TRATON SE (8TRA) October 2026 Investor Update Transcript

Welcome to Trayton's Q2 and first half 2026 results call. My name is Ursula Keredt and I'm head of investor relations at Trayton SE. With me on the call is Christian Levine, our CEO, who's dialed in from Sweden. Dr. Michael Jakstein, our CFO and CHRO, is here with me in Munich. Christian will start today's presentation with the key results and highlights of the second quarter accumulated first half. Michael will then guide you through our financial performance in more detail. As always we will conclude the call with a Q&A session open to financial analysts investors and media representatives. To register for questions please click the blue Q&A button on the webcast and follow the instructions. If you want to enter the queue via phone please dial one of the country specific numbers and enter your individual PIN followed by the hash key. To register your question you need to press 01 on your keypad. To cancel the question press 01 again. Please note that this call including the Q&A session will be recorded and a replay will be made available on your website later today. You can find our 2026 half-year report which we published this morning and the slides to this call on our IR website. Before we start let me remind you of the disclaimer with respect to forward-looking statements on page three of our presentation and with that I'm handing over to Christian.

Great thank you very much Ursula welcome also from my side to everyone in the call. So some of the Q2 headlines that we present today most probably already familiar to you we published our unit sales on the 10th of july and then had to publish our adjusted return on sales figures in an ad hoc release on july 13th so i think today is more about putting these figures into a context our improving top line momentum demand signals behind that and how all of this plays into our outlook for the full year of 2026. but let's start with our top line so after a rather slow start of the year our q2 unit sales increased with a four percent up to almost 83 000 units this reflecting a slight year-over-year improvement in europe and better sales momentum in south america where we are already supported by the the very first Mover Brazil incentive program deliveries. North America however still lagging as the recent order improvement has not yet been translated into deliveries. For the first half of this year unit sales were down one percent compared against a relatively strong last year period where tariffs had not yet impacted deliveries negatively. Also sales revenues increased by four percent up to 11.8 billion euros in Q2 well in line then with our unit sales and as a result we were able to bring our half year sales revenues back to a flat year-over-year level despite the slow start of Q1. Then for profitability Q2 adjusted return sales improved up to 8.1%. This was clearly above last year and higher than originally expected, hence the pre-release. Why is that? Well, mainly due to the earlier recognition of U.S. tariff refunds at international, but not only. Also supported by several operational improvements and bringing the half-year adjusted rose up to 7.0% and pulling forward part of the profitability support that we originally expected in the second half of the year. Like in Q1 the very highlight of the quarter is then the strong increase in order intake up 44% year over year in Q2 after a plus already of 18% in Q1 summing up to a 30% improvement in the first half of this year. Let's turn to the next page and digging a bit deeper into the demand development. There we have it. So we continue to see strong demand signals across all of our key regions. Order intake again exceeded deliveries confirming an ongoing recovery in the truck cycle the book to build ratio ended up in q2 at 1.2 in europe truck order intake increased by 23 percent year of a year to around 29 200 vehicles this was partly supported by weaker prior year comparison but also by a strong brand level improvement scania up 30 percent and min and increased orders by 17 percent despite the German home market still being behind our expectations. In North America truck order intake almost tripled to 22,700 trucks with international motors accounting for the vast majority of the increase. This of course reflects improving US fleet economics, strong freight rates and some EPA 27 pre-buy activity. At the same time deliveries remain below last year as our order conversion is coming through gradually. In South America demand continues to be supported by the the second tranche of the move Brazil program boasting our Q2 truck order intake by plus 20% to around 16,500 units despite the the ongoing macroeconomic challenges especially in Brazil. This order growth was mainly supported by a strong increase at Scania while Volkswagen truck and bus remained broadly stable compared to the same period of last year. First trucks from the tranche one of the Move Brazil are now being delivered which also supported our delivery figures in the region during Q2. And by the way the second tranche of this program of approximately 3.5 billion euros by the way has now also been fully utilized ahead of expectations. So overall the recent demand pattern clearly points to a back-end