Volvo Reports Financial Results
26 April 2000
Volvo Reports Financial Results
STOCKHOLM, Sweden--April 26, 2000--Volvo
Volvo - three months ended March 31, 2000
First three months 2000 1999
Net sales, SEK M 30 546 27 072
Operating income, excluding items
affecting comparability, SEK M 1 425 1 258
Items affecting comparability, - 26 695
SEK M(1)
Operating income, SEK M 1 425 27 953
Income after financial items,
SEK M 1 888 27 999
Net income, SEK M 1 267 27 557
Income per share excluding items
affecting comparability and gains on
sales of shares during most recent 12-
months period, SEK 13:10 12:70
Return on shareholders' equity,
excluding items affecting comparability
and gains on sales of shares, % 6.0 8.5
(1) Items affecting comparability in 1999 pertained to the sale of
Volvo Cars.
-- Substantial increases in sales in Buses, Construction
Equipment and Marine and Industrial Power Systems. Group net
sales rose 13%, to SEK 30,546 M.
-- Operating income amounted to SEK 1,425 M, an increase of 13%,
excluding items affecting comparability. Operating margin rose
somewhat to 4.7% (4.6).
-- As from January 1, 2000, all of Volvo's finance operations
have been organized in Finance, a new Groupwide unit.
Finance's operating income for the first three months of the
year amounted to SEK 398 M (167) of which SEK 210 M (19)
consisted of capital gains on sale of parts of Volvia's
securities portfolio.
-- Continuing positive trend of Group's net income to SEK 1,267
M, an increase of 33% compared with the first quarter of 1999
(excluding items affecting comparability). Income per share in
the first quarter amounted to SEK 2.90 (2.20).
-- Continued strong order bookings for Trucks in Europe, with a
leveling off inNorth America.
-- The EU Commission rejected Volvo's application to acquire
Scania.
-- After the close of the first quarter, AB Volvo and Renault
concluded an agreement in principle under the terms of which
Volvo is acquiring Renault's truck operations, Renault
VI/Mack, in exchange for 15% of the shares in AB Volvo.
Comments by the Chief Executive Officer
On April 25 we reached an agreement in principle with Renault to acquire Renault's truck operations, RVI/Mack, in exchange for 15% of the shares in AB Volvo. As a result of the acquisition, we increase our truck volume nearly two-fold and become the second largest manufacturer of heavy trucks in the world, with annual sales of approximately 151,000 heavy trucks and 13,000 medium-heavy trucks. Positions in Western Europe and North America are strengthened significantly, with market shares of 28% and 24%, respectively. The acquisition is expected to yield savings of about SEK 3.5 billion annually after two years and an additional SEK 3 billion long term thereafter. Combined with stronger global presence, this increases our growth potential and creates conditions for added value for customers, employees and shareholders.
The intention is to implement the acquisition through the buy back of a total of 15% of the total number of shares in Volvo, after authorization by the Annual General Meeting. The shares are intended to be transferred to Renault as payment for the shares in Renault VI/Mack. Accordingly, the acquisition price will be SEK 14 billion, which is the average value of 15% of Volvo's A and B shares during the most recent ten trading days prior to the announcement of the transaction. Assuming that the acquisition is approved by the affected competition authorities, the transaction is expected to be completed during the latter part of the current year.
With regard to the Group's current operations, the trend of business in the first quarter continued to be favorable. All business areas reported higher sales and net sales for the Group rose 13%. Operating income amounted to slightly more than SEK 1.4 billion, also up 13%. Income per share was SEK 2.90.
If we examine the business areas, we see that Volvo Construction Equipment (Volvo CE) began the year stronger than ever before. This was accomplished in a business climate in which competitors are showing weaker profitability. Volvo CE increased sales in North America despite a weakening total market. It is also pleasing that the strong position we created in South Korea has now gained ever increasing importance since the asian market has definitely turned upward. Volvo CE's operating income increased by 71%, to SEK 311 M. In terms of value, the order backlog is 40% larger than at the end of March 1999.
Volvo Trucks' deliveries increased 2%, to a new record volume, with net sales of slightly more than SEK 15 billion. Operating income declined from SEK 830 M to SEK 645 M; however, due to weaker sales in North America and changeover costs for the new medium-heavy truck. Volvo Trucks has given priority to profitability rather than volume in North America, with somewhat smaller market shares as a consequence. The order backlog is 17% smaller than a year ago but has increased by 7% since the first of the year.
Bus sales were much stronger than in the first quarter of 1999 and the market for heavy buses appears to be stable. In contrast to the year- earlier period, Volvo Buses, which is gradually improving its performance, reported positive results. The business area intends to reduce purchasing costs by 10% during the year by increasing the coordination of the companies acquired in recent years.
Volvo Aero continues to deliver good results but is experiencing a decline in the market for commercial aircraft in North America. In January, Volvo Aero concluded an important agreement to supply engine components for the F18 (Super Hornet), the United States' new-generation fighter aircraft.
The trend in Volvo Penta is highly favorable. The business area is continuing to capture market shares and its sales increased by nearly 30%, to SEK 1.6 billion in the first quarter. Sales of marine engines were higher in both Europe and North America, while sales of industrial engines rose in all markets.
The stopping of the acquisition of Scania by the EU Commission was disappointing, and meant that we lost some momentum. Despite this, the damage was limited. Only a small number of people within the Group had been involved, since it had not been possible to begin the integration. Volvo's holding in Scania was acquired for approximately SEK 24 billion, or an average of SEK 266 per share. Of course, we view the holding on commercial terms and we are considering various alternatives in this regard.
