Nov 07, 2024 / 10:00AM GMT
Federico Donati - Iveco Group NV - Head of Investor Relations
Good morning everyone. We would like to welcome you to the webcast and conference call for Iveco Group third quarter. Financial results for the period ending 30th, September 2024.
This call is being broadcast live on our website and is copyrighted by Iveco Group. Any other use recording or transmission of any portion of this broadcast without the express written concept of Iveco Group is treated forbidden. Austin today called our Iveco Group, CEO all of person and our Co Anna Tanganelli, all of and Anna will use the material made available for download on the Iveco Group website earlier this morning.
Additionally, please note that any forward-looking statements we might be making during today's call are subject to the risks and uncertainties mentioned in the safe Harbor statement included in the presentation material.
Additional information pertaining to factors that could cause actual results to differ materially is contained in the company's most recent annual report as well as other recent reports and filings with the authorities in the Netherlands and Italy.
The company presentation may include certain non ifrs financial measures, additional information including reconciliation to the most directly comparable EU IRS financial measures is included in the presentation material, I would like to reiterate that 2024 financial data shown in the pre and in this presentation exclude magis and refer to continuing operations only unless otherwise stated in accordance with applicable accounting standards. The figures in the income statement and the statement of cash flow for 2023 comparative periods have been recast consistently. I will now turn the call over to our COO.
Olof Persson - Iveco Group NV - President, Chief Executive Officer, Director
Thank you very much Federico. And what all of you joining our call today. Our financial performance in the quarter was solid leveraging on continuous positive price realization and diligent cost management would counterbalance the expected impact on volumes. The adjusted ebit margin of industrial activities stood at 5% or 30 basis points lower than our all time high in the third quarter. Last year, our free cash flow performance improved by EUR56 million versus the same period last year as a result of our planned lower working capital absorption and the partial recovery of the Q21 off impact. Linked to the new model year 24 launch during the quarter, we maintained the steady flow orders and our pricing strategy remained robust demonstrating the trust our customers place in our brand.
We also intensified the introduction of our model year 24 product line up for truck on two different markets, feedback from customers is positive and we now have a very competitive truck product portfolio which will support our journey to further strengthen the vehicle brand on the market bus ramped up the deliveries of electric city buses and executed on the strong order book which now covers production all the way into 2026 powertrain. Continue expanding the number of third party clients in both the on and off road industries diligently managing its cost base in the short term. And in defense, we continue delivering on the back of our solid multi year order backload.
Looking to further improve our to react promptly to our recyclical industry and to lower our profitability break even point. Starting from 2025 we will accelerate the implementation of our efficiency program as well as Reprioritize some of our investments and thereby reducing our total operating spending both CapEx and OpEx without affecting our product.
We will provide more color on this during our full year earning release at the beginning of next year.
Moving to slide 5, let me talk a few minutes on what we have showcased at the EIA Transportation 2024 in Hanover for our truck business. We introduced our innovative lineup of vehicles, engines and services demonstrating the full range of solutions powered by all propulsion options that we offer. We are ready for whatever direction our industry takes because we have all the technologies from natural gas to hydrogen combustion engines and from battery electric to hydrogen fuel cell propulsions. We unveiled the E and the S wave rigid two very important additions to the vehicle's extensive vehicle lineup. Both models exemplify our commitment to multi energy strategies and sustainable transport solutions. Also at EIA, we introduced the model year 24 full lineup of products for all our categories, light medium and heavy racks.
As you know, in Europe, we have been taking orders exclusively on model year 24 since the 1st of July this year. And we expect to continue to gain momentum during the remaining part of this year and into the next, we are continuing to implement our technology roadmap as per our strategic business plan ensuring we remain at the forefront of innovation in the transport sector.
If we then move to slide 6 with a truck industry performance by region and a vehicles market share in Europe, the European industry performance was as predicted, resilient for light duty trucks and down in heavy duty, Latin America saw industry volumes grow double digit across segments which highlights the regional recovery. We are reconfirming our full year 2024 total industry volume expectations in Europe for heavy duty trucks at 300 registration as well as the industry estimates for medium and light duty trucks. Our preliminary industry forecast for heavy duty trucks in Europe in 2025 is at between 280 to 290,000 registrations. Signaling a stabilization of the market for medium duty trucks. We're expecting industry volumes to be slightly down versus the full year 2024. And for light duty trucks, our preliminary European industry forecast is basically flat versus 2024.
In terms of European market share, excluding the UK and Ireland, the LCV segment experienced a sequential decline primarily due to the model year 2022 pre buy effect in the second quarter of 2024. Preceding the launch of the model year 24 range, our medium and heavy drug market share in the quarter showed strength raising by 110 basis points year over year, moving on to slide, seven continuous pricing discipline and our commitment to successfully managing the introduction of our new model range where the drivers for our recent performance in the light duty truck segment. The order intake was driven by continuous pricing discipline and pre by effect of the model year 22. During the first half of 2024 the book to bill ratio remains below one by design to effectively manage the phase out of the older models. And the introduction of the new model year 24 range within our dealer network. For medium and heavy duty trucks. We experienced a solid 12 year over year increase in order intake globally with a book to bill rates rising significantly by 51% to 0.9.
