AB Volvo

So welcome to the Volvo Group third quarter report. Today we'll do, as always, we'll listen to the presentations from our CEO, Martin, and from our CFO, Mats. So with that, I hand over to you, Martin. Thank you, Johan.

So good morning also from my side, and welcome to this presentation of quarter three, 24. Interesting quarter, I have to say, so we have some details to share here. But maybe to start with, as we conclude this quarter, again, a lot of uncertainties as you're all aware of, and therefore I would like to start by thanking colleagues, business partners, customers for continued good cooperation during this quarter as well. I think in our business in particular, given the nature of it, and not at least in uncertain conditions, strong and close relations are more important than ever. Also as expected and following the trends we have seen for a while now, demand continued to normalize into more of replacement driven markets across most of the group's major segments and regions during Q3. Therefore also we continue to put priority on high quality in the business by focusing first and foremost as always on our customers and thereby our service operation, volume flexibility in the industrial system, tight cost control combined with commercial discipline and price management. In particular, we have managed the volume flexibility well and are in good balance, not at least in the European system that is serving both European and international markets. Also, South America is in good balance, a little bit different part of the cycle where we see strong development right now. The only exception is trucks in North America where we temporarily are having two events causing more costs. The first is related to supply issues for Mack cabs that have caused a significant loss of volumes in the quarter. We have now acquired that operation from a supplier and mitigation is on its way. Order books for Mac are elevated, so very high priority on this topic to serve our customers, obviously. The second event in North America is very positive, and that is the production start, and you might, you did see that also here in the introduction films, of the all-new VNL, where extra resources and costs are needed to cope with the introduction in parallel with normal production. We are very proud of this game-changing, and I would like to reiterate it, game-changing platform, the all-new VNL, that will drive significant benefits for our customers up to, for example, when it comes to fuel consumption, 10%, and also considerable value for the group moving forward. But in total, the events in North America affected the global group trucks margin negatively with approximately one percentage point. But I think it's also important to take a step back. Still with this temporary effect and also with the cycle management that we are into now, I'm impressed by the operational organization across the group that has managed to keep gross margin almost flat. And it shows a good level of flexibility. However, more importantly, the start of production of the all-new VNL in North America is a sign that we, despite softer market conditions, are maneuvering from a position of strength. And we continue to put priority on innovation, research and development investments, but also market and commercial investments moving forward. And that is, of course, to remain in the forefront of our industries and maintaining competitiveness. So if we summarize the quarter, net sales declined to 170 billion SEK on the back of softer markets and thereby lower volumes, obviously, also with a considerable negative currency, and the specific deviation of supply for Mac in North America. Adjusted operating income came in on 14.1 billion, corresponding to a margin of 12%. Operating cash flow, 3.1 billion in seasonally weekly quarter ratio of whereof, giving a strong financial position of almost 63 billion SEK. Return on capital employed in industrial operations increased to 38.3% in relation to just south of 34% last year. Earnings per share was 4.93. Looking at volume development, total truck deliveries declined with 16% in the quarter. The light-duty business was impacted the most, caused by the model changeover for Renault trucks, like commercial vehicles, which started during the spring, while the heavy-duty volumes declined with 9%. This was with the exception of the North America or MAX-specific issues, in line with our current market expectations. For construction equipment, deliveries were down 12%. But obviously we're a rather big mix effect here with Volvo coming down 32% and SDLG increasing 26%. When it comes to electrification, underlying demand is slowing down for the time being. And the switch over to zero emission transport is still driven by early adopters across different markets and segments. Broad adoption at scale will happen when also enabling conditions are coming in place in a broader sense. Customers are still a bit hesitant before they know how the TCO, total cost of operation, between zero emission vehicles and internal combustion vehicles will evolve, and how the charging infrastructure