Kina Wileke - EVP, Group Communications & Sustainability Affairs and Member of the Group Executive Board Martin Lundstedt - CEO, President, Member of the Group Executive Board & Director Jan Gurander - Deputy CEO & Member of the Group Executive Board

Erik Golrang - SEB Klas Bergelind - Citigroup Hampus Engellau - Handelsbanken Capital Markets Graham Phillips - Jefferies José Asumendi - JPMorgan Chase & Co. Mats Liss - Kepler Cheuvreux Alok Katre - Societe Generale Björn Enarson - Danske Bank

Good morning, everyone, and welcome to this present analyst conference covering our third quarter. We will, today, have two persons on stage as always. We will have President and CEO, Martin Lundstedt; and our Deputy CEO and CFO, Jan Gurander. We will start with presentations, and then we will keep going with questions from the audience and for those of you participating over the phone. And since this is a webcasted event, I would kindly ask you to use microphones. Martin, the stage is yours.

Thank you, Kina. Thank you. And also, from my side, obviously, most welcome to this quarter three reporting for 2018. Before - welcome. Before coming into the results and our views of the market for quarter three and going forward, I would also like to give you my view and the latest update on the press release regarding degradation of an emission control component that we were releasing this Tuesday. As you know, and I will a little bit background on this also. And as you know, to meet emission limits in different forms, we have different systems for that. And in this particular case, we are talking about the engine of the treatment system that is sophistically placed off the engine and in this aftertreatment system, you also have the selective catalytic reduction system, the SCR unit that is actually then taking nitrogen oxides into nitrogen and water, respectively, by also adding urea or add blue as it is called in our business. And one of the components in the SCR catalyst have shown, in some cases, that the degradation and degradation in this matter is like if it was a mechanical component, a premature wear and tear over the life cycle. And in some applications and segments and geographies, we see that it might occur that the degradation is quicker than anticipated. This component is designed to withstand the whole life cycle of the vehicles and equipment. But in specific cases, we see increased risks that it will not do so. And therefore, we have taken actions obviously. What has happened is also important to say that we have detected this in our internal monitoring process that is ongoing all the time when it comes to the fleet in the field. And when we have, so to speak, come to the conclusion that we will have a risk of certain applications to be needed to have some sort of action, we have obviously have a proactive contact with authorities. And eventually also, when we have looked through this matter, a disclosure that we did these Tuesday for the press release. I think it's important to say that again, the recent now, when we are doing this very thorough analysis is that it is, as I said, a wear-and-tear matter. And we need to understand the pattern where it is happening, why and how can we actually then make sure that we are doing this preventive actions in a good way together with our customers. We have already identified the problem. We have ring-fenced the problem, and we are now, as we speak, implementing and will continue to implement solutions. It goes without saying obviously, but I will say it anyhow, that this work through now with the highest focus with the best experts we have, together with the cost on authorities. But it is important now, when we have identified the solution, how do we actually look at the full scope of what is really the affected population in this matter. And that, we are doing again, as I said, in close cooperation with authorities. All vehicles and equipment, all and have been, so to speak, all the right levels at delivery and fulfilling the certificates and the conformity of production. And therefore, production is not affected. And customers performance also when it comes to uptime availability and performance features is also working as planned. And in the case obviously, that a degradation has occurred in specific unit, Volvo is, together with customers, but Volvo is taking, of course, the full responsibility. I understand that all of you have even more questions about this - want to know more about the details, et cetera. But we have said, it's very important now that we take this matter, of course, extreme seriously, and that we are working with this with high attention, high focus, but also with quality, and so we can ring-fence and come back to relevant stakeholders with the right type of figures. But again, on our own initiatives, a degrading matter, a problem that we have identified and solutions that are ongoing as we speak. So that is the update on this press release from my side. So by that actually, we are moving into the next stage, and that is the quarter three reporting for Volvo. And as you have already seen, it has been a strong and solid quarter for the group. Sales continues to increase, and we are reaching a record level for quarter three of SEK92 billion. That is an increase of approximately 13% when it comes to sales, excluding FX; and an operating margin, as we have seen, 11.1%, both for the group but also for Trucks. And Trucks is good to see that we are getting the leverage that we have been talking about for a while here and a very good job done by our Trucks business areas. We also see improvements in other non-truck business areas, so a strong quarter. Then when it comes to the volume development. Also in this case, I should say that we are rather satisfied with the volume development, plus 14% for trucks. It was actually almost 40% for North America. So even if the supply chains are stretched, and we are reiterating that, once you'd understand that, while we are now increasing obviously, new bottlenecks will be detected while we are removing order bottlenecks. That is the nature of the business. And if you think about global industrial machine, increasing 15 and certain regions, 40%, I think the organization has done a good job here. And we are concentrating our efforts to continue to drive this together with suppliers, but also in our internal processes. Machine deliveries also showing a good trend, 17% up, where SDLG is standing for 35% on the SDLG-branded machines and 5% up for Volvo. The service development is also positive for us. We have 7% plus, excluding currency. And that is a good growth rate, of course mainly driven by high activity level in the different regions but also a strong focus on services in the organization. The contact penetration of preparing repair and maintenance contracts, for example, is continuing to increase. And that is extremely important for us as you know, also when it comes to our resilience through the cycle. But even more important that, that is showing us that we have a good and close contact with our customers. Also, new penetrations when it comes to selected segments. I'll give results here. For example, Volvo Trucks have been putting a lot of focus in Europe and the Construction segment, that is also promising when it comes to the contract length of the