AB Volvo

Good morning and welcome to the Volvo Group third quarter press conference. Today we will listen to Martin Lundstedt and the presentation regarding the quarter and follow up with Mats Backman running over the financials. Then we will finish with a Q&A session. So with this short introduction, I leave the word to you, Martin.

So thank you for that, Johan. And good morning, everyone, also from my side to this quarter three reporting from the Volvo Group. Great to have you here, both in the room and also, of course, online. First and foremost, then, all colleagues and business partners delivered solid results in the quarter with an adjusted operating income going up to 14.7 billion SEK in the quarter and a margin expanding to 12.3%. demonstrating continuous strong earnings resilience and growth despite several complex external factors as we all are aware of. The gradual cyclical recovery in the trucking construction equipment markets continued both in Europe and North America supported by the need to replace aging vehicles and machines. And not at least North America, we are continuing to strengthen our competitive position visible in market shares, order intake order book and supported by the many launches based on the new platform, both for Mac and for Volvo. And as you did see here in the introduction, the recent launch of the all-new VNX for the vocational and heavy haulage segments. Quarterly order intake developed positively with an increase of 26% for group trucks, as one example. Our core markets are, as I said, in a cyclical recovery with growing demand. Generally, we are well aligned between market demand and supply from our industrial system, and we will continue to utilize our flexibility toolbox to execute on the solid order books moving forward. Regarding the trucks order intake in North America, we have been restrictive in our order slotting in quarter three to secure not having an order book that is filled too far into 2027. And just as a reminder, so far we are up more than 70% year over year in order intake in North America. And that's the reason why we opened the order book for 2027 as recent as of 1st of September. Something to bear in mind when it comes to the quarterly order intake. Another example of good order intake is the rapidly growing demand for power solutions, not at least linked to data centers and AI infrastructure, resulting that an impressive 32% of Volvo Penta's order book value now is related to data center build-out. Looking ahead, we continue to focus on what the group can impact by staying close to our customers thereby driving growth and resilience while at the same time remaining responsive to the fluid external landscape. Our focus continues therefore regarding effective cost control and we are gradually mitigating cost inflation through pricing. The priority of the service business is giving good results. Services grew 5% organically, showing that our customers have a good utilization of their fleets. and that will also eventually mean that the fleet replacement rate will increase. That the group is well positioned with our products were recognized by being awarded both the International Truck of the Year 2027 for our heavy-duty electric Volvo range and also rewarded the International Van of the Year 2027 for the Renault Traffic E-Tech electric together with Renault SA. All in all, our flexible business model create maneuverability to leverage the current environment and continue to create value for customers, employees and shareholders. When we are moving into the quarterly highlights, as I said, good development and the third quarter net sales amounted to 119.5 billion with an organic sales growth of 7%. Adjusted operating income amounted to 14.7 billion, with a margin expanding to 12.3%. Operating cash flow amounted to a strong 7.2 billion SEK, mainly driven by higher earnings and lower build-up of working capital. And industrial operation net financial position at the end of Q3 amounted to 43.8 billion SEK. Return on capital employed reached 27.5% for industrial operations and earnings per share amounted to 5.29%. So we can conclude another strong quarter here. Some group news. By the end of July, Volvo Group, Diamond Truck and Toyota Motor Corporation signed binding agreement for Toyota to join cell-centric, where Volvo and Daimler sits on a 50-50, as equal partner and shareholder. We are very delighted to have also Toyota on board, both as, of course, an investor, but also as a technology partner, since they have a long-ranging and deep experience when it comes to hydrogen fuel cell technology and the full ecosystem. On also the hydrogen note, at the IAA fair, where we also got the awards, In September, I was with eight other industry leaders, unveiling our plans to accelerate also the rollout of hydrogen-powered vehicles across Europe. And we see that the interest is increasing, also giving the energy resilience and competitiveness landscape unfolding. And for the first time in Europe, the German ecosystem has put in place all conditions for a scalable deployment of hydrogen trucks by 2030, driven by the German authorities and the European industrial leaders along the value chain. So very promising. Also in September, we announced the next step in the Magistral expansion process with plans for an energy park near the intended battery cell production site. The energy park will be developed along two parallel tracks, a large scale battery storage facility and a future test bed for innovative energy solutions including both electric and hydrogen production and charging, which is an area that