AB Volvo (publ) (VOLVB) Earnings Call Transcript

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

So thank you for that, Johan, and good morning, everyone, also from my side to this quarter 3 reporting from the Volvo Group. Great to have you here, both in human and also, of course, online. First and foremost then, all colleagues and business partners delivered solid results in the quarter with an adjusted operating income going up to SEK 14.7 billion in the quarter and the margin expanding to 12.3%, demonstrating continued strong earnings resilience and growth despite several complex external factors, as we all are aware of. The gradual cyclical recovery in the truck and construction equipment markets continued both in Europe and North America supported by the need to replace aging vehicles and machines. And not at least North America, we are continuing to strengthen our competitive position, visible in market shares, order intake and supported by the many launches based on the new platform, both for Mack and for Volvo. And as you did see here in the introduction, the recent launch of the all-new VNX for the vocational and heavy haulage segments. Quarterly order intake developed positively with an increase of 26% for group trucks, as 1 example. Our core markets are in -- as I said, in a cyclical recovery with growing demand. Generally, we are well aligned between market demand and supply from our industrial system, and we will continue to utilize our flexibility toolbox to execute on the solid order books moving forward. Regarding the truck order intake in North America, we have been restrictive in our order slotting in quarter 3 to secure not having an order book that is filled too far into 2027. And just as a reminder, so far, we are up more than 70% year-over-year in order intake in North America. And that's the reason why we opened the order book for 2027 as recent as of 1st of September, something to bear in mind when it comes to the quarterly order intake. Another example of good order intake is the rapidly growing demand for Power Solutions, not at least linked to data centers and AI infrastructure, resulting at an impressive 32% of Volvo Penta's order book value now is related to data center build out. Looking ahead, we continue to focus on what the group can impact by staying close to our customers, thereby driving growth and resilience, while at the same time remaining responsive to the fluid external landscape. Our focus continues, therefore, regarding effective cost control, and we are gradually mitigating cost inflation through pricing. The priority of the service business is giving good results. Services grew 5% organically, showing that our customers have a good utilization of the fleet, and that will also eventually means that the fleet replacement rate will increase. That the group is well positioned with our products were recognized by being awarded both the international truck of the year 2027 for our heavy-duty electric Volvo range and by international and also rewarded International Van of the Year 2027 for the Renault Traffic ETEC electric together with Renault Assay. All in all, our flexible business model creates an ability to leverage the current environment and continue to create value for customers, employees and shareholders. When we're then moving into the quarterly highlights, as I said, good development and the third quarter net sales amounted to SEK 119.5 billion with an organic sales growth of 7%. The adjusted operating income amounted to SEK 14.7 billion, with the margin expanding to 12.3%. Operating cash flow amounted to a strong SEK 7.2 billion, mainly driven by higher earnings and lower buildup of working capital. And the industrial operation net financial position at the end of quarter 3 amounted to SEK 43.8 billion. Return on capital employed reached 27.5% for industrial operations and earnings per share amounted to SEK 5.29. So we can conclude another strong quarter here. Some group news, by the end of July, Volvo Group, Daimler Truck and Toyota Motor Corporation signed binding agreement for Toyota to join cell-centric, where Volvo and Daimler sits on a 50-50 as equal partner and shareholder. We are very delighted to have also Toyota on board both as, of course, an investor, but also as a technology partner since they have a long ranging and deep experience when it comes to hydrogen fuel cell technology and the full ecosystem. On also the hydrogen note at the IAA fair, where we also got the awards, in September, I was with 8 other industry leaders unveiling our plans to accelerate also the rollout of hydrogen-powered vehicles across Europe. And we see that the interest is increasing also given the energy resilience and competitiveness landscape unfolding. For the first time in Europe, the German ecosystem has put in place all conditions for a scalable deployment of hydrogen trucks by 2030, driven by the German authorities and the European industrial leaders along the value chain, so very promising. Also in September, we announced the next step in the Marista expansion process with plans for an energy park near the intended battery cell production site. The Energy Park will be developed along 2 parallel tracks, a large-scale battery storage facility and a future test bed for innovative energy solutions, including both electric and hydrogen production and charging, which is an area that we really see where we see good commercial opportunities for the group moving forward. The battery storage will also support grid stability in the region on normal market