Earnings Call: Q2 2021

Jul 30, 2021

Ladies and gentlemen, welcome to the conference call of Triton SE. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. One final request, please note the disclaimer that you will find at the beginning of the presentation. I now hand you over to Urs Vohler of Trajan, We will start the meeting today. Thanks, Kai, and welcome to everyone or good afternoon Good morning from wherever you have dialed in. I would like to welcome you to our first half conference call today in very good hope that you and your families are well. Together with me, today on the line, as always, our CEO, Matthias and our CFO, Christian, together with the usual representatives from the legal department, from finance and from treasury and IR. As you are all aware, some of our KPIs already been pre released on July 13. And this is why there is limited additional news, Which is particularly belonging to the brand level. Matthias and Christian will provide more insights into these data And we'll elaborate on why we think we have solidly continued to perform in the Q2 of this year And that some of the very good trends we have seen in Q1 has even accelerated. After these Miles per hour of the presentation, Matthias will continue to highlight some of the potential we see already for our newest trading family member, which is Navistar. And this is then followed by a short wrap up of our latest e mobility efforts. In the last section, both will guide You through the outlook. And after the presentation, as always, we hold a question and answer session where we already ask you To limit yourself to maybe 2 or 3 questions per session, so that everyone has the opportunity to ask a meaningful question. Before Matthias and Christian will start, I have to come up with some housekeeping items. You should have all received the material for today's call, which It's the half year financial report together with the Investor Relations presentation. If you have not received it, please grab it from our website, Which is www.trayton.com and they are under the Investor Relations section. And I should also make you aware of the disclaimer, which you will find on Page 2. To take already one question upfront, If you have looked in the material and didn't find the Navistar figures included, that was on purpose Because the deal closed on July 1, and therefore, we have we will include the Navistar figures for the first time With the Q3 9 months reporting, which will be in late October. In the meantime, we have to convert from U. S. GAAP to IFRS. Purchase price allocation has to be prepared, and we ask for your patience. This takes some time. It's not that we don't want to, but we Still have to be a bit patient in order to have these data ready. So with that, I would hand over to Matthias And I'll ask him to start with the first section. Thanks a lot, Roel, and a warm welcome from my side. Let's start with a summary and highlights of our business performance in the first Half year of 2021, let me make some remarks on our very robust development. You can find them in the upper box on Page 4. Overall business recovery continued and even accelerated in the Q2 compared to the Q1, despite a still challenging environment. We managed the challenge in Q2 well, especially in the light of semiconductor shortages we saw in the industry. What are the challenges for the remainder of the year? There are still supply chain bottlenecks like semiconductor, and we still see setbacks because of the overall COVID-nineteen pandemic situation, which we have to watch carefully. Our underlying market trends, especially in Europe and South America remained solid also in the Q2. Thanks to these trends, incoming orders for our trucks above 6 tonnes were up substantially in all regions. Incoming orders during the first half of twenty twenty one came in at more than 147,000 units with nearly 77,000 incoming orders in the Q2 2021. With nearly 171,000 units, including buses and men's, we reached the highest level Of incoming orders in a half year for Trading Group ever. Also, 2nd quarter on a stand alone basis was outstanding and another record after the Q1's record with incoming orders of more than 89,000 units for trucks, buses and vans. Truck unit sales were also up Significantly and totaled nearly 109,000 units. When we have a look on to the profit line, our adjusted operating result was significantly up to €1,130,000,000 This was achieved thanks to continued good sales momentum from our renewed truck lines in combination with strict cost discipline. Also in comparison to 2019, adjusted operating result was slightly up. Consequently, Adjusted operating return on sales improved substantially to 8.3%. Both parts of the business, The industrial part and the financial services arm contributed to the improvement. EMEA and FRAG and BAS booked EUR672,000,000 Of restructuring expenses for the repositioning in the first half of twenty twenty one, of which EUR362,000,000 They're already booked in the Q1. Last highlight to mention is our net cash flow in the Industrial business. For the first half, it increased to €527,000,000 an increase of €130,000,000 in the second quarter after we showed a net cash flow of €397,000,000 in the Q1. Still a solid result for Q2 as we have to keep in mind The seasonal pattern for net cash, where the 2nd quarter is one of the weaker quarters. And during this quarter, we had to deal with the management Of the semiconductor shortages and our strong order intake. On the lower box of the page, You can see that we are also making good progress on other topics important to Triton. We executed important steps in our MAN realignment process to improve the operating result. We have successfully completed the NavyStar merger and boosted In e mobility, a recent example for our ambitions to foster e mobility and become an electric leader together with Daimler Truck and the Volvo Group, we plan to pioneer a European high performance charging network for heavy duty trucks and coaches. We will come back to this in some minutes. Last but not least, Trade will increasingly focus on China in its future strategy. We will provide you with some more details in due course after the summer break. And with that, I hand over to Christian with the detailed financials. Christian, please. Thank you, Matthias, and also a very warm welcome from my side. I'm now on Page 5, which summarizes the Q2 achievements for some of our core KPIs as pre released on July 13. Looking at our key figures, All have been clearly up versus prior year's