Traton Aktie

Good morning, everyone, and welcome to TRATON's Q2 and First Half 2026 Results Call. My name is Ursula Querette, and I'm Head of Investor Relations at TRATON SE. With me on the call is Christian Levin, our CEO, who has dialed in from Sweden. Dr. Michael Jackstein, 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 and cumulated 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. [Operator Instructions]

Please note that this call, including the Q&A session, will be recorded, and a replay will be made available on our 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 3 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 13. 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 4% 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 very first Move Brasil 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 1% compared against a relatively strong last year period where tariffs have not yet impacted deliveries negatively. Also, sales revenues increased by 4%, up to EUR 11.8 billion 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 on 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 RoS 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-bill ratio ended up in Q2 at 1.2. In Europe, truck order intake increased by 23% year-over-year to around 29,200 vehicles. This was partly supported by a weaker prior year comparison, but also by a strong brand-level improvement. Scania, up 30% and MAN increased orders by 17% 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 U.S. fleet economics, strong freight rates, and some EPA '27 pre-buy activity. At the same time, deliveries remained below last year as our order conversion is coming through gradually. In South America, demand continues to be supported by the second tranche of the Move Brasil program, boosting our Q2 truck order intake by plus 20% to around 16,500 units despite the ongoing macroeconomic challenges, especially in Brazil. This order growth was mainly supported by a strong increase at Scania, while Volkswagen Truck & Bus remained broadly stable compared to the same period of last year.

First trucks from the tranche 1 of the Move Brasil 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 EUR 3.5 billion, 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, tariffs, the overall geopolitical uncertainty have not at all disappeared. So our approach remains cautious.

Looking at our main regions, 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 2.5% unchanged. In North America, the picture has become more encouraging. The positive 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 5% from a plus 2.5% beforehand. And looking only at Class 8, it could grow even more by a 9% equal to 282,000 trucks.

South America. In South America, the macroeconomic challenges remain, but deliveries continue to be supported by the Move Brasil order intake increase. So with this mixed picture, we leave our outlook range unchanged with the midpoint remaining at a minus 5%. 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 0% from a previous minus 5%. So overall, 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 TRATON GROUP level. Let's change slide. Starting with electrification. Scania is strengthening our European BEV capacity with a planned EUR 70 million investment in the French Angers factory, while MAN is closing a portfolio gap in the BEV portfolio by launching the new 16-tonne MAN eTGM.

Continuing with digitalization and efficiency at International, we have launched My International to simplify fleet management and enhance uptime, while Volkswagen Truck & Bus is advancing production digitalization and automation in our Brazilian Resende plant. And on services, TRATON Financial Services is broadening its insurance offering while continuing to ramp up its geographical footprint. Latest new addition is Norway for MAN Financial Services. And finally, at TRATON GROUP level, our first green bond and green loan issue totaling EUR 850 million support investments in battery-electric commercial vehicles and ultimately further help our future BEV growth. All taken together, these initiatives show that we are very actively improving our business, not only benefiting from a favorable market cycle.

Changing 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% 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% year-over-year. In Europe, our BEV ratio, excluding the van, the MAN TGE, continued to increase from 1.9% in first half last year to 2.6% 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 continued 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. Milence secured EUR 120 million financing facility to further scale its pan-European public charging network, including now megawatt charging system technology. And TRATON Charging Solutions continued to expand across (sic) [ access ] to public charging across Europe through Scania Charging Access and the MAN Charge&Go, while our depot charging initiatives such as Erinion support customers for charging mainly at their own operating locations.

So important building blocks are being put in place, but to support a broader BEV adoption in Europe and to meet the CO2 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%. Beyond the cycle, we continue to execute on initiatives 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 a 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 4% 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 & Bus in Brazil with first deliveries under the Move Brasil 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 TRATON 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 cumulated 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 H2 earnings 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 U.S. 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 IEEPA tariffs as we now have a basis to reclaim amounts already paid. Taken together, this resulted in a positive catch-up effect of around EUR 120 million in the second quarter, bringing International to an adjusted RoS of 5.6% in the quarter. Beyond this timing effect, profitability was also supported by solid operational performance. Higher unit sales, especially at Scania and Volkswagen Truck & 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 TRATON 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 run rate, especially as we invest in e-mobility and our TRATON 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, TRATON 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 RoS 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 4%, 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 BEV momentum, albeit from a low base. Adjusted RoS 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-released, the adjusted RoS was 5.6%. At Volkswagen Truck & Bus, Move Brasil 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 RoS coming in at 10.9%.

Finally, at TRATON 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. TRATON Operations reported negative EUR 269 million in the first half. This mainly reflects the weaker operating performance at the start of the year, the usual first half working capital buildup, and the full cash burden from Section 232 tariffs, and last but not least, ongoing investments.

At Corporate Items level, the June dividend payment of EUR 465 million was more than offset by the 2 Sinotruk placements with total proceeds of EUR 523 million. Overall, with negative net cash flows, both from TRATON Operations and Corporate Items, net debt increased by EUR 351 million 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 full-year 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%. The upper end remains at 7.3%, 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 3 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 TRATON 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 results 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. [Operator Instructions] Let me take the first question, which comes from Harry Martin from Bernstein.

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 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 better TCO for the fleets? And how are you doing this better than the competition? That's the first question.

And then the second one just on truck pricing. It doesn't look like new vehicle average selling prices increased in the second quarter despite some of the improvements in the cycle. Does this get better in the second half? And then with that raw material inflation, what is the assumption on price cost on the orders -- in the order book with the outlook on raw materials?

Thank you, Harry. Christian, do you want to take the question on order intake and market share?

Absolutely. So actually, we're not seeing particularly 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. MAN, according to plan, is regaining market share. They have the better product lineup now with 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 U.S., 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. And then we could mention China where volumes are increasing, thanks to the NEXT ERA, but also Scania is now benefiting from the production plant in China for Southeast Asian exports. So there, 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 buildup of order books, let's see how this plays out in the second half of the year.

I'll stop there and hand over to Michael for the second part of the question.

Yes. 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 a 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 a strong order intake, then there might be also optionality for some pricing optionalities in the second half of the year. Let's see.

Next questions come from Alexander Jones from Bank of America.

Two questions, please. Firstly, I guess, Daimler Truck overnight announced that they have completed negotiations with the U.S. Department of Commerce on sort of a tariff deal. Could you give us an update on where your discussions with them are and what level of U.S. content you think could be achievable under that framework on Section 232, please?

And then secondly, EPA '27 final rules, proposed rules came out a couple of weeks ago and suggested sort of a way to comply without complying, if you will, by paying some penalties. Does that change your plan at all for 2027 and how you think about how the sort of market landscape might evolve into next year, given you previously highlighted an advantage with your new engine?

Okay. Michael, you...

Yes. Thanks, Alexander. Let me start with the first one, and then I think handing over maybe to Christian for the 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 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 continue to work without actually achieving the emissions level in the EPA '27 regulation, well, with a 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 reached 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 U.S. to see where this finally ends up. We are 5 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. Then let's turn to Daniela Costa from Goldman Sachs.

Actually, I wanted to clarify regarding the tariff, because I guess in the presentation, you mentioned Section 232 and IEEPA. But on the question before when you were 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 the administration? Or am I wrong? And then I have a question.

Yes. 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 in 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 or roughly 50% U.S. content. So that gives you the indication. And then we said at the annual press conference and in Q1 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 U.S. 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% U.S. content. That was in the ballpark of EUR 30 million, as we said. And so you have to double this, which leads then to an effect of EUR 30 million in the quarter in Q1, and in Q2 makes EUR 60 million, but we already started to pay tariffs for 232 in November and December, which adds another EUR 20 million.

So roughly, the effect linked to the catch-up of 232 is roughly EUR 80 million. And then the rest comes from IEEPA 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 EUR 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 up successfully, you still think you can be more than breakeven underlying for the year? And how should we think about then the potential upside from the negotiation?

Let me start first of all with a clear answer. That is, in short, yes. We believe that the second half should be better than the first half. You're fully right. In Q2, we had the extraordinary effect. Why are we confident that the second half is 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 continued 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 a way, restructured 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 breakeven RoS that we achieved last year, yes.

Next question comes from Klas Bergelind from 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 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?

Okay. Do you want me to start, Ursula?

I was looking at because it's a mix of Scania and margin. Maybe you can start and...

I'll take the first part of it and you chip in, Michael. No, but good question, and I cannot give you 100% clear answer, Klas. Of course, we have said from the start that underutilization or underabsorption in China will, of course, be an issue until we reach some kind of 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 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 electrification and 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 4% to 5% of our total turnover on a group level in R&D expenses.

But I think -- I hand over to you, Michael, if you want to complement on the R&D side.

Yes, 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 spend quite a significant amount for R&D, but for a very good reason. We're in the transformation. We develop our TRATON Modular System. In addition, we go for electrification, autonomous driving, software-defined vehicle. So 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 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 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 a 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 TRATON GROUP, and also Scania is doing a super good job here, and we see the positive effects reflected also in the margin.

My second one is on the cost inflation. You said the low triple-digit million annual amount gross before Michael. Has that changed, i.e., 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 into the first half of '27?

So my understanding is you were relating the question to the input cost effect from the Iran war. No, I can confirm what I said already in Q1. We still anticipate or calculate with the low triple-digit million effect. Maybe I can complement and say that we saw first effects now already in Q2, but that was only a double-digit million effect, clearly below EUR 50 million. So there is then more to come in the second half of the year.

And there was -- what I was into also 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 with the 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.

Okay. Thanks, Klas. Next question comes from José, JPMorgan.

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, and a little bit around market share, product portfolio and utilization of the new facility in San Antonio, that would be great. And then question two, can you comment on how much capacity does Scania have in China and how you want to utilize this capacity? Because obviously, it's definitely more than the 10,000 units, I think, you were mentioning. How do we think about 1-, 2-year term about fulfilling the total license production capacity you have in China?

Michael, do you want to take the margin recovery question, and then Christian, China?

Yes. I mean, let me start there in the U.S. with International, José, as you were aiming a little bit for the midterm perspective here. So I understood that you had basically 3 topics: market share portfolio utilization of the production facilities and then also the long-term target -- or the midterm target, what we announced at our Capital Markets Day in October 2024. So with regards to our market share, I can underline and continue what we said before. We have seen a historic market share of roughly 25% that dropped to roughly 10%. International then regained market share. So we were at a level of 15% now for quite some time. 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, "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 cab update since the cab that we are having right now, even though we developed 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 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 tariff 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 RoS 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 TRATON Modular System, which means 2 things. It means that we're improving product performance, which can be translated into market shares, but also to 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 the portfolio already based on the common base engine and the gearbox, but with more components to follow to capture that service market business, which is so much worth in the U.S. 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, and based on Klas' question to when we start to really make money from this investment, we probably need to be up at least towards or beyond the half capacity utilization. The license is for 50,000. But let's say that we need to be somewhere 25,000, 30,000 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 Scania products, whereof approximately half would be for China and the other half would be for the Southeast Asian markets, including the Pacific and partly Middle East. So that's how we're planning.

Okay. Then let's turn to Hemal Bhundia from UBS. Wait, I need to put you live. Okay. Hemal? Let's take Nicolai first, maybe Hemal comes back on the line. So Nicolai Kempf from Deutsche Bank.

Can you hear me?

Yes.

Yes, it's Nicolai from Deutsche. Well done for a good quarter. Two questions from my side as well. First one, you've mentioned the commercial measures at MAN that you will put in place, so raising prices. Do you expect to do the same for Scania just to offset high input costs? And given that Scania lost a bit of market share, do you think there's enough market power to absorb that?

And second one, appreciating that you narrowed the guidance for profitability in the upper half, but this has not been the case for free cash flow. Can you just highlight some reasons why free cash flow was not narrowed in the upper half?

Yes. Again, I think first, Christian, commercial measures, and then Michael for cash flow. Christian?

Thank you. Now you can hear me, right?

Yes.

Okay. So thanks, Nicolai. Yes, 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 2 price increases this year, one in the beginning of the year and one in May. That more than, well, has offset the higher input costs. 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 underabsorption. The strong market has taken us a little bit by surprise. We thought after the announcement, or after the war rather starting -- U.S. starting in Iran, we thought that the market would soften. This has not been the case, luckily. Hence, we have not been able to deliver really the volumes that order intake would have provided. So I think that explains 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 lot of value to offer through a superior product, and we will not give up on that position. And we have indeed seen, in both Argentina and Brazil, the 2 biggest markets, that we are regaining market share in the last couple of months. So I'm hopeful that we're going to see that trend continue.

Last word. Let's remember, we're not aiming to have a particularly high market share in Europe with Scania. We think that having MAN as the sister brand in the group, we should not exceed the 18%. We should stay in the 16% to 18% range and rather grow MAN as the mid-priced value brand in the group to cover a maximum part of the European market.

Good. I stop there. I think I covered it. Otherwise, let me know, Nicolai, and I hand over to Michael for the cash flow guidance.

Yes. Thanks for the question, Nicolai. Before maybe I come to the guidance, let me just have a look at the net cash flow situation. So as we said, in Q1, we had a slow start into the year with a net cash flow negative minus EUR 250 million. So when we look at Q2, we already see quite a substantial improvement to minus EUR 18 million. Nevertheless, combined, we're at a level of almost minus EUR 270 million net cash. So 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. So this is the typical pattern.

Nevertheless, I mean, our guidance range is between EUR 900 million and EUR 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. So let's see what exactly happens then in Q4.

But I'd say, coming back to your question, 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 also during the Q&A session, which is our R&D spending. And here, this plays a role, of course, because, as I said, R&D will continue to be on a high run rate and will weigh more on the cash flow than on the profit, because we capitalize also here a 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 are still in negotiations with the U.S. 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 are 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 hinting.

Thank you, Michael. It seems that we have lost Hemal, but there's still Shaqeal from Morgan Stanley, and then we have 2 questions from the media. Shaqeal, please go ahead.

Shaqeal 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 multiyear 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, Shaqeal. Yes, you're right. Yes, it slightly worries me, even if I don't worry easily. But of course, 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 demand in the U.S.? 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 meeting 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 asked if it's changing customer behavior, yes, 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.

Okay. Thank you, Shaqeal. Actually, we have received Hemal's questions in written form, again, U.S. 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 Hemal from UBS.

Yes. Thanks, Hemal. 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 question or from one of your competitors, we are confident that we will have a good proposal. On the CBE one, 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 on to that engine is competitive.

Also there, of course, I do not know where our competitors stand, and that will show when deliveries start during next year. But I know that we have brilliant engineers on the engine side. I know that we were well ahead of time schedule with the EPA '27 solution. I know it's a very flexible solution that can be used in the U.S., but also for upcoming Euro 7 in Europe and China 7 in China. So that I have a lot of confidence that we will have a very competitive product going into U.S. next year in January. I stop there.

Okay. Thank you. So we covered Hemal as well. We have one question from the media left now. It's Simon Eiber from Thomson Reuters.

Yes. Can you hear me?

Yes.

Okay. So my first question would be with regards to the German home market of TRATON. 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?

Okay. I guess I start, Ursula.

Yes.

Yes, it's a bit of -- we are, in a way, as puzzled as you are by the German market where we had great expectations after the announcements of the 2 packages from the Merz government that should have led us into a strong market. I mean both defense and infrastructure are typically driving transport demand. I cannot answer exactly why this is not yet coming through. I prefer to see this as something we have in a way in the bank. It will eventually have to translate into more transport demand.

What I hear 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 reasons, but I think it's more a question of time. This will boost the transport demand in Germany. There is absolutely no doubt in my mind. And we start actually to see the very first signs coming, but they are not enough to grow the market.

In South America, one has to make the difference between Brazil and the rest. 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 mining industry and into agriculture industry. That's not really true for Mexico, and it's not true for Brazil. Mexico, particularly because of 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%, which translates into costs for our financing for our customers in and above 20%, 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. They introduced this Move Brasil program, number 1 and number 2. 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, et cetera, 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 2 programs have been consumed. The second one, which contained almost EUR 3.5 billion, 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 is an appetite for trucks. There's a need for trucks, but that interest rates, without subsidies, it is very hard to invest. I stop there.

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 Investor 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.

Good morning, everyone, and welcome to TRATON's Q1 2026 Results Call. My name is Ursula Querette, and I'm Head of Investor Relations at TRATON SE. With me on this call is Christian Levin, our CEO, who is dialed in from Sweden. Dr. Michael Jackstein, our CFO and CHRO, is here with me in Munich. Christian will start today's presentation with the key results and highlights of the first quarter. Michael will then guide you through the 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. [Operator Instructions] Please note that this call, including the Q&A session, will be recorded and a replay will be made available on our website later today. You can find our 3 months interim statement, 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 3 of our presentation.

And with that, I'm handing over to Christian Levin. Christian?

Thank you, Ursula, and welcome also from my side, everyone. Yes, as you saw already from our unit sales pre-release, we had a somewhat slow start of this year. You could see unit sales falling by 6%, so minus 6% to 68,600, largely coming from last year's and the hesitation in the U.S. demand, which we then later saw starting to turn up, but more of that later. But the decrease is also marked by a continued difficult South American market environment with low order intake spilling over from last year.

Looking at sales revenues, we saw a somewhat smaller decline with a minus 4% to EUR 10.2 billion. So keeping up compared to unit sales, mainly thanks to good growth in our services business. Operating profit and net cash flow declined overproportionately as anticipated. So our adjusted return on sales came in at 5.7%. That's at the lower end of our guidance for the full year, but still somewhat better than expected. Earnings per share were very low in Q1 due to certain items that were adjusted but fully impacting our net result. We come back later in this conference to these adjustments. The highlight of the quarter is the significant increase in order intake with an increase of 18%, as you see on the slide, up to 87,800 units.

So let's turn to the next page and have some more details on the growth of order intake. We saw encouraging demand increase in all 3 of our core geographical regions, although Germany, which everyone keeps asking about, is still somewhat lagging. Also across all of them, order intake exceeded deliveries in Q1, supporting a raise in our book-to-bill ratio up to 1.3. Starting in Europe then, in a year-over-year comparison, truck order intake in Europe remained stable at around 29,000 vehicles. But remember, this compares to a very strong start of Q1 also last year, which was before the tariff announcements from the U.S., and it was also marked by initial German market stimulus optimism.