loaded delivery volume in this calendar year. This also is supported by the fact that unit sales were still down year over year in the first half while the comparison base becomes easier of course in the second half of this year. Okay, let's switch slide and as just discussed the truck cycle is moving upwards especially in Europe and in North America where order intake again clearly exceeded unit sales in Q2. This gives us increasing confidence for growing deliveries in the upcoming quarters. At the same time one should remember that our markets, the tariffs, the overall geopolitical uncertainty have not at all disappeared so our approach remains cautious. Looking at our main region starting with Europe registrations are developing within our market outlook while order momentum remains solid. Based on this we leave our outlook range with a midpoint growth of two and a half percent unchanged. In North America the picture has become more encouraging the positive order and the order trend is firmly established. Against this increase we decided to narrow the North American market outlook range towards the upper end. This lifts the expected midpoint to a growth figure of plus five percent from a plus two and a half percent beforehand and looking only at class eight it could grow even more by a nine percent equal to a two hundred eighty two thousand trucks. South America. In South America the macroeconomic challenges remain but deliveries continue to be supported by the move Brazil order intake increase. So with this mixed picture we leave our outlook range unchanged with a midpoint remaining at a minus five percent. In China registrations developed very strongly in the first half of the year. While we do expect some cooling down in the second half the strong year-to-date development allows us also here to narrow the outlook range. This brings the expected midpoint up to zero percent from a previous minus five. So overall All the updated market outlook reflects a clear upward cycle while still taking into account the remaining uncertainties that exist across all our regions. With that, let me now turn to how we are translating this improving market momentum also into stronger operational performance through targeted initiatives at both Brand and Trayton Group. level. Let's change slide. Starting with electrification, Scania is strengthening our European BEV capacity with a planned 70 million euro investment in the French Angier factory, while MIN is closing a portfolio gap in the BEV portfolio by launching the new 16 ton MIN eTGM. continuing with digitalization and efficiency at international we have launched my international to simplify fleet management and enhance uptime while folks when truck and bus is advancing production digitalization and automation in our brazilian resender plant and on services trait on financial services is broadening its insurance offering while continuing to ramp up its geographical footprint. Latest new addition is Norway for MIM Financial Services. And finally at trade and group level our first green bond and green loan issue totaling 850 million euros support investments in battery electric commercial vehicles and ultimately further help our future BEV groups. All taken together these initiatives show that we are very actively improving our business, not only benefiting from a favorable market cycle. Please change the slide again and building on the recent green bond issuance. Let me update you on the BEV transformation. Also here we saw a clear acceleration in the second quarter of this year. Battery electric vehicle deliveries increased with 67 percent year over year up to 1,050 vehicles. An even stronger rate than the plus 38 we saw in Q1. For the first half this brings BEV unit sales up to 1,907 vehicles up 53 percent year over year. In Europe our BEV ratio excluding the van the MNTG continued to increase from a 1.9 percent in first half last year to a 2.6 percent in the first half of this year supported by growing customer interest and as mentioned a broader product and services offering. Incoming BEV orders also continue to grow in Q2 but at a more moderate pace than deliveries which is mainly explained by North and South America. In Europe charging infrastructure remains the key enabler but unfortunately also a bottleneck for BEV adoption. We did however see further progress during the quarter. Mylands secured 120 million euro financing facility to further scale its pan-european public charging network including now megawatt charging system technology and great on charging solutions continue to expand across to public charging across Europe through Scania charging access and the MIM charging go. While While our depot charging initiatives such as Irinion support customers for charging mainly at their own operating locations. So important building blocks are being put in place but to support a broader BAV adoption in Europe and to meet the C2 requirements the roll out of charging infrastructure and stronger support for battery electric vehicle TCO needs to accelerate. and accelerate significantly. So to sum it up the truck cycle is moving upward our market outlook has improved and our Q2 profitability was stronger than expected with an adjusted return on sales of 8.1 percent.

