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Edited Transcript of VOLV B.ST earnings conference call or presentation 25-Apr-17 7:00am GMT

Thomson Reuters StreetEvents

Q1 2017 Volvo AB Earnings Call

Goteborg Apr 25, 2017 (Thomson StreetEvents) -- Edited Transcript of Volvo AB earnings conference call or presentation Tuesday, April 25, 2017 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Henry Sténson

AB Volvo (publ) - EVP of Group Communication & Sustainability Affairs and Member of the Group Executive Board

* Jan Gurander

AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board

* Martin Lundstedt

AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director

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Conference Call Participants

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* Agnieszka Vilela

Carnegie Investment Bank AB, Research Division - Financial Analyst

* Björn Enarson

Danske Bank Markets Equity Research - Head of Equity Research-Sweden

* Christer Magnergård

DNB Markets, Research Division - Head of Equity Sales and Research

* Erik Pettersson-Golrang

Nordea Markets, Research Division - Senior Analyst of Capital Goods

* Graham Phillips

Jefferies LLC, Research Division - SVP Industrials, Capital Goods Research

* Hampus Engellau

Handelsbanken Capital Markets AB, Research Division - Research Analyst

* José Maria Asumendi

JP Morgan Chase & Co, Research Division - Head of the European Automotive Team

* Klas Henrik Bergelind

Citigroup Inc, Research Division - Director

* Olof Cederholm

ABG Sundal Collier Holding ASA, Research Division

* Olof Jonasson

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Presentation

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Henry Sténson, AB Volvo (publ) - EVP of Group Communication & Sustainability Affairs and Member of the Group Executive Board [1]

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Good morning, everyone, and welcome to the presentation of the Volvo Group's earnings report for the first quarter. My name is Henry Sténson. I will be your moderator today. And we will start with a presentation by our President and CEO, Martin Lundstedt; and our CFO, Jan Gurander. After that, we will, as normal, have a Q&A session.

So with that, the floor is yours, Martin.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [2]

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Thank you, Henry. So also from my side, good morning, and welcome to this first quarter report of 2017. As a matter of fact, it's interesting to see the film also, where I had the chance to be a couple of days at Conexpo. That is, as you know, one of the biggest mining and construction shows.

And what is happening today with Internet of Things that everyone is talking about is also, when you have this badge for coming into the exhibition, you can follow exactly the traffic for each and every one participating. And yes, as an anecdote, the first 2 days, given where we were in Las Vegas, we are pretty strong in North America but maybe not the strongest when it comes to yellow machinery. But when it comes to traffic, we had the highest traffic of visitors during the first 2 days. So I think that was encouraging in itself, maybe also a sign of today's presentation.

Quarter 1, in summary, was obviously a good quarter, as you have seen. And it also continues, and I think that is important to say to you, to follow the pattern that we have seen over a good number of quarters now in a row. We are, with that, obviously pleased but still not satisfied about what we still see that we can do. The quarter showed that we are getting more and more of the things in place when it comes to our operational activities and a better alignment in the different value chains, and with that leverage, it's also coming. And we continue to focus in our organizations on day-to-day improvements in our core segments and markets. And organization, I would like to start with that, is doing a very good and dedicated job, not at least when it comes to flexibility and service business, and I'm pleased to see that it's also coming through in the financial figures. Both the group sales and profitability increased, as you have seen, 8% when it comes to net sales. Half of it was currency. And operating margin, adjusted and non-adjusted, amounted to 1 -- to 9.1%, giving a total operating income of SEK 7 billion.

Group Trucks increased operating margin from 7.8% to 9.9%, on 4% lower volumes. And also, that we have seen over the last quarters also high volatility when it comes to volume swings between regions, so that is also showing good flexibility here.

Volvo Construction Equipment improved operating margin from 2.7% to 10%, thanks to focused internal transformation activities, together with a market recovery in important regions.

Regarding the deliveries. Trucks, as I said, came in 4% lower than the same quarter last year. And there were big shifts between different regions: Europe, up 5%, and positive signs both for Renault and Volvo and both for heavy and medium-duty; also, Asia, plus 8%; and Africa, Oceania, 7%, were strong; South America, flat to low levels, and if something, we see a little bit of an uptick in the order intake, but still early days there; North America down with 34% in shipments, Mack was down with 27%, and Volvo with 40%, reflecting also their strength in different segments, where vocational has been holding up better, as we have heard.

Volvo Construction Equipment showed good uptake in deliveries following the strong order intake that we had in quarter 4, 34% plus. And we are, of course, pleased to see that our production and operational organization has been able to do that production increase in a good way, so we have actually translated the orders into deliveries here.

Also strong momentum both for Volvo and the SDLG brands, Volvo with 32% in shipments and SDLG with 30%, and across regions also.

Service sales continued to increase. In quarter 1, it was 6% up if we exclude FX. And in revenue, increased from then SEK 16.1 billion to SEK 18.1 billion, an uptick with SEK 2 billion. And main explanations are coming from increased focus of the service business. We see that clearly also with our brand and business area-based organizations, but also with high utilization of the customers' fleet. It was encouraging, obviously, to see that it's coming through in all different business areas. And services will continue to be one of the cornerstones also in the future as the untapped potential is still on a considerable level in many segments and markets.

Well, we're moving then to the Trucks side. We had a good demand level in Europe, Japan and China. And we see now also that orders are picking up in North America after the stock correction for new trucks that took place during the whole of 2016 and a little bit in the beginning of 2016. But now we see that the new trucks' stock levels are on a normal level.

We also had a number of important product launches during the quarter, both for emerging markets in Middle East, in Southeast Asia and Africa and also for our main markets for UD in Japan and for Volvo Trucks in North America. And here, I can talk forever, but I will try to keep it short. Here, you see the -- fantastic. It's fantastic. The UD Quon. That is opting for the advanced logistical markets, Japan, Australia, South Africa, full-fledged range in heavy-duty, all new. Cab comes with all the latest safety features, ergonomy. And we have the new powertrain driveline, 5% better fuel economy. And still, we had the leading positions before that in Japan, not at least. More than 200 kilos lighter also for productivity reasons, not at least in weight-sensitive markets in Japan. So this will be a very important platform for our Japanese endeavor for the coming years here in the heavy-duty. Very pleased with introduction, good customer feedback, big project and well invested based on our modular cost system, common architecture, shared technology, where we actually can then leverage different components, parts, technologies and services from the whole group.