Turning to North America. Truck order intake nearly doubled up to 18,800 units in Q1. And after more than 4 months of consistently strong U.S. demand, we are increasingly confident that we have passed the trough of the cycle for this time. Finally, in South America, truck demand was boosted by the so-called Move Brazil program, which provides subsidized truck financing in this unusually high interest rate environment. So strong starts in both the agriculture and the mining sector supported the higher truck order intake in Q1. And as a result, we recorded around 15,000 trucks, 25% up despite the ongoing broader economic challenges in this region. But as explained before, while our group order intake grew by 18%, global deliveries fell by 6% which was sharply driven down by lower deliveries in both North and in South America.

Meanwhile, Europe recorded a significant increase in deliveries on the back of healthy order intake starting already in Q4 last year. The growth was led by MAN and especially strong in the truck segment. So before we continue, let me also clarify that the Iran war just had a minimal effect on the Q1 delivery and order intake figures that you see on this slide. Few deliveries in the Middle East were postponed and only a few markets -- in a few markets, customers showed hesitation when placing new orders.

Let's take the next slide. So despite this rising geopolitical challenge, we remain focused on our long-term success. Hence, we continue to drive our group-wide technology initiatives, such as the development of a unified software-defined vehicle platform that will eventually be implemented across all of our brands. In partnership with Applied Intuition, this platform is scheduled for launch in the year 2028. Also, our brands continue to make good progress within their various strategic initiatives. Scania delivered the first NEXT ERA trucks according to plan in the Chinese market and started to receive first positive customer feedback. MAN launched the so-called MAN2030+ a program to continue to drive efficiency gains and enhance competitiveness for future vehicles based on our TRATON Modular system.

International partnered up with Ryder to launch a Level 4 autonomous truck pilot, deploying factory integrated autonomous vehicles in the state of Texas. Volkswagen Truck & Bus celebrated its 45th anniversary, aiming for continued growth and success, remaining true to their philosophy, less you don't want, more you don't need. And then finally, TRATON Financial Services, expanding again into 2 new markets, this times Belgium and Lithuania. We're now also supporting MAN, thus underlining our consistent geographical growth strategy. At the same time, and turning the page, we continue to advance on our battery electric vehicle transformation journey. Total BEV unit sales rose by 38% in the first quarter to 857 units and incoming orders increased even more by 45%, reaching a total of 1,252 units.

In Europe, our BEV ratio, therefore, reached 1.9% of total European vehicle sales. Given the lack of speed in this transition and this compared to our planning, I'm pleased to report that the EU Commission finally decided on a so-called targeted amendment to the CO2 rules, acknowledging the specific needs of the truck industry ecosystem. In practice, it encourages early market adoption of heavy-duty BEVs through a more flexible credit mechanisms in operation already from this year, while at the same time, maintaining the long-term decarbonization trajectory. Nevertheless, or even more so, we need a faster rollout of charging infrastructure, and we need policymakers support to address the TCO challenge.

A good initiative by our Milence joint venture mid-April, where several heavy-duty e-trucks drove 1,000 kilometers and all-electric route from Paris to Berlin drew a lot of attention exactly to this point. With great public visibility, it highlighted the urgency for clean transport corridors and demonstrated that long-haul BEV transport is feasible. And it underscored that establishing a Europe-wide fast charging network for heavy-duty vehicles is both achievable and critical for an energy secure Europe. Meanwhile, on the operations side, MAN secured its largest electric bus order to date in Austria, underlying growing confidence of public transport operators in our BEV solutions. Also in the U.S., more explicitly California, International secured a large number of electric school bus orders. And in China, where BEV adoption is rapidly increasing, Scania continues the development of an all-electric next era truck.

So in summary, our battery electric vehicle transformation strategy is on truck. But as is typical for emerging technologies, development risks are higher. changing conditions require selective readjustments. And in our case, this has led to one of the one-off effects, as I mentioned earlier, and which Michael will come back to in just a moment. But before handing to Michael, also a few words on our truck market outlook. Although there are signs of recovery, both in the European and North American truck cycles, we leave our forecast ranges unchanged for now as uncertainty remains elevated. In April, Scania, but now also MAN observed some cases of customer hesitancy, a bit slower order intake that is connected to high fuel prices and related to the uncertainty coming from the war in Iran. But so far, less than what at least I feared.

So overall, though, good order intake momentum, which supports our confidence in a growing European truck market this year. At the midpoint of our outlook, we see European trucks above 6 tonne at 345,000 units and heavy-duty trucks also well over the 300,000 unit mark in 2026. In North America, the significant order inflection since end of last year is indeed promising, but the downside risk remains, especially given conflicting signals from both manufacturing and consumer demand. Following record truck order intakes in March, International is seeing healthy volumes also in April. Main reason being higher transport pricing and better balance between capacity and transport demand.

The magnitude of EPA '27 prebuy within these orders is at the moment, probably minimum, but also difficult to assess. At the midpoint of our unchanged North American market outlook, we assume a 2.5% growth, which would translate into 265,000 Class 8 trucks in 2026.

And with that, Michael, I hand over to you.

Thank you very much, Christian, and good morning, good day, warm welcome from my side as well. As already mentioned, unit sales dropped minus 6% in the first quarter, while the decline in revenues was less pronounced, mainly due to a growing vehicle services business. MAN delivered a strong top line performance, especially in European truck sales, which increased by 31% year-over-year in the first quarter. German truck sales were up 14% at MAN. Scania with a different customer and product mix still lagged European growth in the first quarter. This, combined with significant declines in North and South America, prevented a positive group top line performance in Q1. But as Christian showed before, the order book is developing well, resulting in a book-to-bill ratio of 1.3 in Q1, last seen during the post-COVID catch-up. These orders will translate into unit sales and sales revenue in upcoming quarters, helping us to recover from the slow start. And let's not forget, TRATON Financial Services are constantly delivering on their growth strategy.

The next slide shows that more factors than declining volumes contributed to our lower operating result. While revenue decreased by 4%, the adjusted operating result declined by 10%, resulting in a 0.4 percentage point lower return on sales of 5.7%. That is at the lower end of our guidance range, yet somewhat better than expected. It was clear that U.S. tariff costs would hurt our Q1 results, especially with Section 232 U.S. content approval still pending. Section 232 and IEEPA tariffs totaled EUR 110 million in the first quarter compared to EUR 6 million basic import tariffs a year before. Higher foreign currency headwinds, mainly from the Swedish krona and the U.S. dollar negatively impacted our year-over-year results by EUR 84 million and increased R&D needs also led to higher expenses, although they were partially offset through capitalization. Positive effects came from a better price mix and improved fixed cost absorption.

Scania's China plant was roughly cost neutral vis-a-vis last year's first quarter. In addition to the just mentioned effects, our profitability was burdened by certain items, which were adjusted and sum up to EUR 521 million. So TRATON Group's unadjusted operating result was EUR 60 million in the first quarter, corresponding to an operating return on sales of 0.6%. The 4 main adjustment items were: first, write-offs and supplier claims following adjustments to individual e-mobility projects; second, impairments and labor expenses in connection with the sale of International Springfield site. Third, expenses for civil lawsuits in connection with the EU truck cases, consistent with previous quarters. Fourth, provisions for the announced restructuring at International. These items are nonoperational in nature and do not change our underlying long-term view on the business.

Therefore, let's concentrate again on the adjusted return on sales and how each of our 4 brands performed on the page you see now. As in Q4, MAN, with its strong focus on Europe was the only brand to see a year-over-year increase in sales revenue. The 8% revenue growth in the first quarter contributed to a 2.9 percentage point higher adjusted return on sales, reaching 7.2%. This result was supported by ongoing cost management measures and a solid vehicle services business. Scania saw lower sales in Brazil, but stable units in Europe. Revenue decreased by 4% in the first quarter, while the margin remained nearly stable at 11% with lower fixed costs year-over-year and a higher vehicle services business. As anticipated, International reported a negative margin, decreasing by 5.6 percentage points to minus 4%, while sales revenue declined by 19%. Although fixed cost absorption was reduced due to the low production volumes, the recent restructuring of central functions contributed to lower absolute fixed costs.

Volkswagen Truck & Bus also recorded a severe revenue decline of 18% year-over-year. At the same time, the adjusted return on sales fell by 2.8 percentage points to 10.2% in Q1. TRATON Financial Services delivered a 9% return on equity, while sales revenue increased by 13% with the ramp-up of the business. The weak early year operating performance also weighed on our cash flow and Section 232 tariffs even more heavily as we paid the full 25% amount until a U.S. content agreement is reached. At the same time, the negative working capital performance in Q1 reflects typical seasonality. The investing cash flow is half-half influenced by CapEx and capitalized R&D. The position, other changes in cash flow includes net proceeds of EUR 170 million from the sale of Sinotruk shares in January. So while net cash flow at TRATON operations was negative EUR 240 million, overall, we managed to achieve a slight reduction in our net debt by EUR 10 million at the end of the first quarter.

Looking ahead now, we have 9 months remaining to deliver on our 2026 full year outlook. I reiterate that the second half is expected to show a stronger performance than the first half of the year as the higher book-to-bill ratio clearly indicates increasing top line performance, especially at International. Scania and Volkswagen Truck & Bus will benefit from the so-called Move Brazil orders converting into revenue. And there is good order momentum in Europe, except for Germany, where we are still waiting for the anticipated demand recovery. Discussions regarding our U.S. content rate with the U.S. administration are still ongoing.

So second quarter will still be affected by higher tariff costs with our prudent accounting approach. The economic impact of the Iran war is yet difficult to assess. Also, we already planned for higher input costs taking effect towards midyear. While unexpected geopolitical effects are excluded from our full year guidance, nevertheless, at this point, we feel confident with our full year guidance, which is based on broader forecast ranges. So we maintain our unit sales and sales revenue outlook between minus 5% and plus 7%. We still see an adjusted operating return on sales for the TRATON Group between 5.3% and 7.3%, where the midpoint is at last year's level. And TRATON operations net cash flow is expected between EUR 900 million and EUR 1.7 billion.

And with that, happy to hand it back to you, Ursula, to moderate the Q&A session.

Thank you, Christian and Michael. [Operator Instructions]

Now let us take the first question, which comes from Nicolai Kempf from Deutsche Bank.

It's Nicolai from Deutsche. Can you hear me?

Yes.

Perfect. Okay. Great. So first question on the U.S. market. International Motors holding up better than expected. And given the high orders you've seen and comments from peers, do we expect to return to the positive territory on earnings already in Q2? And then my second question also on the U.S. market. How long do you think until you're kind of sold out for this year? I mean your orders, I think, already probably covered Q2 and you have some good visibility into Q3. Would you say only some slots for Q4 left? Or how much more visibility you have for this year?

I think, Michael, you'll take at least the earnings question.

Yes, happy to do so. Nicolai, thanks for the question. I mean, you know the development of the margin last year where, unfortunately, due to the tariffs, we saw a negative margin in Q4. You're fully right. It's a little bit better, also the Q1 margin than we thought it could be. And as we mentioned during the presentation, certainly, the order intake momentum that basically started in December and continued in the first quarter is promising for the remainder of the year. With regards to the second quarter, I cannot really say if we see positive margin or still a negative margin there. But what I clearly can say with regards to the full year, as we said also during our annual press conference, we want to see a better margin for the full year than the breakeven margin we have seen in 2025.

And certainly, again, coming back to what we said during the presentation, the order intake momentum there should support us with regards to the top line, especially then in the second half of the year. And you also know we have the tariff effects here. We talked about this at our annual press conference, both with regards to the P&L and especially to the cash flow, we expect a better second half of the year than the first half. So tough to say with regards to the second quarter, but I'm positive for the second half of the year.

Christian, will you take the capacity question, international slots open?

Yes. So we're not sold out, Nicolai. We are still taking in orders now for after summer. So we're in Q3. And of course, it's really positive to see this order momentum coming in. Our principle in the U.S. is the same as in Europe that we're happy when we manage a lead time in the range of, let's say, 2 up to 3 months or perhaps even 6 weeks up to 3 months. So we're, at the same time, a little bit cautious, of course, to increase too much production given the big uncertainties that we see, not just in the U.S. but globally. But we're, of course, also keeping an eye on the negotiations ongoing in Washington for us about the 232 and specifically related to our production in Mexico. So -- but yes, there are plenty of more orders to bring in before we are sold out for this year.

Next question then would come from Klas Bergelind from Citi.

Klas at Citi. So I just want to kick off on cost inflation. It's been a bit of a theme this result season in trucks. Peers of you are talking about likely better gross margin through the year as build rates improve, but that we also need to consider the inflation from energy, steel, aluminum, other raw mats going higher as sort of a result of the conflict. Truck pricing has have to move higher because of EPA '27, might go higher because of Section 232, and now we have raw materials on top. So it feels like quite big price increases here are necessary at a time when the recovery is still fragile. Can you please talk through about timing, like in magnitude, how much more pricing do you need to put through to offset this higher cost inflation? I'll start there.

Thank you, Klas. Maybe I can start a little bit on the cost side and then Christian can complement on the pricing side, where we can do it like this. So on the cost side, I mean, I can confirm basically what you are saying and what you picked up here, obviously, from others who have pretty much the same view. What I can also say, I mean, typically, when we talk about suppliers, suppliers -- supplier contracts typically have a duration something 3 to 6 months so that we don't expect immediate effects, let's say, in the upcoming weeks or months. But from the mid of the year and then especially in the second half of the year, we expect the effects that you are mentioning. Linked to the Iran war, we have done an internal risk assessment. And you mentioned a couple of the commodities here, steel, aluminum, a couple of these aspects. Also copper, we can mention some products where oil is needed linked to the Iran war, we can expect that we see higher prices here.

Our internal assessment at this point comes to a low triple-digit impact, triple-digit million impact here. So this is what I can say and where I can give you maybe a little bit more insights how we assess this. We could add potentially energy costs from our point of view, when we talk about energy costs, also with regards to our factories, we believe that the effect is significantly lower, potentially only a low double-digit million impact. So energy costs will play to some extent, a role, but the much more significant effect we certainly see on the commodity side. So...

And that is a gross number, right? You said low triple digit, Michael. That was gross, not on net. Sorry, Christian, I don't want to -- because you're going to talk about the net effect now, Christian, on pricing, but I just want to confirm.

Yes.

That's gross.

Yes.

Yes. As you know, Klas, it's been a bit tougher price-wise in the environment, particularly in the U.S., but also in Europe. So price increases have not been easy to push through lately. We see that necessity goes up, but that also eases a bit the resistance, let's say. So what we do is that -- or what we have done already, we have already launched price increases in Europe. And then as always, you need to wait a little bit before you see how much of that increase that sticks, but we're pretty dedicated this time that it needs to stick, and it's not a huge price increase. It's in the normal range that we increase prices every year, but just with more dedication. In the U.S., it's been very particular on the price side.

We were early out, as you remember, last year, try to compensate for the 232 through pricing, didn't manage as the market didn't follow. Now the sentiment has changed as there is a big appetite for placing orders. And at least in our case, we managed to get the pricing through that we need. So a much better development in the U.S. I will not be able to give you a number and translate that into how many double or triple-digit millions it represents that you have to assess for yourself. But it is a better environment to operate in and particularly in the U.S. I stop there.

My second one -- that's very helpful. My second question and final one is on the European order trends. It seems like April was holding the same level as in March and then March seems to be stronger than Jan and Feb. But at the pre-close call, we learned that there was some hesitation among some smaller carriers in Europe. Is that still the case? Or have sort of sentiment improved in the last couple of weeks? It's obviously very fluid at the moment. I mean one of your key peers recently upgraded its European outlook. So it seems like a bit of a mixed signal by country would be very useful.

I can give it a try, Christian here. So it is tricky, of course, to read the situation in Europe. January good, February, very good. March, good again. April. We see some hesitation. Particularly, we see it with smaller haulers and in countries where the transport contracts are not typically containing fuel clauses. So if you take perhaps U.K. as the most developed market in Europe from a financial point of view, basically 100% of all haulers run with a fuel clause in their transport contract, meaning that they are not directly affected or not at all, let's see how the economy moves long term, but not at all affected by the increase in fuel prices. That's all transferred over to the transport buyer.

But if you take then on the eastern side of Europe and especially Southeast side of Europe, a lot of smaller customers don't have this protection and they then need to negotiate. And that's where we see a bit of buying hesitation. That's also where we see a bit of trying to push forward vehicles that are in the delivery pipeline and negotiating conditions with our financial services companies to postpone a couple of weeks to really say where this is going. And that's, of course, because their cash flow is hurt by the fuel prices.

So I'm expecting nonetheless, a relatively good April. What we see so far is a continued good market, not perhaps on the same level as we have seen on average in the first quarter, but nonetheless keeping up the very -- so not a scenario from last year. I mean I thought we would see the same movie as we saw when Trump announced the tariffs where we had such a good first couple of months and then a dramatic fall. We don't see that at all so far. Then of course, all depends where the situation in the Middle East is going. So to be honest, I'm a little bit positively surprised that we're keeping up as well as we are doing in Europe on order intake.

Yes. Thank you, Christian. Very helpful. Next question comes from Daniela Costa from Goldman Sachs.

Two questions. First, just wanted to ask if in North America, you have seen any benefits, I guess, from the cost actions you have been doing, centralized development costs, et cetera, and/or if we're still to see a run rate of savings from that? And then maybe second question, actually following up on the P&L impacts in China. I think before you had mentioned EUR 400 million. How much have we seen in 1Q? And then how should Scania dilution from China evolve in the rest of the year?

Michael, I think both for you.

Yes, happy to start. Daniela, well, to start in North America before I move to China, I can say, I mean, yes, we see positive impacts on the cost side which is one aspect of the better-than-expected development at International, I would say. You know that we started to take action already last year. We took out a second shift in Escobedo in Mexico, and we continued the work taking into account, especially the headwinds coming from the tariffs. You know we mentioned that at our annual press conference that we did some sort of adjustments, restructuring at International, where we took out roughly 300 people and really talking about, let's say, top and high management positions here. And as we said before, I mean, since we are in the cyclical industry, we have the playbook if we are in stormy waters.

So we apply all the aspects to work on the cost side and to be as sensitive as possible here. And again, we see the positive effects from this cost work in the P&L, and we will continue to do so. I'm quite confident because, as I said, this is a focused topic for us working really on the cost side. You also mentioned or asked if there is any effect from the centralizing of our development efforts. That's starting, but at a very early stage. We did the so-called carve-out 1st of July last year, but this is a starting point also to look into further efficiencies. So we are certainly on this journey, but you don't see that effect in the P&L yet. I would say that's pretty much it when we talk about here North America linked to your first question. Second question, moving to China. You asked about the P&L effect.

