AB Volvo (publ)

Good morning and welcome to the Volvo Group first quarter press conference. Today we'll listen to the presentation from Martin and Mats about the first quarter result and then we'll follow up with the Q&A session later on in the session. So with that short introduction, I hand over to Martin.

Thank you for that, Johan. And also from my side, good morning to this quarter one, 2026 press conference. Great to have you here. First and foremost, the group and all colleagues and business partners delivered a solid result in the quarter with an adjusted operating income of 12.2 billion second, a margin of 11%. and continue to demonstrate strong earnings resilience despite that market volumes moderated compared to last year and despite many moving parameters as you're all aware of such as geopolitical turmoil and tariffs. Performance was good across all business areas with a high customer confidence in our products and services reflected in good order intake and low cancellations throughout the quarter. We also launched several new business offerings as well as portfolio moves to further improve our competitive set and enable continued profitable growth. To mention a few examples in the intro here, from the first quarter, we have further reinforced the regional hall and conventional business offerings in North America for Volvo and Mack. Super excited about that. We are continuing to roll out these new offerings. And as you did see also here in the intro movie, Volvo has launched their next generation of battery electric offerings, including also the new FH Aero electric long range with up to 700 kilometer range. which is of course a significant and benchmark step. As regards our company portfolio, we continue to optimize our structure and capital allocation with a number of important moves in the quarter. First, the intention of Toyota to step into self-centric being an equal shareholder together with us and Daimler Truck, paving the way then for the hydrogen journey. The intention and execution, I should say, we are waiting for a merger clearance there on the Flexis divestment, our 45% share to Renault Group, still then having a considerable, so to speak, lineup of LCV, including the Flexis vehicles, so that will further clarify that part of the business for Renault Trucks. The Swecon integration strengthening the retail sales presence for VCE started during the quarter and also the announcement of discontinuing the Rockback brand when it comes to our whole business within Volvo construction equipment that has been subscaled and low profitability, not at least then with our decision in 22 to leave Russia amongst others. Here and now, and despite uncertainties, order intake also developed positively, as you have seen with, for example, an increase year-over-year of 14% for group trucks, as one example. And when it comes to the market forecast for the full year, we offer trucks then a slightly revising upward for Europe and Latin America, while reiterating the forecast for North America on the back of stronger order momentum. I guess it would be certain questions about, I mean, how that is playing out, obviously, but we will come back to that more in detail, why we are reiterating that and see a gradual now coming back in the North American market. And operationally, I think that is also important. We are utilizing our flexibility toolbox, both for upwards and downward correction, to maintain balance between demand and supply and to keep inventory levels on the right level, so to speak. And that has been well done during these more stormy waters, and we will continue to do so. Focus is also on effective cost control, generally speaking, but also further optimizations of our structures across the group that we have done during the quarter, primarily in the truck segments. Commercial discipline continues, of course, to be very important. We have a very strong total offer, and we should utilize that. What is very, very positive is of course also the service business growing with 6% organically, showing that our customers around the world continue to utilize their equipment. But also that we have an increased share of wallet, and that is of course driving loyalty and customer centricity, but for the group of course also resilience. So while the recent geopolitical tensions and the Middle East conflict have so far not caused any major disruptions in our operations, we are of course keeping watchful eyes whether and when they might affect primarily, if they will, the general economy more broadly and thereby our demand. But with our flexible business model, with an increased service business together with strong market positions, And disciplined cost control, we are well positioned to navigate potential short-term swings in demand. And you have heard me saying that before, in times like this, we focus on what we can affect and what we can impact. And staying close to our customers and business partners to continue to drive resilience and growth. Moving forward, there will be an increased structural need in the world of efficient and effective transport solutions, infrastructure, and energy solutions, and the group is well positioned moving forward. If we go into the figures on the first quarter, net sales amounted to 111 billion with an organic sales growth of 2%. And we have, and you will hear that from Mats and myself, we have introduced the term organic sales growth to illustrate the underlying sales development pace, and thereby neutralizing also the M&A effects. For example, if you take Visida and the Svekon and SDLG effects in the quarter, and of course also FX. More granular information about this is disclosed as part of the key ratios section in the quarterly report. And we continue to focus on earnings resilience, as I've said, adjusted operating income amounted to 12.2 billion, with the margin expanding to 11%. For trucks, our European business performance compensated the under-absorption cost from the U.S. truck manufacturing operations that were standing still approximately 25% to 30% of the available time in the quarter. That was a conscious, tough decision, and eventually, as we see it, the right decision to have these stop weeks as we now have available production capacity to meet the increased demand we have seen recently. As from May, we are in balance in North America. Operating cash flow had a normal seasonal effect and amounted to 400 million SEK. Net financial position, end of quarter one, 56.8 billion. Return on capital employed, 24.5% and earnings per share, 4.09 krona per share. So we can then conclude another strong and resilient quarter here. Group news, as I said, quite a lot of things happened. We're very busy quarter, I have to say. First and foremost, as you can see here, the Toyota Motor Corporation aiming to join the Volvo Group and Diamond Truck as equal shareholder in the fuel cell joint venture Cellcentric. The combination of the parties' complementary experience and know-how will support and accelerate the joint objective to develop, produce, and most importantly then commercialize fuel cell systems for heavy-duty vehicles, but also for other heavy-duty applications, such as energy solutions, for example. And this is a very, very good industrial move and industrial fit, as these three significant OEMs join forces to drive decarbonization. as super happy obviously to have to go to on board with their long-lasting story when it comes to this journey of hydrogen and the hydrogen economy. This will further strengthen an already well-functioning joint venture actually. Also as I alluded to, Volvo Group, Renault Group and CMA-CGM has been in agreement now on a strategic change for the current joint venture Flexis that contains the next generation electric light commercial vehicles. And the move is that