Also, during the quarter, UD Trucks launched the new UD Croner. That is the medium-duty platform for, primarily, emerging markets; as I said, Southeast Asia, Middle East, Africa; comes with 21 basic applications and configurations. And on top of that, obviously, you can tailor-make the product. Very important complement now to the UD Quester that was launched a couple of years ago, so we also have the broad range that our dealers need to have in order to be competitive with other, not at least Japanese players in those regions. Based also on the cost systems but, obviously, also with different performance steps in relation to the mature markets we are keeping the right value, depending on average mileage, road conditions, infrastructure and also how the complete cost picture looks for our customers. So it's a very strong offering. Good feedback also. We had the global launch now in Southeast Asia, and positive feedback here. So we have started to take orders also on this range. A beauty. And when you drive it, you will just -- you don't want to stop, and that's a good sign because they have to work.

And then finally, in -- also in North America, we launched a new VNR range for regional haulage for Volvo Trucks. It has been a need, you can say, in this range for us to upgrade, and we have the most modern platform now, state-of-the-art aerodynamics, very important, obviously, for regional haulage because you have this combination between highway applications and, at the same time, really being smart and fitted for use in urban areas. So best-in-class maneuverability, comes with a full-fledged uptime services, new driveline, up to 3.5% better fuel economy, to mention some of the parameters. So also looking forward to that. We're launching that actually last week in North America with also big interest.

So 3 big launches on the Trucks side here, very encouraging. And as I said, based now also on the model platform, so that is also, of course, very important moving forward.

When it comes to the market estimates, we are more or less confirming what we said in January, 300,000 level, so we are sticking to the forecast that we put for 2017 for Europe. We are also sticking to the forecast for North America, 250,000. The initiated person can ask themselves, you have seen order uptick, et cetera, but you should also remember that shipments were low in quarter 1, as always, a little bit of, so to speak, delay when it comes to the retail shipments, so to speak. Brazil, we are sticking also to the low level of 30,000, even though that we are starting to see a little bit uptick mainly in resources industry. And what we are upgrading is the total market for heavy and medium-duty in China, up to 1 million from previous forecast of 900,000; and a little bit downgrade in India, and that is related to the recent introduction of BS-IV standards, more or less Euro 4 emission standards, as of 1st of April, and that in combination with the postponement of the GST tax reform. And that is to make, so to speak, trade easier between the different states in India, postponed probably to the end of summer. We think that will a little bit halt the market or take down the total market. And Japan sticks with a good level of 95,000.

When it comes to market shares. In North America, in relation to last year, we saw an improvement even though that we are not happy, obviously, with the market share levels as -- of Volvo primarily. We should see high levels there. But the main explanation is, obviously, that the on-road segments where Volvo has a strong position, is relatively weaker than vocational segments and also that we have been reluctant to participate in some of the bigger fleet deals, actually, for price discipline reasons. Obviously, the launch now of the VNR line will support also the development for Volvo. And we see good development on Mack, as we can see, a little bit more than 1 percentage point uptick, primarily driven by the stronger vocational markets.

Europe also, you can say that we are keeping high -- historically high level on Volvo, a little bit of loss there, 0.3 percentage points, it's early days still, through February. And we see also then a similar uptick from Renault, 0.3 percentage points. But what you can say what is positive for us, what we see with Renault is that we have a better mix actually between retail and fleet customers, so I think the organization are -- is doing a good job here.

Japan, more or less a similar start. We have had, lately, a strong order intake for UD. And we are aiming for taking back some of the lost market shares in Japan that we have seen during the recent years here. So we have a strong offering, as I just showed, and a big interest and a strong order book.

Brazil, losing out a little bit, very small market, obviously, primarily related to our price increases in the medium or semipesado, as you say in Brazil, the semi heavy segment. The VM line that we increased prices in order to come back to a reasonable profitability, we are losing out market share, but that's the only way to go anyhow. And also, that we didn't participate in some of the bigger deals also in the heavy segments, so in all fairness, we saw some small losses. But in a relatively small market, it's more about also keeping price discipline for the future and to be credible with your customers.

The total picture both for South Africa and Australia continues to be good, obviously.

Then when it comes to order and deliveries. As you can see here, we are seeing positive book-to-bill ratios in all major markets. North America, to start with, positive after a long period of lower activity and destocking. In the retail part, orders are showing an uptick, 27% up; whereas deliveries still down, they continued to drop to 34%. But I have to say that our North American organization, through this cycle order downturn in 2016 and also in the beginning of this year, has managed that in a very good way. We are happy to see the flexibility. And what we are doing now, because we had a pretty considerable number of stop days, not at least for Volvo in North America during quarter 1, and now we have been taking out the planned stop days, so we will run, actually, a normal production in quarter 2 here. Europe continued with good order intake, up with 9%; and also deliveries then up with 5%. And as I said before, development both for Volvo and Renault in heavy and medium-duty. And South America, mainly then related to better activities both in mining and agriculture, orders were up 29%. And Asia, strong also with 31%.

So all in all, a positive development, and we are closely now adjusting our build rates. We are adjusting them up a little bit then in Europe in order to cope with a better situation, while we are taking out stop days in North America. At the same time, as all of you know, there are geopolitical uncertainties, so we need also to keep the high level of flexibility that we have had so far and continue to have that. So that we are planning for, obviously.

Construction Equipment then. We are doing a good quarter here and, as I already said in the introduction, good combination of execution in our transformation activities that we have been communicating. We are focusing a lot of our efforts into transforming the company. But also combined with an improved market situation gave good leverage for us. Both deliveries and orders were up with 34%. And as I already said, it's satisfying to see how the industrial system of Volvo Construction Equipment has been able to cope with a high order intake and really got that into deliveries in quarter 1. So this is, for me, a yet another good example of volume flexibility, and that the cooperation that we have been reinforcing in the value chain is working well. And it's more fun to work with that also, by the way, so it's just a positive spin-off.