first owner and not at least in construction. As you can say, all different business areas are showing progress. And in particular, we are pleased to see the progress in buses as well. When it comes to Trucks, I will keep it short here. The main centers to remember on this slide is the first one, good demand in key regions, and the rest that we cover in the coming slides here. When it comes to innovation, very interesting quarter obviously. We were pushing through this world premiere of what we call Vera. So she was shown the first time actually in Berlin at our Global Innovation Summit with big interest, and some of you were there actually. And we were very proud to show that that is a fully autonomous, fully electrical and fully connected unit for certain and transport applications, primarily for fixed goods flows of a pretty high volume. The starting point here will be that it could be operated fully autonomous, but also for certain specific tasks through a control tower application as well. We are now developing the solution as such together with selected customers and other partners. And some of the features here is a - and that is interesting by the way. When you're talking to the about production flows, because this is a typical tool for production flow, speed is not the most important average speed. We are also talking about the starting point is 40 kilometers per hour. And that is maybe not impressive, but the impressive thing is that it can control it and even a flow where is your talking about for example, in the production environment. And then you can obviously - the limitation is not 40 kilometers, but we will have an even flow when it comes to that, up to 32 tons, 200-kilowatt our batteries range of 100 kilometers to start with in a full infrastructure and systems solution thinking, so very promising, high level of interest. Other thing that has happened this quarter obviously is the IAA exhibition in Hanover, one of the biggest truck shows in the world every second year, where are we actually also showcase the number of important events further Volvo Group. We delivered 1 million FH, a milestone for us, celebrating 25 years since inception, big successful of Volvo Trucks. You can see on the left upper left-hand side there. We introduced the Volvo Connect. That is our new platform of connectivity where the customers actually can take to their view of connectivity in group there, so to speak, features, applications; the Volvo applications, but also applications from other partners. And that has been of well-received also when it comes to functionality and easy to use and easy to connect. Vera, again, you can see there. That is one of the highlights obviously. We are introducing the new coach series for Volvo Buses in Europe, the 9700 and 9900. And the n 9900 got the Sustainability [indiscernible] Award of The Year. In the middle, on the down road, full range of battery electric vehicles in distribution and waste collection, both for Renault and for Volvo Trucks. And also, well represented, press conference is about our news here. If I'm coming then to our reviews of, as you know, we are today revealing our first views of 2019 and the full cost. As always, we say that it's early days, but we are of course taking it from the angle we see now and also some of the macroeconomic indicators we're getting in from around the world here. And we start with Europe. As you can see, a little bit of uptick already in 2018, meaning that the strong demand continues. And as a forecast for next year, we are guiding around 300,000. That is minus 5%. It's still early days to say, but what we forecast is unstable demand on higher levels to continue. I'll be discussing that before also. It is a good activity level where we read our customers or we talk to them, but also the structural things happening in the market. For example, with e-commerce, will actually also supported that that she will continue to have a good level as we see it. North America continue also to be very strong. 310,000 is continuous uptake then. And if anything, there is a pressure that it could be even stronger, but this is what we see for the time being here. And as you know also, part of this has been hampered by the supply chain also in North America, which is also given a situation where the used trucks situation is good now in the United States because capacity is needed basically. So also there, 310,000. We are guiding up slightly in resort. Of course now, we are waiting for the second round in elections in Brazil. But the general, so to speak, sentiment in Brazil is that it will continue. And as you can see also on this graph, there is certain replacement need in Latin America and in particular, in Brazil. So if anything, this is also a forecast at Jan, can have a strong support their upwards. Japan, flat. In China, we are taking up 2018 with 50,000 unit to 1.3 million. And next year, we forecast somehow decline of approximately 150,000 units, a little bit related to macro and tariffs and the general economy. But also in our industry offering, a number of very strong years, new legislations, prebuys, the transition into tractors segments, the construction has been keeping up, et cetera. It is reasonable to think that you will have them stabilization and somewhat a decline here, but still a very good and solid levels obviously. And in India, we are continuing to see an uptick of approximately 25,000 units up to 425,000 for medium- and heavy-duty combined. When it comes to orders and deliveries for Trucks, you can see a solid quarter continue to be very strong when it comes to the order intake. If I start with 28% up, and if I start with Europe, positive to see that even that we have high comparison figures now quarter-on-quarter, we are moving north, 5% with orders and 4% with deliveries. And also North America, extremely strong. I could assume without knowing what questions you have in your back book what is the quality of the order book. So maybe I should ask to take one minute of that. You need to be sober when you're averaging the order book obviously. So what we are doing is we take it pretty firm for the coming 2, 2.5 quarters that we know that we have the right quality. And the rest of the order book, we are actually revisiting as we are rolling it forward together with the customers and dealers. And that, I think, has been an improvement in our way of working. So we are actually what are the orders are we working and with other place holders, et cetera. So I think we have a good system on that. And as you can see also, the gap between orders and deliveries are still big here. 40% is still a good figure rate, I feel, for uptick in deliveries for North America. Also, very strong and South America, both for orders and deliveries from low levels. But as I said, we believe that the activity level is good to hear, both when it comes to the general cargo but also in specific sectors, such as agriculture. Asia, orders down, and that is almost entirely related to Middle East and two counters there. And that is Iran and Turkey basically with the turmoil that we see. And in Africa, we're only saying that it continues on the good level here. Market shares. Europe, relatively stable. We are sliding a little bit in Volvo. Depends a little bit on the market mix and where you have market