AB Volvo's CEO Discusses Q4 2011 Results - Earnings Call Transcript

AB Volvo (VOLVY.PK)

Q4 2011 Earnings Call

February 3, 2012 8:30 AM ET

Executives

Olof Persson – President and CEO

Christer Johansson – IR

Analysts

Fredric Stahl – UBS

Nico Dil – JPMorgan

Kenneth Toll Johansson – Carnegie

Michael Tyndall – Barclays Capital

Yann Benhamou – Exane

Sébastien Gruter – Societe Generale

Laura Lembke – Morgan Stanley

Presentation

Operator

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Ladies and gentlemen, welcome to the Volvo year-end report 2011 conference call. Today I’m pleased to present, Olof Persson, President and CEO of Volvo Group. For the first part of this call, all participants will be in listen-only mode and afterwards there will be a question-and-answer session. Speaker, please begin.

Olof Persson

Thank you very much, and good morning and good afternoon to all of you, and welcome to this conference call on the Volvo Group fourth quarter and full-year 2011 report. I’m sitting here with Anders Osberg, our new CFO; (inaudible) Public Affairs and Public Relations, and then Christy Johansson, Investor Relations.

There is a presentation available on the Web and I hope you all have access to it. I would like you to follow me to page number two, where you can see a group overview and the word record is there mentioned and we can say that the word record we can put in front of a lot of the items we do present, both on a quarterly basis and on a yearly basis, when we talk about sales, when we talk about the operating income and when we talk about operating margin. However, and I will come back to it, there are also some issues that we will address, that we will continue to address and I will come back to that a little bit later in the presentation.

What I would like to do is to go through the Buses, Penta, Aero, and Financial Services on this slide, giving some updates – you can see the numbers – and then coming back to trucks and CE a little bit more in detail.

Starting with bus, I think bus, if you conclude the fourth quarter and also the full year, it has been a difficult market in, particularly, Western Europe and North America, when we talk about city buses, but it has been compensated by good movement in the developing economies and in the BRIC countries. Their margin of 4.4% is of course nothing we are completely satisfied with it, but I must say that the bus management team and the whole bus organization has done a good job in improving the profitability and I think it’s only fair here to mention that for the first time ever Volvo bus has been hitting the SEK 1 billion absolute profit for the year of 2011.

Penta has seen a very tough and sluggish market on the marine engine side and has basically been able to offset that by its second leg, which is now based industrial engine, both the Versatile and the Genset side, and by doing so has been more resistance to ups and downs. However seasonable this quarter it’s a weak quarter for Penta and we can also see that in the numbers with 4.8% operating margin.

Volvo Aero has come back from very low levels and is now showing 8.1% operating margin, and I think the Volvo Aero organization is now progressing with their own efficiency – internal efficiency that we have been reporting on before, but also – and of course that’s always true when it comes to Aero, we do have a headwind on the currency and in particular the dollar. But, all in all, I would say good development on the Aero side.

When it comes to Financial Services, we can see that we have put on SEK 12.6 billion in new financing and I’m really pleased to note that Volvo Financial Services has grown with the business in a very controlled and good way. We are keeping the penetration rates around 25% as an average and we’re doing so with good control and good system support, making sure that we’re growing the business in a good way. We also see that now then in the operating income, where we see the SEK 262 million.

So, by that I would like to quickly go through page three, where you can see that we have grown from SEK 72 billion to SEK 85 billion in the quarter. That’s a 20% growth excluding currency, and also the conclusion is that we now are zooming in on and have been for a while sort of 50% – around 50% in the North American and Western Europe markets and 50% markets in the rest of the world. This quarter, I think, we are 53%, 47% in advantage of North America and Western Europe.

On page number four we can see that we had a good trend and we are then now coming into the SEK 300 billion-plus turnover for the full year, which actually is a full SEK 46 billion increase during the year with an operating margin on the full year of SEK 27 billion and SEK 7 billion in the quarter. Year-over-year, if you look at the leverage, we do have a leverage, which is 20% and if you look at it quarter-over-quarter and quarter sequential, we can see that the leverage is thinning out and that was the remark I did in the beginning that I’m a little bit concerned over and that we need to continue to address around our leverage.

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