rollout will materialize. We also see that the current macroeconomic conditions are creating hesitation, and naturally so, because then you tend to go back to what you know and to actually handle the current situation. We regard, however, this more as a blip on the long-term curve, and we are certain about the long-term development, both from market conditions, both for what we have to do, both from competitiveness and also from the regulatory angle. The important thing here is that Volvo has solutions at hand and you have seen that we have a strong market positions and we are ready to handle different speeds in the transformation. And one example of that is of course the slight postponement we are doing now when it comes to the build up of our cell manufacturing operations in Sweden. Orders for fully electric vehicles decreased 2% with lower demand for heavy duty and medium duty while light commercial and SDLG machines were positive. Deliveries increased with 29%. They are supported by a good order board for medium and heavy duty trucks, SDLG machines, and buses while light commercials were lower, also partly then affected by the changeover of Renault in Europe here. So we continue to push in our core markets, and that is also reflected in the high market shares. For example, Europe, 70%. But more importantly, as we did show here before, more now for Volvo Trucks alone, 100 million kilometers, connecting us with customers and customers' customers, collecting enormous amount of data to refine the solutions, and thereby the importance of being early out. On the back of lower volumes, the sales in value then for vehicles and machines declined 11% if we are just for currency. Truck sales declined 9% on 16% lower volumes, as I said, the mix effect you remember there as well. Construction equipment sales of machines were down 24%, with Volvo down 32% in their deliveries, and SDLG increased 26% in their deliveries. So totally in sales, 24% for construction equipment, and you will see that later, strong also flexibility here. We had higher bus deliveries at higher value, driven by North America coach business, resulting in a sales increase of impressive 23%. And for Volvo Penta, despite a drop of 18% in volumes, their sales were only down 3%. And that is, of course, related to the fact that you have a better mix also with more heavy engines. Service sales, very important. Strong focus over many years now, as you know. And we had continuous land growth, a 4% growth year over year for the third quarter, adjusted for currency. So the service business continued to show resilience. All business areas growing during the quarter, mainly driven by improved commercial conditions and efforts to increase service contracts, penetration and other services are also paying off. But of course, more step by step that is not coming from one quarter to another. and specifically the growth of services for buses was mainly driven by more coach activities in in the market and financial services growth was supported by interest rate and a continued good penetration so all in all i would say a good level of services we see for mainly on the truck side that utilization is kept when it comes to the newer part of the fleet, while for somewhat older, it's a little bit lower. That has both a good and a bad relation on the mix, but in total, I think we are coming out well here. And a very important part of the resilience, by the way, moving forward. Trucks done. IAA, some of you visited that in Hannover in September, the world's biggest truck show. And Volvo Trucks announced among a lot of different news. We also had the all-new VNL there, by the way. The new Volvo FH Electric with 600 kilometers range on one charge. And Volvo Trucks will start to sell the new FH Electric model in the second half of next year. In Q3 also Monterey was selected as location of the truck assembly plant in Mexico. Groundbreaking ceremonies were done and the new truck plant will start a serial production in 26 and an important piece of the North American push here. In September, the serial production of the all-new VNL truckman model was started, as I talked about earlier. And this is a moment we have been really longing for. It's the first bigger platform introduction in North America for Volvo since 1996. Of course, we have done a number of upgrades, but this will come with a completely new functionality for customers, but also for our industrial and modular capabilities. So it's a true milestone for Volvo in North America to reinforce our position and a game changer for our customers. But of course, and this is important, to manage the introduction as planned, we have temporarily more resources than needed for the current output. But in line with our planning for the new project. So, all in all, very exciting times ahead here. And more to come, of course, also for the Capital Marks Day. Also in North America, we finalized at the end of the quarter our acquisition of Mac Cab Body and White production from a supplier to strengthen the supply chain and increase volume, resilience, and output. Volumes from Mac has been