My name is Klotel Ejason, and I wish to welcome you
all to this conference call covering the 4th quarter and full year 2020. We will be listening to a presentation by the Hollander Group President and CEO, Martin Landstedt, followed by a presentation by Chief Financial Officer, Jan Hjalj. When done, we will open the line for a Q and A session. And without further ado. Martin, please take it away.
Thank you, Klas. And also from my side, hello, everyone, of course, and most welcome to the quarter 4 and full year 2020 presentation today. When summarizing 2020 to start with, we can, of course, conclude that this has really been an extraordinary year. And when we discuss this also upfront with the preparation, it feels much, much longer than only 1 year given all the different events that have happened and that we have been through together. Of course, keeping health and safety has been the main priority for us during the course of year.
But COVID-nineteen has, in addition to that, been also a resilience test, both for society at large, but of course also for the Volvo Group. And I have to say that I'm really proud of that despite all challenges, how the colleagues and all our partners in upstream and downstream value chain have really kept eyes on the ball here and sticking to our tactical agenda obviously, but also our strategic roadmap and driving our performance and transformation activities. We are proud that we have actually demonstrated also strong resilience through volume and cost flexibility throughout the different parts of the organization, delivered good profitability, enabled increased shareholder returns, but also while further accelerating our transformation into sustainable transport and infrastructure. If we look at the 4th quarter highlights, we had a strong currency headwind on sales, meaning a decrease of sales with 8% to a little bit lower than SEK 100,000,000,000. But if you exclude FX on par with the previous year, so it's a good recovery that has continued sequentially.
And the adjusted operating margin increased with 2.5 percentage points to 11.3% on the back of continuous good OpEx reduction and thereby volume flexibility. Group trucks, worthwhile mentioning, performed strongly with best ever quarterly margins. And we have had a continuous focus on cash also enabled a positive cash flow of SEK 70,000,000,000 and Jan will come back to that. The organization has at the same time revealed also new and exciting news in the field of, for example, electrification together with further serial deliveries of fully electric product and solutions to our customers, but more on that later as well. So in summary, a very strong quarter.
At the same time, We had a strong quarter, but we are also still in the midst of the pandemic with different phases and situations around the globe. I mean, we are a truly global company, present in 190 countries. So our priorities are still to protect our employees and partners and to protect the good maneuverability for the group moving forward as well. The focus on the 4 Cs has been really a key pillar for our year of 2020. And it remains obviously, where health and safety HD is always the number one priority, as I've already mentioned, while at the same time continuing to serve our customers in the best possible way in the market such through our service business, but also when it comes to the demand that we are seeing.
But we have to continue to do that during continuous difficult and challenging conditions, obviously, not at least related to the pandemic. After the initial lockdown, our commercial and later industrial Those have been ramped up back to levels in line with 2019. And I have to say in some cases actually beyond that also when we get the utilization among our customers. But we have done that also with a leaner cost base. The work in the group we have started way before the pandemic to have a better volume flexibility has been very important to us.
And even if we could not anticipate that volatility that has been even more drastic and dramatic. We were prepared and more importantly, I think, my colleagues have executed well here. We have seen it both during the lockdown, of course, but also the following periods now, strong demand and supply acceleration, not at least during quarter 3 in quarter 4. And we have indeed had a steep increase during the fall, not at least in order intake, as you can see in the figures. We are therefore now continuously managing a challenging supply chain situation to meet increased demands.
We have seen that in transportation and in parts of the steel supply. We see that now also when it comes to the semiconductor situation. So there are several areas of supply that are strained and will decide what level of ramp up that is possible for the time being to meet the increased order backlog that we have had, thanks to the strong order intake. On that note, we are working, of course, 20 fourseven to minimize the number of vehicles affected in quarter 1 at least and also to recover as soon as possible during the course of the year. But I think it's very important here to remember that we have shown not at least 2020 good volume flexibility.
And we'll continue to focus our efforts on that also now in 2021 here. Deliveries of trucks, down 2% year over year, but sequentially, of course, strong development of 49% 7 in relation to quarter 3. It was very well done by the organization and suppliers to manage these volume swings during the year. And everyone, I have to say, has not gone only the extra mile, but several extra miles in order to achieve this. Also the volumes of VCE was up 21%, mainly driven by China, where Volvo Construction equipment, including SDLG, is growing the business faster than the fast growing market with a slight market share gain, both for excavators and wheel loaders combined.
For excavators alone, the increased market share was 1.1%. The majority of that was SDLG and Volvo also showed good development. The underlying service sales increased 2% adjusted for currency, which is showing, as I previously said, adjusted activity levels are back to or above pre corona levels. We see that the utilization in the installed truck fleet is now somewhat above, for example, in Europe and in North America. But also the Construction Equipment, Fleet Utilization, 3 months rolling sees high levels for 2020 than 2019, both in December in November.
So that is also following this gradual and rather steep ramp up actually of activity levels. The bus coach business continues to be severely hit by the pandemic restrictions on primarily on travelers and tourists, but also that we have seen some restrictions on the loading fleet in public transport systems that is also, of course, affecting the service need instantly. The 12 months rolling run rate of services. Sales is approximately SEK 80,000,000,000, which is, of course, supporting our resilience in all times, but not at least in uncertain times. As far as market forecasts are concerned, there is, of course, still a high level of uncertainty here when we look at the forecast.
And it is based on our current assessment of the visibility, both on demand and on supply or in the supply field. And in Europe, we still see a continuous recovery of orders among others. I have to say link to the e commerce trend, but also a lack of general transport capacity, growing utilization and low inventories of used and new vehicles that is all very low. And I should say not over healthy levels when it comes to the low inventory. So the market forecast is revised upwards to 290,000 units for the full year.
