Continued weakness in Asian markets – particularly China – led to a 5% fall in total sales for the first quarter of 2015 compared to the previous year for Volvo Construction Equipment (CE), despite an improvement in European and North American sales.
During the first three months of 2015, Volvo CE saw net sales decrease to SEK12.74 billion (€1.36 billion), from SEK13.37 billion (€1.43 billion) in the first quarter of 2014.
Volvo said operating income had been affected by lower sales volumes, a provision for expected credit losses and lower earnings in China, decreasing to SEK352 million (€37.61 million), compared to SEK647 million (€69.14 million) in the first quarter of 2014. These factors weighed on the operating margin, it said, which reduced to 2.8%, down from 4.8% in the same period the year before.
The company added that the restructuring programme that had been launched in November 2014 was developing according to plan. The programme aims to cut structural costs by SEK3.5 billion (€374.02 million). It came after a strategic review which looked at the profitability of individual products. Volvo CE is stopping manufacturing graders and backhoe loaders under its own brand in Europe and the Americas. The products will be transferred to SDLG, its Chinese joint venture, and will be manufactured and marketed under this brand.
At the Intermat show in Paris last week, Volvo CE president Martin Weissburg said, “There has been a shift over many years from premium products to value products. There has also been growth in smaller products.”
He said that Volvo would invest heavily in updated products and renewals, pointing to 39 new or updated products in 2015.
He stressed the company’s commitment to roadbuilding and compact equipment, and looked to a future where intelligent systems offered increased machine productivity and functionality, as well as improved asset and site management.
“We have embarked on a plan to co-ordinate and expand our approach to the integration of intelligent systems,” he said. “We are going to focus on four key areas that offer real value to customers – improving fuel efficiency, machine uptime, productivity and safety.
“We are working to adapt to lower volumes and are implementing a series of measures to reduce cost levels. However, our efforts could not fully offset the significant drop in volumes,” said Weissburg.
Looking at the various markets around the world, Volvo said the Chinese market had been in decline since March 2014 and this was continuing at the start of 2015, with a decline of more than 50% over the preceding year.
It said that this had been caused mainly by continued lower levels of economic activity, lower machine use, and construction projects and mining activity remaining soft.
In the rest of Asia, the total market decreased in the period, which Volvo said was primarily driven by declines in Japan, South East Asia and India.
Through February 2015, the European market was down by 12%, it said, adding that this was largely a result of a sharp drop in the Russian market, as well as a slowdown in the French market.
The UK and Germany were still growing, said Volvo, while the North American market continued to grow – primarily for compact equipment.
The decrease in South America was mainly caused by weak economic development and low business confidence in Brazil, it said.