As of 30 September, the weeks of production already sold for light duty truck and medium and heavy were 11 and nine respectively.
Despite the overall industry slowdown in Europe, our expectation is that the model year 24 truck and van deliveries will continue to gain momentum in the last months of this year and into 2025. While we are maintaining a strong pricing discipline, moving to slide 8, we show the track channel inventory and production level as highlighted in the slide. Our production levels are continuously adapted to align with the expected retail demand. We anticipate a reduction in company inventory in the fourth quarter following enormous seasonality trends both in light due to medium and heavy duty drugs in light commercial vehicles. Our total inventory remains stable year over year while in medium and heavy it was down 16% versus last year.
Our ongoing efforts to phase out the model year 2022 vehicles and phase in the model year. 24 models with our dealer network are progressing as planned. We are on track to complete the majority of this transition by the first quarter of 2025.
Next slide 10 has our bus segment market share performance and during the quarter, we saw a significant increase in our market share in Europe for city buses up 11.4% year over year. This upward trend underscores our effective market strategies and the strong demand for our products in this segment. Additionally, our market share for intercity buses in Europe experienced an increase of 260 basis points compared to last year. As we continue to build on this momentum, we remain focused on leveraging our strengths and solidifying our leadership position in the industry.
Let's move to the next slide with the order intake and delivery statistics as of the end of the quarter for the bus business unit, our order book now covers production into 2026. This extended horizon is a direct result of our robust performance in the recent quarter, order intake surged 66% versus the same period last year, showcasing the growing confidence of our customers and partners in our products and services.
And this surge is not just a testament to our market strategy but also to the innovative solutions we are bringing to the market deliveries were up 12% versus the same period last year. The book to bill ratio stood at 1.12 at the end of the quarter, almost a 50% increase. Over last year, new contracts signed for hydrogen and battery electric buses are not only accretive to our profitability trajectory but also highlight our leadership in the transition to sustainable transport solutions.
Our vehicle bus brand is at the forefront of this shift, the strong uptake of our battery electric buses underscores our competitive edge and the market's readiness to embrace green alternatives to summarize the health and the depth of our bus or the book. Combined with our strategic initiatives and sustainable transport, make a vehicle bus very well positioned for the future.
Passing now on to slide 13, it's time to talk about FPT industrial presence at the EA A transportation 2024 in Hanover.
Firstly, we showcased our X cursor 13 L multifuel single base engine that stands out for its flexibility designed with a common core. It's optimized performances across multiple fuels, diesel natural gas and hydrogen. This not only ensures efficiency and reduced emissions but also provides a reliable solution for diverse energy needs.
Next, the curson 9 L hydrogen internal combustion engine was on display. It's a zero co two emission engine specifically designed for heavy duty transport. While minimizing environmental impact, it represents a significant leap forward in sustainable logistics aligning perfectly with global decarbonisation goals and providing a competitive edge for companies committed to green initiatives.
Lastly, we also unveiled the E A 200 R FPT'S industry's latest generation of electrified access tailored for light medium and heavy applications. It sets new standards in energy efficiency and performance. This innovative products underscores FPT industrial leadership in the energy transition, offering practical efficient and sustainable solutions for the transport industry.
In the short term, we will continue to adapt our production to customer demand and to activate all the levers of our efficiency program. In order to partially offset volume declines as shown in the short end volumes were down 24% versus the same period last year. But On the other hand, we are making substantial progress in expanding our third party customer base, which aligns with our long term targets across both on and off road segments.
Our efforts today are not just about managing the short term challenges but are focused on building a stronger, more resilient future for our power and business.
Moving on to the next slide. Number 16 and here we show the main achievements in our defense business unit. First of all, despite an increase in deliveries, our order book remains consistently robust, covering almost 80% of our business plan topline underpinned by significant achievements and key milestones.
On 5 July, I signed a contract with the Brazilian army for the provision of 420 light multi road vehicles. This contract spanning over 10 years signifies a major step forward in our long standing relationship with the brazilian army contributing to the growth of Brazil's defense industry and the strategic development of its ground forces. The production of these vehicles set to commence in 2026 will take place in our lagu plant, reinforcing our commitment to local manufacturing and supply chain strengths.
And on 2nd August, we entered into a significant cooperation agreement with rank group to develop propulsion systems for defense tracked vehicles. This collaboration pools the expertise and experience of both companies and thereby accelerating the development of advanced combat platforms. This agreement also addressed the need to bolster the European supply chain ensuring increased production capacity and contributing to the technology advancement of our defense capabilities.
On 3 October, we successfully delivered a 200 man corp medium tactical vehicle to the Dutch army. This vehicle tailored to meet the Dutch military requirements and exemplifies our commitment to delivering high performance adaptable solutions for diverse operational needs. These milestones demonstrate our strategic focus on innovation and collaboration, ensuring we remain at the forefront of the defense industry by securing significant contracts and forging crucial partnerships. We are well positioned to meet our long term targets.
On the next slide, 18 is our usual focus on electric product deliveries showing the figures for the first nine months of 2024.
