Volvo 1998 Annual Report Download - page 38

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FINANCIAL REVIEW BY BUSINESS AREA
SEK M 1996 1997 1998
Net sales 4,143 7,476 8,584
Operating income 153 472 527
Operating margin, % 3.7 6.3 6.1
SEK M 1996 1997 1998
Western Europe 2,950 3,682 4,231
Eastern Europe 8 6 47
North America 1,071 3,066 3,502
South America 4 257 284
Asia 89 264 336
Other markets 21 201 184
Total 4,143 7,476 8,584
Key ratios Aero
Net sales/market Aero
Utilization of capacity in the American plant was high during 1998, while
production rate in Sweden was cut back slightly during the second half of the
year.
Operating income
Operating income, excluding items affecting comparability, amounted to
SEK 95 M (181). Operating margin amounted to 1.9% (4.1) and the return on
operating capital decreased to 7% (14). Income was charged with increased costs
for product development and marketing.
Changes in distribution structure and administration in Europe and Asia, were
decided during 1998, with the aim of enhancing the efficiency of operations.
A provision of SEK 158 M was allocated for this during the fourth quarter. The
amount includes costs for closing of workshops, reducing the number of ware-
houses and personnel reductions. After restructuring costs, a loss of SEK 63 M
was reported.
Aero
The international aviation traffic that affects the greater part of Volvo Aero’s
operations continued to grow in 1998, but growth was limited to 2%, more than
half of the 1997 rate. Growth was affected negatively by the crisis in Asia, where
air traffic declined by 3%. However, during the autumn there was a change to a
positive trend in Asian air traffic.
Volvo Aero concluded an agreement to acquire 78% of the shares in Norsk
Jetmotor AS, a component manufacturer. The transaction is expected to be
completed during the spring of 1999. The remaining 22% is held by Pratt &
Whitney, the American aircraft engine manufacturer.
Objectives in 1999
Aero’s important objectives in 1999 are to carry out negotiations with South
African authorities pertaining to exports of the JAS 39 Gripen multirole military
aircraft, and to continue the restructuring designed to reduce administration
costs and maintain profitability despite capital-demanding investments and a
pending weak business climate in the aviation industry. The expressed objective
in Space operations is to gain a larger share of the market.
Military Engines: Important step toward order from South Africa
As a result of continuing large deliveries of RM12 engines for the JAS 39 Gripen
aircraft, net sales in 1998 were at the same level as in 1997. At year-end, 65 of
the 204 aircraft ordered had been delivered to the Swedish Defense Materiel
Administration and the Swedish Defense Authorities by the JAS Industrial
Group.
Negotiations were initiated with the South African government regarding a
purchase of 28 Gripen aircraft with RM12 engines to be supplied by Volvo Aero.
The announcement is of major importance in terms of opportunities for exports
of the aircraft to other countries.