Volvo - three months ended March 31, 2002
2002 2001
Net sales, SEK M 40 385 43 750
Operating income (loss) excluding (362) 502
restructuring costs, SEK M
Operating income (loss), SEK M (362) (817)
Income (loss) after financial items, SEK M (618) (1 251)
Net income (loss), SEK M (746) (801)
Sales growth, % (8) 55
Income (loss) per share during most recent 12 (3.40) 6.40
months period, SEK
Return on shareholders' equity, % (1.6) 2.9
� The first quarter was characterized by the previously announced
intense efforts to phase in new products and ramp-up production. This
applied particularly to Volvo Trucks and Construction Equipment with an
adverse effect on earnings.
� The reported operating loss in the first quarter of 2002 was SEK
362 M, compared with a loss of SEK 817 M in the year-earlier period.
Excluding restructuring costs, operating income in the first quarter of
2001 was SEK 502 M.
� More than 20,000 orders have been signed for the new Volvo FH and
Volvo FM trucks. The introduction of the new truck ranges has recently
started in Volvo Trucks' International markets. Mack, Renault and Volvo
CE also noted positive trends in order bookings.
� Cash flow was negative in the first quarter of 2002 as a result of
inventory build- up relating to product introductions. Cash flow
continues to be a priority area within the Volvo Group.
Comments by the Chief Executive Officer
The general market trend continued to affect the Group in different ways
during the first quarter. Volvo Penta had another quarter of very strong
performance, with increasing sales compared to the first quarter last
year. Volvo Penta is successfully creating added value within our engine
operations, and continues to compensate the weaker demand by gaining
market shares.
In North America, our truck operations were still under pressure. Our
competitors large inventories of used trucks continued to hamper prices
and sales of new trucks. A slight increase of order intake could
indicate that the market has bottomed out. In Europe, the market slowed
down, but not as much as the consensual outlook of the industry has
anticipated.
The first three months were also characterized by intensive efforts to
phase in the new products that were launched in the second half of 2001.
This particularly applied to Volvo Trucks, which is currently
implementing the most extensive model replacement program ever. As
previously announced, this replacement resulted in extensive ramp up
activities in both production and for our suppliers. The most intensive
part of the replacement process is over and production will start to
catch up with orders in the second quarter. The strong demand for the
trucks is of course a very positive sign, even if it has not improved
earnings yet. More than 20,000 orders have been received since the Volvo
FH and Volvo FM models were launched in November 2001. Also Renault
Trucks' new model range, with the new Renault Magnum among others, has
increased customer demand and increased market shares. This is
particularly evident within heavy-duty trucks in France, where Renault
Trucks reached a record level in February.
Volvo CE is also going through an important product replacement phase,
as the new generation of wheel loaders and excavators are set in
production. Volvo CE showed for the first time its extended product
range at the ConExpo exhibition in Las Vegas in March. The extended
range of compact equipment has been very well received. Volvo CE's order
intake increased significantly during the first quarter.
We still suffered from weak demand for new trucks, primarily in North
America. The major changes in production had a further adverse effect on
deliveries during the quarter. It also affected cash flow during the
first quarter. The North American recession also affected Financial
Services and Volvo CE in a large extent. Volvo CE was also affected of
the downturn in Europe where Germany is particularly weak. Volvo Aero's
sales and operating income dropped, mainly depending on the effects from
September 11, which started to affect aerospace services during the
first quarter. September 11, has also affected Volvo Buses with lower
demand for coaches.
All in all, this resulted in 8% lower sales volumes and a clearly
unsatisfactory performance for the Group in the first quarter. Order
bookings are beginning to improve, however as a result of the extensive
product renewal that has been carried out throughout the entire Volvo
Group.
To sum up, we are in the middle of a difficult business cycle and are
going through an intensive period of ramp up activities. The business
environment will continue to be difficult across the Group during 2002.
There are few firm signs of immediate recovery. Rising political
tensions in the Middle East, and increasing oil prices add concern about
the strength and timing of the economic recovery of North America.
Consequently, our focus on Business Cycle Management will continue with
a specific emphasis on inventory and cash flow. The closing of the truck
plant in Winnsboro, US, is proceeding according to plan, as well as the
integration process within the truck operations. The readiness to make
additional production adjustments and structural adaptations remains.
This is of course also a period of opportunities. We are going to take
full advantage of our new products. We are also going to capitalize on
increased productivity and structural improvements. Our aim is
definitely to further strengthen our position during this recession.
Leif Johansson
Significant events during the first quarter of 2002
New structure for Volvo's truck operations
Since Volvo's acquisition of Renault V.I. (now named Renault Trucks) and
Mack Trucks, a large part of the operations has been focused on
immediate integration programs and development of a strategy for the
future comprising product plans for both vehicles and engines. Most of
this work is now completed and the years immediately ahead will be
characterized by implementation of approved strategies and product plans
in order to take advantage of the synergies created through the
acquisition. A clear focus on customers, based on distinct and powerful
brand names, will be decisive. A new organization and management was
thus necessary. As of January 7, 2002, Volvo, Mack and Renault Trucks
are separate business areas reporting to the Volvo Group Headquarters.
Volvo CE launched new products
Volvo Construction Equipment launched its B-series of excavators; a new
generation of machines designed to provide more power and productivity
and improved operator comfort. Volvo CE also launched the new Volvo E-
series of wheel loaders. The new wheel loaders combine high
productivity, low fuel consumption and low environmental impact, making
them the ideal machines for rock, rehandling and log-handling
applications.
Newly developed Volvo backhoe loader at the ConExpo
As announced in December 2001, Volvo Construction Equipment showcased
its newly developed backhoe loader at the ConExpo tradeshow in Las
Vegas, US, March 19-23, 2002. The machines represents the company's new
entry into the competitive, worldwide backhoe loader market, where Volvo
is entering the most popular size class for these machines.