Renault will buy Volvo's 45% ownership and CMA, CGM's 10% in flexes. But Volvo Group, through then Renault Trucks, that is the counterpart, will remain a partner and investor in the vehicle project and will commercialize and distribute flexes developed products from 2027, adding to the lineup that we already have together with Renault Group. Also a very successful setup, by the way. AGM of AB Volvo, annual general meeting of AB Volvo was held at World of Volvo in Gothenburg. Very proud of that, I can say. I mean, that is a manifest also of both the history and the future for Volvo. And as always, of course, it is a special moment to meet with our shareholders. The AGM decided also, along with the board's different proposals and amongst those, of course, also to, not of course, but to shift 26.4 billion to the shareholders or 13 krona per share. On volume side, truck deliveries decreased by 3% to 47,500 vehicles with lower volumes than in North America and somewhat also in South America, but partly then compensated in Europe. And Volvo Construction Equipment's Volvo branded volume, that is the relevant these days now, I mean, since we have completed the divestment of SDLG, did grow with 12% in the quarter, driven primarily by the European market. Electrification, first and foremost, with different uncertainties related to the electrification still in our key markets, demand continues to be slow. Orders of electrical vehicles decreased 22% adjusted for SDLG, mainly on the back of a broadening offering from competition. That is natural. I mean, we have been rather alone with some players, but we see more and more players coming in, and I think that is a good sign. But also the general uncertainties in the market. The reality is that the base of calculating market share is very low, so you will see rather big swings here moving forward as well. But deliveries of electric vehicles and machines did grow with 15% adjusted for STLG. And this growth was mainly supported in this quarter by a strong growth of light commercial vehicles in electric business. When it comes to the total vehicle and equipment sales, that was flat in quarter one. Trucks organic sales decreased 3% on the minus three truck volume showing. Generally, then, continuous price discipline in the market. Construction equipment grew 16% driven by Volvo branded machines in Europe. Organic sales growth for buses, 14% driven by Prevost, mainly in North America. And since we are doing complete buses for Prevost, of course, the sales value per vehicle is rather high here. And Volvo Penta grows sales by 14% with solid growth both in Europe and North America. One example, as I alluded to last time, is also the growth in data centric segments continuous showing a continuous high activity levels. I think it's 14, 15% now with the portfolio and growing for Penta, so it's very interesting. Underlying service sales growth also amounted to impressive, I should say, 6% in the quarter with positive service developments across business areas, while it was flat for VFS, and that was of course related to volumes in the other business areas. They were keeping penetration as you will see. VC and trucks did grow with 7% and Penta 10% organically. And the 12-month rolling service sales amounted to $123 billion and represented over 26% of the group's revenues. And it was actually 28% for the quarter. And again, coming back to the importance of that, that we have diligently worked with them in the service penetration and the rolling fleet and getting a high penetration per unit here. Loyalty and closeness, of course, but also resilience. On the truck side, busy quarter as well. Came with a lot of product news and launches. Here you see the Mackie Granite. It's the iconic Mack Granite. That is now fully updated, still with its typical Mack. Look, and we reveal that it connects both together with a brand new Mac keystone that is also for demanding heavy haulage application amongst others. And of course, a very, very important launch for Mac since these two models are also part of the true core segments of Mac moving forward and also as we speak. Also in North America, Volvo Trucks and Mack Trucks have started production of their new regional haul trucks, the Volvo VNR and Mack Anthem. So as I said, we are more and more now completing the rollout and are getting ready for having a well-greased system in North America and up to a level that we have seen in Europe before. Volvo has begun also on-road testing. Maybe some of you did see it in the introduction movie here also of heavy trucks powered by hydrogen combustion engines. And we are continuing this three-pronged approach, obviously, with battery electric combustion engines driven on renewables and also fuel cells. And the commercial launch is planned before or around 2030. On the electric side, as I said, Volvo revealed a number of new executions now in April. For the versatile and the vocational, you can say also FH, FM and FMX electric models are now available with up to 470 kilometer range on one charge, which means that the absolute, I should say, I mean, the absolute, absolute majority of missions in those segments will be handled with overnight charging. And that is, of course, a change in the game for our customers. You remember, it was a time when But you could live a complete day with one charge also on the phone. You know, that completely changed the way of thinking about that. Volvo has also, as you did see, showcased a new long-range FH aeroelectric with a range up to 700 kilometers. And that is a true benchmark, obviously. Same there. Then you can do missions, even really the most advanced long-haulage operations. And also coming with megacharging, as you did see. A market forecast for North America will repeat our market outlook for 2026 at the 265,000 in retail sales. Order levels have been elevated, as we have seen in recent months, while retail sales, that is how we measure the market or retail deliveries, pace is lower because that is related to the order intake at the end of 25. But it's expected now to regain momentum in the second half of the year. And any EPA 27 pre-buy is included in that view. So we don't expect any material pre-buy, which I think is a good thing for the market dynamic, generally speaking. European registration pace continues to gradually increase. We have lifted our market forecast with 5,000 units to 310,000 units for 26 and similar, even if we have a falling trend still in Brazil. Market contracted through 25, as you know, and we see that continuing. But still, we are lifting the forecast from 75 to 80,000 heavy-duty trucks in 26, so plus 5,000. Indian market is driven also by a healthy replacement demand, infrastructure investments, and a general increased freight demand. And here we lift with 20,000 units for medium and heavy duty trucks up to 400,000 vehicles. And on a side note, I have to say that I'm very proud of also our joint venture in India, Volvo Aichi Commercial Vehicles, that actually Sold for the first time because they have their fiscal year ending at the end of March, as companies normally have in Asia. And sold over 100,000 vehicles for the full year, which ended now in March 31st. And what is interesting is obviously this is a 15% growth, and historically we have been thinking about Volvo commercial vehicles as light and medium duty, but the reality is that it's more than 25,000 heavy-duty trucks, what we are also calling heavy-duty trucks. So that is starting to give real leverage and also carry back opportunities for us when it comes to technology. You know that we are already doing the 5.8 liter engines in India with very, very good results. And the industrial system is gearing up here. So I think that is a great achievement by the team and a great asset moving forward. And for China, we reiterate our 2026 total market forecast for over 760,000 medium and heavy-duty trucks for the China market. Book-to-bill, positive, obviously, as we have seen. 135% for medium and heavy duty in the quarter and 99% rolling. 