Beyond the cycle we continue to execute an initiative that strengthen our operational performance and future growth including the continued acceleration of the battery electric vehicle transformation so with that introduction allow me now to hand over to michael for a closer look at our financials over to you michael thank you christian and the warm welcome from my side as well to all of you so as christian already mentioned the top line development clearly improved in the second quarter unit sales increased by four percent year over year driven by a 3% increase in European unit sales despite a 9% decline in Germany, a 13% increase in South America, supported by Scania and Volkswagen truck and bus in Brazil with first deliveries under the Move Brazil program. This was partly offset by a 9% decline at International in North America, where the recent demand inflection is not yet fully reflected in unit sales. Sales revenue also increased by 4% year over year in the second quarter, driven by higher new vehicle sales and improved vehicle services business and continued growth at trade and financial services. So overall, Q2 shows a clear acceleration in top-line momentum. Given the slow start in Q1, this is not yet fully reflected in the accumulated half-year figures, but it clearly supports our expectation of a stronger second half. Turning to the next page, to profitability. Here, we also aim for a stronger second half versus the first half. However, as flagged in our ad hoc release, part of the expected age-to-earning support materialized earlier than anticipated, driven by the tariff-related catch-up effects at International. From Q2 onwards, International recognizes the full amount of minimum expected Section 232 tariff refunds as a receivable. This reflects the increased likelihood that at least around half of the import value will qualify as US content. This new booking logic was also applied retroactively to the fourth quarter 2025 and the first quarter of this year in addition we booked a one-off receivable for expected recoveries related to aifa tariffs as we now have a basis to reclaim amounts already paid taken together this resulted in a positive catch-up effect of around 120 million euros in the second quarter bringing international to an adjusted RS of 5.6 percent in the quarter. Beyond this timing effect, profitability was also supported by solid operational performance. Higher unit sales, especially at Scania and Volkswagen Truck and Bus, helped improve fixed cost absorption. Price mix effects, some foreign currency tailwinds, and continued cost discipline across the group also supported profitability. As a result, adjusted return on sales for the Trayton group reached 8.1% in the second quarter and 7% for the first half. So compared to our original phasing, part of the expected H2 earnings improvement was effectively pulled forward into the second quarter, while the underlying operational performance also improved at the same time we should not overlook the headwinds R&D activity is increasing and will continue on a high runway especially as we invest in e-mobility and our trade modular system in addition we saw first input cost pressure related to the Iran war. And of course, tariff costs remain a burden. Let's now look at the performance of our segments on the next page. Overall, Trayton operations increased sales revenue by 4% and achieved an adjusted return on sales of 9% in the second quarter, supported by solid volume growth, operational improvements and the tariff-related catch-up effect at international. At Scania, the main takeaway is strong earnings leverage. Sales revenue increased by 7% driven by higher unit sales in China and Brazil while earnings grew by 27% bringing the adjusted RS to 11.6%. A strong vehicle services contribution product mix and renewed currency tailwinds supported the development these effects helped offset the continued impact from china operations and higher r d activity which remains a clear margin headwind at man the focus is resilient growth despite a difficult home market sales revenue increased by four percent even though germany clearly held back the overall development. But MAN still grew European unit sales, thanks to a dedicated effort from its sales team and continued to build depth momentum, all by from a low base. Adjusted RS came in at 6.7% in the second quarter, while a better fixed cost absorption, supported profitability, higher R&D activity, and first Iran-related input costs weighed on earnings. At International, the main point is timing. Sales revenue declined by 7% as the recent order recovery has not yet fully translated into unit sales. Earnings benefited from the tariff-related catch-up effect, while tariff costs remained a headwind, and vehicle services was softer in the second quarter. As already pre-release, the adjusted RRS was 5.6%. At Volkswagen Truck & Bus, Move Brazil was the key driver. Sales revenue increased by 22%, but also supported by higher bus sales from government tender wins in Brazil. Profitability was held back by negative price mix, with adjusted RS coming in at 10.9%. Finally, at Trade & Financial Services, the focus is on scaling the business. The increasing portfolio volume drove revenue up by 21%. Profitability in the core financing business improved while ramp-up expenses and elevated risk costs partly offset this development. So return on equity came in at 8.7%. Turning now to net cash flow, Trayton operations reported negative 269 million euros in the first half this mainly reflects the weaker operating performance at the start of the year the usual first half working capital build up and the full cash burden from section 232 terrace and last but not least ongoing investments At corporate items level, the June dividend payment of 465 million euros was more than offset by the two Sino truck placements with total proceeds of 523 million euros. Overall, with negative net cash flows both from trade operations and corporate items, net debt increased by 351 million euros compared with the year-end 2025. Looking ahead, in line with our usual seasonal pattern, we continue to expect stronger cash generation in the second half of this year. Let me conclude with our updated outlook for 2026. Based on the stable revenue development in the first half, the improved market outlook, especially for North America, and the overall positive order momentum. We are narrowing our guidance range towards the upper end. We now expect the unit sales and sales revenue to develop in positive territory between 0 and 7% growth. For adjusted return on sales, we achieved 7% in the first half. This gives us a solid basis for the full year and we are therefore raising the lower end of our guidance range to our previous midpoint of 6.3 percent the upper end remains at 7.3 percent while we continue to aim for a stronger second half if this materializes however the gap versus the first half would be smaller than originally planned. There are three reasons for this. First, part of the expected second half earnings improvement at international from tariff effects was already pulled forward into the second quarter. Second, we expect additional Iran related input cost pressure, which was not reflected in our original guidance, but we have been pointing to this risk since the first quarter and third R&D expenses will continue on a high run rate in the second half. In terms of quarterly phasing Q3 should be seasonally weaker especially due to the holiday effects at MAN and Scania. We then expect a strong Q4 in terms of revenue and margins in line with the usual seasonal pattern and this year supported by the high order backlog we have built up. That said, geopolitical risks remain an overarching uncertainty. For net cash flow of trade and operations, we are maintaining our guidance range. While we expect cash generation to improve significantly in the second half, higher primary R&D expenses will weigh more on cash flow than on operating result due to capitalization cash refund from tariffs could provide additional support but the timing remains uncertain overall our second quarter and half year financials show that our business has gained momentum order intake is stronger our truck market outlook is confirmed or has improved and our first half profitability gives us a solid basis for the full year. That is why we are narrowing our guidance ranges towards the upper end, while still taking a prudent view on tariff, costs, cash flow and geopolitical uncertainties. With that, I'm happy to hand it back to you, Ursula.