Another important change for the Group since the first of the year involves our formation of the Finance business unit. Our objective in forming the new unit is to be able to more aggressively develop various types of financial services linked to our products. This is a step in our efforts to broaden and strengthen our offer to the customers and provide more complete transport solutions. In Volvo's financial reporting, the change means that parts of the business areas' net sales and income have been transferred to the new unit, which reported operating income of SEK 398 M in the first quarter.
During the second quarter, we foresee continuing very high demand in Europe and increasing activity in Asia primarily, but also in South America. Order bookings for heavy trucks in North America are lower than last year. We believe that we have adapted production to the lower level of demand more rapidly than our competitors. We have an interesting year ahead of us, with exciting and highly competitive products on the way to our markets.
Leif Johansson
Volvo Group - First three months of 2000
Significant events and structural transactions during the beginning of 2000 Volvo forms global truck company with Renault VI and Mack AB Volvo and Renault have reached an agreement in principle whereby Volvo receives 100% of the shares in Renault's truck company, Renault VI/Mack, in exchange for 15% of the shares in AB Volvo. In accordance with the proposed general authorization from the shareholders at this year's Annual General Meeting regarding the buy back of shares, Volvo's Board of Directors intends to acquire shares amounting to 15% of the total number of shares in the company. The intention is to transfer these shares to Renault as payment for the shares in Renault VI/Mack. Renault has declared its intention to remain as an owner in Volvo for at least three years and in the future to increase its ownership in Volvo to a maximum of 20% through purchases on the market.
Volvo's Nominating Committee has advised the Company's Board of Directors that it intends to propose that Louis Schweitzer, CEO of Renault, and another person designated by Renault be elected to Volvo's Board.
Renault VI's bus business, organized in the Iris bus company that is owned jointly with Iveco, is not included in Volvo's acquisition of RVI. Nor is Renault's holding in Nissan Diesel in Japan.
Stronger positions
With the acquisition of Renault VI/Mack, Volvo will become the largest manufacturer of heavy trucks in Europe and the second largest in the world. Following the acquisition, Volvo will have a substantial global market presence, with strong positions in Europe and North America. Volvo's and Renault VI/Mack's combined share of the market for heavy trucks in Western Europe will be approximately 28 percent and in North America will amount to approximately 24 percent.
Benefits of coordination
Volvo's acquisition of Renault VI/Mack offers substantial opportunities for savings, in part in the areas of purchasing and drivelines. It is estimated that the total gains from coordination will amount to approximately SEK 3,5 billion annually after only two years. Over a longer term, the gradual integration of the two companies and their product programs will yield further savings amounting to approximately SEK 3 billion. Roughly half of the savings will be achieved in purchasing, but opportunities for major savings have also been identified in the engine sector, in part by adapting future families of engines to both Volvo's and Renault VI/Mack's product programs.
Financial effects
The merged Volvo and Renault VI/Mack had pro forma sales of SEK 178 billion in 1999. The pro forma operating income, including amortization of goodwill but excluding items affecting comparability and synergy gains, totaled SEK 8 billion. The number of trucks delivered, pro forma, amounted to 151,000 heavy trucks and 13,000 medium-heavy trucks.
The price to Volvo for Renault VI/Mack will be SEK 14 billion, which is the average value of 15% of Volvo's Series A and Series B shares during the ten business days immediately preceding announcement of the transaction.
The acquisition involves goodwill amounting to approximately SEK 10 billion for Volvo, which will be amortized over 20 years. Income per share for the Volvo Group in 1999 was SEK 12.40. Including Renault VI/Mack pro forma 1999, income per share increases to SEK 13.10 (including amortization of goodwill, but excluding items affecting comparability and synergy effects).
Conditions
The proposed transaction is subject to the conditions that the required approvals are received from the appropriate authorities on terms that are acceptable to the parties, and that the necessary agreements with Renault are concluded.
Timetable
Shareholders at Volvo's Annual General Meeting on April 26 will vote on a proposal to authorize the Company's Board of Directors to repurchase and transfer Volvo shares. Assuming that the Meeting approves such authorization, Volvo - before midyear - will repurchase 10% of the total number of shares outstanding in Volvo. When the acquisition of Renault VI/Mack has been approved by the affected authorities, Volvo will transfer these shares to Renault in exchange for 100% of the shares in Renault VI/Mack. Thereafter, Volvo will make a new buy back program in order to transfer the remaining 5% Volvo shares to Renault. The parties intends to submit applications for approval of the acquisition of Renault VI/Mack by the appropriate competition authorities as soon as possible. Assuming that the necessary approvals are obtained, it is expected that the acquisition can be effected during the latter part of the current year, at the earliest.
Volvo's planned acquisition of Scania
On March 14, 2000, the EU Commission rejected Volvo's application for approval of the fair competitive aspects of the proposed acquisition of Scania. The Commission's decision was based on the view that a merger of Volvo and Scania would result in less competition in the markets for heavy trucks and buses, notably in the Nordic countries.
Volvo's offer to Scania's shareholders, as well as the acquisition of Scania shares held by Investor, was conditional upon the necessary approvals being obtained from the regulatory authorities concerned. Based on the Commission's decision to not approve Volvo's acquisition of Scania, Volvo cannot fulfill the agreement to acquire Investor's holding in Scania, nor can it implement the public offer to Scania's shareholders.
