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Volvo CE Sales Slide in Second Quarter Due to Economic Slowdown

Sharply lower global demand for construction equipment resulted in a weak second quarter of 2009 for Volvo Construction Equipment, with sales down 45%.

Driven by the global market downturn and the continued fallout from the financial crisis, Volvo CE has posted second quarter results that are broadly in line with the global reduction in demand, with net sales in the period down by 45% to SEK 9,151 M (16,732 M in 2008).

The second quarter of 2009 saw demand for heavy, compact and road construction equipment drop to almost half the levels seen in the same period last year, with 48% fewer machines being sold worldwide. This weakness is widespread, with demand in Europe down 62%, North America down 53%, Asia down 14% and other markets down by almost two thirds (65%).

Given the severity of the situation, the second quarter also saw Volvo CE post an operating loss, amounting to SEK 1,259 M, compared to an operating profit of SEK 1,629 M in the same period of 2008. The operating margin was also sharply down, at negative 13.8% compared to positive 9.7% in the same period the previous year. These figures were a consequence of production cutbacks and low capacity utilization of only 30% during the quarter, which resulted in under-absorption of costs in the manufacturing system. Operating income was also affected by expenses related to reducing the workforce. On the positive side, production cutbacks have helped improve the inventory situation, which reduced by a further 11% in the second quarter. Since October 2008, the number of machines in stock has reduced by 40%.

Commenting on the results, Olof Persson, president of Volvo CE said: “We are working hard to maintain a high pace in the implementation of the measures aimed at balancing our costs to suit these lower levels of demand. Despite the current weakness in our markets, I am convinced that the long-term driving forces that generated growth in our industry continue to apply.”

Stable market shares
In light of the global economic situation, order bookings at the end of June were 70% down on the same time in 2008. Despite this, Volvo Construction Equipment has maintained, or even improved, its share in most markets and product segments in the quarter, with customers preferring the assurance of buying competitive products from the leading brands. Sales of spare parts and aftermarket service are also faring better in the recession.

China is one of only a few current bright spots in the global picture, as stimulus funding has helped demand grow by 6% in the second quarter, helping to cushion the impact of the downturn in Asia. Elsewhere, stimulus investments are yet to show signs of moving the market.

Continued tough market conditions

The outlook for 2009 is characterized by much softer market conditions than in 2008. The European market is expected to decline by between 40% and 50% for the full year, while North America is forecast to be down by 30-40% in 2009. The rest of the world is likely to see a year-on-year fall in demand of between 30-40%.

Notable events for Volvo CE during the second quarter included the ending of motor grader production in Goderich, in Canada. The last machine rolled off the line in June, and motor grader production is now consolidated into the company’s road machinery facility in Shippensburg in the US.

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

Net Sales by Market Area

Second Quarter

First Six Months

SEK M

2009

2008

2009

2008

Europe

3,437

7,795

6,526

14,876

North America

1,523

3,025

3,313

5,964

South America

595

743

983

1,313

Asia

3,465

4,148

5,921

7,692

Other Markets

131

1,021

580

2,002

TOTAL

9,151

16,732

17,323

31,847