share. We have also been pushing prices a bit. We have, I've been thinking, that, that has been necessary now that we have given the good market situation the questions we've had and deliberately set that we need to find the right balance here. But still, good levels for Volvo if you think also about the historical perspective. So I think they are managing in a good way here. Also, the stabilization are somewhat uptick for Renault continuous progress we have said, quality in the business is a prime focus and stabilize to market share the organization has done a very good job here. And this is heavy-duty, and we see also good progress in the medium and light-duty for Renault. North America, good progress for Volvo, keeping up with the pace in the market and even taking market shares, good reception of the VNL. Strong order books, well-received product when it comes to performance and 10.5%. Obviously, there is more to go there, but we are working hard on the supply chain. Mack, losing a little bit, not due to the introduction of the new Anthem that is super well received. We have order books that is covering very big bottlenecks year. But more related to the changeover obviously to start with. But after the changeover, to really get the machine and the full supply chain, including our internal processes going. The organization is focusing a lot of that, and Martin Weissburg and the team have all hands on deck to continue because the demand is there and there is a huge excitement about the Mack Anthem. Good progress in Brazil. Also good in South Africa and Australia, where we are keeping a very strong positions now that we have built up during the last years work. And Japan, little bit the same situation for Volvo Trucks in Europe, we are balancing, so to speak, market shares also with the performance in duty, where we see good progress actually. And that is the most important focus that we've had there. Construction Equipment, good market momentum, Europe and North America. We'll come back to that. China, something, the growth rate slowing down. Natural obviously, and I've already been into the recent and very similar to the trucks. We see it more also coming up. It started in wheel loaders, but we see it also coming in excavators. But the order intake overall, good from a 22% up and deliveries, 17% up. And a full electric compact excavators will be used in city centers, urban areas, where of course both from an emission level standpoint but also noise emission standpoint, very interesting. And then, on the next slide here, maybe also a little bit on that movie here, the electric site concept that we are starting now to test together with Skanska, and we are doing in the Vikan Kross. That is one of the bigger quarry sites in Sweden. Actually, situated - it's well situated, I should say at [indiscernible]. And so from, so to speak, it takes a mechanical system in perspective, we can work very closely together. This will be conducted during our capital months to really the full system with loaders. You can see this fully autonomous load carriers together with hybrid wheel loaders and also with full electric big excavators. And the our aim here is considerable reduce the CO2 up to 95% if we are successful and total operating cost with the north of 20%. So, so very exciting product to look into here and to follow during this fall. When it comes to the under market situation, what you can say is Europe, very quickly, we are guiding a little bit upwards for 2018. Then as you can see then, we are forecasting a little bit same as for Trucks, the stable situation on high levels for 2019. North America, also there, we are guiding up for 2018, 5 percentage points, so between 15% and 25% growth. And then also we are forecasting growth for the next year. And if anything on that growth rate, we foresee actually that the growth will primarily take place on the heavy equipment in North America and maybe not so much in compact as we have compactness historically all this year I should say. China, again, upgrading the total forecast for this year with a 5 percentage points, whereas for next year talking about, yes, maybe minus 5% set a little bit coming down, but still good and solid levels. If anything, we think that wheel loaders will be more stable and maybe a little bit bigger [indiscernible] excavators, but it's still early days to really see that. Otherwise, I think Asia, following the same pattern as China, but you can see also in good levels, somewhat of a small, small decrease, but still on solid levels. Let's see. There we have it. Orders, yes, we have been into it, pretty straightforward. Strong order intake, 22% driven from Europe, 53%. I should say that part of that has been driven by pre-buy in the compact equipment up-front legislation. But still, if you take the GPE or the general purpose equipment, the heavy side. Even in that sector, we have a growth of 22% in Europe. So even if you take a way, so to speak, there your pre-buy, solid and strong demand, in North America, the same, very strong. It has been driven by compact, but we see also the heavy side coming. And then generally speaking, it continues on a good level interest of the world as well. And delivery is keeping up, and then we have had less problems, less challenges than we have had on the truck side. Other trucks side is keeping up here. Buses, good order intake after a pretty slow order intake in 2017. That was a slow year when it comes to tendering activities, not at least in the Nordic market, but also in some of the big countries in Asia. Now that is coming back, mainly driven by U.K., the Nordics and as a matter of fact, India. The deliveries decreased but Jan will come back to that that we see the buses are doing in great job in compensating that through other factors. And I will also into that we have introduced that are two important coaches for the European markets, 9900, 9700, and we got this award. Penta, also solid 8% increase order intake. If you take away the pre-buy, and then you have high comparison figures already from last year, it is only 1%. So the pre-buy effect is pretty big here. But still a very high level of order intake also given good activity level of order already last year. Deliveries also continue to increase and new features for all of us that are interested in having a nice vacation. Obviously, with the new precious turning systems, the active right control decreasing, so to speak, the rolling feeling when you're out and also active closure protection when you're using current actually to take down certain type of corrosion. Financial services also, finally, good development continue to be good. The penetration rates are stable around the globe, but financing on new businesses are reaching record levels and also with a very solid performance. We have also been working actively to show that we are, together with the customers, when needed as also started this press conference. But also here with the Hurricane Florence, we are working together with our customers that are unfortunately affected by that in a good way. And we have also introduced a number of even more integrated offers with our different business areas. So also here, very, very good progress. So by that actually, I will leave the word to Jan Gurander for the financial figures. So please, Jan.