Volvo's present holding in Scania amounts to 30.6% of the voting rights and 45.5% of the share capital in the company. The shares were acquired at an average price of SEK 266 per share, or a total of slightly more than SEK 24 billion.
New business unit for Volvo's finance operations
Finance operations are increasing in importance for the Volvo Group. To strengthen financing support to the business areas and the Group's customers, all of Volvo's finance operations have been organized in Finance, a new Groupwide unit that was formed January 1, 2000. The new unit comprises all of Volvo's sales-financing operations, including the associated company Volvofinans, Volvo Treasury, Volvo's insurance operations including Volvia and the Group's real estate company Danafjord.
Effective in 2000, the Finance business unit is being reported separately. Accordingly, among other, the accounting for Volvo's five business areas now excludes both sales and earnings derived from sales financing. Prior year-amounts have been restated for comparability.
Volvo Aero divested components manufacturing
At the end of February 2000, in accordance with the agreement in principle reached in December 1999, the Swedish engineering group Finnveden took over Volvo Aero's Truck Engine Parts Division (TEPD) in Trollhattan. TEPD, which has annual sales of approximately SEK 300 M, manufactures components used in trucks. The sale was part of Volvo Aero's program of concentrating on core operations.
Income and financial position
Net sales
Net sales of the Volvo Group in the first quarter of 2000 amounted to SEK 30,546 M. an increase of 13% compared with the first quarter of 1999. All business areas showed substantial gains in net sales. The increase for Volvo Trucks, 6%, was attributable primarily to Western Europe. In the North American market, net sales decreased by 1%. Volvo Buses reported a significant increase in sales, up 43%, related primarily to markets in Europe and North America and deliveries to Iran. The Construction Equipment and Marine and Industrial Power Systems business areas also reported substantial increases in sales with 15% and 29%, respectively. Sales of both business areas were higher in all markets. Net sales of Volvo Aero rose by 5%, as did those of Volvo's new business unit, Finance.
Group sales increased in all market areas. Net sales in North America rose 17%. But the leveling off that could be detected during the second half of last year continued. In Western Europe, the increase in net sales amounted to 7%, with Sweden accounting for more than half of that figure in terms of value. Net sales in Volvo's growth markets - Eastern Europe, Asia and South America - developed favorably and their percentage of total Group sales increased to 12%, from 10% for both the first quarter and the full year 1999. The stabilization of sales in South America and Eastern Europe that was noted during the latter half of 1999 continued, and sales in the two regions in the first quarter of this year increased by 6% and 40%, respectively, compared with the year-earlier period. Volvo Trucks accounted for a large part of the increase in both Eastern Europe and Asia.
The number of Volvo trucks delivered duing the first quarter of 2000 rose by 2%, to 20,226 (19,799), compared with the year-earlier period, and the number of buses and bus chassis increased 44%, to 2,626 (1,822).
Operating income
Group operating income in the first quarter of 2000 amounted to SEK 1,425 M, an increase of SEK 167 M, excluding income from the sale of Volvo Cars. All business areas except Volvo Trucks and Volvo Aero reported higher operating income and operating margins than in the first quarter of 1999.
Operating income, excluding Finance, amounted to SEK 1,027 M (1,091), a slight decrease compared with the year-earlier period, despite a strong trend of sales in all business areas and considerably improved profitability in the excavator sector. The negative effects of foreign exchange movements due to a weaker euro, higher costs of product development, sales and administration in most business areas, and in the case of Volvo Trucks; lower volumes in North America and an unfavorable sales mix in Europe as well as changeover costs in connection with the introduction of a new medium-heavy truck contributed to the decrease.
Operating income of the Finance business unit increased by SEK 231 M, from SEK 167 M to SEK 398 M. Operating income in the first quarter included capital gains of SEK 210 M (19) on sales of parts of the securities portfolio in the Volvia company.
The operating margin was 4.7%, compared with 4.6%, excluding items affecting comparability, in the year-earlier period.
Income from investments in associated companies
Income from investments in associated companies, primarily Scania, Bilia and Volvofinans, amounted to SEK 365 M (19). After amortization of goodwill, income from the investment in Scania amounted to SEK 341 M.
Net interest income
Net interest income in the first quarter of 2000 amounted to SEK 111 M, compared with net interest expense of SEK 101 M a year earlier. The improvement relative to the first quarter of 1999 was due primarily to higher average net financial assets, reduced borrowing and lower interest rates in Brazil.
Taxes
Tax expense amounted to SEK 629 M (435). The average tax rate was 33%, which was comparable to the year-earlier level excluding the gain on the sale of Volvo Cars that did not give rise to a taxable capital gain. Tax expense consists of both current and deferred taxes.
Minority interest in income
Minority interest in the Volvo Group consists largely of the Henlys Group's holding in Prevost Car Inc. (49%), and the minority interests in The AGES Group (14%) and Volvo Aero Norge A/S (22%).
Net income
Net income amounted to SEK 1,267 M (27,557) and the return on shareholders' equity, excluding items affecting comparability and a gain on the sale of shares, was 6.0% (8.5%).
