Net sales increase in mature markets
In the first quarter, net sales for the Volvo Group increased by 13% to SEK 65,646 M (58,344). Adjusted for changes in currency exchange rates net sales increased by 15%. The sales increase is primarily related to growth in mature markets in North America, Europe and Japan, but also China.
Operating income improvement
In the first quarter of 2014 the Volvo Group’s operating income excluding restructuring charges amounted to SEK 2,588 M compared with SEK 496 M in the first quarter of 2013. Including restructuring charges of SEK 318 M (14) operating income amounted to SEK 2,269 M (482). Operating margin excluding restructuring charges was 3.9% (0.9).
The increased operating income is primarily driven by higher sales and improved price realization as well as improved capacity utilization and productivity in the industrial system, which all together increased the gross income by SEK 2,442 M. Compared with the first quarter of 2013 operating income was negatively impacted by currency exchange rate movements amounting to SEK 1,104 M as well as higher research and development expenses in an amount of SEK 511 M as a result of reduced capitalization. The year-over-year impact from moving from net capitalization in the first quarter of 2013 to net amortization in the first quarter of 2014 amounted to SEK 724 M. Cash spend in research and development was reduced by SEK 213 M compared to the first quarter of 2013.
Net financial items
Net interest expense in the first quarter was SEK 445 M (460). Net interest expense in the fourth quarter of 2013, which included an adjustment of capitalized borrowing cost of SEK 156 M mainly as a result of applying a lower interest rate, amounted to SEK 804 M.
The tax expense in the first quarter amounted to SEK 586 M (147), corresponding to a tax rate of 34%.
Income for the period and earnings per share
Income for the period amounted to SEK 1,141 M in the first quarter of 2014 compared with a negative SEK 248 M in the first quarter of 2013.
Diluted earnings per share in the first quarter amounted to SEK 0.53 compared to a negative SEK 0.15 in the first quarter of 2013.
Seasonally weak cash flow for the Industrial Operations
In the first quarter of 2014, the operating cash flow for the Industrial Operations was negative in an amount of SEK 9.0 billion as a result of a seasonal build-up of working capital. The increase in working capital amounted to SEK 11.0 billion and was primarily a result of higher inventories of SEK 4.3 billion ahead of the selling season in the second quarter and lower payables of SEK 3.6 billion related to the higher production volumes during the fourth quarter of 2013 when compared to the first quarter of 2014.
Volvo Group financial position
On March 31, 2014 total assets in the Volvo Group amounted to SEK 340.4 billion, a decrease by SEK 4.4 billion since year-end 2013 mainly as an effect of the divestiture of assets of SEK 6.9 billion related to Volvo Rents. Currency effects had a limited effect on total assets during the first quarter.
Net financial debt, excluding provision for post-employment benefits, in the Industrial Operations amounted to SEK 21.6 billion, equal to 31% of shareholders equity, which is an increase by SEK 1.8 billion compared to year-end 2013. The increase is mainly an effect of negative operating cash flow partly reduced by positive cash flow from the divestment of Volvo Rents. Including post-employment benefits the Industrial Operations’ net debt amounted to SEK 34.5 billion which is equal to 49.4% of shareholders equity.
At the end of the first quarter the shareholder’s equity for the Volvo Group amounted to SEK 78.3 billion compared to SEK 77.4 billion at year-end 2013. The equity ratio was 23.0% compared to 22.4% on December 31 2013. At the same date the equity ratio in the Industrial Operations amounted to 28.3% (27.0).
Number of employees
On March 31, 2014 the Volvo Group had 93,476 regular employees and 14,166 temporary employees and consultants, compared with 95,533 regular employees and 14,794 temporary employees and consultants at year-end 2013. The divestment of Volvo Rents reduced the number of regular employees by 2,166.