And that starts with our daily deliveries ramped up visibly and our order backlog continue growing along with our market share. We are now starting to release the model year 24 for our daily range. And importantly, we are winning key international customers across Europe, moving to electric ebuses, we have a solid order back order book that will be deployed starting from the fourth quarter this year and throughout 2025. So you will see a strong pickup of EBUS deliveries in the upcoming quarters. Our eex product deliveries have increased quarter over quarter and we expect to continue this trend going forward. Also on the back of the just mentioned pickup in electric bus deliveries. We are steadily investing in our portfolio extension and our latest generation of ex the ex 200 dash are presented in and provides further evidence of this.
So we are fully on track of ramping up all our electric products across segments and we are comfortably positioned to meet the upcoming European emission standard regulation. And I will now hand over the call to Anna.
Anna Tanganelli - Iveco Group NV - Chief Financial & Information Technology Officer
Thank you Olaf and good morning everyone. Let's now take a look at the highlights of our third quarter, 2024 financial results on slide 20 before we start, let me please remind you that as was the case for the previous two quarters. All the financials shown in the next slide refer to our continuing operations only as our firefighting business unit has been classified as discontinued operations following the signing of a definitive agreement for its transfer of ownership in March of this year as a result in accordance with applicable accounting standards. Also, our 2023 figures have been recast consistently finalization activities of this transaction are well under way with closing confirmed to occur within January 2025.
So Q3 2024 closed with consolidated net revenues of EUR3.4 billion and net revenues of industrial activities of EUR3.35 billion contracting year over year by 7.1 and 7.4% respectively due to lower volumes in trucks and power train combined with a negative mix partially offset by continuously positive year over year price realization. Also in this quarter, financial services net revenues totaled EUR132 million in the quarter at 3.9% compared to prior year group consolidated adjusted EBIT closed broadly in line with prior year at EUR206 million with the 6% margin while adjusted ebit of industrial activities reached EUR167 million maintaining a solid 5% profitability.
Financial charges continue to post a positive year over year performance also in this quarter ending at eur EUR61 million. As a result of the series of actions implemented to date to contain our foreign exchange rate exposure and to reduce our cost of hedging in Argentina combined with a positive hyperinflation accounting impact in the period reported income tax expenses for Q3, 2024 totaled EUR38 million reflecting an adjusted effective tax rate of 27 both for the quarter and year-to-date consolidated adjusted net income for the period was EUR106 million resulting in an adjusted their GDP S of EUR39 cents up EUR7 cents compared to last year.
The just the net income attributable to Iveco Group closed in line with the consolidated figure up EUR20 million versus prior year moving to Africas for performance.
Q3 close is a 356 million cash flow improvement compared to the previous year. Thanks to a lower working capital absorption driven by the targeted partial recovery of Q2 exceptional negative effect linked to the model year 2024 truck range launch.
Finally available liquidity including unraw committed credit lines stood solid at EUR4.4 billion on 30 September up almost EUR200 million from June.
Let's now focus on net revenues of industrial activities on slide. 21.
As you can see from the chart on the top right hand corner of this slide, all regions contracted compared to prior year, the 3% decrease in South America, however, is entirely linked to Argentina whose drop is a result of an adverse industry trend over the period combined with the effect of the risk hedging actions implemented to date to shield our bottom line result from local currency fluctuations, net revenues in Brazil alone. On the other hand, posted a robust double digit growth compared to prior year.
Looking at our net revenue evolution by business unit bus and defense were solidly up versus prior year at plus 17% and plus 33% respectively. While truck and powertrain decreased versus Q3 2023 with power train in particular, posting a minus 22% net revenues contraction compared to previous year.
More in detail, truck net revenues totaled EUR2.3 billion in the quarter mainly thanks to continuously positive price realization and discipline both in light commercial vehicles and in medium and heavy duty trucks which partially offset the contraction in volumes we had foreseen in our guidance for H2 2024 as well as the impact of the adverse foreign exchange rate evolution made in Argentina bass net revenues increased by 17.4% year over year to 547 million driven by higher volumes. A better mix. And a positive price. Evolution net revenues of defense continue to grow substantially in the period at plus 32.7% reaching EUR264 million.
Thanks to higher volumes and a positive mix effect powertrain net revenues were down 22.1% year over year to EUR742 million.
Mainly as a result of a decrease in volume with sales to external customers accounting for 49% in the quarter.
Turning to slide 22. Let's now briefly comment on the main drivers underlying the year over year performance in our adjusted ebit margin of industrial activities.
As previously highlighted net pricing continued to be positive in the quarter of setting the negative impact of lower volumes in truck and in powertrain.
The operational and product cost improvement actions implemented in Europe to date contributed positively for around EUR60 million compensating one of costs associated with the launch of the new model year 2024 truck range as well as the negative impact on raw materials of the still severe inflationary trend in Argentina as a result, Q3 2024 adjusted EBIT margin of industrial activities closed with a solid 5% profitability substantial in line with prior year.
