AB Volvo (publ)

Welcome to the Volvo Group third quarter presentation. Today we will do as always, we will listen to the presentations by Martin and Jan and we will follow by a Q&A session and we will have questions both from the line as well as from this room. So with that I hand over to you Martin.

Thank you Johan and welcome to you also as new head of investor relations and a special welcome to Mats Backman, our new CFO also so it's good to see you here together with Jan and myself presenting today. Most welcome also from my side to this quarter three 2023 reporting summary group continue to deliver strong performance in the third quarter. I'm proud and humbled to present strong growth revenues continues, increased deliveries of trucks in turbulent times, a service business on solid levels and third quarter record levels for income margin and return on capital employed. On roads as a matter of fact it was an all-time high ever than rolling 12 that is the metric. A strong outcome of course thanks to great work by all colleagues and business partners across the globe and also in this quarter we have put priority work closely with our customers and to stick to our priority of delivering as high volumes as possible to support their demand continuous demand of equipment and vehicles and continuously deliver on the solid order backlog. Our service operations continue as I said on solid levels supporting the uptime and performance of our customers rolling fleets and we still see transport and infrastructure activity out in the markets remain on good levels in most of our markets but we are also gradually now coming down from a recent peak levels. As already communicated in conjunction with quarter two this is highly anticipated and it means now that we are entering into a more normalized demand situation for new vehicles and equipment on a platform as we've said of record strong profitability and high operational performance and our first forecast for the 2024 total market is also in line with this normalized demand and we will come back to that later in this presentation. If we then move into the highlights group continued to deliver strong sales growth and strong results sales growing to 132 billion in the quarter that was plus nine percent FX adjusted adjusted operating income growing to 19.1 billion corresponding to a margin then of 14.4 percent operating cash flow was hampered partly by higher level of working capital but everyone should remember that the quarter three is always a seasonal weak quarter obviously coming in on them 5.6 billions and when we look at the -to-date then 23.2 billion return on capital employed as I said record strong of almost 34 percent and also earnings per share increased and up to almost seven kronor per share. When it comes to volume development we increased despite turbulent times our track delivers by four percent to 55,300 units and as I said I mean despite continued supply chain constraints little bit better than quarter two so I've said quarter one little bit better than quarter four last year than quarter two a little bit worse than quarter one but now we are seeing better again so still I mean we are maneuvering in the archipelago here deliveries of construction equipment declined by 21 percent to a little bit more than 13 000 units then mainly driven by low deliveries in china and for the volvo brand we can also see deliveries hampered in europe by supply chain constraints and also logistics actually not at least the rural capacity that still not is in balance role on role of capacity for complete equipment but still I think given the complex situation good job done here electrification orders and deliveries continued to increase year over year as an increasing number of our customers are now entering into decarbonization journey to meet their mid and long-term targets not at least also transport buyers are more and more keen on actually getting hold of transport capacity it takes time but we see that this is a strong momentum and as I said already in conjunction with last quarter to reach full acceleration and full take the whole electric ecosystem in the society needs to go hand in hand here to move from this brown platform up to the green platform everything from grid capacity charging incentives and having visibility around that as well as we we am deliveries such as ourselves to customers supply chains are still to mature and when you are building up that obviously we will encounter I mean troughs in in the road so to speak but but all parts of the value chain must here continue to mature and we are working hard on that and as one of the first out I think this is one of the key things that we want to see also that we are together with all partners learning now how to continue to accelerate but if you look in total electric orders increased to 1600 units in the quarter a yearly pace close to 6000 units why while electric deliveries then for the group increased to 1100 units in the quarter I should say when it comes to vehicle and machine sales development in value strong sales growth for the group plus nine percent the currency adjusted vehicle and machine net sales above 100 billion in the quarter with strong growth in trucks on the and also partly as I said already before volumes so very strong development here and the decline in in VC then on the back of low deliveries in primarily china's we said service development very important for us we had continued good demand for services with strong growth plus 10 percent effects adjusted this is also the result of a number of factors but I mean primarily than improved commercial conditions but also we should remember together with the continuous high activity level amongst our customers and the efforts that we have done now in quite many quarters as regards contract penetration repair and maintenance contract penetration and other services are also of course paying off step by step very important piece of the puzzle here and the group is pacing 12 months rolling at a service level than a 125 billion Volvo buses continues to show strong service sales development as people travel all gradually