Q2. As you know, the Q2 2020 was severely affected by the corona pandemic. But besides the cash flow, key figures are even above the robust Q1 and therefore clearly showing into the right direction. Incoming orders reached new highs and almost tripled compared to the Q2 2020. Unit sales jumped back to pre COVID-nineteen levels with more than 66,000 units. Please bear in mind that Q2 2019 saw some pre buy effects related to the introduction of the digital telegraph and Brexit pull forward effects in UK. For both incoming order as well as unit sales, this was a sequential improvement of around 10% versus an already strong first quarter. Sales revenue reached €7,100,000,000 noticeably be up. That development is a clear testament that our new truck generations and our services offers are gaining strong traction. The adjusted operating result increased to EUR 612,000,000 an increase of almost EUR 1,000,000,000 compared to 1 year ago. Adjusted operating return on sales was at 8.6% for the Q2 of this year. Net cash flow, very solid, And I will elaborate on this a little bit more on Slide 10. I'm now on Slide 6, where we can see the development of our unit sales And incoming orders on absolute in the left hand and relative level on the right hand of the chart. The market recoverance went faster than we expected And even accelerated during the first half of this year. Incoming orders of trucks were likewise recovering faster than anticipated in combination with good perception of our new truck lines, which helped the order momentum. The order momentum is broadly based across all our main truck markets, Most of our core markets showing double digit percentages in growth. As you can see on the left hand graph, unit sales in 1st and second quarter On the same level of 2019, orders are already on a higher level. By relating incoming orders to unit sales, you can see that our book to bill ratio Was Belibaf 1 with 1.3x for industrial business in 2nd quarter, confirming the trend of the Q1 in 2021. Looking at the year over year change on the right hand graph, we see that unit sales are following the incoming order momentum, which means there's a good opportunity for us For the remainder of the year and even beyond, if all runs well in light of the before mentioned challenges, which have been highlighted by Matthias. The next slide on Page 7 is for your reference as it confirms we have reached pre COVID levels already 1 year after The COVID-nineteen pandemic had its lowlights. Availability of our new truck lines allowed us to achieve stable sales revenue of EUR 7,100,000,000 In the Q2 2021, it helped us to improve our margins by around 60 basis points for Trade and Group compared to Q2 2019. And as already highlighted, Q2 2019 contains the prixue effects related to the introduction of the digital telegraph and Brexit pull forward effects in the UK. Adjusted operating profit in the first half of twenty twenty one totaled, as Matthias has already said, to EUR 1.128 €1,000,000 and the adjusted operating return on sales was 8.3%. Different to practice in the industry, Our operating result does not contain the Adequity accounted results, which amounted to EUR 126,000,000 in the first half of the year 2021. If these were added to make them comparable with the results of our competitors, our adjusted operating results, including at equity results, would have amounted to EUR 1,254,000,000 and accordingly, the return on sales would be on 9.2% by the first half of 2021. All we managed to show a stronger first half in the year 2021 than we had in 2019. On the next slide, we show the first half group development in a bridge for sales revenue and operating result. I can just emphasize That we are on a very good way. As you can see on the left graph on that page, all free brands showed strong double digit percentages increases in their top line. Scania added €1,900,000,000 sales revenue and demand followed with €1,300,000,000 versus first half of twenty twenty. Camiones Omnibus had higher sales of €400,000,000 compared to their size, a powerful achievement. Also financial services showed a small 2% increase, bringing the total group sales revenue to €13,600,000,000 35% up compared to the first half twenty twenty. On the right chart, we see that the increase in operating result was also fairly well distributed with regard to the size of each brand. MAN approved its adjusted operating result by €567,000,000 whilst Ghana was a notch better with an improvement of €639,000,000 year over year. But also, Camionis Omnibus and Financial Services saw a decent rise in operating results. Altogether, we had a swing of more than EUR 1,300,000,000 versus the first half of twenty twenty. Adjusted return on sales at Scania Vehicles and Services is at 12% for the first half of twenty twenty one, confirming its top position within the industry, As we already saw in the Q1 2021, including Financial Services, Scania reached a return on sales of 13%. Worth mentioning MAN. The MAN team achieved to improve its earnings once more, which is showing that first successes of the repositioning process take place. Further levers has been higher sales revenue, The introduction of the new drug generation and the continued strict cost management. Last, not least, Camionese Omnibus. Our team in Brazil achieved a strong return on sales of 7.6%. 2nd quarter was even stronger than the Q1 with EUR 45,000,000 operating result And 8% return on sales. This was driven by higher sales revenue and an improved product positioning. Last, the Financial Services business. We saw an increase in revenues. We reached nearly 24% adjusted return on sales, meaning that operating result more than doubled to €100,000,000 I'm now on Slide 9, where We have detailed a view on brand level for unit sales and incoming orders on a quarterly basis. Starting with Scania, both incoming orders and unit sales Showed a strong increase year over year in the Q2 2021 and followed the positive trend from Q4 2020 and the Q1 of 2021. Truck incoming orders were more than 2.5 times higher to be Fair from a lower basis, whereas unit sales more than doubled. But also on an absolute level, the 2nd quarter is outstanding on both metrics. Regionally, we saw strong incoming orders of trucks in all regions, especially in our core region, Europe and South America. This was also confirmed on the unit sales level. Looking at MRN, a strong increase on unit sales and incoming orders was visible as well. Truck orders likewise were then 2.5 times higher and unit sales increased by 84%. We once