AB Volvo (publ)

Good morning and welcome to the Volvo Group first quarter press conference. Today we do as always, we listen to the presentations by Martin and Mats and then we follow up with a Q&A session. So with that, I hand over to Martin.

Thank you, Juan. Thank you for that. And also from my side, welcome everyone to this quarter one 2020 five presentation. I would like to start with saying that it has been rather eventful time here. That is not an so to speak, exaggeration, but as we conclude the first quarter also, I would like to take the opportunity to thank everyone that has been involved, customers, business partners and colleagues. It's more important than ever to work closely together. And that is a strong asset that we have that we have very close relations. And overall, the underlying activities in many markets during the quarter have been, as a matter of fact, rather stable. But there is, of course, an elevated level of uncertainty around increased trade barriers and their effect on both local and global economies. For North America in particular, the increased uncertainty means that we are now taking down our forecast for the markets for the full year, both for group trucks and VC. But however, globally, the order intake for the quarter was positive in relation to quarter one last year for all business areas. And that goes also in the different truck business areas. Europe specifically did show a rather positive trend. And we are also proud that Volvo Trucks maintained market leadership in Europe with the market share for the first time, actually exceeding 20 percent, 20.1 percent. And combined with the group reached over 30 percent. And across the group, we have continued to prioritize high quality in the business by focusing on our customers and service operation. I will come back to that volume flexibility in the industrial system. Tight cost control combined with given the current situation, commercial discipline and price management. Specifically for volume flexibility, we are in a good balance for almost all markets and regions. The only exception is still, I should say, group trucks, North America, where we continue to have more costs related to specific situations. Firstly, the continuous ramp up of the all new Volvo VNL. And that is also now adding with all new VNR, the regional model, where extra resources and costs still have been needed. The situation has gradually been improving during the course of the quarter. And secondly, the increased hesitation among customers in North America to place orders given uncertainty in general. We are therefore, as we speak, adjusting production levels for group trucks in North America to minimize the under absorption in production going forward. But it's clear that we have had an under absorption during the quarter. On the positive side in North America, the impact by low levels of cab supply that we have hampered the Mac is now overcome after our takeover of the production plant during the fall. So that has been a great work done here. So in total, the specific events for group trucks in North America affected the global truck margin negatively yet for another quarter year. But I have to say also more importantly, we are firm on building a strong American platform with the introduction of the new platforms. That is, of course, I mean, if I may put so a little bit of short term pain for long term gain and a good proof point was the launch of Max and you pioneer long haul model that you did see here in the introduction of this press conference. So moving forward in these turbulent times for global trade, it is important to focus on activities that we as a company can affect. Here and now we will continue to build on our strong regional value chains combined with global capabilities. We work actively to adapt flows, production capacity if needed, and commercial terms to mitigate the effect from tariffs. In addition to the normalized markets that we have seen and the subsequent impact on demand. And in times of uncertainty, it's also essential to from time to time take a step back. It is motivating to know that transport, logistics and infrastructure will remain exciting growth opportunities for many years to come. In that regard, we continue to maneuver from a position of strength. We have high customer satisfaction and strong relations. We have solid foundation with the right people, well invested, industrial and commercial backbones, cutting edge technology and a strong financial position. So if we summarize the quarter, a net sales declined to one hundred twenty two billion second the back of lower volumes. It was a year over year drop of seven percent with or without currency. Our adjusted operating income came in on a level of thirteen point three billion sick, corresponding to a margin of ten point nine percent. Quarter one is normally a somewhat weak quarter in terms of cash flow. And in quarter one, twenty five, we generated one point three billion free cash flow. The year of the year changes mainly an effect of the lower operating income, but also slightly higher investment and mainly related to the assembly plant we are building in Mexico. At the end of the quarter, we had a net cash position of seventy seven point nine billion return capital employed industrial operations was at thirty one point eight percent and earnings per share at four point eighty six krona. So all in all, we summarize another solid quarter and resilient quarter in terms of correcting markets. If we then move to the volume developments, total truck deliveries declined 12 percent in quarter one with heavy duty deliveries holding up relatively better at minus seven percent. For construction equipment, deliveries decreased by seven percent with Volvo coming down 12 percent and STLG increasing by 30 percent. Maybe it's worth noting also when it comes to the truck deliveries. I didn't have that here, but that it was also rather a big change in the mix here, related also to the order intake during the last part of 24 here. So Volvo actually had a bigger decline in relation to then Renault and Volvo Mac actually increasing as you have seen here. When it comes to electrification with the different uncertainties obviously now also linked to the general economy, there is an hesitation of actually placing orders. I mean, it's an hesitation overall to place orders in in some of the markets and then of course to add moving into a new type of business model is of course not the right timing here. So the underlying demand has been slowing down and the switchover is still driven by early adopters that has started, so to speak, that journey. But still orders for fully electric vehicles increased with one hundred thirty eight