AB Volvo

Welcome to the Volvo Group press conference on the first quarter earnings. My name is Christer Johansson, and I'm heading up Investor Relations. And with me, I have our CEO, Martin Lundstedt, and our CFO, Jan Ytterberg. And we will do as usual, start off with a presentation, followed by a Q&A session. And with that, Martin, over to you.

Thank you, Christer, for that introduction. And also from my side, the most welcome to this quarter one 2023 press conference. I don't know if you recognized before here, but I think it was a number of great news that was revealed in the small movies. Not at least obviously also that we are now extending our range when it comes to the heavy duty electric rigid range of Volvo. and we are talking about circularity and it's actually coming good together because it was also shot at one of our main sites here in Gothenburg where we are now expanding our laboratory and engineering capabilities when it comes to electric and hydrogen etc. So everything is coming together but that was more of a reflection. But as regards quarter one then, the group delivered strong performance improvements as you have seen. It is important to say that we stick to our priority of delivering as high volumes as possible to our customers since they have high demand of equipment. But also making sure that our service operations support the customers installed fleet that are experiencing continuous high activity levels in most parts of the world. In addition, the focus is to continue to manage the cost inflation pressure as well as disturbances and disruptions of material supplies and logistics in different parts of the world. For the later part, we have seen some easing during Q1, especially in Europe, while we still experienced disturbances in mainly North America. And we have continued to live in highly turbulent times and the whole Volvo Group organization together with our business partners and customers are doing an outstanding job to master these stormy waters. With a number of business conditions now stabilizing and improving, the quarter delivered a strong financial outcome after a couple of quarters with some margin pressure. But it confirms, and this is important, our fundamental belief in our strategy. That serving the customers is always right, even with extra costs and efforts in certain months and quarters. And that is the right priority and is now paying off. To achieve continued strong and sustainable earnings based on strong customer satisfaction, strong customer relations and retention, is the prerequisite to fund also the significant investment efforts we are into to continue to reduce climate impact and in particular co2 to the benefit of our customers society at large and as a positive consequence and outcome also for the volvo group we therefore continued to pave the way for the transformation of our industry with the continuous ramp up of sales and production of battery electric machines and battery electric vehicles as well as introduction of new trucks, machines in several applications. So for the quarterly highlights, the group continued to deliver strong results. Sales growing to 131 billion plus 17% if we adjust for currency and this was an all-time high. Adjusted operating income grew to 18.4 billion, corresponding to a margin of 14%, also that an all-time high. We also generated for the normally seasonally week quarter one a strong cash flow of 5 billion. A return of capital employed amounted to 30.3%. So all in all, strong results thanks to great work supported by improved or stabilized business conditions in many areas. But despite also continuous supply disturbances and inflation headwinds. When it comes to volume development in the quarter, we had, as I said, all-time high truck volumes for quarter one. The supply constraints in Europe were not as extensive in quarter one as during primarily the second half of 2022. But however, in North America, our supply chain remained unstable with disturbances, and we expect that this situation will continue also moving forward. Volvo construction equipment deliveries declined with 30%, mainly as a result of low deliveries in China. Volvo brand globally increased or grew with 9%, and SDLG declined with 63%. But all in all, given the circumstances, a great job by all internally and externally involved in the value chain here. As regards electrification, demand for our electric vehicles and machines continues to increase rapidly. And since this is still a value chain that are maturing, we continue to expand our electric manufacturing capabilities and to mature our own and our partners, both upstream and downstream value chains in terms of volume ramp up. We continue to have a positive book to build with 1,200 orders and 1,000 deliveries in the quarter. But a little bit the same situation here that we need to continue to focus on the right side of this slide in order to make sure that we can actually also take in more orders and not having a too long order book out in time, actually. But we have a strong momentum and continue to invest in this area. So this is, of course, just the start here. A little bit of a new slide, vikel and machines sales development. Normally we are also showing service sales development, but we think this is important moving forward. And the sales development of vehicles and machines was, as we have said, very good in all areas. On the back of a combination, and you will hear more of that, of