Thank you, Michael and Christian. Before we start with the Q&A session, let me remind you that you need to click the blue Q&A button in the webcast and follow the instructions if you want to ask a question. Please ask your question once I announce your name and activate your session. And in respect of the time, please limit yourself to two questions. Let me take the first question which comes from Harry Martin from Bernstein.

Hi, can you hear me?

Yes.

Perfect. The first question I wanted to ask about is the very strong order intake it is pretty strong across the board so it looks like there is a you know clearly a market share gain story here as well as just the market strength getting better on the cycle so can you reflect on how this is being achieved is there anything here that's price driven or is this all product improvement and and better TCO for the fleets and how are you doing this better than the competition um that's the the first question um and then the second one just on truck pricing it doesn't look like new vehicle um average selling prices uh increased in the second quarter despite some of the improvements in the cycle does this get better in the second half um and then with that raw material inflation what is the assumption on price cost um on the orders in the order book uh with the the outlook on raw materials thank you thank you harry christian do you want to take a question on order intake and market share absolutely so uh actually uh we're not seeing um particularly really strong market share gains, with a few exceptions.

But if we start in Europe, Scania has actually lost a bit of market share, focusing on keeping pricing up. And on your second question, seeing increased gross margins as a result. MIN, according to plan, is regaining market share. They have the better product lineup now with the the common base engine and driveline in their products and we see them climbing up a little bit. In Brazil Volkswagen Truck & Bus is maintaining very strong market share. Scania has also here focused on keeping up the premium pricing position and has lost market share. In the US we have also slightly lost market share. We started to build order book and increase production I think a little bit later. So we have not gained, we're rather flattish or perhaps we have lost a little bit. So and then you can we could mention China where volumes are increasing thanks to the next era but also Scania is not benefiting from the production plant in China for Southeast asian exports so there we see we see good volume increases so no we're certainly not jeopardizing our pricing positions for any of the brands rather the opposite and market shares have not been increasing on the average with the good build-up of order books let's see how this plays out in the second half of the year i stop there and hand over to michael for the second part of the question

Yeah, thank you very much. Thanks, Harry, for the question. I think actually not too much to add. Christian already covered a lot. Maybe where I can complement a little bit more specific to the second part of your question to the pricing and especially to the higher input costs. I can say that, yes, because of the higher input costs, MAN increased prices in June. So we are looking at this, but I think the key message was already mentioned by Christian that if we look at increasing prices, this is primarily based on our product offering, which is quite strong, as Christian was into, with regards to the MAN product offering to the CBE. where we started the D30 production last year, where we are increasing penetration. So this is typically the basis for higher pricing. And then let's see, maybe final comment to complement in the U.S. I mean, we were into the good order intake momentum. If that continues, then typically if there is strong order intake, then there might be also optionality for some pricing optionalities in the second half of the year. Thank you very much.

Thank you. Next question comes from Alexander Jones from Bank of America.

Great, thank you. Morning, two questions, please. Firstly, I guess Daimler Truck overnight announced that they have completed negotiations with the US Department of Commerce on sort of a tariff deal, quote unquote, could you give us an update on where your discussions with them are and what level of US content you think could be achievable under that framework on Section 232, please? And then secondly, you know, EPA 27 final rules, proposed rules came out a couple of weeks ago and suggested sort of, you know, a way to comply without complying um if you will by paying some penalties does that change your plan at all for 2027 and how you think about uh how the sort of market landscape might evolve into next year uh given you previously highlighted an advantage um with your new engine thank you okay michael you yeah thanks thanks alexander let me uh start with the first one and then uh i think handing over maybe to Christian for EPA 27 question so with regards to the first question I can say yes

I mean I've seen the ad hoc release of Daimler truck but you will certainly understand that we will not comment on this and don't have there more insights beyond what was written there when it comes to ourselves we are still in talks with the u.s administration and this is pretty much what i can say at this point in time so we continued with the good talks now in the third quarter but at this point in time i cannot give an indication here so on the epa 27 you're right

there is now a proposal that needs to be discussed which as you put it neatly allows you to to continue to work without actually achieving the emissions level in the EPA 27 regulation well with the penalty no it does not change our position I still think that we are in a very favorable place let's see how this finally plays out we have with the strong order intake basically already sold out our 2026 production so we now start discussions with customers for 2027 orders which is of course bothersome in a situation where epa 27 is not totally clear but we have optionality we have the youngest engine platform in the world which was from the beginning conceived for epa 27 So with very small increases we reach that level so we're ready to deliver that but we can of course also choose to continue with the current platform if that is financially more viable. So still exciting times in the US to see where this finally ends up. We are five months to the legislation and this is of course a very unusual situation but I think again we have really good optionality. So we are not going to end up being losers in this game. I stop there. Thank you.

Thank you. Then let's turn to Daniela Costa from Goldman Sachs.

Hi, good morning. Actually, I wanted to clarify regarding the tariffs because I guess in the presentation you mentioned Section 232 and IEPA. But on the question before, when you got asked about the negotiation on content from one of your peers, it became a little bit less clear to me exactly what are you including today. So just first, maybe the clarification question on when you mentioned in the presentation section 232, this is because you are assuming now you will have higher content from the U.S. allowed, right? So it's related to those negotiations with administration, or am I wrong? And then I'll ask the question. Yeah, thank you.

