THE VOLVO GROUP STRONG DEVELOPMENT IN GROWING MARKETS

Transcription

1 THE VOLVO GROUP STRONG DEVELOPMENT IN GROWING MARKETS

2 2 CEO COMMENT 6 SOLID POSITIONS 8 CORE VALUES 10 OUR BRANDS 14 PRODUCTS 22 VOLVO WORLDWIDE 28 FINANCIAL SUMMARY 30 ORGANIZATION 32 CUSTOMER OFFERING Cover: Jimmy Samuelsson, Samuelssons Schakt, Sweden. For more detailed financial information regarding the Volvo Group in 2004, please refer to the Financial Report 2004.

3 1 GLOBAL RECOVERY The Volvo Group is a world-leading manufacturer of commercial vehicles, construction equipment and components. The Group has more than 81,000 employees, with manufacturing in 25 countries and sales in more than 185 markets. Backed by a sharp recovery in the global economy, sales advanced to SEK 201,496 M in Net sales, SEK bn

4 2 CEO COMMENT

5 3 WE CONTINUE TO STRENGTHEN OUR CUSTOMER OFFERING As a result of an extensive renewal in recent years, we now have leading-edge products in terms of performance, productivity, safety and environment. Global growth in 2004 and excellent efforts by our personnel contributed to the substantial increase in sales. We have now attained the sales level we had prior to the divestment of passenger car operations with the key difference that we now have a structure that offers us a higher and more stable earnings potential. Net income of more than SEK 9.3 billion confirms definite improvements in operations. This adds to our competitiveness and potential to continue developing world-class products and service. We are focusing keenly on our customers and have made changes aimed at enhancing distribution and service. In North America, Mack Trucks and Volvo Trucks have improved their sales network, leading to a favorable customer response. Volvo CE has also made excellent progress in developing its North American distribution. In Europe, we are enhancing our proximity to customers through the operations we acquired from our Bilia dealership. Also, via the expanding financing activities of Volvo Financial Services, we are consolidating cooperation with end customers. One of the major challenges ahead is to extend service to new customers in Asia and Eastern Europe. China is a key market where we are making significant efforts to establish a market organization and a local manufacturing base. Our large volumes and homogeneous structure offer us competitive advantages. We are capitalizing on these by developing global product programs with shared technical architecture for our various business areas. To our knowledge none of our competitors have made as much progress in this respect. This approach permits us to add to our competitive edge, in terms of cost effectiveness and product performance alike. In early 2005, we launched our new generation of the Renault Magnum in Europe, the Volvo VT880 in North America and the new boat drive system IPS. We promise several more exciting new products and an attractive development in the near future.

6 4 IN MY CAB...

7 ...I WORK COMFORTABLY AND SAFELY. Jouline Bratt, Ericsson & Svensson Åkeri AB, Sweden. 5

8 6 SOLID POSITIONS STRONG We have a strong presence in Europe and North America, and are growing rapidly in Eastern Europe, Asia and South America. Our operations are hallmarked by strong brands and dealers, extensive service, POSITION vast market coverage and competitive financial solutions. We offer transport solutions that strengthen the long-term competitiveness of our customers and partners. COMPETITIVE In each business area, we endeavor to attain a leading position in terms of PRODUCTS image and customer satisfaction. We are seeking a position as number one or two in terms of size, or maintaining a higher growth rate than competitors. Our goal WORLDis long-term earnings above the industry average. In recent years, we have consolidated our positions in highly competitive markets. Truck operations are currently the largest in Europe and CLASS second largest worldwide. Volvo Buses is the world s second largest bus manufacturer and Volvo CE is among the major manufacturers of construction equipment. Volvo Penta is one of the world s leading manufacturers of engines and transmission systems for marine SERVICES and industrial applications, while Volvo Aero is a world leader in selected components for aircraft engines. Our focus on commercial vehicles and machinery has permitted considerable cost reductions. In truck operations, for instance, we have developed shared technology and architecture for Mack Trucks, Renault Trucks and Volvo Trucks. Volvo Powertrain supplies the entire Group with engines and gearboxes. By capitalizing on economies of scale and Group-wide technology and architecture, we will continue to boost our efficiency and quality and offer an even more attractive product portfolio.