Net sales by market
area First three
months
% of Change
SEK M total 2000 1999 in %
Western Europe 54 16 606 15 545 +7
Eastern Europe 3 814 582 +40
North America 32 9 673 8 276 +17
South America 3 1 055 994 +6
Asia 6 1 748 1 132 +54
Other countries 2 650 543 +20
Total 100 30 546 27 072 +13
Consolidated income statements First three
months
SEK M 2000 1999
Net sales 30 546 27 072
Cost of sales (24 561) (21 328)
Gross income 5 985 5 744
Research and development
expenses (1 182) (1 085)
Selling expenses (2 297) (2 122)
Administrative expenses (1 229) (1 207)
Other operating income and
expenses 148 (72)
Items affecting comparability (1) - 26 695
Operating income 1 425 27 953
Income from investments in
associated companies 365 19
Income from other investments 10 1
Interest income and similar
credits 500 608
Interest expenses and similar
charges (389) (709)
Other financial income and
expenses (23) 127
Income after financial items 1 888 27 999
Taxes (629) (435)
Minority interests in net
(income) loss 8 (7)
Net income 1 267 27 557
(1) Items affecting comparability for 1999 concerns gain on sale
of Volvo Cars.
Condensed income statement -
Finance
SEK M 2000 1999
Net sales 2 206 2 098
Operating income 398 167
Income from associated companies 19 23
Income after financial items 417 190
Taxes (133) (56)
Net income 284 134
Gross and operating margin
% 2000 1999
Gross margin 19,6 21,2
Research and development
expenses in % of net sales 3,9 4,0
Selling expenses in % of net
sales 7,5 7,8
Administrative expenses in % of
net sales 4,0 4,5
Operating margin, excluding
items affecting comparability 4,7 4,6
Operating margin 4,7 103,3
Consolidated Volvo Group excl Finance Volvo Group
balance sheets Finance (1) total
SEK M March 31, Dec 31, March 31, Dec 31, March 31, Dec 31,
2000 1999 2000 1999 2000 1999
Assets
Intangible assets 6 748 6 518 108 100 6 856 6 618
Property, plant
and equipment 17 827 17 318 2 465 2 470 20 292 19 788
Assets under
operating leases 3 911 1 611 10 580 10 726 14 491 12 337
Shares and
participations 36 975 35 296 758 744 30 741 29 213
Long-term sales
finance - - 18 223 17 817 18 223 17 817
receivables
Long-term
interest-bearing
receivables 5 459 17 605 - - 5 459 17 605
Other long-term
receivables 2 415 2 337 136 147 2 551 2 484
Inventories 22 576 21 053 453 385 23 029 21 438
Short-term sales
finance
receivables 12 9 16 467 16 487 16 479 16 496
Short-term
interest bearing
receivables 14 004 1 012 - - 14 004 1 012
Other short-term
receivables 20 313 18 738 2 980 2 797 23 293 21 535
Marketable
securities 20 830 17 990 3 258 2 966 24 088 20 956
Cash and bank 12 877 6 475 1 508 1 838 14 385 8 313
Total assets 163 947 145 962 56 936 56 477 213 891 195 612
Shareholders' equity and liabilities
Shareholders'
equity 99 038 97 692 6 992 6 827 99 038 97 692
Minority
interests 540 544 - - 540 544
Provision for
post-employment
benefits 2 196 2 118 13 12 2 209 2 130
Other provisions 9 762 9 861 5 270 4 971 15 032 14 832
Loans 25 044 12 206 41 366 41 139 66 410 53 345
Other liabilities 27 367 23 541 3 295 3 528 30 662 27 069
Shareholders'
equity and
liabilities 163 947 145 962 56 936 56 477 213 891 195 612
(1) The new business unit, Finance, is reported in accordance with the
equity method. Internal receivables and liabilities attributable
to finance operations have been excluded.
The Volvo Group's total assets
As of March 31, 2000, total assets of the Volvo Group amounted to SEK 213.9 billion, an increase of SEK 18.3 billion compared with assets at December 31, 1999. The Group's liquid funds increased by SEK 9.2 billion, due primarily to increased borrowings during the period in preparation for the planned acquisition of Scania. The remaining portion of the increase was largely attributable to investments in shares and fixed assets, and to a larger amount of capital tied up in operations during the first quarter.
Shareholders' equity
Shareholders' equity, which amounted to SEK 99.0 billion, increased by SEK 1.3 billion. The increase was largely attributable to net income during the period.
Net financial assets
Net financial assets amounted to SEK 25.9 billion. The decline since year- end is specified in the table below.
Change of Net financial assets, SEK billion (1)
Dec 31, 1999 28.8
Cash flow from operating
activities (0.2)
Capital expenditures, net (1.2)
Operating cash flow,
excluding Finance (1.4)
Acquisition of shares in
Scania (1.3)
Other (0.2)
March 31, 2000 25.9
(1) Effective in 2000, the Group's net financial assets are calculated
exclusive of the Finance business unit, since interest income and
interest expense in finance operations are included in Group
operating income. The change resulted in a reduction in net
financial assets of SEK 2.2 billion.