Thank you, Daniela. Happy to take that one. And there, of course, with regards to what we have booked, I can be very, very clear. So you recall what we said during our annual press conference and Q1. We basically always said, and this is still the case, that 100% of our vehicles are USMCA compliant. To be USMCA compliant, you have to have a little bit more, roughly 50% U.S. content. So that gives you the indication. And then we said at the annual press conference, and then to one, that we took a prudent approach. So we booked a receivable of roughly 50% of the roughly 50% U.S. content. So that was the practice so far. What have we done now? Now, we are assuming the level of the USMCA-compliant US content, meaning roughly 50%. And this led then to the tariff-related catch-up effect. So, to give you a ballpark figure, we booked the receivable in Q1. And again, that was 50% roughly of the roughly 50% US content. That was in the ballpark of 30 million, as we said. And so you have to double this, which leads then to an effect of 30 million in the quarter in Q1 and in Q2, makes 60 million. But we already started to pay tariffs for 232 in November and December, which adds another 20 million. So roughly the effect linked to the catch up of 232 is roughly 80 million. And then the rest comes from AIPMA tariffs, where we also came to the conclusion to meet the virtual certain criteria under accounting standards that the reimbursement procedures now are in place to reclaim here an amount. So, to be very clear, so my comment first to Alexander's question was linked to the negotiations, where I can just say we are still in negotiations, but when it comes to what we have booked, then we have assumed here the U.S. content under USMCA, which is on a level of roughly 50%, to be very clear.

Okay. And then maybe following up on that, like if we were to take the $120 million off, we would have seen you slightly loss-making but closer to breakeven. Obviously, having potentially higher content and not having what you had in the last couple of months, you're confident that sort of your underlying profitability in international, if you don't get the negotiation, doesn't end it successfully, you'd still think you can be more than breakeven. underlying for the year and and how should we think about then the potential upside from the negotiation um let me start first of all with a clear answer uh that is in short yes uh we believe that the second half uh should be better than the first half and you're fully right in q2 we had the

extraordinary effect why are we confident that the second half supposed to be better than the first half. This is very much linked to the really good order intake that started basically in December last year and continues now in the first half of this year, where we are confident that we will translate this order intake momentum then into unit sales in the second half of the year. In addition to this, you might recall that we also have done some homework, meaning that we have in way we structured the indirect area so we have a clear focus here also on costs so in combination of all of that we are positive that the second half should be better than the first half indicating that we should be clearly above the break even rs that we achieved last year yes got it thank you Thank you, Danila.

Next question comes from Klaas Bergelin from Citi.

Hi, Christian and Michael, Klaas of Citi. So, I just want to start on the Scania margin. I'm trying to understand how the margin would look like without the China impact. You also have the impact from R&D in there. And if you could say to what extent the China investments and underutilization utilization will abate into next year and how we should think about the r d pace into next year trying to sort of understand from where we are today and if you would see less of an impact from china and r d to what extent that can boost the margin thank you okay you want me to start ursala i was looking at because it's a mix of scania and yeah maybe you can start how we do it together but i i'll give i take the first part of it and you ship in michael no but a good question and i cannot give you 100 clear answer class of course we have said from the

start that under utilization or under absorption in china will of course be an issue until we reach some kind of you know normal level of production and then we need to be above 20 000 somewhere units we're aiming at 10 000 this year we're filling up pretty well we have really good reactions on the next era we are negotiating with the first bigger fleets for more substantial orders but but also retail orders are coming in nicely plus we see more and more opportunities using the scania product from china for exports to even more markets than we initially anticipated So we're on the way, but it's going to weigh on our results this year and potentially also next year. The R&D costs and areas where I will need Michael's help are indeed high. They are higher than what we expected. They are on one hand, of course, fully explainable by the fact that we are investing heavily into into electrification and the digitalization. but it's also an effect of creating the group R&D where we are now sharing the R&D costs across the group so a little bit hard to see exactly where that's going to end up this year we have said that we are long-term aiming at coming in in and around four to five percent of our total turnover in on a group level in R&D expenses. But I think I hand over to you, Michael, see if you want to complement on the R&D side.

Yeah, happy to do so. I think the China part is super well covered. And then maybe just to complement a little bit on the R&D side. I mean, it goes without saying in general, we spent quite a significant amount for R&D, but for a very good reason. We're we develop our trade modular system in addition we go for electrification autonomous driving uh software defined vehicle uh so the the r d spend is there for a good reason being aware of this r d spend we are super clear here as the management team and this is a continuation of what i said already in q1 and during the annual press conference we we put really an extra focus on our cost work and just to complement here yes R&D spend is significant but I really want to underline that in in all our brands clearly here also including because you asked about Scania we see the positive effects from the cost work to offset here partially the R&D spend that we do for a very good reason so you have to see that in a way together then let me just add maybe one component which is fx effects you know that for quite a long time we had tailwinds from fx effects then this turned last year and also at the beginning of this year into headwinds now we have seen slight tailwind again so fx effects can also play a role in the one or other direction but what I really want to outline is we put clear focus on cost work in the entire trading group and also Scania is doing a super good job here and we see the positive effects reflected also in the market. Great.

Thank you. My second one is on the cost inflation. You said a low triple digit million annual amount gross before Michael. Has that changed? Is the impact now higher?