And for North America also revising upwards, we see similar patterns as for Europe, 290,000. Our estimate of a normal replacement market is EUR 275,000,000. So we are a little bit higher. And what we see now is mainly driven by the highway and sleeper segments. Brazil, also a record harvest in 2020, also better prices on raw materials commodities That will drive the need of increased transport.
And we are also there lifting up the forecast to 95,000. Japan, unchanged at 45,000. And also for China, we have an unchanged forecast of 1,300,000 units. China, as you know, had a very, very strong year. Last year of 1,800,000 trucks, the most other driven by the replacement subsidies for vehicles for CN3 or China 3 emission levels or lower.
And India has seen also a gradual improvement from very low levels. And the market forecast is somewhat revised up to is somewhat revised down, I I should say from the EUR 265,000,000 given that we only had EUR143,000,000. So even if it's a recovery, we are revising a little bit down. Truck deliveries, very positive book to bill on the back of the continuous recovery. Orders up 61%, while deliveries, as we have already stated, were all most in line then with the same quarter 2019.
North America, very strong order development based on better activity levels, but also lower order levels in 2019. We had anticipated a correction on that. Sorry. Yes, North America had a very strong order development based on both better activity levels, as I said, but also that we had lower order intake in 2019. And that was also related to a pre pandemic anticipation of correction in the market.
Europe, strong recovery, 42% in orders. And we do see similar patterns across the globe with a growing order pipeline as a result. And as I said, we are, of course, now focusing a lot on keeping reasonable lead times, but the strength supply chain are, of course, what we are working a lot with, as I've already stated. And we will then work with that throughout the year In a good and professional way. On the market share side, also here, Europe positive, gain of 0.7 Sandd for Volvo up to 16.2% and a stable development for Inoua and a rather stable situation in North America and also high continuous level in Brazil, historically high levels of about 22%.
And I have also to mention Japan here, as you remember, we started slowly following the announcement of divestment of duty trucks in quarter 1. But gradually, the organization and the colleagues in Japan have done a great job here to recover that and actually to beat last 2019 market share with 0.4 percentage points. So that is also very good achievement. We have had also the opportunity to during the year, but also Q4, to push our leading position in battery electric vehicles in different regions. And what is very positive is that the interest among customers and also their customers, the interest is very high, both Volvo and Renault or into serial production, as you know, since start of 2020 for urban applications, distribution, waste collection, urban construction, etcetera.
And we have actually a high level of interest and a lot of tender activities. And the next step now it's on its way with the sales start for Volvo, more heavy application as from 2021, and that is another very important step. Also, North America, start of sales in quarter 4 for Volvo for the regional applications and for Mac when it comes to waste collection. So overall, we will continue to develop new regions, applications to drive the shifting to faucide free transport, step by step, also complementing, of course, the current battery related offering with the progress we are doing also in the formation of the joint venture with Daimler on the hydrogen piece of heavy haulage and long haulage with the FuelCell Corporation. And it will be very exciting to continue to work with that during the course of the year.
And we see how big both investments into the sector and also interest in really creating the right and I will come back to that. But that is, of course, also why we are now forming a specific business area around different parts of the transformation here. We have seen that in our journey the last 5, see the importance of carving out entities with full P and L responsibility in areas where we want to have turnarounds or acceleration, focus and dedicated professional teams. And we are doing that also with Board of Energy now on the battery piece, obviously, to optimize into our business areas that are still selling the solution upfront to our customers the right offering when it comes to the first usage of batteries, But also knowing the fact that the second usage of the batteries after have been used in a vehicle is still very interesting since a big part of the energy is left when it cannot be used in the vehicle anymore and will, of course be used then in energy storage and other type of applications, where Volvo Energy then will take the lead in the group to really face customers and commercialize this and then also take full responsibility for the recycling.
In addition to that, fiscal 2020. We are also more and more in request of mastering the infrastructure piece, both when it comes to depocharging, semi public, but also when it comes to permissions, grid capacity, grid installation, etcetera, both for the rectification, as I talked about, but also when it comes to the fuel cell development. So really looking forward to this development here. We are forming it from 1st February. And Joakim will be the President of this business area, long lasting experience within the group and also a successful turnaround with Udi Trucks as the Chairman the last 5 years here.
Moving in now to Construction Equipment. Yes, Airsoftrucks. The market forecast, of course, are based on the current visibility on both demand and supply. And it is, as a matter of fact, unchanged in relation to what we revealed in relation to the quarter 3 2020 reporting in October. This means slight improvements in relation to 2020 for Europe, North America and Asia, excluding China, and somewhat higher increase for South America.
China, that is, of course, extremely important here, is estimated to have a good spring season, supported by the stimulus packages provided in 2020. But we estimate and somewhat, I should say, hope also that market will cool off during the 2nd semester through 2021 because it would be healthy in our view to avoid above that we have seen in the past here. So it is important also that the Chinese recovery is sustainable over time. When it comes to deliveries and orders, book to bill was also in this area positive, less pronounced obviously because we had an increase some orders of deliveries up with 21%, but orders were still higher with 31%. Maybe I have to comment on one thing here, and that is the decrease in order intake in North America shall be seen in the light of, 1st and foremost, volatility between quarters and a very strong order intake in Q4 2019.
