Volvo 2008 Annual Report Download - page 63

also had high research and development costs
because of the development of hybrids.
The global profi tability program aimed at
cost reduction continued with full force and
started to yield positive results.
Closure and investments in plants
As a part of activities aimed at strengthening
the company’s profi tability, adjustments in
capacity were made in the European production
system. The plant in Tampere, Finland was
closed and the plant in Turku, Finland was sold.
During the spring of 2008, construction of a
new plant in Plattsburgh, New York, USA was
started. In the plant Nova Bus will during 2009
start production in order to be able to sell city
buses in the U.S. In the beginning of the year
the company’s new body plant in India was inau-
gurated, which has contributed to increased
sales in the country.
Construction
Equipment
– signifi cant slowdown in
global demand
After a fi rst and second quarter with record
sales and income, Volvo Construction Equip-
ment (Volvo CE) saw sales decelerate rapidly
during the third and fourth quarters of 2008.
Continued weakness in North America and
a sharp decline in Europe were partly offset by
growth in other markets, such as Asia and in
particular China. This helped the company
achieve increased sales and operating income
during the fi rst half of the year, although high
raw material prices, unfavorable exchange
rates and integration costs of acquired busi-
nesses put pressure on operating margins.
In the latter half of the year the cyclical
slowdown in the construction equipment
industry was greatly exacerbated by the global
fi nancial crisis. To mitigate the impact of
reduced demand, Volvo CE focused on avoid-
ing inventory build up by lowering production
capacity, reducing head count and cutting
operational costs. Volvo CE also decided to
move the motor grader production from Can-
ada to an existing facility in the U.S.
Total market development
The global construction equipment industry
registered a sharp drop during the third and
fourth quarter of 2008 as the fi nancial crisis
hit the real economy worldwide, resulting in
the global construction equipment market
recording a volume-drop of 11% in 2008.
Deliveries and sales
During 2008 Volvo CE sold 64,000 machines,
which was more or less fl at compared to 2007.
Net sales increased by 5% to SEK 56,079 M
(53,633). Operating income amounted to SEK
1,808 M (4,218) and the operating margin was
3.2% (7.9%).
The lower operating income is an effect of
sharply falling volumes during the second half
of the year, which had a negative impact on
gross profi t. The lower volumes also meant
that there was under-absorption of costs when
production in the factories was at low levels.
Furthermore, operating income was negatively
affected by increased costs for raw materials
and components, costs of about SEK 100 M
related to personnel reductions and unfavor-
able exchange rate developments.
Volvo CE’s launch of new excavators for pipelaying
was one of many important product launches.
Road machinery product offering is •
developing according to plan.
Firm strategic plans for Lingong •
in place.
Further developed distribution base •
in emerging markets.
Expanded segment coverage in oil-and •
gas and forestry with the launch of pipe
layers and feller bunchers.
Increased industrial capacity in •
components.
New compact equipment launched.•
Hybrid wheel loader prototype •
launched.
Adjust production capacity to market •
demand.
Focus on cash fl ow. •
Improve internal effi ciency. •
Continue to lead the development •
of fuel-effi cient solutions.
Continue to focus on emerging market •
opportunities.
Continue integration of Lingong and •
road machinery businesses.
Integrate and develop road machinery •
product offering.
Maximize opportunity of Lingong busi-•
ness in China.
Focused strategy for India, Russia, •
China.
Strengthen compact equipment prod-•
uct offering.
Continue research on biofuels and •
hybrid technology.
Continue to develop specialist applica-•
tion focused equipment.
Execute investments for increased •
capacity and improved productivity.
Outcome 2008 Ambitions 2009Ambitions 2008
CONSTRUCTION EQUIPMENT
Net sales by market
Construction
Equipment, SEK M 2007 2008
Europe 25,294 25,192
North America 11,170 10,159
South America 2,155 2,913
Asia 12,179 13,738
Other markets 2,835 4,077
Total 53,633 56,079
Key ratios
Construction Equipment 2007 2008
Net sales as percentage
of Volvo Group sales 19 18
Net sales, SEK bn 53.6 56.1
Operating income, SEK bn 4.2 1.8
Operating margin, % 7.9 3.2
Business areas 2008
59