increasing by the day, And we continue to lead this journey. And we will talk about that just in a second here. Because when we talk about the future, we are committed to be climate neutral and achieve net zero greenhouse gas emissions in our value chain by 2040 at the latest on a global scale. So at the same time as we are decarbonizing the output from our propulsion and from our powertrain systems by electrification, battery and fuel cell electric, and also renewable fuels, We now also move ahead to further decarbonize the materials used in our products. And we are very proud that we, a couple of weeks ago now, presented the world's first machine and heavy-duty equipment vehicle produced with fossil-free steel, along with our partner SSAB and the world-leading hybrid initiative. More vehicles will follow now, and we will start small-scale serial production in order also to let our customers be part of this very exciting journey. And the Tara, as you see on the screen here, is a real example of a sustainable future. It's electric, it is autonomous, and it's also based on fossil-free steel. So coming to the quarter then, as a summary, Customer demand, as I said, continued to be very strong in quarter three, and net sales were growing to 85.3 billions, growth with 20% adjusted for FX. We delivered an adjusted operating income of 9.4 billions and an operating margin of 11%, showing also strong resilience with a solid result despite the constrained supply chain. with unplanned stops also in quarter three, but also related to the strike in the beginning of this quarter in United States for Volvo Trucks. The industrial cash flow amounted to minus 5.7 billions, where quarter three normally is a seasonally weaker quarter, but also this time compounded by the constrained supply chain causing more unfinished vehicles in inventory. And Jan, of course, will come back to that later here. Last year's strong figure was the result of the ramp up after the long stop at the beginning of the pandemic and was, of course, an exception. On a 12-month rolling basis, the return on capital employed in industrial operation increased to 25.6%. So all in all, a strong and solid quarter. Truck deliveries increased with 33% thanks to growth in most regions. And deliveries for construction equipment decreased with 9%, almost entirely related to China, while other regions were showing solid growth. Electrification and the demand for electric vehicles and machines is growing day by day, and we are in many dialogues with customers in different regions and in different segments, as I said before, reducing CO2 emissions. has rapidly become the main priority for many of our customer segments. This is very, very positive and we will continue to push for more rapid build out of infrastructure, of the energy networks and the green generation of energy together now with the rollout of our equipment and we are very active in this journey. The result is a positive book-to-build situation, still from low numbers, but rapidly increasing. So order intake north of 400 units and deliveries almost 200 units. And this is truly the opportunity of the century and be part of leading this very interesting and motivating transformation. Also on the service sales side, strong figures. The freight market and also the infrastructure market is strong, resulting in in that customers' activities in most regions are on a high level, with good truck and machine utilization. Adjusted for FX, service grew with an impressive 10% in relation to last quarter, but also we see that it is now above pre-COVID levels. So we have true sales, both related to the high activity, but also through really focused activities here. Global sales amounted to 22.5 billions. And our service business is so important for the long-term relation with our customers, obviously, but also when it comes to the resilience for our company. We have very good traction in our service activities, but there is still so much more to do in order to increase the share of wallet in the rolling fleet together with our customers. Repair and maintenance, contract penetration, productivity, and... productivity services, as well as uptime services, but also the electromobility journey, where we see that both in-depth and the duration of the contracts are increasing. And that is, of course, also very important now when we are moving forward in the electromobility journey. When we come to trucks... Start with some great news here also. We have lately got two larger and one in particular, very large order showing now that it's not only the pilot units for different customers, but also growing in the real operation of our core customers here. So one example that came in and signed in beginning of October, so not related to the quarter three figures, but So important, so we want to mention DFDS ordered 100 Volvo FM heavy duty trucks for their port and logistics operations in Europe. And also Performance Team in California, which is a Maersk company, ordered 16 VNR heavy duty for their warehouse and distribution operation in North America then. And that is also a result of the lights project that we are running there where we are cooperating also with the big ports around infrastructure and all the other prerequisites in a very positive way volvo autonomous solutions together with aurora also revealed the first prototype for the autonomous volvo vnl heavy duty class a truck for hub to hub autonomous transportation in u.s and also volvo trucks has agreed now to acquire the jmc heavy duty vehicle corporation in china plan is to produce the full range of volvo cab over engine trucks the fh the fm the fmx as of end of 2022. market forecast is of course a chapter in itself and and it's of course high level of interest here to start with of course they are based on the current visibility and still the current visibility is very low. And therefore, I mean, flexibility and our ability to adjust is, of course, the key focus. But current visibility, visibility is low. Uncertainty is, of course, also significant, mainly then related to the supply chain situation. So when we are now taking down the market forecast for Europe and North America, 10,000 for Europe and 20,000 for North America for 2021. It's not related to the demand. It is solely related to the supply chain capabilities. So I think that is a very important message to bear in mind here. And that's also the reason why we are guiding now for an improvement for next year up to 300,000 units, both for Europe and for North America. But where we are also clear that initially, at least of the year, That increase will still be decided by our ability to step by step improve the supply chain situation and thereby the output. So demand is larger than supply both in Europe and in North America. Brazilian demand also strong, of course. And we are now saying that the market for 2021 is unchanged that we said before at 95,000. and approximately 100,000 next year, of course, driven by good activities in the commodities and the agriculture sector. Also, maybe to