Volvo 2013 Annual Report Download - page 6

The year 2013 was characterized by a very high activity level in the Volvo Group, with
thelargest product renewal in our history, the launch of a Group-wide effi ciency program
and measures to increase the focus on our core business.
CEO COMMENT
A year of product renewal
and the start of effi ciency measures
The extensive product renewal that started with
the launch of the new Volvo FH in the autumn of
2012 culminated in 2013. On the truck side we
launched a completely new Volvo range in
Europe, an all-new range of Renault Trucks,
Euro 6 engines that signifi cantly reduce emis-
sion levels, the heavy-duty UD Quester range
for Asia and other growth markets and at the
end of the year the Eicher Pro Series for India
and other emerging markets. Volvo Construc-
tion Equipment and Volvo Penta launched
engines that comply with the latest emission
standards. Volvo Buses launched buses with
Euro 6 engines, an updated coach program and
an articulated hybrid bus.
Product renewal put pressure on earnings
During 2013, the product renewal put pressure
on the Group’s profi tability, both in terms of costs
associated with the launches as well as in re-
search and development. Furthermore we had
extra costs for changing the industrial system
to the new products. By mid-year 2014 we will
be through the industrialization of the new gen-
erations of trucks and the phase-out of the old
generations. It is, however, already clear that the
customer reception of the new generations of
trucks has exceeded our expectations and we
have entered into 2014 with a new product port-
folio that really strengthens the Group’s com-
petitiveness.
A number of our markets were relatively weak
during 2013, and the Group’s net sales declined
by 9% to SEK 272.6 billion compared with SEK
299.8 billion in the preceding year. Operating
income amounted to SEK 7,138 M (18,069) and
was impacted by lower volumes, negative cur-
rency development, costs associated with the
extensive product renewal, restructuring charges
and a write-down of Volvo Rents, which was
divested in the beginning of 2014.
Despite the costs associated with the exten-
sive product renewal we maintained our fi nan-
cial position. At the end of the year the Indus-
trial Operations’ net fi nancial debt was 29% of
equity, which is below our target of a maximum
of 35% under normal conditions. The Board of
Directors proposes an unchanged dividend of
SEK 3.00 per share.
Effi ciency measures
We also continued to have a high pace in the
implementation of the measures connected to
the Group’s strategy for 2013–2015. We decided
to combine a number of measures under a Group-
wide effi ciency program, including a structural re -
duction of white-collar employees and consult-
ants, a restructuring of the industrial footprint in
Europe and Japan, a more streamlined sales and
service organization for trucks in Europe and a
reorganization of the parts distribution globally.
These measures are the consequence of the
transformation that the Group is undergoing
and aim to increase our effi ciency and compet-
itiveness. The program will result in restructur-
ing costs totaling approximately SEK 5 billion.
Annual savings are estimated at SEK 4 billion
which will gradually generate results during 2014
and achieve their full effect by the end of 2015.
Strengthening our core business
During the year, we made a number of strategic
decisions aimed at strengthening our core busi-
ness. In January 2013, we signed an agreement
to acquire 45% of the Chinese company Dong-
feng Commercial Vehicles. Through this alli-
ance, we will get a very strong position in the
Chinese truck market, which is the world’s larg-
est. In early January 2014, the National Devel-
opment and Reform Commission (NDRC) in
China approved the strategic alliance. Comple-
tion is subject to certain other conditions,
including the approvals from other Chinese
authorities, but we aim to conclude the deal by
mid-year 2014.
In December we decided to divest Volvo
Rents in North America, and the transaction
was completed at the end of January. As a con-
sequence net fi nancial debt in the Volvo Group’s
Industrial Operations was reduced by SEK 7.0
billion. VolvoCE will continue to sell products to
Volvo Rents under the new ownership.
We also announced the acquisition of the
Terex Corporation’s rigid and articulated hauler
business, which will strengthen Volvo CE’s posi-
tion in the important earthmoving segment and
extend the presence in light mining. The deal,
which is subject to regulatory approval, is ex -
pected to be fi nalized during the second quar-
ter of 2014.
2014 – The year of effi ciency
improvements
The year we have left behind us was character-
ized by extensive product launches, which in -
volved a lot of hard work in all parts of the Group
and an elevated cost level. As I am writing this,
we still have a couple of quarters ahead of us
before we are completely through the Group’s
largest product renewal ever.
This year will be characterized by effi ciency
improvements, including a reduction in activities
and costs, personnel reductions and measures
to improve capital effi ciency. All of this will play
an important part in the work to provide a good
return on the capital our shareholders have in-
vested in the company and to achieve the Group’s
strategic and fi nancial targets – to be one of the
most profi table companies in our industry. This
will also provide us with the maneuverability to
continue to invest in product development,
growth in new markets and ultimately to achieve
our vision to become the world-leader in sus-
tainable transport solutions.
Olof Persson
President and CEO
A GLOBAL GROUP 2013
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