4/28/2009 Volvo Construction Equipment continues to feel affect of global slowdown in first quarter 2009

Capacity and cost reduction measures implemented as demand weakens sharply in all markets.

Volvo Construction Equipment experienced a significant drop in both sales and income as the total world market[1] for heavy, compact and road machinery equipment decreased by 48% in the first quarter of 2009 when compared to the same period the year before.

Despite rises in market share in many markets and product segments, Volvo Construction Equipment saw net sales in the first quarter decline by 46% to SEK 8,172 M (SEK 15,115 M in Q1 2008). The operating loss amounted to SEK 1,395 M compared to an operating income of SEK 1,301 M in the same period in 2008. The operating margin was negative 17.1% compared to a positive 8.6% in the year before.

The setback in Volvo Construction Equipment’s continuous period of growth in recent years is a consequence of the severe downturn in the global market for construction equipment and a negative currency impact. In Europe the total market was down 64% in the first quarter while North America decreased by 48%. China was one bright spot in the market, with demand rising 9%, but this was offset by the rest of Asia sliding by 52%. Other international markets were down 64%.

Corrective measures
Volvo has moved quickly to counteract the affects of the reduction in demand, most notably by large scale cutbacks in production. While this has lead to under absorption of costs in the manufacturing system, it has helped cut inventories by a further 10% in the quarter, adding to the 20% reduction achieved in the previous period, and had a positive impact on cash flow. Regrettably, this lower output level has resulted in 4,300 employees being given notice since last September. The company also implemented a new function-based organizational structure in the first quarter in order to increase efficiency and speed of execution.

The stimulus packages that have been announced by several governments have not yet had a significant impact on the industry, and the value of the order book on 31st March 2009 was 73% lower than at the same date in the previous year (excluding Lingong and the acquired road machinery business).

Volvo Construction Equipment attended the Intermat exhibition in Paris, the industry’s largest trade show this year during the first quarter, where new products such as the ultra high reach demolition excavator EC360CHR and reduced radius ECR305CL excavator were unveiled to an international audience for the first time.

Outlook
Total market conditions for 2009 are expected to remain very weak. European demand is forecast to decline by up to 50% compared to the full year 2008, while North America is likely to drop by between 20 to 25%. Demand in the rest of the world is expected to shrink by up to 40%.

“The substantial economic stimulus measures combined with interest rate cuts by central banks around the world will, towards the end of 2009 and furthermore in 2010 onwards, contribute to drive demand for our products,” says Olof Persson, president and chief executive of Volvo Construction Equipment. “So far we have seen measures taken in China increase demand towards the end of the first quarter. Although these are positive signs, it is too early to talk about a sustained recovery.”

Table 1. Volvo Construction Equipment, net sales by market area, in Millions of Swedish Krona

For further information, please contact:

Bill Law
Director, External Communications
Volvo Construction Equipment
Avenue du Hunderenveld 10
1082 Brussels, Belgium
Phone: + 32 478 92 43 26
E-mail: bill.law@volvo.com 

Brian O’Sullivan
SE10
Phone: +44 77 333 50307
E-mail: osullivan@se10.com

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[1] Measured in units.