AB Volvo

Welcome to the Volvo Group press conference on the first quarter. My name is Kristi Johansson, heading up investor relations. With me, we have as usual, our CEO, Martin Lundstedt, and for the first time, our new CFO, Tina Hultqvist. We will do as usual. We'll start off with a presentation followed by a Q&A session. And with that, over to you, Martin.

Thank you, Krister. And also from my side, Dan, a big welcome to this first quarter business update from our side. And also, as Krister said, I'm really glad to have Tina also with me for the first time as our new group CFO. It has been a strong first quarter, but before coming into the business update, let me start with the ongoing war in Ukraine. That is, of course, devastating, and my thoughts go out to everyone who is suffering. We are doing in the group, among colleagues, what we can to support colleagues in the region, families, communities, customers and business partners that are affected by the war. There are many examples of our colleagues in the group in and around Ukraine going above and beyond expectations to support victims of this humanitarian catastrophe. And we really appreciate all the dedicated efforts done. Since the war started and sanctions were imposed, all production, sales and services in Russia have been suspended. We are continuously now assessing the situation to protect people and assets to the extent possible. Outside of Ukraine in the first quarter the economic activity continued to be good with high transport and construction activities in most markets. Demand continued to be larger than supply and in such times And we have seen that now for a while. So in such times, it is important to keep discipline in the order book management. And we will talk more about the balance between order intake, order book and deliveries in this presentation today. But the bottom line is clear. Order books are more than full. They are healthy and activity levels among customers are high. Gandhi's Quarter also, the whole organization, have been doing a great job by working closely both with customers, but also with our supply chain partners, and thereby riding out many of the challenges we and the whole industry are faced with. I'm very proud to say that the group trucks in this quarter delivered record volumes, record sales, and record adjusted income for the first quarter, despite all challenges, and making us as a group continue to maneuver of a position of strength also into the future. As regards the quarterly highlights then, top line grew to 105 billion Swedish crowns and adjusted for the unit trucks divestment and for currency, the net sales growth was 11%. We delivered an adjusted operating income of 12.7 billion and an adjusted operating margin of 12%, despite our conscious decision to run manufacturing with extra flexibility and thereby also extra costs, as well as a couple of stop weeks due to disturbances in Q1. Operating cash flow was negative in this normally weak seasonal quarter. But Tina will come back to explain as normal also the reason behind that. Return on capital employed in industrial operations increased to 25.3%. And we still see that supply chain constraints remains and visibility going forward is low. But we have also shown that we are working with the right type of methodologies in the organization to continue to mitigate the situation. So albeit all the challenges, a strong financial performance in the quarter. As regards volume development, truck deliveries increased with 15% to 55,600 units and resulting then, as I said, in record truck deliveries for a quarter one in these challenging times. For Volvo Construction Equipment, the deliveries decreased with 33%, linked mainly, number one, with very high comparison versus last year when China was on very high levels. But Volvo Construction Equipment also had some impact from strained supply chains in the quarter, mainly then in Europe outside China. When it comes to The demand for electric vehicles, you see that we have good momentum here. And what is interesting to see now also with the strong movement of science-based targets among our customers and our customers' customers, we see a very, very positive dynamic actually. Because when you're pledging that, you're also going through your different CO2 targets. sources, and you are doing your CO2 abatement curve. And what we see is that many sectors and segments, geographies, and at the end of the day, customers are coming to the conclusion that they need to address transportation and construction activities, which of course is very positive. And that is also building up a strong momentum for further acceleration of this trend here. And I'm proud to see that all the Volvo Group business areas are actually having strong momentum now in their electric business lines. We continue, as you can see here also, to see a positive book to build, both really realized orders, but also when it comes to letter of intents, etc. And that positive book to build and growth rate will continue for many, many years to come here. The volume development is encouraging since we are strongly focused on keeping our leading position in these fields that we are still or that we are having as we speak. Also, when it comes to service sales development, that is also linked with the complete offering, not at least for electrification automation also further on, but you need to have a strong, strong service platform. We