Volvo delivers 200 city buses to Johannesburg
Volvo Bus South Africa Pty began delivery of 200 city buses to Metrobus
in Johannesburg, South Africa. The delivery comprises 150 B7TL double-
decker buses and 50 standard B7R buses. The delivery marks an important
modernization of the city's fleet of buses and also represents a new
element on the urban scene prior to this year's major UN summit meeting,
where world leaders will discuss environmental and economic development.
Volvo Aero Engine Services lands major overhaul order from Aeroflot
Volvo Aero signed an agreement with the Russian airline Aeroflot,
whereby Volvo Aero will overhaul Aeroflot's JT9D-59A engines, powering
its DC 10-40 aircraft. The initial value of the contract is USD 60 M,
making it the largest overhaul contract signed by Volvo Aero since 1998.
There is also a potential for a total order value of USD 120 M if
Aeroflot decides to add more DC 10-40's to its fleet.
Volvo Penta introduced the new Ocean Series propulsion system
During the first quarter of 2002, Volvo Penta introduced the Ocean
Series, a new composite marine propulsion system, intended primarily to
approach the US saltwater fishing market. The Ocean Series offers
unparalleled performance in this segment, which traditionally has relied
on outboard propulsion. During the Miami International Boat show in
February, the new propulsion system was awarded the prestigious
"Innovation Award" for its product excellence.
The Volvo Group - 2002
Net sales
Net sales of the Volvo Group for the first quarter of 2002 amounted to
SEK 40,385 M, compared with SEK 43,750 M in 2001, down 11% adjusted for
changes in currency rates and group structure. Ramp-up of production of
the newly introduced products within Trucks and Construction Equipment
adversely affected deliveries during the first three months of 2002 and
were the main reason for the decline in sales. Continued weak volumes in
North America also affected net sales.
Net sales of Trucks' amounted to SEK 26,558 M, a decline of 13% adjusted
for currency effects compared with the year earlier period. Deliveries
of Volvo trucks within Europe declined by 43%, mainly related to the
ramp-up of production of the completely new Volvo FH and Volvo FM
trucks. Initial start-up effects in production, resulting in delayed
deliveries, also affected sales adversely in the first quarter.
Deliveries of Renault trucks above 16 tons declined by 11% compared with
the year earlier period. The development in North America continued to
be weak and the deliveries of Mack trucks declined by 31% and Volvo
trucks by 19%.
Net sales of Buses for the first three months of 2002 amounted to SEK
3,165 M, a decline of 1% adjusted for currency effects and the effect of
consolidating Pr�vost/Nova Bus using the proportional method as of the
fourth quarter 2001. Net sales for Volvo CE declined by 12%, excluding
currency effects, in part due to a negative geographical mix and ramp-up
issues relating to the production start of new models. Volvo Penta's
sales remained strong in the first quarter with an increase of 9%,
excluding currency effects. As a result of the downturn in the airline
industry, Volvo Aero's net sales declined by 10%.
During the first quarter of 2002, the Group's net sales in Western
Europe declined by 11%, mainly due to the production start of newly
introduced products. Net sales in North America were down 13% and South
America declined 12%, while significant growth was noted in Eastern
Europe, Asia and on other markets.
The distribution of net sales by market is further specified in the
table below:
Net sales by First Change
market area three months
SEK M 2002 2001 in % % of
total
Western Europe 21 097 23 697 -11 52
Eastern Europe 1 318 1 199 +10 3
North America 11 738 13 441 -13 29
South America 1 211 1 379 -12 3
Asia 2 650 1 941 +37 7
Other markets 2 371 2 093 +13 6
Total 40 385 43 750 (8) 100
Operating income/loss
Operating loss for the first three months in 2002, amounted to SEK 362
M, compared with operating income, excluding restructuring costs, of SEK
502 M in the corresponding period a year earlier. The loss is mainly
attributable to lower earnings within Trucks, Buses and Construction
Equipment.
Trucks' operating loss for the first quarter of 2002 was SEK 474 M
compared with an operating income of SEK 150 M in the year-earlier
period. The operating loss was largely related to continued, but
decreasing, losses in North America and to lower deliveries in Europe as
a result of the production ramp-up of the new Volvo FH and Volvo FM
trucks.
Buses operating loss of SEK 94 M was basically unchanged compared with
the year-earlier period, mainly as a result of low volumes. Construction
Equipment earnings declined significantly, to an operating loss of SEK
131 M. The loss is related to production start of new models, negative
geographical mix and vendor supply issues. Earnings for Volvo Penta
continued to be favorable; operating margin was 7% in the first quarter
of 2002. Volvo Aero's operating income was halved compared with the year-
earlier period due to weaker demand. Financial Services operating income
amounted to SEK 115 M, which was in line with 2001.
Selling expenses were higher compared with the year-earlier period as a
result of dealer consolidation. The increase in other operating expenses
was mainly due to exchange rate differences. Operating income for the
first three months of 2002 included a less positive effect from
capitalization of development costs of SEK 156 M, compared with the
corresponding period in 2001. These effects are related to new
accounting standards, which were applied as of 2001. The total effect
for the first three months 2002 was SEK 334 M, compared with SEK 490 M
in the year-earlier period.
The deficit in Volvo's Swedish pension foundation increased by SEK 181 M
during the first three months of 2002, mainly due to increased pension
obligations combined with a weak development in the stock market. The
weaker position had a corresponding negative effect on Volvo's operating
income during the quarter.
Net interest expense
Net interest expense for the first three months declined to SEK 248 M
compared with SEK 273 M in the year-earlier period. The positive effects
of lower net financial debt and lower interest rates in the US were
partly offset by lower average SEK exchange rates during the period.