12-month rolling. North America, we had a book-to-bill of 192% on the back. On one side, on the back of strong order intake, mainly from fleets, but also retails coming in. But also that we still had planned stop weeks. So you had that, so to speak, effects on the two sides between 25 and 30 percent of the total availability. So that was quite extensive. But we said, keep the balance, but keep ready. We had still also some stop days during April, but from May we will use the installed capacity. So we feel that the right decision to utilize that flexibility tool for quarter one here, even if that came with under absorption cost, and you will hear Mats talking a little bit about that later on here. Europe, 150%. South America, 134%. And the industrial systems may need to be tuned upwards given the gradual increased customer demand. We have been in balance here already as we speak. And now when we see, so to speak, support from order intake, we will have the flexibility tools necessary here. And you can see primarily Asia, Africa, Oceania in good balance. market share side in Europe then continued to deliver strong market share for the quarter with the Volvo at 19.3% the Renault Trucks at 9.4% giving a total share of almost 29% on the battery electric side as we said as more OEMs are now delivering Volvo and Renault Trucks delivered 23% combined market share for the quarter And we will still see these swings now moving forward as the market still is rather low. Now we are coming in with new executions and that will come back, etc. I think it will be this type of stepwise approach. But more importantly, we proceed with our efforts. We proceed with our three-pronged approach, as I said, approach with combustion technology, electric and hydrogen to drive decarbonization. And in North America, we had a combined share of 17.2, so starting to go in the right direction. Super important, the Mack Trucks self-help is giving result. We are now at 8.7%, and we see a good momentum here, that we are not hampered by our own industrial system and other deficits. And one example is the cab over engine, some in the waste collection units where Maccas always had a leading position. When we had, so to speak, the problems here, one, one and a half year ago, we were down to 30% market share in that specific segment. Now we're back to plus 50%. So that shows also how important it is that we have the capacity in the different type of segments here. And also Volvo trucks are back on the right track, absolutely not on the level where they should be, but back on the right track and regains their position. And of course it will be further support when over the road is expected to become better here. Brazil strong, 23.7%, and also good starter should say 22.5% combined for Volvo and Mack in Australia. Construction equipment, closing of the exposition of Sveakonden in this quarter. So Monday has passed. We always talk about Friday and Monday, but Monday has passed. Very good sentiment when it comes to the integration. We are super happy to welcome all new retail and service colleagues into the group in this core markets. You know, it's Germany, Sweden, it's Baltics. and all our great colleagues here will further strengthen the volvo ci service and market position in core markets and that is of course one of the key factors also for continuous success and such an important part of the tco for for our customers so a great opportunity to further strengthen customer centricity competitive set through total offer and resilience by the way one of the areas that we will further discuss at the cmd It is also with regret that the decision has been made, as I alluded to in the introduction, to later in the year discontinue the sub-scale and loss-making rock-back articulated hauler business. We have tried hard together, to be frank. But given also the fragmented footprint here, we have decided that the Scottish Motherwell site will be focused into a center of excellence for large, rigid mining business carrying the Volvo brand. And the one-time cost related is then under the adjusted section, and you have seen that. When it comes to the market forecast, I can be rather swift. We are not changing anything in relation to the last report, the full year report for 2025. So plus 5% Europe and China are flat for the other regions. Book to Bill, I should say also, positive sign in that sense. 110% in the quarter, driven primarily by North America, but also somewhat by Europe. North American demand is broad-based. As stated last report, similar pattern. Data center energy sector on shoring and manufacturing as well as the possibility for customers to write off quicker. And the European demand is still encouraging, but we also hear increased uncertainty among customers due to the conflicts in the Middle East. Buses, important launch actually. You know that Mexico is super important for us when it comes to buses. The new 9800 was launched for the coach market in Mexico, marking another milestone in the Mexican passenger transport industry. The Volvo 9800 has a new aerodynamics and a comprehensive design, fuel consumption improvement of 4%. And coach is a very important tool for passenger transport. So 4% with the mileage produced is very, very important. Book-to-bill, 130%. It was mainly driven by somewhat lower delivery volumes. However, with higher sales value per buses, I said, because it was a lot of privo into those figures. But we have a solid fill rate for the full-year Volvo buses. Volvo Penta, great to see on the marine side to start with, recognized for its leadership in marine innovation, sustainable marine innovation, with its hybrid electric IPS propulsion that was named the Technical Development of the Year. at the Motorboat Awards in Düsseldorf. Maybe you have visited the Düsseldorf Boat Show. I always find it interesting, by the way, that it is in Düsseldorf. It's not a lot of lakes or seas out there, but it's a great show anyhow, and a very important one. And also strong market interest, what you can see on the slide here, that is the Volvo Penta G17, the 17-liter gasified power generation offering for mission-critical applications such as data centers. And that I said also, that is growing, obviously, not at least for standby and backup power and good order borders. Book-to-bill reached 95% and 92% at Wellmark Rolling. But generally speaking, a good activity level, what we have seen basically during quarter one is if you take the four main segments, marine commercial, marine leisure, and industrial all speed, all stable levels when it comes to all activities and deliveries, it is really in the power generation, Europe, Middle East slowing down temporarily. And that is related to the conflict because you have an instant effect of that. But obviously, that depends on the length of the conflict here. Yeah, I can also mention, sorry for that. No, I think we're ready with that. And VFS finally, continue to grow the portfolio on a currency adjusted basis through solid new retail financing penetration, as I said, sustained at 30%. And portfolio performance continue to be good. Although delinquencies and write-offs remain at the higher levels that we have seen during previous quarters, but it's still well within the bandwidth, depending on where we are in the cycles. So no signs of worries in that regard. And we also continue to focus on enhancing the portfolio when it comes to utilizing, so to speak, the VFS capabilities. Insurance offering is now on the rise, for example. So that was the business update. So I will leave the word to you, Mats, for the financials.