We said that we plan to invest roughly EUR 2 billion into China. In the end, we invested a little bit less, roughly EUR 1.7 billion until the end of last year. We also said when we look at the investment last year, roughly EUR 800 million that we spent, again, around 50%, so talking about EUR 400 million. And what we can say for the full year 2026, that you should expect a very comparable P&L effect in 2026. There are slightly different aspects to this, of course. Last year, it was about investing and ramping up the China factory. This year, we are in a different situation. depreciation starts. We, of course, are investing less, but we are ramping up now the sales efforts in China. And this is why we are talking about a comparable amount, but with different cost aspects.

Sorry, just following up on the centralized development costs sort of -- so the impacts, I guess, we should expect them maybe more into '27, but sort of what's the magnitude of those, if you can remind us?

I cannot give you a precise magnitude. What I can say, of course, coming back to the efficiencies we talked about in light with the TRATON modular system. We clearly stated here that we see efficiency gains of roughly 25% moving into the TRATON modular system. This is partly linked to the fact that we don't develop a chassis, a cab, and electric electronic architecture twice or 3 times anymore, but just once. And then, of course, we differentiate with what we call performance steps. So we will certainly not create the same products here, but we make use in a smart way of the synergies or scale effects. That's one aspect. And the other aspect is coming from simply using, for example, same IT tools to give a very simple example and to align on processes. The fact that we decided on working together in a group R&D setup can unleash even more potential, but this is a little bit too soon to assess.

But I can assure you that we are looking into this right now since we started again, 1st of July last year, and there might be even further potential that we are exploring at this point in time going forward. And if there is further potential, then gradually, you should indeed -- you could see some effect '27 onwards, but let me come back to the 25% also efficiencies from the TMS. You recall what we mentioned in previous calls, there are 2 aspects how we can deal with that black or white. The one is that you see lower R&D spending, thanks to the efficiencies, but this is not what you're going to see because we are in the transformation. And of course, we want to make sure that we have the right products for our customers in the future. And this is why we will use these efficiencies to invest into autonomous driving, digitalization, electrification of our products. This is why you should expect a constant, let's say, significant level of R&D spend in the future because this is clearly linked to our strategy, transforming transportation together for a sustainable world.

Okay. Then we come to Harry Martin from Bernstein.

The questions I have left relate to the U.S. The first one, if I could ask for your crystal ball when it comes to demand and orders. If the uplift that we've had in recent months has very little prebuy in there and there's all underlying demand? And would you expect orders to continue at similar levels in the coming months? And then when we think about next year, can we think about 2027 being a strong year of growth for the market despite the EPA change? And then the second question I had on the international and the new engine. Could you give an update on the penetration rates for the captive powertrain there and also on your discussions with customers around the attractiveness of that engine in the post- EPA 2027 regulation world?

Christian, do you want to start?

Yes. There was a lot of questions. I can start and then help me to remember. But yes, U.S. orders, will they continue? I mean, we remain a little bit cautious, although we must admit that we have perhaps been overly cautious here in the view of the first quarter. And again, April coming along strong. So I would be surprised if the association again posts a total market order intake on a high level. At the same time, as I said on the previous question, there are so many unsecurities around both U.S. and the world economy that, yes, it's really hard to draw a conclusion. But it seems that the combination of that capacity has been taken out of the market that we see way more than 20% increase in spot rate pricing.

We see also higher and higher refusal rates on full truckloads, meaning that capacity is kind of missing and haulers can increase pricing. We see rental fleets ordering. And then, of course, we have the potential prebuy for the EPA. So a lot of this coming together is creating a strong demand. There's no doubt about it. It's very hard to assess what is what. What we know is that there are very few customers, especially amongst the big ones, the one we talk directly to that explicitly talks about prebuy. They more talk about that they have capacity constraints and they need to increase or they need to replace or renew because the trucks are getting old. And if that's the case, and we see a bit less price sensitivity, then you could very well see that this is the start of a new cycle. And in that case, typically, that cycle will continue into 2027.

I think that was your second question, so despite the EPA. But of course, that depends on the price increases that will be announced, I guess, within short in the market because that will, of course, then rather fuel demand for '26 if it's high. If it's not that high, I guess it will have less impact. And I guess then one could expect also 2027 to be in the U.S. on a continued good level to fill the replacement need and to fulfill the higher demand. So super hard to read. I don't have that crystal ball, as you know. You were into the attractiveness of the EPA '27 engine. I mean we are more or less ready with our engines. We are still not fully ready with the EPA's way forward here. We thought it was 100% clear. We must say that it's again not 100% clear. How this is going to be implemented. And I guess that's also why you don't see any announcements yet of price increases or pricing of the EPA '27 platforms.

But we still believe that we have a very competitive from a technology point of view engine based on the newest platform in the market based on the fact that we have developed this platform with good knowledge of what EPA '27 and Euro 7 would require. So I think we're in a good place. But again, that will be known within quite short, I assume. And then I think your last sub-question was on the penetration rate of our so-called S13 then. And we reached -- in Class 8, we reached 44% during the full year of last year. And we are so far Q1 a bit higher. So we continue to increase. We are on 47% in the first quarter. And we think that as we have launched this on more truck variants also outside the pure tractor units, we believe that, that could go yet a bit higher throughout the year. And we have an internal forecast or a goal, if you'd like, to come up towards 50% or very close to 50% of the Class 8 trucks. If you translate that, including our total sales where we, of course, don't put this engine in Class 6, 7 or school buses, we're aiming at 20% of the overall volume.

I hope I covered. Help me there, Ursula, if I forgot some part of the question.

No, that -- I think that covered everything. Harry, are you happy?

Yes.

Okay. Then the next question comes from Alexander Jones from Bank of America.

Two, if I can. Maybe first just on the tariff costs. If you could split for us the EUR 110 million between Section 232 and IEEPA just to understand sort of the flatness quarter-on-quarter? And should we expect that sort of run rate to continue in Q2 as well? And then secondly, just picking up one of your peer comments overnight on aftermarket, how you're seeing that developing the service sales in North America and Europe since the start of the Iran war and whether there's been any impact given higher fuel costs for fleets?

Michael?

Alexander, thanks for your question. Let me start with the tariff question. And let me say one more time what we said multiple times also last year. Obviously, this is a highly volatile environment with a lot of back and forth. what we have seen last year, tariffs that have been announced increased, decreased. So there was quite some back and forth. You can say, in a way, the newest chapter is then the Supreme Court ruling end of February regarding the IEEPA tariffs. New tariffs were announced immediately with a lower rate, which are now effective for 150 days and then potentially new tariffs will be announced. So again, a highly dynamic environment. And this is why, in general, I would like to come back to what I said a couple of times last year. We could mention a couple of numbers about tariff effects, impacts.

There is a good chance that each and every number that we are giving is wrong because, as I said before, the landscape here is changing constantly. But to give you some sort of a reference point, maybe let me come back to what we said end of -- for, let's say, the full year 2025 roughly a month ago, if we take the fourth quarter and extrapolate just the fourth quarter, not knowing about potential changes back and forth also this year, but if we extrapolate the fourth quarter into the full year 2026, and then I'm happy to translate that a little bit into what we have seen in the Q1. So basically, what we said at the annual press conference is that 2 months last year, only 2 months were affected by the 232 Section tariffs. Both months each with a net amount of EUR 20 million, so that you can multiply EUR 20 million, and then you end up at a rough figure of EUR 250 million for Section 232 tariffs if they stay, let's say, as we know them from the fourth quarter.

With regards to IEEPA and steel, aluminum tariffs, we said that we accounted EUR 50 million per quarter here, but we also mentioned that in the fourth quarter, the volumes were not that high. If that trend changes, and we are hoping for that based on the order intake momentum that we have seen in the first quarter, then if you want to make a calculation, you should potentially add something to the EUR 50 million per quarter and multiply it with 4. So we said, based on these effects, the rough ballpark figure is in the ballpark of roughly EUR 500 million per year. So -- but again, the tariffs are, in a way, changing, and we see quite a back and forth here. If we look now at the first quarter and compare it with the fourth quarter last year, then we see pretty much the same amount, meaning EUR 110 million.

And your question here, this was linked to the 232 Section tariffs as well as to partially IEEPA tariffs until they were stopped linked to the Supreme Court ruling. So there is a slight effect from less IEEPA tariffs included. There is, of course, a higher effect for 232 section tariffs because they are included now for 3 months and not only for 2 months, like in the fourth quarter. And we don't see a higher rate linked to the volume which is the main driver also for the margin at International, while the margin is negative because the volume in the Q1 was not that high linked to the low order intake momentum last year. So this is, I would say, the guidance that I can give here so that you can maybe get a better grip around the tariff situation.

Christian, do you want to say something about aftermarket service sales?

Yes, sure. But that question was in relation to the Iran war or...

Yes.

Yes. No, we don't see an immediate effect on the service business. Service business is holding up very well. in Europe, and we count on continued growth. But I'd say that's in general, due to a good job done on the contract sales penetration, but also on an aging vehicle population. In the U.S., unfortunately, our service sales are moving backwards as we lack the rolling fleet of proprietary drivelines that we are currently building with the S13 and the connected components. So there, we have more work to do, but we're doing, I think, a great job to advance on our strategy to capture the -- also the U.S. market from a services point of view. But nothing particular because of or due to connected directly to Iran.

Okay. Then the last one in the queue is Christina Amann from Thomson Reuters, media question.

You have already answered quite a bit of my questions. I have 2 left. Mr. Jackstein, you said it's for the full year about EUR 500 million tariff impact. How much of that is IEEPA tariffs? And how much refunds do you expect from that? Goldman Sachs -- General Motors has talked about EUR 500 million yesterday. I assume it's a little bit less for TRATON, but how much do you expect to get back? And the second question relates to the competition situation in Europe. Mr. Levin how do you view the competition situation in Europe, especially regarding new entrants like the Chinese companies coming with electric trucks right now? Is that a serious concern? Or is that still some time ahead?

Yes. Thank you very much for your question. Maybe I'll start with the first one. And maybe let me say there is a difference there between what you are referring to the passenger cars and the truck industry. So in our case, the effect completely different one, I'd say. With regards to the Supreme Court ruling, we are at the stage that we will follow here the refund process and continue to monitor the situation. But in our case, as I was into the IEEPA effects don't play that kind of significant role. For us, the 232 sections, as I indicated before, when extrapolating based on, let's say, the Q4 into the 2026 full year amount of roughly EUR 500 million, you see here that roughly 50% of this amount is linked to 232 section tariffs and the other 50% are linked to IEEPA and steel and aluminum tariffs. So I hope that gives you a little bit more clarity here.

Yes.

Should I continue with the competition in Europe?

Yes, please.

Okay. Then yes, competition in Europe remains, of course, tight amongst the incumbents. We are, of course, expecting Chinese entrants into Europe as this remains also an open market to anyone as we do expect perhaps one American player to appear in Europe. And so far, as you say, it's a bit early days, but we see a couple of start-ups with full battery electric vehicle trucks entering the European market, and we also see some of the more traditional Chinese OEMs establishing themselves and BYD, you can discuss whether that's a start-up or whether that's an incumbent, but they are also building industrial capacity in Europe. So I think it's a fact that we will see Chinese competitors entering into the deals where we are today active. We should, of course, watch them carefully. They come, as we know, with a lot of good advanced technology with extremely low cost levels and therefore, quite low pricing. So from our point of view, it's nothing new in a way.

We have to continue to stay super close to our customers, develop our products, keep costs under control, innovate and be the best partner to our customers' own competitiveness. One trump card we have in the TRATON Group is that we are now since short, active in the Chinese market. So we have an R&D organization of roughly 800 engineers located in China and being then embedded into the Chinese ecosystem of researchers, universities, but of course, suppliers and then in direct competition with all of these Chinese brands on their home market. And I think that's the best -- that's the best training camp or the best fitness center that you can have. If we find out that we cannot be competitive in China, we will, of course, have a huge problem around the world.

And now you pointed to Europe, Christina, but we, of course, have Chinese competition all over Africa, Middle East. They are showing up strongly in Latin America. And I expect, of course, to see them all over perhaps except for the United States. So yes, they should be watched closely. They should be respected and we should stay close, but we should certainly also learn whatever is possible and that you do best inside of China. And there, I think we have a good position to do so. The question of when remains, of course, open. I don't know. But so far, we don't see much in Europe in the ongoing deals. But -- that's just a question of time.

I stop there. I hope that answered your question.

Yes.

Okay. Then I see no more questions in the queue. With this then, we are concluding our event. Thank you for joining us today. And for any further questions, please contact the Investor Relations team. Enjoy the rest of the day. Goodbye.

Thank you.

Thanks. Bye-bye.

Hello, everyone, and welcome to TRATON's Q4 and Full Year 2025 Results Call. I am Ursula Querette, Head of Investor Relations. With me on the call is our CEO, Christian Levin; and our CFO and CHRO, Dr. Michael Jackstein. Since we published our IR presentation and a prerecorded annual results video on our website early this morning, we will use this 1-hour session for Q&A only. We are happy to take questions from analysts, investors and the media. Please note that this session will be recorded, and a replay will be made available on our website later today.

The disclaimer on forward-looking statements on Page 2 of our IR presentation applies throughout this call. [Operator Instructions] I am sure there are many topics to discuss. Let's start with 2 questions per participant and add more if time permits.

So the first question comes from Meihan Yang from Goldman Sachs.

I just have 2 questions. So first of all, given the strong orders you have seen in Europe, have you made any adjustments in your production plan in Europe? And I'll take the second question.

All right. Thanks, Meihan. This is Christian speaking. Yes, indeed, we have a positive order momentum in Europe. It actually started to build up already at the end of last year. We had really strong order intake in both the MAN and Scania in October, November. December is always a bit weaker because that's a short month with the holidays. But the trend continues throughout January and now confirmed also for February. So yes, we have made, as we have communicated several adjustments throughout last year, mainly down. But now we start to see order queues and especially in the Scania order book that is a little bit too long. So yes, we have decided to increase our production capacity. And by that, we actually reemploy some of the people as from April that had to unfortunately leave the company during the second half of last year. MAN, we are currently running on the same factory capacity, but if the good trend continues, we will have to do adjustment upwards also there.

Okay. Thank you. Meihan, did you have a second one?

Yes. Just on the Scania impact -- sorry, the China impact for the Scania margin. So you said the China factory wouldn't be breakeven until 2028. Could you give us a bit more color like on the pathway to 2028? So how much impact will be expected this year and going forward as well?

Absolutely. It's Christian again. I can just start with the general outlook and then Michael will take the financial impact. But as you know, we went live in October last year. We delivered the first Scania trucks to customers in November. And since then, we are ramping up production for Scania customers. Scania customers, both in China, but we are now also reaching the first couple of export markets that will grow throughout the year. We also launched the NEXT ERA product, the value segment product or B+ as it is called in China, with the first deliveries to dealers already happening and the first deliveries to customers coming in later here in the month of -- this month of March.

Our results from last year was that we managed to get 700. That's a modest figure, but that was part of our ramp-up plan. And we are expecting to reach 10,000 units already this year. That requires that we can continue to fill the production for the Scania, both for China and export and NEXT ERA, which is only destined to China. Given that the production capacity technically is 45,000 or 50,000 units, there is, of course, yet a bit to go to reach a positive result from this factory.

But then I hand over to you, Michael.

Yes. Super. Thanks, Christian, Meihan. Yes, let me maybe come back to what we said a couple of times last year. Last year, we said that the investment in China will be roughly EUR 2 billion. We now know that we spent so far EUR 1.7 billion, so a little bit less than we anticipated. We also mentioned that we believe for 2025, we would spend EUR 1 billion, about half of that amount would be expensed. Now it turned out that EUR 400 million were directly expensed, EUR 125 million in Q4. So for the full year, you can say this is also EUR 100 million less than expected. But looking a little bit ahead, and this was also what you were [indiscernible] where Christian gave you a little bit more figures regarding the ramp-up. You should expect also for 2026 continuously ramp-up costs. We believe that they will be pretty much in the same ballpark when it comes to the expense number like in 2025 to give you an estimate here.

And then it goes without saying also just complementing or underlining what Christian said, taking into account the capacity that we have and that we intend to produce roughly 10,000. There is a way to go until we reach breakeven. It goes without saying that's higher than a volume of 10,000, but it's also well below the capacity that we have installed there. This is why, by the way, fully in line with our capital markets communication that we had 1st of October 2024. We said, yes, there will be some margin dilution until 2029 or in other words, as you said, we will reach -- anticipate to reach the breakeven in 2028. So that's to complement from the financial side.

Yes. And to give you a bit more details then on the order intake situation, we have a healthy order book, both for Scania and the NEXT ERA brand, which gives us a lead time around 3 months. So we're exactly where we would like to be. We're producing between 10 and 20 trucks a day. That will, of course, have to increase in order to reach the 10,000. And we are now very, very curious to get the feedback from the first customer who received delivery of the brand-new product, which we call them NEXT ERA. And I think we will get this reaction to tell you already at the next quarterly results call.

Christian, maybe one thing we should add, not all the 10,000 are incremental because some of the Scania previous export volumes will now be done out of China. That's important for the analysts.

So that's perfectly right, Ursula, and that's also part of the plan. We will need to release production capacity for the next peak in Europe. Now we're not saying that the next peak is going to be this year, but it's certainly going to be at some time in the future. And we want to increase the ability to deliver with short lead times to Scania customers in the entire Asian region, including actually the Pacific. So -- and that is happening as we speak. We see the increased flexibility that we create in the system. And we already had one big order where we couldn't even deliver out of China because of capacity restriction, and then we were glad to see that we can reallocate that to Brazil. So already good flexibility with Brazil and Europe, and now we add even more flexibility, which you can imagine in the future with even more customs or tariff discussions. Now we have a war suddenly that can disrupt flows of products. I think we have created really good resilience, especially for the Global South.

Thank you. Meihan, anything else? Or can we go to the next question?

If I may just squeeze in maybe one more then. What's kind of like you mentioned about in your presentation, you're planning for several mitigation measures in the U.S. to just mitigate the tariff Section 232 cost. Could you give us a little bit more color on what kind of measures you're planning?

Well, yes, of course, it's Michael. I mean, as you know from last year, of course, we have taken measures already last year. So for example, we have taken out the second shift in Escobedo, was beginning of the second quarter, where we have laid off significant amount of colleagues there. And then we have typically sort of a playbook in place as always when we enter into a down cycle. So of course, we have applied all these things being restricted from travels, hiring freezes, et cetera. So this is in place. But taking into account the situation, especially the tariff burden, you can say that is not enough. This is why we have taken another step beginning of this year, where we have looked especially at, let's say, the higher management structures where we had another significant layoff of people.