And if you could try and help us with when you will reach sort of a full run rate or like a full annual effect whether that's going to be fourth quarter or also go into the first half of 27 thank you very much uh so my understanding is you you uh you are relating the question to the input cost effect from the iran war uh no i can i can confirm what i said already in in q1 uh we still uh anticipate or calculate with the low triple digit million effect maybe I can complement and say that we saw the first effects now already in 2.2 but that was only a double digit million effect clearly below 50 million so there is then more to come in the second half of the year and there was what I was into also So during the presentation where I said once we calculated at the beginning of the year expectation for the first half and second half of the year, then this Iran war effect would be higher input costs or also to some extent higher energy costs. But this doesn't play a big role. I would also reiterate what I said in the Q1 call that's potentially a low double digit million impact. But we see that this will have an impact in the second half of the year. But nevertheless, as we were into, we clearly have the ambition still to deliver a better second half than the first half, despite these input costs from the Iran war and despite the pull forward effect of the tariff related effects. Thank you.

Okay, thanks, Klaas. Next question comes from Jose at JP Morgan.

Thank you. A bit more of a medium-term question. When we think about international and the longer-term targets towards high single-digit margins, double-digit margins, can you comment on the path towards this margin recovery? um and a little bit around market share uh pro portfolio and utilization of the of the new facility in san antonio i'll be great and then and then question two can you comment on on how much capacity does scania have uh in in china um and how you want to utilize this capacity because obviously it's definitely more than the 10 000 units i think you you were mentioning How do we think about, you know, one, two year term of fulfilling the total license production capacity you have in China? Thank you.

Thanks. Michael, do you want to take the Martin recovery question and then Chris on China?

I mean, let me start there in the U.S. with international and you were aiming a little bit for the the midterm perspective here uh so i understood that you had basically uh three topics um market share portfolio utilization of the production facilities then and then also the long-term target or the midterm target what we announced at our capital market stand in october 2024 um so with regards to uh our market share um i can underline and continue what what we said before we we have seen a historic market share of roughly 25 percent that dropped to roughly 10 international then regained market share so we were at a level of 15 percent now for quite some time a slight drop here at the beginning of the year ambition is clearly to catch up in the second half of the year and then let's see if we manage to slightly grow market share you know our philosophy we will not let's call it in brackets buy market share we rather develop our business slowly but sustainable but we have certainly not given up on the target to gain market share slowly but steadily so since you asked for the midterm perspective yes super clear answer we want to gain market share of course you have to have a basis for this and the basis is of course on the one hand side our s13 engine where we see really high customer satisfaction and a penetration rate that is in the meantime significantly higher than our old captive engine so that's one basis and then i believe that we indicated that we are also looking into let's call it a cap update since the cap that we are having right now even though we develop a little bit in there is quite old so there is something to do in the upcoming years and then we should have a good basis coming from the product side to further increase market share and this is our ambition with regards to the utilization of the production facilities that is clearly on a good level I recall it correctly since 2022 we have the san antonio plant up and running so we invested in the united states not only with the new facility in san antonio we also produced the s13 engine in our huntsville plant in alabama so we invested substantially in the united states and created jobs there and And we have a good utilization rate in San Antonio, and considering the overall situation, we are also considering establishing a second shift there in San Antonio. So there is a clear path forward. When it comes to the margin target, then I have, of course, to make the comment that when we announced this target we had no idea about the terrorist situation and then it goes without saying that this is of course then midterm significant challenge to reach the target but at this point in time for a good reason we have not taken it away that is still the ambition you might recall that when it comes to the brand targets we always said that they are not linked to a specific anchor year so that does not mean that we aim to achieve that in 2029 like the group target that is clearly linked to 2029 and this is also a top of the cycle target but let's see how things evolve our ambition is clearly midterm that was your question increase the market share and also increase the margin substantially moving towards the double digit RS area and if I may add this is of course a very comprehensive strategy which is building on you mentioned the cab Michael but we're gradually introducing Clayton Modeler system which means two things it means that we're improving product performance which can be translated into market shares but also into bigger better pricing but it's also

which is more important long-term building a portfolio of captive components where we can benefit the service market and we're working very focused with a lot of effort to build up a portfolio already based on the on the common based engine and the gearbox but with more components to follow to capture that service market business which is so much worth in in the us so so again we will have the choice between increasing market shares faster but then we will also have the option to increase pricing so i think midterm we should definitely see a good success coming out of international if i follow on with the china question for scania then so i mentioned the 10 000 this year but if we look based on clause question to when we start to really make money from this environment we probably need to be up at least towards uh or beyond the the half capacity utilization the license is for 50 000 but let's say that we need to be somewhere 25 30 to really make good money then the split that you asked for would be approximately half of that volume next era the china for china product the other half would be sconia products where of approximately half would be for china and the other half would be for the Southeast Asian markets, including the Pacific and partly the Middle East. That's how we're planning.

Super, thank you.

Okay, then let's turn to Hemal Buntia from UBS.

Wait, I need to put you live.

Okay, Hemal, hello.