Great.

Thank you, Martin. So the one and only Mats Backman.

Thank you for that introduction. So looking into the first quarter financials, Dan, and starting off with the group net sales. So organic net sales increased by 2% compared to last year. Vehicle sales were flat year over year, while service sales increased by 6% with contribution from all business areas. Looking then at the organic net sales development in the different regions, European volumes increased, which led to increased sales of 15%, driven mainly by trucks and construction equipment. In North America, sales decreased by 16%, driven mainly by trucks, while sales were higher for both buses and Penta. In South America, net sales were flat comparing to last year, and net sales decreased by 2% in Asia. Overall FX effect was negative with about 9 billion due to a general appreciation of the Swedish krona, and the main drive was the US dollar depreciating about 15% versus the SEC. The adjusted operating income for the group was 12.2 billion with an adjusted operating margin of 11%. In Q1, earnings were again supported by the positive development of our service business, R&D and net expenses, and a positive product and market mix. The U.S. tariff net cost was on the expected level of about $1 billion. Severe weather conditions in the beginning of the quarter led to higher freight costs. In the first quarter, we continued to see higher manufacturing costs on the back of underabsorption from the stop weeks in North America. The R&D capitalization effect in the quarter was positive at $1.4 billion, with a year-over-year effect of $800 million. The year-over-year increase in selling cost is mainly due to selling cost from acquired businesses. And FX had a negative impact of 1.1 billion in the quarter, driven by the strengthening of the SEC compared to our main currencies. In the first quarter, cash flow amounted to 400 million. The limited cash flow contribution in the quarter was mainly driven by the seasonal built-up of working capital. Return on capital employed trend declined to 24.5% on a rolling 12-month basis. Net cash in industrial operations amounted to 57 million, but this is, however, before the dividend distribution of 26 billion in April. Net sales for group trucks decreased by 1%, and this was driven by lower volumes but offset by positive development of the service business. Adjusted operating income amounted to $7.6 billion with an operating margin of 10.1%. The adjusted operating income and margin was flat, currency adjusted comparing to last year. Lower volumes in North and South America, higher manufacturing, freight, and tariff costs were offset by continued good development of the service business and a positive market mix. And currency had a negative impact of 800 million in the court. Construction equipment organic net sales increased by 14% versus last year. Adjusted operating income reached 2.5 billion with an operating margin of 13.6%. Product mix with more Volvo-branded products and more heavy machines together with positive development of a service business were the main drivers behind the improved performance. In the quarter, tariff cost and accounting effects from the Swecon acquisition had a negative impact on the result. Currency had a negative impact of 150 million in the quarter. And then moving over to buses. Organic net sales increased by 11%, driven by both higher services and a positive vehicle mix. Bus delivered another strong quarter with adjusted operating income of 492 million with 8.8% in margin. The result was supported by good price realization in combination with high efficiency input in the production. In the first quarter, U.S. tariff costs were building up and had a negative impact on the financial performance. Currency had a negative impact of $47 million in the quarter. Penta organic net sales increased by 13%, which was driven by more industrial engines and the service business. Adjusted operating income amounted to $1 billion with an operating margin of 19.8%. This was again on the back of strong volume development for both engines and services, but despite unfavorable market, product mix, and the U.S. tariff cost. Currency had a negative impact of $145 million in the quarter. And then looking at financial services. The credit portfolio adjusted for currency increased slightly to 264 billion with a rolling 12-month return on equity at 9.8%. Portfolio performance continued to be good, with delinquencies and writers under control. The adjusted operating income amounted to 938 million, impacted by increased credit provisions but supported by the portfolio growth. Currency had a negative impact of 80 million compared to the same quarter last year. And then finally, looking at the forward-looking guidance and starting with the FX. Based on the currency rate end of March, we expect a neutral currency impact year over year in the second quarter. The net impact from tariffs in the second quarter is estimated to be around 1.2 billion. We reiterate our expectations on R&D net capitalization at approximately 3 billion for the full year 2026, with a year over year negative effect of about 1 billion. And finally, we also reiterate the guidance from last quarter for a tax rate of 24% for the full year 2026. So with that, I'm leaving for Martin to summarize.