percent. And it was mainly driven by Renault trucks, light commercial vehicles and STLG machines in China. And that was the same trend that we did see in quarter four, 24. Delivery is increased with 50 percent also supported mainly by the same two main reasons. STLG in China and Renault light commercial vehicles in Europe. But in summary, and this is important despite the slowdown here and now we continue to push in this field, which is, for example, reflected in our high market shares for medium and heavy duty trucks in Europe around 60 percent. But all says we see that the early segments out is continuing to grow, for example, city buses. Vehicle and machine sales. So if you take those segments on the back of lower volumes, vehicle and machine sales declined nine percent adjusted for currency. Truck sales declined 10 percent on 12 percent lower volumes. Construction equipment sales of machines were down 10 percent driven by lower volumes in Europe and North America. And bus sales increased by five percent despite five percent lower volumes than same period last year. And one of the effects here is actually electrification. But we'll come back to that. And for Volvo Penta sales were down by five percent despite volumes down by 70 percent. So that was also holding up well here. When it comes to services, the service business was slightly down compared with the prior year and amounted to one hundred twenty nine billion twelve month rolling that is impacted by also the arcus divestment last year. If we take that effect away, the underlying service sales did grow by two percent year over year adjusted for currency. So services continue to show resilience and our efforts then to increase the service contract penetration and other services will continue to pay off your step by step. So all in all, I should say a solid result from services also showing that activity levels are continuing or rather good levels in the in the installed population here. Group news held a well attended a jam actually in beautiful spring weather April 2nd in April. The meeting then shareholders resolved that an ordinary dividend of eight krona per share and an extra dividend of ten point five krona per share should be paid to the shareholders for fiscal year 24 in total. Then we distributed thirty seven point six billion to our shareholders. The largest dividend so far from a Swedish company. But that said, and that is important, we continue to maintain a strong financial position moving forward. And we also have obviously as all of us now had a high focus on mitigating the effects of different trade barriers and tariffs. A couple of words around that. Trucks, for example, Volvo Group when it comes to North America has all its assembly for the North American market in the United States. Also key truck components are assembled in the United States. But of course, we will have certain flows coming in from, so to speak, non-compliant use US MCA regions in the world, not at least then from Europe Europe and that then will will have a tariff effect as as already have been done announced by the US administration for construction equipment. There it's a little bit of different picture, majority of volumes imported and mainly then from Sweden, South Korea and Brazil. And we are working now with the mitigation. Having said that, I think it's important also to take a step back and see how we are operating. If I take trucks here as an example, we are operating with the regional clusters where, so to speak, a main part of our take activities or taking place. The main reason for this is, of course, that we have products that are tailor made for our customers and thereby we want really to make sure that we have as shortly times with the right type of specification. But that platform moving forward, that industrial footprint and platform moving forward will serve us well. Obviously in between here we have flows as I said about parts and components that we need now to work through and see how the different effects will play out as we move forward. So it will be adjustment of flows, adjustment of volumes in different parts of the world. We will work with the commercial effects obviously and pass through that as we have seen, for example, on the steel and aluminium tariffs where we are working with pass through measures. That is, I think, very important to have in mind as we move forward, giving us a good opportunity to continue to manoeuvre. When it comes to the truck side then, we continue to drive innovation to strengthen our customer value propositions globally and quarter one despite then as we said many moving parameters was no exception to that rule. In the US our iconic MAC brand and the day for the day here both Mats and myself we brought actually the bulldog with also small sign saying one hundred twenty five because Mac celebrated its one hundred twenty fifth anniversary on April 8th in Brooklyn, New York, where the company actually was founded by the Mac Brothers. The day was also celebrated with the launch of Max All New Mac Pioneer, as you can see here, which is designed for long haul trucking and it sets new standard in terms of driver comfort, advanced aerodynamics and game changing fuel efficiency. And this is really game changer for Mac when it coming to really regain their position in long haul. Also, Volvo's most fuel efficient truck to date, the Volvo FH Aero, won the green truck award. We do know that this truck with its aerodynamics and efficient powertrain is at the top and this independent test carried out in Germany confirmed its leading savings in fuel and CO2. And continuing on with the changeover to the new Volvo platform in North America, we launched also the all new Volvo VNR, complementing then the VNL and this VNR is for regional haul. And when it comes to market environment, let me begin my comments here to the slide with stating what is maybe obvious for everyone. At this point in time, uncertainty is rather elevated, so it comes with a significant uncertainty given the market conditions. So everything that is going on here, both in the short term, but this is what we see right now then. In Europe, to start with, our forecast for 2025 is unchanged at 290,000 units. But having said that, utilization of trucks is on good levels and the market is still replacement driven with an increasing share of fleets. Just looking at the current underlying fundamentals, one could argue that there is upside to the forecast, but with everything that is going on, this is for the time being our best estimate. In North America, we take down the forecast from 300 to 275,000 units, that goes for then for US, Canada and Mexico combined. And obviously there is uncertainty about the tariffs and