AB Volvo

Welcome to the Volvo Group press conference for the fourth quarter. My name is Christer Johansson, heading up investor relations. And with me, I have our CEO, Martin Lundstedt, and our CFO, Jan Ytterberg. We'll do as usual, start off with a presentation and then follow by a Q&A session. And with that, over to you, Martin.

Thank you, Christer. I have to say that normally I speak with a high speed, but I think Christy, you did it also very well. But also from my side, welcome to the fourth quarter 2021, but also the full year 2021 business update. And it, of course, had been a very turbulent year for many different aspects. So I have to start by saying how proud I am that the group delivered a strong performance in quarter four, but also for the full year 2021, thanks to outstanding work and dedication and cooperation by colleagues and business partners, supply partners, and of course, in close cooperation with customers. And I know that many of you are listening in. And I will therefore start to really express my gratitude from myself, but the whole executive management team and all colleagues also for, I mean, relentless efforts. relentless efforts and continuous disturbances, disruptions, but always having the customer focus in mind. And that's also the reason why we have been able to continue now to increase deliveries and to serve our customers well here, despite the supply constraints, but also while securing a safe operation that is of course the main priority. At the same time, the pandemic and its ripple effects on different industries and our industry is yet not over. The supply chain visibility and predictability continues to be low. Therefore, we continue to focus on securing supply on a weekly, but in many cases daily basis. and to manage our operation with high levels of flexibility and maneuverability, and thereby serve the very high demand of our customers and their need for extended capacity, but also more and more urgent replacements, and to execute on our side also on a very strong order boot. The demand will continue to be higher than the supply in the coming quarters. So in this regard, every truck or machine or bus or engine count. Also in the longer term, the megatrends are supporting an increased need of transport and infrastructure solutions that also must be considerably more sustainable. So in 2021, In parallel with managing the here and now situation, we have also taken a number of very important steps. We have confirmed our support to the latest science, what is deemed necessary to keep global warming at the maximum of 1.5 degrees Celsius. Our pathway to reach the goals of the Paris Climate Agreement was validated by the Science-Based Target Initiative, a very important step to continue to increase transparency, both about the target setting, but also about the pathways and the progress. And the good news is that our customers and their customers in turn also are increasingly committed to reduce their carbon footprints And we rely on each other here to support each other to decarbonize the entire value chains in different industries and segments. And what is our scope three downstream, that is the biggest part of our emissions, is someone else's scope one, scope two, scope three. And that's the reason why we're so often talking about the partnership and the ecosystem creation. And we have seen how that has been further taking off during this year. We have been early out taking the leadership in the electrification and we are now accelerating our R&D initiatives dedicated to the transition to a sustainable transportation and infrastructure solution system. We are broadening the product and service offerings but also extending solutions to areas of importance such as charging, energy and battery management, just to mention a few examples. Then when coming into the quarter highlights, the demand continued to grow in quarter four and net sales increased with 12% to 102.4 billion Swedish crowns than adjusted for unit trucks and currency. We delivered an adjusted operating income of just above 10 billion at an adjusted margin of around or just slightly above a double digit 10%. And this was a strong achievement, strong development on the back of strong demand and deliveries and also price realization. But that was also offset by extra supply chain costs and high costs on raw material and freight. But one thing is clear, with the current high demand, Both for us and our customers, our main priority has been and will continue to be to maximize deliveries and thereby serving the customers for their urgent need, as we said, of capacity increase and replacements. And to execute also on our side on the strong order book. Since the summer, we have taken an even more conscious choice to run our productions on high levels and with extra flexibility. This is, of course, not optimal in the short term when it comes to efficiency, but it gave us extra flexibility and maneuverability in a bumpy second half here. And deliveries and market shares increased. Industrial cash flow strong, almost 24 billion in the fourth quarter, and the return on capital employed increased to 25.3%. So in short... we did manage the right balance during this quarter. Higher volumes for our customers, both for products and services, and strong market share development. And despite the pain in the supply chain and the cost headwinds, we achieved sales of 100 billion, income of 10 billion, and a margin of 10%. As regards deliveries, truck deliveries increased with 20%. Again, 56,000 heavy-duty and medium-duty trucks is a very good achievement considering the constrained supply chain. Volvo construction equipment deliveries decreased with 18% and the decline was only related to China. In all other regions, we were growing between 20 and 40% with continuous strong momentum. Also when it comes to electrification, the most important part of the sustainability journey is an accelerated deployment of zero-emission vehicles. And the interest and demand for battery electric, but also later on fuel cell electric vehicles, and solutions is accelerating as our customers are executing also their plans to reduce their CO2 footprint. And we are, thanks to our modular product system, CAST, Common Architecture and Share Technology, continuously broadening the range of trucks, machines and related solutions. We have a positive book to build also in this quarter. for our electrified solutions and then good momentum continues. On the right side of the slide here, the sequential improvement is obvious and is expected to continue also in the coming quarters and years. As regards service, we had a good development of services during the quarter on the back of course of high freight volumes and construction activities. but also with the focus that we've had on continuous increase of penetration of service contracts. Service sales increased with 9% to almost 24 billion in the quarter, adjusted again for UD and currency, which was above the peak in 2019. And as stated many times before, service growth continues to be one of the key priorities. First and foremost, of course, because we know how important that is for the customer relations and the customer retention, but also to build strong resilience moving forward. There is still a great potential to continue to improve from a strong level here. Of course, continue the adoption of service contracts into new regions. for example, into North America now for different performance steps of service contracts, but also to continue to increase penetration. We see also when it comes to connectivity and financial services penetration, as well as the electromobility solutions. But overall, a good and promising development also for the future with recurring revenues. On the truck side, start with truck news. And that is, again, a proof point that we are serious about our focus of the transformation here. We are continuing to introduce a number of new products and solutions. First and foremost, then, that the Daimler truck, Traton, together with us at Volvo Group, then signed a joint venture agreement for a European high-performance charging network. And that is, of course, important then to continue to show the sign that we want to see more partners and to deploy a strong network and thereby also facilitating the transition even faster. There is a big interest in this joint venture, both as regard partnership, but also from the customer side. In North America, another very important part, we have introduced the VNR electric for regional hall and for other applications. We are broadening that scope now. And we are also launching a number of new features, extended increased range up to 440 kilometers, or maybe more accurate to say in North America, 275 miles. faster charging and the more available vehicle configurations. That is, of course, important then to reach out to more customers. So great interest. And at the end of the year, we concluded a number of important deals and momentum continues. And then the Volvo FH, heavy-duty electric truck that is coming into serial production this year, was put through an independent test. energy efficiency test in Germany and the truck exceeded expectations range used 50% less energy than the diesel counterpart so let's have a look on on that a short movie our electric truck ready for heavy loads yes and we can prove it

In a first independent road test, the Volvo FH Electric maintained an average speed of 80 km per hour at 40 tonnes total weight with zero tailpipe emissions. The test was performed on the renowned green truck route in Germany. Energy consumption was 1.1 kilowatt hours per kilometer, which gave the truck a total range of 345 kilometers. In addition, the Volvo FH electric consumed 50% less energy than a corresponding Volvo FH diesel truck, making it a very powerful tool for reducing CO2 emissions.