So we are adapting to the situation. If I answer it also in a little broader context, then this is also what we said during our presentation here. It's not only up to International to, let's say, mitigate the tariff burden that we expect for this year because it's quite obvious. I mean, we had to deal with the IEEPA steel and aluminum tariffs for 3 quarters. But only in the fourth quarter, we were hit then by the 232 Section tariffs. And this is something what we will have to deal with for the entire year 2026. So this is where we have the common understanding in the entire TRATON Group that we compensate here for the tariff burdens. We work on all kinds of cost initiatives, our brands. I could mention the redundancy notice you heard about last year at Scania, and MAN2030+ is another example. But we are also looking into our enabling functions. So we are really doing the cost work. This is on top of our priority list for 2026 as I was into to work together here with international to offset the tariff burden in the best possible way.

Okay. Thank you. Next question then comes from Alex Jones from Bank of America.

Perfect. If I can ask 2 on the U.S., I guess, one on orders. You've seen very strong orders at an industry level in the past couple of months. I'd be interested in your views on sort of the key drivers of that. And in particular, whether you think there's any prebuy there ahead of potential tariff-driven price increases. I guess you have visibility on sort of your market share of those orders and whether you have seen a higher market share if people are anticipating potential pricing from you given the Mexican footprint.

And then the second question, just on U.S. content. It'd be interesting to know the assumption you made on the U.S. content in the EUR 60 million 232 tariffs that you booked in Q4. And when your expectation is to get clarity on how the administration will calculate that and what the key things you're discussing with them around that?

Thank you, Alex. So one question for Christian and one for Michael. Christian?

Yes, sure. So first of all, the positive order intake momentum for the whole industry, as you have noticed, started in December already and then has continued to improve throughout January and February came in really, really strong. I think it's the highest figure we've seen since back in September '22. Why is that? Well, there are, of course, several factors. One is the replacement need. We have been running below replacement need in the U.S. now for quite some time. Secondly, we feel that there's a bit more optimism coming back to our customer base, thanks to improved transport rates. We are actually in a recession in the U.S. which has hit the market pretty hard.

So we have seen an accelerated consolidation amongst our customers. We have seen bankruptcies. We see -- yes, we've actually seen a decrease of capacity. And if you only add these 2 up, I think that creates pent-up demand that we now start to see. And we can actually only speculate whether on top of that, there is already a prebuy effect. I think customers well, I mean, they know that there will be a price increase related to EPA27 products. They probably understand that many of the -- or all of the OEMs have had to adjust their production capacity downwards and that there is a certain reaction time as there always is in the swings in the U.S. that are typically the biggest in the world. So to position themselves, it is wise to start to place orders. And I guess there is also a portion of that into the really good figures of January and February.

To our market share, yes, we, first of all, managed to keep our close to 50% market share in 2025 despite our disadvantageous situation that Michael will talk more about in relation to the tariffs and you saw the effect on our results. But it's important to us to keep a certain volume, and our long-term plan is to take 1% per year as we improve both our product service and services offering. So yes, in these order intake figures, we feel comfortable that we continue on around about 15% share of the market. And we are, of course, eager to challenge our competitors to continue to grow slowly in the market as we go forward.

I stop there and hand over to you, Michael, on the U.S. content and our negotiations with the authorities.

Sure. Thanks, Christian. Thanks, Alex, for the question. Well, there's obviously a lot to say when it comes to the tariffs. You asked specifically about, let's say, the offsets here from U.S. content, let me -- nevertheless, also because Christian just mentioned also the IEEPA tariffs, let me maybe take the chance to give you a little bit the broader picture here. And let me start with the IEEPA and steel and aluminum tariffs. Just also to give you a number here. So we have seen a figure of EUR 50 million for the quarter for IEEPA and steel aluminum tariffs here coming from a little bit lower numbers in Q2 and Q3.

Why were the numbers lower? You might recall, we had a tariff rate of 25% here first steel aluminum that went up then to 50%. So we have a higher figure now of EUR 50 million in the fourth quarter and maybe also something that might be of interest for you when we look into 2026, of course. We believe that with the higher volume and I mean, as Christian just mentioned, it was a difficult year, especially in the U.S. If there is higher volume and you just heard the indications or you were also into the indications, then this goes in line also with a potential higher amount per quarter for IEEPA and steel and aluminum tariffs. Just also to give you that transparency here.

Then let me come to the 232 section tariffs that you were into. They are in place since 1st of November. So you can say we have the effect for 2 months here in our books. We had an effect of EUR 60 million for the 232 section tariffs in the fourth quarter, meaning for the 2 months, November and December. And now coming precisely to your question, so in the fourth quarter, we recorded a receivable for roughly half of the content we expect to recover. So that's one important information. I believe, especially when you want to get, let's say, a better feeling about what to expect in our P&L and also regarding the net cash flow in 2026. And there, I would really like to guide you a little bit and say you should expect, 2 different halves to phrase it like this. So in the first half of the year, -- we will -- when we talk about the net cash flow, we don't expect that -- let me put it like this, we will get the refunds in the first half, but rather in the second half of this year.

And we also took a more prudent view, as I said, recording the receivable for approximately half of the content we, in the end, expect to recover, which also has an effect then on the P&L in the first half compared to the second half. This then, I think, is a good segue, answering also your question, and this is, of course, not with certainty when do we expect to reach an agreement here with the U.S. administration. I can just say that we work on reaching an agreement, of course, as soon as possible. When I say as soon as possible, I don't believe, and you see my careful wording. I don't believe that we will reach that before the second quarter, potentially more in the third quarter, which is then also the explanation why you should expect regarding the P&L and the net cash flow effects, why you should expect 2 different halves in 2026. So I hope that the holistic view of IEEPA steel aluminum tariffs, 232 Section tariffs, including here the receivable that we recorded gives you a better understanding of what to expect in 2026.

[Operator Instructions] Next question comes from [ Rakesh Pagar ] from [ Barat. ] I fear we have lost Rakesh. Maybe you can queue again for the question. In the meantime, let's take Harry Martin from Bernstein.

So I wanted to start just with a shorter-term question. You've outlined some of it, but the outlook for the Q1 margin to be below the full year range. The international margin probably takes another step back as that 2 months of Section 232 goes to an entire quarter. But does the profitability outside of the North American business also ramp through the year? Or is that more stable? And then secondly, I wanted to ask if you could give some sort of perspective of the impact of higher oil and energy prices on the demand for trucks generally. Could you help us with some sensitivity if oil was, say, above $80 a barrel for an extended period, typically, what would happen to truck orders? And then maybe in China, could we even see an even faster shift towards the battery electric trucks if fuel prices are higher this year? And would that impact your initial expectations of the Scania plant as well?

Michael, do you want to start with margin, profitability?

Yes, I can start with that, Harry. Thanks for the question. I think you already tackled here the North American situation. And I could come back to what I mentioned before. So especially when we look at the 232 Section tariffs and that we expect the positive effect as I was into before, without repeating everything, clearly in the second half of this year, this is certainly one of the explanations. Another explanation is that we have usual seasonal effects. So typically, when you also go back in time, you see that the first quarter is not, let's say, as strong as the other quarters. So that's another aspect you have seen when you take into account our talk release that we have done really well on the net cash flow because we worked intensively on the working capital management aspect here and especially when it comes to inventories, we have done a really good job.

So these are the couple of seasonal effects that come into play, why we wanted to give you a little bit better understanding, taking into account that the broader guidance range that we have laid out that you have a good estimate for the first quarter where we indicated that we believe that we will see a margin here below the full year guidance range. And these are the predominant effects for that.

With that, looking at Christian, if you want to complement?

Yes. So then it was a good question, how does higher oil and gas and energy prices affect our sector. And I mean, first of all, and you know probably better than me, there are correlations between oil prices and the general economic development, where high energy prices are bad, of course. So from that perspective, it's, of course, not good that oil prices skyrocket or rather gas prices skyrocket prices go up. For us, in our own situation, we're not a very energy-intensive sector. So it is, of course, not good, but it's not something that will directly hit our product cost. We have plastics, of course, that will also increase in prices, but that's not -- that's a big part of the truck, but it's not significant, I would say.

The interesting thing, which is new, which we do not have any historical data is, of course, how does this accelerate that expectation but the change is, of course, the total cost of ownership to the detriment of the combustion engine vehicle, which is exactly what we have been asking for, especially in Europe. Now you touched China where the uptake of electric truck has already surpassed 25% in 2025, and we saw a December that was almost unbelievable with a 40% penetration of heavy electric trucks, whereas we in Europe are hovering in and around 2%. So will this be the game changer? I don't think so. But it is certainly going to change on the margin in certain cases where today, the fuel -- the diesel truck is winning towards the electric truck winning the pure TCO cost.

Then of course, customers have to have a certain view on -- will this continue for how long? What's the outlook? You may remember that in our assumptions that we would reach 10% battery electric vehicle last year [indiscernible] come to 50% in 2030, we assume much lower electricity prices in Europe that was before the war. And we assumed much higher diesel prices, which for different reasons has not come. Maybe they're coming now. Sorry for going a bit outside. I do not have a ratio of how this would impact the market directly, but a few considerations to put into your calculation.

That's very useful. If I can just squeeze in a follow-up on the order momentum in the U.S. Have the recent orders placed being for build slots on the normal 6- to 8-week delivery time line? Or is there any sort of unusual extension by larger fleets placing, for example, their entire 2026 renewals all at the start of the year, whereas usually it will be a bit more spread out?

So, no, the simple answer is no. So this is what we would consider more normal retail and some fleet customers, but it's not like someone is hedging our order book. We have also not decided yet at least to increase production capacity, but we are comfortable with the current lead time. Of course, this is something we evaluate every month, so that's very well changed throughout March.

Thank you, Harry. Actually, there are no more questions in the queue. [Operator Instructions]

We have Rakesh back.

We have Hampus coming into the queue. So Hampus, I'll put you on loud speaker. Please go ahead, Hampus from Handelsbanken.

Okay. Could you maybe -- I would be interested to hear your thoughts on your EPA drivetrain and configuration for the EPA27 truck in terms of price increases, what are you aiming for? And also, if you would look at your testing on the fuel consumption and maybe also real-time testing from your customers who's testing the product, how does TCO compare to the 2026 model?

Hampus, Christian here. Yes, I'm not sure. I will tell you all of that, to be honest. But let me say that we -- when we started the so-called FTP project, what is now the common base engine 1 for the TRATON Group. We had already supply contract made up with former Navistar, and we knew that we have to be competitive in the North American market. So already from the pre-study, we knew there would be EPA27 and we knew there would be Euro 7, and these were where we needed to be extremely competitive. So the entire base engine is developed to be the best in the industry for EPA27. And being best in the industry means 2 things. It means predominantly at least 2 things. That means being really good on fuel consumption and then being really good on product cost. And apart from that, you have the service intervals and you have the reliability and you have the weight of the driveline, et cetera, et cetera, where we be also that we are competitive.

It's too early to proclaim victory. Of course, we don't know what the others are going to bring to the market. We know their platforms. and we can make our assessments. But my gut feeling so far and the feedback from our engineers and our ongoing testing in the market is that we are going to come out really, really strong in '27. We will have a product that consumes very fuel, and we will have a product that has a very small cost disadvantage. What we're curious to learn is, of course, where is the market price increase going to end up. And based on that, we're going to take our tactical decisions where to place this product in the market. So commercially right now, we're, of course, eager to collect as many orders as possible on the current engine emission generation, where we also have a very, very competitive product. with the expert team in international. And then we're going to come back on the tactics, but I'm sorry, I'm not going to share that with you today.

Can I just have one -- just a follow-up because some of your competitors have indicated price increases in the range of $8,000 to maybe $11,000. And when I've been talking to you guys previously, you kind of thought that was on the high side. Is that still the case if you look at what you could maybe -- just trying to grasp how competitive you could be.

Yes, exactly. No. But yes, we still work with the scenario that this -- that the market price increase is actually going to be around USD 10,000. And I would be very happy to see there. Let's put it like that.

Thank you, Hampus. Okay. Then I would say there's no more question in the queue. So with this, we can conclude today's call. Thank you for joining us today. If there is anything more to discuss, please contact the Investor Relations team. Enjoy the -- I see Nicolai who joined. Should we take?

Of course. We should.

Of course, let's take Nicolai. Let me put him on speaker. Now I think we could hear Nicolai.

Can you hear me?

Yes.

Okay. Perfect. Yes, I have some technical issues. On the very strong orders in U.S. over the last month, can you highlight whether you have raised price for these orders? Because I think it's just a risk that maybe clients have used their pricing power over the last months because the market has just been weak to place a lot of orders and maybe that you have missed out raising prices accordingly.

Nicolai, from my point of view, I would not say that's an issue. If we go back, I mean, we have seen in Q4, good order intake in October. We had then counter effect in November. And then as you heard before in the call, that we had a good figure again in December in a way, also in line with the official data. We have seen, I would say, quite an okay-ish to good order intake so far at the beginning of the year. So that's pretty much what we see. it's very much in line with the overall market situation, where we see also slight positive signs, you can say, which is in addition also in line with our guidance when we look at the North American market, what we project regarding the midpoint for this year. So this is how I would put it into context.

Okay. Understood. And one follow-up on the tariff question. You mentioned EUR 50 million in Q4 for steel and aluminum and EUR 60 million for the Section 232. So in total, EUR 110 million, right, for Q4.

Yes. That's correct. The EUR 50 million are for IEEPA about steel and aluminum and the EUR 60 million -- so the EUR 50 million are for the entire Q4. And yes, also the EUR 60 million for the 232 section tariffs are for Q4. But here, you should take into account that the 232 section tariffs started in November -- 1st of November. So it's in Q4, but that's the number you can say for 2 months.

Did you already record the receivables of this impact of Section 232 tariffs in Q4, meaning that...

Half of the -- what we believe is going to be the U.S. content, half of it. This is why you might not have been in the call before. This is why I mentioned if you take that into account, that explains that we believe that we see 2 different halves of 2026 because on the P&L side, we expect then once and if we are successful here in negotiating U.S. content on the one hand side and then receiving the other 50% that we believe that we should get in. We see then an effect on the P&L side more in the second half of the year. And also when we talk about the net cash flow effect, we see 2 different halves of 2026.

Okay. Nicolai, are you okay? Did that answer your question?

Yes, it did.

We then have -- apparently, there are technical issues. We have received questions from Hemal Bhundia from UBS. So the first one, I would say we've answered. Let me quickly read it out, but it's answered. Could you provide some guidance on the fiscal year '26 tariff impact for international? And if possible, could you split this for both IEEPA and Section 232? I think we've done.

Next question, on the net cash flow guidance, you mentioned you are targeting similar margins for fiscal year '25 and sales guidance implies flattish growth. Just wondering what you are thinking about on working capital and CapEx, Michael?

Yes, happy to take that one, Hemal. Situation is here the following. When you look at our net cash flow guidance, then we have a midpoint here of EUR 1.3 billion. When you look at our RoS guidance to put it into context here, we also have a midpoint of 6.3%. So I think it's important to mention that, of course, we are aiming for a higher level. That goes without saying. I mean, when we talk about the RoS margin, 6.3% is what we achieved in 2025. And yes, of course, our ambition is higher than what we achieved in the previous year. The reason why we came up with a broader guidance range I would say I'm just stating the obvious is because this world is much more uncertain. We have seen in the past, and we cannot out rule this also for 2026, potential disruptions in the supply chain. We are coming from a year 2025 where the tariff policies created quite some disturbances, I would say.

And then also, we said a couple of times, unfortunately, we cannot rule out that there is another war in this world, but we have just seen here the start of the war against Iran a couple of days ago. So this is why we believe the broader range is the right thing in this kind of situation we are in kind of world we are living in. To come back to the net cash flow guidance, I think here, it's important to say because I mentioned the midpoint, 6.3% for this year, same level as in the previous year. Yes, we are aiming for more, very important to state this. When we look at the net cash flow midpoint, then it's below the level of the previous year, where we achieved EUR 1.6 billion, which was a little bit better than anticipated. This is why we also issued the talk release. What was the reason for that? Extremely strong working capital management.

So we did very well with regards to the inventories, but also when we look at the payables and receivables in all kinds of -- in all the constituents of the working capital, we did, let's say, a good job. So we didn't want to copy paste that 1:1 to 2026. What's the rationale for that? Because as we were into, we see the signs for a better European market. We see some signs, indications also for a potential better North American market in line with our market guidance. And if this takes place, then we also believe that we should see a better book-to-bill ratio in 2026 compared to 2025, which then translates into some prefinancing. Also, we expect that we potentially have then higher inventories at the end of 2026. Just to give you a little bit, let's say, the rationale and the math behind it, how we came up here with the net cash flow guidance. And then I stop, you also asked about CapEx. What I can say here is that we believe when we package R&D and CapEx that we should see a similar level in 2026 combined as in 2025. So I hope that gives you a little bit more light into these 2 aspects.

And maybe then we jump to the third question from Hemal on the truck orders in Europe.

Should I read it out?

Yes, please Ursula.

So the third one is on the truck orders, there was an increase in Europe, but Germany orders underperformed this. Any color or commentary you can provide on how German truck orders have performed year-to-date? Are you seeing the stimulus effect come through over January and February? And any key markets you could highlight driving the Q4 European orders, please?

Yes. So that was the disappointment from 2025. We expected the stimulus to not just directly positively impact Germany, but we thought it will even have a spreading effect throughout Europe. That did not happen. Actually, Germany was one of the laggard markets in '25 that did not recover according to plan. So -- and you were asking were there other markets, I think basically all markets, both South, North, East, West saw a good recovery towards the end of the year with the exception of Germany, Austria, Switzerland. So -- and hence, a little bit less positive order intake situation for MAN versus Scania MAN is heavily dependent on the DACH region.

So what we've seen at the beginning of the year is also at the end of last year is that the money starts to trickle through, and we see concrete projects being made, but we do not yet see that translated into truck orders. Undoubtedly that is yet to come. So in a way, we have that in the bank. We just don't know when, but we're absolutely sure that is going to happen. Is there a psychological effect for surrounding markets, that's very hard to see. But there is definitely a very positive momentum around European markets in general. What we don't know is, of course, the last days impact when it comes to the war in Iran. Will that again create uncertainty and resistance to invest? I would not be surprised if that is the case.

So it's a little bit hard to sit here and say Europe is going to develop very, very well. I think as we guided, we guided widely, we guided with a small increase. I think wisely because, yes, there is an underlying positive momentum, but at the same time, there are lots of risk. And right now, we just see one major risk materializing which is a war in the Middle East. So super hard to guide going forward. But I remain positive. I think that we are not wrong in our guidance. I think we could see a European heavy commercial vehicle market move up towards 300,000 again and with Germany coming along during the year.