Let's take Nikolai first, maybe Hemal comes back on the line. so nicolai came from deutsche bank uh hi morning can you hear me yes great uh yeah it's nicolai from deutsche uh well done for a good quarter two questions from my side as well uh first one you've mentioned the the commercial measures at man that you will put in place so rise uh raising prices uh do you expect to do the same for scania um just to offset high input costs And giving that kind of market share, do you think there's enough market power to absorb that? And second one, appreciating that you narrow the guidance for profitability in the upper half, but this has not been the case for free cash flow. Can just highlight some reasons why free cash flow was not narrowed in the upper half.

Yeah, again, I think first Christian, commercial measures, and then Michael for Fresh Flow. Oh, Christian?

Oh, thank you. Now you can hear me, right? Okay. So thanks, Nicola. Yeah, we obviously have a strategy at Scania to always be the price leader, which we typically are successful with in all our main regions. that means that we try to stay ahead of the pack which means that we have already performed two price increases this year one in the beginning of the year and one in may that more than well has offset the higher input cost so far actually we have broadened our gross margins which is a very good proof point that we're doing exactly the right thing now the question is has that come at an expense of lower market share looking to brazil i would say the answer is clearly yes looking to europe i'm not sure why am i not sure in europe well because we have also been quite careful to increase production capacity we have taken that in small steps in order not to end up with under absorption uh the strong market has taken us a little bit by surprise we thought after the announcement or after the the war rather starting uh u.s starting in iran we thought that the market would soften this has not been the case uh luckily hence we have not been able to deliver uh really the volumes that order intake would have provided so i think that explains the the minor market share loss in europe in latin america it has been really hard to keep up pricing we have new entrants coming in from china we have a rather tough market climate with high interest rates but we have persistently kept up our price level knowing that we have a of value to offer through a superior product and we will not give up on that position and we have indeed seen uh in both argentina and brazil the two biggest markets that we are regaining market share in the last couple of months so i'm i'm hopeful that we're going to see that that trend continue uh last word let's remember we're not aiming uh to have a particularly high market here in europe with scania we think that having min as the sister brand in the group we should not exceed the 18 percent we should stay in the 16 to 18 range and rather grow min as the mid-priced value brand in the group to cover a maximum part of the european market um but i stopped there i think i covered it others otherwise let me know nicolai and i hand over to michael for the cash guidance yeah thanks uh thanks for the question nicolai um before maybe i come to the guidance

let me just have have a look at the net cash flow situation so as we said in q1 we had the slow start into the year uh with the net cash flow negative minus 250 million uh so when we look at q2 we already see uh quite a substantial improvement uh to minus 18 nevertheless uh combined we're at a level of almost minus 270 million net cash so there is we have quite a race ahead of us to bring the cash in we are of course confident to do that in the second half of the year like we did the last year's so this is the typical pattern nevertheless I mean our guidance range is between 900 million and 1.7 billion so there is a way to go of course part of the net cash flow situation in the second quarter was linked to the buildup of inventories translating then into working capital goes without saying thanks to the good order intake momentum we had to build inventories and then a little bit the question mark is of course what will we do in q4 this is of course linked to the question will the good order intake momentum continue in the entire second half of the year uh so let's see what exactly happens then in in q4 but i'd say coming back to your question um we have to bring substantial cash in in the second half we are confident to do that with regards to our guidance range but there is one thing that i was into uh also during the q a session which is our r d spending uh and here uh this this plays a role of course uh because as i said r d uh will continue to be on a high run rate and will weigh more on the cash flow than on the profit because we capitalize uh also here substantial amount So we will not have the effect in the P&L, but we will have the cash out effect. Maybe one last comment, just for the sake of completeness, to mention it as I was into, we're still in negotiations with the US administration. So we don't know and we cannot say yet if there are cash refunds coming from the tariffs that we have paid. The timing here remains uncertain and this is why we have not calculated that in, but this could be a potential if the cash refunds are coming then in the second half. But we're confident with the guidance range so that we left that unchanged and to a good extent linked to the R&D situation with the capitalization as I was interested.

Got it, thank you.

Thank you, Michael. It seems that we have lost him out, but there's still Shaquille from Morgan Stanley and then we have two questions from the media. Shaquille, please go ahead.

Good morning, Shaquille from Morgan Stanley. So clearly orders in North America have been strong for some time and we'll see deliveries pick up in the second half. we now have people talking about a multi-year up cycle but unlike previous cycles the freight volumes haven't materially improved so christian does this concern you at all and are you seeing any changed customer behavior given things are slightly different than usual okay thanks jaquil yeah yes you're right yes it slightly worries me even if i don't worry easily but of course the The underlying economy in the U.S. is, I think, slightly worrying.

It's running at double speed, right? So the economy that is important for us is the movement of people and goods. And that's not where the U.S. is doing particularly well right now. So what we see, and as you rightly point out, the recovery now is, it is replacement, but it's also an effect of lacking Mexican drivers. A lot of smaller companies going into Chapter 11 bankruptcy or just stopping business because the transport volumes are not increasing as the GDP growth would indicate. So is this going to change with even more tariffs and with other ways to try to stimulate the made in the US? Well, let's see how that develops. But so far, one would have loved to see what we start to see in Europe that the transport demand is coming back and the volumes go up rather than just supply and emitting demand on a lower level and then replacement need creating demand for us. So I think in the end of the day, it is about real GDP growth in areas such as construction, consumption, industry, defense, because that's what's going to really move the needle. You ask if it's changing customer behavior. Yeah, we see a professionalization, if you could call it. we see that the bigger fleets are more active than the retail customers the ones who are better in planning are doing more of the order placement that in itself is not a bad thing so we have a more structural market to meet but how this plays out long term I mean of course I have no crystal ball but that's a few comments I hope that's helpful.