Let's now take a look at each industrial business unit adjusted ebit margin performance in the quarter. On slide, 23 truck closed with a solid 5.4% adjusted EBIT margin despite lower volume and negative mix between LCVS and heavy duty trucks and the continuously adverse foreign exchange rate impact compared to prior year, mainly linked to Argentina, all compensated by consistently positive price realization in the quarter. Combined with a substantial product cost improvement, especially in Europe as for defense adjusted EBIT margin posted a 220 basis point uplift versus prior year to 8.7%. Thanks to higher volumes, a better mix and an increasingly positive aftermarket contribution in the period adjusted EBIT margin closed at 5.1% 120 basis points year over year as a result of higher volumes in Europe and in Brazil, the latter linked to the ramp up of deliveries of school buses as part of the tender one with the brazilian National Education Development Fund combined with positive pricing mainly in Europe powertrain adjusted ebit margin closed at 5% in the quarter. Despite the severe volume drop suffered in the period, this reconfirmed the remarkable resilience and flexibility of this business unit which was able to rapidly adapt production levels and implement a series of self help cost containment actions to counter the minus 22% year over year top line contraction and maintain a solid profitability.
Let's now have a look at the performance of our financial services business unit during the quarter on slide 24 Q3 2020 for adjusted EBIT closed at 39 million. EUR an increase of EUR6 million versus prior year primarily resulting from higher receivables portfolio and a better collection performance on managed receivables.
Financial services managed portfolio including unconsolidated joint ventures was EUR7.6 billion. At the end of the quarter of which retail accounted for 43% and wholesale. 50 7-Up. EUR508 million compared to 30 September 2023 worthwhile to be highlighted here is that the stock of receivables past due by more than 30 days as a percentage of the overall on book portfolio further declined in this quarter reaching a historical low of 1.9% versus 2.3% of prior year.
Finally return on assets as shown in the chart on the top right hand corner of this slide remains solid at 2.2%.
Moving out of Q3 2024 free cash flow and net industrial cash evolution on slide 25 as said in the first quarter of this year, free cash flow of industrial activities improved by EUR56 million compared to prior year as a result of lower working capital absorption which contributed positively for 181 million year over year driven by the targeted partial recovery of the Q21 of impact links to the launch of our modern year 2024 truck range. This improvement is particularly remarkable considering Q3 is usually a weak quarter given the summer shutdown and in light of the top plan contraction experienced in the period in this regard, please note that our full year 2024 free cash flow of industrial activities target remains unchanged at between eur eur350 400 million despite a still complex and uncertain macroeconomic and industry outlook for the remaining part of this year.
Let me quickly comment now on the other line. Items of our free cash flow build up Q3 2024 adjusted EBT was in line with prior year while provisions and similar contributed negatively for EUR72 million compared to Q3 2023 due to a reduction in commercial provisions as a result of lower volumes over the period, partially upset by the improvement in financial charges.
Investment in the quarter totaled 195 million substantially in line with prior year. And the total investments for the year for the full year are confirmed at around 1 billion. EUR finally, the 59 million year over year improvement in the effects and other line item was mainly linked to the redemption of certain US D link bonds purchased in Argentina. As part of the already mentioned hedging strategy implemented in the country.
Moving now to my last flight for today. Page 26 our available liquidity as of 30 September 2024 stood at EUR4.4 billion with EUR2.5 billion in cash and cash equivalents and 1.9 billion of unraw committed facilities.
Looking at our debt maturity profile, we confirm that the majority of our debt will mature beyond 2026.
And with our cash and cash equivalent levels continue to more than cover all the cash maturities foreseen in the coming years and totaling EUR2.1 billion.
Thank you and I will now turn the call back to Ola for his final remarks.
Olof Persson - Iveco Group NV - President, Chief Executive Officer, Director
Let's conclude with the industry and financial outlook as well as the key takeaway messages in terms of the total industry outlook for the current year. We have confirmed it in it. I will not spend too much time on this slide. I will just say that in reaffirming this outlook, we are obviously confirming fourth quarter 2024 to be down year over year as stated before for both light duty trucks and medium and heavy duty trucks in Europe.
On the next slide number 29 has our full year 2024 financial guidance unchanged from the previous call. And the company is confirming its guidance as follows at a consolidated level group adjusted ebit between EUR929 170 million.
And for industrial activities, net revenues including currency effects to be down around 4% adjusted ebit from industrial activities at between eur eur790 840 million industrial free cash flow at between eur eur350 400 million and investments in property plant and equipment and capitalized tangible assets at around EUR1 billion guidance has been confirmed on the back of a solid year-to-date results and evolving water backlog despite macroeconomic uncertainty in the short term, and we will continue to manage our production capacities during the fourth quarter. In line with the lower market to sensibly manage cost and cash and to finalize the recovery of the already mentioned second quarter, one of impact on slide 30. And in conclusion, let me provide some key takeaways from today's earnings call.
Firstly, as stated in our press release this morning and repeated in my opening remarks starting from 2025. We will accelerate the implementation of our efficiency program and Reprioritize some of our investments, reducing our total operating CapEx and OpEx spending without affecting our product plan. Our aim is to further increase the agility of our company and the speed of reaction to any market movement in the next quarter. Review. In addition to our preliminary financial guidance for full year 2025 we will provide more details on this effort.
