During the first quarter of 2011, the Volvo Group had strong sales growth with significantly improved profitability. Sales amounted to SEK 72 billion, an increase of 22% compared with the year-earlier period. Operating income rose to SEK 6.5 billion, with an operating margin of 9.1%.
We note that our mature markets are recovering, with continuing sharp sales increase and favorable profitability in our operations in the emerging markets of Brazil, China and India.
The operating cash flow in the industrial operation tracked the normal, seasonal trend and was a negative SEK 4.0 billion, compared with a negative cash flow of SEK 2.7 billion in the first quarter of 2010.
Improved profitability in trucks
Demand for trucks continued to improve across the board. In total, the order intake rose 40% compared with the first quarter of 2010. Our truck operations reported an operating income of SEK 4,286 M, compared with SEK 1,444 M in the year-earlier period. The operating margin rose to 9.4% (4.0). Higher volumes and gradually improved productivity in the industrial system contributed to the improved profitability.
In Europe, demand for new trucks is developing well, with positive trends for used trucks and in the key aftermarket area. Based on the favorable trend, we estimate that the European market for heavy trucks will rise to 230,000-240,000 vehicles during 2011, which is an increase from the earlier forecast of 220,000.
The North American truck market is driven primarily by the need to replace the increasingly older truck fleet with more modern and fuel-efficient trucks and by a positive trend in the US economy and corresponding higher freight volumes. It is gratifying that we are capturing market shares thanks to highly competitive trucks. We are also upgrading our assessment for the North American market and we now estimate that it will amount to 230,000-240,000 heavy trucks in 2011.
In recent years, we have invested significantly in additionally strengthening our position in the emerging regions of Asia and South America and can state that this investment is now bearing fruit. Our truck businesses in these markets are developing very well, with record sales and highly favorable profitability in such countries as India and Brazil.
Strong growth and healthy profitability in Volvo CE
For Volvo CE, the favorable trend continues in both the Chinese and Brazilian markets, while the recovery in North America and Europe is becoming increasingly clear. Volvo CE’s organic growth was a full 53%, compared with the year-earlier period, and we were successful in balancing the strong growth with continued excellent profitability. During the first quarter, the operating margin rose to 10.8%.
Volvo CE is also in an intense product renewal phase, which will contribute to further strengthening competitiveness. In recent months, Volvo CE has launched more than 50 new models.
Good trends for Buses, Volvo Penta and VFS
Buses has a good profitability trend despite the relatively weak development in the key markets in Europe and North America. The improved profitability is instead a result of hard work in reducing costs through the rationalization of the manufacturing system and the product portfolio.
Volvo Penta’s improved results are also primarily attributable to reduced costs and improved efficiency. We are now seeing signs of increased activity among our marine customers primarily in Europe, which is positive.
However, Volvo Aero’s profitability is unsatisfactory, affected by an unfavorable USD exchange rate and by productivity losses in conjunction with the start of new engine programs.
The positive trend that we are now experiencing in most of the Group’s markets is noticeable not only in higher deliveries but also in lower credit losses in Volvo Financial Services, which reports significantly improved profitability. As our customers receive more work for their trucks, buses and construction equipment, their financial situation and payment ability is strengthened.
Hard work to mitigate effects from disaster in Japan
Unfortunately, the quarter came to be characterized by the devastating earthquake and the subsequent tsunami that hit Japan on March 11. Our thoughts are with those who were affected. After the disaster, our employees in Japan have worked exceedingly hard to support our customers with service and spare parts and to restart production at UD Trucks, which was able to commence again already on March 28, albeit to a limited extent.
With respect to material supply, we are working intensely together with our suppliers to find alternative solutions where necessary. We have a number of suppliers in Japan that are having difficulties in restarting their production, which means that we anticipate considerable disturbances to the production at UD Trucks during the second quarter. In terms of material supply for the manufacture of trucks in the rest of the world, we believe that the impact will be relatively limited, but uncertainty remains high. Volvo Construction Equipment’s production of primarily excavators in Korea will, however, be affected by a shortage of key hydraulic components for some of its models.
On May 1, Pat Olney will replace Olof Persson as CEO of Volvo CE, as Olof takes up the position as Executive Vice President and deputy CEO of the Volvo Group. Pat has worked for ten years in various executive roles within Volvo CE and has done a very good job there. As of September 1, Olof will assume the position of CEO of the Volvo Group. I wish them both success in their new positions.
President and CEO