In the first quarter, net sales for the Volvo Group’s Industrial Operations increased by 10% to SEK 77,034 M (69,956). Adjusted for changes in exchange rates and acquired and divested units net sales increased by 7%. Sales increased in all regions with the exception of Western Europe. North America noted the strongest gain.
Operating margin impacted by market mix
In the first quarter of 2012, operating income for the Volvo Group’s Industrial Operations amounted to SEK 5,906 M, compared to SEK 6,335 M in the first quarter of 2011. The operating margin was 7.7%, which is lower than the 9.1% for the first quarter 2011. The lower margin is primarily due to changes in market mix with a higher proportion of sales in North America and a lower proportion in Europe and Brazil.
In the first quarter of 2012 “Other operating income and expenses” was negatively impacted by SEK 66 M from the posting of a provision related to a negative outcome in a dispute with the Environmental Protection Agency in the U.S. The provision is recorded in “Group functions and other” in the segment reporting on page 10.
In the first quarter of 2011 operating income was positively impacted by SEK 590 M from a VAT credit in Brazil releated to previous years and a negative impact of SEK 250 M related to the earthquake in Japan.
Adjusted for these non-recurring effects in 2012 and 2011, the Industrial Operations’ operating margin was 7.8% for the first quarter of 2012 and 8.6% the first quarter of 2011.
Compared to the first quarter of 2011, changes in currency exchange rates had a positive impact on operating income amounting to SEK 403 M. Trucks was positively impacted by SEK 52 M, Construction Equipment by SEK 161 M, Buses by SEK 101 M, Volvo Penta by SEK 24 M and Volvo Aero by SEK 14 M whereas “Group functions and other” contains a positive impact of SEK 51 M.
Normal seasonality in cash flow
In the first quarter of 2012, operating cash flow from the Industrial Operations was negative in an amount of SEK 4.9 billion compared to a negative SEK 4.0 billion in the first quarter of 2011. The negative cash flow in the first quarter of 2012 followed the normal seasonal pattern with an increase in working capital. However, the capital turnover rate continued to increase and on March 31, 2012, the working capital corresponded to 19 days of sales, which is the lowest level to date.