And as I also started to say, the Conexpo fair was a big success, lots of fun meeting a lot of customers and some major introductions also. This is the -- for you that are yellow-machinery freaks, this is the L350H, the biggest wheel-loader, manifesting our leading position in wheel-loader segment. Coming with all type of new features and very well received, better comfort, better telematics system, new powertrain, better fuel economy, et cetera, so really manifesting the strong position that we already have.

We are also launching now ActiveCare Direct in North America that we have had in place in Europe, for example, where we have a real-time following from the telematics system together with the customers. And that is also very important. We have seen how important that has been to take market shares in Europe. And the demand for this type of solution is increasing big-time in order to increase productivity. So that is uptime-related but also how you plan your activities between different functions; for example, on a construction site.

Market environment. Generally, as we already said in January, the upward trend continues in mostly all regions and also in relation to previous forecast for some of the major regions. In Europe, the market continued positively, with an uptick of 17% through February. And we are now guiding for plus 5% to plus 15% in relation to what we said in January that was 0 to 10%. Also in China, we are changing -- we said, I think, it was 5% to 15% in January. Now we are guiding from 20% to 30%. And you have seen also that it was a very strong start for the year, mainly in excavators, 48% up through March. And also, Asia, excluding China, we see also a strong development, for example, in Korea, India and with the mining uptick also in Indonesia.

Order and deliveries here. Net order intake, as I said, strong increase, 34%, in relation to same quarter last year and driven by all regions. Europe up with 28% in order, broad-based as regards countries and also particularly strong for larger Volvo-branded products, and that is obviously good news. That is our core segments and where we have had a positive development over the last quarters.

North America up with 14%, also mainly larger machines and road construction. And in Asia, including China, orders were up, 29%, driven by strong order intake both for Volvo and SDLG in the Chinese markets but also in several other countries, as I said, Korea, Indonesia, India, to mention a few.

Buses. Market situation gave a mixed picture. If you start with Europe, a little bit weaker. At the same time, positive to see the big tender interest around electric and electric hybrid solutions, where we have a strong position. South America continuing very low levels. But Asia, and then in particular, Far East and Oceania, positive development. And also North America showed good levels, both for coaches and transit buses. Mexico, after the standstill related to the election, has shown early signs of recovery. So finally, order intake here was up 34%, and that was supported by many regions.

We also introduced a number of very important product news here: a new chassis for Asian markets with the Volvo 8 liter powertrain; and also, that we took first big order on electric hybrid to Belgium, 90 units, with 12 charging station, meaning also that we are getting more and more of a solution provider player in the urban segments in Buses.

Penta, continuing its positive momentum, strong sales growth across all segments. But what is positive to see also, in particular, in the industrial off-road segments, where we have put a lot of focus to penetrate better than we have done historically. Orders as well as deliveries increased with 12%. And also in Volvo Penta, we introduced a number of new products and solutions. For example, for the off-road, that we are concentrating a lot, new engines to meet new European Stage V emission levels. And also in February, we introduced a new power generation, 16 liter, that is the -- that has the highest power density in its class, just manifesting the strong position of Volvo Penta. And as you also will hear a little bit from Jan, we are continuing to invest quite heavily in R&D in Volvo Penta, given the growth opportunities that we have taken already but also that we are aiming for in the future.

So that is market orientation about where we are standing. And with that, I will leave the word to Jan Gurander to go through the financial figures. So please, Jan.

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [3]

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Thank you, Martin.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [4]

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Thank you.

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [5]

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So sales-wise, in this quarter, we are coming up from a little bit short of SEK 72 billion last year up to SEK 77.5 billion. It's 8% up; 4% if we excluded the currency. Currency is at SEK 3.3 billion approximately. And you can see, when it comes to different regions, it is, of course, mirroring what Martin said before, coming strong in Europe in terms of sales; while North America year-over-year is down, with almost SEK 2.5 billion. And therefore, the other parts of the world, we see sales increases all over the place. So it's, you can say, only North America where we have the downturn.

The adjusted operating income moving from SEK 4.5 billion up to SEK 7 billion. Last year, there was an adjustment. We -- the EBIT unadjusted was SEK 800 million higher, a little bit more than that, due to the fact that we sold the external IT business in the first quarter last year. But the adjusted goes from SEK 4.5 billion to SEK 7 billion. It is -- the SEK 7 billion is a 9.1% EBIT margin compared to just above 6% last year.

We are then, you can see, increasing in all business areas all over the place, and I think that is -- it's always a good sign when we see that all the business areas are improving. That shows that the ways are working that we have in the group, that we are spreading that all over the group and that it gives results as well.

Fairly limited results come --- have a positive effects on the currency side, just short of SEK 300 billion, comes mainly from revaluations on the balance sheet. Looking for the whole year, I think we said before that it was -- we anticipate SEK 0.5 billion approximately when it comes to the transaction flows for this year. We think that we are approximately maybe a little bit more on that when we are at the end of the first quarter than where we were at the end of last year, but approximately the same level.

Then if we look at what is contributing to the results, you can see that the positive effects comes out of the gross income, SEK 3.2 billion. We can see that cash R&D, we could keep that on more or less the same level as last year. We have the effect of the capitalization and amortization, this bookkeeping effect. We have the negative almost SEK 400 million here in the first quarter year-over-year. What we have said for this year as a whole that we -- the forecast is that somewhere between SEK 1 billion and SEK 1.5 billion, we will amortize more than what we'll capitalize this year, and that is the same as we said in the last quarterly report. Selling expenses is SEK 400 million higher. That is mainly related to currency in that one, but there also is a little bit of an underlying higher level that we have here. Partly related to that, we now have the different brand organization that we have established and also that we've put more, as we say, feet on the street actually to take care of the group markets out there. So we -- it's important to distinguish between good cost and bad cost. In the past, maybe we have a little bit too much of the bad cost. This is good cost that we put in right now to take care of the developments that we see in the market.

So on the positive side, good when it comes to service business, 6% currency adjusted, 12% with the currency. That is, of course, improving our P&L. Construction Equipment, big contributor this quarter, going from 2.5% up to 10% in EBIT margin. And when it comes to the market mix as well, volumes in Europe and in well-loaded industrial systems are good from a market mix point of view compared to the volumes that we had last year in Europe; even though they were not bad either, but comparable, it's actually better.

Well, then, of course, on the negative side, we see the lower volumes in North America and this accounting effect that we have from R&D.