Key ratios Apr 99 Jan - Dec
12 month moving figures unless Mar 00 1999
otherwise stated
Income per share, SEK 13.50 73.00
Income per share, excluding items affecting
comparability and gain on sales of shares, SEK 13.10 12.40
Return on shareholders' equity, % 6.2 34.9
Return on shareholders' equity excluding items
affecting comparability and gain on sales of shares,% 6.0 8.0
Net financial assets at end of
period, SEK billion 25.9 28.8
Net financial assets at end of period as percentage
of shareholders' equity and minority interests 26.0 29.3
Shareholders' equity and minority interests as
percentage of total assets 46.6 50.2
Shareholders' equity and minority interests excluding
Finance, as percentage of total assets 60.7 67.3
Cash flow statements Volvo Group Finance Volvo Group
First three months excl Finance total
SEK billion 2000 1999 2000 1999 2000 1999
Operating income (1) 1.0 1.1 0.4 0.2 1.4 1.3
Depreciation and
amortization 0.9 0.8 0.6 0.4 1.5 1.2
Other non-cash items 0.0 0.0 0.1 0.1 0.1 0.1
Change in working capital (1.6) (1.6) (0.2) 0.2 (1.8) (1.4)
Financial items and income
taxes (0.5) (0.2) (0.1) 0.0 (0.6) (0.2)
Cash flow from operating
activities (0.2) 0.1 0.8 0.9 0.6 1.0
Investments:
Investments in fixed
assets (1.3) (0.9) 0.0 0.0 (1.3) (0.9)
Investment in leasing
vehicles 0.0 0.0 (1.0) (0.9) (1.0) (0.9)
Disposals of fixed assets
and leasing vehicles 0.1 0.2 0.5 0.2 0.6 0.4
Sales Finance receivables,
net 0.0 (0.3) (0.5) (1.0) (0.5) (1.3)
Operating cash-flow (1.4) (0.9)
Investments in shares, net (1.3) (5.3) 0.0 0.0 (1.3) (5.3)
Loans to external parties,
net (0.9) 0.1 0.0 0.0 (0.9) 0.1
Acquired and divested
operations, net 0.1 32.4 0.0 0.0 0.1 32.4
Cash flow after net
investments (3.5) 26.3 (0.2) (0.8) (3.7) 25.5
External financing
Increase in bond loans and 12.8 (1.0)
other loans
9.1 24.5
Translation difference on
liquid funds 0.1 (0.2)
Increase/decrease in
liquid funds 9.2 24.3
(1) 1999 excluding gain on sale of Volvo Cars
In the cash flow statements, the effects of major acquisitions and divestments of subsidiaries are excluded from "Other receivables" in the balance sheet. The effects of foreign exchange movements in connection with the translation of the accounts of foreign subsidiaries to Swedish kronor have also been excluded since they do not affect cash flow.
The Volvo Group's cash flow
The cash flow after net investments during the first three months of the year was negative in the amount of SEK 3.7 billion. The Group's operating cash flow, excluding the Finance unit, was negative in the amount of SEK 1.4 billion, due largely to higher investments, increased amounts of capital tied up prior to the second quarter when the volume of business is greater, and to large payments of income tax. Investments in Scania shares gave rise to a negative cash flow of SEK 1.3 billion during the first three months of the year.
Financial review by business area
Net sales First three 12 months
months Change moving Jan-Dec
SEK M 2000 1999 in % figures 1999
Trucks 15 129 14 215 +6 63 924 63 010
Buses 3 838 2 688 +43 15 863 14 713
Construction
Equipment 4 649 4 040 +15 19 491 18 882
Marine and
Industrial Power
Systems 1 585 1 230 +29 6 116 5 761
Aero 2 286 2 167 +5 10 072 9 953
Finance 2 206 2 098 +5 8 745 8 637
Other 3 087 2 657 +16 12 364 11 934
Eliminations (2 234) (2 023) - (8 082) (7 871)
Volvo Group 30 546 27 072 +13 128 493 125 019
Operating income First three 12 months
months moving Jan-Dec
SEK M 2000 1999 figures 1999
Trucks 645 830 3 062 3 247
Buses 33 (64) 321 224
Construction
Equipment 311 182 1 838 1 709
Marine and
Industrial Power
Systems 103 45 372 314
Aero 110 139 555 584
Finance 398 167 1 208 977
Other (175) (41) (463) (329)
Operating income(1) 1 425 1 258 6 893 6 726
Items affecting
comparability - 26 695 - 26 695
Operating income 1 425 27 953 6 893 33 421
(1) excluding items affecting comparability 1999
Operating margin First three
months
% 2000 1999
Trucks 4,3 5,8
Buses 0,9 (2,4)
Construction
Equipment 6,7 4,5
Marine and
Industrial Power
Systems 6,5 3,7
Aero 4,8 6,4
Finance 18,0 8,0
Operating margin(1) 4,7 4,6
Operating margin 4,7 103,3
(1) excluding items affecting comparability 1999
Trucks
Net sales by market area First three Change
months
SEK M 2000 1999 in %
Europe 9 024 8 682 +4
North America 4 465 4 531 (1)
South America 588 460 +28
Asia 695 281 +147
Other countries 357 261 +37
Total 15 129 14 215 +6
The total market for heavy trucks in Western Europe was strengthened during the first quarter of the year, compared with the year-earlier period. The total market for heavy trucks in North America increased slightly but the industry was characterized by excess production and growing inventories in distribution channels. The markets in Asia and
Eastern Europe showed signs of increased demand, but from low levels. Activity in razil continued to be weak.
During the first quarter of the year Volvo delivered 20,226 medium-heavy and heavy trucks, 2% more than in the comparable 1999 period. Total deliveries in Europe rose 6%, to 11,449 trucks. The inventory situation in North America has affected the industry, resulting in an emphasis on volume that caused declining prices. Volvo has elected to refrain from unprofitable transactions and has adapted production capacity to current conditions. Deliveries declined 14%, to 6,424 units. Deliveries in South America rose 2%, to 905 vehicles.