Secondly, our commitment and effort towards the successful rollout of our model year 24 new product range is pivotal to support our journey both in terms of our profitability trajectory and further strengthening of the IVE brand image at 360 degrees in the market, especially in Europe.
And thirdly, our priority remains optimizing our working capital management to ensure financial health and sustainable growth and efficient working capital management means improving operation processes, reducing costs and freeing up additional resources for investments. And finally, our performance here today has been solid.
We have been able to counterbalance volume declines with a solid pricing strategy and cost containment actions that will allow us to proceed in delivering sound full year 2024.
In conclusion, we are preparing the group as we move with full force into 2025 and beyond remaining strongly committed to the long term targets outlined in our strategic business plan.
Federico Donati - Iveco Group NV - Head of Investor Relations
And we can now open it up for questions to be mindful of the time. We kindly ask that you hold off on any detailed modeling and accounting question on which you can follow up directly with me and the investor relations team. After the call operator. Please go ahead.
Questions and Answers:
OperatorThank you as a reminder to ask a question, please press star one and one on your telephone and wait for your name to be announced to withdraw your question. Please press star one and one again. Once again, please press star one and one on your telephone and wait for your name to be announced to withdraw your question. Please press star one and one again.
We are not going to take our first question.
The questions come from the line of Daniela Costa from Goldman Sachs. Please ask your question. Your line is opened.
Daniela Costa - Goldman Sachs - Analyst
Hi, good morning. Thank you for taking my questions. I have two questions. I'll ask them at a one at a time. First starting with your light commercial vehicle delivery market outlook of, of flat for, for next year. Can you help us think through the cadence of that? Because we observe now for yourself book to bill below one now for six quarters. Sort of how do you see that those deliveries pending out and how do you schedule production based on that?
Olof Persson - Iveco Group NV - President, Chief Executive Officer, Director
So, first of all, we are giving our preliminary 2025 and we will sort of, we will not go into the sort of predication of it, but I think it's, it's a fair point, you know, discussion a little bit about our transformation between the 2024 and 2022 and 2024 model range, which is ongoing right now in both lines up is not only in the LCP but also in the heavy of course, and we have to keep in mind that this is a total change of all the products we have in the truck that we now need to sort of implement into the market and do a change over the work is progressing. Well, we are very much focused on keeping our pricing discipline. We are very much focusing on making sure that we have a sound inventory levels throughout the whole system, including our own inventory, the commercial inventory and the dealer inventory to make sure that we have a good, good status on that. And, and that is the work that is ongoing. It's, it's according to plan, we are going to focus doing that, you know, this quarter quarter four coming and into the, into the into the first quarter next year where we estimate the most of the of this transformation and transition in the dealer network will be done. I also would like to add on that, you know, the, the feedback from our customers that we're getting from our, our model year 24 is very positive and good. So it's something that we really would like to sort of conclude as quick as we can.
Daniela Costa - Goldman Sachs - Analyst
Thank you. And my second question is regarding sort of the, the, the, the commentary regarding lowering CapEx and OpEx, but particularly on the CapEx side, you're, you're already net cash, you have a buyback. Shell, how shall we think about sort of the balance sheet going forward. Does this change your view on like cash to shareholders capital allocation? Yeah.
Olof Persson - Iveco Group NV - President, Chief Executive Officer, Director
I mean, the, the, the, the reason for you know, highlighting this in, in, in our release today is we have been sitting down and go through the, the efficiency program in detail and, and we've found a number of areas where we feel that we can increase the speed of implementing. And we also found when we go through the whole investment list and, and, and project list that we have in our product and that also there, there can Reprioritize some of the investments that we are planning to do. And this is basically something that we're now putting together and we will come back then in, in, in, in next when we present the fourth quarter results and with a more, more color and detail around that. To me, I mean, I and the whole team is always been focusing on, you know, uplifting our profitability as quick as we can making sure that we have a balance sheet that generate the cash needed. And this is something that we continue to do. And I think it's a good sign that we now have found areas where we can increase the speed of this. And during 2025 we will sort of come back with more color on this one as well. So this is a natural sort of progression of the work that we're already doing.
Operator
Thank you.
Thank you. We are not going to take our next question.
The questions come from the line of Miguel Brega from B&P Pariba exam. Please ask your question.
Miguel Auriga - BNP Paribas Exane - Analyst
Hi, good morning, everyone. Thanks for taking my questions. The first one just on the truck margin. I know this is a seasonally weaker quarter but help us understand why you saw such a decline both quarter on quarter and year on year. Considering, I suppose the new model year is being rolled over and also on a year on year basis mix should be positive given the decline in deliveries for medium and heavy and positive for light duty. So what explains the lower margin in trucks on a year on year and quarter on quarter basis? That's my my first question.