we really see good commercial opportunities for the group moving forward. The battery storage will also support grid stability in the region on normal market conditions. When it comes to the volume development then, truck deliveries increased by 11% to 49,600 vehicles with higher volumes in Europe and North and South America. North America increased by 42%. But still, and I will come back to that, you should remember that year-to-date deliveries still are actually down 4% in North America. So we are accelerating now as we speak. Volvo Construction Equipment's Volvo branded volume did grow 8% in the quarter, driven mainly by Europe and North America. North America deliveries were north of 40%, 41% to be precise. Electrification. Orders of electric vehicles increased 107% to 6,590 units 12 months rolling. The increase was primarily driven by Renault and Volvo trucks, with their new models being well received by customers. Deliveries declined with 7%, but with a good order intake of newly introduced products, deliveries are expected to increase in coming periods. Vehicle and machine organic sales growth was 8% in the quarter. Trucks growing 8% currency adjusted, driven by sales in North and South America. Volvo construction equipment had sales growth at 13% in the quarter, driven by good sales in Europe and North America. Buses net sales were down 8%, mainly caused by social sales in Plevot brand and in Mexico as a market. And pentanet sales were up 7%, mainly driven by North and South America, while sales to Middle East continued to be soft, given the turbulent situation. Services, organic sales growth amounted to 5%. in the quarter with positive development for trucks, plus 8%, and construction equipment, 5%. And the 12-month rolling service sales increased to 128 billion SEK. And for me, this is two-folded, good customer activity and utilizing the installed base and installed fleet, but also that our efforts of step-by-step working with our customers a contract portfolio is giving good results and we see that also moving into the future. And of course this is an important strategy for our total offer and it is really paying off now and what is really good to see is that when we have that type of penetration we also get higher retention and of course higher resilience and less volatility. Moving on to the truck side, good momentum with a lot of different things happening. Here we are standing, by the way, very happy just after Roger received, you know, the International Truck of the Year Award for, amongst others, this beautiful piece here, as you can see, the FH Electric Long Range. And a big highlight, obviously. And as I mentioned also, Renault Trucks also did win the International Van of the Year 27 award for the new Renault e-tig traffic that we are doing together with Renault SA. So congratulations to the Volvo and the Renault teams for these efforts and of course to our engineering groups. In October then, also Volvo Trucks, as I said, unveiled their all-new DNX, vocational truck for North American markets. and that is engineered from the ground for North America's most demanding work across construction, concrete, logging, agriculture, heavy haul, highway among others. Of course we have had an offering in these markets but with all new VNX we are getting a step up in the ability to penetrate these markets also for the Volvo brand. that has historically been highly dependent on over-the-road segments of long and regional haul. So good market share opportunities, also in close collaboration with VCE. Also in October, Volvo Autonomous Solutions announced that they have added Barbie as their second virtual driver, and they are running now operations in Texas for customers, and we announced at the Warp is the first customer that is now transporting with the combination Volvo Autonomous Solutions and Babi. And we are now preparing for an acceleration in the beginning of next year as we alluded to during the capital market stay. So exciting times ahead here. Market forecast. That is always a little bit of the highlight in the third quarter presentations, what is happening. If we start down with Europe, the forecast for 26 is reiterated at a good level of 315,000 units, and for 27, a forecasted increase to 320 units on the back of continued solid underlying demand. In North America, we repeat our market outlook for 2026 at the 265,000 units in retail sales, And that is also, of course, on the back of a rather weak start of the year, so we are accelerating as we speak. And we are forecasting then 300,000 units for 2027. And as I then mentioned, order levels have been somewhat lower in the recent quarter, especially then in July and August for North America due to the step-by-step opening of order slots into 2027. And that will only open in the beginning of September. The Brazilian market continues to hold up on the back of the Finame financing support package. We repeat our market forecast of 80,000 heavy-duty trucks for 2026, but expect a small decline down to 75,000 units for 2027. Demand in India has continued to grow, supported by steady freight activity, continued investments in infrastructure, supported government policies and healthy replacement demand. And we increased our Indian market forecast to 450,000 medium and heavy duty trucks. That is an increase of 50,000 for 2026 and forecast 470,000 units for 2027. The total market forecast for China have been lifted to 900,000 plus 20,000 medium and heavy duty trucks for 2026. Also that's supported by some packages and we forecast 850,000 units for 2027. Book-to-bill, overall the industrial system