Cash flow was a positive, SEK 1.5 billion this year. This is still an area that we are maybe not 100% that satisfied. You can see that we have -- what we have said before, when it comes to property, plant, equipment, we are keeping that on a stable level, as it should be.

When it comes to the working capital, we have one effect from the -- actually, the payment dates. And we had last year actually more payments dates in the first quarter than what we had this year to our suppliers, and that's why the trade payables is actually helping us a little bit this quarter.

Accounts receivables pretty okay. Inventory situation is the area where we still need to focus quite a bit on. We have a higher inventory situation this year compared to what we had last year. It is partly seasonal, of course, also now when we grow our activities in Europe, where we have a bigger part of the value chain as well, but this is really an area the we need to have continued strong focus on going forward.

Looking into different business areas. On the Trucks side, we have -- as Martin said before, when it comes to the heavy-duty and medium-duty trucks, we are down in volumes with 4%. But -- and we are then down also in terms of sales with 2% when we currency adjust. If we have -- with the currency, we are positive with 3%. So more or less, you can say flat or down on volumes. And this is then where we see then the results going from 3.7% to 4.9% -- sorry, SEK 3.7 billion to SEK 4.9 billion, an improvement from 7.8% to 9.9% in EBIT margin.

Here, we see that service sales is a little bit the same story as we have on the group level. Of course, since Trucks is so big, it is the service sales system, the market mix that we have. Also, the earnings in our JVs are swinging actually a bit compared to 1 year ago. It is coming both from Dongfeng but also from Eicher, mainly from Dongfeng. Last year, we had a little bit of a difficult first quarter in Dongfeng as we lost a little bit of money. Earnings are coming back there. We are positive again, and I think that gives approximately SEK 400 million swing in earnings compared to 1 year before. We also have an improvement in terms of quality cost compared to 1 year. You remember, we talked about the first quarter last year, where we had, amongst others, recall campaigns in North America and so on, and that we don't have in the first quarter this year. And otherwise, as I said on the group level, it's the lower volumes in North America and the capitalization of R&D.

Then when we take Construction Equipment, 30% increase of sales. If we take out the currency effect, it's 25% increase of sales. I think just worth to repeat what Martin said before. I think the ability that Volvo CE is showing right now to turn order intake that we had in the latter part of last year, mainly in the fourth quarter, into production and also realize sales with such a short period of time, I think that's actually quite impressive.

We see also fairly good -- when it comes to the market mix, Volvo SDLG more or less growing at the same pace. Compact machines a little bit more than the heavy machines, but nevertheless, 27% increase in the heavy machines, which -- and this 27% is of course, important for our profitability.

Then when we come to the --- to the results, going from SEK 341 million last year up to SEK 1.6 billion, 2.7% to 10% in EBIT margin. We see then that, of course, higher sales volumes. We had, of course, a great leverage into our industrial system with this increase in sales. We also see that the internal measurements are giving effect. Just to mention, the one that has --- had the biggest effects is the material cost actually in the first quarter last year compared to the first quarter last year. We see that we had last year also credit losses in China, SEK 150 million. This quarter, we did not book any further provisions for credit losses. And now I think it's the second quarter in a row that we do not do that. I would say that the situation in terms of credit losses is stabilizing. As --- I think there is still some uncertainty out there but, as I said, 2 quarters in a row without any further bookings of provisions for that. And then also, we had in the first quarter -- just for visibility, we had some costs related to the rightsizing of the R&D organization, that were more than SEK 100 million. And as you remember, this is something that will give us annual cost saving of somewhere between SEK 400 million and SEK 500 million, full effect next year, maybe half of that this year. So all in all, a strong result from Construction Equipment.

Buses. 10% down in terms of deliveries. Then we see that we have -- anyway, the sales is up 3%, currency adjusted. And the reason for that is that we have pretty good product mix, selling less of chassis and more fully built buses with a higher value content, and that's the main reason for that. We can see that we are, in terms of market mix, also then affecting our results. And we have also here a good service development, and you can see, currency-adjusted, is a positive of 9%, so a strong contribution here. And then we are at approximately 2% in EBIT margin. And here, we had a slight negative currency effect on the Bus side.

Penta continued to deliver on the result, increasing from SEK 366 million to SEK 419 million. EBIT margin-wise, more or less the same level as last year, 15.5%. We see also here a good development in terms of service sales, 12% up, currency adjusted. So that is the strong part. We see here that we have -- when it comes to the R&D cost, as Martin mentioned, we have -- right now, I think we are delivering very good on the strategy to focus --- it's a little bit simplified, not only on marine, gas, but also then into the industrial segments and on off-road. And that is really starting to pay off actually. So the -- because of the segment mix is changing quite a bit now into the favorable -- into a favorable position from that point of view.

Financial Services. When it comes to new financing, you can say a little bit down compared to last year on a stable level. We have been increasing the operating margin from just short of SEK 500 million up to SEK 530 million, and the return on equities continued to increase up to 13.8%. What we see here is that when it comes to the quality of the credit portfolio, very good in Europe right now. North America, despite the downturn, managed well, and we are still working. Of course, Latin America, we make money in our finance company in America right -- in South America despite the fact that we have a very tough market in Brazil. You can see increased competition from different kind of leasing companies, financial institution. It's a lot of money out there, so it's a little bit difficult to keep the penetration levels. But all in all, a good and stable result in Financial Services.

So with that, Martin, back on stage.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [6]

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Coming up to support you, Jan. Thank you.

You know what, I think we have done the summary already. Maybe just a couple of comments also on the strategy and the way forward. I mean, we have been communicated the brand-based organization, more centralized P&Ls, and we see how that is coming through actually. I think that is a very important effect that I just want to conclude, given also better opportunity, as we see it, to meet these different swings that we have seen in demands between different regions, use the regional value chains that we have and also to concentrate on the service business. And all in all, just again, I would like to say, I think that organization has done very good in a strong quarter 1 here. At the same time, geopolitical situation, a lot of uncertainties, keeping high flexibility, concentrate on the day-to-day improvements, continuous improvement, excel on the basics, is our mantra that we are working with, and bringing, so to speak, the business into the right levels of the organization.

So I think, we will conclude by saying that and open up for questions, Henry.