see that that is continuing also in a positive way. Strengthening our service business has been and will continue to be one of the key elements and a key priority for us. And we are continuing then to untap the service potential that we have in our installed fleet, but also with new contracts. Currently, we do that on the back of a very high fleet utilization among our customers, but also structurally that we are continuing to have a wider adoption of service contracts among our different business areas. Service sales is on an all-time high level of 25.3 billion. And the growth was, if we exclude them, currency 10%, which is, of course, very strong, where all business areas did show good development. And this is, as I've said many times before, so important for us for number one, we know that the higher service penetration is actually increasing the customer loyalty and retention. And number two, because that is continuing to build an even stronger financial resilience for the group. When it comes to the truck side on the news, despite the global turmoil, we continue to present innovative news also during this quarter. In March, Renault Trucks announced the expansion of their all-electric range and start of sales in 2023 for two truck models now for up to 44 tons. It is the Renault T E-Tech for regional transport and distribution. And it's the Renault C E-Tech for construction activities. Also in March, I'm proud to remind all of us that we also got a very important order for Volvo Trucks North America. They did win an order of 110 cars. Volvo VNR to Maersk for their North American operation. And the deal adds to a previous order of 16 trucks here of the same model and marks actually the sign of the to date biggest single then order for fully electric trucks for Volvo trucks. And this is showing maybe the most important here that the transformation in our customer's operation is now scaling up for real. As regards track market forecast, we keep the forecast unchanged for North America and Europe at 300,000 units on the back of the fact that demand continues to be bigger than supply. So, of course, we have an upward pressure here, but it will be, as we see it now, supply actually deciding the total market. At the same time, we also have the fact that there is a pent-up demand of the more than two years of supply shortages from the truck industry. The Brazilian forecast remains unchanged at the good level. Our forecast for India is slightly increased to 325,000 on the back of a gradual recovery of the Indian truck industry or the truck market. Where we see that in China, the market forecast is trimmed down with 100,000 units, a lower economic activity in general, but also the pre-buy effect before July 2021 has created overcapacity. Market forecasts for all markets are based on current visibility that continue to be low. And that is, of course, related to the significant uncertainty that we see regarding supply chains, but also the ongoing pandemic and the war in Ukraine. When it comes to the truck order intake, we have been restricted with the order slotting during the quarter in order to manage both the order book quality and the cost inflation. Despite this restrictive order intake, we still have an order book that is higher than one year ago, even though that quarter one 2021 had a very high order intake of 80,000 units if you exclude UD trucks. As a consequence, orders for quarter one decreased with 45%. That can look dramatic if you look at the single quarter. But the real reason is that we are restricted to book firm orders due to the long order board and also to ensure flexibility with pricing in this inflationary situation. The rather big decrease is also to be seen in the light of, as I said, an extraordinarily strong order intake in Q1 last year. However, as I already stated last report, the order intake is currently not a good indicator of the market activity going forward. It is rather the size of the order book, the fleet utilization among our customers, the used trucks business, the service business, and the customer finance activities. All these indicators are still on strong and really really healthy levels and thereby supporting the market forecast moving forward. Truck deliveries increased with 17% on the back of really really hard and dedicated work along our supply chains both internally and externally. We are running our manufacturing system on a high level with extra flexibility and we see that this is paying off in terms of volumes and also in positive market share developments in many markets. But of course, the main priority is to serve our customers and thereby create a strong rolling fleet for the future. In Europe, when it comes to market shares, we see that the new Volvo truck and Renault truck ranges that were launched last year are both very well received, and the combined market shares for Volvo Trucks and Renault Trucks was impressive, almost 28%, which is a very strong performance by our brands. Also for the electric heavy-duty market share in Europe year-to-date, we had a level of 55.1% versus last year's 65%. And even if that is a decrease, now when more competitors also are ramping up, which is a good sign, by the way, we still are holding a very, very strong position. In North America, Volvo had a relatively stable market share. Mac was down some 1.3 percentage points linked with a strong ending of last year and thereby a limited pipeline of