conditions. When it comes to volume development then, trucks deliveries increased by 11% to 49,600 vehicles with higher volumes in Europe and North and South America. North America increased by 42%, but still, and I will come back to that. You should remember that year-to-date deliveries still are actually down 4% in North America. So we are accelerating now as we speak. Volvo Construction Equipment. Volvo branded volume did grow 8% in the quarter, driven mainly by Europe and North America. And also here, North America deliveries were north of 40%, 41% to be precise. Electrification, orders of electric vehicles increased 107% to 6,590 units, 12 months rolling. The increase was primarily driven by Renault and Volvo Trucks, with our new models being well received by customers. Deliveries declined with 7%, but with a good order intake of newly introduced products, deliveries are expected to increase in coming periods. Vehicle & Machine organic sales growth was 8% in the quarter. Trucks growing 8% currency adjusted, driven by sales in North and South America. Volvo Construction Equipment had sales growth at 13% in the quarter, driven by good sales in Europe and North America. Buses net sales were down 8%, mainly caused by softer sales in brand and in Mexico as a market. And Penta sales were up 7%, mainly driven by North and South America, while sales to Middle East continue to be soft given the turbulent situation. Services, organic service growth amounted to 5% in the quarter with positive development for trucks, plus 8% and Construction Equipment, 5%. And the 12-month rolling service sales increased to SEK 128 billion. And for me, this is two-folded, good customer activity and utilizing the installed base and installed fleet, but also that our efforts of step-by-step working with our contract portfolio is giving good results, and we see that also moving into the future. And of course, this is an important strategy for our total offer, and it is really paying off now. And what is really good to see is that when we have that type of penetration, we also get higher retention, and of course, higher resilience and less volatility. Moving then to the truck side, good momentum with a lot of different things happening. Here we are standing by the way, very happy just after Roger received the International Truck of the Year Award. For amongst others, this beautiful piece here, as you can see, the FH electric long range and a big highlight, obviously. And as I mentioned also, Renault Trucks also did win the International Van of the Year '27 award for the new Renault eTech traffic that we are doing together then with the Renault. So congratulations to the Volvo and the Renault teams for these efforts and of course, to our engineering groups. On -- in October then also Volvo Trucks, as I said, and with the all new VNX vocational truck for North American market, and that is engineered from the ground for North America's most demanding work across construction, concrete, logging, agriculture, heavy haul, highway, among others. Of course, we have had an offering in these markets. But within all new VNX, we are getting a step-up in the ability to penetrate these markets also for the Volvo brand that has historically been highly dependent on over-the-road segments of long and regional haul. So good market shares opportunities also in close collaboration with VCE. Also in October, Volvo Tolima Solutions announced that they have added Waabi as their second virtual driver, and they are running our operations in Texas for customers, and we announced that the work is the first customer that is now transporting with the combination of Volvo Autonomous Solutions and Waabi. We are now preparing for an acceleration in the beginning of next year, as we alluded to during the Capital Markets Day, so exciting times ahead here. Market forecast -- that is always a little bit of the highlight in the third quarter presentations what is happening. If we start then with Europe, the forecast for '26 is reiterated at a good level of 315,000 units. And for '27, a forecasted increase to 320,000 units on the back of continued solid underlying demand. In North America, we repeat our market outlook for 2026 at 265,000 units in retail sales. And that is also, of course, on the back of a rather weak start of the year. So we are accelerating as we speak. And we are forecasting then 300,000 units for 2027. And as I then mentioned, order levels have been somewhat lower in the recent quarter, especially then in July and August for North America due to the step-by-step opening of order slots into 2027 that we only opened in the beginning of September. The Brazilian market continues to hold up back -- on the back of the Finame financing support package. We repeat our market forecast of 80,000 heavy-duty trucks for '26, but expect a small decline down to 75,000 units for 2027. Demand in India has continued to grow, supported by steady freight activity, continued investments in infrastructure, supportive government policies and healthy replacement demand. And we increased our Indian market forecast to 450,000 medium and heavy-duty trucks. That is an increase of 50,000 for 2026 and forecast 470,000 units for 2027. And the total market forecast for China have been lifted to 900,000, plus 20,000 medium- and heavy-duty trucks for 2026. Also that's supported by some packages, and we forecast 850,000 units for 2027. Book-to-bill, overall, the industrial system is well balanced between demand and supply, with 92% book-to-bill ratio in the quarter and 109% 12-month