hampered since quite long, with an accelerated deterioration. For the quarter, it's resulted in significantly lower volumes than expected. Now this production is brought in-house. I was personally involved together with a fantastic team during the summer to conclude this, and we took it over at the end of this quarter. And by adding resources and leadership, output will gradually improve here. Market forecast. That is always a little bit interesting, right? If we start down with Europe and the forecast here, 4-24, we are increasing with 10,000 up to 300,000 for the full year 24. And that is mainly related to a strong start in 24 and through the summer and also related to the fact that new safety legislations came into place. We always see a little bit of pre-registrations. For next year in Europe, we are saying 290,000. And how you should think about it is that, of course, we are on that rate mainly now, moving out from 24 and into 25. So that is also a sign of balance in the industrial system here. For North America, 290,000 for this year, no change. While we are putting the forecast down for 2025 at 300,000, since we expect also a gradual lift down during the course of 2025, related also to the somewhat bigger pre-bid that we expect in 2026, upfront legislation that is coming into force 2027. Brazil, 100,000 no change for this year. 90,000 next year is really more stabilization, normalization back to the underlying trend line and no drama for that. India, we are increasing a little bit for 24, or decreasing, sorry, for 24. And it is actually more based on how the market regained speed after the election, a little bit also extended monsoon season. And after that, we expect market to lift step by step into 25, plus 10,000 units there. China domestic flat four or unchanged forecast for 24 and 820,425, what we expect the market to be replacement driven. Book-to-bill then for quarter two was 88% of the heavy duty and 84% 12-month rolling. The European book-to-bill continued to improve and we had 107% in the quarter on the back of production reductions installed in the beginning of the year and somewhat refined during the course of the summer here. The North American book-to-bill was negative as Mac is essentially sold out for 24 and well into next year. Order slotting has been very restrictive as you can see also in the order figures for North American, in particular for Mac, but also for Volvo. Volvo actually had not opened 25 during quarter three and we opened 25 during the beginning of quarter four here. So I think that is something to have in mind also when you look into the order figures. It boils down actually to managing the order book in North America. Strong deliveries resulted in a 74% book-to-bill in South America, but that is more related to also how you manage the order board and we see a strong development there. And we also see a positive development in Africa, Oceania, while Asia continued to deliver out from the order backlog. Market shares had a very solid performance, both Volvo and Renault in Europe with a combined share of 26.2%. For electric vehicles combined also, Volvo and Renault kept their leading position with over 70% market share year to date. North America, year to date August, Volvo and Mac, despite delivery problems, kept shares. Not at the level that we want, but they kept shares at 9.1 and 6% respectively. And in Brazil, Volvo remains strong with over 23% share. Australia also, Volvo and Mac had a combined share of almost 25%, that is also historically very strong. If we then move into construction equipment, this is the biggest launch year ever, actually, for construction equipment. We have talked a little bit about it. Maybe some of you also attended the Volvo Days. That is, I mean, a couple of weeks that we have with a lot of customers. The biggest launch when it comes to electric, fossil-free machines, but also when it comes to the full lineup. And as a continuation of that, of course, now we are rolling out these type of capabilities in Asia, North America, Sweden, also in Europe. And also in quarter three, we continue then to step by step install capabilities in our different facilities when it comes to electric machines. And during quarter three now, we did that for wheel loader factory in Arvika, where we have also, as you know, a little bit more heavy execution of wheel loaders. So we are ready also in that field. When it comes to market environment, rather much similar pattern as for trucks. For Europe, we take down the midpoint for this year, 24, the midpoint in relation to 23 to minus 20%, which is a minus 5% revision of the back of softer market with dealer inventory reduction. However, we start now to see signs that the downward correction in Europe is stabilizing. and guide 2025 to a flat market on the back of positive dialogues and signs from our dealers. In North America, also there, we are taking down the midpoint with five percentage points. So in relation to 2023, a midpoint of minus 10%. And for the full year 2025, we forecast a further minus 5% deterioration a little bit later in the cycle here, but no