Volvo 1998 Annual Report Download - page 36

34
FINANCIAL REVIEW BY BUSINESS AREA
Development of the marketing organization
During 1998 a restructuring of the marketing organization in Europe was imple-
mented with a view to reducing costs and sharpening the focus on customers.
The largest dealer in Germany, Kopsch AG, was acquired during the year and in
Turkey Volvo took over importing operations, including four dealerships, from
Trakmas.
Closing down of unprofitable operations
In the end of 1998, a strategic decision was made to terminate production of
excavators in Eslöv, Sweden. Weak profitability and the acquisition in Korea are
the reasons for a concentration of the production in Eslöv to Konz, Germany and
Changwon, Korea.
Earlier in the autumn Volvo reached an agreement with Hitachi Construction
Machinery Ltd whereby Volvo reduced its holding in the jointly owned Euclid
Hitachi Heavy Equipment from 60% to 20%. The remaining 20% will be sold to
Hitachi in 2001. In connection with that decision last autumn, Volvo sold its
business for rigid haulers in Australia.
Capital expenditures
A total of SEK 630 M (484) was invested in property, plant and equipment in
1998. Construction of a new finishing plant that will reduce the amount of
solvents emitted, was started in Eskilstuna, Sweden. In the US, a rebuilding of
the factory in Asheville, North Carolina, to increase capacity in the North
American market, continued.
Sales
Net sales increased by SEK 2,711 M, to SEK 19,469 M, of which the newly
established Volvo Construction Equipment Korea contributed SEK 1,014 M.
The number of construction equipment units sold increased by 17% in a
declining total market, as a result of which the company strengthened its market
shares. Adjusted to reflect divestments and acquisitions, the number of units sold
rose 7%. Europe, which continued to be the single largest market area, accounted
for 51% (48) of total net sales. Net sales in North America were higher and
Construction Equipment’s share of the market amounted to 34% (35). In Volvo’s
other markets sales declined, due primarily to the financial crisis in Asia,
excluding the acquired business in Korea.
Operating income
Operating income, excluding items affecting comparability, amounted to SEK
1,549 M (1,444) and the operating margin to 8.0% (8.6). Effective in the third
quarter, operating income includes Volvo Construction Equipment Korea, with
a minor loss, according to plan. Return on operating capital, excluding items
affecting comparability was 18% (23). Items affecting comparability of SEK 910
M pertained to the costs of restructuring existing operations in connection with
the acquisition in Korea. Including these items, operating income amounted to
SEK 639 M (1,444).
Volvo’s range of construction equip-
ment products consists of excavators,
wheel-loaders, road graders and articu-
lated haulers. A completely new genera-
tion of light wheel-loaders, L30-L45,
characterized by good operating
economy, high productivity and modern
design was launched during the year. A
new heavy wheel-loader, the L220D and
a medium-heavy excavator, the EW160,
were also introduced. Through its acqui-
sition in Korea, Volvo has gained access
to a complete series of modern, high-
quality excavators. Such services as
financing and leasing are being
developed to meet customers’ require-
ments.
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