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10 8 CORE VALUES QUALITY, SAFETY AND ENVIRONMENTAL CARE

11 9 Quality, safety and environmental care have a long tradition in the Volvo Group. They represent the Group s core values and are the basis for all our operations. Our primary goal is to maintain our leading status in these areas. Quality is based on reliable products and services and is embedded in design and manufacturing to ensure our customers are offered products that are safe, efficient and ergonomically correct. The Volvo Group s aim is to supply customers with products that meet the most stringent safety requirements. Our safety programs are based on a dual approach: the avoidance of accidents and the prevention of injury in the event of an accident. The Volvo Group cares for the environment both present and future. Our environmental programs cover a product s entire life cycle from design to recycling. Two priority areas are higher fuel efficiency and lower emissions.

12 10 OUR BRANDS STRONG BRANDS FOR DEMANDING CUSTOMERS

13 11 The Volvo brand, which has been built up over decades, enjoys a solid position worldwide. It is associated with the Group s core values quality, safety and environmental care. In recent years, the Group has been strengthened by means of additional brands. All of these brands are well established and symbolize specific characteristics, permitting us to meet demand from more customer segments. Volvo s truck operations comprise three brands: Mack, Renault Trucks and Volvo. Mack is one of the most well-known truck brands in North America while Renault Trucks holds a special position in southern Europe. Volvo is a global brand, universally known and respected worldwide. In bus operations, we have two brands in addition to Volvo: Prévost (coaches and luxury buses) and Nova (city buses). Both brands are well established in North America. The goal for each brand is to maintain a leading position and strenghten its market position. Each brand will be what the customer prefers in each customer category, thus strengthening the Group s total operations.

14 12 FOR ME...

15 ...IT S A MATTER OF RELIABILITY. Emilio Dalcoquio, Transportes Dalcoquio Ltda., Brazil. 13

16 14 PRODUCTS PRODUCTS FOR BUSINESS SOLUTIONS The Volvo Group supplies transport solutions for demanding customers around the globe. We are renowned for listening to customers and getting involved directly in challenges involving their operations on land, in the air and at sea. Next time you sit in an aircraft, the chances are that you will reach your destination thanks to Volvo Aero, since engine components from Volvo Aero are used in almost 80 percent of all new, large commercial aircraft ,020 24,288 28,044 32,860 38,289 The E-series wheel loaders exemplify successful product development in recent years. The optimized hydraulic system interacts efficiently with the driveline, resulting in outstanding technical performance and world-class fuel efficiency. Low fuel consumption is important for our customers profitability and for the environment. Total number of vehicles financed by Volvo Financial Services.

17 15 Engine maintenance on a PW 100 for Fokker 50. Our customers are primarily companies pursuing transport-related operations. Their productivity and profitability is in focus when we develop solutions for their operations. We provide maintenance, spare parts, training for mechanics, financing, insurance and IT systems for communication and transport planning. A key feature is to offer prompt service in the event of any operational failure. Our customers are assured that we will do our utmost to ensure their shipment reaches its end destination. Volvo Action Service offers on-site service round the clock in our major markets. In addition to assistance for operational faults, Volvo Action Service also offers services, such as operational guarantees, to ensure customers gain maximum benefit from their investments. Volvo Action Service is a unique service for owners of trucks, buses and boats, as well as Volvo Penta s other products. Naturally, productivity is vital for our customers operations and we devote considerable resources to developing cost-effective products. Our new engine generation is among the world leading in terms of fuel efficiency and environmental performance. The latest generation of wheel loaders has captured attention worldwide for its high productivity and, in many cases, considerably lower operating costs. Many of our solutions are developed in close collaboration with customers to ensure their specific requirements are met. Energy supply is an expanding area in growth regions. In China, Volvo Penta has developed competitive systems for generator units in cooperation with its major customers. The success of these cooperative efforts led to China being Volvo Penta s largest market for industrial diesel engines in 2004.