Anna Tanganelli - Iveco Group NV - Chief Financial & Information Technology Officer
So well, the the main explanation is the decline in in volumes. So in in the revenues we have seen, as we said, this was then partially offset and it translated also down to the profitability for a continuously positive pricing. But obviously, the main effect is on, I mean, driven by the revenues and also the underabsorption, the lower volumes trigger having said that we have been able to very well compensate this effect. And and the result of the truck profitability is extremely solid in the quarter. Then on the product cost, as we said, we had a positive contribution because the negative effect, as we said is the volume contraction, but we had two positive contribution. But as we said is pricing, the second is the product cost. But we please note that the product cost was in turn negatively affected by two main factors. One was on track, the one off cost linked to the launch of the model year 2024. And second, the performance of Latam Argentina specifically, you may have seen actually the performance in product cost was negative year over year in Argentina in Latam linked by the fact that the inflation there is still extremely high. Also year over year has slightly reduced, but it's still substantial. And this unfortunately has played against from a year over year perspective. But other than that, as I said, pricing and product costs in Europe have performed very well and we are quite happy with the profitability result reached by the truck business unit in the quarter.
Miguel Auriga - BNP Paribas Exane - Analyst
Thank you. And then on buses, we see now other peers with high single digit margins. You said your backlog now extends to 2026 I guess the whole point of being full kind of implies a better margin over time. So can you give us a sense if you're going to see margins going beyond this 5% level into next year perhaps?
Anna Tanganelli - Iveco Group NV - Chief Financial & Information Technology Officer
Well, I'll answer, but then I'll let all of integrate. I think we're not ready to give you guidance for 2025 yet. You saw the journey that Duss has done so far. And what still lies ahead also in the coming years in our business plan as we announced it in, in March of this year. The the result of dust in the quote is remarkable. I absolutely agree with you. They are benefiting from a positive pricing from higher volumes. So they won a number of tenders which are, which have a nice profitability. So I think we can just answer saying the trajectory there, the journey is halfway through. And for now, I mean, everything is marching ahead of in line.
Olof Persson - Iveco Group NV - President, Chief Executive Officer, Director
With plan. I think you're absolutely right. And I think you're adding to that is also the the position where as I mentioned in my remarks as well, right, it is now completely integrated into the bus with the development of new novelties around the electrification of the bus sector, both within the city bus, which is coming very rapidly as we as we speak. But also in the intercity buses, there are definitely a lot of opportunities there as well. And being out of getting the volumes making the experience we have now the plus adding a very solid product development plan into the bus means that we also both from a volume point of view and I would say absorption point of view in the factories, but also from the fact that we then can be very, very competitive and it's not over yet. There would be new, new things coming presented by, by the bus side during the year and the years to come here. So we are, we are marching along in a good pace there, I think.
Miguel Auriga - BNP Paribas Exane - Analyst
And then if I can squeeze in one more question on free cash flow, so over the first nine months, you're down 800 million. Basically, you need 1.2 billion in Q4 to achieve your guidance. And this would be in line with last year, Q4 versus last year, but this year in a weaker market environment. So what level of confidence you have or maybe give us a sense on the drivers to achieve your guidance? Will you rely for example, on more factoring this year or what other drivers do you have to achieve the free cash flow guidance? Thank you very much.
Anna Tanganelli - Iveco Group NV - Chief Financial & Information Technology Officer
Thank you. Now, thank you for your questions. Now, the drivers are will be purely, are purely operations because we're now in November. So we are already halfway through the quarter. So obviously, as we said during the call, we have adapted in, in the past month, our production levels to, to the level of, of deliveries. So if we see in terms of demand and this has will have a positive impact on our product payment activity in the quarter. So that will offset to your point. The the revenue contraction, we might experience year over year in Q4, the two, let's do the two effects will balance themselves, then we still have a recovery to complete. As you might remember in Q2 of this year, we showed we posted a GAAP versus last year, which we are very happy to have partially recovered in Q3. This is what we had promised to you and to the, to the market and we were able to deliver that, but the journey is not completed. We said we were going to complete it by the end of the year. So we still have Q4 to go. And then last but not least on from a year to year perspective, you have to remember we have also an improvement in our financial charges. Actually, strong improvement there. We guided for EUR300 million full year of financial charges last year, financial, our financial charges were around EUR450 million that also obviously affects positively our cash flow performance. Then we also said we still expect this number, the EUR300 million of financial charges amount for the full year still implies a potential further devaluation in Argentina, which right now, our local team is still seeing the potential event to occur between this month and the next one. But obviously nobody knows. So in case it won't occur, that might also have a positive impact. So we have operational levers to support our our guidance. Despite the fact that obviously the elements' themselves might be slightly different to what we experienced last year.
Operator
We are now going to proceed with our next question.
The questions come from the line of Monica Bosio from Intesa San Paulo. Please ask your question.
Monica Bosio - Intesa SanPaolo - Analyst
Good morning. And thanks for taking my question. I have a free. The first one is first of all, sorry.
Thank you for anticipating as the volume scenario for 2025.
You also say that that you're going to accelerate the efficiency program. I'm just wondering what is your view on the prices and scenario like commercial vehicles and medium and heavy for the next year? I think that you are taking a very prudent stance. I am I right.
Olof Persson - Iveco Group NV - President, Chief Executive Officer, Director
Well.
Anna Tanganelli - Iveco Group NV - Chief Financial & Information Technology Officer
He's the first.
Sorry Monica. Do you want us to answer or you had a couple of.
Monica Bosio - Intesa SanPaolo - Analyst
Questions? Just 11 a time.