Thank you, Martin. So where we talk about the financials and the figures are pretty straightforward in the quarter. I think also, you must remember that third quarter is usually seasonal-wise, pretty, actually the weakest quarter that we have. And I think, it's pretty proud to be here to say that this is actually the best third quarter that we've ever had in the group. Looking into the sales. Sales is up with 21% for the quarter. If you exclude the currency's effect, which is pretty substantial as you can see, almost SEK6 million, we have a growth of - have underlying growth of 13%. And as you can see here, it comes really in all regions with the strong developments that we have seen that Martin showed before. The operating income goes - and here, we have adjusted operating income, is growing from almost SEK7 billion the year before. Last year, we had a capital gain of SEK400 million. That's now excluded in the figures, up to a SEK10.2 billion this year, 11.1% operating income for the group. And we can see here that it's - once again, it's always very fun is to stand here and say that actually come all business areas in the group are contributing to the improved results. So when we see that this broad based improvement, continuous improvement that we have it in the whole group, I think we can be very satisfied. Obviously here, I think we have gained quite a lot of in the group, the fantastic performance that we see and Volvo Construction Equipment. I think this quarter now, I think we really see here that trucks is really taken off in this quarter compared maybe a little bit to the previous quarter, have a good leverage in the truck operations in Q3. One word about currency. That is something that you always want to know a little bit about when it comes to the future. When we look into the fourth quarter, when it comes to the transaction exposures, taking away the effect from revaluations of the balance sheet. We foresee a similar size of the positive effect that we have had in this quarter, approximately SEK0.5 billion. And we don't do any forecast for next year yet when it comes to the currency effects. Doing the same thing here. See what factors that affected the result. It is obviously about volumes and of course, better capacity utilization in our factories. Anyway, I think what is - it has a good development over the year. We started to see it in the first quarter when it comes to how we work with price and price management. Of course, given the good demand that we have the bottlenecks that we have in our production, it is of course important to work with that side of the equation. We saw it gradually coming in the first quarter, more pronounced also in the second quarter. And it continues in the third quarter as well. Good and solid, both on vehicles, but also in our service operations. Material cost is, of course, same thing as we have had before. We are struggling with raw material prices, also effects from tariffs. We talked about that before, especially regarding North America with the tariffs of steel and aluminum. But with the same time, due to good work that has been done within our purchasing organization. We managed to offset that more or less 1:1. As a matter of fact, we have a small positive effect if we net the work that we do want to the price side with the raw materials and that, we see going forward as well. The ambition is still to offset the raw material with the work we do on the price side. There, we see here the service sales is of course improving our results quite a bit. It is an important component, both in good times, but of course especially, when you're coming down trends, because that's a very, very good cushion to have then for the results. We see that also - we are helped - we are in a situation right now where we capitalize more than we amortize in our P&L, and if we are also look for the forecast for the coming quarter, it is approximately an effect of SEK0.5 billion for Q4 that we foresee, higher capitalization and amortization. There are things that are affecting us on the negative side, selling expenses. We are growing as a company. We have higher top line. And of course, there are things in factors that increase our selling expenses. We are very careful on when we add this cost that we have here, try to keep them as flexible as possible. So if and when the downturn comes, then we have the flexibility to take care of that, extremely many important, hard-working organization for the time being. As then as we said before, when it comes to the cash underlying R&D expenses, they are gradually coming up here, and this is according to plans that we have internally. And they will also, in a cautious way, continually to be upwards as well. Cash flow, third quarter is - sees otherwise the weakest quarter we have in terms of cash flow. So from that point of view, maybe not so much to say about. It's more or less at the same level as we have seen the last couple of years actually. I think it's - anyway, this is a scenario that we are not 100% satisfied with. And this is, I would say, especially on the inventory situation that when we come into the fourth quarter. It's a high focus in the organization to basically secure that we get down at the inventory. I mean, we've had a good market that we have out there, high demand and so on. We need to continue to keep the high focus on that. Part of the problem here is, of course, when you have the disturbances that we still have, and I will come back to that on the truck operations, the disturbances what we have in the supply chain. It means that we - you have a little bit with higher inventory. You don't have the perfect efficient organization, components are standing a little bit longer than what they should. You can also, from time to time, miss the deliveries [indiscernible] customers and so on and so forth. So it's not division. But it's definitely more to do there on the inventory side. The payable side is kind of a seasonal effect that we have every time in the third quarter before we start to ramp up the production. Trucks' sales. Deliver trucks, as you said, strong growth almost 40% in North America. Europe, 4%. As a total, 14%. And total sales, when we take away the currency effect, is 15%. Service is 8%. I've already said if you're north of 5% in services, if you start to come up in 10% in this type of business. It's a really good growth rate that you have. And in total, if you take away the currency, 23% up in sales. Here, the trucks - as I said before, we are so happy to see now that we're 11.1% in the third quarter. Good leverage as well, approximately 22%, which I think it should be actually on a pretty normal circumstances. It's a good leverage for the truck operations. SEK4.2 billion up to SEK6.8 billion. And on the margin, I'm going from 8.5% to 11.1%. And as you can see here, it's basically the same explanation factors when it comes to the growth and positives and the minuses on the result explanation. Truck is so big, of course, in the group. So that's why [indiscernible] the whole group as well. But it's worth to mention here, we do still have it - we are not perfectly fit on our wheel. We still have constraints on the supply side. We are not 100% efficient. The reason why we don't mention it here is that, that was the situation in the third quarter last year as well. So you can say the increased cost level that we have still have in the third quarter this year is more or less on the same level as what we have in Q3 last year. But as you can say, the elevated cost level that we have is not gone yet. To the machine is not 100% ticking as it should do. Then on Construction Equipment, 17% up in delivered machines. 7 - 16% up in a currency adjusted in terms of sales. We have here also services, 6%, healthy levels. We see also a pretty good market - product mix as well, larger medium machines up 19%, smaller growth rate on compact. SDLGs usually actually negative thing on the product mix, but we are pretty healthy profitability right now in China and SDLG, so it doesn't affect us so much on the mix side. Here going from SEK2 billion up to almost SEK2.6 billion, an increase on the operating margin of almost up to 14%. Same story here as we have seen before. Managed to take care of the growth. We see that, of course, sales - service sales and the capacity utilization is helping us on the profitability. Leverage of approximately 16%. We maintained also the cost discipline in Volvo Construction Equipment, which I think is very good. And it's of course obviously important when we have taken all the measures and rightsizing and Volvo CE to be able to take care of the good increases we see on volumes while maintaining cost is important to us. They are very good. There may be a question on while don't we see the effect of the results on property in the Korea in the third quarter. Year-over-year, it's not a difference because we saw the dealer in the U.K. last year in the third quarter. It's more or less exactly the same effect, but we had SEK200 million in this quarter. But if you compare the results, it's not the explanation factor quarter-over-quarter. Buses coming down in delivered volumes. As Martin said before, of course, and also affected - affecting our sales with almost 20% on the vehicles side. Very strong service operations. And I think it's due to the fact that we have the service operations that we managed to increase the profitability from the - in terms of operating margin from 3.3 up to 4.4%. And I mean as we said before, high focus now to lift that we have said, we want to have Volvo Buses as a start, about 5% stable. That is the first thing. That's important. And historically, I think buses have been more than level of breakeven, taking it up to 3.5-kind-of percent. Got a little bit stuck. Now it's time to move on there. It's a lot of hard work being made down here. I think also we have currency effect is helping us, but I think this is the entity that has managed to have an negative currency effect, I think, for 14 quarters in a row. So they did a survey a little bit of a positive currency effect. Penta, I mean, yes, it's fantastic result, 19.6%. I was talking with this Penta organization a little bit, currently managed to take it up to 20%. It only means another SEK13 million. It would've been nice to have it, but I think that this may be the only thing that we can complain about if anything. But I mean, it's still a great result, helped obviously by the deliveries of engines but also very good service development. We had a good product mix. A lot of heavy engines, big engines, 60 liters going out to the market. And of course, to see a result over SEK600 million for Penta, it's not that long ago, that was actually full year result. Volvo Financial Services. There are also continuing the journey. We are obviously to strong markets that we see right now. North America, also the fact that Brazil is coming back and a China as well. The increase in the portfolio is quite a bit. One year ago, it was SEK125 billion. Now it's a little bit above SEK140 million. And as I said before, we seek more or less growth everywhere. Operating income above SEK600 million, strong and healthy portfolio, continue to deliver on return on equity. Once again, a solid result from Volvo Financial Services. And by that, Martin, welcome back on stage.

