AB Volvo

So welcome to the third quarter press conference from the Volvo Group. Today we will listen to our president Martin Lundstedt and to our CFO Mats Backman and then we'll follow up with a Q&A session. So with that short introduction I hand over to you Martin.

Thank you, Johan, for that. And also from my side, welcome, everyone. It is encouraging to see, by the way, the new VNL here. You did see that. Maybe you did see Johan most here in the studio, by the way. But for everyone listening into the web, I think you did see the VNL. Now when it's a little bit turmoil situation in North America, it's encouraging to know that we have a great product range coming out when the market is turning back, basically. But coming to this quarter then, we are in a period, as you know, with weaker demand in our key regions anticipated to some extent, but also, of course, some other factors. And especially then for North America, with a high level of uncertainty and wait-and-see mode among our customers. But I have to say, despite the many moving parameters that we see right now, the group had a solid performance with an adjusted operating margin of 10.6%, showing a good earnings resilience also with these moving parameters. Here and now, we focus on what we really can impact in the group. We have adjusted and will continue to adjust our operation utilizing the toolbox that we have for volume flexibility. We have applied strict and effective cost control, have remained firm on commercial conditions and continue to drive our service business that showed positive development during the quarter with underlying growth of 5% adjusted for currency and the divestment of SDLG. That is showing that our customers around the world continue to utilize their vehicles and machines, which means also that the fleet will also need to be replaced eventually also in North America. We have generally good traction also to adapt cost across the board, selling, admin, industrial, while we at the same time are maintaining a high priority on innovation and technology. But also in these areas, we are continuing to gradually adjust given the situation, for example, for the transformation with slower demand in, for example, electrification, and thereby we are time-facing some of our activities. Specifically also for volume flexibility, we are in good balance for almost all markets and business areas. The only exception is group trucks, North America, and partly, I have to say, during the quarter, also South America, where we continue to have more cost in relation to the current demand. Firstly, then, if you go to North America, there is a wait-and-see mood, as I said, amongst customers to place orders given the current uncertainties. We are therefore continuing to adjust production levels in addition to what has already been done during spring and summer here, but also other costs to minimize the under-absorption going forward. And secondly, of course, even if that is a good timing from another perspective, we still have some effects from the continuous ramp-up of the all-new on-road ranges for both Volvo and Mack, where extra resources still are needed. But I think it's important also in the period that we are into now to reiterate that even in the situation in group trucks, North America affected and rather heavily than the global group trucks margin negatively yet another quarter. We have high ambitions for North America. We have a strong platform to maneuver from now. And the continuous ramp up of the new range is important so we are even stronger, both from a capacity and a product range standpoint when the market comes back. And it will come back. So don't worry about that. Leverage from volume in that particular market will then be crucial, obviously. Moving forward in these turbulent times for global trade, we focus, as I already said, on activities that we can influence ourselves. We continue to build on our strong regional value chains that in today's landscape is, of course, a strength, combined with global capabilities and also then that combination to mitigate the effects from tariffs and other type of uncertainties. So as we conclude the third quarter with a solid group margin and resilience, I also would like to say a big thanks to customers and business partners and colleagues. So if we summarize the quarter in figures, net sales declined to 1,100 billion SEK on the back of the lower track volumes. It was a year-over-year drop of 5%, but actually an increase of 1% when adjusting for currency. We delivered a solid result in these turbulent times, adjusted operating income of 11.7 billion and operating margin of 10.6%. Cash flow was negative at 1.7 billion, which resulted in a net cash position in industrial operations of 45.4 billion. Return on capital employed at 25.2% and EPS was at 3.71 krona per share. Moving over then to the volume development, truck deliveries declined by 4% in the quarter with lower volumes in North and South America while deliveries in Europe improved. As you know, we've had a very strong order intake and we needed also to push that through now, so good work in Europe here. And for construction equipment, deliveries decreased by 4%. But when adjusting for the divestment of STLG, machine deliveries increased by 14%. In electrification, with the different uncertainties, both as regards cycle, but also the enabling conditions and the rollout of them, underlying demand continues to be slow in the field of electrification. Orders for fully electric vehicles decreased with 4% and adjusting for SDLG again, order intake declined by 13%. Deliveries increased with 27% when you have adjusted for SDLG, and the new Renault Master had a significant positive impact in the truck segment. So in summary, despite the slowdown, we continue to push here, obviously, which is, for example, reflected still in our high market shares for medium and heavy duty trucks with more than 50% in Europe, even that we see now PSA coming in also with different type of products. But however, as we and the industry have the products and solutions ready, as you have seen for quite some quarters now, it is more than overdue for policymakers and other key stakeholders to push for the enabling conditions such as charging infrastructure and actions to stimulate demand in these sectors. When