more followed the margin before volume approach With our new truck generation at MREL. The incoming order increase on a regional basis was both driven Europe and other regions like Russia, Of course, with EU on an absolute level on the forefront and according to MEN regional mix. Same was true For the unit sales, on the bus unit sales, both brands still showed only minor improvements, whereas the incoming orders for Scania increased strongly compared to previous year's very low levels. And many incoming orders for buses showed a declining path, but compared to Scania for a higher level. Last, let us spend some seconds on Camionis on incoming orders and unit sales in the Q2 of this year and posted increases in trucks and bus orders and unit sales. What is nice from a mix perspective is the new product positioning with our heavy duty truck line pays off. On Slide 10, we show you the development of our net cash flow within the Industrial business. After the strong cash flow in the Q1, We have been able to once more show a solid net cash flow of €130,000,000 Year over year, the net cash flow improved by €309,000,000 in the 2nd quarter. When we have a look into the line items, we see clear positive from adjusted operating results, which increased by close €1,000,000,000 On the other side, working capital step up driven by management of semi shortages Throughout the Q2 and inventory step ups caused by our strong order intake had a reverse effect on our net cash flow. Investing activities were almost stable compared to the Q1 2020 at about €298,000,000 As you know from our very short history, the Q2 is normally seasonally one of the weaker quarters when it comes to net cash flow. That gives us some comfort with regards to our net cash flow guidance for fiscal year 2021. Overall, The good net cash flow generation was helping us to increase our net liquidity position. Once again, we show no net financial indebtedness in our Industrial business, but close €578,000,000 net cash in the first half of the year. With that, having said, I hand back to Matthias, who will provide you with more details on the potential We see in our new company, Navistar. Thanks a lot, Christian. We are now heading towards a few slides on the newest member of Our family, NavyStar. To start off, I want to recap an important milestone in the history of our young company. On July 1, we have successfully completed the Navystar merger and are extremely proud to welcome a new member in the family. The addition of Navistar as the newest member of the trading group marks the beginning of a new era. I'm now on Slide 12. Let me make a small remark on Navystar's financial reporting before I outline our new setup in the trading group. Navystar, besides the ad equity income, It's not in our numbers for the first half of twenty twenty one as the closing was done on July 1. We plan first consolidation of Medi start with the Q3 report this year. Kraton is now a family of 4 leading brands around the globe. All of them This will also be supported by our associates and strategic partners, be it on the procurement side, like with Eno, on the technology side with our stake in TuSimple. Altogether, we have the right ingredients to offer sustainable mobility solutions for the transportation sector and for our customers. Most of you already saw our sneak peek Navistar back in November 2020 when we announced the merger agreement. On Slide 13, we provide a comprehensive overview of Navistar's business. Like all other players in the industry, Navistar was heavily impacted by the COVID-nineteen pandemic in 2020, and all major KPIs reflect that. Before the pandemic, deliveries have been at more than 106,000 units and revenues reached $11,300,000,000 The EBIT margin Already at 6% in pre pandemic times. Naviosa has a clear position in the U. S. Being number 4 in the market And the vast majority of their production plants are located in the U. S. And in Mexico. It shows that from now on, we have a strong footprint in the NAFTA region. This brings me to the next slide, which summarize the rationales we want to benefit from in the future. NavyStar is the perfect fit for trading. It offers the opportunity to access the attractive NAFTA profit pool directly with a high complementary geographic footprint. With this, we now are able to capture more than 75% of global profit pools as NAFTA accounts for around 35%. We can also now fully capitalize on a successful strategic alliance to leverage powertrain components. Just a refresher, Our new 13 liter carbon base engine will have 80% commonality. We intend to lever this new engine all across the group. Lastly, the merger with NavyStar will provide TradeNIM with a well balanced and global footprint. That means we will generate a significant share of our future revenues in the NAFTA region and balance our total revenue, which so far was largely sourced from Europe and South America. Further, Tradin can now serve 3 key truck market regions, which all have distinct cycles. Serving all three regions will permit to smooth out the amplitude of the regional cycles. Coming to Slide 15. This slide summarizes one of the big potentials we see for Navistar. NavyStar is strong in the bus, medium and light duty segment. It had also once a decent market share in the 13 liter segment. The Maxwell engine issue were eating up a significant portion of this market share with its low point in 2016. Since then, it improved constantly until the pandemic took place. Looking at the status at the moment, our ambitions are quite simple but effective: Establish a strong and competitive product in this segment and gain back market share. How we get there? I gave the answer a minute ago. Navistar can make use of Our powerful components and technology setup within the group. To make the picture complete, let's now have a look at Slide 16. Once we have gained momentum and increased market share, we can fully rely on the access to the excellent and, by the way, largest dealer network in North America. The strong distribution and service network is completed by the service partnership with Loves Travel Stops, An industry largest leading service network. Navystar's network is positioned to be industry leader in uptime and minimize customer downtime. In combination with a strong product, this can and will clearly drive profitability and strengthen Navy Staff's position as one of the leading players in the U. S. On the next slide, we provide a short overview of our recent refinancing activities in the light of the NavyStar merger. In