18 16 PRODUCTS INNOVATIVE AND TECHNICALLY ADVANCED PRODUCTS The entirely new D16C engine is the heart of the Volvo FH16. This in-line, six-cylinder turbocharged diesel engine, with a displacement of 16.1 liters, is available in two power ratings, 610 and 550 hp. The Adaptive Cruise Control (ACC) system uses a Doppler sensor to automatically gain a safe distance to the vehicle in front.

19 17 The Volvo Group is a leading innovator in its product areas. Our largest development project within Volvo Trucks in recent years is the Volvo FH and Volvo FM series. The Volvo FH16 offers one of the market s most powerful engine, with embedded intelligence and unrivalled comfort, all of which add up to a wonderful driving experience. The driver has a very high torque, at 2,800 Nm, at his or her disposal. The Volvo FH16 and Volvo FH12 may be equipped with meter-long vehicle combinations, guaranteeing efficient transport potential. Longer vehicle combinations can boost fuel efficiency by up to 30 percent in relation to load. In turn, this offers reduced emissions and lower operational costs per kilometer for each load hauled. However, the Volvo FH16 was not built only to suit 60- ton configurations. Volvo FH16 is also suitable for lighter vehicle combinations when high average speed is required. The Volvo FH and Volvo FM series represent a unique combination of transport economy and driving comfort. Essentially all models have been tailored to handle various applications. The truck is equipped with Volvo s Electronic Brake System (EBS). It can also be fitted with an Electronic Stabilization Program, ESP, to prevent skidding and overturning in critical situations.

20 18 PRODUCTS THE DIESEL ENGINE THE CORE OF OUR DEVELOPMENT Volvo is the world s largest manufacturer of heavy diesel engines, which represent a key share of Group operations. These engines are used in most of our products. They are the key to the development of future product generations and have been a major factor in helping the Group s vehicles and construction equipment to attain market-leading positions. In recent years, we have combined our engine development and production in Volvo Powertrain, which supplies the entire Group with diesel engines and gearboxes.

21 Our D12 engine is one of the world s most popular 12-liter diesel engine. 19

22 20 ON MY BOAT...

23 21...WE RELY ON THE BEST. Jonas Andersson, Swedish Coast Guard, Gothenburg, Sweden.

24 22 VOLVO WORLDWIDE PRESENCE IN MORE THAN 185 MARKETS PRODUCTION IN 25 COUNTRIES By means of wholly owned companies and committed staff and independent dealers, Volvo is now active in more than 185 markets worldwide. Our products are used in numerous applications. We develop and manufacture products that ensure our customers stay a step ahead of their competitors from snow-clearance in the far North to climate-controlled transport in the tropics, and construction in extreme environments. But we are more than just products. In almost all markets we meet our customers ever-increasing needs for transport complete solutions. Our services encompass financing, service and round-the-clock support, every day of the year. Our global network ensures customers high availability. The network also offers the Group a platform for continuing profitable growth. As a result of large volumes, focused resources and financial strength, we have superb potential to continue the development of world-leading products and services.

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26 24 VOLVO WORLDWIDE STRONG GROWTH IN ALL MAJOR MARKETS 2004 was characterized by increased demand in most established markets and a continuing sharp expansion in growth markets. Sales of trucks and construction equipment in North America rose steeply, following several years of sluggish demand. The upturn provided a positive impact on the Volvo Group s earnings, since North America is our second largest market Volvo sales in China, SEK bn Volvo sales in Eastern Europe, SEK bn A priority region for the Volvo Group is rapidly expanding East Asia. In recent years, we have taken a number of key measures to strengthen our presence in China, including an extension of the dealer network, combined with investments in manufacturing plants.

27 25 In North America, customer renewal requirement, in terms of machinery and truck fleets, was the primary factor underlying increasing growth in demand. This meant that the market for construction equipment and trucks hit substantially higher levels in 2004 compared with The market for marine engines continued its rapid pace during the year. The surge in growth in Eastern Europe reinforced the positive trend in the European market. The continuing economic upturn in Eastern Europe and the integration of new EU members are expected to lead to further growth in the transport and construction sectors. Rapid economic expansion in Asia continued in 2004, notably in China, where the growth rate however, decreased during the latter half of the year following the efforts of the Chinese government to cool down the economic development. Extensive investments in infrastructure are driving the rising demand for construction equipment. The expansion of the Chinese road network will lead to greater demand for effective long-term transport and, thus, modern heavy trucks. Global GDP is expected to continue rising, with regions such as Eastern Europe and Asia as driving forces. The link between economic growth and the need for transport and construction suggest a long-term rising demand for our products. Thanks to our global presence and our competitive products and services, we are well equipped to capitalize on this development.

