Volvo AB (



Q1 2011 Earnings Call

April 27, 2011 9:00 am ET


Leif Johansson – Preasident, Chief Executive Officer and Director

Mikael Bratt – Senior Vice President and Chief Financial Officer

Olof Persson – President, Volvo Construction Equipment

Göran Gummeson – President, Volvo Penta

Staffan Zackrisson – President, Volvo Aero

Martin Weissburg – President, Volvo Financial Services


Fredric Stahl – UBS

Nico Dil – JP Morgan

Yann Benhamou – Exane BNP Paribas

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Stephanie Renegar – JPMorgan

Jose Asumendi – RBS



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Ladies and gentlemen, welcome to Volvo’s First Quarter for 2011. Today I’m pleased to present Mr. Leif Johansson, President and CEO. 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. Mr. Leif Johansson, please begin.

Leif Johansson

Thank you, and most welcome around the world. Good afternoon and good morning to this Volvo First Quarter 2012 (Sic) conference call. We have in the room as we always do, we have IR people, we have business areas leaders, we have our CFO and we also have our Deputy CEO and CEO-to-be, come first September, Olof Persson. And now he is actually representing Volvo Construction Equipment.

We have a batch of slides that’s been made available to you over the Internet site. And if you stick with me to page 2 in that batch, then you will see a slide that drew highlights. And we had a first quarter operating income of 9.1% margins, 6.5% in operating income. And the really unusual things there was the fact that we had SEK 590 million coming in from Brazil as VAT adjustments against that we put between SEK 250 million and SEK 300 million from the disaster in Japan. Also to note with you the difference in currency impact on operating income Q1-to-Q1 was about SEK 1.3 billion and Q4-to-Q1 or Q1-to-Q4 about minus SEK 700 million. We’re cash flow negative about SEK 4 billion, to say a normal seasonal thing as we build out inventories especially for four to two.

The environment side in general we’re seeing improving market conditions in greater Europe. And obviously and that’s across the Group’s different product ranges than I will speak more specifically about trucks later on. (Inaudible) in Eastern Europe that all fall terribly at low levels. Coming back to normal trend lines in Northern parts of Europe and Germany but well below trend lines in Southern Europe. But all in all, then improving what we would see as improving market conditions.

Asia remains very strong and we have the effect there of India, China, but also many countries around. And let me breaks out and pick Indonesia there as countries that are growing quite rapidly. That is not of course true in Japan. Japan was a slower grower before the disaster of the earthquake and the tsunami in March and of course has impacted us. We call that effect to be about SEK 250 million in Q1 here, really on the fact that we’ve not been able to deliver. We have had in Japan not so much damage to our own facilities. They can actually be used for production, we have resumed production but we have uneven output because of the effects in the supply chain.

South America remains very strong and that’s especially throughout Brazil, which is based on the markets in Brazil being impacted by growth coming out of construction, and also the new oil finds there combined with an overall raw material boom you can say in Brazil. So far that seems to becoming together very nicely even for 2012.

North America, perhaps the best news, there we’re seeing a significant improvement in demand on everything that is related to long haul, which of course is significant because it represents a better consumer and retail market, but it also represents the manufacturing sector that’s beginning to turn on in North America. Some of that of course dependent on the very competitive dollar rate right now. Now, for us to be genuinely happy with North America, we would have liked to see also a recovery in the broader construction sector, home building and even infrastructure construction. And that is yet to come and we haven’t seen that come yet.

If you flip the page to the Volvo Group, page 3, there you’ll see sales coming up at SEK 72 billion for the quarter. And you remember we have a strong crown there, so from a growth point of view Swedish crown that’s 22%. In currency adjusted, it’s a growth of 73%, so very good growth compared to Q1 2010.

If you look at 12 month rolling there, we’re now coming closer to SEK 280 billion than the SEK 270 billion and we have it all-time high at about SEK 300 billion. But if you look to the right there with the first-quarter 2011 there you’ll see distinctly different mix. You’ve got mix compared to when we were close to the SEK 300 billion earlier before the crisis in 2008 and 2009.

And what is happening here is that the half of the Group, which is not North America and Western Europe, continues to grow and of course you can see the impact there on Asia and South America. And Asia now much bigger than North America, but what’s also happened down in the past couple of quarters are notably so in this quarter is that Western Europe and North America grows at the same pace. And all the course comes together at 33 and keeps that pie chart almost stable with 50% of outside the North America and Western Europe.

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