November 2020, TRATON S. A. Took out a loan of €3,300,000,000 with Volkswagen, with a term of up to 30 months to finance the U. S. Dollar purchase price of the outstanding common shares of Mavisar. The total loan amount was reduced to €2,750,000,000 in May 2021 because of the solid net liquidity position of the group. In March of this year, we, for the first time, have been active in the euro debt capital market. Based on our recently established €12,000,000,000 trade and EMTN program, we have issued a total of €3,000,000,000 senior bonds. The bonds have majorities of 4, 8 12 years in fixed rate format. The average coupon stood at 0.67%. Prior to the bond market debut, Trade and SA had issued several full time dialing in a total amount of €700,000,000 with maturities of 3, 5 7 years in fixed and floating formats, respectively. The senior bonds as well as the Schulze and Dalian Have been placed at very attractive terms, allowing for an average interest rate for about €6,000,000,000 raised of below 1%. This will lead to savings of up to €120,000,000 annually in interest expenses already. The next three slides on our e mobility efforts before we end up today's presentation with the outlook section. The trend towards alternative drives Trade and position itself early on. We want to take a leading position here. Climate protection is an elementary goal for us. Since last year, electric buses from Scania and MAN have been on the road with a common electric drive. Our brands have set clear goals for alternative drives. In 2025, electric vehicles will account for around 10% of Scania's volume in Europe. At the same time, half of MAN's new bus will have an alternative drive. By 2,030, every second vehicle sold by Scania will have an electric drive. At MRN, at least 60% of trucks for delivery and 40% of trucks for long Distance traffic will be emission free. To underbid our ambitions and to ensure our customers can benefit from the shift towards e mobility, Together with Daimler Drugs and the Volvo Group, we have signed a non binding agreement to install and operate high performance public charging network For battery electric heavy duty long haul trucks and coaches across Europe. Within 5 years, at least 1700 high capacity charging points Powered by green electricity are to be created. In this way, Europe's 3 leading commercial vehicle manufacturers Supporting the EU in its sustainability goals, especially in heavy duty long distance trucking. Charging points will be compatible with vehicles of all Brands. The non binding agreement lays the foundation of a future joint venture. It will be equally owned by the 3 parties, And it's planning to start operating in 2022. Together, we plan a joint investment of €500,000,000 Every OEM should get equal rights and responsibilities. I now on Slide 20. Another crucial part of our ambition to act As Forerunner is a holistic offering of electrified trucks and buses. As I mentioned before, we have a good portfolio in place, which you can see on the right side of the Page 19. It will be enlarged in the months years to come to provide our customers with highly competitive and efficient vehicles. The table on the left already shows that we do so already nowadays. We have delivered close to 500 Electrofart units In the first half of twenty twenty one, there are most of them are MINTGs. But also for medium and heavy duty truck, we delivered 13 units. If you look on the left column, we see incoming orders of 76 units. This shows that we see more and more customers asking for electrified trucks. We will continue with this reporting to show all of you the progress here. With that, I hand back to you, Christian. Please. Thank you very much, Matthias. We are heading to the 2nd session of our first half presentation, the outlook. On Slide 22, similar to the last reporting, we have collected market views for 2021. Most forecasts foresee an increase of the truck market In Europe, which should range between plus 10% to plus 25% for the year 2021. These views remain more or less unchanged to 40%, as you can see in the middle chart. As shown on the lower chart, the truck market in North America is forecast to grow between 10% 30%. In conclusion, still market participants, including ourselves, are undecided how strong the recovery is taking place, which is also reflected in the big bandwidth we monitor for each market. On the one hand, we see strong truck order momentum. On the other hand, There is still high uncertainty arising from COVID-nineteen, but also with regards to the supply chain topics, especially Semiconductor and other component supplies. This leads me to the next slide, the outlook for the Trading Group in 2021. Our outlook still assumes a sharp increase in volumes and substantial increase in group sales revenue as witnessed in the first half 2021. With the ad hoc release of our core KPIs on July 13, we have indicated that we should achieve the upper area of our guidance On the operating return on sales to 5% to 7%, same holds true for the net cash flow. We expect our net cash flow for the Industrial Business at The upper area of the €500,000,000 to €700,000,000 Please have in mind that the entire outlook is before expenses for Structuring measures for the repositioning at MIN and before effects from the merger with Navistar International Corporation. Business trends into the Q3 remained solid, but will show the typical seasonal pattern, which is clearly lower sales Profits then achieved in the first half of the year, which is mainly due to the holiday season. So far we see similar to the first half, currently no bigger impact From the supply chain bottlenecks, mainly semiconductor and other components, to affect our manufacturing operations, but We stay alerted as the situation can always change. The constant rise on raw material costs adds to the overall uncertainties. Our continued cautiousness simply continues to reflect these uncertainties we currently see all around us like Now Matthias will have some closing remarks. Thanks again, Christian. This leads me to the last slide of our today's first half year session. Besides the very supportive market environment, Which we see on the both bubbles on the top, we have plenty of potential to lift our performance. As I mentioned already in the beginning, product wise, we have a very, if not the most competitive portfolio with our new truck clients On all brands at the very moment that will help to win new customers. The introduction of the new truck generation at MAN Is now largely completed and will allow