Thank you, Mats. I will be short in my summaries. We have time for questions. But I think what you should have with you, strong resilient quarter given external and moving parameters. Strong order intake coming back, obviously, that we are reiterating the main aspects of the market conditions and a growing service business. So with that, Johan, I think we are ready to start to the Q&A.

Thank you, Martin. Thank you. So in our Q&As, please pick your most important questions. We respect your peers, as always. We have people on the line, and we have people in the room. We start with Agnieszka.

Thank you. Agnieszka from Nordia. Maybe starting with your outlook for North America track market. We're a bit surprised that you didn't actually raise the outlook given the fact that order intake was rather strong in Q1. So maybe just can you comment on what's your expectation or explain what was driving the order intake in Q1? We're surprised by the strength. What's the quality in the order book? Is there any risk for cancellations? And how is also both the production planning and delivery planning from that orders?

Thank you, Agnes. I mean, that is of course an important one. I alluded to it. I suspected that it should be a number of questions around that. But if you look at the build rate and the delivery rate, basically retail sales, because I mean, even if it goes a little bit quicker since it's retail sales that is constituting the total market done in Europe where you have the registrations. It is still a lagging effect, obviously. Since we had still soft order intake in quarter three, four, and we were idling 25-30% in first quarter, still keeping up our market share still, even improving them. And also some, but fewer stop days in April. And we are in balance in May. And then when you, I mean, do the backward calculation and take out the medium duty of our registrations approximately run rate in quarter one of 50,000, 50,000 plus. Then you have a total market of 2,000. So to come up to the 265 means that now, from now on, you will have a gradual recover. And what we have seen is also obviously that the order coverage is first and foremost on the right level now in quarter two, but it's also a number of fleas that would like to secure their slots. And that is of course a balance to your points to keep the quality. and the pricing discipline, given the uncertainty. And here we have also, as we see it, found the right balance. But for us, it holds when it comes to the figures of, and if we should come to this, I think it's another positive effect, is that you don't will have a negative overhang into 27. because it will be the underlying demand balance that is actually driving it rather than some pre-buys. And I think that is a very positive thing for the market and the market dynamics. So we feel it's through all the logic, actually. Yeah, right. Take it, follow on. I think it's in the interest of everyone here, so please.

Maybe just to follow up actually to Mats, can you quantify the under-absorption costs you had in Q1 and how should we think about it in Q2 and going forward?

I mean, as we said, without giving any kind of exact numbers then, but you can see if you're looking at the kind of the bridge effect and the numbering on trucks, then it's a top three down on that. So it is a rather big effect, and it was bigger than in the fourth quarter. And then going sequentially into the second quarter, like Martin said, I mean, we are basically balanced with the current capacity than in May, meaning that this underabsorption is that kind of declining than we're getting into a normal situation, so to speak, in North America starting May.

And I mean, when you look at the bridges, if you take the truck bridge, I mean, we try to have them in a reasonable hierarchy also when it comes to the positives and negatives, as you're well aware of. So it's also some guidance.

Good. We'll take one more in the room. Hampus from Handelsbanken.

Thank you. Sorry for staying in the U.S., but on your 265 outlook, you're increasing run rate in May. Is that another step then after the summer? Or is it an initiative in three steps? That's my first question. And second question is also in the U.S. Relating to the orders, you're up 78%. Market is up 90%. We hear Freightliner International are kind of more, I guess, on pricing. What's... Are you getting your share, or are you holding back by being more conservative on pricing, or how do you think about that? Thanks.