trade barriers and also about EPA 2027. In this forecast, it means that we do not expect any pre-buy related to EPA 2027 for 2025. We had that previously that we thought maybe that should start in the later part of 25. But of course, the development here is still uncertain. And in Brazil, we take down the forecast slightly from 90 to 85,000 trucks on the heavy duty side. And agriculture and mining segments are still holding up export oriented as you know, domestic economy is impacted by higher inflation and increased interest rates. India somewhat correction upwards. We are correcting heavy and medium duty up to 300,000 that is past 10,000 in relation to last forecast and we maintain our forecast for China market of 710,000. Book to build. Did see a good order activity with the positive book to build in quarter one, specifically for medium and heavy duty trucks. Book to build in quarter one was 140 percent and for 12 month ruling, then 99 percent year over year orders did grow 13 percent to over 55,000 trucks and with 90 percent to almost 48,000 units for heavy duty segments. The European book to build in quarter one was strong at 137 percent with both Volvo and Renault growing and the uncertainty then in North America is evident in the book to build with a mixed picture between Volvo and Mac. Orders for Mac were increasing while Volvo being hampered by the changeover to the new trucks as well as weakened demand in the long and regional whole segments. But in total orders were up six percent in North America in relation to last year. South America, Africa, Oceania, Asia also had strong developments and book to build in the quarter. Truck market shares have been a little bit into it. Volvo trucks recorded an all time high market share of 20.1 percent in Europe. In heavy duty Renault trucks had its higher market share since the fourth quarter of 2012. Actually, we had 10.5 percent. So in total, the group had 30 point six percent market share in Europe in terms of battery electric trucks. We still have more than half of the market with a combined share of 60 percent. And in North America, Mac trucks has regained market share with an improved supply chain situation as I alluded to while Volvo trucks has been hampered by the changeover to the new platform and also an unfavorable mix. All in all, a rather stable share of 14 point one percent, but the new product products on both Volvo and Max side will provide us with opportunities and really good opportunities to grow market share as we move forward. In Brazil, Volvo remains the market leader with close to 24 percent. And in Australia, both Volvo trucks and market tracks were somewhat lower in quarter one with a combined share at almost 22 percent. Moving then over to VC and construction equipment also on this side, we continue to push innovation and to roll out important new products at the construction trade show Bauma in Munich in April. Melkeren team unveiled the first electric haulers in the A30 and A40 size glasses. And Volvo also showcased the groundbreaking all electric lineup of excavators, wheel loaders, articulated haulers and compact machines. Then, of course, it's important to add that in the customer can get what the customer wants. So we have of course, this lineup also for combustion execution and also for different type of fuels in that sector. And in the quarter, Volvo CEO also launched a new A50 that is actually fitting between the A40 and A60 size glasses, articulated hauler model in the very important North American market. Market environment also here uncertainty also apply of course for construction equipment as it is for trucks in Europe. We start there with guide for flat development for 20 25 in relation to 24 and that is unchanged in relation to previous forecast in North America and on the back of increased uncertainty. We guide for a continued decline and our guidance is now minus 10 percent as midpoint in relation to 24 and that is a slight change. Then we had minus five percent as midpoint in the previous forecast. And in South American Asia, we stick to a flat development for 25. That is also unchanged. And in China, we retreat a slight improving market, plus five percent as midpoint, also unchanged by the way in relation to. Previous forecast. Book to build situation also here we see showed growth with a book to be let one hand 11 percent in quarter one and 99 percent at 12 month rolling European book to build continue to be good at one hand and 31 percent. So similar patterns for trucks and the North American book to be improved to one hundred percent. But as you can see, then 12 month rolling still a bit low on 80 percent. But at least an improvement here. South America had a positive book to be let one hundred twenty five percent. The same goes for Africa, Oceania and Asia were also positive in terms of book to be. Volvo buses then launched during this quarter, the new Volvo seventy eight hundred electric in Mexico. And that is the first electric bus model to be manufactured in the country. The new articulated and be articulated electric bus is built on Volvo buses global electromobility platform B set or we also received the first order for the new intercity bus Volvo eighty nine hundred electric when Svia lands trafiken that is one of the Swedish PTAs or public transport authorities ordered a total of six electric buses operating in Sweden where of 80 or sorry, 60 Volvo eighty nine hundred electric. So Volvo buses continue its top line growth on the back of strong position in electrification and book to be in the quarter was very strong at one hundred fifty eight percent overall demand for coaches continue to be good and ordering take year over year was up one hundred twenty three percent. Penta then Volvo Penta in the quarter started the serial production of its IPS professional platform. The biggest IPS system so far, it was also introduced to the North American yacht market. This is a great addition to the already very strong line up of marine in the marine product portfolio and book to be continued to improve to one hundred and forty one percent in quarter one and to one hundred nine percent twelve months rolling and order intake year over year was up with thirty five percent. Volvo Financial Services, the portfolio performance continued to be good with the customer delinquencies stabilizing at average business cycle levels. VFS continued to deliver good and stable earnings and in quarter one, the new business volumes reached twenty four point nine billion. The twelve month rolling penetration also was good, reached twenty nine percent and up by two percentage points compared to last year. So by that conclude the business report and leave to you much for the financials.

