Volvo CE rounds off ‘reasonable’ year despite sharp downturn in fourth quarter

Announcing its fourth quarter and full year results, Volvo Construction Equipment (Volvo CE) reported that net sales for 2012 remained at the same level as the previous year, despite a dramatic drop in global demand in the second half. The company also reinforced its strong position as market leader in the all-important Chinese wheel loader and excavator segment, extending its share in 2012 to an unprecedented 15%. The company also produced its second best ever output, selling 78,491 machines during the year.

For the full year 2012, Volvo CE’s sales increased by less than 1% to SEK 63,558 M, compared to 63,500 M in 2011. Operating income reduced during the year, a result of lower sales and negative product mix, to SEK 5,773 M, down from SEK 6,812 M in the preceding year. Operating margin was also affected, retreating to 9.1% in 2012 from 10.7% in 2011, as was the value of the order book, which on December 31^st was 36% lower than a year earlier.

Sharp correction in Q4

These reasonable full year figures mask a significant slowdown in demand in the fourth quarter results of 2012. A softer world market, in particular mining, saw net sales in the last three months down by almost a quarter (23%) and amounted to SEK 12,572 M (SEK 16,354 M in 2011). When adjusted for changes in the exchange rates, net sales fell by 22%. Operating income was also down, at SEK 363 M, from SEK 1,674 M in the same period in the previous year. However, despite the dramatic fall in sales operating margin remained positive, at 2.9%, thanks to rapid and significant cuts in production and a consequent reduction in inventories.

“Taken as a whole 2012 was a reasonable year,” commented Pat Olney, president of Volvo Construction Equipment. “We sold over 78,000 machines, recorded the company’s second highest ever revenues and our proactive downturn management helped protect cash flow and profitability. We recognized the turn in the industry early, and the work undertaken to reduce pipeline inventories was successful. Stock levels have been reduced by around 30% since late spring and are now in balance with current demand.”

Prospects to remain flat in 2013 

The prospects for 2013 are expected to remain subdued, with unit sales in Europe predicted to decline by 5-15%, while Asia (excluding China) is forecast to decline by between 0-10%. Meanwhile, China, North America and South America and Other Markets are all forecast to operate in the range of minus 5% to plus 5%.