course, by Jan later on, of commercial conditions, both pricing and content, but also volumes as well as both product and regional mix effects. For VCE, as you can see, it was a more stable development of sales or of top line, and that relates mainly negatively to lower volumes in China and positively by positive development of the Volvo brand in other regions and for different elements of the parameters I've talked about. But all in all, strong FX adjusted increase of equipment sales of 18% year over year to almost 102 billion. Service sales development, we had a continued good demand for services with strong growth, 13% currency adjusted growth and that is of course strong. This is a result of a continuous high activity level among our customers and that the efforts of our commercial organization to increase contract penetration and other services are successful, both when it comes to the services around the products and also financial services. We did see increases in all segments with the exception of VCE. And for VCE, the flat development mainly was due to Russia and somewhat softer machine utilization in Europe. So as we continue to work close with our customers to provide them with the best uptime and productivity, service sales, a 12-month rolling is now about 115 billion, which is, of course, a strong development. And we still have good potential to continue this journey. On the truck side, despite lots of focus on serving the customers with volumes here and now, we continue to launch new and important products and innovation. In March, and you did see Jessica revealing these news in the movie up front here, Volvo Trucks started production of heavy-duty electric rigid trucks, meaning that we can cover many more applications. And it started here in Tuve, Sweden, the production of that. Volvo trucks now have a full range of purpose-built heavy-duty and since a couple of years, quite many years now, medium-duty electric trucks for sales in Europe. In one key area for the rigid applications, Volvo trucks and mining company, leading mining company Boliden, are now joining forces to implement electric truck transport in underground environment. In mining environments, the electric trucks can deliver As you can imagine, several big advantages, including no exhaust emissions, safer workplace, quieter working conditions, and on top of that, a very competitive commercial offering based on our modular platform that is produced at scale. Also in the quarter, and you did see also that in the movies up front here, Mack Trucks launched an all-electric medium-duty product range for the North American market. And this is the next step in the very successful re-entry in the medium duty segment that Mack did a couple of years ago. And I'm also proud to see that existing technology and industrial cooperation and alliance with Isuzu Group was extended to also include Isuzu branded vehicles. As to guard track market forecast in both Europe and North America, transport activities remain high. And with constrained supplies over the last year, it is important for many customers to renew their fleet and come back to a normal replacement cycle. We therefore increase our forecast of the total market for 2023 up to 320,000 in respective region. And that is for both regions an increase with 20,000 in relation to the last forecast. The market in Brazil has been softer beginning of 2023, expected so also following the pre-buy ahead of Euro 6 emission norm. Forecast is kept at 80,000 for the full year. The Indian market forecast is unchanged at 400,000 units on the back of, yeah, amongst other increased domestic consumption. And the Chinese market forecast is restated here to include domestic sales data only since that goes for others and we think that is relevant and exclude export data. But the domestic forecast is unchanged at 650,000 units for the full year. As regards truck orders and deliveries, we continue to be somewhat restrictive in taking orders. And we do that through a gradual opening of the order book to manage cost inflation pressure, visibility, long lead times, etc., as we have discussed before. But having said that, we did see a book-to-bill that was largely in balance during the quarter with approximately 60,000 orders and 61,500 deliveries. And the 61,500 deliveries is, of course, a strong figure. So also on the orders side, that was a good confirmation when we now gradually open the books here. But we will continue to make sure that we have the right balance between order intake and production deliveries. So we have an order book with the right quality, both from a customer perspective to manage delivery reliability, while at the same time manage inflation disturbances and other uncertainties. Truck market shares. We start in Europe where we continued with a high level For Volvo and Renault, with close to 27% combined, and also 66% on electric only combined, which is, of course, a strong number. In North America, Volvo was somewhat softer at 8.7% on the back of supply constraints, and Mac, we did see a small improvement to 5.7%. We continued with a good level in Brazil of almost 22% and also a strong recovery in Australia for the Volvo brand and a very good level for Volvo and Mach with a close to 26% combined. Also for Volvo Construction Equipment, VCE, lots of news. First and foremost, in that segment, we have developed a solution to convert the L120 wheel loaders to electric machines. fulfilling