Ladies and gentlemen, welcome to the Volvo Year End Report 2013. Today, I'm pleased to present Olof Persson, CEO.
For the first part
of this call, all participants will be in listen only mode and afterwards, there will be a question and answer session. Olof, please begin.
Thank you very much, and good afternoon, good morning to all of you, and welcome to this conference call. I will just spend as we have done now for a couple of conference calls spend just a few minutes on introducing and wrapping up the quarter and then we will open up for questions for the remaining period. If we look at the Q4 2013 and separate between the trucks and the CE, I believe we have 2 different kind of stories here. When it comes to the truck, we have seen good volumes in the quarter. We have seen also encouraging movements in the market say, and the Renault, leading to, I would say, an order intake that is can be categorized as in Europe as a soft landing post the pre buy effect end of last year.
When it comes to the financial part, I would say that we are steadily improving, but we do have much more to do when it comes to profitability within trucks. But it's good to see anyhow that we're now talking margin levels, which we have to go back to 2011 in order to find the same levels as well. On a yearly basis, we have booked a 107% book to bill ratio. And within the Q4, we were at 80 6% with differentiation between the different regions with the lowest being Europe where we had a book to bill to 50% and giving the pre buy effect. When it comes to CE, which is then a different kind of story in the quarter, we can conclude that they have had a very tough quarter in terms of market mix, pricing and the lack of return of the mining industry.
We have and NCE has been working hard on rectifying and compensating for the weaknesses that we have seen in the market. And to summarize, I would say that looking at the order intake, looking at the activities, I think we can conclude that we have in Volusia the worst behind us. Finally, just a few words on the balance sheet. I think we posted a good solid cash flow in the quarter of SEK 10,300,000,000 then pushing us down when it comes to net financial depth to 29% of equity. We as you know has also divested the Volvo Rents which was concluded just a few days ago.
And if theoretically we would have done the Volvo Rents divestment in 2013, our net debt to equity ratio would have been 19%. The Board is proposing a dividend of SEK 3 per share, which is the same level as last year. And we are also today announcing then a structural reduction of white collar employees and consultants by 4,000 400 to be implemented mainly in 2014, marking really the start of the year of efficiency, which is the heading of 2014. We are mainly through with the product renewal and the 2013 massive introductions that we have done. 2013 was a busy and costly, but from a market position point of view very successful year.
We still have some work to be done during the half first half of this year in terms of switching over the production rollouts, the products to certain markets. But all in all, we will do that. But all in all, the main focus for 2014 is to make sure that we are increasing our efficiency, both in terms of cost efficiency and in capital efficiency and finally in process efficiency. With that short introduction, I would like then to use the rest of the time discussing and answering questions that you would like to have answered and to discuss. So with that operator, I ask you to open up the Q and A session.
Our first question comes from Mr. Fredrik Stahl from UBS. Please go ahead, sir.
Good afternoon. It's Frederic here. I actually just want to maybe if you can remind us what the exposure was to mining the mining segment within Construction Equipment, let's say, a year ago or 1.5 years ago before it all came falling down. So if you can remind us that would be great. Thank you.
Christair is actually looking at that number. And I have a number in my head, but I think it's better that we actually let Christir find a the number and then
We can answer that in a couple of minutes then.
We can ask was that the only question you had at this time?
That's the only question I have. Thank you very much. Thank you.
Our next question comes from Mr. Martin Vika from Redburn. Please go ahead.
Hi, this is Martin Vika from Redburn. I had only one question as well regarding the restructuring gains. I know that during the C and D last time around, you mentioned that the gains thus far were about €1,400,000,000 Could we get an updated figure for Q4 as well? Thank you very much.
What we did at the CMD, we gave you the rate for the Q3 and then also the forecast for the full year this year and the forecast for next year. And without going into any numbers, I can tell you that we are on plan or slightly ahead of plan compared to what we showed you at the CMD. And as you recall, we will come back on a yearly basis at every CMD with a full report on it, but we will also give you an indication if we are ahead or behind plan during the quarters. And for the full year 2013, I can report that we're slightly ahead of the plan that we presented to you.
Thank you.
Our next question comes from Mr. Peter Reilly from Deutsche Bank. Please go ahead, sir.
Good afternoon. Two questions, please. Looking at the truck business, your deliveries and organic growth were very close to 0 on a full year basis, yet you had your profitability fell by roughly half. Can you help us understand the moving parts by giving us a bridge from 12% to 13%? I mean, one of your comments from the CMD was external transparency.
So maybe you could help us understand what happened to get us from 12 to 13 in terms of price, mix, launch costs and so forth? And then secondly, looking at Construction Equipment, you made several comments about mix being adverse with lower deliveries of heavy and mining equipment. Does that mean that the small equipment business has been in loss for a large part
of the year?