I stop there.

Yes. Thank you, Christian. And I think this is a good conclusion to this call. No more questions in the queue. As I said, if there's anything more to discuss, please reach out to the Investor Relations team. Enjoy the rest of the day, and goodbye.

Goodbye.

Goodbye.

Hello, and welcome to TRATON's 2025 Annual Results Presentation. My name is Ursula Querette, and I'm Head of Investor Relations.

This morning, we have published our 2025 annual report together with our investor presentation. In the next roughly 45 minutes, we will dive deeper into the key financials included in that presentation. We will also discuss the main drivers of our 2025 performance and share how we are positioning ourselves towards 2026. Therefore, our CEO, Christian Levin; and our CFO and CHRO, Dr. Michael Jackstein, are here with me on the stage.

Welcome, Christian and Michael.

Thank you.

Thank you.

Christian, as a global commercial vehicle manufacturer, we are on a transformation journey, where we constantly adjust to changing market conditions. 2025 was especially challenging in that sense. We had to deal not only with declining truck markets, but also frequently changing influence factors.

And especially from second quarter and onwards. Starting from tariff uncertainty, this led to quite a lot of customer hesitation, which as a consequence marked our 2025 financial figures. Despite the headwinds, some of our figures came then in better than expected, which is why we had to release the ad hoc at the end of January.

So unit sales fell by 9% to 305,000 units in '25, but revenues held up a bit better, thanks especially to vehicle services and financial services, ending up 7% minus to a total of EUR 44.1 billion. Our declining volumes plus negative currency effects and tariff costs were the main reasons for our lower adjusted return on sales, coming in at 6.3% in comparison to 9.2% last year.

Consequently, our earnings per share also declined significantly. Our TRATON operations net cash flow also declined significantly, down EUR 1.2 billion to a total of EUR 1.6 billion. As a positive ending of our results overview 2025, our vehicle order intake came in stronger and was up 7% year-over-year to a total of 281,000 units.

And there are many more positive signs when looking at the operational highlights that define 2025. Some are also featured in our highlights video, which we published on our website this morning. From your perspectives, which events stood out in 2025 from the group standpoint and the brands? Christian, maybe you can begin.

Absolutely. So from a group perspective, I would say the creation of the one R&D organization. That's clearly one of the top highlights of the year. It was the logical consequence following on the establishment of the TRATON Group a few years ago. First, our 4 brands joined forces and now the absolute majority of their respective R&D experts have come together as one team. With each of these steps, we're driving more innovation. We are improving our efficiency, which in turn strengthens our competitiveness in the market.

And Michael, our carve-out required quite a significant effort from an organizational point of view.

Indeed, to transfer around 9,000 colleagues from the R&D departments of Scania, MAN International and Volkswagen Truck & Bus into a new group function, agreements had to be reached with the works council and the unions and also work contracts had to be revised. In addition, software systems had to be aligned, and new collaborative work methods had to be implemented.

As I explained with our Q3 results for financial reporting, we defined a mechanism to allocate the joint costs of the development work to the participating brands. This was implemented from Q3 2025 onwards and led to a restatement of our brands past return on sales figures starting from the first quarter 2024.

Heavy effort, but it was certainly worth it. And this achievement is key for the further development of the TRATON Modular System. For our group R&D, one modular system enables streamlined collaboration across all of our brands. So we are transforming into one development process, and we stepwise develop our entire vehicle architecture into the one TMS, the one TRATON Modular System. This will significantly accelerate product development, meaning increased customer value, but also reduced cost across all brands.

By the way, this accelerated product development also involves our new industrial hub in China, a project led by Scania.

Indeed, the original decision to create this third industrial hub was taken more than 5 years ago. After identifying the right license to acquire and after a rather tricky pandemic period, we could then break ground in the middle of 2022. And finally, after a record short period of 3 years, we could finally, on the 15th of October last year, celebrate the planned opening in Rugao in the Jiangsu province.

The total investment to set up this new location amounted to EUR 1.7 billion, so below the projected EUR 2 billion. In 2025, we spent EUR 700 million, of which EUR 400 million were directly expensed. You recall at our Capital Markets Day in October 2024; we communicated our ambition to achieve margin-neutral operations for the China hub starting from 2029. So for 2026, our goal is to sell 10,000 units. The maximum production capacity of the plant is 50,000. We anticipate reaching breakeven by 2028. Therefore, there will still be some margin dilution ahead of us.

Medium to long-term, however, I am convinced that this is an excellent strategic investment. By being in China, we get access to advanced technology capabilities through our local R&D, our local procurement, making us stronger, not just in China, but globally, especially in the areas like electrification, digitalization, automation and connectivity. Plus, we learn and benefit from the famous China Speed, i.e., methods for superfast innovation and superfast industrialization. But we're also strengthening our regional supply chains and thereby boosting our global resilience.

The market response so far is really good. After unveiling the NEXT ERA product in November, we immediately received 1,000 preorders. And in February, we started delivery of the first NEXT ERA vehicles to dealers for demonstration and now in March to final customers. I am eagerly awaiting the feedback from these customers in the next couple of weeks. NEXT ERA is a tractor series for long-haulage applications equipped with our 13-liter engine derived out of the common base engine and targeting the Chinese B+ segment.

As the NEXT ERA is based on the TMS principles, I can proudly say this is our very first TRATON Modular System product to hit the roads. So the NEXT ERA targets the long-haul high-volume market in China. It then complements the Scania super premium offering in the market, which focuses on customized, high-specification solutions for really demanding customers in China, but also in other Asian export markets.

Let's travel back from China to Germany now. The next highlight features MAN's production plant in Munich, where we started series production of electric heavy-duty trucks in June.

Right, you are. And electric plus diesel trucks are now built on one integrated production line in our Munich plant. This setup increases flexibility in capacity deployment, and it improves our capital efficiency. Until today, MAN has invested roughly EUR 400 million to adapt its vehicles for battery electric drivetrains, covering a very broad range from urban distribution to long-haulage applications.

And as from June last year, MAN started series production of its heavy-duty eTGX and eTGS models. The medium-duty eTGL used for urban and regional distribution will follow in the second half of this year. Parallel to the vehicle production, MAN also expanded battery industrialization. The Nuremberg site now produces battery packs using a modular assembly system that can handle multiple variants and can scale as it's needed. Customers are beginning to place larger also multiyear orders confirming market readiness for BEVs. One example is a framework agreement that we signed in June '25 for up to 1,000 vehicles with the customer Duvenbeck, including electric trucks in place throughout 2027.

In contrast, in the U.S., BEV demand has noticeably cooled down.

Yes. And in response to that, we unfortunately had to postpone our U.S. BEV R&D efforts for now. But regardless of the political or the regulatory developments, we remain committed to our long-term course of transformation. The goal is to offer innovative, efficient and ever lower emission transport solutions worldwide because it makes sense from both a profitability and a sustainability point of view.

With the S13, which is based on a Common Base Engine, international currently has one of the cleanest and most fuel-efficient 13-liter engine offerings in the entire North American market. Its market penetration increased sharply in 2025. Almost every second Class 8 truck sold by International was equipped with a state-of-the-art driveline.

And in January this year, International announced that the S13 is now also available to meet the EPA '27 standards. The updated engine meets the new NOx limits without additional after-treatment complexity. So we are well prepared, but nevertheless, expect only a limited EPA '27 prebuy this year due to the U.S. market uncertainties.

Do you actually know what happens with EPA '27 with regards to the recent repeal of the Endangerment Finding by the Trump administration?

Well, to our best understanding, while this may remove the EPA's authority to regulate greenhouse gases under the Clean Air Act, this action does not affect criteria pollutants like NOx. So we believe that the EPA '27 low NOx remain unchanged.

Okay. On the other hand, in South America, support for greenhouse gas reduction seems to remain in place, leading to various electric vehicle initiatives, especially in large cities such as Sao Paulo.

Right you are. And biofuels are more and more requested. Volkswagen Truck & Bus is doing a great job adapting to and driving demand for sustainable solutions. For instance, with the e-Volksbus, after a successful trial period on the streets of Sao Paulo, Volkswagen Truck & Bus started to deliver the first batch of 100 buses in December. And the e-buses will soon be available in more Brazilian cities.

The development of this product was significantly supported by the lessons learned from the e-Delivery, the very first fully electric truck designed and produced by Volkswagen Truck & Bus in and for Latin America. Our sustainability efforts also include the e-Dutra project, Brazil's first green highway corridor, connecting the cities of Rio de Janeiro and Sao Paulo. Presented together with Scania at the COP30 in Belém, this initiative aims to accelerate 0 emission trucks by reducing the investment risk in charging infrastructure.

And talking about investments, I also see a remarkable potential in the EU Mercosur free trade agreement. It could unlock new EU investments in Brazil and boost long-term industrial cooperation between our regions. And more short term, the so-called Move Brazil program, which Volkswagen Truck & Bus and Scania joined in January is stimulating demand. It supports fleet owners and even more so on drivers with affordable financing to help them to upgrade their vehicles.

Talking about financing, Brazil also plays an important role in TRATON's Financial Services business. It was 1 of the 14 markets included in the initial expansion phase of our captive financial services offering. This step built on an already existing financial services footprint, which serves customers in 65 markets globally.

Yes. And the successful integration of the 14 markets in June last year is certainly a key milestone for us. TRATON Financial Services has established a common backbone that supports all of our brands, while maintaining a brand-specific customer interface.

So looking ahead, TRATON Financial Services continues its geographical expansion and thus so opportunistically. In the second half of last year, MAN Financial Services was added to the Czech Republic and to Denmark. Also, we will see Belgium coming in, in Q1 this year and Lithuania and Morocco are currently in preparation.

A larger footprint and a larger portfolio also result in a more complex risk landscape. In the fourth quarter last year, TRATON Financial Services saw increased bad debt expenses, mainly due to Brazilian customers facing challenging market conditions after the 2024's record financing.

Besides the market challenges in Brazil, the European truck market was also down in 2025, and North America performed particularly poorly. With our Q2 results, we lowered our North American market outlook to a midpoint of minus 12.5%.

Christian, can you explain the main factors that shape market conditions in 2025?

Yes, I can give it a try. Let's start with Europe. It was clear that European registrations would continue to fall in '25 after the pent-up demand from previous years was delivered throughout both '23 and '24. So European above 6-tonne truck registrations declined by 8% to 336,000 units, with heavy-duty trucks down 6% to 296,000, merely covering replacement demand. We had a very promising start into 2025, expecting increasing order momentum over this year, going beyond just the replacement demand. However, this positive trend was disrupted with the U.S. tariff announcement early April. Then promising order activity only began to reappear from October and registrations improved slowly and especially towards the end of the year.

In the U.S., the market continued to suffer from the freight recession that started back in '22. On top of this, several uncertainties related to the announced tariffs, their impact on truck pricing and their unclear impact on the U.S. economy overall further hit customer confidence. Nevertheless, we saw signs of improvements in December and January order data, a bit hard to understand, but most plausible explanations being improved truckload spot rates and a bit more certainty around the tariffs and around EPA '27. We can only hope that the renewed tariff discussion will not disrupt this positive progress.

The Mexican market underperformed even more due to pull forward sales in '24 ahead of the ending of the Euro 5 emissions regulations, which led to significant decline during '25. In addition, U.S. tariffs also had a substantial negative impact on the market. So the whole North American truck market was deeply affected by customer hesitancy. Registrations across the region, including U.S., Canada and Mexico, landed at the bottom end of our total market forecast, a decline of minus 15%. Class 8 trucks, even a bit more, minus 16% to 259,000 units.

Then looking at South America, situation was also challenging, mainly due to the biggest market, Brazil. Here, the truck market decreased by 8% in '25. The heavy part of the market, even more minus 11%. This was then offset by growth and in some cases, strong growth in truck registrations in countries surrounding Brazil, like Peru, Argentina, Chile, Colombia, resulting in an overall South American market growth of plus 5%, then ending up at the upper end of our outlook range.

Let's see how TRATON performed on the back of this market development in 2025. Our book-to-bill ratio, which was above 1 in the first quarter before the tariff uncertainties kicked in, approached equilibrium again towards year-end.

Correct. And the uptick in Q4 order intake was mainly driven by improved European truck orders at both Scania and MAN. October, November were the highest months of the year. But globally, Q4 saw the slowest order intake growth of the year with a 21% year-over-year increase. And the German truck orders never returned to their peak back from March.

Early 2025, before the April tariff announcement, there was initial optimism that the German fiscal stimulus would trigger truck demand. This optimism faded as ongoing trade disputes; the Ukraine war and slow peace negotiations plus other geopolitical challenges dominated the rest of the year. MAN, especially suffered from lower fixed cost absorption because of their strong dependency of the DACH region.

There, we had anticipated a higher capacity utilization. As the German government now starts to commit more funding to specific infrastructure projects, we're seeing renewed optimism for industry, which is now reflected in our European '26 market outlook and more details on that a bit later.

With January order intake at MAN and Scania matching the high levels of October and November levels, we have an initial proof point to support our outlook. The uptick in Q4 orders was also driven by the mentioned promising signs in the U.S. For International, October and December were the strongest order intake months of the year, albeit on a historically lower level. International's January order intake so far confirmed the promising signs in North America, but also here, we must say on a low absolute level.

Global deliveries in Q4 were 9% below the prior year level, although European truck sales accelerated towards the end of the year, finishing on a plus 12% up in Q4. In addition, MAN reported a remarkable return to growth of 95% in bus deliveries in Q4. But this was not enough to offset our declines in the North and the South of Americas.

Michael will dive deeper into the unit sales and revenue development on group and brand level shortly. Before that, could you briefly share your thoughts on recent trends in the BEV space? For example, what came out of the recent EU discussions?

Yes. So in the December '25 update of the so-called automotive dialogue, the EU Commission for the first time, acknowledge specific needs for the truck industry, and thereby introduced a targeted amendment to the CO2 rules. This includes a more flexible CO2 credit system for heavy-duty vehicles, keeping the 2030 targets unchanged, but allowing additional credit collection in all the years leading up to 2030, which helps reduce penalties. This marks an important first step towards fair compliance for our industry.

Also in December, I handed over the presidency of the ACEA Commercial Vehicle Board to Karin Rådström at Daimler. I totally trust in her commitment to continue advocating for our industry with a clear goal of advancing both a sustainable and a competitive transport industry in Europe.

Meanwhile, developments in the U.S. are moving backwards. As communicated in Q3, we made the tough decision to write off the battery electric vehicle development project at International due to shifting market dynamics. Additionally, the funding freeze of the electric school bus initiative significantly impacted our BEV order intake figures in the U.S. Now this is also the main reason for our declining BEV order intake in '25. But good news is, since Scania transitioned to a new battery supplier, substituting Northvolt and solving the supply issues, order intake in Europe is on the rise.

Same at MAN with the start of our series production of the heavy-duty BEV trucks in June. And the MAN Deutsche Bahn contract for over 3,000 buses from '27 to '32 many of which will be electric will further improve our battery electric vehicle orders during 2026. And here, let me be clear. We are taking our responsibility towards decarbonization very seriously and electrification of transportation is our industry's most important lever.

Our BEV deliveries increased 91% in Q4 with an impressive acceleration at both Scania and MAN. But as seen in order intake, International slowed us down. While our global BEV unit sales ratio reached 1.6% in Q4, the European ratio rose to 3.3% in the same quarter.

So Michael, for our total unit sales, Europe was also the driving force.

That's correct, but not with particularly high torque. As you explained before, the European truck market stayed weak in 2025, further impacted by the U.S. tariff announcement in April.

Despite this, we saw our European truck market unit sales growing at increasing quarterly rates in 2025 with MAN and Scania both gaining market share. Total European unit sales in Q4 for trucks, buses and vans together increased by 11% year-over-year. However, this was not enough to compensate for the severe decline of International's truck unit sales. Including buses, our North American unit sales fell by 36% in the fourth quarter year-over-year. Clearly, the extra market uncertainty brought by Section 232 in November, along with our own pricing and surcharge strategies, did not contribute positively. Also, International managed to maintain its market share in 2025.

Moving to South America. In South America, unit sales declined by 15% in the fourth quarter. And as a result, our TRATON Group revenue was down by 4% in the fourth quarter year-over-year and down by 7% on a full year basis. The stronger decline in new vehicle sales was partly compensated by a solid Vehicle Services business. The growing Financial Services business also supported the overall revenue development.

On the back of that revenue development, we delivered an adjusted return on sales of 6.3%, both in Q4 and for the full year, which was above the lower end of our guidance range, but 2.9 percentage points below 2024. The main driver of this decline was lower volumes, which also meant less fixed cost absorption. International recorded tariff costs of around EUR 110 million in Q4 alone. Of this, roughly EUR 60 million were due to the 2 months of Section 232 tariffs, applying a prudent U.S. content approach. The remaining EUR 50 million relate to IEEPA and Steel and Aluminum tariffs.

The China project weighed on our Q4 income statement with an amount of around EUR 125 million. I mentioned earlier that the full year China P&L effect was around EUR 400 million. Foreign currency headwinds, especially from the Swedish krona and the U.S. dollar, increased along the year and negatively affected Q4 results with around EUR 120 million. And last but not least, TRATON Operations reported higher warranty costs and TRATON Financial Services faced increased bad debt expenses. Positive effects came from higher R&D capitalization in connection with the increasing maturity of major group projects. In addition, various cost efficiency measures helped reduce overhead costs.

Now looking into 2026. Please note that while the construction of the Rugao plant has been completed, Scania will continue to incur ramp-up costs. We expect that such costs will affect the P&L to a similar extent as in 2025. Regarding the U.S. tariff situation, I should add that in Q4, we recorded a receivable for approximately half of the U.S. content we expect to recover. We intend to maintain this prudent approach until a final agreement is reached with the U.S. administration. The stated tariff costs do not include price compensation.

Michael, you just mentioned various Q4 effects weighing on the TRATON Group P&L. China project costs and foreign currency effects for Scania, U.S. tariff costs for International and bad debt expenses for TRATON Financial Services. What about MAN?

As you know, MAN has a strong focus on Europe and especially Germany. Combined with its full liner approach, the brand is currently well positioned. The strong European order momentum from the first half of the year drove sales volumes in the second half. So sales revenue in the fourth quarter for MAN was up 15%.

Besides trucks, this reflects a sharp rise in bus sales. BEV sales have also significantly improved with series production for trucks in place. And in addition, MAN clearly stood out in Q4 margin improvement compared to the other brands and TFS. The adjusted RoS rose by 2.6 percentage points to 8.4%. Main reasons were the positive volume effect in Q4 resolved the fixed cost absorption issue. A high portion of bus sales, especially in Germany, had also a positive margin impact. And ongoing cost management measures in addition, helped to ease pressure on the P&L.