rolling. And we are sold out in North America for '26, and we didn't open '27 until than September. And when it comes to North America, we are at 125% 12-month rolling. So we have, if anything, a good balance and need to continue to then execute on the order board here. Europe on good and solid levels, 104% book-to-bill in quarter 3 and 110% for 12-month rolling. And generally speaking, across regions, we are sold out for '26, and we're now slotting orders mainly for the first quarter of next year. And we will open '27 gradually to keep also quality in our business and our earnings and to have the right visibility knowing that we have an underlying cost pressure of input material and freight, not only for our industries, but generally speaking. So we need to have that right balance and to be fair to our customers as well. Truck market share is also positive, I have to say, Europe, Volvo and Renault continued with strong market shares through year-to-date September with Volvo at 19.5% and Renault Trucks at 9.1%, giving a total share of almost 29%. On the battery electric side, Volvo-Renault Trucks delivered a combined 23% for the quarter, but our recent launches now or the next generation long range and versatile electric will regain momentum for both Volvo and Renault. Customers have been waiting for that, which is already visible in the order intake. And in North America -- sorry, we have grown share, and our combined share now 17.4%, very positive, and that has been step-by-step during the year also, as you can follow from the previous report. Mack Trucks is at 8.3%, and Volvo at 9.1%, and Volvo Trucks are back on the right track and are regaining position. And of course, Volvo also in particular, further support expected from the -- that over-the-road segments and not at least a long haulage is expected to continue to be strong here. Brazil, Volvo remains at a good level and reached market share of 23%. And also Australia, we see a growing share combined reached 22% for Volvo and Mack. Moving in then to Construction Equipment. We have significantly expanded production in our Shippensburg, Pennsylvania facility. And the site has begun production of its first excavators, but also larger wheel loaders, adding 11 new models to local manufacturing and reducing customer lead times by more than 6 weeks. So now when these introductions are coming into place, of course, also that will further increase resilience as we move forward for the North American market. Market forecast here rather similar, I have to say, as 4 trucks. We keep -- if I start with North America, plus 5% as the midpoint for '26 in relation to '25 and '27 is estimated to be another plus 5 percentage points at midpoint versus '26 as a continuous growth there. And similar in Europe, we raised '26 midpoint to plus 10% market development, and that is a 5 percentage point increase and '27 estimated to be another increase of plus 5% in relation to '26 then. South America, we also raised for '26, the midpoint with 5 percentage points and the '27 midpoint is estimated then to go back minus 5 percentage points versus '26, so a similar pattern, as I said, with the truck side. And in Asia, we raised the midpoint with to a flat market and also '27 estimated to be flat versus '26. China, no change to the Chinese market forecast, which is kept with plus 10% for this year and '27 estimated to be flat in relation to '26. Book-to-bill, no drama at all here, the industrial system is well balanced between demand and supply with 97% book-to-bill ratio in the quarter and 104% to 12-month rolling. Also here, we are generally sold out for '26, and we are now slotting order mainly for the first quarter. And we have good order recoveries consequently then for our main markets. Volvo Buses, very important that we are coming back now in Europe. You know that we did a major restructuring when we closed our Rosa operations in Poland a couple of years ago and thereby also needed to restructure, so to speak, the European business, both when it comes to city buses and coaches, absolutely necessary to get a solid financial and growth position for Volvo buses. But now, we are coming back very strongly here. And during quarter 3, Volvo Buses expanded their offering to support growth again now in European coach segment. We launched the Volvo 9700 coach, and that will be produced in Mexico where we have top of the art production facility and introduced the Volvo B13R coach with Marcopolo body and continued rollout of the Volvo BZR electric coach, so very strong offering moving forward, and we've had a number of customer activities here. Hong Kong Volvo Buses launched also the Volvo BZL electric double-decker to support the cities transition to fully electric. And book-to-bill was 111% in the quarter, and 12-month rolling, it reached 96%. Penta, very strong, has expanded its data center business, now representing, as I said, 32% of the total order book value at the end of quarter 3, a business which is also accretive to their margins. And Volvo Penta had a strong book-to-bill with 132% in quarter 3 and 107% 12-month ruling. Finally, Volvo Financial Services, as you know, a key pillar for our business in all business areas. And VFS increased the new business volume, and this was supported by good penetration rates. The 12-month rolling penetration rate was sustained at 30%, and VFS continued to show earnings resilience in a highly competitive environment. So ladies and gentlemen, friends, that was the business update. And by that, I leave the word to Mats Backman for the financials.