drama. South America flat, both for 2024 and 2025. Asia, excluding China, the midpoint is lifted to minus 5%. And for the full year, we forecast a flat development. And China flat, both for 2024 and 2025. So we see a stabilization here. Book-to-bill for construction equipment overall 92% in the quarter and 90% 12-month rolling. European book-to-bill improved to 87% on the back also of production adjustments and reductions. And we start to see early signs, as I see, of a stabilization between demand and supply. And that is also what we're guiding for in the market forecast. The North American book-to-bill was down to 45% on the back of continued destocking at dealers and timing of orders. This was largely expected, and continued adjustments are done to balance order intake stock levels and production. But we have seen that also with deliveries going down rather dramatically for the Volvo brand, we are able to do that in a good way. And South America, Africa, and Oceania, Asia, were all balanced with positive book-to-bill. Buses, generally speaking, very good story. I think the full improvement program that we are doing in buses is really working well. Mats, you will, of course, come back to that later as well. But if you look then into first some product news, and this is impressive what you see here, full electric by articulated, 28 meters, 250 passengers. These are, of course, for the bus rapid transit systems, competing them with tramways and metros, et cetera, with the capex that is significantly lower, but with the same type of output and fossil-free execution, obviously. So we strongly believe into this, not only in South America, where it has been for a long time, but also for others in order to achieve the environmental targets. Book-to-bill also positive for buses, 100% in the quarter and 92% 12-month rolling. Also Volvo Penta, a lot of great news. The first fully electric hybrid for yachts. Interesting segment, as you know. And what is the fully integrated? That is from helmet, from the pilot controls, a cockpit, all the way to the propeller thrust, utilizing then Volvo Penta's inboard performance system. So we have a fully integrated system here and a great reception, by the way, at some of the different exhibitions here. And book-to-bill improved. And also, by the way, I didn't comment on the lower slide here. We see a good momentum continues in industrial, and not at least when it comes to our type of integrated solutions with partners for data centers. We have a very strong position here, and we see that market to continue to be very excited moving forward. Book-to-bill improved to 80% in Q3 and to 84% 12 months ruling. Finally then, VFS, Volvo Financial Services. Portfolio growth in Q3, it continued to grow. The credit portfolio and the penetration remained stable. And it remains stable in a still very competitive landscape. So I mean, there are financing available. The increase in the net credit portfolio is related to growth both in our retail and dealer or wholesale portfolio balances. Penetration levels was good. 28% for 12 month rolling out of September, reaching 29% for the quarter and 31% for the month of September. And portfolio performance continued to be good with customer delinquencies trending at average business cycle levels. So by that, that was the business update, and I'll leave the word to you, Mats, for the financials.

Thank you, Martin. So looking into the financials then, and first maybe a brief summary before we're getting into the details then. So overall, we continue to have a good financial performance despite lower volumes. While we continue to invest in transformation activities, it is crucial to maintain a balanced approach. So despite experiencing a quarter with lower volumes, our cost control measures and adjustments within the industrial system have contributed to the good result in the margin we see in the quarter. Price realization carryover is still supporting the result year-over-year, and we are holding on to our current price levels, but the year-over-year carryover effect will be limited going forward. Service sales continue to expand, approaching $32 billion in the quarter, an increase of 4% FX adjusted comparing to last year. Service sales exceeded 27% in the quarter, which also contributes to resilience and stabilizes the financial performance. Apart from the specific challenges we have in North America, we have managed industrial performance well and adjusted capacity to be in balance with the demand we see in Europe and South America. Working capital remains a key focus, and we have reduced inventory by 800 million, compared to an increase by 1.4 billion sector in the same period last year. And this was mainly driven by reducing work in progress and material in a production inventory, and that is also adapting to our lower volumes. So all in all, it was a quarter that showed good resilience in an environment with softening volumes. Looking into the details and starting off with net sales done. Net sales were down 7 percent, FX adjusted compared to the same period last year. Demand remains weaker in Europe, with