Taxes
During the first three months of 2002, a tax expense of SEK 118 M was
reported, mainly related to current tax expenses in subsidiaries outside
Sweden. Deferred tax income related to the change in tax-loss carry
forwards has not been recognized during the period.
Consolidated income First three
statements* months
SEK M 2002 2001
Net sales 40 385 43 750
Cost of sales (33 (36
205) 236)
Gross income 7 180 7 514
Research and development (1 505) (1 394)
expenses
Selling expenses (3 797) (3 378)
Administrative expenses (1 277)(1 659)
Other operating income and (1 094) (696)
expenses
Income from Financial 115 113
Services
Income from investments in 16 (2)
associated companies
Income from other 0 4
investments
Restructuring costs - (1 319)
Operating income (loss) (362) (817)
Interest income and similar 266 411
credits
Interest expenses and (514) (684)
similar charges
Other financial income and (8) (161)
expenses
Income (loss) after (618) (1 251)
financial items
Taxes (118) 422
Minority interests in net (10) 28
(income) loss
Net income (loss) (746) (801)
Income (loss) per share, SEK (1.80) (1.90)
* Financial Services reported in accordance with the equity
method.
Key operating ratios, Volvo First three
Group months
% 2002 2001
Gross margin 17.8 17.2
Research and development expenses 3.7 3.2
in % of net sales
Selling expenses in % of net 9.4 7.7
sales
Administrative expenses in % 3.2 3.8
of net sales
Operating margin* (0.9) 1.1
Operating margin (0.9) (1.9)
* excluding restructuring costs
Condensed income statement - First three months
Financial Services
SEK M 2002 2001
Net sales 2 448 2 240
Income after financial 115 113
items
Taxes (27) (6)
Net income 88 107
Jan - Jan
March Dec
Key ratios - Financial 2002 2001
Services
Return on shareholders' 4.1 4.2
equity, %
Equity ratio at end of 10.3 10.3
period, %
Asset growth, % (3.3) 10.5
Consolidated Volvo Volvo
balance sheets Group Group
excl
Financial Financial total
Services Services
1)
March 31 Dec 31 March 31 Dec 31 March 31 Dec 31
SEK M 2002 2001 2002 2001 2002 2001
Assets
Intangible assets 17 201 17 366 150 159 17 351 17 525
Property, plant and 29 584 30 370 2 917 2 864 32 501 33 234
equipment
Assets under 13 987 15 020 13 669 14 060 25 803 27 101
operating leases
Shares and 34 681 35 145 203 203 27 525 27 798
participations
Long-term customer 51 19 26 139 26 256 25 960 26 075
finance receivables
Long-term interest- 5 433 5 627 8 0 5 400 5 554
bearing receivables
Other long-term 9 113 9 017 123 73 9 048 8 902
receivables
Inventories 31 425 30 557 389 518 31 814 31 075
Short-term customer 24 95 22 706 23 732 22 007 22 709
finance receivables
Short-term interest 3 984 6 799 80 82 2 152 2 525
bearing receivables
Other short-term 28 623 29 798 2 688 2 647 30 512 31 044
receivables
Marketable 17 113 12 997 448 517 17 561 13 514
securities
Cash and bank 5 537 11 877 1 803 2 417 6 922 13 869
Total assets 196 756 204 687 71 323 73 528 254 556 260
925
Shareholders'
equity and
liabilities
Shareholders' 83 276 85 185 7 359 7 550 83 276 85 185
equity
Minority interests 377 391 0 0 377 391
Provision for post- 14 345 14 632 15 15 14 360 14 647
employment benefits
Other provisions 13 960 14 085 4 091 4 342 18 050 18 427
Loans 27 004 29 710 56 371 57 956 80 066 81 568
Other liabilities 57 794 60 684 3 487 3 665 58 427 60 707
Shareholders' 196 756 204 687 71 323 73 528 254 556 260
equity and 925
liabilities
1) Financial Services, reported in accordance with the equity method.
The Volvo Group's total assets at March 31, 2002 amounted to SEK 254.6
billion, corresponding to a decrease of SEK 6.4 billion compared with
year-end 2001. Approximately SEK 6.1 billion of the decrease was related
to currency effects.
Shareholders' equity amounted to SEK 83.3 billion as of March 31, 2002,
corresponding to an equity ratio of 42.5%, excluding Financial Services.
Net debt on the same date amounted to SEK 9.3 billion. Net financial
debt corresponded to 11.1% of shareholders' equity and minority
interest. The changes in shareholders' equity and net financial position
since year-end are specified in the tables below.