coming back they were more severely hit as we remember during the pandemic strong vfs or volvo financial services growth from a growing business portfolio supported also course by higher interest levels so in all good result for services when it move into trucks truck news quite many of them this quarter again Renault trucks to start start now is following them the start of the heavy duty platform for volvo last year taking orders for their Renault trucks etake versions both in in the t version for regional hall and regional distribution and the etake c for urban construction and these vehicles are up to 44 tons then and will go into serial production now in november in bourgogne bresse in in france another milestone a very important volvo autonomous solutions still one of the smaller business areas but with with great prospects has entered a long-term collaboration with bullion to deploy complete autonomous solutions you can see that on on the slide here based on the volvo group in-house developed virtual driver and volvo trucks than premium truck range in august for a similar application we also now removed the safety driver in this type of solution at the brunnöj limestone quarry in norway and that is of course a true milestone because now we are up to autonomous operations in in that quarry also volvo defense has entered into a seven-year framework agreement for deliveries of our volvo fmx trucks to estonia and latvia defense forces and the agreement also includes comprehensive spare part and maintenance programs another very exciting news is that volvo group renault group and cma cgm group you know the big ship will join forces to address the growing needs of decarbonized and efficient logistics for zero emission last mile deliveries in general last mile delivery solutions is as you can understand the fast growing transport segment leading to the long-term trend of amongst others increased e-commerce across the globe but is also currently seeing lots of challenges in addition to make these zero emission it's also about improving work conditions such as ergonomics stress levels but also planning and efficiency as well as support service to guarantee uptime and quality the base for the corporation is an all new generation of electric software defined vans that will be combined with complete -to-end solutions of digital and physical services where we can leverage so to speak the complementary strength and not at least under strong service and support networks across markets since these are truly b2b solutions obviously and the new co-builds on the already long and successful partnership between renault group and the volvo group through our arm renault trucks in the light commercial vehicle segment where we growing successfully over the last years and see a further good potential not at least with this new co-build when it comes to track market forecast that maybe the most important slide so let us and i assume you will see a number of questions coming from all around the globe here let us start with with north america then for north america 2023 forecast to start with unchanged at the 330 000 which of course very strong levels and for 2024 we are forecasting a normalization i should say because you can see that also coming down to as you can see here coming down to the trend line of around 290 000 then for europe 2023 forecast is increased by another 10 000 units up to 340 000 units of course also related to supply chains gradually getting better and for 2024 we reiterate our view of normalization of the market and also here we forecast the market of 290 000 that is also in in line alone par with a long-term underlying trend line as you can see here so it is important i i think to remember that the forecast for 2024 still represents good levels for brazil 2023 level is kept at 80 000 we have seen a correction there for different reasons and not at least the change from euro 5 to to euro 6 and i will come back to that and we also forecast the market to remain at 80 000 for next year for india we reiterate the level for 2023 and the forecast that the total market will increase to 440 000 so an increase of 40 000 units for 2024 and for china the forecast is somewhat increased already for this year and a further small increase than still on on rather on rather low levels for for next year up to 700 000 when it comes to truck orders and deliveries we continue even if i mean it's a little bit change pattern to be somewhat restricted by gradually opening the order books in in different regions and depends a little bit where we are but still i mean super important to manage the cost inflation pressures and cost balance overall but also to strictly manage inventory levels in the entire value chain as we continue to see as i said the anticipated signs of markets in in europe and and also somewhat in north america that are normalizing all in all we had a book to bill in the quarter that was 0.85 or 85 percent and also in line with the year 0.86 i think it is for the year in total but also remembering that we have been entering this year with very high order backlog we will of course in that regard continue now to make sure that we have the right balance between order intake production inventory and deliveries so we have an order book with the right quality to manage delivery reliability and the need of continuous volumes while at the same time manage inflation as i said and also other uncertainties we continue to keep a high level of flexibility to manage any mid-term changes in demand and have a built-in flexibility track market shares when it comes to market shares starting with north america volvo and mac have been affected by specific supply chain constraints over the year and reported that already in quarter two and now we have a combined market share of 15 percent yet to date when it comes to market shares in europe volvo and renault in combination are on a good level of 26 percent a somewhat decrease we had a very very strong development last year as you remember because we had a good ability to deliver but still 26 percent is is really good for us and also market share on