Now turning to Scania, where the top line was held back by lower volumes in Brazil despite increased unit sales in Europe. So Scania's revenue decreased by 4% in the fourth quarter, which also weighed on the margin. On the other hand, the margin benefited from a reduced production capacity and organizational cost cuts in the HR and commercial teams, which have been announced already in September 2025.

So despite the ongoing cost pressure from foreign currency and China, Scania achieved an adjusted RoS of 11% in the fourth quarter. And with that, also delivered a double-digit full year margin of 10.7%. In contrast, International delivered a negative adjusted RoS in the fourth quarter as expected and a breakeven result on a full year basis. Sales revenue dropped sharply by 31% and tariffs added a heavy cost burden. Volkswagen Truck & Buses adjusted RoS fell by 2.9 percentage points to 8.9% in the fourth quarter. This was mainly due to the market weakness in Brazil, although other South American markets, as Christian was into before, provided some support.

TRATON Financial Services delivered an 8% return on equity on the lower end of their margin guidance. Sales revenue increased, driven by a growing portfolio, but ramp-up costs are still a drag on the P&L. In Q4, the already mentioned bad debt expenses also weighed on results.

So although we saw some encouraging signs on brand level in 2025, the overall market conditions led to lower TRATON Operations sales revenues in Q4 and for the full year. This decline also affected our net cash flow. But how come we pre-released a net cash flow above our guidance range this January?

TRATON Operations net cash flow came in at EUR 1.6 billion, which was above our forecast and also analyst consensus. That's why we had to go for a so-called ad hoc release. The outperformance mainly came from MAN and Scania for the following reasons. Working capital management in the fourth quarter was better than planned, supported by increased factoring and higher incoming payments. Capital expenditures in the fourth quarter were lower than expected, including for the China project and some investments were postponed in response to the weak market conditions.

Despite this year-end rally, the full year net cash flow of TRATON Operations was not sufficient to cover the 2025 dividend payout and other outflows, mainly relating to holding costs, IFRS 16 leasing and a cash injection for TRATON Financial Services. Hence, our industrial net debt increased by EUR 259 million, rising from EUR 4.9 billion at the end of 2024 to now EUR 5.2 billion at the end of 2025.

Nevertheless, we remain committed to reducing industrial net debt to 0 by the end of the decade. This will be tough if the truck cycle remains in its current weak state. At least, there are some encouraging signs in Europe. While focusing on cash flow and net debt reduction, we must continue to invest in our transformation. Key areas are the TRATON Modular System, battery electric vehicles and autonomous driving.

In 2025, CapEx and R&D together remained almost stable compared to 2024. Investing cash flow in both years amounted to EUR 2.7 billion. You may have noticed that we sold a 2.1% stake in Sinotruk in January with gross sales proceeds of roughly EUR 170 million. The transaction was executed opportunistically, taking advantage of favorable capital market conditions. The Sinotruk shares are held in corporate items, so sales proceeds do not benefit the TRATON Operations cash flow. Nevertheless, the sale supports our ambition to reduce net debt.

In contrast, a dividend payout counteracts our debt reduction ambition, as shown earlier. In 2025, for all the reasons we explained earlier, our adjusted operating result decreased substantially by 37%. Before adjustments, the operating result declined even more by 42%. In 2025, the adjustments were higher than the year before, mainly due to the BEV-related write-off at International and higher reorganization expenses at Scania. Increased EU truck case expenses also contributed to this.

After deducting the financial result and income tax, our 2025 net profit was EUR 1.5 billion, down 45% from the previous year. It should be no surprise that our dividend payout will decrease accordingly. Our dividend strategy is clearly documented with a payout ratio of 30% to 40% of net profit. We decided on a 30% rate last year, resulting in a dividend distribution of EUR 850 million for the fiscal year 2024 and a dividend per share of EUR 1.70.

This year, 30% brings us to a dividend proposal of EUR 465 million for the fiscal year 2025, resulting in a dividend per share of EUR 0.93. Of course, we would like to offer a higher dividend to our shareholders, but our net reduction path is equally important. And ultimately, that also creates shareholder value.

I think this well explains that we are aiming for a balanced approach here.

Let's move to our last agenda point, the outlook section to see how the chances are for an improved dividend in 2026. To put our outlook into perspective, we should first have a look at the expected market development in our key regions. Christian, you described the influence factors of the 2025 truck markets earlier. What will persist in 2026? And where do you see the major changes, chances and risks?

Yes. What will clearly persist, I would say, and maybe now with renewed reasons is the high degree of uncertainty in the North American market and with that potential ripple effects on the rest of the world. Therefore, we think a wider outlook range for the North American market, about 6 tonnes from a minus 5% to plus 10% is our best estimate to date. At the lower end with minus 5%, signaling ongoing customer hesitancy and no real recovery of freight rates, whereas the upper end of the plus 10% would suggest that the freight recession has ended.

Lower interest rates and government incentives such as tax breaks would, of course, help to boost truck replacement in the U.S. In the growth scenario, we have also factored in some EPA '27 prebuy. However, even at the upper end of the range, the total Class 8 registrations across the U.S., Canada and Mexico would remain below 300,000 units.

In South America, we believe that persistent challenges continue to limit growth, reflected in our outlook range of minus 10% to 0%. In contrast, we have increasing indications that Europe may be emerging from the trough of the cycle. We have seen good order momentum in the first quarter of '25 as well as in October and November. This suggests that factors like an aging fleet, new CO2 route pricing, infrastructure investments potentially spurred by a German stimulus and defense expansion may boost fleet renewal and truck demand.

This potential is then reflected in our EU27+3 outlook with a range of minus 2.5% to a plus 7.5% for trucks above 6 tonnes with a midpoint then of plus 2.5%. For heavy-duty trucks, this would suggest that volumes could be well exceeding the 300,000 unit mark. So overall, in our most important markets or regions, the EU27+3, the North American and the South American markets, we expect a stable development in 2026 with some positive tendencies hopefully coming from Europe.

Actually, with the opening of our new industrial hub in Rugao, we are now also providing a forecast for the Chinese truck market, which ranges from minus 10% to plus 5% for 2026.

Yes. And '26 will then be the first full year of industrial presence in China. Our ambition, as Michael alluded to, is 10,000 units this year, which admittedly represents just a smaller share of the world's largest truck market. However, taking that midpoint of our range, we expect to see around 725,000 heavy-duty trucks registered in China in '26.

Michael, Christian just mentioned that uncertainty remains high in the North American market. At January investor meetings, we were asked how we intend to plan for the tariff costs and refund uncertainties in our 2026 guidance. So what's your response to that?

Yes. Well, the answer is broader forecast ranges, along with additional quarterly input to give better guidance as the situation evolves, especially regarding ongoing talks with the U.S. administration on the final handling of the Section 232 tariffs and now also on potential alternative IEEPA tariff instruments. So for the full year 2026, we expect unit sales and sales revenue for the TRATON Group to come in between minus 5% and plus 7%.

The lower end of this range reflects a scenario where ongoing tariff debates would not only hurt our U.S. operations, but would also reduce renewed optimism in Europe, potentially undermining the positive impact of increased infrastructure investments. On the other hand, the upper end accounts for a scenario where Europe's positive momentum, including German stimulus effects are realized, while the U.S. truck market also grows, ideally supported by some EPA '27 prebuy tailwinds.

The optimistic scenario also assumes that we are able to sell the 10,000 trucks produced at our new China plant and that the Brazilian market does not further deteriorate. We're also factoring in a resilient service business, the continued ramp-up of our Financial Services business and an increased number of battery electric vehicles with higher sales prices.

Exactly. So building on this top line guidance, we forecast an adjusted operating return on sales between 5.3% and 7.3% for the TRATON Group. You may have noticed that the midpoint of 6.3% aligns with the adjusted RoS we achieved in the last year 2025 because our clear ambition is to deliver at least the same margin as last year despite facing a full year tariff burden compared to half a year of IEEPA and Steel and Aluminum and just 2 months of Section 232 tariffs in 2025.

So we plan to offset these additional costs as much as possible through mitigation and cost measures and this across the entire group, not just at International. But please be patient. These measures will only take effect gradually throughout the year. And as a result, we anticipate that our RoS in the first quarter of 2026 will likely fall below the lower end of the full year range.

We expect recovery once we reach an agreement on U.S. content and receive the respective refunds from the U.S. fiscal government. We've also considered ongoing costs for the ramp-up of the China hub, as I mentioned before. Nevertheless, there are downside risks that could push us towards the lower end of our RoS forecast. They mainly come from the volume risks we just discussed, but there are potential additional cost risks such as if our U.S. content negotiations end up below our expectations. We have mentioned in investors meetings that we see U.S. content recognition clearly above 50%.

For TRATON Operations, we expect the margin to range between 6.1% and 8.1%. That's 0.8 percentage points above the group. Deducting assumed flat holding costs and adding an improved financial services result, we arrived back at the group RoS. Regarding the industrial net cash flow, much like in last year, we anticipate a back end loaded inflow. That's not only due to the typical seasonal working capital development, but also because we expect U.S. government refunds for Section 232 not to materialize until the second half of the year.

We are taking a slightly more conservative approach with cash flow than with RoS, given higher volatility in working capital and timing of investment projects, issues we saw in 2025. While last year brought positive surprises, we want to be prepared for potential negative surprises as well. Therefore, the lower end of the cash flow guidance is at EUR 900 million, the upper end at EUR 1.7 billion. For the TRATON Financial Services business area, we forecast a return on equity between 8% and 11%.

Before we wrap it up, let me point you to the disclaimer that applies to our guidance.

As we've said, our outlook is based on the tariff situation prevailing at the end of 2025. It remains subject to geopolitical risks we cannot foresee as well as any unexpected impacts from U.S. trade policy.

But let's rather look ahead with optimism. Christian and Michael, the motto of our 2025 annual report is committed. So what are you both of you committing to when you look into 2026?

So we are committing to advancing the TMS, the TRATON Modular System development in 2026. Basically, the China industrial hub is the first good proof of this concept. We now produce 2 different brands, leveraging one modular system with standardized interfaces, for the same need, we use identical solutions, and we adhere to well-defined performance steps for different customer use cases. Also, the new body production plant that MAN is planning in Poland will follow the same TMS principles. And the first Scania and MAN products based fully on the TMS are then expected to hit the market by the end of this decade.

A main goal of both the joint R&D organization and the TRATON Modular system is to leverage group-wide efficiencies. Short term, in 2026, cost efficiency will be a clear focus area. We are committed to offsetting a significant portion of the additional tariff costs incurred by International. To address this, we have implemented several internal cost management projects, both at the brand level and in our group functions, provided that the truck markets play along, we should at least achieve margins on prior year level, ideally more. And as I mentioned earlier, we remain firmly committed to our net debt reduction path and a well-balanced approach that includes investment in our transformation and delivering shareholder returns.

Finally, we continue to push ourselves and our industry on our sustainability promise because this is not a fair-weather ambition, but a core part of how we lead TRATON into the future. Transforming transportation together for a sustainable world remains at the heart of everything that we do.

And with this strong statement, we conclude today's annual results presentation. Thank you for your attention, and goodbye.

Thank you.

Thank you.

Good morning, everyone, and welcome to TRATON's Q3 2025 Results Conference Call. My name is Ursula Querette, and I am Head of Investor Relations at TRATON SE. With me on the call today is Christian Levin, our CEO, who has dialed in from Sweden. Dr. Michael Jackstein, our CFO and CHRO is here with me in Munich.

Christian will start today's presentation with some introductory remarks and will present the key results and highlights of the third quarter. Michael will then guide you through the financial performance and outlook in more detail. As always, we will conclude the call with a Q&A session open to financial analysts, investors and media representatives.

[Operator Instructions] Please note that this call, including the Q&A session, will be recorded and a replay will be made available on our website later today. You can find our 9 months interim statement, which will be -- which we published this morning and the slides for this call on our IR website. Before we start, let me remind you of the disclaimer with respect to forward-looking statements on Page 3 of our presentation. And with that, I hand it over to Christian.

Excellent. Thank you very much. Ursula, Welcome also from my side, everyone. So the third quarter was marked by significant challenges, including the political unrest and regulatory changes in trades and emissions, leading to some customer hesitancy across all our core markets, but especially in the United States. But despite these setbacks, we remain firmly committed to our growth strategy, which we, as many of you remember, outlined at our 2024 Capital Markets Day.

International Motors is an iconic American company with a very strong brand. And with an enhanced product offering, it is really ready for a next chapter. And just 2 weeks ago, I hosted the opening celebration of Scania's new industrial hub in Rugao in China. And that installation is much more than a factory. It's a strategic complete innovation and industrial hub. It produces Scania's to start with, but serves all of TRATON brands and adds features to the TRATON modular system.

Meanwhile, our newly established group R&D team is working to launch MAN and Scania trucks with a lot of commonality in the E-architecture in chassis and on cabs, building on what will be TRATON modular systems at the end of this decade. This is a crucial part of our future efficiencies and bringing faster innovation to the market.

Today's figures will show that our strong and expanding services and solutions portfolio is vital for customer loyalty and for the resilience of our business. At our Bankers Day on the 8th of October, the CEO, Mats Gunnarsson of TRATON Financial Services presented how we are delivering on our growth plan with real success stories emerging from the Financial Services business. And on several occasions during the quarter, we advocated for EU policy actions.

Our focus is on the enabling conditions for faster adoption of electric commercial vehicles, staying true to our sustainability mission. So yes, the transformation comes with high investments and challenges, but I remain confident in our company, in our people and in our future together.

Let's move to the next slide. I also want to express our confidence in delivering on this year's guidance despite the ongoing North American market uncertainty and the Section 232 proclamation. So let me walk you through the key figures on this slide. First, unit sales, which were down 16% to 71,400 units in Q3. That's seasonally weak, but the decline was driven solely by North America and Brazil. In fact, both Scania and MAN delivered growing unit sales in Europe. And with intensified sales efforts, the year-end rally is underway. to finish the year with a strong Q4.

In terms of sales revenues, we were down 12%, to EUR 10.4 billion in Q3, while our services business provided solid support. Also, thanks to a favorable product and regional mix, our revenue performance held up better, as you can see, with a minus 12% versus the minus 16% that our unit sales numbers suggested. The margin, though, is suffering. The adjusted return on sales declined by 3.2 percentage points to 6.4%, which is mainly due to lower volumes and under-absorption and fixed cost. That said, we have taken several steps to manage costs better, like postponing projects, reviewing our IT spend, implementing hiring freezes and of course, reducing production capacity.

Net cash flow at TRATON operations level remains at low levels. If we look at the 9-month level, we are slightly positive at EUR 28 million. So there is definitely some catching up to do in the fourth quarter. But as most of you know and as we have always said, cash flow is back-end loaded. Earnings per share, of course, also declined much in line with the operating result.

And the last figure on this slide, the incoming orders. Like in the previous quarters, order momentum has leveled out in Europe in Q3. While the European order income was still up 21% year-to-date, it dropped 5% sequentially compared to Q2. which to at least some extent is a summer effect. However, we saw a mixed picture. Scania actually saw European orders pick up sequentially, whereas MAN experienced a downturn trend from Q2 to Q3.

Finally, the weak markets in North America and Brazil led to the overall decline of order intake by 3% and to the figure you see here on the slide, 62,500 units. However, the current order book, our inventories, our production pace should be strong enough to support the year-end sales push that I mentioned earlier.

Delivering on our promised financials and on our equity story will only work if we keep investing into our future. In my introduction, I also mentioned our Scania China plant opening on the 15th of October. The total invest into this new production hub will amount to around EUR 2 billion. It gives us access to the world's largest commercial vehicle market and substantially shorten our lead times to key Asian export markets.

And by being in China, we also get access to the new technical capabilities that make us stronger all over the world in areas such as electrification, digitalization, automation and connectivity. We also strengthened our regional supply chains and thereby increase our resilience. The production plant will be running on 100% renewable energy, supporting our decarbonization strategy for both Scope 1 and for Scope 2.

Two complementary commercial offerings were revealed at the launch I mentioned earlier. Scania with its global premium solutions that can be customized for all demanding applications for both tractors and chassis. And we had a pre-peak preview of the next era, which is a tractor with more limited specification range and especially developed for China's volume long-haulage segment.

So yes, production just about started, and we're aiming to come up towards 1,000 Scania trucks by the end of this year. But of course, the proof of the pudding, the real ramp-up starts in 2026. The next highlight of the quarter features MAN and our participation in the Bus World Europe exhibition in Brussels at the beginning of October this year. The spotlight was on MAN's very first fully electric long-distance coach. And I'm very proud to say that it won the Sustainability Bus of the Year 2026 award, which is not all.

Our innovations in safety and digitalization were also recognized and our MAN received also the Digital Bus World Award for its Safe Stop Assist system. These achievements really show how across all our brands, we're committed to leading the transformation to sustainable mobility through electrification, but also smart technology. And smart technology also characterize the third highlight on this page. In September, International launched real-world fleet trials of its second-generation autonomous tractors in the state of Texas.

The trials are conducted in partnership with PlusAI and the vehicles incorporate AI software developed by Plus. They also feature multimodal sensors for safe autonomous operation. To support this initiative, International has also established an autonomous hub in San Antonio to collaborate with fleet customers and speed up the adoption of autonomous technologies in real-world logistics operations.

Finalizing, Volkswagen Truck & Bus is always committed to enhancing its offering, both in terms of sustainability and efficiency. And with the recent launch of TRATON Financial Services Brazil, we can now also provide tailored financing solutions to support customers and dealers locally. And I'm super proud to share that just 3 months into operations, the Banco TRATON Brasil earned a AAA rating from the local Moody's agency, reflecting the high standarding of our commercial vehicle finance offering.

So let's look at our BEV progress. I spoke earlier about our efforts to advocate for battery electric vehicle growth in Europe's commercial vehicle sector. And a key moment in that sense was the heavy-duty vehicles roundtable, a very focused discussion on the EU Commission level where only the commercial vehicle OEMs and infrastructure operators were present. This took place just a day before the broader automotive strategic dialogue with Commission President, Osla Vonder Len, where we, of course, also participated. Our industry needs and our customer industry in the transport logistics sector needs incentives such as tax breaks, toll exemptions and low emission zones. More charging stations require investments and grid and investments needed in grid upgrades. We also need faster homologation and certification processes for new BEV variants. All of this would give us planning certainty and boost innovation in our industry.