is well balanced between demand and supply with 92% book-to-bill ratio in the quarter and 109% 12 month rolling. And we are sold out in North America for 26, and we didn't open 27 until then, September. And when it comes to North America, we are at 125% 12-month rolling, so we have, if anything, a good balance, and we continue to then execute on the order board here. Europe on good and solid levels, 104% book to bid in Q3, and 110% for 12-month rolling. And generally speaking, across regions, we are sold out for 26, and we are now slotting orders mainly for the first quarter of next year. And we will open 27 gradually to keep also quality in our business and our earnings and to have the right visibility, knowing that we have an underlying cost pressure of input material and freight, not only for our industries, but generally speaking. So we need to have that right balance and to be fair to our customers as well. Truck market shares also positive, I have to say. Europe, Volvo and Renault continued with strong market shares through year-to-date September, with Volvo at 19.5%, and Renault trucks at 9.1%, giving a total share of almost 29%. On the battery electric side, Volvo and Renault trucks delivered a combined 23% for the quarter. But our recent launches now are the next generation long range and versatile electric will regain momentum now for both Volvo and Renault. Customers have been waiting for that, which is already visible in the order intake. And in North America, we have grown share. NRF combined share now was 17.4%. Very positive and that has been step by step during the year also as you can follow from the previous reports. Mack trucks is at 8.3% and Volvo at 9.1%. And Volvo trucks are back on the right track and are regaining position. And of course Volvo also in particular further support expected from the over the road segments and not at least a long haulage is expected to continue to be strong here. Brazil, Volvo remains at a good level and reached market share of 23%. And also Australia, we see a growing share combined, reached 22% for Volvo and Mack. Moving in down to construction equipment, we have significantly expanded production in our Shippensburg, Pennsylvania facility. And the site has begun production of its first excavators, but also larger reloaders, adding 11 new models to local manufacturing and reducing customer lead times by more than six weeks. So now when these introductions are coming into place, of course also that will further increase resilience as we move forward for the North American market. Market forecast here, rather similar, I have to say, as for trucks. We keep, if I start with North America, plus 5% as the midpoint for 26 in relation to 25, and 27 estimated to be another plus 5 percentage points as midpoint versus 26 as a continuous growth there. And similar in Europe, we raised 26 midpoint to plus 10% market development, and that is a 5% increase, and 27 estimates to be another increase, or plus 5% in relation to 26 then. South America, we also raised for 26 the midpoint with 5 percentage points and the 27 midpoint is estimated then to go back to minus 5 percentage points versus 26. So similar pattern as I said with the truck side. And in Asia, we raised the midpoint with 5% to a flat market and also 27 estimated to be flat versus 26. China, no change to the Chinese market forecast which is kept with the plus 10% for this year and 27 estimated to be flat in relation to 26. Book-to-bill, no drama at all here. The industrial system is well balanced between demand and supply with 97% book-to-bill ratio in the quarter and 104% 12-month rolling. Also here we are generally sold out for 26 and we are now slotting order mainly for the first quarter. And we have good order coverage consequently done for our main markets. Volvo buses, very important that we are coming back now in Europe. You know that we did major restructuring when we closed our Roslav operations in Poland. a couple of years ago, and thereby also needed to restructure, so to speak, the European business, both when it comes to city buses and coaches, absolutely necessary to get a solid financial and growth position for Volvo buses. But now we are coming back very strongly here, and during Q3, Volvo buses expanded their offering to support growth again now in the European coach segment. relaunched the Volvo 9700 coach and that will be produced in Mexico where we have a top of the art production facility and introduced the Volvo B13R coach with Marco Polo body and continued rollout of the Volvo BZR electric coach. So very strong offering moving forward and we've had a number of customer activities here. Hong Kong Volvo buses launched also the Volvo BZL electric double-decker to support the city's transition to full electric. And book-to-bill was 111% in the quarter, and 12 months rolling, it reached 96%. Penta, very strong, has expanded its data center business, now representing, as I said, 32% of the total order book value at the end of quarter three. a business which is also accretive to their margins. And Volvo Penta had a strong book-to-bill with 132% in Q3 and 107% 12-month ruling. Finally, Volvo Financial Services, as you know, a key pillar for our business in all business areas. And VFS increased the new business volume, and this was supported by good penetration rates. The 12-month rolling penetration rate was sustained at 30%, and VFS continued to show earnings resilience in a highly competitive environment. So, ladies and gentlemen, friends, that was the business update, and by that I leave the word to Mats Backman for the financials.

