Lower volumes affected profitability
During 2013 Volvo Construction Equipment's profitability was affected by lower deliveries in many markets.
Volvo Construction Equipment (Volvo CE) is the third largest and, at over 180 years old, the longest established global producer of products and services for the construction, extraction, waste processing and materials handling industries. The company boasts a portfolio that exceeds 200 machines and a comprehensive range of supporting products and services. Main equipment includes excavators, articulated haulers, wheel loaders and a range of smaller equipment such as backhoe and skid steer loaders. The road machinery range includes motor graders, compactors, pavers and milling machines. The Chinese-built range of SDLG branded products includes excavators, loaders and compactors. The company’s offering also includes services such as customer support agreements, attachments, financing, leasing and used equipment sales.
Volvo CE equipment is distributed through a global network of independent and Volvo-owned dealerships. SDLG branded products are distributed through separate sales channels.
Measured in units sold, the total world market for heavy, compact and road machinery equipment increased by 2% in 2013, compared to 2012. The European market was down by 4%, while Asia (excluding China) was up 2% and demand in China itself increased by 3%. North and South America proved more resilient, recording market growth during 2013, of 2% and 4% respectively. Volvo CE sold 70,800 machines compared with 75,500 in 2012.
The important Chinese market, where Volvo CE remains the market leader in wheel loader and excavator sales, showed signs of increased stability, if not quite a market recovery. Elsewhere, there were improving trends in the Middle East and some European countries too. Demand in the important mining segment was weak during the year.
During 2013 net sales declined by 16% to SEK 53,437 M (63,558). Net sales declined in all markets. Adjusted for changes in exchange rates, net sales declined by 12%.
Operating income declined to SEK 2,952 M (5,667) and the operating margin amounted to 4.9% (8.9). Profitability was negatively impacted by lower sales, a negative product mix, price pressure and an unfavorable exchange rate development amounting to SEK 623 M.
New product development
In April Volvo CE attended the construction equipment industry’s largest exhibition – Bauma – announcing its technical solution to the Tier 4 Final/Stage IV emissions regulations as well as displaying new products such as the ECR25D, ECR58D and ECR88D short radius compact excavators and the P6870C asphalt paver. Product introductions were supported by new Volvo branded attachments, financing solutions, approved used equipment, genuine Volvo parts, customer support agreements and fleet management solutions.
Production and distribution
In 2013 Volvo CE further expanded the production footprint. In May the company opened a new excavator plant in Europe’s second-largest market: Russia. The 20,660 square meter factory in Kaluga represents a SEK 350 M investment and is initially producing four models of Volvo excavators, spanning 20 to 50 tons.
Volvo CE also inaugurated wheel loader production in its Shippensburg facility in the U.S., along with a new headquarters for its Americas sales operation. Volvo CE also announced that it was moving production of backhoe loaders from Mexico to its main Latin American production facility in Pederneiras, Brazil.
SDLG started production of its excavators in Brazil. It was also announced that SDLG would enter the North American market, initially offering two wheel loaders through a selected group of dealers. SDLG also entered into a number of distribution agreements to sell machines throughout EMEA, Asia Pacific and North America, while in its Chinese home market the creation of SDLG Financial Services offers customers improved financial services.
2013 also saw the remote telematics system Caretrack reach a significant milestone: there are now 50,000 machines worldwide with the monitoring system.
Acquisition of hauler business from Terex
In December Volvo CE agreed to acquire the off-highway hauler business of the Terex Corporation for a purchase consideration of approx. SEK 1 billion on a cash and debt free basis. The acquisition improves Volvo CE’s penetration in the core earthmoving segment and extends its presence in light mining. The deal, which is subject to regulatory approval, includes the main production facility in Motherwell, Scotland and two product ranges that offer both rigid and articulated haulers. It also includes the distribution of haulers in the U.S. as well as a 25.2% holding in Inner Mongolia North Hauler Joint Stock Co (NHL), which manufactures and sells rigid haulers under the Terex brand in China with a market-leading position. In the first nine months of 2013 the businesses in the acquisition (excluding NHL) had net sales amounting to approx. SEK 1.1 billion and the operating income was approx. SEK 35 M.