Year-to-date September, TRATON's European battery electric vehicle sales ratio is approaching the 2% mark. This is not even close to where we need to be to meet the EU's CO2 reduction targets. And if we look globally, we sold around 2,100 BEVs in the first 9 months up until September, which is an increase of 83% year-over-year, which only corresponds to global battery electric vehicle sales ratio of 1%. In fact, regulatory changes in the U.S. have impacted our sales in this region. And we cannot expect our ratio to rise there soon. Also because of this, we decided to discontinue a specific battery electric vehicle development project for the region.

Demand simply isn't there right now. But let me be crystal clear. We have not abandoned the market. We are convinced that total cost of ownership parity will come also in the North American region. At the same time, in China, adoption of e-mobility in the trucking industry is racing ahead. And Europe, well, we find ourselves in the middle searching for the clear path forward. Nevertheless, in TRATON, we stay focused, we adapt and we continue to push for sustainable transformation in our sector. Okay. Let's turn into Page #9 with the good news that both European order intake and deliveries were up by around 20% year-over-year in Q3.

So starting on Europe, the growth in unit sales was strongly driven by an outstanding performance of bus sales at MAN. Also van sales strongly supported the growth. At the same time, the European truck market remained subdued, but with some encouraging signs. Truck registrations were gradually improving. In September alone, we saw an increase by 13%, which brought the year-to-date number down to -- or up to minus 11% from the minus 16% it was standing by the end of June. And at TRATON, we reported a 7% year-over-year increase in truck deliveries in Q3.

While the absolute number was lower than the previous quarter, it still reflects a resilient demand base. In contrast to the deliveries in European order -- in European, order intake was mainly driven by trucks. Here, the order intake rose 24% year-over-year. However, we must note that the quarterly momentum is slowing, especially in Germany. In Q2, our truck order intake in Europe was up by 44% in Q1 by 62%. Turning to North America.

The picture is very challenging. We saw a sharp decline in our deliveries, particularly in trucks, which fell by 64% year-over-year. This drop was amplified by a negative base effect following, if you remember, the resolution of the mirror supply problem that we had and which inflated our Q3 2024 figures. Incoming orders also reflected this weakness in our truck market with truck orders down 30%. While September brought a strong improvement, there is additionally uncertainty now after the Section 232 announcement.

And to finalize with South America, the downturn is less pronounced. Truck deliveries declined by 9% in Q3 and incoming orders fell by 5%. Brazil remains the primary driver of the decline as economic headwinds and policy uncertainty weigh on fleet investments. So one region where we experienced an encouraging performance and 2 regions where we could say, well, not as good performance. So let's have a look at the overall market performance on the next page. As usual, with our Q3 results, we present a refined outlook range for our core regions. So start again with Europe 273. As of September, truck registrations above 6 tonnes reached 247,000 units. As mentioned before, that corresponds to an 11% drop.

Looking ahead to the full year 2025, we expect registrations to end up somewhere between 320,000 and 340,000 trucks, which means a year-over-year decline of around 10% or in the range 12.5% to 7.5 I know that there's a lot of interest in where we go from here. We will be publishing our market outlook for 2026 in March next year. But let me say this much. The recent demand signals, the planned infrastructure investments in Europe and the push towards regionalization suggests that the slightly growing truck market is the most likely outcome for 2026. Okay.

Let's turn to North America. In July, we shared a reduced outlook for the Class 6, 8 truck market. We stick to it, but we narrowed down the forecast to a decline in the range of minus 15% to minus 10%. While the midpoint level remains at minus 12.5% then we have adjusted our expectations for Class 8 to a bit lower to 272,000 units. So we're seeing a bit more resilience in the medium-duty truck development. And at the end of September Class 8 retail sales in the U.S., Canada and Mexico reached 200,000, representing a year-over-year decline of 12%.

So there is quite some catching up needed before reaching year-end. Here, we need to consider that there is still a high level of dealer inventory, which is expected to meet retail demand. Prospects for '26 in the North American truck market remain highly uncertain. While supportive business policies such as deregulation and tax incentives could encourage growth, ongoing concern around the impact of tariffs have a negative impact. The unclear scope and time line of the EPA 27 emission regulations further adds uncertainty. And finally, in South America, year-to-date truck registrations above 6 tonnes at the end of September stood at 131,000 units, which represents a year-over-year increase of 6%.

Due to the strong divergence between market developments in Brazil and the rest of the continent, we decided to maintain the original larger outlook range for the South American market, which forecast registrations to come in between minus 5% and plus 5% in 2025 compared to last year. But given the ongoing political and economic uncertainties in several South American countries, including Brazil, we see no real growth prospect in this region for 2026. So before I hand it over to Michael, let me just reaffirm that despite the current market headwinds, -- our commitment to the transformation to sustainable growth and to partnership with our customers keeps us firmly on track.

Michael, over to you.

Yes. Thank you very much, Christian. And as always, a warm welcome from my side as well. Starting with the top line of our Q3 results on Slide 12. As already mentioned, our unit sales declined by minus 16% in the third quarter. This was mainly due to a sharp drop in North American volumes with the freight recession and tariff-related uncertainty significantly impacting demand. Additionally, negative base effects played a role, including the resolution of the mirror supply issue at International in Q3 2024 and the prebuy in 2024 in Mexico ahead of the Euro 6 introduction.

At the same time, we saw strong growth in European unit sales, which were up plus 20% for the quarter, led by strong bus deliveries. But this was not enough to offset the downturn in North America. In South America, the ongoing decline in the Brazilian truck market continued to weigh on our unit sales, affecting both Scania and more recently, also Volkswagen Truck & Bus. However, this was partly offset by healthier performance in other South American markets, such as Peru, Chile, Colombia and by a continued strength in bus deliveries. Group sales revenue fell by EUR 1.4 billion, representing a minus 12% decline, as shown in the right-hand graph.

The decline was less pronounced than in unit sales, largely because of a favorable product and regional mix. Moreover, our solid vehicle services business helped absorb some of the decline in new vehicle sales. And TRATON Financial Services, thanks to the successful ramp-up strategy, supported the group revenue development with a year-over-year revenue increase by 10%. Turning to the bottom line of our results on the next page. Our adjusted operating result for Q3 decreased by minus 41% year-over-year, outweighing the decline in revenue.

Clearly, the most important factor impacting our profitability was the decline in unit sales with lower volumes leading to reduced fixed cost absorption across our production network. Customer and market mix effects also had a negative impact on the operating result. Additional negative effects came from ongoing foreign currency headwinds. Like in the previous quarters, we felt cost impacts from the China project. However, with the opening of the production facility, direct construction-related expenses should fade out in Q1 next year.

And last but not least, higher direct and indirect tariff costs in the U.S. market are adding to our overall cost burden. Together, these factors contributed to the decrease in our Q3 margin. The adjusted return on sales dropped by 3.2 percentage points to 6.4%. On a more positive note, some of our recently initiated cost measures are now taking effect, influencing the sequential development of our quarterly RoS.

Additionally, the sequential recovery in Scania's margin has provided support. For the first 9 months, our adjusted RoS stood at 6.3%, which is well within our guidance range. But let me remind you that the challenges just mentioned will persist in the fourth quarter. In particular, tariff-related costs are projected to rise. To provide full transparency, the adjustments to our operating results are higher than last year's Q3. This is mainly due to the write-off of a BEV development project at International as well as increased restructuring activities at Scania.

Before we move to our usual brand and segment overview, let me briefly explain our updated segment reporting structure. This comes into effect now that the carve-out of major parts of the brand's R&D development has been completed and the new group R&D organization is operational. Previously, until the end of June 2025, cross-brand R&D projects were led by a single brand, most often Scania. For example, Scania led the development of the common base engine.

The associated R&D expenses were substantially charged to the other brands through license fees during the use phase of the products. This legal entity view, as we call it, is illustrated on the left-hand side on this slide. From 1st of July, such cross-brand R&D projects are now executed and recorded centrally by the new R&D organization. The cost of this development work is then allocated to the participating brands based on a predefined mechanism. This leads to the so-called management view, which is depicted on the right-hand side and shows how we will report from now on.

So in principle, you will receive the same kind of segment transparency as before. In the restated figures on the next slide, you will see the effects of the new way of test allocation. Starting with the restatement of Scania on the left. Let me focus on the third quarter numbers shown by the lower bars in the chart. Taking this year's management view, you can see that Scania delivered an adjusted operating result of EUR 468 million in the third quarter of 2025.

That's a margin of 11.1%. If the group R&D organization had already been operational last year with the same kind of cost allocation, Scania's Q3 2024 adjusted operating profit would have been EUR 618 million. This translates into a 14.7 percentage margin according to the management view, slightly above the reported margin at that time of 14.0%. The reason for last year's lower margin under the legal view was because Scania carried a greater share of TMS development costs than other brands. So the new management view reporting comes at the right time as R&D activities for TMS are ramping up now.

Let's turn to MAN. If we had applied the management view already last year, MAN's third quarter adjusted operating result would have been lower at EUR 160 million with a margin of 5.3%. The reported legal view at that time showed a slightly higher margin of 5.6%. International saw a similar effect. In management view, last year's Q3 margin would have been 10.3%, not 10.7%. I hope that this clarifies the new segment management. You can find more details with restated brand figures in the backup section of our Q3 results presentation. Before I pass to the next slide, one more important information.

On TRATON operations level, the brand restatement effects are eliminated. So management view and legal view are the same. Having said that, let's move on to the next slide. In the third quarter of 2025, TRATON Operations achieved a margin or an adjusted return on sales of 7.4%, 3.3 percentage points lower year-over-year. All brands contributed to that margin decline. The deltas versus last year on the slide are based on the restated management view, starting with Scania.

Scania generated a year-over-year stable revenue development with a 3.6 percentage point lower adjusted return on sales of 11.1%. But compared to Q2, with the management view adjusted RoS was at 9.8%, Scania is back to a double-digit margin. I already mentioned Scania's positive margin effects such as a supportive vehicle services business, cost containment measures and capacity reductions and negative margin effects such as the China project and currency headwinds. Let's have a closer look at MAN.

In Q3, MAN impressed with a significant increase in sales revenue by 11%, driven by a strong momentum in the bus and van segments. Bus revenue actually more than doubled compared to the last year now that the regulatory software issues have been resolved. Vans rose by more than 50%. However, on the truck side, revenue decreased by 3%, where especially the German truck business contributed less. Despite these positive developments, MAN's margin felt some pressure, mainly due to the product and regional mix. On top of that, production costs went up because of lower capacity utilization and higher labor costs.

Please note, last year, MAN used short-time work to manage the declining demand. On a positive note, the vehicle services business helps offset some of these headwinds and not to forget MAN's ongoing cost management measures. Turning then to International. Here, the third quarter sales revenue was sharply down by minus 49%, mainly due to trucks. But don't forget that Q3 of 2024 saw a strong revenue catch-up following the previous mirror supply issue.

The weak market environment also comes with a decline in international service business. In addition to the top line pressures, tariff costs are increasingly taking effect, also with suppliers now passing on higher costs. In Q3, the incremental tariff costs amounted to around USD 30 million. This, together with low capacity utilization led to poor fixed cost absorption with international's manufacturing operations. As a result, the margin came under more pressure. So the Q3 adjusted return on sales was at 0.8%.

Looking ahead to Q4, the full run rate of 50% tariffs on steel and aluminum as well as additional reciprocal tariffs will now impact international. And Section 232 tariffs will lead to further margin pressure. However, we expect to reduce the Section 232 tariff impact through offsets and U.S. content. Next brand is Volkswagen Truck & Bus. As in the second quarter, sales revenue declined in Q3 by minus 10%, reflecting the ongoing challenges in the Brazilian economy and truck market. Despite this and higher product costs and currency headwinds, Volkswagen Truck & Bus achieved high 11.3% margin, thanks to its flexible production system.

Last segment on this slide is TRATON Financial Services. TRATON Financial Services delivered a 10% revenue increase in the third quarter on the back of a growing portfolio. This portfolio growth mainly stems from the solid and continued performance of Scania Financial Services, while MAN Financial Services showed strong momentum as they scale up their operations. Additionally, following the start of operations in July, the TRATON Financial Services setup for Volkswagen Truck & Bus in Brazil also contributed to the portfolio growth. That said, as we continue to ramp up these operations, higher costs are weighing on our results. Consequently, the Q3 return on equity stood at 9.1% in Q3, which is 1.9 percentage points lower year-over-year.

Turning now to the cash flow and our balance sheet position. Over the first 9 months of 2025, TRATON operations generated a net cash flow of EUR 28 million. This is significantly less than last year, mainly due to the business and market challenges we discussed earlier, which have put pressure on our profitability. A buildup in working capital of EUR 1.3 billion also weighed on our 9 months cash flow alongside our significant investment activities. When factoring in our dividend payout in May and other negative cash flow impacts, our industrial net debt position, including corporate items, increased by EUR 1.7 billion in the 9 months compared to the year-end 2024.

Unfortunately, we also foresee an increasing net debt on a full year basis. Nevertheless, we remain committed to our net debt zero target towards the end of this decade. On the financing side, we have access to a variety of public and private funding sources. Additionally, as announced yesterday, we now also have a green finance framework in place. This new framework is specifically designed to support investments in battery electric mobility. Now let's move to our final slide, which covers our guidance. As Christian mentioned in his introduction, we are confirming our outlook.

In July, as you recall, we had revised the outlook downward to reflect greater-than-expected customer hesitancy driven by the challenging market conditions and ongoing uncertainty around U.S. tariff policies. Even now that the Section 232 tariffs have been published, the uncertainty continues. It may take several months before the full impact is understood. The implementation of these tariffs and offsets will be crucial to define compliance strategies and evaluate ways to mitigate costs.

Also, the mandatory review of the USMCA could introduce further changes and renewed uncertainty towards the end of next year. For this year, we believe we can manage the additional tariff costs expected in the fourth quarter, including additional Section 232 tariffs to a certain extent. However, this means that we are targeting the lower end of our guidance ranges, at least for adjusted return on sales and net cash flow. So the adjusted RoS for the TRATON Group at 6% and for TRATON Operations at 7% and TRATON operations net cash flow at EUR 1 billion. For the unit sales and sales revenue outlook, we maintain the guided range of minus 10% to 0%.

With that, I hand it over back to you, Ursula, to moderate our Q&A session.

[Operator Instructions] Now let us take the first question, which comes from Daniela Costa.

Is that working. You can hear me?

Yes, we can hear you.

Perfect. I just wanted to ask some short-term questions regarding the tariffs and then one more longer-term question. But in terms of like what you commented on, on the guidance on passing through Section 232 to some extent, you -- does that mean you would rule out going loss-making in international in the fourth quarter? And how -- you commented that you could offset with more U.S. content. I'm just looking into '26, what can you do to have more U.S. content given, if I understand correctly, Class 8, you export entirely from Mexico. So what are the levels of offset that you can do? And I'll ask a longer-term question after this.

Yes. Thank you, Daniela. Maybe I can start to kick it off. I can answer super short put a little bit meat around the bone. To your first question, no, I cannot rule out that we end up in a loss-making situation. That's candid direct answer. What do we do to offset this? Well, to some extent, we moved production here regarding the medium-duty and vocational segment to the U.S. So there are some things that we can do. If I'm not that short in my answer, then I can give you a little bit more content, as I indicated.

So when we talk about tariffs, you recall that we worked with some surcharges. And what we can say when we start in the second quarter of this year, then we were able, based on these surcharges to offset tariff costs. When we now look into the third quarter, we still work with surcharges, but because we had the tariff also regarding steel and aluminum kicking in with 50%, we were able to, let's say, offset a significant amount, but we were not able to offset tariffs to the full extent in the third quarter. And now when we move and look ahead towards the fourth quarter, of course, the tariffs on steel, aluminum, they remain.

We have reciprocal tariffs in addition that affect us regarding imports coming from, for example, India and Brazil. And then we have the further margin pressure, which is linked to the 232 tariffs, where we expect that we have an effect somewhat in the mid-double-digit range. So this is what we anticipate to give you a little bit more content around your question.

So coming back, we are working heavily to offset this in the best possible way, but I cannot rule out that in the end, there is no black zero at this point in time. Looking at you, Christian, if you want to add something or Daniela, if you want to ask the more long-term related question.

Yes. But actually, just to make sure I understood one thing, you mentioned sort of Q4 incremental impact Section 232, mid-double-digit cost range. So then if we think about an annualized value, we should just multiply that for 4 and that gives us an idea of what the annualized value is. Is that fair to say?

Well, you can -- you have like this, you have some sort of the cost effect. But now, of course, many things come into play. So the one aspect is, of course, that we work with a different surcharge, taking that into account. So we have just announced a new surcharge a couple of days ago. Just to give you an idea here, for the heavy-duty surcharge was on a level of $3,200. Now we moved it up to $9,500 and for the medium-duty surcharge was USD 2,000. And now we moved it up to a level of 70. So there are the surcharges. And then, of course, there are a couple of things that we have to look into. in the next couple of weeks and months. So here.

Very clear. The longer-term one was just regarding autonomous. I saw in the slide, you mentioned sort of the collaboration with PlusAI. I think overnight, Aurora was talking about buying some international trucks as well. Can you kind of explain the differences and sort of what's the time line of autonomous commercialization for you?

Yes. Christian here. I can...

Christian, now we don't hear you. Before, we heard you.

Okay. Sorry, I touched the wrong button, how hard can it be. Yes, on autonomous, so we have -- I mean, the bigger picture is that we're shifting gradually our efforts over towards the U.S. I think we have said before that we're working on a common autonomous ready-based vehicles. So we're working on a sensor set and a computer and a software that is independent of region and brand. And then we bring it to be finalized into that region, whether that then be U.S., Europe or China.

And we are seeing very good legal framework in the U.S. as everyone in the industry and especially in the southern parts of the U.S. So it makes a lot of sense to focus more of our efforts right now to get autonomous trucks on the market. It's still in development phase. It's not ready for commercialization. So we're doing -- when we say real-world test, it means that we go in together with customers, transporters who actually do transport, but we still operate with a safety driver on board.

So software is partly produced in-house and partly done by Plus, former Plus now called PlusAI again, which is good. We are here learning from each other, and we're coming faster towards market. But we've talked so many times about when is this really going to be a driver out commercial solution, and I will not give you a date. I can only say that, that time will come and it's getting closer. I hope that answered your question.

Yes. And just regarding Aurora, they're just a buyer of your trucks. There's no specific.

Yes. We have no partnership with Aurora. We are solely working with PlusAI at this point.

Then the next question comes from Alexander Jones from Bank of America.

