Volvo 1997 Annual Report Download - page 32

Satisfactory earnings
Operating income of SEK 1,444 M (1,162)
was affected positively by the increased
volume of business and favorable product
and market mixes. Higher costs for product
development and nonrecurring expenses
were factors resulting in a lower operating
margin. Nonrecurring expenses pertained
largely to the restructuring of excavator
operations and structural costs in Brazil in
connection with the establishment of a
regional organization for South America.
The operating margin was 8.6% (9.1) and
its return on operating capital was 23% (23).
Broader scope of product
development
The development and gradual introduction
of the new generation of Volvo’s excava-
tors continued during the year. New mini-
excavators were launched in the market. Operator comfort and serviceability are
prominent features in the new series, in which two basic models in the 1- to 2-ton
class – with an effective system of versions – cover a broad range of applications.
Development of a completely new-size machine was completed in the loader
segment.
Along with the development of equipment, various forms of service that are
increasingly being demanded in connection with customers’ purchases and use of
construction equipment are also being developed. Examples of such “software”
products include various forms of financing and new service-support programs.
Continuing development of a global industrial structure
Investments in property, plant and equipment amounted to SEK 484 M (286)
and pertained mainly to improvements in production that are designed to in-
crease productivity, improve quality and reduce lead times. A completely new
assembly plant for articulated haulers was placed in service in Braås and a sub-
stantial investment program to prepare the plant for new loader models was
implemented in Arvika. Expansion of the plant in Asheville, North Carolina,
in the U.S. that supplies the North American market continued during the year.
Preparations are being made for a major investment program in the factory
in Pederneiras, Brazil that will be developed into the company’s industrial hub in
South America.
Marine and industrial engines
The world market for marine engines was largely unchanged in 1997. Demand
for recreational craft in Europe was somewhat higher, while the trend in North
America was weaker than in 1996. The total market for industrial engines in
Volvo Penta’s power-output segments continued to grow. Volvo Penta strengthened
its market positions for marine engines during the year, notably in North America.
30
Financial review by business area
A new assem bly plant for
articulated haulers was
inaugurated in Braås,
Sweden, during the year.
This com pleted a substan-
tial investm ent in a world-
leading production unit in
Sweden. The total invest-
ment in the plant, am ounts
to SEK 272 M.
SEK million 1995 1996 1997
Net sales 3,878 3,885 4,466
Operating income 212 (27) 181
Operating margin, % 5.5 (0.7) 4.1
Net sales by m arket area
SEK million 1995 1996 1997
Western Europe 2,065 2,048 2,219
Eastern Europe 1 2 34
North America 1,139 1,142 1,332
South America 99 109 136
Asia 458 486 643
Other 116 98 102
Total 3,878 3,885 4,466
A complete 11-year summary is shown on pages 76– 87.