Thank you for standing by. Welcome to the Volvo first quarter earnings call. At this time, all participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. At which time if you wish to ask a question, you will need to press star and one on your telephone keypad. I must advise you that this conference is being recorded today, Wednesday, the 22nd of April, 2015. I would now like to hand the conference over to your first speaker today, Christer Johansson. Please go ahead, sir.
Thank you. Very welcome everyone. We will do this call in two sections. We will start with a few words about the leadership change from our Chairman of the Board. After that, we will go into a Q&A session with Jan Gurander on the financial numbers that we have released today. With that, please call on Rickard.
Good afternoon, good morning to you all. We have announced, as you know, this change of CEO. When Olof came in, Volvo was built up by the Volvo business, plus they acquired Renault Trucks, Mack Trucks, UD Trucks, and some other businesses. We had, at the time, lower profitability than our competition. We had higher costs. We were a bit more bureaucratic. We were not as flexible, fell deeper in recessions, and took us longer to get back out. That was two focus areas from the Board's point of view. That is why Olof started his efficiency program. That is supposed to end that, and have full effect from at year-end, and Jan Gurander will come back and talk about it, the savings of SEK 10 billion in annual pace. That change program is running according to plan.
In the first quarter that we will talk more about, we came in over SEK 1 billion better than expected, and I would say that the bulk of that was from the efficiency program that starts to get strong momentum. I think we have reasons to believe that we're well-positioned for the target for year-end. In that context, we are first of all grateful for the job that Olof has done. Whatever we get now of effects through the year, because now it's in an execution phase where his role is not critical, is run by Jan. We are very grateful for the job that he has done and whatever we get of results through the year here, this is his year.
From a board perspective, we started to then think about the next phase, as we call it, when we're through with this, and of course, efficiency will always be a core part of everything we do. We're now entering to a chapter when we focus on our strong positions, our strong brands, probably the best product program in the market as of now, because we are the latest to have launched new products across the Volvo and Renault line, and our market positions around the world. We are now entering into a phase where we will focus much more on growth and earnings and focus the business between the production units, the R&D units, and the sales units. There we are convinced that we will benefit a lot from Martin Lundstedt's long experience. Martin has been 25 years in Scania.
Scania is recognized as probably the best run truck company in the world, although it's not in as many markets and not as broad product program. He has been in research and development. He's been in production. He's been in sales. He's lived for four years in France, one of our key markets, and led the production there. He has been living in Brazil, another of our key markets. I think he's unusually well-equipped, and that is why we choose to do the change. As I said, Olof has run the efficiency programs well, and that is the background for the change today. I believe we will go through the presentations here and Jan's comments and your questions.
If there are any questions regarding the change, I'm here and we will end up with a little summary of me in response to such questions. I'll hand over back to Christer. Thank you.
Thank you. Unfortunately, the Q&A session will be slightly shorter than normally because we have a very tight schedule today for obvious reasons. With that, please start the Q&A.
As a reminder, if you wish to ask a question, please press star and one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Star and one to ask a question. Your first question comes from the line of Rob Wertheimer from Vertical Research. Please go ahead.
Thank you and good morning. Appreciate the commentary. My question would be on the Board's focus on earnings growth in the future. Is it anticipated that market share gains should be accelerating and pricing achievement should be accelerating and that cost cuts fade to the background? Or is that not the message? Maybe if you wouldn't mind expanding. Thank you.
This is Jan Gurander. The view of the Board is that we should continue to take down the
The structure cost of this company, and that is the task that we actually started a couple of years ago, and that we are in the process of delivering here in 2015. Going forward from that point of view, I don't think there will be less of a focus on effectivity, productivity, and working in a lean and efficient way. That will continue in the Volvo Group going forward. That has to continue in any kind of vehicle manufacturing company in the world. I think what we are saying is that, of course, there is a high focus on the cost side for the time being. We need to continue to actually capitalize on the strength of our technological capabilities that we have, which is right now proven in the markets with the present very strong product program.
I think that is actually, and it will be even more customer focused maybe than what we're able to be for the time being. I think in that light, you should see the change of CEO. It's actually about both strengthening the growth and capitalize on our products towards our customers, and also continue to become even leaner as a company.
Thank you.
Thank you. Your next question comes from the line of Ashik Musaddi from Goldman Sachs. Please go ahead.
Hi. Good afternoon. Thanks for taking my question. The first question is actually on Construction Equipment. When I look at the implied average selling price, you have a significant better mix impact in the first quarter. I get it that, part of it has to do with the Chinese market declining strongly. You also seems to be phasing out production of some of the, I would assume, higher mix Volvo products in there. How should we think about the mix evolution in CE going forward? Does lower mix mean margins will probably be lower structurally than what it was in the past?
I think your analysis is a very good and accurate analysis that you are doing. What we are doing now when it comes to, I think we mentioned in the quarter report that we go for the targeted sales activities. That is very much about utilizing our industrial footprint and also the strength of some of the heavier equipment that we have. With the industrial footprint, I mean actually that we utilize the factories that have a good position now from a currency and cost point of view, and that is mainly the component factories and also the production of wheel loaders, dumpers, and artics that are, a lot of the value content comes there from Sweden actually. We use that now to actually sell into markets where we have stronger currencies.