mention China, we are keeping guidance unchanged at 1.65 million trucks for this year, where you know that it was an extremely strong market in the spring, both related to the high activity level, but also related to the pre-buy of CN6 emission levels. a weaker second half of this year. And we anticipate that to continue and thereby guiding for a total market in China of 1.1 million units for 2022. When it comes to orders, orders were down with 6% while deliveries were up with 33%. And as I've said several times now, demand is stronger than supply. Hence, we have been and we are and we will continue to be restrictive to book firm orders in our manufacturing system. It is more important for us to deliver on the promise that we have already made towards our customers. We have solid and long order books. We are constantly working with the order book quality. And focus now is to deliver and to continue to balance, as I said, the order book, the quality of that. together with supply and demand. Price realization is solid and we are currently ahead of the raw material cost and cost inflation. When it comes to market shares, Volvo Trucks and Renault Trucks in Europe, very well received. So we have the new ranges in the market, the newest ranges in the market. And combined, Volvo and Renault has year-to-date 24.2% market share. with actually Volvo trucks reaching market leadership in September isolated with 18.4%. And we have during quarter three gradually been catching up after weaker market share development in quarter two. And as we are the first truck OEM also to electrify our ranges in serial production, we have a first mover advantage and combined Volvo and Renault reached just north of 60% market share for the electric heavy duty sector. Of course, volumes are still low, interest is high, and now the ball is rolling here and we will continue to see good development. In North America, we were held back then for Volvo trucks on deliveries by the strike that ended in July. And we came out at 8.5% for Volvo and 7.4% for Mac and 15.9% combined. There is clearly room for improvements here, given these interruptions. And focus now is to continue to deliver on the strong order book here. In Brazil, a market share that is stable on a good level of 21.6%. Last year was actually historically exceptionally good, but 21.6% is good. And in South Africa and in Australia now, we are gradually also coming back after the disruptions that we have had in the supply chain. So situations are improving here. And then going into Volvo construction equipment, what we see there, a couple of news. First and foremost, that we are continuing also to rule out in the compact segment new machines and solutions. So three new machines now, both for Three that are all introduced in the compact segment in Europe and two of them are currently also introduced in North America. Very good step forward. And also during the quarter that we have actually changed and revealed a full program for the CEV4 norm in India also with 16 new products. And also in the mining and construction segments, market forecasts are based on current low visibility. And uncertainty is also here significant due to the supply chain and the ongoing pandemic. There is, however, also here a broad-based increase of demand across our key regions and key segments, with the exception of China. So changes to the market. We are not changing North America when it comes to this year, but we are expecting a 10% growth as from next year. For Europe, we are increasing this year with five percentage points and another five percent as midpoint for growth in relation to 2021, sequentially for 2022. South America, very strong, increasing this year with 10 percentage points up to plus 50 percent. And we expect another sequential growth of 10 percent as midpoint for 2022. And then maybe just also, not maybe, of course, also to mention China, given the very strong start of the year and then a weaker second half now, we are remaining with the current forecast on 2021. And we are guiding for a decrease of minus 20% and sequentially for 2022. When we look at the orders and deliveries for construction equipment, orders were down with minus 1%, while deliveries were down with 9%, and the decrease is almost entirely coming from China. There is a continued good demand in our core segments, and good machine utilization drives both services and replacements. In addition, we have low dealer inventories and low dealer pipeline. Volvo CE has not so far been as impacted as trucks with regards to the semiconductor shortages and other shortages. But also, of course, a very tense situation. On Volvo bus side, demand is gradually gaining momentum and orders increased with 34 percent, while deliveries increased with 2 percent. This is, of course, related also to the gradual softening of restrictions where travel and tourism are step by step coming back. Bodo Bus has also revealed a very, very important part of their product portfolio, and that is the global electric bus chassis platform, the BZL, meaning and allowing also to grow this business now together with some of the very, very strong and professional bodybuilders that we have around the globe in Asia, in Australia, in South America, but also in Europe. And this is based, of course, on the electric platform that we have in the group and not at least on the platform that Volvo buses are already providing in Europe. So the launch of this is very, very exciting and important for buses now when the need of electric executions are taking off. Volvo Penta, also here, we continue to see solid demand across segments with orders up 34%, deliveries up 6%, also here a struggle, of course, to meet this high demand. Penta is taking also next step when it comes to the electric drive lines and powertrains and in serial production, both for on land and off or at sea executions. And what you can see here is also the corporation, along with Donfoss, developed an electric hybrid propulsion system that has been successfully tested on a crew vessel boat now. And on the final note here for vfs volvo financial services we did see of course an increased business volume related to the increases in our other business areas with a stable penetration of 30 percent and there is a continuous good portfolio performance related of course to high activity levels among our customers and they are making relatively good or even good profits VFS is also playing a very important role when it comes to the electrification journey. We see that the need of that type of bundle solutions are even bigger and penetration in our electric portfolio for trucks, for example, are 43%, so 14 percentage points higher than on the diesel side. And we expect that to grow when we are bundling offers into equipment as a service. So very interesting and good and solid quarter. And by that, I will leave the word to you, Krister.

Thank you, Martin. That brings us to the next speaker, our CFO, Jan Ytterberg, that will now take us through the financials. So, Jan, please, let's dig into the numbers.