Thank you.

Now it's time to open up for questions, and we're going to take turns. We're going to start on the floor and then we will take those questions for those who are participating on the phone. Who would like to begin? A - Martin Lundstedt: Erik.

Erik Golrang, SEB. I have two questions. The first one on you. I don't think you want to ask more questions on it, but still you get one from me on the effect of emission component. And then my question is really to the extent that this leads to a material charge or fine in any way, would you expect that if this isn't resolved or if you haven't been able to estimate the cost of this before your proposed dividend for this year, will you be cycling this is a key raising for holding back?

First of all, I think you should divide those to two questions. First of all, obviously, I mean, you know the cycle of our discussions regarding dividends. And I mean, normally, or - not normally, it will happen in the time as well, the board and obviously, and discussion with the management we'll propose something in relation to quarter four reportings. And there is something where we always want to have in the time line. And then when it comes to, so to speak, the degradation now, I think it's important to understand that we understand the root cause, and we also are - know what solutions we will - we are and we will put in place because this is a degradation over time. This is not something that is happening at delivery or something like that. So we are working with is to understand what could be the potential population in those affected segments and applications and geographies. And there, we would like to be precise that we should be when we are giving your figure, but we have the arms around the situation and vehicles that are out in the market is working accordingly obviously to the animosity that is in the market. So I will not speculate today about the time line. But of course, we are as eager as anyone else to really clarify furthermore. But we don't want to do that without quality in our message, so to speak. And that's the only thing I can say today. So we will not wait if it's not necessary.

Then the second question is on Renault in market share in Europe. It's up a bit, but it seems as if that the progression there and the recovery of lost market share from history is moving perhaps a bit slower than you've been targeting. What's the reason for that? And could you do anything to speed it up? I assume you do, but what's holding you back?

No, it's done. No. Put it like this. Yes, Erik. I think it's important to say that the first and most important was to really stabilize and stabilize the level with good quality in the business because we have a great product offering, we have a great service offering. And the good news is that in the key markets of Renault, we have done that it in a good way. We are actually steadily increasing in those market. What we need to do now is a step by step also come back to certain key markets, where we actually did lose some market shares and that we are working on. But we will not do that to the expense of the quality of the business because that has been hurting the Renault organization before. And now where we are standing on the three solid legs because here, we're talking about the heavy-duty of just south of 9%, but we are also making progress in a medium-duty, and we have a very good progress also in the light-duty. So if you really put them together around Renault, I think we have a good progress according to plan actually and not to the expensive making bad choices when it comes to the profitability for Renault.

Thank you. Let's take the first caller we have online.

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

It's Klas from Citi. A couple of questions, please. Firstly, the guidance on Europe. So yet another 300,000 year when we look at '19. I just wanted to understand the reasoning. We're seeing trade volumes peaking, cost inflation building for the carriers. We see diesel up, wage is up, and that could progress on carry profitability. And then fleet age is now below five years. The replacement cycle seems to be over. And so the 300,000 to me can you feel a bit of a stretch. If you could, there, Martin, a bit how you think about Europe.