I think that is what you see now coming through and actually improving the situation and the margins in CE for the time being. Apart from the fact, of course, also that Volvo Construction Equipment are working very, very hard with the restructuring activities and also the cost reduction programs that they take on right now to offset the declining market that we see, especially the Chinese one.
Thank you. I have kind of another question on trucks. When Olof presented his previous plan or the current plan actually, there was a lot of focus initially on the value trucks segment and the growth of value trucks. I remember at the same point, Scania was probably not following that strategy. We've gone a bit quiet and there hasn't been much said on the progression of value trucks going forward. Just interested to hear your thoughts on where we are in terms of your plans regarding growing the value trucks in Asia and other markets.
No, we don't have any plans at all to change that strategy. As you know that we actually launched, well, this is one year ago, the Quester truck in Southeast Asia. Then actually similar products based on the same, you can say, platform and same technology also into India and also into China. That strategy is still around. As I think we mentioned in the Capital Markets Day, we had a little bit of teething problem in the first year. We are now, or we have actually right now, yes, now we actually broaden the different kind of specifications that we can do or combinations of axes and so on, here in the beginning of this year. Coming with a broader product scope than what we had before. There is really no change in strategy. Maybe the ramp up and introduction and so on.
We have also faced some difficulties with some markets where you have the demand for local content, local production have increased in Indonesia, which was supposed to be one of the bigger markets, actually, that has created some, you can say, difficulties in exporting from our Thailand factory into Indonesia. We were also faced right when we launched the product in the beginning with some, you can say, political turmoil in Thailand as well. It's been a combination of external factors and internal factors that made the ramp up a little bit slower than what we expected. There is no change in our strategy going forward.
The last question from my side is, could you possibly give us what your share of after-market revenues was in the first quarter on the truck side? A rough figure.
Oh, we don't disclose that. I'm sorry.
Thank you.
Thank you very much. Your next question comes from the line of Colin Gibson from HSBC. Please go ahead.
Thank you very much indeed. Good afternoon, gentlemen. I've got one question for Jan and one question for Carl-Henric, which maybe you'll be able to answer at the end then. Jan, first of all, I think Anders it was, who asked you this morning whether you overproduced in South America in the quarter. I'd like to ask exactly the same question, but with reference to China construction equipment, please. The question for Carl-Henric was whether you're confident that there aren't any legal obstacles to Martin joining Volvo on time in October. I'll say it so that you don't have to say it. Volkswagen has a reputation of being sometimes a little difficult in these regards. Thanks.
When it comes to China and construction equipment and the new equipment inventory and the top of the pipeline, that has been managed in a very good way. I don't see any problems with inventory of new equipment in China.
Okay. Thanks.
Thank you very much. Your next question comes from the line of Elisabeth Behrmann from Bloomberg. Please go ahead.
Hello, good afternoon. I had a question relating to your second-biggest shareholder, Cevian, was wondering to what an extent they played a role in the change in CEO. Have you sat down with them, talked over what they wanted from the company? They've expressed that they wanted to see some further improvement. Some color around that would be really helpful. Thank you.
Thank you for that question. Actually, we will ask Carl-Henric to answer that question at the end of the meeting when he has joined us again. I think if you don't have any more questions, we will move on and come back to that so we can take the next question.
That's fine. Thanks.
Okay. Your next question comes from the line of Fredrik Säll from UBS. Please go ahead.
Yeah. Hi, it's Fredrik here from UBS. It's just a detail, but I was curious, in the truck order intake in the quarter, other markets were down 34%, so alongside South America, pretty weak. I'm just curious what's going on within that. Where do you see that weakness?
Hi, Fredrik, it's Jan. I think I leave that word to Christer this time because I've been occupied with other things. He knows the footnotes better than I do today.
You can say that what's included in the other line there is basically Africa and Australia. What we see here is a bit of the impact on low commodity prices and oil prices. You have had a slower demand in these two regions, actually. Africa and Australia are the two big areas in that line.
Thank you very much.
Thank you very much. We have no further question at this time. Once again, star one to ask a question. There are no question coming through, sir. Please continue.
Very good. We are asking our chairman to join us. He is a bit busy today, but he’ll be here in a few seconds to come back and answer the questions we had. Carl-Henric Svanberg, we have two questions for you.
Yeah.
The first one is whether Cevian had a role to play in the change of leadership.
Yeah. Let me say on Cevian a quick comment and a slightly longer one. The quick one is I spoke to Christer Gardell yesterday, informed him about the change after the Stockholm Exchange had closed, and that's the first time I've spoken to him about the matter. I would like to say that when it comes to Eckhard Cordes in the board, he has only been in two board meetings in the last 48 hours since he started. Anyone that is in the board does not represent any particular shareholder. That may have been their proposal to the election committee, but he's there representing all shareholders. He is excellent so far, I must say, with a huge experience from the trucks industry.
My other comment is that Cevian has been 10 years with Volvo, is very long-term, and we have no difference of opinion between Cevian and the board and Industrivärden for that matter, or the management about what we need to do. Same agenda there.
The second question we have is whether we are confident that there are no legal obstacles for Martin Lundstedt to join us.
No, we have none. He has a very straightforward contract from the Scania time with a six-month notice period and nothing after that. I think we're in a good place there.
With that, I think we have no further questions. Sorry to run a bit shorter today, but we at the IR department are available if you have any follow-up questions. With that, thank you very much for today and talk to you next quarter.
That does conclude our conference call today. Thank you all for participating. You may all disconnect.