Change in shareholders' equity First three months
SEK bn 2002 2001
Beginning of period 85.2 88.3
Translation differences (1.0) 1.0
Repurchase of own shares - (8.3)
Issue of shares to Renault SA - 10.4
Net income (loss) during the period (0.7) (0.8)
Other changes (0.2) (0.1)
Balance at end of period 83.3 90.5
Change of Net financial position, SEK bn First three
months
Beginning of period (7.0)
Cash flow from operating activities (1.3)
Investments in fixed assets, net (1.4)
Customer Finance receivables, net 0.0
Investments in shares, net 0.0
Acquired and divested operations 0.2
Cash-flow after net investments, excluding (2.5)
Financial Services
Debt in acquired and divested operations (0.2)
Change in provision for post employment (0.2)
benefits
Currency effect 0.6
Other (0.0)
Total change (2.4)
Net financial position at end of period (9.3)
Key ratios Jan - Jan
March Dec
12 month figures unless 2002 2001
otherwise stated
Sales growth, % (7.7) 50.0
Income per share, SEK (3.40 (3.50
) )
Income per share, excluding 1.00 3.10
restructuring costs, SEK
Return on (1.6) (1.7)
shareholders' equity,
%
Return on shareholders' equity excluding 0.5 1.5
restructuring costs, %
Net financial position at (9.3) (7.0)
end of period, SEK billion
Net financial position at end of period as (11.1 (8.2)
percentage of shareholders' equity and minority )
interests
Shareholder' equity and minority 32.9 32.8
interests as percentage of total assets
Shareholders' equity and minority interests 42.5 41.8
excluding Financial Services, as percentage of
total assets
Mar 31 Dec 31
Number of Volvo shares 2002 2001
Number of shares outstanding 419.4 419.4
Average number of shares outstanding 419.4 422.4
during the period
Company shares held by AB Volvo 22.1 22.1
Cash flow statement First
three months
SEK bn 2002 2001
Operating activities
Operating income (loss)* (0.5) (0.9)
Add depreciation and 1.9 1.8
amortization
Other non-cash items 0.1 (0.1)
Change in working capital (2.6) 0.5
Financial items and income (0.2) (1.0)
taxes paid
Cash flow from operating (1.3) 0.3
activities
Investing activities
Investments in fixed assets (1.7) (1.9)
Investments in leasing 0.0 (0.2)
vehicles
Disposals of fixed assets 0.3 0.2
and leasing vehicles
Customer Finance 0.0 0.1
receivables, net
Investments in shares, net 0.0 (0.2)
Acquired and divested 0.2 3.7
operations
Cash-flow after net investments (2.5) 2.0
excl Financial Services
Cash-flow after net investments, (1.1) (1.4)
Financial Services
Cash-flow after net investments, (3.6) 0.6
Volvo Group total
Financing activities
Change in other loans, net 0.6 8.4
Loans to external parties, 0.3 (0.6)
net
Repurchase of own shares - (8.3)
Change in liquid funds excl (2.7) 0.1
translation differences
Translation difference on (0.2) 0.5
liquid funds
Change in liquid funds (2.9) 0.6
* excluding Financial
Services
Condensed cash-flow statement, First three
Financial Services months
SEK M 2002 2001
Cash-flow from operating 0.8 0.7
activities
Net investments in credit (1.9) (2.1)
portfolio etc
Cash-flow after net (1.1) (1.4)
investments
The Volvo Group's cash flow
Cash flow after net investments, excluding Financial Services, was a
negative SEK 2.5 billion during the first quarter of 2002. Cash flow in
the year-earlier period, excluding acquired liquid funds within Renault
Trucks and Mack Trucks, was a negative SEK 1.7 billion. Apart from the
fact that cash flow during the first quarter normally is weak due to
seasonal variations in the operating capital, weak earnings and
inventory build-up as a consequence of the production start of new
models also had a negative effect.
Cash flow after net investments within Financial Services was a negative
SEK 1.1 billion (1.4).
Net borrowing in the Group increased by SEK 0.6 billion during the first
three months of the year. Liquid funds declined SEK 2.9 billion during
the period, amounting to SEK 24.5 billion at March 31.
Financial review by business area
Net sales First Change 12
three months month
SEK M 2002 2001 in % rolling
values
Trucks 26 558 29 121 (9) 114 005
Buses 3 165 3 715 (15) 16 125
Construction Equipment 4 476 4 688 (5) 20 923
Volvo Penta 1 962 1 736 13 7 606
Volvo Aero 2 485 2 607 (5) 11 662
Other 1 739 1 883 (8) 6 929
Net sales 40 385 43 750 (8) 177 250
Operating income First 12-month Jan
three months Dec
SEK M 2002 2001 rolling 2001
values
Trucks (474) 150 416 1 040
Buses (94) (83) (535) (524)
Construction Equipment (131) 81 679 891
Volvo Penta 146 167 637 658
Volvo Aero 78 160 571 653
Financial Services 115 113 327 325
Other (2) (86) 227 143
Operating income (loss)* (362) 502 2 322 3 186
Restructuring costs - (1 319) (2 543) (3 862)
Operating income (loss) (362) (817) (221) (676)
*excluding restructuring
costs
Operating margin First 12 month Jan-Dec
three months
% 2002 2001 rolling 2001
values
Trucks (1.8) 0.5 0.4 0.9
Buses (3.0) (2.2) (3.3) (3.1)
Construction Equipment (2.9) 1.7 3.2 4.2
Volvo Penta 7.4 9.6 8.4 8.9
Volvo Aero 3.1 6.1 4.9 5.5
Operating margin* (0.9) 1.1 1.3 1.8
Operating margin (0.9) (1.9) (0.1) (0.4)
*excluding restructuring
costs
Trucks
At the beginning of 2002, the Volvo Group changed the organizational
structure of its truck operations by making the three truck companies
Mack Trucks, Renault Trucks and Volvo Trucks - separate businss areas.
The truck operations of the Volvo Group reports directly to the Volvo
Group Headquarters. The joint organization for co-ordinating Product
Planning, Purchasing and Product Development, Volvo 3P, has formed a
separate internal business unit.
Net sales by First three Change
market area months
SEK M 2002 2001 in %
Europe 14 959 17 098 (13)
North America 7 721 8 562 (10)
South America 845 873 (3)
Asia 1 099 754 +46
Other markets 1 934 1 834 +5
Total 26 558 29 121 (9)
Total market
The North American market continued on a very low level during the first
quarter. Pre-buys due to the new, future emission legislation could be
noticed. Indications of stabilization in the market were seen in March.
The demand for heavy trucks in Western Europe remained strong in the
first three months of the year but with increasing price pressure.
Indicators show a favorable trend in the industry at the beginning of
this year and order bookings are beginning to rise somewhat.
Many markets in Eastern Europe and Asia continued to show a stable
situation.
Deliveries
Trucks' total deliveries during the first three months of 2002 amounted
to 33,322 vehicles, a decline of 21% compared with the year-earlier
period.
In Europe, deliveries from Trucks amounted to 20,821 vehicles, down 24%.
The decline is largely related to the production start of the new Volvo
FH/FM trucks.