Yes. And a little bit the same message that we have had before. When - I agree that there is also elements in the market that obviously can put pressure on the wheel loaders profitability. But having said that, we should also understand that we have historically good profitability level when we talk to our customers. And that, I think, is also a good starting point also for next year if I put it like that. Another factor that we have seen is a big part of them, I mean, we always almost have anticipated that we could even have higher that Volvo is already this year. But that one thing that has hampered that growth rate has been the lack of drivers actually and really to find other types of solutions. So I think that is - anyhow, pressure that volumes will continue to - because you have some structure measures also as we have said, for example, with e-commerce, et cetera. So if the mid-point in the historical trend line should be maybe 175, 180, or 270, 275, I think we all rather a couple of percentage points higher given the structural change in Europe also when it comes, for example, e-commerce. So again, when we look at activity level, when we look at our mileage from different sources, the connected trucks, et cetera, and when we talk to the, I mean, customers, not also customers, but customers. Yes, some sort of stabilization that we have guided for but still we are costing us a relatively solid levels.

Okay. And my second one is on the drop through in Trucks, the operational gearing. So well done, almost firing on all cylinders. But I'm interested on in what can happen all the way down obviously. I guess, particularly on the service side if we see them unfolding. Deliveries might be stable next year as you guide, but orders are facing on a very tough comp, particularly in North America. Can you remind us of how the service business developed in North American 2015, '16 when vehicle orders were in free falls. North America if I use in U.S., for example, how your improve profitability versus the previous cycles. Any word on service development in a downturn now, that will be very helpful.

I think North America there, I think is an effect our strategy to grow more and more for captive guidelines. And obviously, the fleet that is increasing then with more and more captive and gearboxes as well. We manage very well through the downturn between '15 and '16 actually. If you look about it historically in Europe and other parts of the world as well, as a matter of fact, service is very stable and down terms, maybe not continuing to grow but you keep them at a stable level. So we are convinced that it will be a very, very good support if around the market turns out.

And referring to your point also in the '15 and '16 and the downturn. One important point on we - why we continue to stay in that in North America was thanks to the increase penetration and services have Captive. Captive power train but also that we have been working a lot with uptime centers, et cetera. So when we - I mean, when you look at North America, I mean, we have a market share, maybe 20% to 25% due to lack of bay capacity story here. Our dealers are continuing to invest in new workshops and new base, and we are more efficient in turning around, so to speak, the vehicles through this uptime, certified uptime bay concept, when we actually are decreasing a turnaround time dramatically. So there is a lot of very specific activities ongoing that makes us taking better market share of our own fleet basically of Volvo Mack.

My final one is on the change of Mack. You say a very strong order book out for the entire next year. So obviously, when the transition is over and now it starts to deliver, the market share in theory, you should jump quite a bit. When you think you can see more normalized situation? Is it on this side over there or do we have to wait until the fourth quarter '19?

First of all, maybe you overread it. That's an order book is the whole next year but it's a considerable part of next year, I should say. And that is good enough, I should say. I should be even more worried if it was the whole year actually given, I mean, quality in the order book. But having said that, this is, as I said, for Weissburg and the team over there, the main priority right now. As I said, reception of the vehicles great, high demand and not at least on highway executions where we previously with the [indiscernible], we have a pretty weak offering actually. And so a full focus on that. I mean, we are continuously, let's say an improvement. I mean, if you see year-over-year, we have increased also for Mack. So I mean, we are improving but it is a tough situation right now with the competition and more everyone we want to get their attention in the full supply chain here, but I can promise that this is the our full focus. Hampus?

Hampus Engellau, Handelsbanken. I have two questions. Starting off on the European order second quarter. There was a big difference between the OEMs in terms of order growth, the Scania and Volvo reporting negative orders and Daimler and MAN, that was quite a lot. And as I understood, there was a couple of orders in Poland and Germany. So I was wondering if you could share some light on the order activity third quarter given that you report that 5% growth in heavy. Then a bit on coming back to Europe, if you could talk also a little bit of current situation regionally, Central versus Northern and also Southern Europe because there's a big difference in aging if you look at some replacement cycle in southern part of Europe.

Yes. If we start with that, I mean, the difference between the second and third quarter. When we look at - when we look upon it - and here, we have been working, I mean, for a couple of years now to have a good quality in order book and really see what is happening, et cetera. And as you know, we have a big captive part at least on the Volvo trucks side and also we have a good control of that. And I should say that when we look at quarter three, I can also include the regions, we have a relatively good spread both when it comes to segments, customer sizes and also geographies. And also, when we look at the used situation actually in Europe, stable and solid. So generally speaking, we feel that the good activity level continues and not specifically only for a certain regions or customer segments.

All right. Let's move back to our callers.

Our next question comes from the line of Graham Phillips of Jefferies.

A couple of questions, please. First of all, just back on the NOx issue. Can you just give us a little about idea, Martin, please. You said you're implementing solutions. Or is it via software or hardware fix? Has it got similarities with what Cummins have to deal with back in August? And when you do have to account for this on a financial perspective, will it be something that will be in terms of higher warranty charge or will be a one-off number in the quarter, a charge against trucks? How should we think about that?

Yes. When it comes to - again, as we said, I mean, this is a component that is originally designed to last over the complete life cycle or life length of any vehicle or machine. In some specific cases, we see that there is a risk of not doing so. And in that case, it's not about software; it is about hardware. And we need to upgrade that and replace that in that case. And there are different types of solutions of doing so, depending of segment. And I think again, what is important for all of you trying to understand, is an isolated problem that we understand. We have solutions to put in place. And thereby, I think you should more think about that as a one-off rather than going concern.

Okay. I'm sorry, I mean, you're going - did you look at the current situation and where they have to make a similar fix, I think, on their engines in the U.S.?

We did look at the Cummins situation. Obviously, we look at all competitors in all different matters, but I have no specific comments to Cummins. And we are working on is just what we are, so to speak, proud about is that we have been very transparent. We need to take this internally. We have disclosed it. We have the right context. We are taking actions, and so we are taking our responsibly to when it comes to our customers. And we have a good view on both the problem and the solution, and that is what we are focused on.

