10/23/2009 Volvo Construction Equipment reduces losses in Q3 despite continuing challenging market conditions

Despite net sales at Volvo Construction Equipment declining in the third quarter of 2009, efficiency measures contributed to a 37% reduction in operating loss since the previous quarter.

The continued weakness in the world market for construction equipment was reflected in Volvo Construction Equipment’s third quarter 2009 financial results. Net sales declined by 38% to SEK 8,176 M (13,213) during the period. However, the operating loss of SEK 787 M was considerably below the SEK 1,259 M experienced in the second quarter of 2009. This improvement is the result of efficiency measures being implemented at the company, inventory reductions and the adjustment of costs to current demand.

Asia leads recovery
Measured in units, the total world market for heavy, compact and road machinery equipment decreased by 42% in the third quarter of 2009 compared to the same period last year. In Europe the market was down by 54%, North American market decreased by 50% and Asia declined by 11%. Other International markets decreased by 61%. The rapid flow of stimulus funding into its construction industry meant that China was one of the few bright spots in the industry during the period, increasing by 45% compared to last year, and helping bolster the situation in Asia. In fact Asia accounted for over a third of Volvo Construction Equipment’s net sales during Q3 – putting it on a par with Europe.

“Tough market conditions continue in the sector, but there are some positive signs indicating that the decline in demand may have bottomed out and that we are now beginning a gradual recovery,” says Olof Persson, President & CEO of Volvo Construction Equipment. “But we are not relying on a substantial recovery and will therefore continue to improve efficiency and adjust our costs to current demand. I am confident of improving our market position globally as we are well positioned for the new emission regulations that will soon come into force, with new products and services at the absolute forefront.”

In order to adjust for the low demand and reduce inventory levels, Volvo Construction Equipment continued to implement production cutbacks during the third quarter. The company has been successful in reducing inventories, and the number of units was reduced by another 10% during the quarter.

The outlook for the full year is expected to see both the European and North American markets to have reduced by 50% during 2009 compared to last year, while the rest of the world is forecast to see a reduction in demand of between 40-50%. 

Table 1. Volvo Construction Equipment, net sales by market area, in millions of Swedish Krona (SEK)  

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