Thank you, Martin. So looking into the financials, starting off with group net sales. So net sales decreased by seven percent on a currency adjusted basis compared to last year. Vehicle sales dropped by eight percent mainly due to lower volumes. Service sales increased by two percent adjusted for currency and Darcus divestment. European volumes declined with sales coming down twelve percent adjusted for currency and the decline is mainly due to lower volumes in trucks and construction equipment. In North America, sales experienced a slight decrease of two percent effects adjusted mainly due to lower market activity for construction equipment. South America continued to have positive performance during the quarter. Net sales increased three percent effects adjusted compared to last year. And this was mainly driven by trucks and construction equipment sales. In Asia, the net sales increased by one percent adjusted for currency, mainly driven by our business in construction equipment and the other regions experienced declining sales in both trucks and machines. Overall, effective effect was negative with about seven hundred million sick driven by the Brazilian currency depreciating 13 percent versus sick with a negative effects effect of about one billion sick. The adjusted operating income for the group was 13.3 billion with an adjusted operating margin of ten point nine percent in Q1 earnings were supported by positive development of our service business and lower operational expenses for R&D as well as SNA. Why the lower trend in freight cost had a positive year over year impact. It did not compensate for the effects from reduced volumes, negative product and brand mix within construction equipment and the negative financial impact from the truck model changeover and under absorption in the US manufacturing system. The net capitalization effect in the quarter was positive at six hundred million with a year over year effect of two hundred guidance on net capitalization for the full year. Twenty twenty five is positive at approximately three billion with a year over year effect of about two billion sick effects of the negative impact of two hundred million sick in quarter mainly driven by the strengthening of the sick and given the current trend of strengthening sick. We expect the effect of transaction exposure to be negative at four billion for the full year. Twenty twenty five. We don't provide any guidance on the full effects effect on earnings. First quarter is from a seasonality point of view, a weak cash flow quarter due to the seasonal built up of inventories. This quarter we have ever generated a positive operating cash flow one point three billion despite continuing to make significant investments in the transformation. While the inventory went slightly up, the solid earnings were the main contributor to the positive operating cash flow return on capital employed trend declined to thirty one point eight percent on a rolling twelve month basis. The net financial position remained solid at seventy seven point nine billion sick supported by the positive operating cash flow generation. And then looking into the track segment. The decreased effects adjusted net sales for group tracks of eight percent was driven by lower volumes and slightly negative price effect on vehicles. The lower adjusted operating income and adjusted operating margin were mainly driven by generally lower volumes and the impact from the model change over and under absorption in the U.S. manufacturing system. Good performance was maintained through effective price realization on parts, reduced freight cost and generally good cost control. Effex was slightly negative with 58 million in the quarter. Looking at construction equipment, then effects adjusted net sales decreased by eight percent due to the negative brand and product mix adjusted operating income decreased by one point one billion to two point five billion sick. The negative mix from high volumes in China and lower volumes in Europe and North America were partly mitigated by lower material cost and increased service business. The adjusted operating income margin reached 12 percent and effects effect was minor at 12 million. Looking at buses, then. Effex adjusted net sales increased by seven percent driven by product mix and service sales adjusted operating income increased to three hundred and sixty million sick. And this was actually the best first quarter ever for four buses. The result was supported by price realization of both vehicles and parts and continuous improvements on manufacturing costs, offsetting the impact from higher material costs. The adjusted operating income margin increased to six point six percent and the currency impact was slightly negative at 30 million sick. Moving over to Pentadon driven by lower volumes, effects adjusted net sales decreased by three percent to five billion. Adjusted operating income was slightly lower at nine hundred and fifty million sick, and this was mainly driven by lower volumes. The solid performance in the quarter was due to positive product and market mix driven by heavy duty engines in the U.S. market and price realization on both engines and parts. The adjusted operating margin reached 18.3 percent and there was a small negative effects impact in the quarter at 37 million sick. And then finally, financial services adjusted for currency, the credit portfolio increased to two hundred and sixty four billion sick with a rolling twelve month return on equity at twelve point seven percent. The currency effect on the credit portfolio was minus twenty two billion compared to first quarter twenty four. Portfolio performance continued to be good with customer delinquency, stabilizing at average business cycle levels. Incue one, they just did operating income stable at one billion and the solid portfolio performance was partly offset by increased credit provisions and unfavorable currency movements, which had a negative impact of forty eight million compared to first quarter twenty twenty four. So with that, I'm leaving for Martin to summarize. Thank you,