Okay. My other question was on the drop-through margin in trucks. Can you give us some idea on pretty much the R&D capitalization. How much, Jan, was the R&D capitalization to trucks is it pretty much all of that? And given that the numbers are coming out quite healthily looks like about 27%. And is there more go for was your comment a couple of times about the leverage. That means on flat volumes, in fact, we could be looking into next year and maybe at the higher drop-through margin?

Starting with the capitalization. The majority of the capitalization that comes obviously for trucks actually. So I think it is more or less virtually everything that is related to trucks. I think what I said was that - I mean, we still have disturbances and increased or elevated cost levels due to the fact that the supply chain is both internally and externally. It's not working as it should do in normal circumstances. So maybe they're also, what a little bit more of a stable situation, not as high growth rates, I think there's room for improvement from an efficiency point of view if you look ahead. So I think all other things being equal, that could actually be healthy for our margins and what you could call the drop-through.

And could be do more capitalization in 2019 compared to '18?

We always - we guide for the next year in terms of capitalization when we come to Q4 actually. So I will not go into that today, as well as we don't do that for currencies either.

Okay. And just finally, looking at the Volvo book-to-bill situation in North America, very high 2.3x. Again, you made the comment about the quality of the order book. I mean, our customers are prepared to wait that long for a truck when they're ordering and they can see that it could be may be even into 2020 before they get a vehicle? You're not willing to add capacity?

Not at all. But I think Graham, to your point, and that's the reason why also said that. I mean, that you have makes in the order book, I mean, for more or less and then you have certain pace in order book I mean. Some of the big fleets for example, we are working with. They want also to make sure. We know that they have a certain need over the year. That could vary a little bit, but I mean the basic need after baseline is already there. Then we are working with them on that, so we can distribute that over the year. Then what we are doing is that when we are rolling order book ahead of us, we're also going through that month by month, both for Volvo and Mack, not only in North America. By the way, this has been one of the prime focus is of the last years to really get the relation between the order book, deliveries production and the value chain much tighter than we have had historically in the group. And that is given in the results. But, I mean, I - I think you should think about there's a reflection of confidence also into the market, both from dealers but also primarily from customers that know that any capacity. Björn Enarson: Björn, Danske Bank. Sorry for coming back to this but on the NOx situation. You keep telling us that you have identified a risk to some components. So are you telling us that you have not have trucks out on the streets being on the wrong side on what the regulation sets?

What we are saying is that this is a degradation issue that can happen over time. And in certain issues, we've already change the box. And now we are at much more in-depth analyzing why did that happen. There is no big and numbers of that, but why did it happen because it can be a number of different causes, so that everything from mechanical failures and to this type of degradation. And again, what we are saying is that if that is happening, we are changing obviously because we need to comply with the limits that exists on the market. But when it comes to the disclosure and the discussion about the figures, again we would like to be certain about the magnitude so we have a serious response to the market instead of guessing. And that is what we do right now.

Yes. Björn Enarson: And on - coming back to the potential slowdown in the market, part from the service side, what other big changes from last time that it went south? What kind of actions can you implement or are you looking at to.

I think several number of things here. Reaction time is the key here. Now I'm talking more, Jan, don't take this as we have the side of this coming down. We also always difficult to say. But, I mean, if the sales organization is saying minus 12 - 10 then 3 [indiscernible] when you will plan for the production. I mean, that is how it works. You need to be bold when it starts, and the reaction time is number one. Number two is that you have the flexibility in the system as such that we have when it comes to 10% and fixed contract sense and also the ability in our value chain together with our suppliers. Björn Enarson: How does that differ from the last time?

No, when I should say that not only in figures because that is not differing so much, but also the preparation where you have the flexibility, you really can't take it out. One thing is that you have, I mean, a mix between fixed and temps. But the other thing is the consultants or the variable cost in manning can really be taken from the system. That well we're working with a lot. And again, I think that both Brazil, the downturn and North America also, the Volvo Construction Equipment case have shown that we are capable. Then we are humbled and we are looking at this all the time, so we have a good preparation level. I don't know if you want to add something.

No, but as I said before now, I mean, this is obviously some cost increases in some areas. And what we try to do all the time now, make sure that what we have had is really flexible with the downturn comes. And we are also mapping that quite carefully. So coming back to your point, from experience, I can say, reaction time is actually pretty big thing. Because if you wait too long, you don't have the right signal, that is all. So if you prepare and know what to do, act in the right time, and also, if you see things starting to happen a little bit bigger, take a pretty abrupt thing because it's usually the best thing because people are always a little bit more optimistic rather than what you think.

And another thing is - to the point - to you, Jan said. I think also the cultural shift, I mean, decentralization also gives a parallel. I mean, that is automatically giving a closer signs of the organization that you really take the decision out in the regions or in the brands and really act quicker because I mean, the counter abilities there to do so. And so yes, the only proof in the pudding will be when one day that happens and we can show that - we can do it. We are prepared. We are prepared.

Operator, please go ahead.

And our next question comes from José Asumendi from JPMorgan. José Asumendi: José, JPMorgan. Just want to come back to Europe. As you prepare for a downturn next year, can you just give us a sense of the proportion of temporary workers you have, one? Two, how many do you plan to lay off by the end of the year if that is going to happen or not? And then three, can you just give us a figure on the reduction of fixed cost that you've done in the European business in this cycle versus the previous cycle? The second element would be please around your product mix. It looks like on orders, heavy trucks are definitely suggesting about a 3% to 5% improvement in product mix going onto the next quarters. How sustainable is that share of heavy trucks in your business model? If could you give us some color by across regions. Obviously, you haven't seen the impact of the market in the U.S. long-haul.

