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Volvo Construction Equipment’s 2008 sales rise 5% despite negative fourth quarter

A 39% drop in the world market for construction equipment during the fourth quarter of 2008 saw sales in the period down 29%, weighing heavily on full year results.

Publishing its fourth quarter and full year results, Volvo Construction Equipment (Volvo CE) has announced that it delivered 64,000 units in 2008, a similar figure to 2007 but resulting in an increase in net sales of 5%. These full year figures came in the face of a negative fourth quarter, which saw global financial uncertainty push Volvo CE sales down 29% in the period and the total world market down by 39%.

For the full year 2008 Volvo CE’s sales increased by 5% to SEK 56,079 M (53,633 M). Both operating income and operating margin were badly hit in the final quarter of the year, dragging Volvo CE’s full year operating income to SEK 1,808 M (4,218 M in 2007) and operating margin to 3.2% down from 7.9% in the preceding year.

Volvo CE was affected by the severe downturn in the global market for construction equipment in the fourth quarter, reporting a loss during the

period. Sharply declining sales, production cutbacks and higher raw material costs all contributed to the loss. Net sales in the fourth quarter were down 29% and amounted to SEK 11,031 M (SEK 15,523 M in 2007). When adjusted for changes in the exchange rates and acquired and divested assets, net sales fell by 38%. The operating loss amounted to SEK 1,256 M compared to an operating income of SEK 1,035 M in the fourth quarter of 2007. The operating margin in the period was a negative 11.4% (positive 6.7% in 2007).

Downturn management
Responding to the difficult trading conditions, Volvo CE has implemented a comprehensive plan to improve efficiency. In order to reduce inventory levels the company has cut production output in all its factories. These efforts to decrease the number of new products in inventories have been successful, with a 19% reduction since October and a further 20% reduction expected in the first quarter of 2009. The slowdown in production capacity has also unfortunately led to the company issuing notices of termination to 3,400 employees.

Market Share Gains
Despite the tough trading conditions, the company has continued to gain market share in most of its markets and product segments during the quarter, thanks to a strong dealer network and product range.

Market Overview
The North American market was down 34% in the fourth quarter of 2008,

while Europe fell 49%, Asia reduced by 38% and Other International Markets fell by 28%. For the full year 2008, the total world market for construction equipment declined by 11%.

Outlook
The outlook for 2009 is uncertain, but is expected to remain weak. The European market is set to decline in the range of 30-40%. North America is forecast to decline between 10-20% while the rest of the world is likely to be down 30%.

In focus
Volvo CE’s focus in 2009 will be on downturn management, lowering its cost level and balancing production capacity to suit market conditions. Other activities to improve the profit level include gaining synergies from acquired companies, cost reductions, increased platform commonality, better coordination between factories and active price management.

Through these measures, Volvo CE will have created the conditions to continue its positive performance of recent years. It has a strong product programme that is at the forefront of the industry, good positions in key markets and is active in segments with long term growth opportunities.

Table 1. Volvo Construction Equipment, net sales by market area, in Millions of Swedish Krona

Net sales by market area

       Fourth quarter

        Full year

           SEK M

     2008

     2007

     2008

     2007

Europe

            4,483

      7,826

       25,192

        25,294

North America

            2,024

      2,422

       10,159

        11,170

South America

               672

         684

         2,913

          2,155

Asia

            2,834

      3,781

       13,738

        12,179

Other markets

            1,018

         810

         4,077

          2,835

Total

          11,031

    15,523

       56,079

        53,633