Volvo Trucks' total order bookings during the first quarter of the year amounted to 21,412 (21,420) trucks. Order bookings in Europe rose 14%, to 12,732 trucks. Orders booked in North America declined by 31%, to 5,532 trucks. As a result of this decrease, combined with the higher rate of production in 1999, the order backlog as of March 31, 2000 was 17% lower than at the end of the year-earlier quarter. The order backlog has increased 7% since January 1, 2000.
In Western Europe, at the end of the first two months of the year, Volvo had a 15.3% (15.7%) share of the market for heavy trucks. As of March 31, 2000, Volvo's share of the market for Class 8 trucks in the United States was 10.0% (11.7%) and its share of the market in Brazil was 24.3% (27.1%). Volvo Trucks' net sales increased by 6%, to SEK 15,129 M, in the first quarter.
Operating income amounted to SEK 645 M (830). The decrease was attributable to a lower volume of sales in North America, unfavorable sales mix in Europe, a weaker euro, and to changeover costs prior to the introduction of a new medium-heavy truck. The operating margin was 4.3% (5.8%).
In April 2000, Volvo introduced its new "FL" medium-heavy truck, designed primarily for distribution operations in urban areas, as well as for service and light-construction applications. The model offers many technical innovations derived from Volvo's successful heavy-truck program.
In January this year the new Volvo FH12 model was designated "Truck of the Year 2000." Volvo thereby became the first company to win the industry's most prestigious award five times. The FH12 also became the first truck model to earn the title twice.
Buses Net sales by market First three Change area months SEK M 2000 1999 in % Europe 1 654 1 183 +5 North America 1 700 1 077 +26 South America 127 114 (40) Asia 267 256 (37) Other countries 90 58 +21 Total 3 838 2 688 +43
The total market for heavy buses in the first quarter of 2000 was approximately the same as in the comparable 1999 period. The total market in Europe continued to be stable. The market for heavy buses in North America was also stable. The market in South America, notably in Brazil, has begun to recover. There are also signs of stronger demand in Asia.
Volvo delivered 2,626 (1,822) buses and bus chassis in the first quarter this year, 44% more than in the first three months of 1999. Deliveries of complete buses produced by Volvo amounted to 45% (49) of the total.
The order backlog at the end of the first quarter of 2000 was 8% higher than at the end of the first quarter of 1999.
Net sales increased to SEK 3,838 M (2,688), as a result of strong sales in North America and Europe and deliveries to Iran. Operating income amounted to SEK 33 M compared with a loss of SEK 64 M in the year-earlier period. The improvement was attributable to increased volume and lower costs of purchased materials. A high capacity utilization at the Boras plant and a favorable earnings trend for European body works are other contributing factors to the improved earnings. The operating margin was 0.9% (neg. 2.4%).
Construction Equipment Net sales by market First three Change area months SEK M 2000 1999 in % Europe 2 469 2 226 +11 North America 1 345 1 181 +14 South America 175 100 +75 Asia 499 378 +32 Other countries 161 155 +4 Total 4 649 4 040 +15
The world market for heavy construction equipment increased by slightly more than 5% during the first quarter of the year, compared with the first quarter of 1999. The market in Europe was nearly 15% larger while the market in North America declined by more than 5%. In Asia, where the total market for heavy construction equipment increased by approximately 5%, the upturn in South Korea, with an increase of nearly 50%, was especially significant. Before the economic crisis, the South Korean market had been as large as the German market, which is the largest in Europe.
The world market for light construction equipment, the compact segment, continued to grow, increasing by nearly 10% compared with the first quarter if 1999. The increase in both North America and Europe amounted to approximately 20%.
Volvo CE's net sales increased by 15%, to SEK 4,649 M (4,040) in the first three months, the largest first-quarter amount in the company's history.
The order backlog at the end of the first quarter was in terms of value 40% larger than on the same date a year earlier, and 13% larger than at the end of 1999.
Operating income rose by 71%, to SEK 311 M (182), as a result of improved productivity, lower costs and sharply higher earnings in excavators. Operating income, too, was the best ever recorded by Volvo CE in a first quarter. The operating margin was 6.7% (4.5%).
New generations of Volvo's excavators and the new Series D wheel loaders were introduced to the dealers in Europe during the first quarter and were very well received. Other products launched recently include a new generation of motor graders and the compact excavators that are now being introduced in the fast-growing market for compact equipment in North America. To meet the strong demand for compact excavators, the plant in South Korea will be utilized to a greater extent than earlier to produce such equipment along with heavy excavators, wheel loaders and assembly of articulated haulers.
Marine and Industrial Power Systems Net sales by market First three Change area months SEK M 2000 1999 in % Europe 809 694 +17 North America 542 366 +48 South America 35 25 +40 Asia 165 114 +45 Other countries 34 31 +10 Total 1 585 1 230 +29
Demand for Volvo Penta's marine engines for leisure craft remained high during the first quarter in Europe and in North America. The order bookings for gasoline engines in the US exceeded expectations, while sales of Swedish-built diesel engines also continued to increase.
The focus on industrial engines in North America resulted in increased market penetration. Several significant orders for industrial engines were landed in the Middle East, mainly in Saudi Arabia.
Net sales increased to SEK 1,585 M, 29% higher than in the first quarter of 1999. Sales of marine engines were higher in Europe, North America and Asia. Sales of industrial engines increased in all markets. The increase in North America was the most significant.