EMAN to further reposition its brand. First benefits were already realized since second half of twenty twenty. This will be complemented by the start of the introduction of the common base engine in the Q4 of 2021. With successful implementation of our current base engine, we can concentrate now on new investment for future technology. That means we will continue to further speed up our electrification activities and expand our position on alternative drivetrains. With the plan to pioneer European high performance charging network for heavy duty trucks with standard truck in the Volvo Group, we committed ourselves to boost e mobility. Two other topics concerning the group's structure will further enrich Drayton's potential. The integration of NavyStar, the transaction delivers on our global champion strategy by creating a global leader across key product markets. Other important milestones were related with the IMEIEN repositioning. As most of you know, we are planning to sell the Steyr plant and end of June initiated the merger squeeze out of the M and S shareholders, which is also helping to streamline our organizational setup. I think we can truly say we managed well to emerge much stronger Rolf, we are now happy to answer your questions. Thank you. Thank you. Questions of the audience for you. Operator, please. Thank you. Ladies and gentlemen, we will now begin our question and answer session. And the first question we received is from Lars Bergelino of PPE. Your line is now open. Please go ahead, sir. Yes. Hi. Klas Bergelina at Citi. Can you hear me? I was wondering, Klas, actually, Hi, Klas. Hi, Christian. Hi, Matthias. So my first question is on production and price You ended your presentation with this, Christian, but is there anything we should think of beyond the normal seasonality now into the Q3? And I'm thinking about Scania here. You obviously handled the bottlenecks really well during the Q2, but we have read about some extended shutdowns That's going over the summer. So you wanted to confirm if that's the case and to what extent? And if raw materials will impact you more in the 3rd versus the second? So I'll start here. Well, look, as you have rightly said, I mean, we preponed the summer vacation by a week. We have minor impacts That we will see in Q3 in inventory stuff like that, but we do not yet expect Matthias high impact On operations, they are also in the focus. So far, not definitely. I think the preponement will stabilize the situation of the holidays. That's good. My second one is on NN and the impact from dual production and from the launch cost. And At the time of the IPO, you gave this information for Skania before, the margin drag. And I was wondering if you're willing to do the same for MVN. It could be quite good support for and into the second quarter into the second half as these effects drop out. What is you rightly said is Pretty much similar effects like we had in Scania. We see those fade out in the second half of the year. Q4 most likely will have them We'll have that done. Okay. That's good. Then the absolute amount, Klas, yes, not the percentages. No, of course. No, what I mean? Yes. Different sales line, yes. Then my final question is on It's Oliver. It's obviously a great margin. We have seen this, however, in the past with this business delivering great results in 1 quarter And then for us to perhaps get a bit disappointed in the next quarter. So can we talk a little bit more about the earnings bridge here for Comenas Honibus? How sustainable Is this kind of profitability? Was there any extra pricemix impact that we can't carry into the second half? I think you have to understand that we now sell our extra heavy truck Meteor in the market. And this is a real structural change for the company, which we didn't have because Actually, Volkswagen wasn't in that segment. So this is a structural change in the margin, which you can see and will be also reflected in the future. But we see a heavy increase In raw materials in our Latin American business, and we need to see how we can price for that. Okay. Okay. Thanks guys. Thank you. Welcome. Have a good summer. You too. Thanks. We hope so. And the next question we received is from Kai Mueller of Barclays. Your line is now open, sir. Please go ahead. Hi, thank you very much for taking my question. The first one really quite an impressive order intake that you have shown right now. We've seen some of your peers, they've been a bit more reluctant opening the order books. Can you give a comment on how much of these orders are ready for 2022? And what would speak against that you already get a substantial portion from them also in Q4, I. E, having a strong second half? First question, Dan, that follows on your outlook. You now, of course, specify it saying you can achieve the upper Point 3, at H1, you've delivered already more than €500,000,000 on net cash flow in H1. What keeps you to keep the lower end of the guide intact and not actually upgrade the lower end or maybe even drift the entire range higher? And then the last question is really on your debt financing. I think the chart was very helpful that you outlined the different loan agreements versus Volkswagen and then the bonds you have issued yourself, what is the plan to refinance this Volkswagen loan that you said, I think, had its 13 months Maturity, so I understand it would be coming to end of this year. Thank you very much. So then I would start with the order intake. We already have bookings for the Q2, but and we never closed our order books. And our customers are so far satisfied with our delivery terms. Looking to your question, Kai, when it comes to the second half of the year, of course, we did not Change, let's say, the range because we still see that uncertainties. We saw in Scania, we needed at the end of the second quarter to prepond the summer holidays because even with the good measures, We came into certain, let's say, challenges in our production network. Now even if you have a good order book, you see that things are going to be delayed to a certain Because you don't know when will this crisis on the semiconductors go away. Secondly, we see now discussions on the 4th wave, and we simply said, look, I mean, we feel comfortable at the upper end of the range, but the risks around us do not allow to see it more positive. There is still a view that the It's a good second quarter to see us at the upper end, but again, the year is still running. And on the term loan, Kai, the term loan The tenure of 30 months. So luckily, we