Okay. If we start with the second question, I don't think we give any sort of detailed guidance on exactly on where we stand. But there is no secret that the smaller machines and we have to remember that when we say the smaller machines, there is a wide range of machines, everything from the 1.5 tonne small excavators to the medium sized wheel loaders. So it's very difficult to give a one catch. But there is no secret that's because the profitability margin on those machines are lower than I wouldn't say that we are in a loss position, but they're definitely lower.
When it comes to the bridge, there are a number of moving parts there. And I'm looking a little bit at Christie, so we don't disclose anything that we shouldn't disclose. But there are what you say is, of course, the launch cost. Perhaps it's better, Christa, that you since you are the one who is normally giving those kind of numbers that you do that in the way you want to have it?
So Peter, if we look at it, you can say a big portion is related to higher selling and admin costs relating to launch costs for the new range. We have the R and D going from a net capitalization to a net amortization. We have you can say the introduction of the new product into the manufacturing system and the inefficiencies that we have seen there. And then on top of that, we have the restructuring charges and the write down of Volvo rent. And then as you've seen in the last, I think, 3 quarters, we have had EUR 1,000,000,000 or so each every quarter of currency impact, so to say?
Okay. I mean, I'm sure I understand. The reason why I'm asking is that I look at the forecasts across the analyst for 2014. There's an enormously wide range. And it's partly because people don't know how much of what happened in 20 13 is nonrecurring, how much is the shape of the business today.
So it's difficult for any analyst to try and forecast their understanding with a bit more accuracy what's happened in the
I see.
We will there is always a bridge that we will have in the annual report that is coming out here in a couple of weeks. So I would say maybe we can come back to that one at that time then.
Okay. Thank you. Our next question comes from Mr. Alastair Leslie from SocGen. Please go ahead, sir.
Yes, hi, good afternoon. A couple of questions please. Firstly, a clarification of the 4,400 figure to headcount reduction. I assume that's not an all in number for the entire program to date, I. E, it doesn't include some of the headcount reductions you've made previously in Japan, the bus plant consolidation, etcetera.
Just whether you could confirm that. And then just on the mining, it does seem to have within Construction Equipment, the mining side, it does seem to have had a disproportionate impact on your profitability certainly based on your comments. Is it really just a mechanical mix effect as volumes come down? Or are margins in that area also coming under pressure? And then I guess starting with that, maybe if you could give us a sense of how much mining volumes have indeed dropped and it's obviously a little bit difficult for us to see a clear impact on the divisional numbers.
Okay. Thank you, Ian. I can certainly confirm that the 4,400 is new 4,400 then constitute of the approximately half in the staff and support functions and half in the line functions. So those are on top of what we have said in the European Manufacturing System rationalization, Japan and so on and so forth. So that I can confirm.
When it comes to the CE, there is of course a number of different areas and mining is a mixed issue. But as I said also during the press conference and which I said also in the Q3 and in particular, we have 3 major, I would say, areas. 1 is, of course, the EUR 13,000,000,000 per se, which is for a Q4 historically a low volume. If you go back one more year, you can see that we were up, I think it was €16,000,000,000 or something like that. Secondly, there has been a price pressure in the different markets.
In the South American market, it has also been a price pressure, Europe and U. S. As well. And then on top of that, you can also say that we have had a currency headwind then depending on our production structure where you actually then have production for instance of many of the heavy machines in Sweden. You have in Korea.
And that of course also put pressure on the margins since you have the currency work against you with that production base. And finally, I would then also say that the as you alluded to then the drop of the mining per se. So it is, of course, not a straightforward answer on the things. It is a mix of everything. But the sum of the mixes has turned into this very tough situation for the city.
But as I said, it is a situation that we now see in the order book both in terms of the mix of the orders, the quality of the orders and general activities that CEA has done themselves, we believe that we have the worst behind us. And I think Christa has found some numbers also coming back to the first question here a little bit.
So back in you can say since 2011, the proportion we are selling into mining has been reduced from some about 20% down to 10%. So it's been halved, you can say, from a proportional standpoint between 20112013. But then I would say most of the mining is then sold into Asia Pacific and China.
Great. Can I just a quick follow-up on the improvement in the quality of the orders and I guess in the mix? Is that very broad based? Or is it particular to some geographies or specific product segments? Thanks.
I think we I mean, I think we stopped by saying that it is an improvement that we see and that it is a little bit all over. I don't and I think everyone is well aware of that. We don't see a sort of a pickup in mining or anything like that. I mean, it's still a very, very soft market. But we should remember that general construction also have big machines.
