The Volvo Group’s strong trend continued during the fourth quarter of 2011. Sales rose in all regions, profitability improved and cash flow was strong. Net sales of SEK 86.5 billion for the fourth quarter were 18% higher, year-on-year. Operating income rose to SEK 6,955 M (5,518), with an operating margin of 8.0% (7.5). The improved results were primarily due to higher sales. The operating cash flow in the industrial operation amounted to SEK 10.7 billion (15.1).
Driven by improved profitability and the good cash flow, the net financial debt in the industrial operation is now down to 25% of shareholders equity, which means that the Group is financially strong in an environment that is currently characterized by turmoil in the financial markets and uncertain macro-economic trends.
Full-year at record level
If we review 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, the return on operating capital in the industrial operation rose to 28.8% and the return on shareholders’ equity in the Group to 23.1%.
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.
Increased profitability in the truck operation
In the fourth quarter, the Group’s truck deliveries rose 21% to 68,600 vehicles, compared with 56,800 in the year-earlier period. Net sales in the truck operation rose 19% to SEK 57.3 billion (48.0). Operating income increased to SEK 4,906 M (3,490) and the operating margin improved to 8.6% (7.3) as a result of higher sales.
During the fourth quarter, order intake declined to 57,700 trucks, compared with 62,100 in the year-earlier period. Europe and South America have had a decline in order intake, while there was an increase in North America.
Demand for trucks in Europe declined during the autumn, but seemed to stabilize on a somewhat lower level towards the end of the year. The Volvo Group has advanced its position in the European market and the truck brands had a combined market share of 26%, driven by an increase for the Volvo brand. With the uncertainty in the European economy it is difficult to forecast demand for trucks in 2012. However, we keep our assessment that the market in Europe 29 will be about 220,000 heavy-duty trucks in 2012. We expect a slow start to the year and a gradual improvement as customers start to replace old trucks ahead of the new and stricter emission standards that come into force as of 2014.
The North American market for heavy-duty trucks rose to 216,000 vehicles in 2011. Thanks to competitive products and good sales efforts, the Group succeeded in significantly strengthening its market shares. We continue to have a positive outlook on demand, which is primarily based on the need to replace old trucks. We retain our assessment that the total market in North America will continue to grow and end up at about 250,000 heavy-duty trucks in 2012.
The Brazilian market for heavy-duty trucks reached 112, 000 vehicles in 2011, which is slightly lower than we predicted. One explanation is that the prebuy ahead of the transition to the new emissions regulations starting in 2012 was not as significant as anticipated. We had major successes in Brazil during the year and increased our market share for heavy-duty trucks by 2 percentage points to 17.1%. The market in Brazil will be weak in the beginning of 2012, but we believe that it will recover gradually during the year. We maintain our assessment of a market of about 105,000 heavy-duty trucks for the full-year 2012.
In both Europe and Brazil, we have reduced production rates at the beginning of the year to meet the lower order intake, while production in Japan, India and North America remain at about the same levels as at the end of 2011.
Volvo CE strengthens position
Volvo CE’s net sales rose 14% to SEK 16.8 billion (14.7) in the fourth quarter. Operating income amounted to SEK 1,649 M (1,758) and the operating margin was 9.8% (12.0). Most markets displayed a positive sales trend, with the exception of the Chinese market, which was relatively weak. With new product programs and local production, Volvo CE is strengthening its position in key emerging markets. In China, SDLG recently launched four updated and one completely new excavator model, which will contribute to strengthening our position as market leader. In addition, the first excavator rolled off the production line in India during the quarter.
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 US. During the fourth quarter, operating income rose to SEK 295 M (221) and the operating margin to 4.4% (3.9).
Volvo Penta was impacted by a continued weak market for marine engines and recently also for industrial engines, but despite this, operating income totaled SEK 94 M (73), with an operating margin of 4.8% (3.6). For our customer finance operation, the trend is pointing in the right direction, with portfolio growth and lower credit losses. Despite a significant headwind from currency, Volvo Aero’s operating margin amounted to 8.1% in the fourth quarter. In the quarter we announced that we have initiated a process aimed at divesting Volvo Aero.
Reorganization to increase sales and profitability
On January 1, 2012, the Volvo Group introduced a new organization to better capitalize on the global potential in products and brands within the truck operation and to enhance the Group’s efficiency. The reorganization is progressing according to plan, with the new management structure in place. We have also commenced the work to optimize our trucks brand portfolio. A great deal of work remains, but we have taken the first step on a path, which over time will lead to higher sales and improved profitability.
President and CEO