Great. If I can follow up quickly first on Daniela's question on tariffs. You talked about this mid-double digit in Q4. I guess, into '26, do I understand correctly that one offset to that on the positive side is surcharges going up, but then clearly, the other side, you'll have more than 2 months of impact from Section 232 and have worked down inventories. If you could give us any color on sort of the net effect of that as we try and annualize that into '26, that would be helpful. And then the second question, just on Chinese costs. I think you talked about direct costs coming down from Q1 onwards. I understand there's a little bit of phasing between Q3 and Q4. So can you just help us understand how we think about that in Q4?

Michael, do you want to start with Section 232?

Yes, I can start with that. And I would like to ask you a little bit for your understanding coming back to what I said during the presentation that we have, to some extent, more clarity regarding the 232 tariffs based on the proclamation that is out now for roughly 1.5 weeks. Before that, we had basically, let's say, just the pure announcement of the tariffs. So we have a better understanding. But there are obviously various constituents in this 232 section proclamation as far as we know it right now.

So for example, that USMCA compliant trucks will only be subject to tariffs on the value of non-U.S. content in the vehicle for USMCA compliant parts. The tariffs will not apply immediately, but there is an exempt linked to the Secretary of Commerce. Then there is some sort of an offset program, which is linked to the value of all trucks assembled domestically between 2025 and 2030. So let me put it like this.

We are looking into this right now. They're coming back to the word uncertainty during the presentation, there are still some unknowns. We are looking into various options and calculations. What we can grab at this point in time is the potential impact that we foresee in the Q4 this year. This is why we want to give you here an understanding of the impact, as I mentioned, with the mid-double-digit figure. And then there is really the question mark what the impact of next year is going to be.

I would not potentially simply multiply the impact from the Q4 times 4 into next year from my point of view, that would be oversimplified. And this is why you hear me talking a little bit careful about this and giving you some of the constituents that we are really looking into. I would say it's quite obvious that there is a substantial impact next year, certainly in the triple-digit range. But I would be really hesitant at this point in time because we are really looking into various options and possibilities and calculations right now. Also, we have to get a better understanding here there with the administration.

So at this point in time, I believe like when the tariffs were announced the first time, if we shoot out a number, that can only be wrong at this point in time.

Thank you. Then we had the question on the China margin impact. Michael, do you want to start with the financial perspective? And maybe, Christian, you want to add a bit on what's really happening over there?

Yes. Happy to start. Also here, linked to what we have said in previous calls. If we look at our China investment, then the total amount of investment is around EUR 2 billion for CapEx and R&D. We said that roughly half of that, roughly EUR 1 billion we have spent in 2024. Most of the rest you can say almost the other EUR 1 billion will be spent until the end of this year, while half of this will be directly expensed.

And then we see that there are some small minor shifts possible into 2026, but it's quite clear with the planned opening that took place as Christian was into with the inauguration just 2 weeks ago, the construction-related expenses, they are fading out clearly here in the first quarter 2026.

Yes. If I continue, Christian here, well, first of all, let me support Michael a bit here on the tariff question. I think it's -- you don't need to excuse yourself. It's an absolutely impossible situation to give a firm answer on not only are the prerequisites clear, but also there is an element of negotiation, which we are fully engaged in as all OEMs. Everyone is there, of course, trying to get the best outcome depending on their geographic footprint. It's quite an awful situation to tell you the truth, not at all what you would like to see.

And to give a forecast here of the outlook, we work with scenarios, I suggest you do the same, but it's absolutely impossible to give an outlook, especially for 2026. On China, yes, so it was a fantastic week here 2 weeks ago. We had more than 3,000 customers on spot. We, of course, launched the factory. But as I said in the beginning here, this is much more than a factory. This is a complete value chain. So we go much deeper into R&D, into sourcing, meaning that we can take down risk in our supply chain, meaning that we can leverage Chinese innovations.

And of course, we will start by doing that through the new product, the next era that we just showed very briefly because it's still not available, but that is where we can incorporate a lot of Chinese technology and target, especially Chinese market. Very good feedback from customers. And of course, it's exciting to see the first orders flowing in now from Chinese customers, but also from the bigger Asian region where we gained so much lead time and can shift our business model to the normal Scania model, which is delivering customer-specific trucks with short lead times. Michael was into the figures there. Just to complement a little bit, we have been cautious in our approach.

We have been taking a lot of cost meaning that we don't burden the balance sheet more than what is, of course, the machinery equipment and buildings, which will be written off over many, many years. Said that, we should, of course, realize that this is a huge capacity buildup. We will not fill this in the first couple of years. We're aiming up towards 1,000 trucks this year, as I said, but we also aim at 10,000 trucks next year. The facility is built for 45,000 currently. So of course, it's going to be a couple of tough years ahead where profitability will, of course, be impacted depending how the volumes are going.

So it's a long-term invest. We do it to be part of the world's biggest market. We do it to be part of a very fast-growing technology cluster. We do it to create resilience for markets and access to markets where China is the dominant trade partner. And we do it, of course, to gain scale and gain volume. It's a big capacity buildup for us. And then we're adding on another product line, which we will be proud to talk more about during the first quarter of next year, 2026. I hope that gave some more flavor to the China topic as well.

Then we have the next question comes from Karl Bokvist from ABG Sundal.

Can you hear me?

Yes. Yes.

Very good. Just a question on the TMS rollout and what you're talking about here in terms of R&D efforts. The first one, just has the rollout of the TMS and the milestones in that program been affected at all by the recent geopolitical turmoil? And the second one then would be how we should potentially think about the benefits on the cost side from this program.

Yes. Christian, do you want to start with the first one and then Michael continue with the cost?

Yes, absolutely. Yes, it is not getting any easier to run a global R&D organization with the colleagues sitting in different geographies when there's more and more export control issues coming on the table and other limitations that are actually targeting not going global. So it's not getting easier. But at the same time, it's, of course, a tremendous advantage that we have presence in all the main regions of the world now, including China and the U.S., of course.

So -- but if you ask about impact in terms of time frame or impacts in terms of cost, no, not so. We are on target in this big project for everything that we're set out to do. It's a long-term project. As we said, we're targeting towards the end of this decade. So there is, of course, a lot of time and a lot of effort that needs to be spent and a lot of things can happen. We knew that when we have experience from running these big projects before. But so far, it looks really, really good. And we continue to prepare for a difficult environment in terms of export control, et cetera. I hand to you, Michael, for financial view on this.

Yes. Thanks, Christian. Thanks for the question, Karl. And what I can say is that we are aiming for 25% efficiency here using the TRATON Modular System. Where is this efficiency coming from? Well, to try to explain it in a simple way, you can say that before we took the decision to go for the TRATON modular system, we basically developed a chassis, a cab 2 or even 3 or 4 times, not only the cab and the chassis, also the electric electronic architecture. And our common-based engine is the, let's say, only common product that is on the road so far.

And then I would say, hopefully goes without saying, once you don't develop a chassis, cab and so on twice or even 3 or 4 times, but only once, then, of course, you create some synergies, scale effects that lead then to one aspect of the 25% efficiencies. The other aspect comes from also working differently together, harmonizing processes, et cetera. This 25%, these are completely baked in, as we say, into our planning round. And now there are, of course, various ways how to deal with the 25% efficiency.

The one is that, let's say, you see the full effect and we see lower R&D investments. That is not the case. So we took the decision to, of course, let's say, increase the value of the TRATON Modular System to bring better performance steps into the TRATON Modular System on the one hand side. And then as we were into, we are in the transformation. So we are talking about electrification. There was a question beforehand about autonomous driving and digitalization is, of course, another aspect.

So the efficiency gains that we create here, thanks to the TRATON Modular System, we use them, of course, to invest into the future technologies. So we see those effects internally in our planning. But as Christian said, both regarding time and also costs when we look at the targets from today's perspective, we are quite satisfied and on track. But it goes without saying, we see the first products at the end of this decade. So there is clearly more focus on this most important project for us that we sustain where we are right now, that we make -- keep to make good progress regarding time and costs. That goes without saying.

We still have 4 questions in the queue. Next 1 from Harry Martin from Bernstein.

The first question I had, I just wanted to pick up on the market outlook in South America. The guidance range, plus 5% to minus 5%, given we're plus 6% already through the end of September leaves the door open for a meaningful decline in Q4. So is that something that you're preparing for? And I guess a related question, how much of the move of the full year guidance on the margin to the low end of the range is a slowdown in Latin America versus the impact of the 232.

And then a longer-term question. You mentioned the acceleration in the battery electric truck penetration in China is something I've also been watching. So I wanted to ask your thoughts on a few things here. Firstly, has the TCO equation in China now flipped towards battery electric after the investments in infrastructure and supply chain that they've made? Secondly, we can see there's new entrants in China that are taking share in battery electric who don't produce diesel trucks. Is that something that you think will also happen in the West?

And then finally, do you see anything today that changes your view that the local service and maintenance networks are a key defense to the market share of yourself and your brands from export of Chinese trucks if we look forward a few years?

Should I start with Brazil and Latin America perhaps and the market outlook. So yes, in a way, that minus 5%, plus 5% indicates that we believe in a rather slowish Q4. It is troublesome, especially in Brazil, I mean, because we see, of course, positive momentum like in Argentina, it was fantastic to see the Milei victory, and we immediately see an effect of more demand of trucks with also with a stronger PSO. But Brazil is so dominant in Latin America as total, but also especially for us at TRATON with Volkswagen Truck & Bus being such a big player in that market.

So yes, so we are expecting a rather weak Q4. And yes, we have adapted our production rate. We do not want to sit with inventories. You know that Volkswagen Truck & Bus predominantly works with preproduced trucks and stock sales to private dealers where Scania work more with customer order trucks, but we want to trim down. So we have adapted the production pace, both in the Scania and in the Volkswagen Truck & Bus Industrial system to make sure that we are not overstocked and that we are in line with the market demand that we deem to further decrease.

And the reason for Brazil is, of course, the very high interest rates and the uncertainty around whether investments make sense or not in the geopolitical turmoil with trade tensions with the U.S. So a lot of wait and see among Brazilian customers, and it's hard to see that offset by the smaller markets in Latin America. So I stop there on -- unless you want to add something on that one, Michael, but I hand over to you also as there was a follow-up question again on the 232.

Yes, exactly. So if I understood your question correctly, Harry, then it was also linked to the South American region asking to what extent have we factored this in when we look at our guidance, especially that we guide now towards the lower end of our guidance range. So maybe 2 answers. The one is, of course, as you can imagine, we factor, of course, everything in. That's a given. But South America does not play a major role. Let me put it like this, because as you heard from us, I mean, we have said we projected the market to end between minus 5% and plus 5%.

So we have not changed this guidance range here. So conclusion is that predominantly that we guide towards the lower end of our guidance, the predominant effect comes from the 32 section tariffs. And here, maybe also as a side note, when we issued the profit warning after Q2 H1, we confirmed our guidance or, let's say, laid out the new guidance. And we said that the new guidance excludes any effects coming from tariffs.

So I mean, now what we are saying is that we are sticking to the guidance, including the 232 tariff effects. But yes, we factor them in, and therefore, we see the lower end of the guidance range for RoS and the net cash flow. So that's the predominant effect.

Christian, do you want to take over BEV China TCO?

Sure. So yes, the question was, are we seeing the TCO parity coming faster in China? And the answer is obviously yes. So they have several methods there to make sure that TCO parity or TCO advantage even is reached for the battery electric vehicles. That happens regionally and then that happens in application by application. So far this year, we see on the heavy commercial vehicle side, we see around about 20% penetration.

We saw, for instance, in the Q4 last year up towards 30% because there was a huge scrap scheme put in place with short notice in order to take away old trucks and replace them then by financially supportive new BEVs. So there is a movement. It will take some time. It's inevitable, of course. So in the segments we are targeting right now, we are pretty comfortable to be supplying combustion engine vehicles, both with Scania and with the Next Era. But we are, of course, preparing and the week I was in China for the launch of the factory.

We had an ongoing homologation process to prepare that factory also for a license to produce battery electric vehicles. So of course, that is something we're targeting, but let me come back to that. There was the question of the start-ups. And you're right, there are a couple of interesting names in China.

Of course, the one you cannot call a start-up, BYD is firmly established, but they do only battery electric trucks. Let's see how far they go into the heavy side. Then you have names like Winds and others who are more like real start-ups right now. And the question was really, will we see them also in the West? And I think, yes, we already see some of them in the West trying their wings, so to say. And of course, our network footprint is a very, very difficult hurdle for them to come behind. But it's, of course, possible.

We have seen that on the city bus market, where many of the Chinese OEMs find partners outside of the traditional OEM circle, some go with our suppliers, our Tier 1 suppliers, some go with independent chains of services and some go directly into the workshop of the bus operators. So we need to watch them closely. We need to talk to them, and we need to be prepared that we will meet new competitors like we always have been.

And we should be humble also towards the technology development. And that's why it's also important and interesting for us to be in China because a lot of things goes very, very fast there. Of course, not all of them will make it. I mean that goes without saying. But it's interesting to see how quickly things are moving in China. And I think to conclude, I mean, maybe that's the most important today, the most important reason for us to be in China is to learn from that China speed and how technology development is emerging. There's no one else -- nowhere else in the world, maybe with the exception of the valley where technology happens at this pace.

Next question comes from Nicolai from Deutsche Bank.

Also 2 quick ones. On the net cash flow, basically, you're guiding towards the lower end. But if I just look at the working capital outflow year-to-date, which is EUR 1.3 billion and the normal seasonality suggests that you would all collect it in Q4, wouldn't that already point towards the kind of the mid of the free cash flow guidance? And then also on MAN in Germany, you say that momentum is slowing down a bit. So probably no real improvements to expect in Q4, but should we be a bit more hopeful for 2026?

Cash flow, Michael?

Yes. Let me put it like this. You are right. Of course, you mentioned the working capital. And what I can say is clearly that we have increased here inventories until end of Q3 by roughly EUR 0.5 billion. Also, we have increased receivables. And therefore, it's quite clear that the focus for us in Q4 is to optimize all major positions, like, of course, inventories, payables and receivables. That goes without saying, again, taking into account what we believe regarding the operating result, also taking into account the tariff 232 effects that I mentioned before.

At this point in time, we believe that, again, our guidance range sustains, but we do the right thing to indicate that we believe that we end up towards clearly here the lower end of the guidance, which is the case for RoS and for the net cash flow. Maybe a quick one to start also with MAN. I mean, as we said during the presentation, and you are asking not for the fourth quarter, you are asking for 2026. When we look at now Q3 and potentially then also Q4, we see that there is somewhat an unfavorable product and also market mix. As we clearly stated, MAN has done a fantastic job regarding the buses where we have solved the cybersecurity, so-called ELSA topics.

Also, as we stated, the vans performed quite strong, but the trucks were not as strong. So there is a topic on the product side. And then we talked about the market. And there, you know that especially MAN, also operating in all kinds of regions of the world, the strong exposure is linked to Europe and especially here, the German market as the home market or what we say the DACH region, meaning Germany, Austria, Switzerland plays a significant role. And this is then also the segue to talk about 2026 a little bit. At least when we look at the European market and especially at the German market, at least from today's point of view, we are still missing, let's say, the silver lining.

So as you know, we said a couple of times that we believe there should come some stimulus because indications were quite clear from the new German government to invest significantly into infrastructure and into defense. Just what I can say at this point of time is that we don't see that materializing in Germany with regards, let's say, to a higher order intake.

So I certainly will not rule out that 2026 can be better. You heard also Christian saying during our presentation that we don't give an official guidance yet for the markets next year. We will do that as always, during our annual press conference in March. But you heard Christian saying that at least there are some positive signs regarding Europe. So if we relate to this, then yes, there is some hope for a better margin in 2026. But to state that crystal clear, on the German market, we don't see the progress we are waiting for since quite some time yet.

Let me just add on the MAN topic that we are now going into a full year where MAN has the new group driveline with significant fuel efficiency advantages, which has also been proven now in independent press testing. And we have been able, thanks to that partly also to keep market shares up at MAN, and we certainly expect that we will be able to grow MAN in Europe now and gain back market share, not just in the DACH region, but especially outside of the DACH region where we have also now financial services lined up to support MAN in the same way as it supports Scania.

Then we turn to the last question, which comes from Hampus Engellau from Handelsbanken.

I'll keep it short. I'm sorry to come back on MN. But if I remember correctly, you removed short-term working week before summer. Now you have under absorption of fixed costs, Germany slowing down even if you're hopeful for next year. Do you feel you are at the right run rate currently in MA coming into Q4? Or how should we think about that?

Okay. Good. Hampus. I can take that one. Yes, I think we are actually -- it's been a bit back and forth. You're right. We went up with a very good momentum we had in Q2 order intake, and then we had to slow down a bit. The advantage of having part of production system now in Krakow in Poland helps us to be more agile also on the MAN side, like we're used to on the Scania side. So I feel now that we are -- in both European brands, we are perfectly balanced for delivering both delivering Q4 figures, we are basically sold out in both brands, but also coming into 2026.

And it's been -- it's kind of the first time in many years that we're actually in full balance with short lead times to customers and the under-absorption should go out of the system now. So I feel that we are finally in Europe at least where we should be. And now we need to continue to prove our flexibility, of course, because there will be more moves. We expect them to be up in Europe, but well, if you follow this industry as long as I do, you know it could also be down. But that we, of course, have to prove going forward. So I have a good feeling here both for Q4 and for start of '26.

Yes, we now have Michael Aspinall, who reappeared in the list. So Michael, why don't you then ask the last question?

Sorry, I'm not sure what happened there. I'll keep it quick. Just a quick one. Now that you have your own kind of direct business in China and deleveraging is a pretty core focus of yours, how should we think about your stake in Sinotruk? I think it's worth about EUR 2 billion at present, which could go a long way to reducing that debt level.

Yes?

Okay. Mike, can you take that one?

Yes, I can take that one. I mean what I can say is that, let's say, we have a good partnership here with Sinotruk since quite some time, as you know. And we see that there is also a clear value.

So that's pretty much what I can say at this point in time. What we do constantly, and this is now not linked to Sinotruk, but what we constantly do, of course, let's say, at least on a yearly basis, is we always look at, let's say, all the options that we have. This is, let's say, usual business. But if we look back in time than it was and it's certainly something where we got quite some value out of it. So that's what I can say.

Then with that, no more questions in the queue. Then thank you, everybody, who is still in the call for joining us today. Over the next 2 days, we will conduct 2 post Q3 investor calls. And for any questions, like always, please contact the Investor Relations team. Enjoy the rest of the day, and goodbye.

Goodbye.