Thank you very much.

Okay, thank you, Shaquille. Actually, we have received Himal's questions in written form. Again, US questions. He is asking, Christian, I heard you say that 26 production for North America is booked out and you're starting to discuss 27 orders. If so, I'm just curious on what you can tell us on customer engine preferences based on recent conversations and how you're thinking about pricing for 27 orders. And you mentioned that you have the youngest platform in the space. Would it be fair to say the step up in terms of cost from producing your S13 engine to an EPA 27 compliant engine would be relatively low? So that's the question from Himal from UBS.

Yeah, thanks Himal. No, on the first one I cannot really answer you. It's true that we have placed the orders for 26 already and we're holding back a little bit on 27. But again, as I said on the previous quest or from one of your competitors, we are confident that we will have a good proposal. On the CB1, yes it is the youngest or freshest engine platform generation in the world of heavy trucks. At least currently I of course do not know what our competitors might have up their sleeves. And with that it is reasonable to believe that the additional cost that we have to put onto that engine is competitive. Also there of course I do not know where our competitors stand and that will show when delivery starts during next year. But I know that we have brilliant engineers on the engine side. I know that we were well ahead of time scheduled with the EPA27 solution. I know it's a very flexible solution that can be used in the US but also for upcoming euro seven in europe and china seven in china so that i have a lot of confidence that we will have a very competitive product going into u.s next year january i stop there okay thank you so we covered himal as well we have one question from the media left now it's simon aiba from thompson Reuters.

Yes, hello, can you hear me? Yes. Okay, so my first question would be with regards to the German home market of Platon. How come, you mentioned earlier that the defense spending is sort of one of the things that will move the needle. How come that the German fiscal stimulus is not translating into higher orders there and my second question would be with regards to South America. Is the uptick in orders there purely driven by the government financing program in Brazil or are there other forces at play as well? Thanks.

Okay, I guess I start Ursula.

Yes.

Yeah, it's it's a bit of we are in a way as puzzled as you are why the German market where we had great expectations after the announcements of the two packages from the American government um that should have uh led us into strong market i mean both defense and infrastructure are typically driving uh transport demands uh i cannot answer exactly why this is not yet coming through i uh i prefer to see this as something we have in the way in the bank it will eventually have to translate into more transport demand uh what i hear uh from the colleagues in the commercial side in Germany is that the money is not trickling through, the procurement processes, public procurement is slow, that there is already some overcapacity in the industry and then I also keep hearing that some of the money is not going to what it was supposed to, which would of course be a very bad thing for us. But let's hope that's not true so there are many many reasons but i think it's it's more a question of time this will boast the transport demand in germany there is absolutely no no doubt in my mind and and we start actually to see the the very first sign signs coming but they are not enough to to grow the market in south america one has to make the difference between brazil and the rest uh why because brazil is significantly bigger than all of the other markets actually bigger than all of them together if we exclude mexico so what is driving the good order intake is a good development in most of the smaller markets where there is really good market momentum supported by for instance investments into into mining industry and into agriculture industry that's not really true for mexico and it's not true for for brazil mexico particularly because of the the tariff problem with the u.s whereas brazil is more homemade problems with a very high interest rate where central bank is above 14 percent which translates into to uh costs for our financing for our customers in and above 20 percent which is really high and which makes them hesitate to take an investment decision. With that in mind, we did discuss with the government, all of us in the industry, that they needed to do something in the interest rate and they have done so before because Brazil is notoriously with too high interest rates. And they moved, And they introduced this Mover program, number one and number two. And that is, from my point of view, in Brazil, the only reason why we see a stronger order intake and which also now, as we said, starts to translate into stronger deliveries and stronger registrations. With the very high interest rates prevailing and let's see after the elections in the fall what happens it is difficult to see a really strong market in brazil despite underlying for instance agricultural harvest etc being good so we should see a stronger market but our customers hesitate as long as the interest rates are on this level and the proof point that it is the interest rate that is the problem you can really see in the speed which these two programs have been consumed. The second one which contained almost three and a half billion euros we thought would last into September or maybe even October and we are mid-July and it's already sold out. So that shows that there's an appetite for trucks, there's a need for trucks but that interest rates without subsidies it is very hard to invest. I stopped it. Michael, anything to add on the last question here from Simon?

No, I think perfectly covered. Nothing to add.

Okay, thank you. And with that, there are no more questions in the queue. We are concluding our event. Thank you for joining us today. For any more detailed questions, please contact the Invest Relations team. for those who haven't been on holiday yet have a nice summer holiday enjoy the rest of the day and goodbye goodbye thank you thanks bye-bye