it comes to the top line for vehicle sales development, the overall figure for vehicles and machines declined 1% adjusted for currency. Truck vehicle sales were down 3% on the minus 4% truck volumes, which is, even if it's an average proof point, but still a proof point of our price discipline also in this software market environment. Construction equipment did grow with 9%, and when adjusting for SDLG again, the growth was 17%, which was supported by sales of Volvo-branded machines in mainly Europe. Volvo Penta's 11% sales growth was supported by North American Europe in both the industrial and the marine commercial segments. Service sales, as I alluded to in the beginning, positive development and continues to develop well, as I said, with the growth of 4% adjusted for FX in Q3, with positive development in all business areas. But if we also adjust then for SDLG, growth was underlying 5%. And these are two points of our push for more services per unit, of course, installed unit, but also that our customers continue to utilize their vehicles and machines and, as I said also, before the installed fleet needs to be renewed sooner or later. Penta was particularly strong with 17% growth on the back of increased service penetration in the industrial segment. As you know that we have been growing the industrial segment over the last quite some years now and of course now the installed population starts to be rather material. But also strong sales to OEMs for Volvo Penta. The group's service business is pacing at 126 billion 12-month ruling and represented over 25.5% revenues 12-month ruling, actually 28% in the quarter, which adds stability and earnings resilience. As per September 1st and also the SDLG divestment was concluded and finalized and I would also like to take the opportunity to say it was done in good faith between the two partners. It has been a successful journey and now we wish the Lingon Group and SDLG a continuous good success with their business also in the future. When it comes to truck news, Euro NCAP's first ever safety test for heavy-duty commercial trucks took place late 2024, we reported that here, where Volvo scored five stars and Renault scored four stars and took the podium. In September 25, we did it again, I can say, and both Volvo and Renault kept their scores, and Renault also earned the city safety label. And this is important to us. Safety is a key priority for our customers and we stay committed to our core values here, quality, safety and environmental care. And that's why it feels very encouraging whether an external panel such as Euro NCAP recognize our focus in these areas and rate the group's brand at the top. In September also, Volvo Trucks passed the landmark of having one million connected trucks on roads, with further opportunities then in our service journey to serve our customers with advanced digital solutions. Mack Trucks started production for the all-new Mack Pioneer at its Lehigh Valley operation facility in McKenzie, Pennsylvania, United States. And that is, of course, also a very important milestone for Mack Trucks since we have not had for quite many decades now a real, so to speak, proposition for the long haul segment. So very promising start of that as well. Market environment, of course, early days, we are now guiding for 26 for the first time in a market that has a lot of uncertainties. But if we start in North America, as I've already been in, two customers are currently in. sort of wait and see mode we have trimmed our 25 forecast to 265 000 units and that is minus 10 000 in relation to previous forecast and for now we forecast the 2026 retail sales levels around 250 000 heavy duty trucks That is of course subject to a high level of uncertainty, given that there are quite a number of parameters in flux as we speak. In Europe, registrations continue to pace towards 290,000 heavy-duty market in 2025. That is a forecast that is unchanged in relation to last time. And we expect the European market to move slightly up to 295,000 level 426. In Brazil, the market is continuing to correct. We have kept our 25 forecast unchanged at 85,000 units on the back of sales from dealer inventories while production levels are gradually taken down. But we see the current cooling off will continue into new year. And for now, at least, we estimate the Brazilian market to be at 75,000 heavy-duty trucks in 2026. But also here with the recent development, of course, contains quite a high level of uncertainty. In India, we keep our forecast of 360,000 for this year. And we believe that the recent momentum also in the Indian market will continue through 26 and thereby forecast a slight increase to 380,000 for next year. And in China, the market has increased mainly on the back of the trade-in incentive program in the market for all propulsion technologies, diesel, natural gas and battery electric vehicles. Forecast for 2025 has been lifted to 760,000 medium and heavy-duty trucks for this year, and we now expect the market to remain flat in relation to 2025 or 2026. Book-to-bill. amounted to 80% in the quarter globally, and a good balance of 98% 12 months rolling. For the quarter, we had two regions that significantly impacted overall order intake, and thereby the book-to-bill, and that was Asia at the book-to-bill level of 48%, and South America at the book-to-bill level of 33%. And for certain countries in these two regions, we have been very restrictive with order slotting into us, given that we want to keep a healthy balance between order book inventory levels and production output, since we are working with also dealers and market or distributors in many of these markets with block orders. And it is important in this time now to keep the pipeline in trim. So have that in mind also for these two regions when you look at the overall order intake. For Europe, the book-to-bill reached 91% with a strong production push in quarter three to cope with the good order levels in previous quarters. European demand is currently stable with 2025 largely sold out and for 12 months ruling the European book-to-bill is at 105%. And in North America, the book-to-bill was in balance on the back of capacity adjustments made during spring and summer. Further adjustments might be needed given the high uncertainty. however with