battery electric up to 68 percent and in europe volvos performance in brazil also very strong almost 24 percent historically strong we had a weaker start this year because we didn't have a lot of euro five trucks in the pipeline we we deliberately took that decision and therefore market shares were hampered in the beginning but now we are catching up and we still we see a strong market share position for euro six almost 30 percent actually and also australia have to comment an important market for us volvo and mac in australia performed well and 26 percent combined that is also historically high construction equipment we continue to roll out also the electric executions in in vci not at least than in in the very important i mean 20 ton plus segments that 23 ton electric excavator we have been rolling that out first in norway but now we are continuing in key markets such as uk from sweden the netherlands to mention a few and also along with the easy 230 and vc is now also offering a more comprehensive solution with the new power unit as you can see here and that is a power unit or a power bank with 400 kilowatt hours and brings power to sites with the weak or no local grid and can also serve of course as a smart smart grid smart local grid cost arbitrage by charging when commercial conditions are favorable along the along the week and i think all of you are familiar how that works and the opportunities around that market forecast for construction equipment when it comes to there is continued growth in north america while the european market is expected to be flat in 2023 china continues to contract so so very much in line what would what we have said and for 2023 we are not changing any of the market forecast in in relation to what we already reported in quarter two when it comes to 2024 our first guidance then in europe we say minus 10 as midpoint in our guidance guidance range and in north america minus five percent as midpoint so up five this year down five percent but still on on solid levels and also for europe obviously south america plus five percent asia excluding china minus 10 percent and a somewhat further contraction in in in china's well than minus five book to build and orders here continue good demand as we said in north america supported by infrastructure projects while demand europe softened somewhat then and in accordance with our guidance on the back of higher interest rates weak and macroeconomic outlook as you know in the building segment outlook weaker etc but an overall order decline of 27 percent mainly driven by china as well as cautiousness among customers and dealers in europe so it's of course i mean a little bit of an overreaction we see here now in order to to balance so to speak also the pipelines elevated order numbers in north america as the dealers now are allowed to place orders for first semester next year as well as very weak comparison with the last year's similar quarter and that again now is really how we open and manage should speak the order board so so the very strong order intake comparison that plus 196 percent is also that should take i mean a little bit wider look on that and and i think in this situation the overall market guidance is maybe more important than the ordering per se quarter by quarter both for trucks and construction equipment delivers declined with 21 percent as i've already said mainly than related to china and somewhat the supply chain and logistic for europe buses orders increased by six percent so it continues mainly driven by improved demand for coaches and electric city buses and deliveries increased four percent mainly driven by higher volumes of coaches in north america than both canada us and mexico a book to build in quarter was 112 percent of 1.12 and during the quarter an agreement was signed with egyptian bodybuilder mcv we are already having a very successful cooperation with them for the uk markets but now also for the volvo 7900 normal and arctic versions as well as an electric body also for intercity traffic supporting the new business model and the turnaround for our european business that we announced in quarter one so so very important piece of that puzzle and volvo buses also continues to their electric sales momentum in uk with electric bus orders in this case from from two operators and they are based on on the same global bzl electric chassis so in that sense in good quality and momentum for buses both of penta always decreased by 28 percent similar you can say demand coming down across segments marine pleasure and leisure segment below 40 feet primarily also industrial segment similar pattern as we see in construction equipment and trucks but partly offset by continuous strong demand a stronger demand in the marine commercial segment and that is of course related also to for example the built out of wind offshore wind farms deliveries decreased by nine percent in the quarter on the back of continuous supply chain disturbances we are still struggling here and we have a high order board that we need to continue to execute upon volvo penta is also currently reinforcing and focusing its sales and service network in the growing industrial segment we have as you know over the last five six seven years been very successful in actually growing the industrial part of volvo penta and now we are focusing also more and more into a specific industrial service network and as one example now during the quarter we have appointed svecon the current vce dealer for for sweden uh for the services and sales into the into that segment so that is also coming along neatly for our customers to have complete solutions obviously both here and now but also for future renewable propulsion systems finally vfs record business volumes for the third quarter volume was 29 billion in comparison to 25 billion loss or the same quarter last year and net we see the net credit portfolio growing to 255 billion and portfolio performance continues to be good since our customers financial health is overall good and with good payment discipline so by that that ends the first business update so jan i leave it to you for the financial update