sales down almost 10 percent, adjusted for currencies and Darqus divestment. The decrease is driven by lower volumes in construction equipment and trucks. North America sales reduced by 9% FX adjusted on the back of lower market activity for both trucks and construction equipment and the specific supply chain constraints for truck that Martin talked about as well. South America continued to perform well during the third quarter driven by group truck sales while the other regions showed some contractions both in trucks and machines. The adjusted operating income for the group was 14.1 billion SEK with an adjusted operating margin of 12%. In Q3, earnings remained on good levels and were supported by some price realizations both for vehicles and services. The lower trend in raw material costs contributed positively to the performance year over year, but could not fully offset the impact from reduction in volumes and negative brand mix within construction equipment. The transformation activities require a high level of investments and R&D spending increased by half a billion in the quarter. The net capitalization effect in the quarter was negative at 85 million SEK, corresponding to a negative delta of approximately 450 million compared to last year. We expect this impact to reverse somewhat during the last quarter of the year towards an overall guidance of plus one billion for the full year. The other fixed costs remained in line with last year. FX had a significant negative impact of 1.66 billion SEC, driven by strengthening of the SEC from last year, and especially against the US dollar and Brazilian real. We expect the effect from transaction exposure to be negative at 200 million SEC for the full year 24, and we don't provide any guidance on the full FX effect on earnings. We delivered a positive cash flow of 3.1 billion during the third quarter. While inventory went slightly down, the overall seasonality was normal with a substantial reduction of our payables after the summer period. Return on capital employed improved year-over-year to 38.3% on a rolling 12-month basis. The net financial position remained solid at 62.9 billion, supported by the positive operating cash flow generation. and then looking into the truck segment The decreased FX adjusted net sales for group trucks of 6% were driven by lower volumes and limited price realizations. The lower adjusted operating income and adjusted operating margin were mainly driven by generally lower volumes, R&D, and manufacturing costs impacted by the disturbances we see in North America. Some price realizations year-over-year together with decreased freight and raw material costs maintained the overall performance on a good level. The temporary events in North America had a combined effect on the operating margin of approximately 1% in the third quarter. FX was negative with 1.2 billion SEK in the quarter. Looking into construction equipment done, FX adjusted net sale decreased by 20% due to the lower volumes and negative brand and market mix. Adjusted operating income decreased by 1.1 billion to 2.6 billion. The negative mix from higher volumes in China and lower volumes in Europe and North America were partly mitigated by lower material cost, price realizations, and some reduction in R&D expenses. The adjusted operating income margin reached 13.6%, and there was no significant negative impact on earnings from currencies. Looking into the big positive in the quarter, the buses. fx adjusted net says increase with twenty one percent mainly driven by strong price recession market and product mix and high volumes adjusted operating income increase by almost four hundred million to seven hundred thirty one million sick and this is a new record for the business area the result was supported by high sales and some reduction material cost partly upset by higher manufacturing costs They adjusted operating income or the increase to 11.8%, and that is also representing a record for buses. And currency impacted the result negatively by 100 million SEK in the quarter. Looking into Penta. Driven by lower volumes, FX adjusted Net sales decreased 2% to 4.7 billion SEK. Adjusted operating income increased to 831 million due to price realization and a positive product mix with higher sales and more profitable engines and components. This was slightly upset by the impact of reduced volume and higher R&D expenses. The adjusted operating margin came in at 17.7%, and there was a negative 100 million FX impact in the quarter. And then last but not least, looking into financial services. The credit portfolio increased to $262 billion with a rolling 12-month return on equity at 13.2%. Portfolio performance continued to be good, with customer delinquencies trending at average business cycle levels. In Q3, the adjusted operating income decreased to $992 million from $1.62 billion last year. The solid portfolio performance was offset by higher credit provisions and unfavorable currency movements, which had a negative impact of 55 million comparing to Q3 2023. So with that, I'm handing back to Martin to summarize that. Thank you, Mats.