We have anyhow now, if you look at instantly a stronger order book entering into 2021 than 1 year ago and believe that the market will grow slightly as we have also said in our estimate. For the remaining regions such as Europe, the order intake strong and deliveries are picking up, supporting the market forecast that we have. On the news side for Volvo Construction Equipment, also a number of very important steps here, launching a new range dedicated to China, the 20 tonneur and the 48 tonneur. We are moving getting into our Chinese industrial footprint, good level of localization and thereby also being able to support with shorter lead times with the right, so to speak, specification level really opted for the Chinese customers that are maturing very rapidly. So exciting news, and we are introducing that with right now as we speak in the beginning of February here.
We have also continued to pioneer the electrohydraulic solutions in this specific area now with the technology partner, where we have a very good exclusivity agreement. And this technology enables a step change in fuel economy and energy efficiency. And I will not reveal the exact numbers, but I can tell you it's a step change. It's a huge step. And that is important to continue to drive the innovation when it comes to energy efficiency for all different regions.
And also following earlier announcements. Now we are into deliveries of our electric compact the wheel loaders and excavators that have reached the final customers. And we are very excited about the utilization in real applications just around Europe here. Buses continues to be, as was said, severely impacted by the COVID-nineteen, both on utilization and consequently in the service business as well. Activity level was also lower in the city and transit bus market, as I said.
We expect, therefore, 2021 to be another very tough year for Volvo Buses, and we continue to take measures to mitigate the situation. And that is, of course, the highest priority. And at the same time, the transformation is ongoing. We did deliver 145 city buses, among others, a big Scharnkopf articulated fully electric buses to city of Gothenburg, the biggest order and the biggest lead in Nordics. And in addition, Anna Westerberg has been appointed President of Volvo Buses, and she is replacing seeing Hakan Eindeball, who has been appointed President and CEO of Kvartseve.
So very glad for Anna and Of course, wishing all the best in that position. On the Volvo Penta side, we see also a normalization recovery, order intake up 22% year over year, following 1st and foremost the recovery in the marine leisure, but also followed by handsets and also gradually by the industrial off road segments. Commercial marine a little bit slower. We see that vessels for wind farms are actually picking up. That is natural also with the transformation.
And we have seen also, not at least in the marine leisure, enjoyed strong service growth during the summer and continued into Q3 and Q4. And we also took Jan, we'll come back to that one off depending on the discontinuation of 7 Marine on the outboard segment. And that is related to the strategy that we are really focusing now on the transformation in our sector where we are really the leading actors. And as you can see also, we are continuing to drive innovation in our segments. We took 2 examples here, both when it comes to the such easy boating concept continuation.
We have now a fully integrated the docking system that I can recommend to everyone. And presented at the Consumer Electronics show that we are actually one Of the finalists, and that is, of course, showing the strong push for innovation. And we have also announced a collaboration with Danfoss when it comes to further doing hybridization of the Volvo Penta inboard performance system, the so called IPS, that is leading solution in yacht and industry. On a final note from my side on Financial Services, continue to work very closely with customers following the initial lockdowns, a standstill that, as you remember, that we have said also resulted in a steep increase of modification requests from customers. That is natural both that they don't have any visibility, etcetera.
But during quarter 4, we have achieved a continued reduced number of requests reflecting the battery activity level. And in addition, we also did see a stable payment performance. The penetration continued to improve in all segments and therefore for the group, of course, in total. And that is also an achievement that we have been focusing upon because we know that when we have good penetration, we also have a good retention and contact over the life cycle with our customers. We are also continuing to push for innovation here to build up the complete solutions that are necessary for all type of application, but not at least now when we are taking the journey more and more towards equipment as a service with a connected insurance offering.
And we are starting in North America, both for Volvo Trucks and Mack and much more specific offering for each customer where we can follow it together. So very exciting news there as well. So by that, Jan, I leave it to you for the financial part of the presentation.
Okay. Thank you, Martin. The combination of recovery of volumes and good cost execution continued to yield good leverage also here in the 4th quarter. We were back to similar levels of weakened deliveries and service volume as the 4th quarter and costs employed, which was clearly seen in the results and margins despite the headwind from currency. COVID-nineteen as such in combination with supply constraints calls for a continued cost and cash cautiousness.
If we move over to the numbers and start with the net sales, They decreased by 8% for the group. But if we take out currency, net sales for the Q4 was at the same level as last year. The Swedish krona has appreciated against all major currencies, but the weaker dollar and the Brazilian real effect most substantially giving a combined negative FX effect for us of some SEK 9,000,000,000 on FX. And as regard regions, it's mainly Asia that deviates from the trend of similar volumes as last year, and that's mainly related to increased machine deliveries and partly then to an improved truck volume. China was the main contributor behind this.
If we move over to the results, we see that the In Force focused on cost and cash all through 2020 was clearly seen here in this Q4. The good cost control was the main reason behind the improvement of adjusted operating income of some SEK 1,700,000,000 SEK 10,900,000,000 giving then a margin of 11.3%. The improved cost efficiency can be seen across functions TAM businesses, which creates comfort for the coming quarters. And in the Q4, it was mainly achieved by continuous improvements by continued to eliminating and postponing activities and by structure measures related to layoffs. The challenges now for us to accelerate in certain areas like R and D, while maintaining the cost discipline and get the full effect on the structure measures we implemented during the second half of twenty twenty.