our strong u.s manufacturing footprint for the north american markets adjustment can also be on the positive side but it's too early to say right now so flexibility is the key word now as we move forward not at least in north america on market shares Volvo and Renault continue to deliver strong market shares in Europe. Year-to-date September with Volvo at 19.3% and Renault at 10.5%, giving a total share of almost 30%. On the battery electric side, despite that more OEMs are now delivering battery electric vehicles, Volvo and Renault combined delivered a 53% market share. In North America, Mack Trucks continue to deliver market share gains on their improved supply chain, and they are now at 7.5% year-to-date. Volvo Trucks have stabilized their changeover process that affected, of course, the market share during the beginning of the year and reached 7.9% year-to-date August. However, Volvo is also affected by the segment mix where the on-highway segment are under pressure, as you are aware of. Nevertheless, we see that Q3 was better and we are now around 9% in the quarter here. And in Brazil, Volvo remains solid and market leader in Brazil with 23.1% heavy duty market share. Australia is transitioning from Euro 5 to Euro 6 this year. And for now, Volvo and Mac are at 21.5% combined. We have seen that other actors have been selling Euro 5 from inventory, but expect an improvement of market share when the whole market has transitioned now during the later part of the year into Euro 6. So by that I leave trucks moving into construction equipment. CE also continues their global product renewal. We started last year and in Q3 the latest hauler models were launched into the important markets in Asia, not at least for mining. Market forecast here, of course, also here uncertainty is elevated. But for Europe, South America and Asia, excluding China, we continue then to forecast a flat development 25 to 24 unchanged forecast and also flat development as midpoint for 26 in relation to 25 for these three regions. For North America, we guide now for minus 5% as midpoint for 2025 versus 2024. That is an improvement of 5 percentage points in relation to last forecast. And then 2026 to 2025, also a minus 5%, so a somewhat further correction of the market also anticipated for next year. China plus 10% as midpoint versus 24%. That is an unchanged forecast and 26% in relation to 25% flat development. Book-to-bill overall, book-to-bill is in good balance or rather good balance when it comes to Volvo CE. 94% in Q3 and 102% 12-month rolling. North American book-to-bill reached 80% in the quarter and 95% 12-month rolling. The North American sentiment is stabilizing somewhat on the back of healthy new equipment, inventory levels, as well as rental equipment rates and improvement of utilization levels. The European book-to-bill reached 90% in the quarter, as the dealers are gradually stocking up their inventories based on a somewhat better sentiment, and especially excavators, and that gives, of course, a push in deliveries. But orders also in Europe was plus 34% in Q3 and the rolling 12 book to bill at 113% for Europe. South America, Africa, Oceania and Asia maintained a healthy balance. Buses, positive momentum when it comes to product launches and continues to build on the success of their electric BZR chassis platform, which they now have launched with industry leading battery capacity of 720 kilowatt hours designed for the coach segment. And also when it comes to the European bus strategy with partnerships, has also during the quarter formed a strategic partnership with Marco Polo, one of the world's leading bodybuilders, to broaden its product portfolio and strengthen the position in the European coach market. So, as I said, an important step in the execution of the European turnaround strategy with partnerships together with strong bodybuilding partners. Book-to-build 94% in the quarter as well as 12-month rolling. Customers are somewhat more hesitant in Mexico and in Brazil while demand is stable in other regions. Volvo Penta. Great momentum here. Also some product news here. Volvo Penta's autopilot takes... Seamless boating to a new level and the autopilot is now also available for all Penta propulsion packages with electric steering as well. Also when it comes to energy storage, energy segment, energy transition, Taiwan-based CTEL New Energy has selected Volvo Penta for their energy storage solutions in Asia-Pacific. and then for use cases in industrial mining, remote medical support, roadside electromobility assistance, etc. For Penta, book to bill 88% in the quarter and 108% for 12-month ruling. Then as a last point here, and we had a discussion where to put it because it is in segment group trucks normally, but that is Volvo Energy, that is one of our latest additions. But I wanted to connect it also here because it's also in the energy sector. Volvo Energy launched their Volvo Power Unit 2000 based on our vehicle technology when it comes to batteries. And the PU2000 is a high-performance energy storage solution with a battery capacity of 2,000 kilowatt hours with versatile use cases including peak shaving, load shifting, energy cost optimization, etc. But what is important to remember, there are many players in this area, but we have world-class cybersecurity. And remember me saying that because you will see a lot of use cases where that will be a key driver if you're getting the deal or not. Because everything is getting connected, as you know. But very promising start also in this with high customer interest. Finally, VFS, Volvo Financial Services, maintained solid earnings in Q3 and delivered over a billion second adjusted operating income for the third quarter. Portfolio continued to grow and was up 4% currency adjusted. But also, of course, very important now where we are in the cycle, demonstrated a solid portfolio performance. although somewhat increased delinquencies and write-offs have been visible in some markets and business segments, but are on a normal level at this point of the cycle. And there I have to say it's great that VFS is working so closely with the other business areas, but also, of course, with other customers. So by that, that concludes the business update. I will leave the floor to our CFO, Mats Backman, for the financial update.