In North America, Trucks delivered a total of 7,442 vehicles, a decrease
of 27% compared with the corresponding period in 2001. In Asia, however,
Trucks' deliveries increased by 52% to 1,718 trucks.
Order situation
The new Volvo FM and Volvo FH program in Western Europe created strong
customer demand and more than 20,000 orders were signed. Accordingly,
Volvo Trucks' order intake rose by 2% in the first quarter. Eastern
Europe also developed well, with strong order intake in several markets.
The demand for long-haulage trucks in North American was very low in the
beginning of the year and Volvo Trucks� order intake was 8% lower than
the same period last year. The positive sales development continued in
Asia with a very strong order intake in the Middle East, China and South
Korea. In the US, Mack posted a 27% increase in its order intake during
the first quarter. The activity is viewed as a move by customers to "pre-
buy" current models, to avoid new engine technologies being introduced
to meet new EPA emissions regulations.
The order intake for Renault Trucks increased noticeably during the
beginning of the year, particularly in France, Spain and Germany. The
Renault truck ranges, all of which were renewed in the past six years,
are well appreciated and order intakes for Renault Magnum, Premium,
Midlum and Mascott show steady increases at the end of March, between 4%
and 15%. The launch of the new Renault Magnum in September 2001 has
focused the interest of the customers on the new models.
Market share
Volvo's market shares for heavy trucks in Western Europe declined to
13.8% (15.7) in February due to the change over to new products (new
Volvo FM/FH) in the production. The market share in class 8 in the USA
fell to 7.3% (11.3) as Volvo Trucks chose not to participate in a number
of very aggressive price biddings to some larger transport fleets.
Mack's US market share through March was 12.3%, down from 12.6% a year
ago.
At the end of January, the Renault Trucks share in the over 6-ton
segment in Europe had increased by 0.5%, in the medium-duty segment by
0.7% and in the heavy-duty segment by 0.4%. Renault Trucks market share
in France is rising, specifically for the heavy-duty ranges, up 2.7% at
the end of February at a record high 36.6 %.
Financial performance
Net sales for the first three months amounted to SEK 26,558 M compared
with SEK 29,121 M in the year-earlier period. Operating loss for the
first three months was SEK 474 M (income, excluding restructuring costs,
150). The loss in the first quarter was largely related to continued,
but decreasing, losses in the North American operations and to lower
deliveries of Volvo trucks as a result of the ramp-up of production of
the new Volvo FH and Volvo FM trucks. Earnings within Mack were affected
by the economic downturn in Venezuela.
New products
The launch of the new Volvo FM and FH, which started in November last
year, has been very well received by the customers, dealers and media.
The launch is now under way in Volvo Trucks� International markets.
The new Volvo and Renault trucks were on display at the RAI
international trade show in Amsterdam at the beginning of February. The
new Renault Magnum attracted interest from visitors with its new look
and new interior concept. The Renault Midlum was presented with its new
18-ton version. At the end of March, Spanish journalists elected Renault
Magnum "Camion del Ano 2002".
Buses
Net sales by First three Change
market area months
SEK M 2002 2001 in %
Europe 1 560 1 326 +18
North America 857 1 902 (55)
South America 97 185 (48)
Asia 444 192 +131
Other markets 207 110 +88
Total 3 165 3 715 (15)
Total market
The demand both in Europe and North America continues to decline. The
touring business is still being hit by the lack of confidence regarding
economical development which affects the coach market adversely. Some
operators in Europe and the US are reducing their fleets, which
increases the used vehicle trade. Due to the unstable financial
situation in South America, the market continued on a low level. The
markets in Asia Pacific region showed more stable development.
Deliveries
Volvo delivered 1,842 buses and coaches during the first quarter of 2002
compared with 2,117 in the year-earlier period. The decline is mainly
related to lower deliveries in Mexico, South America and the US, which
was offset to some extent, by higher deliveries to China, South Africa
and Thailand. 38% was complete buses compared with 50% last year. The
lower percentage is attributable largely to the North American joint
ventures being consolidated in accordance with the proportional method
as of October 1, 2001.
Order Situation
As a result of the complete and competitive product range with high
customer value, the order situation in the Nordic area was favorable.
Coach order intake in Volvo's main European markets as well as in the US
and Canada was negatively affected by the uncertainty of the development
in the touring business. Reduced traveling in Mexico resulted in
operators postponing their purchases of high-value buses. Due to the
unstable market development, low order intake was reported in South
America in the first quarter of 2002. Overall, the order book is good
but the order intake has weakened.
Market shares
The tough price competition in Europe and the US adversely affected
Volvo's market share while Asia Pacific had a strong development. Volvo
is offering a premium product and Volvo's intention is to avoid
unprofitable deals. Volvo persistently increased prices in Brazil during
the past year, which resulted in lost market share. The competition did
not show any signs of following these hikes until recently.
Financial performance
Net sales amounted to SEK 3,165 M (3,715) during the first three months,
mainly due to the North American joint-ventures being consolidated with
the proportional method as from October 1, 2001. Lower sales of coaches
have also had a negative effect. The operating loss was SEK 94 M
compared with a loss of SEK 83 M in the year earlier period. Progress
has been accomplished in focused areas to within short reach a turn-
around. Unfortunately, the significant decline in South America and
Mexico has offset the positive developments in other regions.
In focus
Volvo is continuing to carry out the plans to exit the US transit market
- the Nova operations in Roswell - and focus on the Canadian business,
Nova St Eustache, based on a major order from the city of Montreal
received last year. In Europe business focuses on increasing
productivity by improving the production efficiency, reducing product
cost and securing a high level of quality, which is facilitated by the
new competitive product range.
In China, Volvo products were awarded "Coach of the Year" and "Bus of
the Year" at the bus show in Shanghai in March this year.