It's difficult to find negative sites in this report, But we had actually a negative effect coming from market and product mix in the quarter in the business areas outside trucks. And in the quarter, there was a positive effect of some SEK 600,000,000 from a correction of actuarial calculations for pensions and the negative effect related to the restructuring Martin was mentioning in Volvo Penta of some SEK 175,000,000. You should remember that Q4 last year included a capital gain of real estate of some SEK 500,000,000 and the negative FX effect of close to SEK 1,800,000,000 reflected the strongest Swedish kronor in general and once again U. S. Dollar and Brazilian real impacted more substantially.
The FX transaction effect for 2021 is expected to be some minus SEK 1,000,000,000. We do not provide forecast for the full FX effect on operating income. If we move over to the cash generation, there we are. 4th quarter is, as you surely know, a seasonally very strong cash flow quarter, and that was the case also this year. Operating cash flow in industrial operation was close to SEK 17,000,000,000.
And during the Q4, we have gradually increased production, which gave a positive effect on trade payables naturally, But the enforced focus on cash and capital efficiency was reflected in a continued decrease of inventories, despite then the gradual increase in volumes during the quarter. We are at historically low inventory levels on new, but especially on used vehicles. And as a consequence of the cash inflow in the quarter, net cash position for industrial operation was close to SEK 75,000,000,000 Moving over to the segments and start with trucks and actually who would have believed that group trucks would be at peak adjusted operating margins of 13% just 2 quarters after entering into the devastating second quarter. But it happened SEK2M already covered quickly and the cost execution was strong. So all in all, an improvement of SEK1.8 billion, up to SEK8 1,000,000,000 for the 4th quarter despite a headwind from currency with around SEK 1,000,000,000.
And we have, as you see, the same explanation of the improved adjusted operating income as for the group, also here for our main segment trucks, excluding then the comment of negative mix. And Group Trucks was positively impacted by sum of SEK 320,000,000 from the correction of actuarial pension calculations. For Construction Equipment, The service volume improved in the 4th quarter and machine deliveries increased with 21%. Decreases were particularly strong in China and for our SDLG brand and then limiting the increase of FX adjusted net sales to 15%. Beside the positive effects on earnings from the improved volumes, the cost execution on both on the indirect side, but also in Industrial System where we had continued good volume flexibility impacted positively.
And here, we have a negative market mix effect with lower deliveries in Europe and North America. And FX had a negative impact of SEK 0.6 billion. So all in all, adjusted operating income increased to some SEK 2,300,000,000 and we had a margin of 11.2% in the quarter. Buses continue to be hampered as Matkimor is into by reduced personnel and mobility around the globe and also that we have LEAPS and buses standing idle. Also here in the Q4, restrictions continue and of course that affects our service revenues and also partly the deliveries of new buses where we see a very subdued Coach and Tourist segment.
The lower services sales and then the low capacity Seysha as well as a negative product and market mix impacted negatively for buses, which were partly offset by a strong cost execution on selling Almirall in R and D. The adjusted operating income was just below breakeven and despite then also fighting a negative FX effect of some SEK 80,000,000. So I mean SEK 80 the medium. So very strong work in buses. And these are, of course, indeed unprecedented time in bus business and for our bus organization, and they are really doing a fantastic job.
Higher certainty and future challenges prevail also for the coming quarters for buses. For Penta, volumes continue to recover in the quarter and were actually higher than the Q4 last year, mainly related to the Industrial segment. Service volume improved, particularly in North America. The improved volumes, together with a good cost execution also here in selling and R and D contributed positively, but were offset by negative product mix with less of heavier marine engines compared to Q4 last year. And furthermore, the decision to decommission the outboard segment gave rise the provision of SEK 177,000,000 in the quarter.
So all in all, an adjusted operating income of SEK 25,000,000 in the quarter, a decrease of close to SEK 150,000,000 compared to last year, assets impacting negatively with SEK 85,000,000. EPS. And ending the walk through of the segment with Financial Services and adjusting for currency, the new retail financing volume and the credit portfolio were higher than last year as market share on customer finance improved. The provisioning for future potential credit losses increased, reflecting the still uncertain business environment. The write off levels though have increased slightly from the Q4 last year, but are still limited to what we can call mid cycle levels.
And compared to the Q4 last year, credit provisioning was some SEK 150,000,000 higher than last year, which together with a negative FX effect of around SEK 100,000,000 then partly offset by lower expenses were the main reasons behind the lower adjusted operating income. By that, Martin, I give if you need to sum up an unprecedented 2020.
Thank you, Jan. So then in summary, the group have demonstrated a strong execution and resilience in a very difficult year. I think that is the starting point. We have for the COVID-nineteen situation by focusing on health and safety for colleagues and partners around the globe and at the same time executed on volume and cost flexibility, resulting in a margin of 8.4% despite the sales decline of 20 2%, but also remember the huge volatility between quarters here. During the year, we have also accelerated the commercialization of electric vehicles and equipment.
And we have also announced new business areas, important business areas to drive this transformation, Volvo Autonomous solutions, Volvo Energy and also the announcement of the Daimler Volvo Fuel Cell Joint Venture and also the continuous work with the strategic alliance with Isuzu. And that all in all is to further strengthen our journey towards sustainable and safe solutions. As we also said, obviously, in the short term, there will be production interruptions as supply chains are extremely strained after the steep recovery during the and winter but also related to the fact that we are still in the midst of the pandemic with continuous risk for local and regional disruptions. And that is across results we speak now. But of course, we will continue to fight hard to minimize that impact and to find a way also of recovering any short term fallbacks here.