The significant growth in sales and the increased productivity of the company contributed to a strong operating income, SEK 103 M (45) and to a higher operating margin, 6.5% (3.7).
Continued increased order bookings results in a high delivery rate and high capacity utilization at Volvo Penta's assembly plants in Vara, Sweden and Lexington, Tennessee and for heavy diesel engines in Volvo Truck's engine plant in Skovde, Sweden.
The establishment of the assembly plant in Wuxi, China, which was inaugurated at the beginning of January this year, has developed highly favorably, with a growing customer base.
Aero Net sales by market First three Change area months SEK M 2000 1999 in % Europe 996 1 062 (6) North America 1 082 872 +24 South America 30 74 (59) Asia 140 134 +4 Other countries 38 25 +52 Total 2 286 2 167 +5
World air traffic increased by slightly more than 3% in January, compared with the same month in 1999. The growth in traffic is thus lower than the long-term growth rate.
Record high deliveries of new aircraft have resulted in overcapacity, which in turn increased the competition among airlines and combined with rising fuel costs, created major profitability problems for many airlines.
During the early part of 2000, the airlines have begun to raise ticket prices to compensate for the higher costs.
Volvo Aero's net sales increased by 5%, to SEK 2,286 (2,167). Excluding the divestment of Truck Engine Parts Division (TEPD), the increase was 7%.
Operating income amounted to SEK 110 M (139). The decrease in income was primarily due to lower profitability in The AGES Group. As a result of the large increase in production capacity for commercial aircraft in recent years, many airlines are choosing to "park" parts of their fleets. The need for spare parts is thereby reduced, which in turn increases the competition and pressure on prices among companies in the after-market, including The AGES Group.
In January 2000, a contract was signed with General Electric Aircraft Engines whereby Volvo Aero has a stake in an aircraft engine program and, beginning at the end of 2000 will supply components for engines used in the American F18 (Super Hornet) fighter aircraft. For Volvo Aero, the contract involves production amounting to at least SEK 3 billion during the next 15 to 20 years. This is the first time that Volvo Aero has been part of a military aircraft engine program that was not connected with the Swedish Air Force.
Finance
The income statements, balance sheets and cash flow statements for the Finance business unit consists of the Group's sales-financing operations, including the associated company Volvofinans, Volvo Treasury, Volvo's insurance operations including Volvia and Danafjord, the Group's real estate company.
In the markets where Finance offers financing, the degree of penetration relative to sales of new trucks was approximately 27%, compared with penetration of approximately 23% in the year-earlier period. The increase took place mainly in the United States.
Total assets as of March 31, 2000 amounted to SEK 56.9 billion, of which SEK 46.3 billion was in the credit portfolio. Adjusted to reflect foreign exchange movements, the credit portfolio increased by 1% in the first quarter. Roughly 76% of the credit portfolio consisted of truck-related financing, 9% involved bus financing, and 10% pertained to financing of construction equipment. The remaining 5% was primarily the remaining financing of passenger cars.
Operating income for the first three months of the year amounted to SEK 398 M, of which SEK 210 M consisted of capital gains on sale of parts of Volvia's securities portfolio. Adjusted to reflect these items, operating income was 18% higher that in the first quarter of 1999.
Total reserves amounted to 3.0% (3.3) of the credit portfolio, of which the reserve for residual-value risk amounted to 0.4% (0.7). Confirmed credit losses in the first quarter amounted to SEK 68 M, which was SEK 8 M less than a year earlier.
Number of employees
As of March 31, 2000, the Volvo Group had 53,217 employees, compared with 53,470 at the beginning of the year.
Proposal to buy back and transfer Company shares
On March 28, 2000 the Board of Directors of AB Volvo voted to recommend that shareholders at the Annual General Meeting authorize the Board to buy back Company shares. Assuming that the proposal is adopted by the Meeting, this authorization will enable the Board during the period preceding the next Annual General Meeting, to decide to buy back Company shares. The number of Series A and/or Series B shares repurchased must be such that, after each acquisition, the Company does not hold more than 10% of the total number of AB Volvo shares. It is proposed that any repurchase take place in the open market and or through an offer to the shareholders. The proposed authorization also includes the possibility for the Board to transfer repurchased shares, with preferential rights to shareholders for financing of company acquisitions and as payment in connection with company acquisitions.
Goteborg, April 26, 2000 AB Volvo (publ) Leif Johansson President and Chief Executive Officer.
This report has not been reviewed by AB Volvo's auditors.
Quarterly figures,
Volvo Group
SEK M unless otherwise 1/1999 2/1999 3/1999 4/1999 1/2000
specified
Net sales 27 072 33 905 28 829 35 213 30 546
Cost of sales (21 328) (26 951) (23 255) (27 967) (24 561)
Gross income 5 744 6 954 5 574 7 246 5 985
Research and development (1 085) (1 194) (1 104) (1 142) (1 182)
expenses
Selling expenses (2 122) (2 234) (2 130) (2 379) (2 297)
Administrative expenses (1 207) (1 308) (1 214) (1 062) (1 229)
Other operating income (72) (73) 71 (537) 148
and expenses
Items affecting 26 695 - - - -
comparability
Operating income 27 953 2 145 1 197 2 126 1 425
Income from investments
in associated companies 19 88 371 89 365
Income from other 1 189 8 (28) 10
investments
Interest income and 608 400 386 418 500
similar credits
Interest expenses and (709) (299) (217) (280) (389)
similar charges
Other financial income 127 15 (102) 91 (23)
and expenses
Income after financial 27 999 2 538 1 643 2 416 1 888
items
Taxes (435) (550) (570) (715) (629)
Minority interests (7) (48) (5) (44) 8
Net income 27 557 1 940 1 068 1 657 1 267
Depreciations included 1 188 1 381 1 325 1 277 1 534
above
Income per share, SEK 62.40 4.40 2.40 3.80 2.90
Average number of 441.5 441.5 441.5 441.5 441.5
shares, million
Income per share is calculated as net income divided by the
weighted average number of shares outstanding during the period.