Maltz. Thank you for that walkthrough yet concluded by rather brief here before opening up to for questions and Q&A here. Yeah, as you've heard, it has been a quarter with solid earnings and returns despite continued decline of deliveries, but also extra costs mainly for Volvo trucks than North America related to the changeover to the new track platform as well as under absorption in production. We are addressing those areas as we speak and we do see improvements. It is also very positive to see the order intake that improved for all business areas year over year during the quarter, but also in these turbulent times for global trade. It is vital to focus on activities that we as a company can influence here and now. We will continue to build on our strong regional value chains combined with global capabilities to mitigate the changes in global trade patterns. We have a good traction to adopt costs selling admin industrial while we at the same time are maintaining a high priority on innovation and technology moving forward. But as I said earlier, in times of uncertainty, it is essential to take a step back. It is motivating to know that transport, logistics and infrastructure will remain exciting growth opportunities for many years to come. And in that regard, we continue to maneuver from a position of strength. So by that, Johan, I think we are ready for Q&A, right?

So we continue into the Q&A and we do as always. We try to limit ourselves to your one and most important question. So we leave the floor for everyone. We start in the room. We start with Erik.

We have to consider which one you like to answer. And I'll try with this one on the investment side as you mentioned quite a big step up compared to last year. You said Mexico support of it. So for the full year, then we'll see a similar rate of increase Q2 to Q4 as we saw in

Q1. Yeah, you will see a somewhat higher level than driven by by Mexico's course, if you're looking at the Delta in the first quarter year of it's all Mexico actually when it comes to the assembly plant. So you can expect that we have that kind of Delta for the full year, maybe not the full Delta, but we will see some impacts from from Mexico on the full year.

We move to the telephone line. Jeffries, Michael Aspinall, please go ahead, Michael.

Yeah, thanks. Good morning, Matt and Johan. Just one on Europe. You saw very strong orders in Europe again. Have you seen that continue into the second quarter or have you seen an impact on activity levels in Europe from what's happening in the US?

Thank you for the question. Yeah, of course, it's quite early in the second quarter, but so far it has largely followed the same pattern as we have seen in quarter one. So when it comes to absolute levels in Europe, it has been continuing on on on a level that we have seen in quarter one.

Good thank you for that, Michael. We move to campus. I can.

Yes, one question for me. Can we go back to North American trucks? You wouldn't been running dude production with the new biennial. And I guess my question, you were all stepping out and reducing run rate. But what further measures have you been taking given the market sentiment? And when do you think you will be in balance with that demand? Thank you.

Thank you. Humble and I think this is a very important one, obviously, because when you have so many moving parameters, if you start globally, the start with your need, we need to go down to the different regions and see how how does it look when it comes to the balance and I should argue that for all business areas we are in good balance. Of course, there are the adjustments to be done everywhere when you have so many different changes as we speak, for example, we are actually justing somewhat upward in in in Europe. Then for both Volvo and Renault as one example, and that goes for the old, the former main plants there. But at the same time in in North America, it has been quite a number of different events over the last three, four quarters as we have also discussed here. What I think if you start on the positive and just to give that a little bit flavor, Mac feel now is through with their sort of speak supply chain issues. I think that is an important data point to have them. I mean, given their current customer base, now introducing more also deal with the entire for long haulage. But I mean, they are reading and hauling vocation and it has been holding up if that with uncertainty will continue our judgment is that it will have a spillover also to the segments and we are therefore preparing for adjustments also for Mac. So so that is sort of speak to Mac situation, but but well ahead of of of of plan there. Volvo in particular obviously we started the ramp up at the end of quarter three beginning of quarter four last year and what is happening then is that you are doing a period of time running in parallel. So to speak, the don't like to call it the old but I mean, the previous program and the new program since this is a rather big platform change, you need to have extra resources to to do like that. Then you can also see in the delivery is that during that ramp up, we were losing volumes so that the loss in North America, Volvo trucks was one of the bigger than also for this because what what we are producing is also coming with a certain lag. But that has been sort of speak following the plans you can say largely when it comes to our estimate of the costs related to that type of double program. Maybe we the couple of weeks or up to a month of delay because there are events happening. So so so that is how it is. But of course, also when you have this type of programs, your ramping up during quarter four, we have also been working with these volumes. It has not been fully completed, et cetera. So so those extra costs have been there on top of it. We did see of course, a correction in the market. We started to see OK, how should we adjust the extra resources related to the ramp up also with the de facto lower, so to speak, demand in the North American market. We have started to do these adjustments during the course of quarter one. And we have also recently then decided to to make a further step also for Volvo trucks. And that is now related to more to the actual demand in the market that we see that uncertainty is still there. There is a hesitation among customers. You see that in our market for cost and as we speak now, we are taking down them production also for four four group trucks in North America, Volvo and for Mac.