Yeah, I mean, and I think when it comes to the order share, I think that is, of course, an important information, but still to take a little bit with a grain of salt also given the fact that it depends on different companies, and I don't know the other companies' strategy on that, but how ready do you are to make order placements quite far out in time? And when we look at, so to speak, the reasonable step that we're doing now, we did idle to too much point, 25-30%. So that capacity is what we have ready now. And then, obviously, as we go along and feel that the underlying demand is supporting this level and beyond, we will, of course... have the opportunity to further go up what we can say at this point in time is that with the 265 it will be a gradual recovery and thereby gradual ramp up because we don't want to come too long too far out in in the order guidance so to speak And that is related to your second part in order to also have the right balance when it comes to the commercial discipline also, or the commercial opportunity, I should say, also in a stronger market.

Good. We move to the telephone line and to Jeffries. Michael Aspinall. Michael, can you hear us?

Yeah, thanks, Johan. G'day, Martin. And that's Michael here. I'll switch over to Europe. And I was a little bit surprised on that kind of upgrade to the Europe market guidance. So maybe you can just give us some context as to kind of what regions or end markets you see driving that and what you kind of incorporate from a macro perspective. I see some of the European countries downgraded their GDP forecasts recently.

Yeah, thank you. Thank you, Michael, for that question. And first and foremost, I think drama in the uptick. I mean, we're talking about 5,000 units, but 310,000 to your point is still a strong market. But we're also coming into a replacement cycle when we had also very strong shipments for I mean, with the exception of COVID, obviously, but for a number of years, it's also part of that dynamic. Rather broad-based, I have to say. Then you can say that it's a little bit lower, the order intake in relation to last year's quarter one, but that was also a very strong quarter. So comp figures are very tough to have here. So, generally speaking, it's broad-based, rather solid, and it's supported by what we have seen now. But, I mean, 310, good market, but not extraordinary strong, so to speak, in relation to what we have in replacement, et cetera.

Good. We take one more question on the telephone line, and we're leaving the word to Claes Berglind from Citi.

Thank you, Johan. Hi, Martin and Mats, Klasa 50. First, on the tariff guide of 1.2 billion into the second quarter, Mats, I'm trying to understand how the new Section 222 rule from April 6 will now impact construction equipment and buses. I guess construction and buses could see a sequential increase in the tariff cost, while trucks could go down, also supported by the MSRP import credit. That's the way to think about it. More color here.

It was a little bit difficult to hear them, but how much time do we have? But maybe to give a kind of an overall view on where we are. and the outcome for the first quarter, but also the guidance. We had the one billion for the first quarter, and then we're guiding for 1.2 in the second quarter. If I heard it correctly, then the question is the kind of distribution between the different business areas. And the reason behind the increase of the net impact in the second quarter is mostly related to construction equipment, actually, because With the changes in Section 232 from, I think it was April the 6th, that will also include excavators and wheel loaders, meaning that we will basically have the full product range when it comes to CE included in Section 232, and that will increase the cost. So it's on CE. So we'll say that we had about 50% in the first quarter was related to CE out of the tariff. In the second quarter, it's probably somewhat more than 50%, and so that is increasing. Then we have trucks, and I'm coming back to trucks a little bit in relation to the two other kind of moving parts with the AIPA and the Section 232 credits on the truck side. But we also have buses with an impact of about 100 million on quarterly basis that is related to the privo buses done from Canada going into the U.S., also Section 232 question. But what you can ask yourself, and that's probably the question then, so will we see any kind of positive effects then going forward when it comes especially to the truck side then driven by the Section 232? We have nothing included in the first quarter and not in the second quarter when it comes to credits on the Section 232, the 3.75 then. We don't have anything included on any claims when it comes to the changes on the IPA that will probably be positive done. But we will have we will claim money, but we will also have customers claiming money from us then. But but net probably positive. So it is probably an upside, but we need. We need to kind of clear a guidance in order to know the exact number. And secondly, also a kind of a clear guidance on when we can get the credits done. But nothing of those kind of positive items are included in the first court.

Good. We take one more on the telephone. We leave the word to Shaquille from Morgan Stanley.

Good morning, Shaquille from Morgan Stanley. Thanks for taking my question. I'd like to ask about North America. It seems like we're in an unusual situation. PMIs are up, spot rates have risen, orders have increased, but freight volumes are not meaningfully improving. So what are the customers saying? Is the reduced capacity enough to warrant replacing the fleet, or are they placing these orders with the view that freight demand improves in the second half of the year, and perhaps also, you know, wanting to secure build slots ahead of EPA 27? And then we've heard some reports that customers are increasingly pushing for delivery later in the year. Have you noticed this also? And can I confirm that there are no penalties in case of cancellation? Thank you.