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

Thank you, Matt, for that. No. I think, I mean when it comes to the highlights of the financial figures, it speaks for itself, you can see here, but maybe more importantly than in the market activities and also the guidance for next year, both Europe and North America, continuous positive development, 315,000 to 320,000 for Europe and 265,000 to 300,000 out of North America when it comes to the truck side. And also, we are guiding for a plus 5 percentage point increase for Europe and for North America when it comes to construction equipment. Service development, positive, 5% organic growth, showing also that our customers, as I said, are utilizing their equipment. And also that we are continuing then to execute on our plans, not at least now in North America, we have put a lot of pillars into place, both in our industrial system, in our supply system, and of course, when it comes to products and services launches. So that is basically the summary of the quarter. And by that, Johan, I'll leave the floor to you for starting the question-and-answer session.

Thank you. We have a number of people on the line, but we start with those coming to the room. We start with Hampus from Handelsbanken.

Two questions for me. Given that you now are accounting for Section 232 in Q4. Would it be possible for you to like us grasp what type of a retroactive payment will get back as of November 2025? Second question is more related to your outlook for Europe. Could you maybe share also your view on Germany because that's a big contributor for next year?

Maybe I should start with the tariffs stand. So we guide in the fourth quarter for SEK 700 million in terms of run rate and the underlying impact from tariffs. And what we're saying really is the refunds of SEK 700 million. So it's taking out is fully kind of mitigating the effect. So that's it when it comes to the retroactive kind of tariff payments. We had IEEPA in the third quarter. Now, we have the Section 232 in the fourth quarter. But then on a kind of ongoing basis going forward, this will be positive for trucks as well then. So if you see the SEK 700 million as kind of an underlying run rate that could be compared to between SEK 1 billion and SEK 1.2 billion, as we have seen before. I mean the difference there is really related to a lower run rate when it comes to the truck tariffs. So it's slightly -- we have a cost, but it's very low than going forward after the fourth quarter for trucks. So that's where we are.

Great. And on Europe, then Hampus, what we see is obviously that we have rather solid, so to speak, demand coming from many countries where Germany, if anything, has been weaker than normal when it comes to the cycle in relation to others, and we see that also when it comes to the order activity in our sectors. Looking into next year, we actually expect also other main markets continue on the levels that we see. So if anything, it's still a little bit the question mark with what pace German actually will recover. Of course, we are also waiting for the effects of both the infrastructure package and the allocation of that coming into effect, but also the defense package, so to be seen because that will, of course, affect these type of industries and sectors, but for us serving also the different industries with transport and logistics, we see that. So if anything that could actually be adding to the figures, but still included a little bit of a softer situation than it's normally in relation to other countries.

Good. We turn to the telephone line and to Bernstein and Harry Martin. Please go ahead, Harry.