Good. Thank you. We move to the telephone line, Citigroup and Klas Berglind. Please go ahead, Klas.

Thank you. Hi, Martin and Matt, Klaser City. So my question is on the on the gross income and I'm focusing on the impact in the truck business. You didn't call out the mix on the slides for trucks that was in construction equipment, but I think you said Martin that the mix took a hit that Volvo brand declined more than Renault. So that's one drag. But across the under absorption, the VNL change and the pricing, I'm trying to understand this better. First, on the under absorption, obviously, inventories are seasonally higher, which is normal. So the stocking was more last quarter in the fourth. But despite that, you're reporting a bit weak in margin. So it's pricing getting worse out of the backlog or is the brand mixed the key here or was the change over in VNL a big drag this quarter? Somebody is trying to understand the moving parts. So there was a lot of questions in one.

Well done. Well, I know I should say that I mean, you're you're on to compliment here because they're quite as you said, also quite a number of parameters. I would like to start by saying that we feel again rather good about having control of the different parameters. So so there is no, so to speak, underlying surprise to us. Volume is, of course, one effect. Yes, the starter, the general volume, so to speak, decline. That is of 12 percent that is not one effect. Then you have the mix effect also on the truck side, obviously, because, as I said, also, Volvo said higher, so to speak, decreased than the other the other brands. On top of that, to your point, we have the rather still material effect on, so to speak, the two specific events remaining for Volvo trucks in North America change over as well as, so to speak, the under absorption. We are addressing that as we speak and we feel good about the activities that is happening there and then largely on pricing. I should argue that partly you had mainly done Europe actually in in court to for ordering take a slight pressure on that was related also to mixed bigger fleets and and I mean, market was going down and that is then materializing in in quarter one when it comes to invoicing. But but that we have seen stabilized, stabilized in our and rather seen an improvement as we speak now. It is a lot of focus obviously on North America when it is high and certain to that there is a pressure. But but we have said that we want to hold on. We have strong products here and and and we are therefore also just in production rather than to. So I should argue that you mentioned it's slight price effect and that is I think the right wording, but we don't feel. Over concerned about that reason, there is more so to speak about the other moving parts here again. Volume and then I should argue a rather big effect on of the North American events, Volvo trucks specifically.

Maybe just to add, I mean, as as a guided as well, if you have a little bit more kind of forward looking, I mean, the currency will be headwind going forward as well. I think that's also important to remember. You look at the bus income.

Good return to Agnes Gertner.

Thank you. On construction equipment, your margin was somewhat pressured in the quarter. Can you explain what was behind and also given the fact that your orders now in construction equipment are quite strong in in Europe and even in North America should we expect somewhat better mix and then maybe Martin also if you can comment on the interest at Bauma for your new products.

Absolutely starting with C. Iran. I mean, it's basically all about mixed on because I mean, looking at this STL G. I mean, we had in the first quarter about 55 percent STL G in deliveries and that is a really high number. So that is impacting quite a lot. I'm looking at the kind of the current order intake is quite good on the Volvo products, meaning that I mean, maybe we'll see some improvements and going forward. And but for the quarter, it's definitely the STL G being a big part. And then also, I mean, below that, so to speak, also the kind of the geographical mix on the Volvo brand when we had less in in in North America, where we traditionally have very good profitability. So I would say looking at C, it's very much related to the to the mix effects in the market.

But it's positive to see also, I mean, to your point, Agnieszka, also we have a good order intake when it comes to Europe and that was the second consecutive quarter for VCS well nothing that is promising. And then then let's see also that we don't see in the in the books yet. But obviously the announcements also in Europe of rather big packages when it comes to structure in defense, et cetera, will also have an effect here going forward, obviously. In general speaking, that's good for Europe that start to think about the balance sheet and we will gladly be supportive in that effort. Bauma great interest. I think the strength is that we are also in indoor segments showcasing that we have the different propulsion systems now ready. Not at least actually for city type of construction sites where we see more and more of the tenders are coming with demands on electrification both for emission and pollution and close by so to speak emissions like Noxon and particulates, but maybe even more for noise vibrations and these type of factors. So so really to have the full lineup plays an important role. Then of course, big interest around the new reveal of the articulated haulers also I mean that we are now filling in with a 50s making house our lineup through true winner. That's very, very, very important segment and that we are ramping up now as we speak because there is also work to have been done during the quarter in Brause. So so that is also step by step coming through.

