Volvo 2007 Annual Report Download - page 12
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Please find page 12 of the 2007 Volvo annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.CEO comment
The Volvo Group had an intense 2007. During the year we carried out several
major acquisitions, established a strong presence in Asia, advanced our positions
in important product segments and launched many new products. We also
managed widely shifting demand trends in our main markets – with continued
growth in Europe, Asia and South America and a sharp decline in North America.
Strong growth
Following the acquisitions of Nissan Diesel,
Lingong and Ingersoll Rand’s road develop-
ment division, we now have a signifi cant
industrial structure in Asia, with a presence in
Japan, China and, when the expected coop-
eration with Eicher is in operation, also in
India. These are rapidly growing markets and
we want to be part of that growth. Our oper-
ations are now anchored on a strong global
base, in which growth in Eastern Europe and
Asia currently offsets the weak development
in North America. During the year, more than
40% of sales were from markets outside our
traditional home markets in Western Europe
and North America.
The Group’s sales rose 10% to slightly more
than SEK 285 billion, while operating income
was up 9% to more than SEK 22 billion. The
operating margin of 7.8% was at the 2006
level. The margin was negatively affected by
the weak development in North America and
substantial integration costs, which initially
result in lower profi tability in acquired com-
panies. Our Industrial operations continue to
generate a strong cash fl ow, SEK 15.2 billion
during 2007, which creates opportunities to
both provide our shareholders with a good yield
and for the Group to invest for the future.
Strong Europe and weak North America
The shifting market conditions are most appar-
ent in our truck operations. We have good sta-
bility and high profi tability in Europe, where we
increased deliveries despite already strained
production. We are now investing to expand
capacity and improve productivity. In Kaluga,
south of Moscow, we are constructing a new
assembly plant for both Volvo Trucks and
Renault Trucks, which also signed a coopera-
tion agreement with Turkish Karsan covering
production of Renault trucks to the growing
markets in Turkey and neighboring countries.
Combined with previously decided invest-
ments in engine manufacturing among other
areas, this means that the capacity of the truck
operations is being increased to capitalize on
the growth possibilities that exist in many mar-
kets around the world.
Following the acquisition of Nissan Diesel,
Asia is our second largest truck market.
Nissan Diesel has a strong market position in
many countries in the region, with a distinct
leadership in the environmental area. There
are many important growth markets in Asia
– China is already the world’s largest truck
market. The potential is also great in India and
in December we signed a letter of intent with
Indian Eicher Motors Limited covering coop-
eration within trucks and buses.
In North America, we introduced a new gen-
eration of engines that comply with the world’s
most stringent emission legislation, which
marked the fi nal step in the transition to one
global engine platform for our truck operations.
At the same time we carried out signifi cant
changeovers in the industrial system. Com-
bined with the weak demand, these measures
adversely affected profi tability. We had
expected that the market would improve dur-
ing the year, but the weak development of the
US economy thwarted a recovery.
We estimate that the truck market in Europe
will grow by 5–10% compared with 2007, with
the industry’s delivery capacity as the limiting
factor. The North American truck market is dif-
fi cult to assess, but we estimate that it will
achieve about the same level as in 2007, when it
amounted to slightly more than 205,000 trucks.
Further on, I am optimistic that the market will
return to its long-term trend curve, with a total
market of about 250,000 trucks per year.
Important acquisitions for
Construction Equipment
Construction Equipment’s net sales rose 27%
– a growth that was both organic and driven by
acquisitions. The business area made major
advances in Asia following the acquisition of
Lingong and Ingersoll Rand’s road development
division, while at the same time product renewal
was substantial. In most areas of the world, the
demand for construction equipment was strong
and Volvo’s CE’s manufacturing was heavily
strained after having hit capacity limits. This
led to increased production costs which in
combination with integration costs and unfa-
vourable currencies decreased profi tability.
Buses had a struggling year and strong
measures are required for profi tability to reach
satisfactory levels. During the year, Buses
introduced the new Euro 4 engines based on
the new engine platforms and they are far
ahead in the environment area, including
hybrid buses in the commercial phase. Buses
is now being integrated closer to the truck
companies and their purchasing organization,
with a focus on joint solutions, reduced costs
and increased profi tability.
Penta captures market shares
Volvo Penta’s marine engines continue to cap-
ture market shares, due particularly to the
revolutionary IPS propulsion system, which
8 A global group 2007