Construction Equipment
Net sales by First three Change
market area months
SEK M 2002 2001 in %
Europe 2 245 2 473 (9)
North America 1 226 1 194 +3
South America 175 238 (26)
Asia 667 551 +21
Other markets 163 232 (30)
Total 4 476 4 688 (5)
Total market
The total combined world market for heavy and compact construction
equipment declined by 6% during the first quarter of 2002, compared with
the corresponding period in the preceding year. The downturn in North
America was 9%, in Europe 6% and in the other markets 4%.
The market for heavy construction equipment declined by approximately 6%
in the first quarter. Both the North American and European markets
showed a decline of 12%. Other markets showed an increase of about 1%.
For compact equipment, the total market fell about 5% during the
quarter. The North American market was up 1%, while the European market
declined 2% and the other markets fell 10%.
Market share
Compared with the year-earlier period, Volvo CE was able to increase its
share of the market in several important geographical and product areas,
mainly due to recently launched products backed by a strong brand name.
Order situation
The value of the order bookings as of March 31 was 40% higher than on
the same date in 2001 and nearly 60% higher compared with year-end 2001.
Financial performance
Volvo CE's net sales during the first quarter amounted to SEK 4,476 M
(4,688). The operating loss was SEK 131 M (income: 81).
The decrease in sales and earnings is mainly due to the overall
difficult market conditions and the subsequent impact on capacity
utilization coupled with a negative geographic mix. In addition, certain
vendor supply and ramp-up issues impacted adversely on production rates.
Other developments
In March, Volvo CE announced its acquisition of the manufacturing and
product design rights to a range of soil compaction equipment from
SuperPac Inc. This product range will initially be distributed through
Volvo CE�s recently launched rental initiative and certain dealers under
the SuperPac brand. Volvo will continue to develop the products and at a
later stage brand them Volvo.
Additionally, Volvo and Komatsu confirmed their basic agreement for
cooperation on production and development of construction equipment
components. As a first step, the companies signed an agreement for
production of Komatsu designed cabs at Volvo CE's cab plant in
Hallsberg, Sweden. Production is scheduled to start at the beginning of
2003 and the volume will be set for approximately 1,500 units per year.
The new internally developed backhoe loader was successfully launched at
the ConExpo trade show in Las Vegas in March. The range of backhoe
loaders will be produced in Poland.
Volvo Penta
Net sales by First three Change
market area months
SEK M 2002 2001 in %
Europe 1 034 967 +7
North America 578 506 +14
South America 33 37 (11)
Asia 281 196 +43
Other markets 36 30 +20
Total 1 962 1 736 +13
Total Market
The North American marine and industrial engine market showed signs of a
recovery during the first quarter of the year. The total market for
marine and industrial engines in Europe remained at the same level as
the first quarter of 2001, which means that demand continues to be high.
The market for industrial engines for gensets in China and engines for
irrigation plants in Saudi Arabia remained favorable. Demand was also
reasonably strong in other world markets.
Market share
During the quarter, Volvo Penta strengthened its share of the marine
engine market in North America. The large, independent builders of
leisure craft in Europe continued to be successful, which in turn
boosted Volvo Penta's marine engine business. The successful
introductions of the KAD 300 and D2-55 marine diesel engines in 2001
have made a strong contribution to Volvo Penta's leading position. Volvo
Penta's European sales of industrial engines for gensets increased,
while sales of industrial engines for mobile applications declined
slightly. Taken as a whole, this trend means that the company's share of
the industrial engines market in Europe is virtually unchanged.
Order bookings
During the first quarter of 2002, an increase was noted in Volvo Penta
order bookings for mainly gasoline-powered engines in the North American
market. Order bookings also continued to increase in Asia. The order
situation for diesel engines in Europe continued to be strong, although
some signs of a decline could be noted toward the end of the period. In
a historical perspective, Volvo Penta's total order backlog at the end
of the quarter was at a very high level.
Financial performance
Volvo Penta's net sales amounted to SEK 1,962 M (1,736), up 13% compared
with the preceding year. Operating income for the first quarter amounted
to SEK 146 M (167).
Changes in the allocation of development costs for engines within the
Volvo Group had an adverse effect on earnings compared with the year-
earlier period. Adjusted for this, Volvo Penta reached a slightly better
result than in 2001. Earnings were positively affected by the strong
sales recovery in the North American market, continued stable sales
increases in other regions and by an unchanged level of operating
expenses. The Marine Commercial business area showed strong development,
with sales up by more than 20% during the first quarter.
Product news
In recent years, Volvo Penta has implemented a number of significant
product launches within the Marine Leisure, Marine Commercial and
Industrial business segments. The company's strategy is to renew
substantial parts of Volvo Penta's existing engine program during a five-
year period. As part of this strategy, new 10-liter engines for
industrial applications were launched during the first quarter of 2002
and the engine range for commercial marine traffic was expanded.
Volvo Aero
Net sales by First three Change
market area months
SEK M 2002 2001 in %
Europe 986 1 217 (19)
North America 1 260 1 163 +8
South America 51 40 +28
Asia 156 141 +11
Other markets 32 46 (30)
Total 2 485 2 607 (5)
Total market
Following the sharp downturn in international air travel last autumn,
which was dramatically compounded by the terrorist attacks on September
11, airline passenger traffic began to recover, month by month, during
the first quarter of the year.
However, total air traffic around the world is still a minus compared
with the year-earlier figure. Statistics for passenger traffic indicates
that air travel was down 10.7% in January, compared with the
corresponding month of the preceding year.
According to industry analysts, order bookings for both Boeing and
Airbus are expected to decline this year by 30-40%, compared with 2001
and bottom out during 2003. Key factors for a reversal of the negative
trend for the industry are the general economic situation, improvements
in the finances of the airlines, and how many of the approximately 2,000
aircraft that are currently parked in the desert will be scrapped.