But I think it's also important to remember that the recovery label shows that the increased demand of transport and infrastructure solutions for the coming period is here, resulting also in our increased market forecast in many regions. And also that the transformation is happening with a lot of interesting opportunities as we speak. So rest assured about that, that we have the fantastic drive among our colleagues to always fight and to always make things better in the short run and in the long run. And I think 2020 has shown that we are on our way in that regard. And as a result, also the Board is now proposing to the Annual General Meeting, an ordinary dividend of SEK 6 and an extra dividend right now reflecting continuous strong financial position for the group and also a good return to our shareholders.
So by that, I think we end the presentation, Claus, and we move into the Q and A session.
Yes. Thank you very much. We will
now seamlessly transition into the Q and A session. So operator, will you please let the first quarter 3.
Thank you. Our first question comes from the line of Hampus Enge Lau from Handelsbanken. Please go ahead.
Thank you very much. Two questions from me. If I starting off on your market outlook, if I look at the trucking market, Both in Europe and North America, it's like 10% bigger active slip in the last 10 years. So if we look at the average age, it's slightly below 6 years in both markets. And at the same time, this market has been around 300,000 units for some time.
My thinking here is that going forward, given your outlook for 2021 in both markets, we are expanding reactive fleet, and we're also making it even younger. So I would be interested to hear your view on the cycle and how should we think of the cycle? Should we think of a slowdown then into 2022? Or are these new fundamentals coming into play? That's my first question.
Second question is on new truck pricing. We've seen this fantastic increase in order intake during the quarter. We're coming off for quite big split season in Q4. And always challenging when you have these breaks in demand is to manage price. And any comments from you guys on how prices have been developed would be helpful.
Thank you, Hampus. And didn't have time to look at your report today, but it just it seems that it was improvement as well. But coming back to your questions, when it comes to the active fleet and expansion, I think we have been discussing that a number of times in the past. That's if you should look at the to your point, if you should look at the normal trend line and where we should be in normalized market, it's maybe more like EUR 270,000,000, EUR 280,000,000. But we have said a number of times also that we see a number of dynamics coming into play now, not at least e commerce, the different patterns of transportation.
That is actually giving us reason to believe that there is some expansion from that trend line that can be somewhat higher. And since we're talking on relative low numbers in percentage year, I think that is reasonable to believe. At the same time, what we see with the recovery is also, yes, it is a little bit young, but at the same time also when it comes to the inventory levels of both new and the aging structure of that and also used. We think that we are entering into the cycle now in a healthy state of Volvo and also as we can read it in the industry. So let's see.
I mean, we will not give a forecast for 2020, but I think we are pointing at direction here of EUR 2.90. And as we also stated that during the year here, given the steep recovery and the good order intake. Of course, a lot of focus be to maximize the output and to realize the order book. But there is, so to speak, also this balance, how big the market will be, will be balanced both on the demand side and the supply side during the course of the year step by step. But it's stemming from a positive situation.
It's stemming from, if I may put it a little bit bluntly, a wide problem that we need to now mitigate in good way and not at least have a very good discussion and cooperation with our customers in order to found that as good as possible. Then when it comes to pricing, I don't know if you would like to start to comment on Q3.
I can do that, Martin. I mean, and we talked about it during the quarters here in 2020 that, of course, in case of new vehicles and something being ordered from the production. Then it has been stable price level, but it has been more on the dealer inventory and reducing stocks where we have seen some kind of price pressure. That went away during the Q4 for obviously related to the demand. So we can say we have stable prices on the truck side when we talk about the Q4.
What we have to, of course, mitigate is that there is cost pressure in certain areas in the supply chain and for raw materials that we have to, of course, increased prices for when we come into the 2021
year and the deliveries there. And then what you can say in addition to that is obviously now when we have had a very good order intake and increased order backlog, Obviously, we will not fight for the last 3 deals either, so to speak, at least to the biggest And to Johan's point also, the fact that we have a very healthy level on both new and used inventory is, so to speak, a price realization in the mix as such. So we'll continue to monitor that both as regards material, but also the opportunities in the market.
Thank you. Cattellus just one follow-up on lead times and In North America, and that market, they have
a history of
double ordering and dealers becoming Worried about not getting slots. Where are you in terms of lead times? Is that something that you worry about when you have orders growing like under 60% during the quarter? Or what's your view on that?
Yes. But of course, it's always like that. When you have an increased order backlog, the best the dream scenario is to be able to follow that order intake with, so to speak, your supply capabilities. But given the very high figures now where the order book has extended. But I think during not only the pandemic, but during a number of courses We have learned a lot to work really close with the customers and dealers, I should say, not at least the dealers to really follow-up the quality of the pipeline.
But we have now an increased order book there by long lead times. That is the matter of the fact.
And I think also we have to reflect on what happened in the 2019 second half of the year when everything more or less stopped in wait for the potential downturn in the beginning of 2020. So we are comparing with strange quarters when we are comparing it for the end of this year.
As we mentioned in the presentation here. Okay, so next question please.
Our next question comes from the line of Klas Bergelind from Citi. Please go
ahead. Yes. Hi, Martin and Jan. It's Klas at Citi. So first on the dividend.
It's obviously Great to see that you are rewarding the shareholders through an extra dividend. But I just want to ask on the dividend policy. You are a cyclical company, but there are others in the truck industry with a healthy payout ratio and you have really proven yourself During 2020, I think it's difficult to argue that Volvo isn't a much better business. You've also said, Martin, during the Capital Markets Day that you feel very confident That we won't see any major investments in the shift to non ICE. So here's my question really.
Could you tell us a little bit about the reasoning How that went in the board and why there is no medium term plan for the dividend. Maybe there is, but maybe not spelled out. And so yes, I'll start here. Thank you.