trucks in the start of the year. But we have seen a gradual pickup later this quarter. In Brazil, we did see a strong start with a market share of almost 26%. And also in South Africa and Australia, we are regaining ground and coming back to really, really good levels. When we moved on to construction equipment, some news here. We are continuing the rollout of the fully electric machines, now also launched in Asia, with South Korea being first out with the compact excavators. We also introduced, which is very important in the decarbonization journeys, as I talked about, a new carbon reduction program, a new carbon reduction service, supporting customers towards carbon neutrality. The CO2 reduction program is designed to be easily integrated into customers' plans and operations, while maintaining also the same focus as before on profitability and productivity, and is so far really well received. When it comes to the market forecast in general, we do see a continued good demand for construction equipment, with the exception then of China. Market forecasts are largely unchanged then. For North America and South America, we are not changing the forecast. We are still reiterating that the market will grow with a midpoint of 10%. And Europe and Asia, we are reiterating that the market will grow with 5% as midpoint. Whereas for China, we are further taking down the market to minus 35%, which is a decrease of 10 percentage points in relation to the last report. And also here, of course, market forecasts are based on the current low visibility. When it comes to orders and deliveries, very much the same story as I've talked around trucks, restrictive order slotting to manage the order book, quality and cost inflation. We have a very good and high order book for markets than outside China. And we have a situation similar to trucks, and we really need to continue to manage this in a good way. So also here, the same story. As a consequence, orders decreased with 42%. as we are restricted to book firm orders. And the rather big decrease is also to be seen as for trucks in the light of a very strong quarter one last year that we are restricted in general. But also, of course, here the rather sharp decrease in China, as well as that has a bigger effect here, also cancellation of orders into Russia. But again, when it comes to the market activity signs, very, very similar to trucks. When it comes to the utilization of machines among our customers, you did see the strong service business development indicating just that. We see it when it comes to the use development, customer finance activities, etc. So all these indicators are still strong and supporting the market forecasts moving forward. Deliveries decreased with 33% mainly related to China but also to supply chain disturbances in some other markets mainly than related to Europe. When we come to buses, orders up with 146% from low levels while deliveries decreased with 2%. What we see now is that with the COVID restrictions that has been gradually lifted, the confidence among our customers are coming back from low levels. And we have seen that trend for a while now when it comes to city bus customers and transit bus customers. But we start to see the similar signs then again from low levels also when it comes to our coach customers related also to the opening up of tourism and intercity operations. We see also this improvement in the bus fleet utilization and in the service activities. In the quarter, Volvo buses received an important order of 566 BRT units to Santiago in Chile. Portfolio Penta orders decreased with 1% and deliveries were up with 8%. We have also in this business area a broad base and good demand across segments and regions. And daily focus here is to continue to increase deliveries to meet the strong order book. On the transformation agenda, lots of things are happening also in Volvo Penta. And one example is that Volvo Penta is conducting now seed tests with advanced hybrid solution for Hurtigruten and their Svalbard new sightseeing vessel. And start operation here in the beginning of May. Volvo Financial Services finally, as you know, VFS has been very, very important, a crucial part of our offering and our whole customer relation during the whole pandemic. But also what we start to see now is how important it will be also as an important lever for the transformation into new technologies and business models. We see lots of good progress in this area. We continue to see a consistent growth in the new retail financing volumes. And again, this is important since we know that the customer relations and retentions are improving when we have customer financing together. We also see a step by step and continuous improvement in finance penetration across business areas. And during the quarter, Volvo Financial Services launched also new services, among them Volvo Pay for Volvo Truck customers in select European market, where customers can easily approve and secure pay for services from anywhere. And that is a very, very convenient step for our customers. And the scope of these services and this payment solution will gradually be expanded and the market roll out will continue. So by that, I end the business update and I leave over the world to you, Krister.

Thank you, Martin. Thank you. That brings us to the next speaker, our CFO, Tina Hultqvist. She will take us through the financial numbers. So, Tina, please go through the numbers.