thank you martin after the last two quarters i have frequently got the question from you is this the peak of the cycle and if this is nearly week third quarter where we have low deliveries with an adjusted operating income of 19.1 billion and a margin of 14.4 percent if that was the peak of the cycle then i'm fine similarities from the last quarters can be seen also here in the third quarter as price realization continue to be good mitigating then the cost pressure pressure from salaries inflation and also from the transformation and we continue to have supply chain disturbances but sequentially lower and also compared to the to the income statement and the top line the increase of net sales was 15 percent but of course positively impacted by effects as the swedish corona was weak against all important currencies for volvo if we take away effects it's nine percent of an increase and that is mainly related to price partly offset and by the lower deliveries in construction equipment as you can see the increase was substantial in europe and north america whereas the low demand level can be seen in in south america then and in asia of course hampered by the low construction deliveries construction equipment deliveries but partly mitigated them by other business areas that had more increases of of deliveries in asia moving over to the earnings as such then despite the volume that was on par or actually the little lower in the different business areas compared to the third quarter last year we deliver an impressive financial leverage effects exclude excluded them of over 50 percent in the quarter so as i said 19.1 billion of adjusted operating income and 14.4 percent and similar to last quarters we are maneuvering in an environment of inflation and transformation by adjusting our commercial conditions to to mitigate these cost pressures then and we continue to be successful with price execution both for vehicles and services also here in the third quarter and that contributed positively to the improvement and on the negative side we have the higher per unit cost in our own production as volumes are stable or decreasing at the same time we of course feel the pressure from the general inflation and the salary increases on the positive side we see freight costs coming down slightly both as a effect of less of rush transports but also that the freight tariffs are going down the general inflation salary increases are of course impacting all operating expenses besides this the ambition we have to be in the forefront of the transformation with electrified autonomous vehicles but also on the combustion engine side that of course needs more resources more activities and thereby higher costs and that is seen in the selling expenses and r&d costs and we had actually a positive net capitalization effect of 0.4 billion in the third quarter we expect similar positive net capitalization effect also in the fourth quarter as you can see on the slide nothing about sort of material costs which has been sort of something we have talked about a lot the last quarters but the fact is that we are on similar level as the third quarter last year where we have positive effects coming from raw material offsetting the negative effects as we are on the material cost as we are compensating our suppliers for their inflation and their salary increases we got a positive effects effect of 1.2 billion in the quarter then we are a limited part of that was the transaction exposure and for the fourth quarter we expect transaction exposure to be neutral and we do not give any full guidance of effects effect for the fourth quarter during this quarter we also then divested our entities in russia that had been put on hold since the ukraine war started and that gave a loss of close to 800 million in the quarter and that has been classified as a significant item affecting comparability and thereby excluded from the adjusted operating income and you can that effect in group trucks and in financial services as much than we're into cash flow third quarter is a seasonally weak cash flow quarter when productions are low and we are paying down the trade payables that in combination with the high volume we have supply chain disturbances but also the fact that we are gradually ramping up our battery electrical value chain that put in our operating cash flow as inventory continue to increase here in the third quarter all in all operating cash flow in an industrial operation 5.6 billion and of course as mattin was into the focus now is of course to take down the inventory both at our own factories but also you can say the second production line we have at the bodybuilders so that we can adjust the level to the lower future demand then the positive operating cash flow was also the reason why we had an increase of the financial positions to 65 billion at the end of the quarter and return on capital employed as was mentioned 34 percent on a rolling 12-month basis for industrial operation and that is of course reflecting the strong earnings the last quarters then we move into the different business areas then and start with group trucks where we have an increase efficacy adjusted net sales for group trucks of 13 percent price execution and of course also the four percent increase of of deliveries are impacting here and price utilization was the main explanation behind the increase of results in group trucks an improvement of 6.7 billion in 14 billion giving an adjusted operating margin of 15.6 percent that must be considered very strong for the third quarter similar to the group the headwinds came from the higher unit cost in production as salary increases and general inflation impacted negatively partly then as I said compensated by lower freight costs supply chain disturbances continued but were at a lower level than the third quarter last year and the general inflation and salary increases are impacting also of course on operating expensive expenses and that in combination with the high ambitions and activities we have around the transformation impacted negatively on selling and r&d expenses and we had a positive effects effect of 0.9 billion for group trucks moving over to see we have talked about it before total deliveries continue to decrease in construction equipment mainly related into china we have an effects adjusted net sale decrease of some four percent of course the lower deliveries but then partly compensated by the higher prices in general and also the improved mix we have of brand and markets as we are selling more of volvo heavier machines in north america and in europe where the commercial conditions are better and less comparably less than chinese machines that where we have a very tough price competitive environment and of course that is impacting our sdlg brand quite substantially the positive price and the mix effect impacted adjusted operating income positively but not fully compensated for lower deliveries than impacting both as less gross income but also difficulties to handle sort of the absorption of fixed cost out in the production also here the general inflation salary increases are putting marks in our operating expenses with them on top of that high activities on the sales side in construction equipment we got the negative effect on the expenses more or less flat adjusted operating income 3.7 billion giving a margin of 15.4 percent and a small positive effect on currency in the quarter for buses we continue to see an improved environment business environment the high activity level was seen in our service side in the service revenues and this together with the general price increases impacted them positively on effects adjusted net sales up six percent and of course on the earnings despite the supply chain disturbances that we had on buses production efficiency improved contributing and positively to the increased adjusted operating income the increase was 200 more or less 240 million up to 340 million and the margin of 6.3 percent for buses we have a little more pressure from the material cost but also had a positive effects effect of some close to 100 million and also penta experience supply chain disturbances and that impacted engine volume and impacted the production efficiency negatively higher prices and a favorable mix with more of heavier machines heavier engines impacted both net sales and the earnings positively whereas then the cost pressure from material and the high activity on the sales side impacted negatively besides the already mentioned production efficiency net sales up five percent for penta effects adjusted and an adjusted operating income of 790 million and a margin adjusted margin of 15.9 percent in the quarter and also here we have a positive effect of effects of in this case likely over 100 million in the quarter then we move over to financial services and as i said the earlier quarters the numbers in this slide has been then restated to exclude the russian and the belarus operations in all the quarters and similar to earlier quarter this year we see then that the high deliveries and improved prices are of course impacting positively on the portfolio growth for financial services new business volume increased 13 percent effects adjusted in the quarter and we as martin said ended the quarter with 255 billion of cred portfolio the fierce competition from banks and leasing companies continues and is putting pressure on the earnings but also on our penetration that were a little lower on the rolling 12 months basis than last year 27 percent and also as mentioned customers financials and payment performance are good and that's also why we have low write-off levels and low credit expense levels and the improvement of adjusted operating income of one up to one billion 62 million was then mainly related to the portfolio partly than offset by the spread compression and we also had a small positive effects from from effects in in financial services so before i let martin summarize the quarter i would like to do a little summary by myself actually i have no handing over the c4 roll too much as you heard and the figure i have in front of me is 280 billion sec of eight operating income during 63 quarterly presentation that i've done as a cfo for a listed listed company where of 190 billion have been during my four years at at volvo as they will say in my hoods respect and now i would like to thank you of course for a very good cooperation and good luck to you with everything going forward here and now martin it's up to you to summarize the third quarter thank