Thank you, Claus. Now as I said also, 1st and foremost, I think it's important to remember that the Board has decided to put forward that proposal that we have now on the table to the AGM based on the financial achievements and financial events fulfilled up to now and thereby the current financial position. And the Board has deemed that to be a good balance now, the financial position for the group. And going forward with what has been fulfilled up to now and also a good return to shareholders, showing that we have, I mean, a continuous focus of having good returns. We don't have any explicit dividend policy to your point.
But I think also history is telling you something about how we are thinking about it. Be responsible when it comes to a strong financial position, flexibility, maneuverability and also good returns to shareholders, including the events that have happened up to now.
But just to follow-up
on that, Martin. So with investors listening to you now, they shouldn't be Concern that your view of investment levels have changed in any way, I. E, we can still look at Investments going from obviously the conventional powertrain being shifted over to the new powertrain. There won't be any step change going forward. Just to confirm that.
No, but I think you put it correctly. I mean, you listened in many of your colleagues in this call listening to the Capital Markets Day. And I can only reiterate what we said. I we have a good road map for the future both when it comes to, I mean, the needed segments in our performing part of the journey, but also in our transformation part of the journey. And we have not changed our view on that.
But again, I think up to now with the financial achievements, current financial position and events that have happened up to now, good balance. It's still showing confidence in our way of thinking about it that we will be an attractive investment for shareholders believing in our policy or our way of working in this. And I think that is the best way of showing confidence that we are, so to speak, steady in our view on the right balance sheet.
Yes. No, that's good to hear. My second one is on market shares. And it's always good to see that you're improving On the Volvo side in North America, I guess that this is because you're targeting a little bit more fleet, you're a bit more broad based. The question here is on the gross margin.
Is there any implication from this when we start to deliver on these trucks as orders on the fleet side, the typical lower margin? And then on Europe, it feels like you're taking share here on the new volume range at the end of the year. If you could comment on that as well?
No, no, but to your point, I think
maybe we should remind
it a little further and say that we have gradually been losing out a little bit of market share also if we look into it. And I should not say that it has been deliberate strategy, but it has been very important to continue to focus on the right type of mix of customers, the right type of segment spread, the right type of also, as we said, pipeline management. So we don't have that high volatility also between ourselves and dealers, and we need discounting, not only because there is fleet mix, but also that you have unhealthy stocks, etcetera. So you have a double whammy on that, etcetera. So I think it has been good now that we have seen a break in that curve, but also that the organization and the colleagues in North America for auto trucks have been working Really good to find a good mix of customer base because I think historically maybe we have been a little bit over relying on the fleet sales And I think we have a mix here.
But obviously, when fleet when sleeper and highway is coming back, you also see the bigger fees coming into place. So that is for sure too, but I think we have a stronger platform to build upon
Just a quick final one on regional battery electric on the heavy duty side. We're hearing a very high interest and In this range in Europe, given all the carbon pledges out there. And I guess, we will be maybe in the 100s looking to the market and then in the 1,000 maybe next year. But if you could comment A bit on the scope and then maybe a little bit on sales by truck. How big is the difference looking at pricemix roughly when these orders are coming through?
No, what as we have said, I mean, and yes, referring back to the Capital Markets Day also, you are right, it would be this type of S shape curves for different countries, regions, applications depending on the right balance between Yes. That is all the incentives or other type of pushes, but we also see to your point also bigger interest because when not of these customers, customers would really embark on that journey to fulfill their targets and promises when it comes to the I mean CO2 targets for software and science based targets, etcetera. We see an increased interest. So you're right that it will come in the 100 and it will come in the 1,000. But again, as we said and that goes with your CapEx and investment question so it will transform in ESCOs connected to different segments of video step by step.
And I think that's a good way of doing it also, both from an industrial standpoint and a commercial standpoint.
Thank you. Thank you. Yes please.
Our next question is from Bjorn Ehrmarsen from Danske Bank. Please go ahead.
Thank you. First question is on R and D spending and those have been coming in below expectation or quite low at least. And you talked about slightly increasing R and D as you are changing focus of,
and Electrical Powertrains, is still
this the case of a gradual increase or you are taking more of a bigger leap now as spending has come down a lot during the last year?
Thank you, Bjorn, for that question. 1st and foremost, I think everyone can agree upon that Absolute majority of the effects of the pandemic has been bad. But one, so to speak, opportunity related to that has been, of course, to take down the activity level and look on how to restart activities when it comes to ways of working, ways of prioritizing, etcetera. And that our technology organization across the group has done in a very professional way. So now when we are refilling the pipeline step by step, we can do that Not only with activity levels, but also ways of working.
So I think that is an important element and also having been able to really look through the prior year. Then of course, when we are seeing, So to speak, the yen relativity left in economy and thereby in transport increasing. We will also put effort into the R and D. And I think also for investors should, as we have said, not been overly worried about that it will be that step change on R and D relation to sales that we have seen in other sectors. At the same note, I think you should not be overly worried if you have fluctuations when it comes to R and D of percentage point to 1.5 For 1 or 2 years depending on where we are in the cycle of sales, given the fact that the EBIT expansion of the group has improved a And thereby, it should be unwise to have a too short term view on that and to adapt it too much in relation 2 beds that we have in leading the transformation.
So my simple answer is refilling responsibly, but not being opportunistic when it comes to not fulfilling our targets when it comes to innovation because you don't have to worry on big step change in that. But it will be a little bit of fluctuation. But I think the EBIT expansion has given the room to be offensive in a smart way here without having a big hit on the total journey, so to speak.
