Volvo 1998 Annual Report Download - page 35

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SEK M 1996 1997 1998
Net sales 12,804 16,758 19,469
Operating income11,162 1,444 1,549
Operating margin, %19.1 8.6 8.0
1 Excluding items affecting comparability during 1998.
Including items affecting comparability of SEK 910 M,
operating income amounted to SEK 639 M and
operating margin was 3.3%.
SEK M 1996 1997 1998
Western Europe 7,163 7,836 9,557
Eastern Europe 93 263 336
North America 3,385 5,785 6,645
South America 598 991 957
Asia 937 1,036 1,092
Other countries 628 847 882
Total 12,804 16,758 19,469
Construction Equipment
Net sales/market
Key ratios
Construction Equipment
increased product development costs in connection with the renewal of products
during the year. The operating margin, excluding items affecting comparability,
fell to 2.7% (5.2) and return on operating capital declined to 8% (17).
After provision of SEK 422 M for restructuring costs, of which the major part
was attributable to the European business, the operating loss was SEK 37 M.
Construction Equipment
The total market for construction equipment in 1998 decreased by 7%,
compared with 1997. Demand for construction equipment in Asia and South
America continued to be weak while demand in Volvo’s principal markets,
North America and Western Europe, continued to be firm during most of the
year. Towards the end of the year there was some weakening of the economy also
in these markets, with signs of declining demand for construction equipment.
Competitors
Volvo is one of the world’s largest manufacturers of construction equipment,
ranking after Caterpillar, the American company, and Komatsu of Japan. Other
notable manufacturers include Hitachi, Deere, JCB and Case. All are competi-
tors on the world market, with strong brand names, broad product programs and
worldwide sales and service organizations. Along with the leading players, the
industry displays a fragmented structure with a large number of more or less
local competitors in different product areas. The current trend toward greater
concentration of operations, joint ventures and alliances, as well as the elimina-
tion of smaller companies, is expected to continue.
Acquisition of Samsung’s construction equipment business
During the year, as part of the business area’s continuing growth strategy, Volvo
acquired the construction equipment operations of the Samsung company in
South Korea. With the acquisition, Volvo obtained a modern excavator product
program, which is strategically important since excavators account for approxi-
mately 40% of total annual sales of construction equipment throughout the
world. With the acquisition, Volvo is gaining access to a manufacturing and
marketing platform for construction equipment throughout Asia. In addition,
under normal circumstances, Korea is a large and important market for construc-
tion equipment, comparable in size to Germany. Volvo Construction Equipment
Korea was consolidated as of July 1, 1998.
Objectives in 1999
During 1999 Volvo Construction Equipment will devote substantial resources to
the restructuring of Volvo’s excavator machinery business by continuing to
integrate the operations acquired in Korea, with the objective of creating an
industrial base for Volvo Construction Equipment in Asia. Plans are also being
made for continuing growth, organically as well as through acquisitions, by being
active in the restructuring that is under way within the industry. Taking
advantage of the benefits of coordination that are arising in the engine segment
through the Groupwide cooperation with Deutz also has a high priority.