market demand for more sustainable solutions in the mid-size range. VCE is also investing in battery pack production at the excavator plant in South Korea, in Changwon, enabling customizing of batteries close to final assembly with a similar logic that the group has done also for the truck segments. At the ConExpo exhibition in the United States, it was a major success with lots of news, both for machines as well as services and sustainability solutions. Amongst other, we delivered the first postal free ADT to a North American customer, CRH, with a very, very good customer reception. And VCE also experienced a continued solid momentum of electric machines with orders increasing 84% and deliveries increasing 79%. As regard market forecast for VCE, continued very strong market in the North American areas and a flat level in Europe. China has not leveled out yet and we see somewhat weaker confidence among South American customers. So as a consequence of that, we are doing no changes for North America and Europe in relation to last guiding. We reiterate that it will be a stable market in relation to last year. So no change for North America and Europe at still good levels. South America, we revised down with 10 percentage points as we do for Asia, excluding China, revising midpoint down with 5 percentage points. And for China, we reiterate also the minus 10% development as a midpoint, which is no change. Order intakes, it has also been, in particular, done for the orders, volatile, and that is, again, related to the fact that we have been restricted in taking orders through the gradual opening of the order book to manage the cost inflation pressure, long lead times, and also the quality of the order book as such. Net orders were down with 35% and it was heavily impacted by low order intake in China after the pre-buy in Q4 for TU3, as well as the cautiousness in Europe among our customers and dealers to place orders with still high order books and somewhat softer market, so that is highly natural. Order intake in North America increased significantly driven by the strong activity level. and for on the delivery side it was minus 30 percent primarily then due to lower deliveries in china and the slowdown in brazil deliveries in europe increased when excluding russia and the increase in north america was again then supported by favorable market conditions for volvo buses in quarter one global demand for new buses continue to improve particularly for coaches. Demand for city buses was more stable with a continued increase in requests for electric buses, also an expected continuation. Quarter one net orders increased with 4% driven by coach demand in primarily North America and deliveries increased with 25% driven by higher deliveries in South America, the Middle East and Africa. Volvo Buses has also decided to implement new business models in Europe for both city buses and coaches. And that will be applied in Europe similar to other parts of the world where we are operating that model highly successful. So the focus of our internal capabilities resources, both when it comes to industrial, engineering, etc., will be on the chassis side. where we have a high commonality with trucks to ensure that we can drive innovation and investments to make buses competitive and leading, not at least when it comes to sustainable transport. We will continue to use external bodybuilders in close partnership and expand that cooperation. And Volvo Bus still will be selling and servicing the complete bus. And in that regard also, as we do today, continue to strengthen and leverage the common network with Volvo Trucks. That, of course, is a unique strength. Prevost launched an all-new version of H3, H5 coach model to secure our leading position in North America. And the demand for Volvo Penta is somewhat softer on the marine leisure side, and in particular in the lower end of marine leisure, while marine commercial and industrial business remains strong. Quarter one net orders were down with minus 6%, mainly as a result of also here restrictive order slotting on the back of high levels in the order book and long lead times. Deliveries increased with 11% and an important milestone in the quarter. And you can see that beauty here on the slide. The Volvo Penta expanded its Jenset range and launched its most powerful engine, the D17. So in relation to the highly successful sibling of D16, it has a minus 5% fuel per kilowatt hour and also maximum power. output of plus 10% so very good combination obviously. Penta has also acquired a minority stake in leading actor utility innovation group in the US to accelerate our entry into the utility sector and in particular partnership in the battery energy storage with decentralized and microgrid systems where UIG is one of the world leaders. Very proud of that. And finally, for Volvo Financial Services, it was a good growth in absolute new business volumes, whereas penetration trending down due to a competitive environment. All in all, the credit portfolio grew currency adjusted by 18% compared to quarter one 2022. And we continue to see a stable portfolio performance on the back of, as I said before, high customer activity levels and demand for transportation and construction services in most parts of the world. So that concludes the business update, Krister.

Thank you very much, Martin. And that brings us to our next speaker, our CFO, Jan Ytterberg. Jan, can you please explain the good numbers?