So the first question I had, if you can just help us on the Q3 truck order intake a little bit. If I focus on the North America number, would you be able to disclose how much of that order book related to the 2027 delivery slots versus the final slots in '26? And then on next year, how is demand splitting between the EPA NOx compliant engine and the 2026 engine? And as you said, you've been quite limited in opening that order book for -- in early weeks, will you need to be a little bit mindful of pricing just to fill some of the slots in the first half of the year? And then a second question, but I just want to focus a little bit on the continued high diesel price and the impact on your customers. I guess, on the negative side, are you seeing any hesitancy on new truck orders, deferred maintenance or any of this type factor? And then on the other side, the battery electric order intake was very strong in Q3. But I also wondered, have you seen an uptick in diesel trucks sold with fuel economy options like ICE save, ICE shift, et cetera? And is that potentially actually quite margin accretive?

Thank you, Harry. A lot of meat in those questions. I will try to respond to that, obviously, as good as possible here. If we start with North America then, as we said, if we take year-to-date for the full year, and I think this is an important figure to have in mind, actually, orders are up 71%, but still deliveries year-over-year is actually down 4%. So of course, we have built up a very strong order book. Now, it's important while we are ramping, and you did see that also because deliveries were up 41% during the quarter in relation to last year. So we are really ramping that. It has been very important to us to keep now the order book in balance, not at least in the light of what also you mentioned regarding cost pressure. So we have, so to speak, the right balance in the discussions with our customers. So when we see the plus 18% order uptick in quarter 3 that is then partly artificial on the low side given that we have been restricted. We didn't have '27 order books opened in July and August and opened just 1st of September. And I think that is a very important information to have in mind. And then the majority then of what happened in September and thereby the order intake was related to '27. And it's still, as everyone knows, also somewhat uncertainty about exactly how it will unfold when it comes to the EPA regulations here. The strong thing for us is that we have the offerings in both the categories for '24 and '27. And that means that we can provide what the customer want to have. And the good news about it is also that the EPA '27 and the new launches has shown a fuel reduction given the higher diesel prices of that makes it even more important, obviously, with 10% fuel reduction on the EPA '27 that we have also mitigated now in during the summer here, thanks to hard work by a lot of our engineers also for the EPA '24. So we feel that we are really well prepared here. And then when it comes to the distribution, we will not disclose that now. And the reason is not because we don't want to disclose this. It's just it's too short. We opened up in 1st of September. And if we give a number, now it will start to be some sort of truth, and I don't think it's very helpful for anyone. It's more helpful to say that we can provide what the customer wants to have depending on what is the preference here and that we have been able to, so to speak, also get in the type of advantages into also the EPA '24. Then, it was on -- what was the last one, so now -- yes, it was, yes, on diesel pricing and different options. Obviously, there are a number of factors coming in here, obviously, that we have a rather broad offering. If I take Europe as an example, we see, for example, LNG sales growing rapidly, very positive. We have a very strong offering when it comes to the LNG long haul for Volvo Trucks. So that is coming up. I think also step-by-step now we see battery electric is coming up. Still, what is hampering that is more, so to speak, the visibility of the customer when it comes to the enabling conditions in Europe, and that will continue to take some time. But our offering is very strong. And we feel that now also, I mean, coming out from a season here when we have been able to compare that, we are moving into this with a high level of confidence that the total offer when it comes to TCU. And I mean if you look at the trucks, it's a P&L basically that we have a very strong offering here. And obviously also, and that is part of how we are selling and discussing with our customers is that we would like to have as much as possible when it comes to these type of fuel saving options for the customers, including I-Save, of course, the I-Shift fuel economy options that you have, et cetera. but also that we see that our recent launches have, so to speak, basic execution on this. And of course, these options since its value-based selling, of a lot of functionalities for sure, accretive.

Good. Thank you for that. We continue to practice the thing about asking 1 question. We turn to Mattias from DNB.

Mattias Holmberg from DNB Carnegie. I'm interested to hear about with the 2027 market outlook that you have. If you believe that it will be fairly well balanced across the year. I think in particular, in North America, given sort of the slight softness in the order intake, will the Q1 run rate sort of pick up where 2026 left off, in particular, given that you're hiring people just sort of managing the load in the factories?