We turn to the telephone line Goldman Sachs, Danila Costas, please go ahead, Danila.

Hi, good morning. Thank you. I wanted to ask on free cash flow. You've already addressed the point, but I know normally we carry in one queue, but you have a pretty big drag this quarter on on working capital, which is between inventories and the other changes in working capital. Wondering if you could maybe clarify what that other changes in working capital was and give us a bit of how should we think about it this year, given you're probably ramping up for EU orders, getting better potential supply chain disruptions in the US with with tariffs, but also cutting production sort of. How should we think about the cadence from here and on this working capital line item?

Looking at, I mean, working capital and the different components. I mean, to start with, we have an inventory built up in the first quarter. But what I would like to stress is that the built up is less than we normally see, even if you're looking year over year, we have much less in terms of inventory built up this this quarter than comparing to last year and the quarters before that as well. So I mean, very, very well managed by the organization when it comes to inventories when it comes to other working capital items. Where we have quite a lot of volatility is related to the payable side. And that is actually more of a calendar effect than depending on how many I mean, we are making payments a certain weekday and if you have four or five of that kind of that weekday, then you will have a positive or a negative impact. So that is more a kind of a calendar effect on the on the payable side. Then overall on the on the cash flow and comparing to last year when you see the numbers, then what you also should remember looking at the cash flow comparing to last year is that we had an all time high when it comes to the cash flow last year in the first quarter, a great cash flow quarter that comparing ourselves with now then and if you're looking at the kind of the differences here, we are it's very much related to the operating income. That's the big kind of difference then and then to some extent related to Capex down when we have somewhat evaluated Capex down with Mexico and the assembly plant. So that is in a nutshell, the cash flow explanation.

But I think it's very important to reiterate what you said was about inventory situation. In general, I think that is well managed. You have said without different business areas and super important in the situation where you have a lot of uncertainty. You don't want to sit with so to speak inventory in different parts of the world. So so well done there.

Good. We talked to Mattias.

Thank you. Could you talk a little bit about the Mac pioneer? I would be particularly interested to hear how we should think of it in relation to the 25% market share target in North America and then also what learnings you've made since the I think a couple of years back, you made a similar launch for a Mac highway truck and then also finally, perhaps you showed at the capital markets the last year that Mac was below the rest of trucks in terms of margin. How should we think about the margin profile on this? Help bring that up or is it other moving parts you need to

move? Thank you for that question. And and it comes in handy as we said, I mean, we launched that now and that is the damn continuation of the chain show we are doing in North America. And it's a big investment as we have been talking about before. He bought one in constant product, but also industrial and what is important to understand that this is a real so to speak platform change for Mac. The Mac anthem that we did was that in 17 18 if I remember it correctly, some were there right was more so to speak of an upgrade of the already existing platform built on the old if I may say so the current Dan back then Mac legacy platform and and that was so to speak in attempt to reenter. We did see that the competition here is too high in order to be real contender for that. It was the hardcore so to speak Mac fans that hold it is a good truck, but but in reality, the industrial system is not geared for that type of products also what we're doing now is that we are as we have done in Europe, building a modular platform for the two brands for the different type of categories. Very strong as you can see, still brand distinction. So so you have so to speak the Mac feel when it comes to that type of customer categories, one comes to the driver experience when it comes to the driver interface, living space, etc. But when it comes to aerodynamics, when it comes to to to wait when it comes to fuel efficiency, when it comes to technology, it is really an up to the top type of long haul product, but also supported by an industrial system that will give you as so to speak scale where it matters at the same time brand distinction where it matters to day. Yes, to give a ballpark. I mean, Mac is sitting on one point to one point six depending a little bit of the markets on the long haul segments. So in reality, almost absent type of segment for Mac we have high in relation to that ambitions, but still realistic ambitions, but thinking about that long haul in certain market conditions or up to almost 50 percent of the total market that will be very, very important part of Max Yoni. So even if we talk about like five, six percent that is more than realistic, given the performance of this, we can do that with out being too aggressive when it comes to our commercial conditions and at the same time utilize some industry of the network that we are already sitting on. So a very excited about it. I was over together with colleagues and of course, all the colleagues in North America meeting customers and dealers and people are super excited about this. I mean, Mac is back when it comes to long haul is that was the statement. And I mean, now we will start to ramp up the scene in in the late part of quarter two and by the way, also lot of good. Then learning from the V and L ramp up. So what we have done now in New River Valley for Volvo, we have also good, so to speak, learning curve for Mac here.

On the margin, then I guess that was also a question. And so looking at the kind of the performance for Mac, I think the first step when it comes to margin improvements is all about volumes. So we have been kind of supply constrained and given the challenges we have had on the supplier side, so good leverage on additional volumes. And even though we are not disclosing the different brands, I mean, Mac had a good kind of performance now when we see the which

confirmed also. I mean, clear believe that exactly volume will give.

