AB Volvo

Welcome to the interim report presentation for the second quarter. We will start in a little unorthodox way. It's not every decade we actually present a new head of investor relations, but we are doing that today. So please, Johan Bartler, our new head of IR, welcome. Johan has an immense experience from the Volvo Group, over 25 years. We're over the last five years at investor relations. So, of course, we're happy that you're taking on the challenge. Johan, welcome, and the floor is yours. Thank you, Johan. Thank you for the privilege.

So, welcome to the Volvo Group second quarter press conference. We'll do, as always, we'll start with the presentations by Martin and Johan, followed by a Q&A session. So, with that, I hand over to you, Martin. So, welcome to the Volvo Group second quarter press conference. We'll do, as always, we'll start with the presentations by Martin and Johan, followed by a Q&A session. So, with that, I hand over to you, Martin.

So, thank you, Johan, and most welcome to your new position, not welcome to the board of group, but to your new position as head of investor relations. We are looking forward to work closely together, as we have done before. And to all of you also out there, welcome also from my side to this quarter to 2023 reporting. The group delivered a very strong performance in the quarter and I'm both proud and humble to present the strongest quarterly earnings ever on behalf of all colleagues in the boardroom. The hard and dedicated work from all colleagues and business partners is really shining through in this quarter. But having said that, there is still more potential to work on and to release, and that is of course also encouraging moving forward. We continue to stick to our priority of delivering as high volumes as possible to support our customers' high demand of equipment and to execute the good order books. Our service operations are also developing well, supporting the customer's installed fleet. We continue to see transport and infrastructure activity remaining high on good levels in most of our markets, but we will also gradually move from recent highs for natural reasons that we will touch more in detail later on. And it means that we stepwise are entering into a more normalized demand situation. But we are doing so on a platform of record strong profitability and high operational performance. And to have continued strong and sustainable earnings is decisive to fund our leading position also in the ongoing transformation of our industry. This is a transformation that has started but must now accelerate to reduce the climate impact while at the same time improve safety and productivity. The Volvo Group is having a very strong position in this transformation and it will continue to require substantial investments and competence shift but will be to the benefit of our customers, shareholders, society at large and for the competitive position of the Volvo Group. And when it comes to the quarterly highlights, the group continued to deliver strong results in quarter two, with sales growing to 141 billion plus 11% adjusted for currency. That was an all-time high. Our adjusted operating income grew to 21.7 billion, corresponding to a margin of 15.4%. also that's an all-time high. And we generated a relatively strong cash flow of 12.6 billion in the quarter. Even there are more to do in different parts of the value chain and in particular working capital with the volume increases and also disturbances. Return on capital employed amounted to 30.2% in industrial operations and the earnings per share increased to 5.3%. All in all, very strong results thanks to great work by all colleagues and supported by improved commercial conditions, despite continuous supply disturbances and inflation headwinds. When it comes to volume development, we had all-time high truck volumes in the quarter. The deliveries amounted to around 63,800. And the increase was entirely driven by increases of light commercial vehicles for the Renault brand. The supply chain disturbances were higher in the second quarter than in the first quarter for trucks. But still an impressive result achieved by the whole organization and the continuous efforts to work really close with our customers and to realize as much as possible of the strong order book. Volvo Construction Equipment's deliveries declined with 24%, mainly as a result of lower deliveries in China. while the Volvo brand deliveries were slightly above quarter two level last year. But all in all a great job. When it comes to electrification, demand for electric vehicles and machines were increasing and we continue to expand our electric product ranges and also manufacturing capabilities, maturing our own and our partners' value chains in terms of volume ramp up. We had a positive book-to-bill, 1,700 orders and approximately 1,200 deliveries in the quarter. When it comes to trucks in particular, we did see for orders a decline between quarter two last year and quarter two this year, and that was related to last year's opening of the order book for the heavy-duty electric range for Volvo, the FH, FM and FMX that created a spike. that quarter. So that explains, so to speak, that year-over-year decline. But generally speaking, we had a good momentum and we continue to invest in this area. It is, however, very important to state that this is a truly societal change where many actors are set to act and invest to support a continuous positive ramp-up. And we see that now that the customers are really looking for certainty, not only when it comes to the equipment, where they feel more and more certain, but also when it comes to green and consistent generation of energy, when it comes to regional and local grids, charging infrastructure and incentive schemes for early adoption when we are in the ramp up. And this is, again, a call for action. We are ready to do so, and we need to continue to work closely together to continue this positive development. When it comes to vehicle and machine sales development, the sales was very good in all areas. On the back of the combination, and it varies a little bit between different business areas, number one, commercial conditions, i.e. pricing, but also product content and value creation for our customers. Number two, volumes to a certain extent and three also product and regional mix effects. All in all strong FX adjusted increase of equipment sales of 12% year over year to almost 110 billion SEK. Service sales also continued good demand for services with strong growth, plus 11% adjusted for currency. This is the result of improved commercial conditions, together with a continuous high activity level amongst our customers. Efforts to increase contract penetration and other services that has been seen over the last years are also gradually paying off. Volvo buses continues to show strong service sales recovery, while it was less strong for VCE on the back of softer machine utilization in Europe and China, while North America for VCE is stronger year over year. But all in all, a good result for services. So as we continue to work close with our customers to provide the best uptime and productivity services, Service sales are now rolling 12 on 120 billion SEK. Also in this area, a very good achievement. When it comes to group news, in the beginning of July, actually very recent, Volvo together with Westport Fuel Systems have agreed to establish a joint venture for high pressure gas injection fuel systems. This is done to secure a long-term competitive position for internal combustion engine technology based on both biogas and in the long run also for hydrogen, so renewable fuels. This ties into our technology strategy for decarbonized transport using also the combustion technology over many years to come, complementing battery and fuel cell electric vehicles and machines for certain applications and geographies, such as demanding long haul or demanding off-road applications. And that goes also in line with what you can see on the right side here that we have revealed on our capital mortgage days, on our technology roadmaps, that we are going for the three different technologies in order to make sure that we can guarantee a strong ramp-up for our customers with different type of prerequisites. Another important event in our efforts to decarbonize our own value chain and operations is that Volvo Group has signed an extensive partnership agreement with Vattenfall to long-term secure renewable electricity with predictable conditions for our Swedish operations. This partnership is a step forward in the group's commitment to reach a net zero to greenhouse gas emissions value chain by 2040 and thereby achieve the aims of the Paris Climate Agreement. On trucks specifically, we did see the first Volvo FH electric truck produced in our high volume plant in Ghent in Belgium and it has also been handed over to the customer.