An upbeat Volvo meets investors

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Dagens Industri  /  May 23, 2017

Increased service sales and further improved productivity will reinforce the positive trend for AB Volvo's profitability.

"We have a broad improvement in the Volvo Group," says CFO Jan Gurander.

At the beginning of the current decade, Volvo's Capital Markets Day characterized that the then Group Management gave wide-ranging commitments on how much the Group's operating margin would be improved.

Now with Martin Lundstedt as CEO, Volvo does not give promises, but instead places all the focus on explaining to investors how Volvo works to improve its underlying profitability [i.e. the Scania way].

Ideally, the CEO speaks about the strategy to increase profitable sales of services.

"In a normal market, service now accounts for 22-23 percent of our sales, and I see a big upside in that figure as we continue to work closer to the customer. Higher service sales are a receipt that we have a good relationship with our customers and increased service sales also lead to lower volatility in our performance, "says Martin Lundstedt.

Other important areas for improving the profitability that Volvo raised on the capital market day is productivity improvements, new technology and decentralization, where responsibility for the results is delegated to individual brands and regions.

"Connected vehicles, electric mobility and automation change our industry," says Lars Stenqvist, Volvo's Technical Director.

"We must build confidence that we have a position for the future when there is a lot of transportation and infrastructure," says Martin Lundstedt.

Volvo's underlying profitability is not only improved within the bright star of Volvo Trucks, but also within the Renault Trucks and UD Trucks brands, pointed out CFO Jan Gurander.

"We reached blacks in 2016 and we expect to increase earnings in 2017. Based on the order intake in the first quarter, we estimate that our market share is on the rise," said Bruno Blin, chief of Renault Trucks.

Volvo's Japanese truck brand UD Trucks has been weak with profitability since Volvo bought its business in 2010. But a detailed plan for raising profitability now gives results, according to UD Trucks head Joachim Rosenberg.

"We are following our plan and are even ahead of schedule," says Joachim Rosenberg.

Volvo construction machinery, VCE , which boosted its performance in the first quarter, is now benefiting from major action programs launched by Business Area Manager Martin Weissburg in 2014 and a better market in China.

"Important to us now is to increase our market share in excavators," says Martin Weissburg.

The market sentiment on the Volvo Group's most important markets is now at the same levels as the report for the first quarter of April, according to Martin Lundstedt.

"Generally, it is the same underlying foundation in Europe, North America and China," he says to Di.

Claes Nilsson, chief of Volvo Trucks, added that demand for heavy trucks remains at a high level that the heavy truck market in North America has bottomed out.

"We are seeing signs of recovery and the stocks of new trucks have come down to a reasonable level. However, there is still a large variety of used trucks, "says Claes Nilsson.

The Brazilian market is still very weak.

"But we see some signs of improvements in Brazil, the mining sector is coming back and we are seeing more and more requests. In neighboring countries Peru and Argentina, demand is good, "says Claes Nilsson.

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Other important areas for improving the profitability that Volvo raised on the capital market day is productivity improvements, new technology and decentralization, where responsibility for the results is delegated to individual brands and regions.

Maybe we'll see a more independent Mack that is able to return to building the type of product that customers want.