are not under pressure. It matures in May 2023. We have reduced it now from the 3.3 to the 2.75 because of the good generation of net cash in the group. And you see actually that we are confident also on net cash generation for the coming quarters. So There is plenty of opportunities, and we will definitely behave opportunistic. We have always said that the we have the capital structure now clearly in sight. So a clear intention also to reduce the level we have now on the balance sheet. You might understand that we will not elaborate here on more details. But obviously, the bond market is an option for the remainder, But also our net cash generation remains an option for reducing the term loan on the Volkswagen side. That's very clear. Thank you very much. You're welcome. The next question we received is from Nikolay Khemz Deutsche Bank, your line is now open. Please go ahead. Yes. Thanks for taking my question. And my question would also be on the guidance Because if I just look at your numbers, you have the strong order intake, you have good pricing, you have the right product And supply chain issues could probably improve in the second half of the decade. Could you just again maybe also quantify what It happens, you see in the second half. I mean, yes, rising raw mats, but are there any other issues holding you back? Because It looks like you are very conservative here. Hi, Nicolas. I think the answer is not changing dramatically From what you heard before, I mean, what we would like to emphasize with the COVID pandemic, now we have the discussion about the holidays, when everybody returns from holiday, Incident rates could go clearly up again. We cannot rule out another lockdown, be it on the industrial side, be it on the social side. We have then FX rate volatility, material costs, we have the semiconductor shortage. So call us too shy or too cautious, but I think for the time being, given the experience we made also in 2020, where only 1 month Yes, really caused a huge hiccup in our P and L. We just want to be on the safe side here. Really on the supply chain side, it's actually not only semiconductors. It's tires, it's plastic. There's a lot of areas where our people have really to work around the clock to make it happen in the production And in the logistics chain, so and we don't know what happened in second half. And you saw even in second quarter that some of the competitors had their biggest struggles when it comes to that So I think it's fair to leave it at that point. Okay. Thanks. The next question, we see this is from Hampus Engelau of Handelsbanken. Your line is now open. Please go ahead. Thank you very much. Three questions for me. I'm sorry for coming back on the orders, but they were really significant during the quarter. Could Could you maybe talk a little bit about the process here with price increases coming in correctly for next year as you highlighted some of the orders Q2 next year. And also thinking of lead times and maybe comparing when we last time had this Really strong order bookings. There was a lot of issues with double bookings, etcetera, and customers being afraid of not getting Their deliveries in the beginning of the coming year when the fleet starts. So that is Sanddell's first question. Second question is more or less also coming back to your guidance, which, by all means, seems a little bit conservative. But Could you maybe talk a little bit about how like normalized costs could affect you guys coming into second half? Let's assume that we will continue to open up the society. Let's assume that we're starting to travel more, etcetera. And if there's any part of that cost that we should think of That maybe boosted the result somewhat more in Q2 this year. Those are my questions. Thanks. To the order intake, I don't see that we have double bookings or anything like that. I think we have a quite clean order book. We also have, for these units where we don't have semiconductors, a very clear process in place. We call it like ring fence. We know exactly the units which are in there, Well, the customers have to wait, but they are informed. So I don't see any issues on that side. So we think order book is stable. And when it comes to price As Matthias has outlined in the beginning, obviously, if raw material prices are coming in, there will be discussions on certain prices per market Depending on the situation. And quite honestly, Anders, on the guidance, let's not speculate on if travel goes up and there's no 4th wave and All these normal and normalized cost levels. We have a very solid order book. So if the situation is going to be stable, then we'll be doing fine. If it is continuing like it was now when we postponed the vacations of Scania, things get tougher and get difficult, and That will then be the result. And that's it and have nothing more to say to the guidance. Fair enough. Congrats on very good results. Thank you. We also like it. I mean, it was a good afternoon. Yes, right. I mean And the next question we received is from Jose Asumendi of JPMorgan. Your line is now open. Please go ahead. Hey, thank you very much. Hello, everybody. Just a few items. And yes, congratulations on the progress done there. Looks like a promising second half. I guess the first question, I would like to get some comments please on the I mean on the EV and thank you for that disclosure on the orders. Do you think you have the right competitive product specifically also in the bus EV segment there? I'm just looking in the light of the work By other competitors, including BYD in Europe, I see them taking quite a lot of market share. Do you think you can gain reestablish a little bit of your market share on On the bus EV side, as you continue to roll out the products, that will be the first one. And if you could also comment a little bit of how you see Which segments do you think are going to be electrified first, bus, truck? And within truck, which segments are you seeing more demand? The second one, pretty straightforward, how much capacity do you have for Stania in China? I mean, this is clearly a growth region. So If it is not now, a year down the road, where do you see this business going? That would be great. Then 3, on Navistar North America, very I think very interesting chart. Can you talk a little bit about How does it work to reestablish the heavy duty segment for you? Is it a question of technology? Is it a question of investment? Is it a question of Discussion with customers is a mix of everything, but how does it work to build up that heavy