Yeah, no, but I think, generally speaking, you did a good analysis yourself there about the different dynamics that are coming into play. We've had more or less over the road freight recession for quite many quarters obviously so there is a replacement need coming in and then also to your point about I mean also number of underlying effects on that but both spot rates and contracted rates getting better and then there is probably also certain element not necessarily only on EPA 27 that is not significant as we see it But more of also getting availability of slots both from a dealer perspective as well as customer perspective. Because dealers also want to see the inventory levels on the right level. We don't have any excess inventories. We didn't need to have that, obviously, since we are building in North America as well. And that's the reason, again, why from the order figures, it can look like that we are a little bit on the lower side of share in relation to the total. But I think at the end of the day... I remember Puttycock said that we own the midfield, but we lost with the 3-0. I mean, at the end of the day, I think order share is one thing, but at the end of the day, it's registrations that count. And then, Shagil, to your point, it's important to have the right balance in the order board. Because if you're taking it too far out in time, that is our view. Then you need to introduce a number of rather complicated mechanisms of cancellation fees or what have you in order to not having a hedging into the order board.

Good. We take question from Mattias from D&B.

Thank you very much, Mattias Holmberg, DNB Carnegie. I would like to go back to Europe, and I think that your race market guidance is pretty clear, but I would be interested to hear about the ramping. I understand that you might have increased capacity gradually through the year. Are you sort of at the level where you need to be? I know that this is a quite smaller vision to the guidance, but still. And then also on that topic, we heard from one of your peers that they had sort of cancelled the planned capacity increase in Europe due to customer demand hesitancy on the back of what was going on in Iran. I take it that this is not something you're seeing given the race guidance, but it would be interesting to hear any comments on this as well.

Thank you, Mattias. If anything, as we said, I mean not the material change in that sense, but I think more importantly that it's supporting a rather good level and that is what we see. As I said also in the introduction here and in the presentation, if anything, we are planning for some adjustment upwards, but that is well within our flexibility tools because with the current levels that we have both in Gent and Tuve for Volvo, but also in Burg, We can also contain this type of flexibility moving forward. We did see also, and Mats, you said that, well, also in, I mean, Europe did a very strong quarter one, good capacity utilization, good leverage. And that was an important thing of offsetting, so to speak, the rather big resource that we did have in North America. So I feel that in Europe, we start from a good balance, and we can support, so to speak, this upside absolutely during the course of the year. I don't know if you would like to add something.

No, nothing dramatic. We have a really good flexibility both upwards and downwards in Europe.

That is a really strong machine that is going on for us in Europe, actually.

Good. We move to Bernstein and Harry Martin.

Please go ahead, Harry. The first question I had, I'm interested in your conversations that you've had with customers about the Iran crisis and the rising fuel costs. Does the fact that you haven't seen any cancellations mean that the customers are just confident the crisis won't be a long-term one, or that however long it lasts, that they will be able to pass on higher diesel costs into their customers in the freight market?

Thank you, Harry. I think it is, I mean, I was in UK at the end of last weekend, talked with quite many of our bigger haulers that are, of course, mainly then British based, but also doing quite a lot of hauling into Europe as well and I think it's a mix, actually, of the two. First and foremost, I mean, how it will play out when it comes to the duration, to your point. Eventually, I mean, I think the bigger topic will be how that will affect, so to speak, the general economy and the general demand. And that was a conversation that we had there, and I have quite many customers. And to your other points, even if that is coming with a certain time lag, especially when it comes to the more fuel consumption-based applications like long and regional hold, you have fuel closures, obviously. But of course, there is a time lag of that as well. But that is not abnormal, that it's fluctuating. Now, it has been very dramatic in a short period of time, obviously. But I should argue that it's more the general economy and the sentiment there that will eventually affect the need of transport and thereby demand. Yeah.

Good. Carl Bokest from ABG.

Thank you. Good morning. The first one, if I remember correctly, when you look at Europe, the Volvo arrow of orders or something was a material part of the order intake for full year last year. And if we then think about North America, if you're willing to comment the first quarter or how you think about this year, the new products as a share of your order intake and what that effect could be then.

Yeah, I mean, of course, as we have said, we have had a staggered approach. And we are not doing clean cuts, obviously. But for the sleeper segment, we will more or less, as from now, have the, so to speak, the full effect that it will be the all-new VNL. We are facing out, so to speak, the legacy on the sleeper. As we said also, we are starting now with the V&R, that is the second big segment for Volvo trucks in particular, the regional haul now, and that will be a mix during the year on that side. For Mac, it is still a big proportion that is legacy because what we presented now with the Mac Granite and Mac Keystone, the vocational segment that is very much of the core pieces of Mac's volume that will come later this year. So the absolute majority will be legacy. But more importantly for Mac is really that we have got the machine to be more smooth. We have not had the same type of industrial capability as I have alluded to in North America, in particular for Mac, that we've had in other regions. There we have seen considerable improvements. We feel more confident now when the money is coming back also on the Mac side. And then again, I have to say that even if we don't talk so much about it, but the COE part of the cabover engine for a waste collection and other type of construction activity, et cetera, is some very high volumes in relation to what it has been. So it's a mix.

Good. Thank you for that. We turn to UBS and Himalaya.

Good morning, Martin Mattinio and Hemal Bindu from UBS. Thanks for taking my questions. I appreciate the colour regarding the transport operators. Would it be accurate to say that when transport operators started to pass on these high fuel costs to end customers is when you possibly saw an upward inflection in order momentum or has it been relatively stable throughout?

It's probably the same question.