Gross and operating
margin
% 1/1999 2/1999 3/1999 4/1999 1/2000
Gross margin 21.2 20.5 19.3 20.6 19.6
Research and development
expenses in % of net 4.0 3.5 3.8 3.2 3.9
sales
Selling expenses in % of 7.8 6.6 7.4 6.8 7.5
net sales
Administravie expenses 4.5 3.9 4.2 3.0 4.0
in % of net sales
Operating margin, 4.6 6.3 4.2 6.0 4.7
excluding items affecting
comparability
Operating margin 103.3 6.3 4.2 6.0 4.7
Net sales
SEK M 1/1999 2/1999 3/1999 4/1999 1/2000
Trucks 14 215 16 533 14 222 18 040 15 129
Buses 2 688 4 275 3 360 4 390 3 838
Construction Equipment 4 040 5 948 4 107 4 788 4 649
Marine and Industrial 1 230 1 540 1 400 1 591 1 585
Power Systems
Aero 2 167 2 532 2 412 2 842 2 286
Finance 2 098 2 035 2 211 2 293 2 206
Other 2 657 2 964 2 884 3 429 3 087
Eliminations (2 023)(1 922)(1 767)(2 160)(2 234)
Net sales 27 072 33 905 28 829 35 213 30 546
Operating income
SEK M 1/1999 2/1999 3/1999 4/1999 1/2000
Trucks 830 859 442 1 116 645
Buses (64) 121 13 155 33
Construction Equipment 182 784 390 353 311
Marine and Industrial 45 128 92 49 103
Power Systems
Aero 139 175 80 190 110
Finance 167 190 285 335 398
Other (41) (112) (104) (73) (175)
Operating income/a 1 258 2 145 1 198 2 125 1 425
Items affecting 26 695 - - - -
comparability
Operating income 27 953 2 145 1 198 2 125 1 425
a/excluding items
affecting comparability
Operating margins
% 1/1999 2/1999 3/1999 4/1999 1/2000
Trucks 5.8 5.2 3.1 6.2 4.3
Buses (2.4) 2.8 0.4 3.5 0.9
Construction Equipment 4.5 13.2 9.5 7.4 6.7
Marine and Industrial 3.7 8.3 6.6 3.1 6.5
Power Systems
Aero 6.4 6.9 3.3 6.7 4.8
Finance 8.0 9.3 12.9 14.6 18.0
Other (1.5) (3.8) (3.6) (2.1) (5.7)
Operating margin/a 4.6 6.3 4.2 6.0 4.7
Operating margin 103.3 6.3 4.2 6.0 4.7
a/excluding items
affecting comparability
Change in Volvo Group's financial reporting as a result of new
Finance business unit
Effective January 1, 2000, Volvo's operations in sales financing,
real estate and insurance were combined into a separate business unit,
designated Finance. Accordingly, in presenting the Volvo's Group's
sales and operating income per segment the Finance unit is reported
separately from the five business areas. Comparable figures for 1999
were adjusted in accordance with the new organization.
In conjunction with forming the Finance business unit, adaptation
has been made to the principles for classifying financial income and
expenses in Volvo's insurance and real estate operations. As of
January 1, 2000, financial income and expenses in these operations are
reported in the Volvo Group's operating income. The items were
included previously in Volvo's net interest. Comparable figures for
1999 were adjusted in accordance with the new classification
principle. As a result of the above, an adjustment was also made
regarding the definitions of the Volvo Group's financial net assets.
As of January 1, 2000, the Group's financial net assets are calculated
excluding the Finance business unit since financial income and
expenses within Finance are reported in the Group's operating income.
At the beginning of 2000, the new definition resulted in a reduction
in Volvo's financial net assets of SEK 2.2 billion.
Change in classification of overhead expenses in Volvo's spare
parts operations
Effective January 1, 2000, a restatement occurred regarding
Volvo's production cost calculations for spare parts. Accordingly,
overhead expenses in the Group's spare parts handling, which were
previously included among administrative costs, are reported as of
2000 among costs for goods sold. Comparable figures for 1999 were
adjusted to reflect the change in classification
Trucks, units
invoiced First First Change
three three in %
months months
2000 1999
Europe 11,449 10,751 +6
Western Europe 10,542 10,319 +2
Eastern Europe 907 432 +110
North America 6,424 7,446 (14)
South America 905 889 +2
Asia 1,147 452 +154
Other markets 301 261 +15
Total trucks 20,226 19,799 +2
Volvo buses/bus
chassis, units First First Change
invoiced three three in %
months months
2000 1999
Europe 1,000 752 +33
North America 888 609 +46
South America 148 164 (10)
Asia 528 255 +107
Other markets 62 42 +48
Total, buses/bus
chassis 2,626 1,822 +44
Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/2000/04/26/20000426BIT00350/bit0001.doc http://www.bit.se/bitonline/2000/04/26/20000426BIT00350/bit0002.pdf