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Questions and Answers

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Henry Sténson, AB Volvo (publ) - EVP of Group Communication & Sustainability Affairs and Member of the Group Executive Board [1]

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Very good. Thank you very much, Martin and Jan. And we will start with a few questions in this room, and then we'll go over to the telephone conference and then see if we can balance that. Please remember to mention who you are when you start your question. We start in this end.

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Hampus Engellau, Handelsbanken Capital Markets AB, Research Division - Research Analyst [2]

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Hampus Engellau, Handelsbanken, and I have 3 questions. Starting off with the launches. Could you talk a little bit about the common architecture between UD Quon and Volvo, and maybe on Croner and Quester, and if there's any further change to that going forward? Second, related to that question, is launch costs, something that Volvo previously has highlighted. Are there any significant launch costs during the second quarter? Last question is more on a speculative basis, but we've seen contracting volumes for Trucks for quite some time, and we continue to see rising margins, quite high margins. How should we think of operating leverage in the group when volumes turn up again?

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [3]

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Yes, just to start with the launches then, obviously, what we are continuing to do now -- I mean, historically, we have been -- or historically, but I mean, over the last 10 years, you can say, from mid-last decade, we have gradually getting our act together when it comes to powertrain. But what we see now is also that we are leveraging more and more of the common architecture also on the chassis side, not at least that we have a modular pattern on the frames. And that sounds as a small thing, but it's a big thing when it comes to really sharing different type of components and parts, and being able also to decide for -- not at least, for example, emerging products like the UD Croner, when that is gradually upgraded to more advanced logistics, you can also change, so to speak, the component content accordingly. So we have been very disciplined in working with not only the powertrain interfaces but also the cab and the frame interfaces. And that, obviously, will continue to give good effect, both when it comes to offering the broad range but also to leverage the joint ventures also because when it comes to Quester and Croner, they are also working with interfaces to Dongfeng and Eicher also, so we can use that in a good way. Also, when it comes to Quon, higher content now, obviously, of shared technology, and that is based on the common architecture. So what we have now in technology is a guardian angel organization, if I put it like that, and that is the cost organization when it comes to being disciplined around mainly the standardized interfaces. Launch costs will not be disclosed separately because we have a little bit changed the strategy to make it pretty down to earth. So that is the answer on that. And on the last one, yes, I think you should think like this, Hampus, that what you see is obviously our ability to -- because when you say lower volumes, 4%, that's true, but that's on average. And since average is the mother of nothing, we need to look into the different regions. And I think what we have shown with the downturn in -- I mean, just take Volvo, for example, in North America, down 40% in volumes in quarter 1, and still, we are, so to speak, being in okay black. That should not have been the case. So our ability to really do that in a good way, both on the hardware but also a better platform now when it come to the service business and our proprietary. And as a matter of fact, what you say is, if you look into the European system, we see now where the capacity utilization stability, working closely together, that we are getting leverage also from that. And that is part of the explanation that Jan said also, for example, for Europe and also for international. So -- and that's the reason why we are -- when we are doing the volume planning, we are really making sure that it is the regions and the whole value chain doing that together and putting, so to speak, the positive pressure that they are following it together and making a handshake between operations, purchase and production, sales and the different market companies. And that is also giving an effect in our volume planning process because that's the key for full leverage, basically.

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Henry Sténson, AB Volvo (publ) - EVP of Group Communication & Sustainability Affairs and Member of the Group Executive Board [4]

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Very good. We have the next one here.

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Erik Pettersson-Golrang, Nordea Markets, Research Division - Senior Analyst of Capital Goods [5]

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Erik Golrang, Nordea. I have 3 questions. The first one is on services and the strong day. Is there a specific working day effect you would like to highlight in that 6% given that it's relatively European centric? Second question is on the positive mix in Trucks that you continued to highlight with strength in Europe. I'm guessing, based on orders now in North America coming back, the mix, at least, will shift. Will that mean a significant or material negative mix then eventually? And the third question is on price increases, what you've done or planning to do to offset material cost increases.

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [6]

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In terms of service, when it comes to -- I think we have 1 or 2 more working days in the first quarter this year compared to what it was last year, a little bit on average over the globe. You had the Easter holiday in the first quarter last year, and now we have it in the second quarter, so it's a small effect of that one.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [7]

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And then when it comes to price increases, if you take Europe, I think it's -- we have discussed that a couple of times. If you really see the price realization, I think it has been more flat than expected given the strong market, actually. And obviously, that is something that we are working on to see what we can do in realization. When it comes to the material effect then or the purchasing and the raw material, there we are more working on the cost side to see, okay, how can we actually compensate the raw material with the commercial activities and smarter solutions not only to press our suppliers but come with smarter solution together with them, so to speak. So we are trying to offset that more on the cost side, so we are not, so to speak, diluting our commercial top lines, so to speak, with that because then it's a bad excuse, so we are [ saving ] a wash.

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [8]

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And then when it comes to the regional mix, I think the industrial system in North America will be quite good if we get more volumes into that. So I think that's the focus that we should have. The mix effects is kind of a mathematical thing that we measure. So take it is a positive if we get volumes into North America rather than anything else.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [9]

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The cost leverage, of course, is...

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [10]

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Yes.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [11]

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Given the stop days and we'll have [ des sort ]

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [12]

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Yes.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [13]

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If anything.

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Henry Sténson, AB Volvo (publ) - EVP of Group Communication & Sustainability Affairs and Member of the Group Executive Board [14]

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Very good.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [15]

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If anything.

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Henry Sténson, AB Volvo (publ) - EVP of Group Communication & Sustainability Affairs and Member of the Group Executive Board [16]

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We continue.

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Björn Enarson, Danske Bank Markets Equity Research - Head of Equity Research-Sweden [17]

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Björn, Danske Bank. Three questions. If you can just shed some more light on the Asian Trucks JVs. It's as -- it looks like it's having a more and more significant impact. Then if there are any, where we are in that process and how we should look upon that going forward? And second question, on service sales, and you're talking about untapped potential. But do you also see that in Europe in some way to drive that further? It's more of a mature market, of course. And then again, on pricing with rest of the world, to a large extent, of course, sourced out of Europe. Don't you believe one could expect a more positive price environment as capacity to start the utilizations start improving in the European system further?