Thank you, Mats. So, looking into the financials time for the third quarter, and starting off with the GroupNet sales stuff. Organic net sales increased by 7% in the third quarter comparing to last year. Vehicle sales increased by 8% driven by trucks, construction equipment and Volvo Penta. Service sales increased by 5% driven by trucks and construction equipment. Looking at organic net sales development in the different geographical regions though. In Europe net sales increased by 1% driven mainly by construction equipment. North America volumes increased, which led to an increased sales of 22%, driven by group trucks, construction equipment, and Volvo Penta. In South America, net sales increased by 10% versus last year, supported by group trucks, Volvo Penta, and buses. In Asia, net sales decreased by 7%, and the big decrease you can see on the chart here is absolute numbers, and that is due to the divestment of STLG in September last year. And the overall current impact was positive at approximately 2 billion, reflecting the general depreciation of the SIC. Adjusted operating income for the group amounted to 14.7 billion, with an adjusted operating margin of 12.3%. In third quarter, earnings were supported by the positive development of our service business, AIPA refunds, price realization, and higher volumes. The U.S. net tariff costs were at the expected level around $1 billion, but fully offset by AIPA tariff refunds, resulting in a positive year-over-year effect of $700 million in the quarter. In the third quarter, we saw a negative market and customer mix, and we continue to see higher freight costs and material costs related to the inflationary environment and the current geopolitical situation. The net R&D capitalization effect in the quarter was 1 billion, with a negative year-over-year effect of 200 million. The year-over-year increase in selling expenses was partly due to selling expenses from acquired businesses. And currencies had a positive impact of 1 billion in the quarter, mainly due to the depreciation of SEC against our main currencies. The third quarter cash flow amounted to $7.2 billion. The positive cash flow contribution in the quarter was mainly driven by higher operating income and lower seasonal built-up of working capital. Return on capital employed improved to 27.5% on a rolling 12-month basis. Net cash industrial operations amounted to $43.8 billion. Group tracks organics net sales increased by 8%, and this was mainly driven by positive development of the service business and higher volumes. Adjusted operating income amounted to 9.1 billion with an operating margin of 11.1%. We saw positive contribution from the service business, higher volumes and price realisation. This was partly offset by market and customer mix, material costs, selling expenses and freight costs. And Calumet had a positive impact of 703 million in the quarter. Construction equipment organic net sales increased by 12% versus last year, and this was driven by higher volumes and positive development of the service business. Adjustable operating income reached 3.2 billion, with an operating margin of 16.1%. IEPA refunds together with market and brand mix and the positive development of the service business were the main drivers behind the improved performance. Currents had a positive impact of 88 million in the quarter. Moving over to buses, then. Organic net sales decreased by 6% versus last year. Adjusted operating income amounted to 451 million, with an operating margin of 7.7%. The result was supported by price realization, but largely offset by a property divestment last year, net U.S. tariff cost, and brand and product mix. Currency had a positive impact of 98 million in the court. Volvo Penta organic net sales increased by 4% versus last year. Adjusted operating income amounted to 1.1 billion, with an operating margin of 21.1%. Product and market mix had a positive effect, which was partly offset by material costs, and the current had a positive impact of 25 million in the court. Looking into financial services then. The credit portfolio increased to $284 billion with a rolling 12-month return on equity of 10%. Portfolio performance remained good with delinquencies and write-offs under control. Adjusted operating income amounted to $1.1 billion, supported by solid portfolio growth, partly offset by higher credit provisions and selling costs. Currency had a positive impact of $36 million comparing to the same quarter last year. And then, lastly, looking into our forward-looking guidances and starting with currency. We expect a positive year-of-year FX impact of approximately $1.3 billion in the fourth quarter. The forecasted net U.S. tariff impact on operating income in the fourth quarter of a negative $700 million is expected to be fully offset by net impact of the Section 232 refunds. The net R&D capitalization effect on operating income is expected to be approximately 4 billion for the full year 26, which is in line with last year. And finally, the guidance for the tax rate for the full year 26 on 23%. So with that, I'm leaving for Martin to summarize that. Thank you, Mats, for that.