you johan thank you johan and then did see that you became a little bit emotional there that's good we need that more in finance as well no no but great john and and we will continue to work together obviously but if we come back down to to this quarter for for the volvo group so in summary i'll be short here but despite extremely then challenging and complex global conditions as you all are aware of proud and humble to present another strong quarter for group on behalf of all dedicated and passionate colleagues in in the world group we continue as i said in in the introduction to work closely with our customers and to stick to the priority of continuing to deliver and to execute on the on the order backlog even with extra cost that comes along and that we have seen also in this quarter at the same time we are focusing on the right balance between orders production volumes inventory levels and deliveries by having a high degree of flexibility and we see that transport and infrastructure activities continue at good levels in many of our markets but also that we are now gradually entering into a more normalized demand situation and that is reflected in our total market forecast for 2024 with high operational performance and profitability resulting in a strong financial position we also continue to prioritize innovation and investments to stay in the forefront of the transformation of our industries and markets the importance of performing today to be able to transform for tomorrow has never been more important and will be decisive for the years to come and this ability to both perform and transform should benefit our customers colleagues shareholders and also hopefully society as a whole so by that joan i leave the word to you to lead the q a session thank

you very much martin very good thank you yeah thank you for that martin we will start with the q a session and we start here in the room and then we take some on the line eric please go ahead and limit yourself to two questions please

two questions okay thank you then i'll ask okay then the first one on preparing let's say that those 2024 and market assumptions are correct and you perform about in line with the market and volumes down then somewhere around 10 percent or maybe a bit more how are you preparing for that in terms of staffing and costs and so on and what kind of profitability contraction alone from that volume drop and then the second question would have to be on on electrification then and and the future as you said we're getting some of the statistics now the efficiency and performance of a well-known u.s i guess in truck terms startup and and it looks pretty impressive and it brings to mind whether or not you're about to change the thinking of maybe doing a truck from an electric truck from scratch given the aerodynamic benefits that that could come with