Okay. On the first, José, there. I think it's a little bit exaggerated to call it a downturn. What we are saying is that we believe now we are guiding up from 310 to 315 for this year, that is really the fine-tuning when you're coming at the end of the year to see where it will end and it might be some a smaller correction of that for 2018. And then, what we are saying is that for next year, likely to be on our stable and good level of 300,000. That is, I mean if you calculated in an Excel sheet minus 5%. But in reality, that is what you're taking with the flexibility you have in your production system as it is with the banking hours and also the flex. And given that type of stabilization to minus 5% and beyond, that obviously we have the flexibility needed and beyond that as well absolutely. Then I was not really sure about the second question. So if you can just repeat what you meant there about. José Asumendi: What I meant is when you look at orders and deliveries and you look at the share of heavy trucks within your business, it looks like in the suggesting that the share of heavy-duty within your business, both on deliveries and on invoicing going forward, will take an additional bigger share within the truck division. And this obviously, I think there's an element that could be a surprise for investors as you continue to deliver a record truck margins over the coming quarters. And in other words, I think there is a product mix sentiment also coming through for you on the truck front. Is this a level that you think it is sustainable? And obviously, we have not seen yet the impact of long-haul [indiscernible] here.

Yes. Okay, thank you, now I understand. Thank you, José. Yes, if anything you can say obviously, two elements of that. Historically, it has been a drag for us, if I make it very clear, to have the mix right into North America, regardless if it has been heavy-duty. The good news is that we have constantly been improving that situation for North America. So the first answer to that is that an increased share in North America is not necessarily bad to us. That has been historically but a good situation. The second part is that when North America is increasing, by definition, that is heavy-duty because we are on the into heavy-duty when it comes to North America. So if you look at the full cost, the share of heavy-duty relation to others will increase.

All right. Let's take one more from the room.

Mats Liss, Kepler Cheuvreux. Coming back to the issue there. Could you say something about your geographical mix in those properties? Is it more a U.S. or is it similar to that in Europe as well?

What we have said is that it is a segments in applications both affecting North America then and Europe. But again, all so that is what we are working now to really understand the different patterns we see since again, this is a wear and tear over a pretty long time period since we have good with reasons also. By the way, those demand that it should withstand through a longer period of the life cycle. So that is exactly what we're investigating.

And you use the same supplier for all your engines?

Yes. I mean, at that - for the time being, we are not commenting on, so to speak, how the supply chain looks because what people is very important now is that everyone that is part of this really take the full focus of working together to having a good great policy situation, make sure that we are, so to speak, solving or understanding better the population. As I said, the root cause and the solutions we understand together, but now we continue to understand the pattern, so we proactively can make sure that the customers can run at there operation in good mood, so to speak.

And then a quick one on China. I guess, on trucks there, there are some emission, tougher emissions that is coming up in 2020. Do you see any pre-buy impact already?

It could be. There are two elements there, Mats. First of all, 2020, CN6 or equal to Euro VI is coming into play in China. But what is interesting is that the bigger cities are not waiting for that because they have so high demands on complying with air quality. So many of the bigger city actually demand already for mid-2019, which means that we foresee certain type of pre-buy order in 2019 for the bigger cities.

We have room for one more caller. So operator, please go ahead.

And our last question from the phone then comes from Alok Katre from Societe Generale.

I just had a couple really. One is on the U.S. now Just wondering if you could elaborate a little bit more in terms of how, let's say, your thinking and that it have developed in 2019. Just looking at how strong the ordering rates are, and even if we sort of adjust for some speculate of orders and a little bit more normalization or order rates 310, or let's say, a bit more than that still seems a bit, let's say, soft than what do others would suggest. So just wondering what is it that's driving your thinking about the 210 or let's say, 320 or whatever it takes for 2019. That's the first and then I have a follow-up on R&D.

Yes. If anything, I mean, as we said, of course, we have a very strong both order book to your point and also continued strong order intake. And I agree. Even of that could be, I mean, someplace else what we have said, I mean, we foresee with activity level as we have now with strong 2019. And as I already said also in the presentation, if anything, if we have given 10,000 can be on the lower side, we think a little bit will be restricted also about how we'll well, so to speak, the supply chain generally speaking keep up with this high activity level. So yes, we certainly agree there. And we have discussed that where we should put the full cost here, but we wanted to guide get that is a continuous good market that will move north and then the fine-tuning is still to be seen here. Björn Enarson: Said the supply chain. I just wondered again on the supply chain side, I mean, clearly, if the supply chain is geared up for 300, then 310 seems like a smaller jump or 320, 325 seems to be a relatively you smaller jump. What's really - I mean, is it just your visibility that you have at the moment or they want to be a bit more cautious going in or really...

I think the main message there is really, as we said, a strong solid market right now, we are not seeing any signs that should soften of. When we told the customers activity levels, when you look at the connected activities, when we look at order book, et cetera up, and when we look at the changes in the market driven, for example, by e-commerce. There is a lot of signs but - so we have guided for 310,000. It might that be on a little bit lower side, might be so. But that is the figure we are going for the time being.

Okay, fair enough. And just on the R&D, and I appreciate you want to guide on FY '19 overall. But just wondered, just conceptually, how should we think about the R&D capitalization versus amortization cycle as we look into the next 12, 15 months or thereabouts? Because obviously for this year, it's probably looking more like a SEK1.5 billion tailwind. That's 40 basis points roughly on the margin. So just wonder how should we think about where we stand in terms of the capitalization versus amortization cycle, so to speak?

I think, after careful consideration, I think I give the same answer is before. We do not yet guide for 2019, so I will not do that today. We always do that when we come to the first quarter actually.

All right. That's a wrap-up. Thank you so much for coming today, and see you in three months' time.