Thank you. And my last question is on the production and that you highlight in the presentation in the report. If you can shed some more light on that and of the magnitude and what we Look at for the coming quarter or quarters.
As we have said, I mean, 1st and foremost, we have to start on the positive note, very good order intake and order books. So I mean priority, of course, will be to realize that order book as good as and as quick as possible, not at least Our customers that are actually having also good activity level. And so that is the starting point. So maximum focus of really getting out what is possible. But then we have seen, as I said, with a rather steep recovery across industries.
It's not only related to commercial EKS Industrial Goods or Automotive, but across industries that are utilizing and same type of components, some global bottlenecks that we have to live with for a while. We have caused some disturbances, but we will gradually recover and work with And as I said, also, I think it's important for all of you to remember that we have shown good volume flexibility. And that focus is not going away now because we have this that will continue to be important to us to follow, so to speak, that development also on the cost and volume flexibility side. So good order book, try to realize as much as possible. But during some periods of time here, it will be decided also by the supply situation.
That is how it looks like.
Perfect. Thank you.
Our next question comes from the line of Akshay Kumar from JPMorgan. Please go ahead.
Thank you. Akshay Kumar from JPMorgan. A couple from my side. The first one again on the semi shortages and production bottlenecks. What is the best way for you to quantify the impact on build rates and production sequentially and Into Q1, if there is the best available information to you right now.
And what are the chances that the situation normalizes in Q2? That's the first one. And the second one is on construction equipment. Can you talk about North America, generally the market environment and activity levels Order intake in the region is somewhat lagging versus rest of the world. So interested in hearing your comments around that.
Thank you.
Yes, on the first question, I think I will try to reiterate what I said. I mean, if we look sequentially, quarter 3 to quarter 4, of course, we had a big improvement, 49% up. And given the order intake that we have in quarter 4, obviously, we have a big order book to work with. We are not giving any guidance on future forecast, but the only thing that we can say about that, good order book, good order log. And of course, the main priority now of 20 fourseven is to realize that as much as possible.
And of course, It will be a situation that we will follow closely. We have stated now that it will be at least quarter 1, and that's the reason because there are all a lot of activities in those value chains now. And the visibility is what it is now, and we have to continue to work. I have to say that on a positive note here, we have very good relations with our Tier 1, Tier 2 and Tier 3 partners. This is not a game about banging people in the head.
It's about coming up with constructive ideas in order to find solutions moving forward and to realized the order book. So that will be, of course, the focus during the time when it's necessary. And it's, by the way, what was the focus given our design of the value chains. So to be followed, so to speak. But again, a very strong order book here.
Then as I said about North America, it's little bit also I can understand the question because given the order intake in comparison with quarter 4 2019, it looks like I mean, that is lagging behind. But the reality is that it has been very volatile when it comes to order. It takes a little bit depending on the inventory situations during different quarters both for 2019 2020, etcetera. But I think you should think about that The order book that we are entering 2021 is actually better than when we were entering 2020. And therefore, we are guiding also for a slight we've seen the total market of 0 to plus 10%.
So it's more about the next business policy.
Thank you.
Our next question comes from the line of Daniela Costa from Goldman Sachs.
Hi, good morning. I have three questions. Maybe I'll ask them 1 at a time. But I wanted to start by going back to your through cycle margin targets, the 10%. And You just, I guess, closed with 8.4% for what is a trough year, really, really depressed volumes even still in Q4, 11.3% margin ahead of what you had in 2019.
Can you walk us through why you still think the 10% is adequate through cycle targets given what we've seen this year. And also how should we think about the next peak?
Yes, I have to start with, I mean, you're absolutely right. Well said that is 10% of the cycle and both ourselves in management and in among our colleagues in the organization, but also with the Board of Directors that is super important for us to really walk you through it. To show that this is a target that is not just a target, that is something that we are able to achieve. I think during a highly volatile year, to your point, that 2020 was and delivering 8.4%, it's a good sign that we are actually a better company, not at least when it comes to resilience, volume flexibility, cost reduction, but also the Solvus business as we have been into. So now we I think step by step are showing that we are taking this very seriously since it is always, so to speak, something that investors are interested in to see that companies that are quality companies are able to demonstrate good resilience capabilities and try to what's important in that regard.
And then we are coming back when we think it's time to do something else and the financial targets that we have
some. And then the bean count, I can add that it's actually only 1 year when we have passed the operating income, which is the target not adjusted. So and that was last year. So it's a little early to actually change the target, but Martin is perfectly right. Of course, the question mark here's what we can actually do in a tough and that we are sure that we are good at and let's see that we are good at and continue to be good at delivering in good times as well.
Thank you. And then I wanted to ask about Penta and buses. Those were a bit weaker on the margins in Q4. Sort of what's the path going forward to recovery? Do you think they can go back in 2021 to the profitability as we had seen before?
What has to be done there for them to do as well as trucks have done?
Yes, thank you. I mean, if we start with 10th, I think you should think about quarter 4 normally is quarter 4 is normally weak quarter. I mean, that is how it looks like when it comes to activity level, not at least when it comes to the Marine segment and the service business there. And this case, of course, you have to put back the SEK 175,000,000 that we took now in order to discontinue You are out for the segment of 7 Marine and Daniel Rolfo basically on what we I mean, we have seen before. And so I mean, Our way you're looking at Penta is that it's a high quality company and they have all the opportunities also with the growing participation in the industrial off road, to mention one and And then when it comes to buses, obviously, as we said that Model Buses is the better company today.