thank you thank you eric for for those questions first and foremost as you said i mean if we if we start with the 50 percent so to speak correction here obviously i mean we have flexibility system to handle that and we should not forget about the fact also that we have had a situation now where we have really pushed the system really hard with also utilizing the flexibility tools that we have both as regard bank or time banks that are pretty filled up now put it like that and the second piece is obviously also temporary contracts and other flexibility measures so so there i think we are well prepared for that i think more importantly very it's it's to be close now to the balance as i said between production deliveries inventory pipeline management also including bodybuilders so so you don't have a double swing so to speak and you start to to adjust accordingly and and also to i mean keep the commercial discipline because we are in front of important investment that we should continue to pursue and and therefore also the commercial discipline i think is very important and and then and then you can say that not only that we have had this extra push but that has come also with you can you can say a price on operational efficiency and operational leverage because as you can see in this quarter we didn't see anything of that basically so so there is also room for continuous improvement and at one point in time you need to reset the system a little bit because even if we have been able to increase volumes etc it is still coming to i mean a lot of you know gem and fix so to speak so i think we are well prepared then of course when it comes to what is happening now in the transformation we will see a lot of different type of comparisons and first and foremost can state that it goes always that we have the highest you know respect and i mean and you should always be you know on on your toes when when it comes to competition both new competition new geographical competition but also existing competition so so that is number one but also that we have high confidence in our own ability to manage these to manage this transformation we have been early out we have learned a lot and we see also now how different comparisons are coming out and that we are following very closely but of course also that some of the comparisons are containing if i may little bit of apple and pears type of parameters because if you take the comparison between passenger cars and and and trucks obviously you have specialized vehicles for different applications so so in that regard it is very important also to see okay how is the full constitution of that solution looking when it comes to range when it comes to gross combination weight when it comes to efficiency when it comes to the weight load loading factors etc charging times uptime in general service network what have you then when it comes to the bev native type of discussion i think i think that's relevant and we are of course working in our modular concept of that and then when it comes to the r&m it's a little bit what it is when it comes to the north american execution of trucks given what you have in rules between tractor and trailer and the european now europe is gradually opening up for that with extended front or which i think is good for several reasons because aerodynamics will play a very important role having said that i mean you will have now as always a little bit of it's a fast moving materia and you will have a little bit of i mean quicker iterations fast so to speak generation race also when it comes to some of the specific parameters so the race is on and we will participate in that race but full respect for what we see in the marketplace very

good thank you for that eric we're moving over to to the telephone line and the next one is from daniel kosa sat godman sax please go ahead

morning or where did i hear from government sex on behalf of daniela costa thank you for taking my question i've got three and we can take them in turn so fastbook could you please provide some more color expected impact in full cue from the uaw strike

yeah i mean just to give a very short update on that we we are in a situation where we are renewing so to speak the contract for primarily mack faxton that is what we call the overarching contract called mcmaster and we have had a good discussion with the unions over the core during the course of this year because it's a very comprehensive contract always and actually we put forward a proposal that we had a joint agreement around that contract and then it works like that that it's voted amongst members and it was voted down and after that so to speak we had this strike starting since a little bit more than one week now we're working on it let's see so we can we cannot judge that for the time being the most important is to find a solution that is acceptable for the parties and and for us it is very important that this solution that is acceptable knowing the fact that we are the only truck we are in in north america that is producing 100 percent of our trucks in united states where of competition is producing either a big share or a very big share in mexico so of course for us it's important that we can continue to have a competitive situation but at the same time making sure that our colleagues also have have good conditions so so we will we will follow that but but there is where we are now so so to give any forecast i cannot do that

no very well thank you for that we're moving on to the next question here in the room from hampus please go ahead

i'm saying on the order or on the organic growth in service or 10 percent could you maybe elaborate a bit on the pricing there is there is underlying volume growth then a more technical question is are what we're looking at running diesel engine on hydrogen and if so is that within the cell-centric collaboration or is it standalone alone and there be a third drive train going forward for being more co2 clean against thanks thank you hampus

on services i don't know if you would like to elaborate on that no

i mean of course prices is has been a big part of behind the increase of affection effects adjusted sales increases on services with that said we are on a high level we are sort of having more and more contracts which means that we are securing future revenues in for the service side but if you take a look on the total the price is is bigger much bigger than than than volume so there are and we have around two to four percent on volume but it's not much more of that that that is sort of normal situation yeah

and i think there is more about the long-term trend yeah i mean as you say i mean when it comes to the contract penetration and since that is gradually kicking in i mean after warranty periods etc i think that has been super important but then quarter over quarter obviously i mean it's kicking in step by step and here we have seen a good price realization but but we are on good levels and we talked about it also eight nine the big recession you remember that then we had i mean falling off the cliff well and constant new some of us remember then we were down what was it seven point seven and a

