Volvo Construction Equipment halves operating losses in fourth quarter 2009

Publishing its fourth quarter and full year 2009 results, Volvo Construction Equipment (Volvo CE) has announced that its efficiency measures are proving effective – reducing its loss for the quarter by 55% when compared to the same period in 2008. Efforts to shrink dealer inventories were also successful, reducing them by 47% during 2009 – to a point where stock is now in balance with demand.

These figures come in the face of continued recession in the world market for construction equipment , which reduced by a further 12% during the fourth quarter – making it a 39% drop for the full year 2009. Volvo CE sales were down by just 9% in the period when compared to the year before, to SEK 10,159 M (11,219), easing to 6% when adjusted for exchange rates. And compared to the third quarter of 2009 sales showed an increase of 24%. The operating loss was reduced by 55% compared to Q4 2008, at loss SEK 564M (loss SEK 1,256M). At -5.6% operating margin also showed signs of recovery, improving from -11.2% during the same period last year. Volvo CE earnings during the period continued to be affected by under utilization of capacity, which ran at 35% during the period – and the burden of inventory write downs and restructuring costs. The order book has also stabilized; at the end of 2009 it was just 2% below a year earlier.

“Despite the sharp decline in sales, our losses were limited due to effective cost reducing measures and improved productivity,” says Olof Persson, chief executive of Volvo CE. “Although sales are significantly lower than a year ago, it is becoming increasing clear that the state of the global economy is improving. China in particular strengthened considerably during 2009.”

2009: an unprecedented year

For the full year 2009 Volvo CE’s sales were down by 37% to SEK 35,658 M (56,277 M). This equated to sales of 38,783 machines, down from 2008’s peak of 63,641 units. Measured in units 2009 saw the total world market for construction equipment within Volvo CE’s product segments decrease by 39% compared to the same period in 2008. Despite the tough trading conditions, the company has continued to defend its market share in most markets and product segments, thanks to a strong dealer network and product range.

2010: outlook for the year

The outlook for 2010 is uncertain, but is forecast to remain soft. North American and European markets are expected to rise by between 0-10% from their current very low levels. Asia and Other International Markets are expected to grow by between 10-20%. China is expected to grow by 20% in 2010 – and Volvo CE is committed to becoming a key player in the country. In December 2009 the company announced that it is to introduce four new SDLG branded crawler excavators into China by the end of 2010, to be built at Volvo’s Lingong facilities in Linyi, China.