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [18]

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If we start with the last one, I do agree because when it comes to the international markets, obviously, going strong as well. And when it comes to the European truck manufacturers, in generally speaking, obviously, a big part of the international volumes, except for North and South America, is coming from the European production systems, so that will further put, so to speak, pressure on the total capacity utilization, which should, at least in theory, be a good sign. And then -- and as I said, we are working on trying to realize that opportunity. But it has been pretty hard to see any realization, in all fairness also. But in theory, you are correct, Björn. Then when it comes to the services, also for Europe, I think that goes for all segments. And one of the key drivers in Europe for us is, obviously, that we have seen a better penetration also in, for example, the construction segment for Volvo in some of the key markets. We have a very strong offering, but it has been historically underperforming in some of the markets when it comes to market shares. And that we also know, and you know it also, that we have a good opportunity when it comes to service revenues into this because you have, first and foremost, the first owner, maybe 6 to 7 years instead of 3 to 4 years, and then also having the good habit of actually strolling around the workshop in a better way, so it's easy to serve from that perspective and less focus on their own workshop. So that is one example of how we are driving it. And then in total, we see a trend also that outsourcing from the fleets continues when it comes to their own workshop operations. They want to concentrate on their core business, so there are further opportunities in that area as well. But obviously, when it comes to the service penetration, relatively speaking, it's much higher already because we have the contract penetration that is much higher in Europe than in other markets, but we are working on that as well. And what was the final...

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [19]

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Joint ventures.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [20]

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Yes, joint ventures. Would you like to say something, Jan?

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [21]

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Yes.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [22]

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Okay. Then we do that.

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [23]

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No, I think the swing on it -- I think I should -- the long-established joint venture, I mean, that's pretty stable. Actually, that's not where you see the big swing in the results. Actually, it's mainly coming from Dongfeng Commercial Vehicles. When we go back to 2015, which was we acquired a company -- or 45% of the company on the 1st of January, that was the year when the market went down really, if I remember correctly, 27%, and then came into loss-making figures. And a lot of internal work was there actually to improve the profitability, take out costs. And that effect is all gradually coming through in 2016, actually. And the Dongfeng Commercial Vehicles made money in the whole of 2016, but the start was tough in 2016. So I think we are kind of struggling to come back to the levels of profitability that we -- that that company had when we acquired it, and I think we are on a good way to do that. Also, if you look up on the markets, 1 million vehicles this year, it's a little bit coming back to the volumes that it had when we acquired it as well. So I think that's the main reason. But a lot of hard work internally, adjusting the cost base, securing also the quality of the business that we do there, not necessarily always go for market share but also a little bit like we behave in Europe and the rest of the world, looking into having a good gross margin on the vehicles we sell rather than chasing just the market shares and so on. So let's -- with this market, I think it can actually continue to be a pretty good result in DFCV this year as well.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [24]

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And I mean, we have also concluded a number of important component contracts and cooperation. And I think this type of activities is also building a lot of trust and partnership between the parties because when you have these type of activities, you must spend a lot of time to build trust and to make sure that the 2 parties are actually feeling that the contribution is coming from both. And here I think, during the last year, Jan, both you and me and a lot of our senior executives have been working together with Dongfeng's senior new management. And there I see a lot of good progress also when it comes to building a strong relationship, build on -- based on the commercial marriage for the 2 companies because that's the only way in the long run. Normally say that, well, okay, if you have 45%, I mean, you are not in control. But I mean, I think experience tells you that you can have 0, 20%, 40%, 60% 80% or 100% in equity, and it could be a failure or a success. And it's not related to the equity. Even if we tend to think that if you are mastering the game, then you can decide everything. But you have seen a lot of companies had been -- have been bought up to 100% and been put into a bad situation anyhow. So here, it's based on that the 2 parties feel that this is good, it's a win-win for really in the long run. And there, I think we have a very good track right now and a good momentum.

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Henry Sténson, AB Volvo (publ) - EVP of Group Communication & Sustainability Affairs and Member of the Group Executive Board [25]

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Very good. Then we will move over to the telephone conference and those of you who are participating. Please, operator, can we have a question from the audience out there?

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Operator [26]

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(Operator Instructions) Our first question comes from the line of Graham Phillips from Jefferies.

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Graham Phillips, Jefferies LLC, Research Division - SVP Industrials, Capital Goods Research [27]

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Three questions, please. First, just on the Financial Services, you talked about reduced financing activity, increased competition. Could you talk whereabouts you are in the rating agencies' cycle because one of the things there is that compared to your competitors is that you have a low credit rating? The second question was around warranties. I think there was a less provision for warranties. Which division did that help and how much? And thirdly and finally, on R&D, SEK 550 million, I think, was the total headwind there. Which division and what proportion of that was Trucks versus other division?

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [28]

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Let's just start with Financial Services. I think the -- what we see is an increased competition from -- mainly from banks and leasing companies, and that is a little bit the reason why we have a lower penetration compared to last year. Is also -- there is also a little bit of a mix effect. Some of the markets where we always have a lower penetration, like France and Japan, is actually markets that have been growing, so we have a little bit of, once again, one of these mix effects. But of course, it's due to the fact that we see the tougher competition. And I think we had talked about it quite a lot before. It is important for a company like Volvo to have strong earnings but also have a decent balance sheet. We are now at a net debt-to-equity ratio of 0 if we exclude pensions. And I think with all the hard work that we are doing with improving the profitability, cash flow, balance sheet, I think we will get back also a little bit on rating because we are not satisfied where we are our rating today. I think as company like ours, this is a cyclical company, it is a heavy-investment company, and we have a financial services arm, should be somewhere around the strong BBB to a weak single A in terms of rating, and we are not there. But of course, we hope also that the -- all the work that we are doing, that it will pay off gradually also in terms of improved rating. When it comes to the warranty, I mean, we -- it was mainly related to the Trucks side. And as we explained, last year, we had, among others, safety recall campaigns in North America that we don't see this year. So you can say the main effect from that one is on the Trucks side. And then in terms of R&D, it's the same there when it comes to the capitalization and amortization effect. The major effect, if not almost everything, comes from the Trucks side.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [29]

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And if anything, when it comes to R&D for, for example, Construction Equipment, as Jan said, we took SEK 112 million for the restructuring charges of taking out 400 to 500 positions in R&D for Volvo Construction Equipment by simplifying the setup of Volvo Construction Equipment, and that will have a yearly effect of some SEK 400 million, SEK 500 million, were of approximately 50% this year. On the other hand, we are putting more efforts in Penta because in order to continue to have the growth pattern that we have seen, we also want to extend the range where we have the technology and offer customers. So we are working really part-by-part here and don't have, I mean, average cap. It's more depending on cycle and offerings.