half services

and then we had a lower contract when generally speaking in the industry then when it comes to the renewable powertrains if i put like that we have communicated three parallel tracks in order to cover the global demand and global application demand and it's better electric than obviously it is fuel cell electric so so you have the same basically powertrain but you have different energy sources on board and that is the cell-centric operation with the fuel cell stack and then the third is combustion engines with renewable fuels where of hydrogen is one of those in the long term given also different type of applications that is not part of the cell stack development and production and commercialization together with Daimler but on the on the hydrogen combustion our announced acquisition of 45 percent or i mean it's an mou so for of of the heavy duty part of westport fuel systems is in line with that since that technology cooperation is based on you can say renewable technology already today for for liquefied biogas where we have a strong position and further on than for for hydrogen and and the construct of that is obviously that we would like to see other place coming in also so we can get a good standard in the market on that side as well because it will not be one of the to be clear here this is a little bit like you know the world of silos so i'm talking about construction industries or cement industries or steel industries or trucking industries or shipping industries and everyone is looking at you know from from the center of the world reality is that we need to look at the world as such and see okay how does the energy mix look like for different sectors different geographies and here i think we have a very very platform of addressing the need based on different technologies very

well thank you for that returning to the telephone line the next one is coming from nikolaj camp at deutsche bank please go ahead

yeah thank you johan good morning nikolaj speaking from deutsche bank and put my emotions i think this has been a very strong result so well done two questions on my side first one is on lead times you still mentioned that you're a bit more restrictive on the audit intake can you update very currently on lead times and my second one is on product cost because i did mention that product cost has been issue in the third foot as well if you think about a for next year we see high higher cost from labor side but probably lower input cost from steel would you expect that product costs for a trucker come up next year done

thanks yeah thank you thank you nikolaj for that lead times as we said a little bit depending on how far out we are if we look generally speaking we are we are filled up for this year and then we have a good feeling rate quarter one and we are continuously gradually filling that in in certain cases we're also so to speak fill up for quarter one so that differs a little bit then depending on the pattern of different regions that is what we mean with still restrictive because we don't want to push fixed orders too far out in time still and what is about now is to really manage the order board also in a smart way together with both upstream and downstream working capital inventory levels etc so not that i mean a normal balance when it comes to lead times but getting there also when you see when it when it comes to book to bill etc and it will gradually continue to adjust as we have guided for when it comes to the total market then when it comes to product cost i don't know if you would like to start us we mix the voices

production cost i mean we will see the similar things that we saw here in the third quarter also in 24 i mean the salary increases are there they are pretty will be pretty high most likely in historical perspective and and with where we are coming into now to sort of more normalized level means also that we can trim our production system we from time to time call our way of running the company has been at least related to production whatever it takes

meaning

that we have really really focused on delivery for to the customer under customer promise meaning that we have absorbed extra cost and of course now we are coming in a situation where we can take costs out gradually which is of course good for the per unit cost and then so so let's see how that will pay out as i said it will be difficult to be in in a decreasing volume market to take out sort of the salary increases by efficiency that that will be to some extent but fully it's difficult on the material cost side and the raw materials let's see i mean it's too early to make any prediction for for 2024 but i mean what we have seen now is of course very very good on the material side that we are getting a positive effect from the raw materials but our sort of our suppliers they have also to battle with the salary increases the general inflation etc and similar to what we saw in this quarter we will surely have to compensate for for that also to our suppliers yeah

but yes i think because that is often up also as a discussion point and and obviously we have very professional methodology how do we actually work with that together with our supply chain partners because in this in this situation is super important that you are looking into the the commercial sort of speak the commercial transaction because it differs a lot when it comes to the raw material content the regional type of content and then obviously the production production value add and also that we gradually sort of speak improving our products also that is upgrading value for us and and thereby also our supplies but there i should say that we have in in my in my book a very professional way of dealing with that also

but coming back to i mean what you talked about before the the persistence on price it will be very important of course coming into 2024 that we will be sort of what we call last man standing on the price side

very well thank you for that with a good value for money i think thank you guys

Agneska maybe follow up on price realization i mean you have been very successful with pricing so far so can you comment on your expectations for 2024 when we will see the markets cooling off do you expect pricing discipline industry as large as well