During 2002, Boeing and Airbus are expected to deliver 650-700 aircraft,
compared with 852 in 2001. Forecasts for 2003 refer to 575-600 aircraft.
Deliveries of components for new aircraft engines are still on a high
level, but are expected to decrease this autumn affected by the lower
demand for aircraft. The high utilization of the aircraft fleet in use
will in time positively affect production of new spare parts. This will
also have a positive impact on recovery within engine overhaul and spare
parts sales within Volvo Aero Services, which were immediately
influenced by the terror attack September 11.
Order situation
As a consequence of the crisis affecting the aviation industry, orders
for components for new aircraft engines have declined, compared with the
corresponding period of 2001.
The decline in air travel has also had a major effect on the spare parts
market and engine-maintenance requirements.
Financial performance
Net sales declined by 4.7% during the period to SEK 2,485 M (2,607).
Operating income fell to SEK 78 M (160), despite a continued strong
trend of earnings from newly manufactured components and spare parts for
commercial aircraft engines. The operating margin was 3.1% (6.1). The
areas with the greatest profitability problems are those that were
affected earliest by the downturn following September 11, namely spare
parts and engine overhaul operations.
Current focus is on adapting operations to meet the new conditions
prevailing in the aviation industry. Volvo Aero Services in the US,
which sells spare parts to airlines, reduced its workforce by 70
employees last autumn. In total about 370 employees will have to leave
Volvo Aero, of which 70 have already left.
On the overhaul side, the company is working intensively to secure
orders in a declining market. Volvo Aero Services is continuing its
efforts to sign long-term agreements with both airlines and the large
manufacturers in the sector.
Work to generate export sales of Sweden's Gripen combat aircraft, with
the Volvo RM12 engine, are continuing. Slovakia is the latest country to
have shown an interest in this aircraft.
New orders
The need for engine overhauls has declined in pace with air traffic
having contracted throughout the world since autumn 2001. Despite this
trend, in February Volvo Aero Engine Services successfully secured a
contract with Russia's Aeroflot for the maintenance of the JT9D engine,
an order worth approximately USD 60 M during a five-year period. This is
the largest single overhaul contract signed by Volvo Aero since 1998 and
is, at the same time, an important breakthrough into the expanding
Russian market.
Ryan air, the Irish low-price airline, has placed an order for 100
Boeing 737-800 aircraft, with an option for an additional 50 aircraft of
the same type. For Volvo Aero's part, this contract in its entirety
corresponds to orders for engine components totaling slightly more than
SEK 200 M.
The negotiations with the Czech Republic's government regarding the
purchase of 24 Gripen combat aircraft are proceeding according to plan
and are expected to be concluded before the summer.
Financial Services
Retail volume during the first quarter was SEK 5.8 billion, which is SEK
1.1 billion higher than in the corresponding period in the preceding
year. Renault and Mack Truck financing added approximately SEK 1.3
billion, Construction, Bus and Aero related financing increased SEK 0.2
billion while Volvo Trucks related financing decreased SEK 0.4 billion.
Penetration in markets where Financial Services is offering financing on
sales of new Volvo trucks amounted to 33%, compared with 25% in the year-
earlier period.
Total assets as of March 31, 2002, amounted to SEK 71 billion, of which
SEK 62 billion was in the credit portfolio. Adjusted for the effects of
foreign exchange movements, the credit portfolio increased by 1% during
the first quarter. Volvo truck financing accounted for 62% of the
portfolio, bus financing for 16% and construction equipment 14%. The
remaining 8% is related to financing of Renault Truck and Mack and the
other business areas. Geographically, about 20% of Financial Services
credit portfolio is related to the US truck market.
Operating income for the first quarter amounted to SEK 115 M (113)
compared with fourth quarter earnings in 2001 of SEK 80 M (151). At the
end of March, total credit reserves amounted to 2.9% of the credit
portfolio compared with 2.2% the same period last year. Total write-offs
during the first quarter amounted to SEK 212 M compared with SEK 163 M
for the same period last year.
During the first quarter, the increased volume and strengthening
relationship with Mack Trucks and Renault Trucks was a positive
development. The benefit is both a development towards a more
diversified portfolio and potential synergies that can be achieved
through the utilization of a common back-office.
Number of employees
As of March 31, 2002, the Volvo Group had 70,460 employees, compared
with 70,921 at the end of 2001.
G�teborg, April 22, 2002
AB Volvo (publ)
Leif Johansson
This report has not been reviewed by AB Volvo's auditors.
Volvo's report on the first six months of 2002 is to be published on
July 23, 2002 and will be available at www.volvo.com. The report can
also be ordered from Celero Support AB, DDC, Dep 64620 ARUN, SE-405 08
G�teborg, Sweden. Telephone: +46 31-66 10 47. Fax: +46 31-66 20 20. E-
mail: [email protected]
Quarterly figures,
Volvo Group
SEK M unless 1/2001 2/2001 3/2001 4/2001 1/2002
otherwise specified
Net sales 43 750 47 098 41 134 48 633 40 385
Cost of sales (36 (38 (34 (40 (33
236) 887) 033) 321) 205)
Gross income 7 514 8 211 7 101 8 312 7 180
Research and (1 394) (1 357) (1 279) (1 361) (1 505)
development expenses
Selling expenses (3 378) (3 599) (3 444) (4 242) (3 797)
Administrative (1 659) (1 776) (1 525) (1 514) (1 277)
expenses
Other operating (696) (815) (1 063) (497) (1 094)
income and expenses
Income from Financial 113 63 69 80 115
Services*
Income from (2) 1 396 (43) 9 16
investments in
associated companies
Income from other 4 0 (28) (14) 0
shares
Restructuring costs (1 319) - (1 406) (1 137)
Operating income (817) 2 123 (1 618) (364) (362)
(loss)
Interest income and 411 388 466 388 266
similar credits
Interest expenses and (684) (650) (690) (629) (514)
similar charges
Other financial (161) (49) (38) 58 (8)
income and expenses
Income (loss) after (1 251) 1 812 (1 880) (547) (618)
financial items
Taxes 422 (465) 316 53 (118)
Minority interests 28 9 29 7 (10)
Net income (loss) (801) 1 356 (1 535) (487) (746)
Depreciation and amortization
included above
Volvo Group excl 1 818 2 106 1 907 1 216 1 950
Financial Services
Financial Services 698 691 834 691 783
Total 2 516 2 797 2 741 1 907 2 733
Income (loss) per (1.90) 3.20 (3.60) (1.20) (1.80)
share, SEK
Average number of 431.4 419.4 419.4 419.4 419.4
shares, million
* Financial Services reported in accordance
with the equity method.