Thank you, Martin. So looking into the financial stamp for the third quarter and starting off with the group net sales. So net sales increased by 1% on a currency adjusted basis compared to last year. Vehicle sales dropped by 1% mainly due to lower volumes on trucks, while service sales increased by 4% currency adjusted with contribution from all business areas. European volumes increased, which led to an increase in sales by 7% currency adjusted, driven mainly by trucks and construction equipment. In North America, sales decreased by 6% currency adjusted, driven entirely by trucks, while sales were higher for buses, penta, and construction equipment. In South America, net sales decreased by 9% effects adjusted compared to last year, and this was mainly driven by trucks. In Asia, performance was positive and the net sales increased by 5% adjusted for currency, mainly driven by trucks and construction equipment. Other regions experienced slightly increased sales, mainly driven by trucks. Overall FX effect was negative with about 7 billion due to a general appreciation of the Swedish krona against other currencies. And the main driver was the US dollar depreciating 9% versus SEC, with a negative FX impact on sales of about 3 billion. The Brazilian real and the euro depreciation also had a negative impact on the net sales. If we're looking at the adjusted... Operating income then. Adjusted operating income for the group was 11.7 billion, with an adjusted operating margin of 10.6%. In the third quarter, earnings were supported by the positive development of a service business and lower R&D expenses. The financial performance in the quarter was impacted by higher material costs and some additional manufacturing costs for trucks, mainly related to lower volumes and overcapacity in North and South America. The tariff cost increased in the third quarter, and that was as expected, with a net impact for a group of 500 million. In the fourth quarter, we expect the tariff net cost to reach close to 1 billion. The net R&D capitalization effect in the quarter was positive at 1.2 billion, with a year-over-year effect of 1.3 billion SEK. Guidance on net R&D capitalization for the full year 2025 is positive at approximately 4 billion, with a year-over-year effect of about 3 billion SEK. FX had a negative impact of 1.6 billion in the quarter, driven by the strengthening of the SEC. And given the current trend of strengthening SEC, we expect the FX for transaction exposure to be negative with about 4 billion for the full year. And we don't provide any guidance on the full FX effect. In the third quarter, cash flow amounted to negative 1.7 billion. Cash flow continued to be affected by the increased level of investments and the seasonal buildup of working capital that we always see in the third quarter. Return on capital employed trend declined to 25.2% on a rolling 12-month basis. The net financial position amounted to 45.4 billion, which is slightly higher than the last quarter with a positive net contribution from divested operations. The net sales for group trucks decreased by 2% currency adjusted, driven by lower volumes, partly offset by positive development of a service business. The lower adjusted operating income and adjusted operating margin were mainly driven by generally lower volumes, higher material costs, and some additional costs related to overcapacity in North and South America. Tariff costs continued to build in the quarter, and the currency had a negative impact of 1.1 billion in the quarter. and then over to construction equipment. Net sales increased by 14% adjusted for currencies and the divestment of STLG. Adjusted operating income reached 2.2 billion with an operating margin of 14.4%, which was an increase in both income and margin comparing to last year. Product mix with less STLG and positive development of the service business were the main drivers behind the improved performance. In the quarter, target costs were building up and had a negative impact on the financial performance. The volume were lower versus the same quarter last year, however, completely driven by the SDLG divestment. Currency had a negative impact of about 300 million in the quarter. And then over to buses. FX adjusted net sales increased by 4% driven by price realization of vehicles and positive development of our service business. Buses delivered a strong adjusted operating income of 755 million and 12.6 in margin, and this was despite lower volumes. The result was supported by a divestment of property, continued price realization of both vehicles and parts, as well as a good cost control in operating expenses. Currency had a negative impact of 159 million in the quarter. And Penta delivered another record quarter with the best third quarter ever result, actually. FX adjusted net sales increased by 13% to 5 billion. Adjusted operating income amounted to 934 million, with an operating margin of 18.6%. And this was on the back of a strong volume development for both engines and services, and despite unfavorable product mix. Currents had a negative impact of about 185 million in the quarter. And then, last but not least, financial services. Adjusted for currency, the credit portfolio increased to $259 billion with a rolling 12-month return on equity at 11.3%. Portfolio performance continued to be good, with delinquencies and RITOs under control. The adjusted operating income amounted to $1 billion, impacted by increased credit provisions but supported by the portfolio growth. Currency had a negative impact of $79 million compared to the same quarter last year. So with that, I'm leaving for Martin to summarize.