28 26 VOLVO WORLDWIDE A POSITIVE WORKING The efforts and commitment of more than 81,000 employees worldwide are crucial in ensuring that the Group retains and consolidates its position in the global market. We strive to attain management by objectives, a core ENVIRONMENT concept in our global corporate culture. The guidelines for our culture are described in The Volvo Way and have been introduced throughout the Group to further develop operations. The basic concept is that all individuals should be able to contribute their know-how, experience and commitment as part of our efforts to attain shared targets, seek improvements and promote DEVELOPMENT personal development. This provides considerable freedom, at the same time as it imposes demanding requirements on the ability of supervisors and employees to cooperate. We believe that diversity leads to innovative thinking and contributes to international competitiveness and profitability. People of different nationalities, age, gender and ethnic background offer the Group significant know-how and experience. Our employees and their various talents and ideas represent the most important asset in our efforts to be even more attentive to customer wishes and further develop our operations. Volvo is frequently a major employer in areas in which our manufacturing and development plants are located, and is therefore a natural and significant component in the community. Along with local authorities and other stakeholders, we seek to make a positive contribution to local development. Volvo s decentralized organization is also an expression of greater freedom for local initiatives. PROMOTES PERSONAL

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30 28 FINANCIAL SUMMARY 26% FINANCIAL SUMMARY Sales by market 4% 56% Net sales rose to SEK billion (174.8) in 2004, an increase of 18% adjusted for currency effects and acquisitions. The sales trend reflects a favorable global economy, and also that the Volvo Group has retained and in certain cases increased its market share as a result of a competitive product program. The sales increase was particularly strong in Eastern Europe and Asia, areas characterized by high GDP growth. In Asia, sales to the Middle East developed extremely well. In North America, there was a growing need to renew the existing fleet of trucks and construction equipment, resulting in 10% highly favorable demand for Volvo s various products. Operating income increased to SEK 14.2 billion, the Group s best result ever, excluding events of a nonrecurring nature. Truck operations had a very strong performance during the year. The Group s truck deliveries increased by more than 23% and the number of trucks delivered amounted to 4% 193,219. Operating income for truck operations rose to SEK 8,989 M (3,951). This improvement is attributable to higher volumes and competitive products, with improved margins. Income improved for Buses from a loss of SEK 361 M in 2003 to a profit of Volvo Group Net sales Net sales by business area, SEK bn Volvo Group Net sales, SEK bn Trucks Buses CE Penta Aero Other

31 29 SEK 185 M in Larger volumes, improved price management and lower costs resulting from a restructuring program in Europe are the main reasons for this improvement. Within Construction Equipment, sales and income rose during the year as a result of higher volumes, despite a negative currency effects and increased costs for raw materials. The favorable earnings trend for Volvo Penta continued in 2004, with income increasing to SEK 937 M (695). During the year, capacity utilization was at an extremely high level at Penta s plants and the recently launched products contributed to improved margins. Although Volvo Aero s sales continued to decline due to strong price pressure and falling demand for aircraft engine services, income improved to SEK 377 M (loss: 44). The improved result at Volvo Aero is mainly attributable to cost reductions and more efficient utilization of production plants for component manufacture. Earnings within Financial Services continued to develop positively and a return on shareholders equity of 11.1% was achieved in New financing continued to increase at the same time as credit losses were lower in 2004 compared with A detailed description of the income statement and balance sheet is provided in the second section of the Annual Report, Financial Report The Volvo Group in EUR Net sales, EUR M 19,151 22,044 Operating income, EUR M ,464 Operating income, EUR M 274 1,553 Income after financial items, EUR M 182 1,376 Net income, EUR M 33 1,023 Income per share, EUR Income per share, EUR Dividend per share, EUR Excluding revaluation of shares in Scania AB and Henlys Group Plc and dividend from Scania. 2003: EUR 1.00 = SEK , annual average 2004: EUR 1.00 = SEK , annual average Operating income (loss) by business area SEKM Trucks 3,951 8,989 Buses (361) 185 Construction Equipment 908 1,572 Volvo Penta Volvo Aero (44) 377 Financial Services 926 1,365 Other (42) (45) Operating income 1 6,033 13,380 Dividend received from Scania AB 501 Write-down of shares (4,030) 820 Operating income (loss) 2,504 14,200 1 Excluding revaluation of shares in Scania AB and Henlys Group Plc and dividend received from Scania AB. Operating income (loss) Price Trend, Volvo series B SEK Operating income, SEK bn Operating margin, % (0.7) (0.4) Volvo B AFSX MSCI Europe Machinery Index