Income per share is calculated as net income divided by the
weighted average number of shares outstanding during the
period.
Key operating ratios
% 1/2001 2/2001 3/2001 4/2001 1/2002
Gross margin 17.2 17.4 17.3 17.1 17.8
Research and 3.2 2.9 3.1 2.8 3.7
development expenses
in % of net sales
Selling expenses in % 7.7 7.6 8.4 8.7 9.4
of net sales
Administrative 3.8 3.8 3.7 3.1 3.2
expenses in % of net
sales
Operating margin (1.9) 4.5 (3.9) (0.7) (0.9)
Operating margin excl 1.1 4.5 (0.5) 1.6 (0.9)
restructuring costs
Net sales
SEK M 1/2001 2/2001 3/2001 4/2001 1/2002
Trucks 29 121 29 256 25 611 32 580 26 558
Buses 3 715 4 915 4 001 4 044 3 165
Construction 4 688 6 067 5 388 4 992 4 476
Equipment
Volvo Penta 1 736 1 976 1 774 1 894 1 962
Volvo Aero 2 607 3 060 2 994 3 123 2 485
Other 1 883 1 824 1 366 2 000 1 739
Net sales 43 750 47 098 41 134 48 633 40 385
Operating income
SEK M 1/2001 2/2001 3/2001 4/2001 1/2002
Trucks 150 639 (340) 591 (474)
Buses (83) (25) (185) (231) (94)
Construction 81 408 266 136 (131)
Equipment
Volvo Penta 167 222 141 128 146
Volvo Aero 160 286 118 89 78
Financial Services 113 63 69 80 115
Other (86) 530 (281) (20) (2)
Operating income 502 2 123 (212) 773 (362)
(loss)*
Restructuring costs (1 319) - (1 406) (1 137)
Operating income (817) 2 123 (1 618) (364) (362)
(loss)
* excluding
restructuring costs
Operating margins
% 1/2001 2/2001 3/2001 4/2001 1/2002
Trucks 0.5 2.2 (1.3) 1.8 (1.8)
Buses (2.2) (0.5) (4.6) (5.7) (3.0)
Construction 1.7 6.7 4.9 2.7 (2.9)
Equipment
Volvo Penta 9.6 11.2 7.9 6.8 7.4
Volvo Aero 6.1 9.3 3.9 2.8 3.1
Operating margin* 1.1 4.5 (0.5) 1.6 (0.9)
Operating margin (1.9) 4.5 (3.9) (0.7) (0.9)
* excluding restructuring costs
Accounting principles
In preparing this report, Volvo has applied the accounting principles
presented in Note 1, page 57, of the Volvo 2001 Annual Report.
This report contains forward-looking statements that reflect
management's current views with respect to certain future events and
potential financial performance. Although the Company believes that the
expectations reflected in such forward looking statements are
reasonable, no assurance can be given that such expectations will prove
to have been correct. Accordingly, results could differ materially from
those set out in the forward looking statements as a result of, among
other factors, (i) changes in economic, market and competitive
conditions, (ii) success of business and operating initiatives, (iii)
changes in the regulatory environment and other government actions, (iv)
fluctuations in exchange rates and (v) business risk management.
This report does not imply that the company has undertaken to revise
these forward-looking statements, beyond what is required under the
company's registration contract with the OM Stockholm Exchange if and
when circumstances arise that will lead to changes compared to the date
when these statements were provided.
Units invoiced First three First three Change in %
Trucks months 2002 months 2001
Europe 20.821 27.517 (24)
Western Europe 19.341 25.883 (25)
Eastern Europe Eastern Europe 1.480 1.634 (9)
North America 7.442 10.150 (27)
South America 1.163 1.283 (9)
Asia 1.718 1.132 52
Other markets 2.178 2.057 6
Total, Trucks 33.322 42.139 (21)
Mack Trucks First three First three Change in %
months 2002 months 2001
North America 4.555 6.564 (31)
South America 181 189 (4)
Asia 2 - n.a
Other markets 256 180 42
Total 4.994 6.933 (28)
Renault Trucks First three First three Change in %
months 2002 months 2001
Europe 14.029 15.574 (10)
Western Europe 13.274 14.889 (11)
Eastern Europe 755 685 10
Asia 82 138 (41)
Other markets 1.214 1.373 (12)
Total 15.325 17.085 (10)
Volvo Trucks First three First three Change in %
months 2002 months 2001
Europe 6.792 11.943 (43)
Western Europe 6.07 10.994 (45)
Eastern Europe 725 949 (24)
North America 2.887 3.586 (19)
South America 982 1.094 (10)
Asia 1.634 994 64
Other markets 708 504 40
Total 13.003 18.121 (28)
Units invoiced, buses/bus First three First three Change in %
chassis months 2002 months 2001
Europe 714 632 13
Western Europe 639 596 7
Eastern Europe 75 36 108
North America 445 943 (53)
South America 84 262 (68)
Asia 437 207 111
Other markets 162 73 122
Total, buses/bus chassis 1.842 2.117 (13)
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