Thank you, Mattias. And that is, of course, the big question. And I mean that's the reason also why we are pushing as much as we can for having the clarification also when it comes, so to speak, to the introduction next year. What has been good work done still is that we have been able then to make sure that we have both offerings in place. And again, the softer order intake will be -- should not be seen as a reflection of the ingoing, it's more about our own management of the order book, basically. Then, as always, we North America, it's a little bit difficult to say because you have a little bit of a built-in seasonality also in North America. But we feel now, as I also said in the presentation that we have a good balance between order book, order coverage and our industrial system. And on top of that, of course, we have a number of flexibility tools to create, I mean, space for short-term fluctuations.

Good. We turn to the telephone line, Goldman Sachs and Daniela Costa. Please go ahead, Daniela.

So I just wanted to focus on the truck margin, which I guess when you take off perhaps a little bit better FX and tariff impact than the Street had basically was a little bit lower. And I wonder to what extent things like you're still ramping up in Mexico, you're having some costs to, I guess, launch the new EPA engine. You're having the launch of autonomous. How much of those things kind of maybe impaired a little bit your kind of normal operating leverage versus whatever price lag also you might have had cost inflation? Is there an impact from such things? Or should we think about the ex FX, ex tariff underlying operating leverage as kind of your normal leverage from here onwards?

Maybe starting with what -- I mean, if you recall, I think it was like 2 years ago, but also this year at the Capital Markets Day, when we talked specifically about the transformation of ventures and the impact on the group truck margin though, so we had -- if I go back to the Capital Markets Day in U.S. 2.5 years ago, we talked about 150 to 200 basis points in terms of effect on the truck margin. But what we said this time then in June was that now we have done quite a lot of activities and brought down that impact to between 100 and 150 basis points rather. And what you see now in the quarter is within that range. So I mean, nothing special coming from the transformational Ventures. If you are then looking at the kind of the underlying business, so to speak, on the truck side and on the gross income, if I'm looking at the kind of the positive items in the quarter, if you're comparing year-over-year, it's definitely done kind of volumes on new vehicles and service. We have price realization both on vehicles and service, which is positive. We have the tariff impact, and also, to some extent, the VC brand mix, so to speak, with less STL. So, yes, on gross income total for the group, then that's the kind of the positives. If we're looking at more on the kind of the negatives when it comes to gross income, again year-over-year, we have -- I mean, for sure, we have a market customer mix effect year-over-year as we are increasing in North America now we will have relatively higher volumes in North America. And as you recall, we have a lower profitability on the North American volumes then. And again, referring back to the capital markets where you could see it. So it's a mix effect. And we have, again, the kind of the cost inflation that we have been talking about when it comes to raw materials as well as freight. And so those are the kind of the positives and negatives year-over-year, if you're looking at the numbers.

But maybe if you should add also, I mean, on the tariff effect for trucks, specifically is not material. I mean -- so I mean, what we have seen in the quarter, the IEEPA is primarily...

The majority. So if you are looking at the refunds in terms of IEEPA, but that's very much reflecting then the underlying kind of cost when it comes to tariff down. So we have been clear that more than 50% has been related to construction equipment, meaning that it's less of a part on the trucks when it comes to refunds then on IEEPA.

And on top of that, it's buses also being rather...

Yes, the approval from Canada to U.S. .

No. So I think FX is 1 thing. But underlying, I think still we are following the plans when it comes to, so to speak, leverage.

Absolutely.

And then we are, of course, constantly working now with the price realization related to the underlying cost pressure that we see for everyone. But also just 1 comment on North America. Obviously, now when we are ramping up, it comes with some. And I think you are right there, Daniela, it comes with some extra cost. But we also know that when we are coming up to a certain level in North America, we are getting a different leverage. I mean, North America is very depending on having the right volumes stable. And we are coming to levels that is much more favorable for us also. So that is another type of pattern that you have in Europe basically, and that is an important information, I think.

Good. Let's continue in the room, Bjorn at Danske Bank.