Do you would like to start? No and we are debating this a lot of course and maybe it's strange but i'm more maybe on the positive side because i believe with the situation we are in we have the inflation we have the salary increases we have the transformation we as an industry cannot permit ourselves to decrease prices this is our funding from the combustion engine side that we need to have so that's one parameter and the other parameter is also that there are no more capacity being added into the combustion engine side on the contrary every day some capacity is being lost because things are not renewed not newly invested more capacity added etc so i think there will be resilience on price side when we come into 24 and and we should also remember it's sort of falling off the cliff situation it's a normalization of the market so i'm pretty optimistic actually that we can be able to to manage and and handle the price situation make make hikes as we have done in 23 that will be difficult in 24 on the other side we see lower costs as well in many areas but

i think also i mean for us at least it's clear that i mean the hunt for the the extra volume in relation to to the risk for the company in terms of i mean the balance between our commercial downstream conditions and upstream conditions are extremely important because i mean it has been a long i mean scale is often i mean occurs if you don't manage that in the right way and volumes and the hunt for the wrong type of volumes in the market that we've had now it has been a hunt of the right type of volumes because our customers have desperately needed that now it's about really maintaining good quality in the business in order to to make sure that we can fund the transformation and still be an attractive case for our shareholders i mean that balance is what's most important for us now so fully agree to what you said

thank you and then one more from me on the market shares i mean they they have been coming down in some markets and obviously there is some volatility on a quarterly basis and and against quite tough come from from last year but don't you think that you being restrictive in taking orders is a reflection of somewhat lower market shares

the market just for us i should not say that because eventually i mean so far it has been maybe could be one marketer two etc because at the end of the day when you have a supply restricted market and you're coming almost into i mean it sounds not good what i was saying about it coming into a little bit of an allocation game and depending on how we are so to speak trying to allocate our volumes in relation to competition because it's a true competition out there and i mean it's a well functioning market in that sense very very fierce competition obviously in certain pockets you can probably see that but generally speaking what i said it is what it is a little bit what i said because we are running the machine as much as we can in terms of output then it's clear that we have had specific related supply chain issues in north america during the year that has been more related to us than to to the industry in general which is a pity because we have a very for the time not for the time being i think we have built up a very very strong position amongst our customers we have a great product and solution offering so so that we of course addressing that now together with our supply chain partners but that i should argue is where we have been relatively so to speak losing out europe 26 combined historically very strong for us australia very strong latin america generally speaking peru that is i mean we often we can not talk about all markets here but take that is a big market for us in terms of revenues right we are at 30 percent we have never been that high so so yes supply supply

very well thank you for that we're turning to the telephone line and next one is claus berlin at citabank please go ahead claus

thank you hi martin and and john so the the the first one i have is on the on the trough margin next year given how you guide i think 70 of course is variable rest 30 of the is basically the fixed cost and you should be able to take that out within three to six months it looks like you should be able to handle this volume decline you're talking about quite well i'm not asking of course about a number here but that's pricing goes below cost then i think we should have quite normal drop through at around 20 percent the comment here on the the flexibility would be would be great thanks

yeah no and as martin were into we have an in embedded flexibility of course in our production system and we will have to use that with that said it has to be similar to what we have done now we have to fulfill the customer promise and take out costs and extra costs we have discussed and and 290 000 in europe and north america that is not the bad market at all we should make good money in that market so i mean we are not so we i mean we will have to handle that and we are coming from a very high level we should remember that as well so so uh it's easy for me to say i'm also concerned but thank you

no no no but i mean and again what i think is maybe the most important is to be active i mean right now also to to to read the right signals classes always know i mean what see in terms of reminds me a little bit of my mother always getting asked when she was in school with the with the younger teachers and they asked i mean now have my new baby how much should i dress that baby when it's winter time and then he said dress it as you think it should be dressed and then you take off 50 percent of the clothes and it's a little bit the same here now that i mean when you get in signals be realistic about the demand signals and act accordingly because i think in that mitigation period it is important to to really not end up with unnecessary inventory for example because that gives a lot of wrong type of focus in an organization but really to make sure that you have handled that in a smart way and then work with the flexibility that is embedded and

of course with the high service business we have of course that's a very nice cushion we would go into what we have seen in the past

yeah very quick final one on north america you're obviously catching up here on orders again versus the market you were underperforming before as you haven't opened the order book but now we have the the strike coming i'm sure we think about this not in impacting sort of the total bolver system in thinking about interior and and the potential impact

now i mean as we said depends a little bit of how the situation will will develop here but but i think it's extremely important to have a middle long-term view on this we have been building up a strong resilience in north america necessary resilience in north america after i mean many many years and decades of low negative or even mediocre performance and therefore to continue to build that strong business at the same time as as as we have a fair fair development here is the number one priority as we speak now but but let's see how it will develop but but we are we are seeing it very positively when it comes to i mean to to to the future development here we are investing in north america but let's see how this specific event will will develop

thank you for that and thank you martin and jan that concludes the q and a session all presentation material today will be found on the volvo group homepage and thank you for coming and thank you for calling in see you next time