duty Share in the U. S, which I think is, yes, very, very interesting to track going forward. Thank you. Okay. Let me start with the bus side. Yes, we have now a very comprehensive electrified Offer from MRN as well as from Scania, I think, yes, we have the product portfolio to actually fight back BYD and other Chinese players. Surely, we will not do it on every price. We have also certain margin targets in our bus business, and we will not do every deal. On the truck side, where will electrification start first as there is no charging infrastructure on long haulage yet? That's why we've done the joint venture with the other groups. It will not start the long haulage. It will start where you can do Home Depot charging and so on, yes. So this Mainly, it's driven by not by the electrification of the drugs, by the possibility to charge. And that's why it's now so important. If you want to have a higher share on long haulage in 2025, that we start now working and implementing discharging situations for long haulage, Yes. So we can really change the industry there. Then you were asking on Navistar. Yes, it's technology, but we have a clear road map there. It's about implementation now. And then with the new product, it's then to enforce the sales side of the business And force an investor. Skania, China. Yes. And then Skania, China. I mean Skania is Only one among the truck manufacturers with 100 percent own license for R and D production and sales. So they're going to be the spearhead for the group. There is a license up to 50,000 units. But how we see how we're going to evolve this, we're going to talk about our China strategy later this year. Matthias has outlined that in the annual meeting speech. I think Matthias, but it's not Scania only. It's going to be the spearhead for the group. Absolutely. Very interesting. I have one little follow-up, please. And we had this discussion before, Matthias, in terms of increasing the free float within Traton. And I should be asking this question in a different conference call. But is this still part of the discussion? Is this still on the Is this still a valid argument? Is this still being considered? Or is this not the case at all? This question I have now to pass on to the CFO. Who takes that question with pleasure? Because it's the first time that this question is ever asked in a conference call. Thank you. I've never heard that before. So I mean, All jokes aside, I mean, we've done the closing on 1st July. You know that our industrial debt significantly increased by this. We said that we're going to refinancing the Navistar takeover with all options, so we don't rule out anything Rolfe said before. It's on the bond side that one can imagine. But also equity Could be an option if market permits. And I said it in the press call this morning, I don't know where this Q3, Q4 discussion comes from, surely not from us. We look and review the market. We will discuss with our Board. And then as time has come, we might or might not consider an equity portion. Super helpful. Thank you very much. Welcome, Jose. The next question we received is From Himanshu Agarwal of Jefferies. Your line is now open. Please go ahead. Hi, Matthias and Christian. Himanshu from Jefferies. Thanks for taking my question. I just wanted to ask a few questions on bevs actually. It's I understand it's early days, but can you talk about the ASPs and margins on battery electric trucks? And secondly, we never talk about PHEVs when it comes to trucks, but it has been a critical part of the car OEMs electrification strategy. Do you see that as a possible solution in future? And do you have some products in that category? Yes, I'll leave it there. Yes, we have a Scania product with a hybrid in the market. It works well. But if you ask me long term, I fully believe in the fully electrified truck. That's what we need in the future to actually achieve our CO2 targets And contribute to the plans of the European Union. Yes. And when it comes to your question to the EV margins, we don't discuss this now in public. I mean, started here with the track record to show you and the community how much progress we are doing on operational side by selling those vehicles. It's increasing. A later point in time, we will talk margins, but let's see how the market develops. But plug in technology can be a bridging technology, but we need a charging infrastructure And this is why Daimler Truck and Volvo Group and us have found agreement to found the joint venture in building up the infrastructure. That's right. Exactly. Okay, understood. And if I may just ask one quick housekeeping question. Before the merger, Nevistar had around $2,000,000,000 in deferred tax assets. Can you just tell us like are those tax assets transferable? Like will you be able to offset Your future profits against those or they are not? Look, Matthias has said it in the beginning. We're going to now incorporate Navistar into Q3. We're going to do the first report On the, let's say, new group, on an outlook and also on the subject that you just referred to, just give us a little bit time. The closing was just a The next question we received is from Erik Koehler of SEB. Your line is now open. Please go ahead, sir. Thank you. I have three questions. The first one, trying to get a bit better understanding of what you think you could achieve in terms of production volumes in the second half. It's quite uncertain, but you don't see any major disruptions at this point. Does that mean that you can sort of keep the production rates you've had here in the Q2? Obviously, orders would indicate that you need to ramp production to bring lead times down a bit. You may feel it's a clean order book, but If we will dictate that lead times are this long, we see cancellations in the other end. That's the first question. And then the second question, if you could Maybe shed some light on how we should think about it, what the earnings base now is for MAN in the first half. If you can relate it to How much of the that total restructuring program you've outlined, SEK 1,700,000,000, how much of that is in the books right now. And then the third question, just if you can conceptually seasonality in margins, is that Like a percentage point for Scania H2 versus H1 and around 2 for MAN. Hi, Erik. So let's start off First of, I mean, I said it the last time, and we start getting the contracts in place by the Q1. Now we start implementing those. You've seen that we found an agreement Steyr, that deal is supposed to be closed by end of August. So there's