A year of major changes
When I look back at 2012, I see a year when the Volvo Group experienced major changes. In rapid sequence, we implemented a major organizational change, we started work toward new strategic objectives, we sold Volvo Aero and we launched a very important product with the new Volvo FH truck. At the same time, it was a year when we faced some tough challenges.
The year started out strong, with increasing sales and improved profitability during the first half, but during the second half we were impacted by the decline in the global economy. During the autumn, demand fell in nearly all of our markets. From a full-year perspective, the truck markets in North America and Japan grew, Europe was slightly lower than in 2011 and Brazil saw a big decline.
For the Volvo Group, net sales in 2012 dropped to SEK 303.6 billion, compared with SEK 310.4 billion in 2011. Operating income amounted to SEK 17.6 billion (26.9) and the operating margin was 5.8% (8.7). A part of the explanation for the lower earnings is the measures we implemented in the Group to cope with the declining demand. We cut production but were not able to lower our costs at the speed of the drop in demand. At the same time, we worked hard to reduce inventories. This impacted Group earnings in the short-term, but enabled us to get inventories in balance by year-end. We also took restructuring charges for a number of important activities aimed at increasing long-term efficiency and profitability. Nonetheless, sales above SEK 300 billion and an operating margin close to 6% in relatively weak market conditions are proof of our products and services being appreciated by customers and also of the dedicated work of the Group’s employees.
From a financial viewpoint we remain strong, with a net debt to equity ratio of 29% in the Industrial Operations, and for 2012 the Board of Directors proposes an ordinary dividend of SEK 3.00 per share. This is on the same level as last year and it would mean that the Volvo Group would distribute SEK 6.1 billion to its owners.
Intensive phase of product renewal
Overall, we maintained our market positions in most truck markets around the world, and Volvo CE strengthened its position as number one in China – the world’s largest market for construction equipment. Volvo Buses made inroads into new customer segments thanks to hybrid buses at the forefront of the bus industry and Volvo Penta has a modern and competitive product range. But we do not stop there. To secure competitive future products for all our businesses, we are in a very intense phase of renewing and broadening the product portfolios.
In addition to the new Volvo FH, we are developing a completely new range for Renault Trucks which will be launched in 2013, a new series of trucks for the lower price segments in emerging markets and a new medium-duty engine range. We are also in the latter stages of development of engines for the Euro 6 emission legislation for trucks and buses and Tier 4f for construction equipment and Volvo Penta. All of these products will strengthen our position as a front-runner in our industries and contribute to taking us closer to our vision to be the world leader in sustainable transport solutions.
Full focus on strategy
2012 was the year when we laid a new foundation for the Group, and 2013 is the year when we are to start executing on our strategic objectives for 2015, which are clearly aimed at improving the Group’s overall profitability. We have full focus on our strategy, and road maps have been developed for each of the 20 strategic objectives. The road maps have been further detailed and broken down into over 400 main activities that will be executed in order to improve profitability. Our strategy is described in detail in this report.
Foundation in place
- Revised Group vision
- New financial targets
- New incentive program aligned with financial targets
- New strategic objectives
- New organization
- New management teams
- New process-oriented workflow
- New corporate governance
- New brand positioning
The high activity level has been evident at the start of the 2013. The newly signed agreement with Dongfeng, which is pending approval by authorities, is a key event in the history of the Volvo Group. It will take us into the important Chinese truck market and when the transaction has been finalized the Volvo Group will become the world’s largest manufacturer of heavy-duty trucks.
I would also like to extend my gratitude to all employees in the Group for all their efforts during 2012. In 2013 we continue with full speed ahead. We have an intense and exciting period ahead of us, and I am convinced that the Volvo Group will stand even stronger in the market when the economy turns upwards again.
President and CEO