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Graham Phillips, Jefferies LLC, Research Division - SVP Industrials, Capital Goods Research [30]

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So -- and just a follow-up, do you know where you are on the rating agencies' cycle of reviews on your credit?

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [31]

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Oh, they continue as they always had. And they come and visit us once per year, twice per year, and we continue to update them. So I don't know exactly when we have the next meetings but...

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [32]

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But I think the message is clear. I mean, we have communicated that a number of times. Number one, steady continues increase of earnings that are understandable, why is that happening and, really, I mean, to drive that underlying quality. Secondly, better cope with volatility that was shown, for example, of the North American cycle, continue to show that in a steady and savvy way. And then a responsible use of our capital and not at least when it comes to the balance sheet. I mean, those are the 3 that we only can show by -- I mean, now I think this is the ninth quarter in a row. And we will continue to focus on that to be, I mean, credible and foreseeable as a company.

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Operator [33]

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The next question comes from the line of Olof Cederholm from ABG.

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Olof Cederholm, ABG Sundal Collier Holding ASA, Research Division [34]

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It's Olof from ABG. A couple of questions. On Construction Equipment, the -- is there more rightsizing to be done going forward? And also, the -- there was a pretty good leverage on this volume coming through. Was there anything specific in the Q1 this year, or do you still expect sort of normal seasonality in sales and margins as we look into Q1 -- Q2, sorry, if we start there?

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [35]

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Thank you, Olof. First, when it comes to the rightsizing, as we already said in January, that we have a pretty big transformation program that is ongoing in Volvo Construction Equipment in order to make sure that we have a robust company for the future. And we are also very clear in both the Volvo Construction Equipment but, in particular, the management running, that we are separating what is, so to speak, the market effects of our improvements and results and what is, so to speak, the continuing ongoing self-help, if I put it like that, the transformation of the company because when you have such a --- pretty significant uptick that we had in quarter 4 now, it's easy to a little bit lose focus on the different parts. But we have a good organization in place to cope with both. So I think that is how you should think about that. And we will continue with building a really strong Construction Equipment. And they are on track, and we have a good momentum and motivation in the organization. Then when it comes to -- what was the second question?

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [36]

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Seasonality effects.

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Olof Cederholm, ABG Sundal Collier Holding ASA, Research Division [37]

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The seasonality, if there is normal.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [38]

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Yes, I mean, I think what you can say is, obviously, that quarter 1 was -- given the strong order intake that we had from the regions in quarter 4, stronger than it used to be, but otherwise, we see that the seasonality is there. But it tends to be in an uptick that the seasonality is less pronounced depending on the -- not the lack of, but the availability of volumes for Volvo customers. So that -- what we see is that Construction Equipment has been good in realizing orders into shipments and volumes, and that is what we are concentrating on right now.

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Henry Sténson, AB Volvo (publ) - EVP of Group Communication & Sustainability Affairs and Member of the Group Executive Board [39]

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Very good. And we will have one more from the telephone conference, and then we will go back to this room, okay? Operator, please.

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Operator [40]

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Our next question comes from the line of Klas Bergelind from Citi.

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Klas Henrik Bergelind, Citigroup Inc, Research Division - Director [41]

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Martin and Jan, it's Klas from Citi. A couple of questions, please. The first one, on North American Trucks, stronger performance in vocational versus long-haul currently. The long-haul fleet is still relatively new, so there is no real need for replacement. How should we think about how you will run production in the second quarter? You said that you would run normal production. Is that in line with demand, still below demand, or are you planning to ramp production higher than demand in the quarter, just so we get a sense for how capacity utilization can improve there? I will start there.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [42]

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No, as I said, I mean, if -- just to give an order of magnitude, obviously, if you look into the -- primarily then into the Volvo system or North America New River Valley, we had more or less, a little bit less than half of the available production days where actually not -- where stop days plan -- became planned stop days. And for quarter 2, we have taken out all the stop days, but we are not changing rate. So it seems that is -- and then on Mack, it's a little bit less pronounced given the fact that vocational is -- has been holding up better.

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Klas Henrik Bergelind, Citigroup Inc, Research Division - Director [43]

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My second question is on productivity. You have talked about the growth improvement of some 5% in the manufacturing system as you optimized the flow in manufacturing from design to purchasing, supply chain and then final assembly. The improvement in the margin today in Trucks is driven by lower cost for the recalls, higher service revenues and from strong performance in the JVs, and the margin is now around 10%. So here's my question, really. How much do we have left in the journey to reach 5% productivity? If you're only in the beginning of that journey, then I can see an EBIT margin in Trucks that can reach north of 12% on my calculations. Just to hear your thoughts, Martin, on that, please.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [44]

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Klas, we keep our new -- a normal habit to let you do the calculations for your -- in your Excel sheet. But generally speaking, as we said -- and we commented on that also. As I said, Klas, we commented on that already, and Jan did it in the financial presentation. But obviously, again region by region, that now when we have -- and that has been good for us also, that has been a gradual upgrade in the European system, for example. Then we see leverage coming through because utilization rate and continuous improvement on the back of a steady increase is the most favorable, if I put it like that. At the same time, what I would like to say is that also happy to see that, in particular, that North America but also South America has been able actually to take down production with that high level of flexibility and also coming a little bit north of 0, so to speak. And I think that is a strong achievement to build a more solid platform for the future.

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Klas Henrik Bergelind, Citigroup Inc, Research Division - Director [45]

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But I mean -- just to follow up, I mean, I understand that the European system is well run. And also, when you look at excavators in Asia, that's up in Korea, that's strong. But you are still sort of rolling out the [ seamless ] flow in other regions, such as in North America, in parts of Asia, you have the self-help also in UD, et cetera, so shouldn't that come going forward, so to speak?