Olof Persson - Iveco Group NV - President, Chief Executive Officer, Director
If I understood it correctly, it was the pricing for L CV next year. How I see that? Well, I mean, yeah, well, listen, I've been very clear and crystal clear both I think to the market and internally as well that our model year 2024 is a product that deserves and have all the features feasibilities quality and is up to the standard with the absolute best in the market. And therefore our pricing policy and our pricing discipline will go hand in hand with that and that will not change in 2025. We will not change in 2026. I mean, this is a model year program that we're going to have for many years to come and we are already, as I said before, having and this quarter and next quarter and the quarters to come, a very solid pricing discipline in place and we're going to continue to do that. So I don't think we, you know, prudent the efficiency program is disconnected from that. That is a true internal operational. When we review the, the, the efficiency program, we have that we can accelerate. And if we find that, of course, we do that right. It's, it's, it's, it's.
Monica Bosio - Intesa SanPaolo - Analyst
Okay. Got it. And my second question is on, thank you is on the power train. Are you still confident to reach a 100 basis point margin improvement on an annual basis? Given the deterioration in volumes?
Olof Persson - Iveco Group NV - President, Chief Executive Officer, Director
I think the if I start and I get, I think first of all, I truly, I'm impressed by the way, the team in powertrain has managed this down. It's been a year of the where the volumes has sort of gone down, you know, that I have a lot of fixed cost in powertrain that needs to be covered for, to avoid underabsorption. And I think they have really done a, as I said before as well, a superb job in mitigating that and coming up with a solid performance and we have to year, year of the year. If you take the full year, I still think they are up compared to last year, which is just a very good performance by itself. And then we'll see what, what happened during the Q4. But the commitment there is to do it. But I also would like to reiterate that is good. I really appreciate it. But as I said in my remark as well, it it is also the very heavy focus on getting more third party business into power train going forward, both on the on and off road segment. And that they also have been doing great progress during the quarter as well because that is building the foundation for what I call the powerhouse that we do have in in power trend being one of the largest manufacturer of engines and and access in the world that is sort of confirming and also solidifying and building that robust basis. But Anna if you want to talk with the numbers.
Anna Tanganelli - Iveco Group NV - Chief Financial & Information Technology Officer
You said it all but just to give you some data points, Monica. So a year-to-date, as you noted, obviously, the volumes were down, revenues were down 25%. And despite that, they were still able to achieve a 40 basis point profitly. So I mean, we are very happy then the important thing is given and the let's say the the market outlook and the volume performance they they experience this year. The important thing is that they show a profitability uplift. Then if it's 100 is slightly less, I think the important is the signal because as I said, the volume contraction has been significant. The target of 100 basis point remains overall, let's say throughout the business plan period. But as I said, the important thing is not necessarily, it's more the signal is the trajectory that they have been showing as all of us saying they are continuing to show to date.
Monica Bosio - Intesa SanPaolo - Analyst
So yeah, you're right that the track record is very good. They're notwithstanding the strong volumes.
And my very last question is on the market share gains in the medium duty. Can you give us some color on this side due to the old models or to a combination of the old and the new ones, any color would be helpful? Thank you.
Olof Persson - Iveco Group NV - President, Chief Executive Officer, Director
I think it's the, I mean, due to the medium and heavy, the, the, the market share in totality, I think it's pretty flat as you can see. We, we don't have that much of an impact. We had a little bit of an impact of the pre buy effect. Of course, in the, in the Q2 as we had in on the LCB side, but less, less, less, less visible, I would say in the market share, I would say that the, the, the important thing now is that doing the model year 2,224 shift by the dealers and making sure that we get our model year 24 out to the customers. We're in the beginning of that right now. We have to talk about model year 24 for a long time. But it's first now that we see the rubber hit the road and we start to get really the customers out there and we do a lot of different marketing activities. And then I think we will see the ones we have only the 2,424 models out there in terms of market share, we're definitely going to see and our aim is of course to make sure that we are taking our share, our share that we should have in with a product like the model year 24 but that remains to be seen. But we are, we are comfortable. Customers are happy. The product is good and we just need to make sure that we get out there in the best possible way.
Monica Bosio - Intesa SanPaolo - Analyst
Good, good. Thank you very much. Thank you.
Thank you. Thank you.
Operator
Monica.
We're now going to proceed with our next question.
The questions come from the line of Shakil Kirunda from Morgan Stanley. Please ask your question.
Shaqeal Kirunda - Morgan Stanley - Analyst
Hi. Thank you, Shaquille Long Sandy power train revenues. So they fell about 22% year on year half of that will be from, you know, your own business. And what about the external cost?
Which segments and customer types is powertrain most exposed to? Because the year on year decline was quite sharp this quarter versus the first half.
Anna Tanganelli - Iveco Group NV - Chief Financial & Information Technology Officer
Hi, shall so then as you said, the drop was both on road and off road. So these there are two mostly affected segments, so I wouldn't necessarily name customers. I would say the whole industry was down and power is exposed both to on road as well as off road. So the other obviously component is the off road industry.
Operator
We are now going to proceed with our next question.