I mean, even in an extremely difficult year that we did see in 2020 where restrictions are not only putting, so to speak the business under pressure, but in many cases actually are stopping the business, not at least for our customers in tourism and travels, but also in public transport as we have been into. I think actually that the resilience test that they have proven is showing that when markets are coming back, we can also foresee the performance transformation program. And the further, so to speak, clarification carving out of the different divisions of buses will pay off. So this is a matter now of how restrictions in their main segments We've actually developed and that is not meaning that we will not continue to mitigate this activity, but Volubas is a better company then we have seen historically and when market is coming back, that will also show off.
Thank you. And then I just had a final question regarding I guess you've made the EV launches both in North America and in Europe. You're ramping up production, but you probably haven't have an order book. Can you give us maybe a little bit more color about how that order book is Developing how big sort of like how it's growing over the last couple of months. Just any kind of numbers that you can give Have a feel on how the trajectory is being there and how quickly that can be significant.
Thank you for that question. I can tell you, if I take it in percentage points increase, you will be super impressed. So Because, of course, since we're starting serial production in for trucks and that was in Europe then for quarter 1 for city applications, as I said, we are gradually now ramping up that. But I think the more important is that we see a very big interest, and we are also now preparing our main production lines for hosting these type of orders that we see. But I think at one point in time, you're absolutely great.
We will start also to disclose that, so you can follow that journey because we are pretty proud of what is happening in the company, but not at least in relation to our customers. I said that in a media interview earlier this morning. It's Impressive to see how proud our customers and their customers are about the deliveries and how they are participating in this transformation. So I think you have a good point, and let us come back to that. I think we have reasons to hear from each other in maybe 1 quarter or so.
Perfect. Thank you very much.
Next question please.
Our next question comes from the line of Erik Golrang from SEB. Please go ahead.
Thank you. I have 3 questions following up on the EV side here. Assuming we get a scenario where sort of Demand for fully electric trucks happens or comes through much faster than what you currently expect. Would you be able to capture that? Or to what extent will you are you or could you be limited and By sort of capacity constraint there, how fast could you ramp on that side?
And then the second question on your comment there that you saw Increasing demand here from your customers to also handle the infrastructure for charging and hydrogen. Do you see that also for trucks? Or is that mainly on the bus side? And if so, could you give an example of that on trucks, what kind of application that could be? And then thirdly, also follow-up on the Dividend and the cash situation post this payout, you would be at EUR 45,000,000,000.
Is it perhaps time to sort of would it be helpful to have revised the gearing target from being debt free to being firmly net cash?
Okay. Thank you, Yaron. First and foremost, I think your first question is, of course, something that we are looking very much into so we have the flexibility because regardless of plans, I mean, the only thing you know about plans for the future if that they will be exactly wrong. So you need to have, I mean, redundancy planning in the event it will happen faster or slower. And I think if any probability, it will happen faster, at least in certain segments to your point.
And that's the reason why both is important for us to get into the main lines of our production when it comes to the building of these type of trucks and by utilizing then pre assembly lines into the main lines because then we can much easier have the right mix in our own facilities and also then have, so to speak, the same type of conversation with the supply chain upstream. And if I take, for example, the batteries, that's the reason also why we have battery commitment and battery alliance together with Samsung, for example, that is one of the biggest suppliers to have that flexibility of the ramp up where we are, of course, both interested to cope with that demand and capture, I should say, the opportunities. But that goes also for other type of components given the constitution of the truck that we are planning with us. So we have not only a planning scenario for the short term, but also different scenarios for the longer run segment by segment, region by region. So I feel that we can capture those opportunities.
And as always, when you have different ramp ups, you need to be very close to what is happening with the development there. What was the second question.
On the infrastructure side, there were more
Yes, absolutely.
On the infrastructure side, no, no. It's related to all the different applications actually where we will have electrification. We see that customers are very keen on that on trucks. Just to give an example right now, we have a lot of urban construction. We have a lot of city distribution, waste collections where trucks are returning to their depots.
They want really to have the right optimize depending on what size of the fleet, how should it look like, how can they bring the right arbitrage when it overnight charging given that electricity prices are lower, how can actually even out the grid capacity in a smart way. And there also our second use of batteries with energy storage as we come in handy as one example. But that goes also for mining or quarries for our Construction equipment side. So that's the reason why we have OnVer Energy as a backbone business area supporting our other business areas and also fronting commercial applications for the 2nd use among others. So full focus and not tied behind the other hardware, but to be a solution provider is target here.
So absolutely across the group here.
And then it was on dividend and Martin explained a little about how we view the dividend or how the Board is viewing the dividend and what to think about that. And of course, from my side, it's very important to be prudent with our financial situation, not at least for the rating, but also in times of uncertainty. So in times of uncertainty, you would expect us to have somewhat more on our balance sheet than being closer to 0 and closer to the financial target of net debt free in industrial operation. And as you are well aware of, we are also into filing into the joint venture with Daimler on fuel cells and that will also mean that we have a payout we take care of when everything is settled around that. So as I said, uncertainty, of course, there will be somewhat more on the balance sheet.
But as we have said before, we are not the bank. No.
And I mean, yes, to read What we said, I mean, we have decided now with the Board of Society's proposal for the AGM based on their financial achievements and financial events, financial position up to now. And then of course, I mean, that is what has been decided and it's a good balance given the situation. So on. We feel it's a great balance. Thank you.
Okay. So this concludes this call the Q4 2020. We are looking forward to meet you in 3 months' time. Best of luck.
Bye for now.
Thank you very much. Bye bye.
Thank you. Bye.