32 30 ORGANIZATION ORGANIZATION The organizational structure of the Volvo Group is designed to offer the potential to capitalize on large volumes and uniform structure. As illustrated, the Group has sizeable in-house units that supply components, services and support to the business areas. The decentralized organization with its business areas and supporting in-house units offers the scope for proximity to customers and the advantage of utilizing the Group s vast resources. Volvo 3P is responsible for product development and for purchases of the Group s truck operations. Volvo Powertrain supplies the Volvo Group with diesel engines, transmission systems and axles. Volvo Parts supplies services to support the aftermarket for business areas within the Volvo Group. Volvo Trucks manufactures medium-heavy to heavy trucks for long-haul and regional transport, and for construction operations. Renault Trucks offers all types of commercial vehicles from light trucks to heavy trucks for long-haul transport. Mack Trucks manufactures heavy duty trucks for the vocational and economical haul segments in North America. Volvo Technology develops new technologies and business solutions primarily for the Volvo Group companies. Volvo Logistics develops and manages logistics solutions for the automotive and aerospace industries worldwide. Volvo Information Technology supplies solutions for industrial processes. Customers include the Volvo Group.

33 31 Buses product range includes complete buses, coaches and chassis. Construction Equipment manufactures equipment for construction applications and related industries. Volvo Penta provides engines and transmission systems for leisure and commercial craft, as well as for industrial applications. Volvo Aero offers components for aircraft and aerospace applications, plus a wide range of services for the aircraft industry. Financial Services develops and coordinates operations in customer financing, internal banking and related services.

34 32 CUSTOMER OFFERING CUSTOMER OFFERING Trucks All three brands in the Volvo Group s truck operations have a unique and distinct brand-specific character and compete in the market. Mack Trucks, Renault Trucks and Volvo Trucks offer customers a broad range of products and services for efficient, economic and problemfree transport Volvo Trucks Renault Trucks Long-haul Regional distribution Mack Trucks Buses Volvo Buses product line includes complete buses, bus chassis and related services. These products are used in numerous ways, primarily for passenger transport and other special transport applications. City buses Intercity buses Construction Equipment Heavy equipment Volvo Construction Equipment develops, manufactures and markets construction equipment. The extensive product range includes some of the most productive and efficient vehicles and equipment available in the market.

35 City distribution Construction Marine Leisure engines Coaches Engine components Compact equipment

36 Marine Commercial engines Industrial engines Marine and industrial applications Volvo Penta manufactures engines and transmission systems for marine applications, for both leisure and as commercial craft, with an engine range of 10 to 2,000 hp. Volvo Penta also supplies industrial engines ranging from 66 kw to 4.8 MW for irrigation pumps, generator units and other application areas. Engine services Aerospace Aerospace industry Volvo Aero specializes in a number of highly advanced aircraft and aerospace components. More than 80 percent of all new large commercial aircraft are equipped with components from Volvo Aero, which is also responsible for the engines of the Swedish Air Force s Gripen fighters. Volvo Aero also has a substantial after-market, which includes engine maintenance and spare part supplies. Customer financing Dealer financing Financial services Volvo Financial Services supports the Volvo Group s product range with financing alternatives and other offerings such as insurance. Volvo Financial Services offers a wide range of financial services and leasing alternatives to help customers acquire the products they need.

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38 AB Volvo (publ) SE Göteborg, Sweden Telephone AB Volvo, Investor Relations,