only minor part of that cost portion out of the SEK1.7 billion included in there. What you saw in Q1 and also Q2 That the market share of MAN was lower. That was intentionally because like Matthias has outlined before, we go for margin, before volume, with the new truck, with the better fuel consumption. So that portion is in there, but we do not yet quantify how much out of the SEK1.7 billion is in the first half of the year because what you see now Only includes a minor portion of the M and A restructuring. It's coming in the next, let's say, 7 to 8 quarters materials going forward. Yes. Then when it comes to your question of production volumes, look, I mean, I repeat myself again, and I add now the flooding situation In Belgium, in Germany and suppliers that have difficulties there, it's really hard to give you a volume number For the second half of the year because we simply don't know. The order book is quite solid. If we can get the things under control, it's going Okay, if we have increasing challenges like now the one with flooding and the semiconductors and others, there might be impacts also in there. And to your other question, we haven't seen yet cancellations in size because of the long lead times. This is not the case. The order book is very solid. The market is really good at the moment, and that's reflected in the order book right, which is Absolutely. And on the seasonality, Eric, I mean, the seasonality, I mean, as you know, Q3 can be clearly weaker than the Q2. It's normally Seasonally the weakest we have because of the summer shutdown. Yes, so And I mean the production in first half was 118,000 units. So if you see for the whole year around $238,000,000 $240,000,000 the question is, can we deliver what is reflected in the order book? And that's a miracle. If you have that glass bowl, please send it over to us. Yes. I noticed that I mean, there's plenty of uncertainties, but could you at least say if you're Planning to increase production rates at all? Or are you just running it as it It's very similar. 2nd half year, second half year will be very similar. That's why I said it's $180,000,000 in the first half of the year. It might be around $120,000,000 in the second because if you're running almost on full capacity, I mean, it's tough to increase. Thank you. Welcome. The next question we received is from Michael Jackson of Bank of America, your line is now open. Please go ahead, sir. Hi, good afternoon. Thanks for taking my question. I have 2. The first one is just a follow-up on the question on production, but perhaps more with a view to 2022. Assuming orders Don't fall dramatically in the second half relative to historical levels, then it looks like the order backlog will continue to grow. So maybe asking it this way, absent bottlenecks, if they're clear, what is your unconstrained production capacity In order to start working the backlogs down, that's the first question. And I mean, I guess just to add on to that, I mean, we don't have a long history Per se, would it be fair to look at sort of 2019 levels or 2018 levels at the base there? That's the first question. And then the second question is just a follow-up on raw mats. Given that the lead times are growing, are you able to make adjustments to the prices quoted at the time of Booking the orders. Thanks. To the later one, we said before, I think it was materials that as raw material will Sustain will adjust prices in certain segments, in certain markets as time goes by. Yes, volume. And for the volume, I mean, it's essentially the same like in 2021, as I said before, if you are running on full capacity, yes? To go in a bit more detail, I think Scania will be very we are very limited on additional production volume for the next year because we run, as Christian said, on full capacity. On the EMI side, on the Brazil side, there are slight opportunities. If there are no shortages in the supply chain anymore, so you increase Slightly comparison to 2021. It's the same thing. You can increase from a 2 shift to a 3 shift in particular. But again, they're all probably you need to have parts. Questions answered, Michael? I think he's gone. I think he's on mute. Thank you. Thank you very much. Okay. Thank you. Okay. And we have the last question for today is from Frank Bille of LBBW. Your line is now open, sir. Please go ahead. Yes. Hello. Good afternoon. Frank Bille, LBBW. It's 3 quick questions left on my paper here. The one is, again, on semiconductor and raw materials. What are you Acting on the impact on working capital in the second half coming out of these issues, should it be a positive Impact here from increased prices more on the negative side. The other thing is on residual values of our used trucks. What was the impact In the first half, and what are you expecting for the second? And also for the second half, are there any one off items left Coming from MAN or other topics? So let's start with the easy first. We do not see any on top onetime effects in the second half of The year for MAN, you saw in the documenting material that 2 portions have been booked in Q1 and Q2. When it comes to semiconductors, well, I think we discussed it before. I mean, It's the question how this business is going to develop and what then the impact is on our operations. It's hard to judge that. And when it comes to residual values, in the complementary material, Frank, you find the overview on the inventories, and you basically I see that in the used truck, we have historically low levels. That means residual volumes at the moment are not a threat to the business. And when it comes to the working capital effect of the semiconductors, again, we continue with the ring fencing, as Matthias has said before. So there will be Similar effects will have working capital maybe having some impact with higher working capital in Q3, but it seems to be seen, yes? But as long as there's a Semiconductor ring fencing supply chain rearrangement will stick with some impacts in the chain. Okay. So no big issue here. Uncertainty, I answered the key, but not a big issue here for the second half. Yes, true. Okay, thanks. Welcome, Frank. As we have no further questions, I hand back to the speakers. Thanks very much. Thanks for the vivid discussion. Yes. And thanks for attending us today. We will now go on summer holidays for the next 2, 3 weeks. However, the IR department is definitely available for you in case there are any follow-up questions. And then I say I look very much forward Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.