So to sort out the kind of the supply issues and getting volumes through the system is by far the most important thing to start with. Will bring up the kind of the margin for Mac and then on top of that, the new launches as well. But the first step is really getting the volumes.

And on top of that, I mean, the industrial system for Mac would be completely different and much more aligned to a mean professional if I may say so industrial system that we see for Volvo trucks in North America, but also for Volvo in the rest of the world. So it feels really exciting.

Good. We turn to the telephone line Morgan Stanley and Shaquille Kroon. We go ahead, Shaquille.

Hi, Shaquille from Morgan Stanley. Thanks for taking my question. So clearly sentiment has changed significantly since last quarter, especially in North America, of course, impacted by tariffs and EPA. If we look at the new market outlook, what's baked into your expectations for 275K? We know you no longer expect a pre-buy, but to what extent do you still rely on a second improvement and what drives that?

No, but I should say that I mean, first and foremost, I think that if you look at the deliveries in the market, that's at the 200 75,000 is a rather, so to speak, sizable adjustment already now. All and we should say that the pre-buy effect that we expected for for 25 was rather related to the later part of the year and depending also the general sentiment. So so I should not say that the full sort of speak decline here is related to the IPA is also related to the general uncertainty. So so I think still I mean, this is the most realistic scenario when we see different order activities. I mean, it has been a bigger hit when it comes to the over the road segment, mainly long haul, but also regional. We start to see certain effects now more related to them. So it's uncertainty, wait and see for vocational like construction and other oil and gas, etc. Then the actual sort of speak absence of need for it. So so if clarity will come back, I think that will also support so to understand the five is the best scenario we have now having said that with the adjustments we do of course, we are prepared to continue to adapt if that is necessary. But now I think we are on on to it. And we are rather early out to do that.

Yeah. Right. So we we moved to Björn.

That's back. Yes, trucks in Europe. We've seen deliveries quite low, few quarters, but also orders quite strong, two quarters. And you are ramping up. So I assume we see better deliveries looking ahead. But what will it take you to hike your forecast or the outlook for the European demand?

No, but I think that is very good question, obviously. Anna, I mean, I should I should I think I could be transparent saying that we have discussed that also already. I mean, where are we really now? I mean, when we said to an in the night in a solar decedent, my presentation here, if anything, we we we see so to speak an opportunity on the upside here. But given so to speak, so many uncertainties, etc. Already now do it. We have had two concept consecutive quarters with good order intake and positive book to bill. And I said that it started good also now in in in April here. Let's see what I mean about that is also I mean, typically weaker order intake quarter three quarter four and then we see that coming through in deliveries now not only for the market in general, we have gained market share even if we have lower deliveries year over year. So so again, depending on how different parts of the whole system will be just now, but we are planning to just upwards as we speak for Volvo both in Gententube and also for Reno in in Borg and for for Volvo and Reno in in blend bill for the medium beauty basically.

Thank you. We turn to JP Morgan Jose as a man, the fiscal year. Jose, just

one question, please. Can you help us a bit on North American production? The question, the future rescue one. How do you see that in the light of the of the order intake? What's the share of temporary workers you have in the region and actually in Mexico? Looking at some of the context contention measures, so you know, cash contention measures, complex reduction measures in future rescue one to protect cash into the first half. Thank you very much.

Thank you. I mean, first and foremost, I think, of course, we're always cautious about, I mean, different activities when you have a high level of uncertainty that goes on the I think it's also very important to have a little bit longer view than a quarter when you're planning for CapEx. And that's also a very important reason why we have said that it's important to maintain a strong financial position maneuverability in order not to be too much stop and go when it comes to your CapEx, because that will eventually be much more expensive and disturbing than actually go along. Then if you see more systematic or structural changes, then of course we are adapting and given. I mean, if there is a really weak outlook, we need, of course, also to adjust in order to maintain the right type of balance. But what I feel is that we have been showing over quite many years now that we are responsible when it comes to relation to what we can, so to speak, afford and we will continue to work in that direction. Then when it comes to and that goes obviously for I mean, North America as a case, we have seen that constantly when markets have been coming back and peaking, we have been losing out share already, so to speak, with our current and previous programs. We don't want to have that situation again. So Mexico is an add-on. Of course, this market will come back. I mean, the need of transport logistics infrastructure will continue to be there. And this is an add-on well placed for us on the western part of that continent, complementing them our main facilities in LVO and in NRV. Then when it comes to the flexibility, we have the right type of flexibility and that's the reason why we are now actually adjusting. We are adjusting during the first half of the year with approximately 1000 positions here. If we take MAC and Volvo trucks North America combined.

Good, that brings us to the full hour. So thank you listening in on the streaming and also in the room. So with that, thank you for today.

Thank you very much. Thank you.