No, no, no, but I think again, as we said, Amin, this is, Amin, the more important, if I understood the question correctly, Amin, this is the more important question, Amin, what will happen with, so to speak, price pressure? If that continues for transport being one, it could be chemistry or chemicals and different things, and thereby bring inflation and thereby in turn affecting the general economy. I think that is much the bigger question than, so to speak, the immediate effect of fuel increases for the customers because they can pass it on in the fuel clauses. That is our review. Then, of course, it depends on what segment you're operating, how the contracts are looking, but more material volumes of our type of customers base have fuel closures for sure. So again, it's coming back to the general economy more.

Good. We move to Goldman Sachs and Daniel Kostas.

Hi, good morning. Thanks for taking my question. So I wanted to ask regarding the 900 headcount reduction you did in the US and in Europe. This is despite, I guess, the better outlook and the increasing production, so I imagine it's more on the fixed cost side. Should we think about that as it was kind of a one-off in 1Q? Is it part of like a more broader revisit of your fixed cost base? How should we think about savings and impact sort of in margin from here, maybe if you could address that?

No, I mean, this is kind of a continuous ongoing process when it comes to efficiency and savings. I mean, more of a kind of a continuous improvement. But this time we saw that we have had a couple of changes when it comes to our way of working and also organizational changes that made it kind of possible to do a little bit of a bigger exercise this quarter. And like you said, it's affecting about 900 people. employees, and we had, if you're looking at the one of about 800 million on that one. But this will kind of continue going forward, but not to the extent that you saw here with the restructuring cost, and then it's something we're doing every day in terms of continuous improvements.

And if I may add there, I mean, just to give a little bit of flavor to it, I think also we announced a couple of, I mean, it was around Christmas that we are a little bit changing our way of working in our industrial and technology backbone with what we now call Truxx Technology and Industrials. and that is more regional based and that has a structural impact of this but also the technology development we are working in different ways and we see that also in our commercial business areas both in North America and Europe so this is a structural so to speak improvement in order to further make sure that we have the competitive set to be clear and also to increase speed I mean the structure that we have had has really served us well. But we have also been rather stubborn in having that for 10 years. We are not super pro-reorganizations all the time because that is causing a lot of confusions. Now is also the right time. More flow-oriented when it comes to our industrial backbone, regionalized agility and speed in order to make sure that we are fit for the future also.

Yeah, and you can summarize it as white-collar kind of productivity efficiency. That's what's behind it.

Right, maybe we take one more final question and we turn to JP Morgan and Akshat.

Thank you. Good morning, Akshat from JPMorgan. A couple of questions, please. The first one, coming back to the conflict, can you just remind us on your main sensitivities to energy costs or material costs on the P&L? And what's the time lag with which this should impact the different business segments, please? That's the first question. And the second question is on the truck margin. As we think about 2026,

outside of a fixed cost of under absorption and u.s long call sales what are the other key drivers we should look at in terms of improvement in that truck margin through the year please thank you uh i can start maybe on the on the margin of the on the truck margin then so if you're looking at if we take the kind of the first quarter as a stand as a starting point and then sequentially so what's kind of changing that And in terms of the positive ones, and what we can see is a kind of, and this is a year-over-year effect as well, and so we see a declining kind of currency effect given that the development we have seen on currencies to a step later part of the quarter. So that's one item. Important, I mean, the North American production system that we talked about that we are starting to get in balance in May is kind of also positive from a sequential point of view, Dan. On the negative side, I mean, we don't know where it will end up if we're looking at the kind of the Middle East and what's going on. But what's already now clear is that we will see increases when it comes to freight costs, for instance. I mean, that's something that we see fairly early on. We're not seeing it so far, but it will probably come down. And then it's kind of unknown the kind of general impact on the overall business cycle then from Middle East. But those are a couple of the highlights then. And as we are taking up the guidance when it comes to the total market for Europe, we feel pretty kind of confident on Europe and our capabilities in Europe. So those are the kind of big ticket items.

I fully agree, but I would also like to reiterate the strong development of services. I mean, it was 7% underlying in the quarter here. And when we look at, so to speak, the contract penetration, I mean, if we can continue to focus on that, I mean, the portfolio growth that we have had. And then we should not only think about under-absorption in North America. I think also, again, coming back to... The better capabilities for Mack Trucks in particular should not forget that Mack has been hovering around 6.5% market share. Mack is not a 6.5% market share company. It's an iconic brand with fantastic products, but we have not had the end-to-end capability This is a year where I think we can take further steps in that journey as well. So it's as always, segment by segment, Latin America has been depressed. And we have guided for further deterioration. We have been holding up volumes well there. Anyhow, in market share, now we are guiding a little bit upward. Again, average is the mother of nothing. So we need to continue to be very granular in our strategy execution in order to be successful. But I think it's a strength with a rather hefty under absorption that we had in quarter one to deliver 10.1% on the truck segment.

And good that you stressed service. I mean, one data for 28% of the total in terms of the top line service for the quarters is a very, very strong number. So that's good.

Good. On that note, we thank you all for coming and for tuning in to the webcast. And with that, we thank you and see you next time. Thank you, everyone.