"We have now taken the first steps on a journey which will be full of challenges, but I am convinced that there is potential to increase sales and improve profitability over time."

CEO comment

Best year ever

A record year. That is one way of summing up 2011. We put the best year ever under our belt and I can proudly state that all the hard work of the Volvo Group’s employees to deliver the best products, services and after-sales service generated results.

For the full-year 2011, the Volvo Group generated the highest net sales, the best operating income and the highest operating margin to date. Net sales rose to SEK 310 billion (265), operating income improved to SEK 26.9 billion (18.0) and the operating margin was 8.7% (6.8). At the same time, return on operating capital in the Industrial Operations rose to 28.8% and return on shareholders’ equity in the Group to 23.1%.

Success in many ways
Success can be measured in numerous ways; sales, orders received or market shares. In particular, I believe market shares provide a rapid and key indication of our customers’ true opinions of our products and how we compare to the competition. Market shares comprise a clear acknowledgement that we are doing the right things.

Let me provide a couple of examples from the past year. It is worth noting that Renault Trucks maintained its market share in Europe despite weak demand in its historic strong markets in Southern Europe. The Volvo brand reaped great success and in the heavy-duty segment in Europe increased its market share to a record 16.0%. The European market weakened somewhat towards the end of the year but after that stabilized on the new, slightly lower level.

Market shares in North America also increased. In the U.S., Volvo and Mack had a combined 19.8% of the market for heavy-duty trucks. After a number of slow years, the situation is starting to appear very positive in North America where we have made breakthroughs with our own engines and transmissions, an unbeatable combination with a fuel-consumption that is praised by our customers.

In Brazil, our market share rose to 17.1% for heavy-duty trucks and, for the first time, Volvo is the leader at the top of the heavy-duty truck segment. In the short-term, the Brazilian market will be impacted by the transition to new emission standards that took place at the turn of the year, but we have a positive view on the long-term development in Brazil and the other markers in South America.

Volvo Construction Equipment (Volvo CE) has also strengthened its positions in several growth markets worldwide. In China our brands Volvo and SDLG gained the position as market leader within wheel loaders and excavators. SDLG recently launched new models of excavators, so we have hopes that the success in this giant market will continue.

I would also like to mention our hybrid buses that are attracting an increasing amount of interest around the world.

Increased profitability
Good market conditions in the main and increasing market shares driven by competitive products translated into us delivering some 238,000 trucks during 2011 – an increase of 32% compared to the preceding year. Net sales in the truck operations surpassed SEK 200 billion and profitability improved to an operating margin of 9.1%.

Volvo CE increased its deliveries by almost 30% to the new record level of 84,000 machines. The year was intense with the launch of many new products and a continued expansion in growth markets. Despite a strong headwind from the weak dollar, Volvo CE delivered an operating income of SEK 6.7 billion and an operating margin of 10.2%.

From a historic perspective, Volvo Buses had a good year, both in terms of volumes and profitability. This was achieved by successful efforts to grow in emerging markets, which offset the continued weak markets in Europe and the U.S. Operating income increased to SEK 1 billion and operating margin improved to 4.6%, which is below the Group average but good when compared to competitors.

Volvo Penta was impacted by a continued weak market for marine engines and towards the end of the year also for industrial engines, but despite this, achieved an operating income of almost SEK 800 M with an operating margin of 8.8%.

For our Customer Finance Operations, the trend pointed in the right direction, with portfolio growth and lower credit losses.

Volvo Aero also had to struggle with a significant headwind from currency. Despite this, Volvo Aero’s operating margin amounted to 5.2%.

During my predecessor Leif Johansson's 14 years as CEO, the Volvo Group established itself as one of the world’s largest manufacturers of commercial vehicles with strong positions in mature markets and with an increasingly important presence in growth markets. As a step in further streamlining the Volvo Group towards commercial vehicles, during the year we initiated a process aimed at divesting Volvo Aero.

Financially strong Group
Driven by improved profitability and the good cash flow, the net financial debt in the industrial operation was down to 25% of shareholders’ equity at year-end, which means that the Group is financially strong in an environment that in the beginning of 2012 is characterized by turmoil in the financial markets and uncertain macro-economic trends.

The Board of Directors proposes a dividend of SEK 3.00 per share for 2011, up SEK 0.50 per share compared with the preceding year.

Reorganization to increase sales and profitability
We have a new vision – to become the world leader in sustainable transport solutions. We shall fulfill this by creating value for our customers and by pioneering the development in our industries. We have new financial targets, a new organization and a number of new management teams in place. On January 1, 2012, we introduced the new organization which was put in place to better capitalize on the global potential in our products and brands and to improve the Group’s efficiency.

With the recent very positive trends in the Group’s development, we are in a favorable position. However, this does not mean that everything will run on rails. A great deal of work remains. We have now taken the first steps on a journey which will be full of challenges, but I am convinced that there is potential to increase sales and improve profitability over time. This is a journey that I am very much looking forward to.

Olof Persson
President and CEO