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [46]

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Yes. As we started to say, we said that we are pleased but not satisfied. And I think you are onto something that we are working a lot with, that is to really look at flow by flow, and really starting from the customer going all the way into our Tier 1 and Tier 2, and see that we have a good balance. And there, obviously, we have an advantage, that we have good experience from different parts of the organization. Having said that, I think it's also valid to say that in some parts of these processes, we see it, for example, that Japan is much stronger than our European system. So it's a give and take also when it comes to more granular level on different parts of the process, so to speak. And when it comes to North America, you are right that we are currently, actually, driving a program to make -- which is always painful to do also, by the way, not at least now when it comes to Mack, we are driving a program in order to facilitate the order process, not at least, and since we have a very high level of variation in the Mack range, so to speak. So that is -- will give effect, say, going forward, but currently, that is pretty tough, if I put it like that.

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Henry Sténson, AB Volvo (publ) - EVP of Group Communication & Sustainability Affairs and Member of the Group Executive Board [47]

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Thank you so much. We will move over to questions in the room where we are here in Stockholm, and I hand over the microphone.

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Agnieszka Vilela, Carnegie Investment Bank AB, Research Division - Financial Analyst [48]

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Agnieszka Vilela, Carnegie. I have one question on Construction Equipment. You said that you were happy with the production ramp-up in Q1. Do you expect a similar realization going forward, or do you see any risks at your capacity, at your end, or any risk for bottlenecks from the suppliers?

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [49]

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Generally speaking, the least, if I put it like that, of -- not at least in the supplier network of coming closer to bottlenecks has increased because you see higher capacity utilization. And since many of the suppliers are common also for not only for Construction Equipment but also with agro and with Trucks, among others, there we are working and being proactive. And so far, it has been okay. But it's true that this is a concern that we have and that we are focusing a lot on, so to speak. So far, it has been okay, but when it comes to our own capacity in Construction Equipment, we will gladly welcome more orders.

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Henry Sténson, AB Volvo (publ) - EVP of Group Communication & Sustainability Affairs and Member of the Group Executive Board [50]

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Very good. Does all --- and are there any more questions in this room? Okay, please.

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Christer Magnergård, DNB Markets, Research Division - Head of Equity Sales and Research [51]

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Christer Magnergård from DNB. Just around a question about the governmental sales, if there's been any progress about divesting that business?

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [52]

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It goes according to plan. And the plan is that it will be ready this year, latter part of this year.

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Henry Sténson, AB Volvo (publ) - EVP of Group Communication & Sustainability Affairs and Member of the Group Executive Board [53]

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Olof, please. I'll come up to you.

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Olof Jonasson, [54]

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Olof Jonasson, AP1. I just wonder about the Dongfeng sales in China. How much is the improvement due to the more stricter view on overload in China? And how will that affect the mix of sales of Trucks and your kind of situation there, in a way?

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [55]

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Now I think that is absolutely one of the major effects, obviously, because you need more capacity, even the fact that you cannot overload. And that is also pretty quickly shifting into more tractor-trailer combinations rather than [ radius ] because that is more efficient way of doing it, and that in conjunction also with the general development of the logistical system we have been talking about, for example, the e-commerce segment, where you have completely new actors, and they are coming in with logistics as a core of their -- on the back of their business model. Having said that, obviously -- so I fully agree what you say there. But having said that, historically, Dongfeng and DFCV has been strong in the region segments, so that is one of the key areas where we are working together how we actually are improving our range in the tractor segments. And the good news, obviously, is that one of our core segments, both for Volvo but also for other brands in the group, has been tractors. And we are, for example, by far leading on the tractor segment in the heavy-duty in Japan. And that is also, as you know, also both for Volvo in the South, North and America and Europe our --- so the competence is there, but we need to strengthen that range in Dongfeng and DFCV.

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Henry Sténson, AB Volvo (publ) - EVP of Group Communication & Sustainability Affairs and Member of the Group Executive Board [56]

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Okay, thank you. Any more questions in the room? We have 2 more on the telephone conference, so why don't we conclude with those 2 and then finalize the whole thing. So please, operator, give us another question from the group out there.

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Operator [57]

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Our next question comes from the line of [Theo Morley] from [Artemis].

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Unidentified Analyst, [58]

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Just given the changes of profitability, I was wondering if there was any obvious changes to dividend policy going forward.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [59]

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No.

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [60]

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No.

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Operator [61]

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The final question comes from the line of José Asumendi from JPMorgan.

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José Maria Asumendi, JP Morgan Chase & Co, Research Division - Head of the European Automotive Team [62]

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I just wanted to come back to this earnings contribution from the joint venture operations, India and China in -- on the Truck division. Can you just give us just sort of a guidance what was the EBIT margin or profitability of both JVs or operations last year and in -- so last year first quarter and in this first quarter, please?

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [63]

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I think we take a simple way. I think you can contact our Investor Relations afterwards, and they'll show you where you'll find this information in the Q1 report.

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José Maria Asumendi, JP Morgan Chase & Co, Research Division - Head of the European Automotive Team [64]

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I just lost you there. Did you just -- did you go from loss-making to breakeven?

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [65]

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No, no.

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [66]

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No, we went from loss-making in DFCV...

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [67]

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To profit.

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Jan Gurander, AB Volvo (publ) - Deputy CEO, CFO and Member of the Group Executive Board [68]

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To profit in DFCV.

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [69]

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And we have a pretty stable level on Eicher, no big shifts in Eicher performance. So it -- the big difference is coming from DFCV.

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Henry Sténson, AB Volvo (publ) - EVP of Group Communication & Sustainability Affairs and Member of the Group Executive Board [70]

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Thank you so much. Martin, any final remarks you can make?

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Martin Lundstedt, AB Volvo (publ) - CEO, President, Member of the Group Executive Board and Director [71]

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No, I think we have had good questions and, hopefully, also a valid presentation. So we just thank you and wishing you a continuous good Tuesday week. Thanks, everyone.

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Henry Sténson, AB Volvo (publ) - EVP of Group Communication & Sustainability Affairs and Member of the Group Executive Board [72]

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And let me then remind everyone that we could meet next time to 23rd of May in Eskilstuna for the Capital Markets Day. Thank you so much, and we'll see you soon again.