The questions come from the land of John Luca, be Duo from Intermonte Sim. Please ask your question.
Gian Luca Bolengo - Equita SIM - Analyst
Hi, everybody and thank you for taking my question. The first one is on the guidance. Do you see results trending to the low end midpoint or IAN? Because Q4 looks a bit wide at this stage.
Second question is is thank you Anna for, for the explanation about the evolution of production cost and the inflation effect in South America. I guess you've said that through higher pricing there. Can you maybe quantify how much of the total pricing effect was attributable to South America as well? And the last one is, can you maybe share the evolution of orders into Q4? As of let's say the latest number you have? Thank you.
Olof Persson - Iveco Group NV - President, Chief Executive Officer, Director
The guidance is the guidance and I think if you look at having the, the, the span that we have, we have added all the year and we are keeping that and we will see where we end up in that. We confirm the guidance and I think with the numbers that we present. So I don't really think we need or should or can speculate in that right now if I don't take the last one, which was done the the order orders in, in the, in the last week. So I would say that, I mean, the the the work of and this is an ongoing activity and I really want to be clear on that the ongoing activity of transformation transforming the the the dealer inventory model year 22 to 24 is, is a very sort of delicate exercise that we are dealing with with the, we're playing an old strings of the guitar in terms of, you know, the the inventory level we're playing on the pricing disciplines. We're making sure that we are doing the right marketing activities on the right market with the right product. So it's a very delicate issue and that is of course, something that we have in the forefront of us right now. So I think the order intake is, is, is sort of a reflection of that effort that we do that we would do then up until the first quarter of next year when the majority will be done. And I don't think we really give any last week's kind of of of development thing, things are going, I mean, steady as she goes, I can say, I mean, it's sticking in the orders. And I said with the feedback from the customer. That is important thing. But with the positive feedback, you sooner or later to get the orders. That is that is the key issue that I'm looking at as well.
Anna Tanganelli - Iveco Group NV - Chief Financial & Information Technology Officer
Your question on on pricing. And I would say then the component of pricing is a little bit the same of the product cost. You're right. We are offsetting inflation, compensate, recovering for inflation also for pricing, to be H1st, not only because we have a good position both in especially in Argentina, but also in Brazil. Having said that let's say out of the whole pricing impact in the quarter, I would say a little bit more than a third is the Europe and the remaining part is Latin. But as I said, it's not entirely inflation because there are different effects there in Latam. But I mean ballpark, this is the magnitude of the share between the two regions.
Operator
We are now going to take our last question. The questions come from the line of Nicola from Deutsche Bank. Please ask a question.
Nicolai Kempf - Deutsche AG - Analyst
Yeah, good morning, Nicola. I came from Deutsche Bank. Thanks for taking my question. My first question is also on pricing. On the Q2 call, there was a slide and comment that you expect pricing pressure to come in Q4.
I missed this comment now on the slide. So it's a positive sign that we do not expect to see pricing pressure to come in Europe in Q4 and my second one was a housekeeping. I think in the past you've got only net financial results and can you just confirm this again? Thank you.
Anna Tanganelli - Iveco Group NV - Chief Financial & Information Technology Officer
But to the second one I think is on the financial charges you were asking, we got it for EUR300 million for the full year and, and as we said, and I'm sure if you missed it earlier, we did, we said it was in the previous call. This also assumes the potential for devaluation. Argentina. I just want to highlight that just because they keep on pushing it throughout the year. Now, it's expected November, December. But obviously, if it won't occur, that might impact the EUR300 million amount one way or the other. But for now, we are guiding and maintaining our estimate of EUR300 million for the full year.
Olof Persson - Iveco Group NV - President, Chief Executive Officer, Director
And on the pricing pressure, I mean, it is of course a very competitive market out there. So, so it's, it's, that's definitely the case, but we are in a position right now with the, you know, the the shift over by the dealers that we of course, are running, keeping our price position very firm, as I said, and then running marketing activities on both sides. But one is to get our model year 24 out to the customers and start to get them into the market and the second one is of course then to try to create space with the dealers by, by selling out the 2022. So that is the sort of the situation we are in right now.
Operator
Okay. Thank you.
That will conclude the question and answer session. I would like to turn the call back to Federico Donati for any additional and closing remarks. Thank you.
Federico Donati - Iveco Group NV - Head of Investor Relations
Thank you all and have a nice day. Bye bye.
Call participants:
Corporate ParticipantsFederico Donati, Iveco Group NV - Head of Investor Relations
Olof Persson, Iveco Group NV - President, Chief Executive Officer, Director
Anna Tanganelli, Iveco Group NV - Chief Financial & Information Technology Officer
Conference Call Participants
Daniela Costa, Goldman Sachs - Analyst
Miguel Auriga, BNP Paribas Exane - Analyst
Monica Bosio, Intesa SanPaolo - Analyst
Shaqeal Kirunda, Morgan Stanley - Analyst
Gian Luca Bolengo, Equita SIM - Analyst
Nicolai Kempf, Deutsche AG - Analyst
Refinitiv StreetEvents Transcript
Q3 2024 Iveco Group NV Earnings Call
Nov 07, 2024 / 10:00AM GMT
