In the third quarter, net sales for the Volvo Group’s Industrial Operations decreased by 4% to SEK 63,312 M (66,289). Adjusted for both changes in exchange rates and acquired and divested units (primarily Volvo Aero) net sales in the Industrial Operations increased by 3%. Sales increased in Western Europe and South America while they decreased in Eastern Europe, North America and Asia.
Lower profitability compared to last year
In the third quarter of 2013, operating income for the Volvo Group’s Industrial Operations amounted to SEK 2,174 M, excluding charges of SEK 104 M related to the Group-wide Efficiency Program. Operating income in the third quarter 2012 amounted to SEK 3,096 M, excluding restructuring charges of SEK 560 M. The operating margin, excluding restructuring charges, was 3.4% (4.7).
The lower profitability compared to the third quarter of 2012 is primarily an effect of a significant negative impact from movements in currency exchange rates and higher costs for research and development as a consequence of a net amortization of investments in research and development in an amount of SEK 226 M, compared to a net capitalization of SEK 651 M in the third quarter last year. Cash spend in research and development was reduced from SEK 3,928 M in the third quarter last year to SEK 3,485 M. Profitability was also affected by the ongoing comprehensive product renewal and related launch costs in the sales, production and aftermarket support organizations.
In the third quarter of 2013, a capital gain from a divestment of a dealership network in Volvo CE had a positive impact of SEK 92 M.
Compared with the third quarter of 2012, changes in currency exchange rates had a negative impact on operating income amounting to SEK 1,068 M.
In the third quarter of 2012 Volvo Aero, which has been divested, contributed with an operating income of SEK 228 M. Earnings in the third quarter of 2012 were also negatively impacted by restructuring charges in an amount of SEK 560 M related to the decision to stop production of UD trucks for the North American market and a restructuring in Japan, as well as increased warranty reserves in Trucks in an amount of SEK 500 M.
Seasonally weak cash flow in the Industrial Operations
In the third quarter of 2013, operating cash flow from the Industrial Operations was negative in an amount of SEK 5.3 billion. The negative cash flow is primarily a consequence of the seasonal reduction in trade payables in an amount of SEK 5.1 billion as a result of vacation shut-downs in the manufacturing system during the third quarter. In the third quarter of 2012 operating cash flow was negative in an amount of SEK 7.2 billion.