Volvo 1997 Annual Report Download - page 34

32
Financial review by business area
Investm ents in m arketing
New marketing companies were established in the Netherlands, Denmark and
Korea. These investments are an important part of Volvo Penta’s customer-
oriented strategy, which is to achieve shorter lead times and improved service to
customers.
Cooperation agreem ent
During 1997 Volvo Penta concluded an agreement with Mitsubishi Heavy Indus-
tries whereby Volvo is taking over the distribution and service in Europe of
Mitsubishi’s 800-hp to 4500-hp engines for marine and industrial use. The agree-
ment, which affects the structures of Volvo Penta’s and Mitsubishi’s dealer net-
works in Europe is also creating opportunities to expand the cooperation to
cover other regions of the world.
Volvo Penta also formed a joint-venture company in China, the Wuxi Da-Hao
Power Company, in cooperation with the Wuxi Sida Industrial Enterprise Com-
pany for the assembly and marketing of Volvo Penta diesel engines for genset
operations in China.
Aero
Air traffic worldwide increased in 1997 and the upturn had a positive impact on
the aircraft engine industry and its after-sale market. Meanwhile, the sector that
provides maintenance for aircraft engines is undergoing a rapid restructuring.
The major aircraft engine manufacturers have bought a large number of
maintenance workshops and have taken a tighter grip on maintenance of their
own engines. The economic crisis in Asia during the early part of 1998 may,
however, affect the positive trend in the industry.
Sharp increase in sales
Aero’s net sales rose to SEK 7,476 M (4,143) in 1997. This includes sales of SEK
2,343 M in The AGES Group, in which the ownership interest increased to 60%
in 1997. Operating income improved to SEK 472 M (153). The improvement in
earnings was attributable to a 60% increase in sales in the Commercial Aircraft
Engines business area and to the acquisition of AGES. Aero’s operating margin
amounted to 6.3% (3.7) and its return on operating capital, excluding AGES,
exceeded 25% (19).
Military Engines: contract covering subseries 3 for the JAS 39 Gripen
Net sales of the Military Aircraft Engine operating sector increased by 20%, due
to larger deliveries of engines for the Swedish JAS 39 Gripen military aircraft.
During the year the Swedish Defense Materiel Administration concluded an
agreement with the JAS Industrial Group covering subseries 3 of the JAS 39
Gripen. The agreement also contained a program for further development of this
aircraft system. For Aero, this means continuing production of the Gripen engine,
the RM12, up until the year 2007. The restructuring of military aircraft engine
maintenance operations was begun in 1997. It was decided to transfer the oper-
ations in Arboga to Trollhättan and thereby bring together all product support
for military aircraft engines in a single location. The principal reason for the
move was the rapid phasing out of Viggen aircraft by the Swedish Air Force.
Net sales by m arket area
SEK million 1995 1996 1997
Western Europe 2,590 2,950 3,682
Eastern Europe 27 8 6
North America 1,100 1,071 3,066
South America 4 4 257
Asia 66 89 264
Other 3 21 201
Total 3,790 4,143 7,476
SEK million 1995 1996 1997
Net sales 3,790 4,143 7,476
Operating income 103 153 472
Operating margin, % 2.7 3.7 6.3
A complete 11-year summary is shown on pages 76– 87.