And we machines and we see general construction as well. So it is, I would say, a non particular market or non particular product, but it's a general a little bit here and a little bit there that drives this.
Great. Thanks.
Our next question comes from Mr. Ashok Kiryan from Goldman Sachs. Please go ahead, sir.
Hi, good afternoon. I just got a question on your order book in Europe. Now your orders for 4th quarter, especially for the Volvo brand looks quite resilient compared to peers. And also factoring in the fact that you were probably a bit late introducing Euro 6 engines. Now just trying to get your thoughts on what your views are on your market share expectations in Europe for 2014?
Are you seeing any impacts of being probably a bit later into the Euro 6 market than some of your peers?
I would phrase it like this that if you look at the market share development we have had over the year and since we have introduced the new truck, we have then raised it to levels which is you have to go back to I think end of the 1990s to see that. In the order backlog right now, I think I'm looking at Christopher, I think we're talking about 90 percent. 90 percent Euro 6. Percent
of the orders we took in the 4th quarter.
Of the orders we took in the 4th quarter is 90% 10%. So we are well positioned for that. And when it comes to the market share going forward, that is, of course, very difficult and we don't give any forecast on that. But as I said on my last slide in the presentation before, organic growth, capturing and making sure that we get the full payback on the huge investments we have done on these new trucks is a major target for us. Having said that, we will and we have done so far making sure that we do it with a good pricing and utilizing the premium brand position that we had in Volvo, which is even stronger now with the new product that we have launched.
That is on the Volvo side. The Renault side is, as you probably know, a different story with the introduction that we are doing now. And it will be a gradual pickup in the order intake for the new trucks for the new trucks during the spring here.
Okay. Can I follow-up with a question on CE? I'm going to try my luck too. I mean, I appreciate the fact that the mix has seen a deterioration maybe year over year. But just on a sequential basis, I mean, your revenues were up compared to the Q4, yet your profit and the margins dropped.
Is that mostly explained by increased pricing pressure? Or you think there's also a sequential deterioration in mix in the fee business?
I think you have a number of issues there. You have the FX of course, but you're absolutely right. There is a continuous price pressure as well. And of course, we deliver that order backlog, which was then an order backlog coming from earlier this year. And so it's again a combination of both sequentially.
Okay. Thank you.
Our next question comes from Stephanie Leningo from JPMorgan. Please go ahead.
Hi. Thank you very much for taking my question. Just looking from a credit analyst perspective here, you're basically BBB flat negative at both the agencies. And given your decision to keep the dividend the same and I think SMT specifically mentioned shareholder distributions over $6,000,000,000 So you're definitely keeping in line with that. And you're also getting in the proceeds from the Volvo rental business.
Do you feel comfortable with maintaining that flat rating? And what sort of optionality do you have baked into your forecast in terms of additional capital raising and sort of balance sheet relief if the operational side and the cash flow side came in below your expectations for 2014? And then my next question is simple. It's just what sort of I'm sorry if you already answered this, but what sort of cash restructuring are you expected to take in 2014?
I think that if you look at what we have done is of course as you said now we are ending the year on a 29% net financial debt of equity. We have then on top of that the sales of the Volvo rent. And what we are going to focus on very much this year is the 3 parts of the efficiency program. 1 is the cost efficiency, which of course will be helpful in terms of cash flow, but it's also the capital efficiency. And one thing we're going to focus very much on during this year is the working capital and the working capital levels, which have been if you look at it, CCC days for instance, has been hurt by the introduction of all the new vehicles.
I mean we have run double production. We have introduced a number of things in the production systems. We have had a lot of demos and other things that has been negative to the working capital. That's one we're focusing on very much now to get down. And finally, we are also then really making sure that when we look at the investments, we are going to focus extremely hard on making sure that the investments we're doing are aligned with our strategic objectives going forward.
So we are looking at all this kind in order to make sure that we are strengthening the balance sheet and that is something that is part of the year of efficiency, which we now go into. And I would like to basically leave it with that. Then when it comes to and sorry, I think I forgot your second question. The cash,
you can say, will be about $4,000,000,000 in 2014.
Okay. All
right. Thank you very
much. Thank you.
We have a question from Isandrias Broch from Nordea. Please go ahead sir.
Thank you. So I have a question, I can see the question, but it's a question on the pension liability. It's been coming down pretty rapidly over the quarters. And I was just wondering how come I know that your pension plans are invested. I think they're about 50% equity, 60% bonds.
So is this due to an overall strong equity market, which is bringing down the pension liability? Or what's happening? And it's very positive to see. I just wanted to understand why.
Andre, there's 2 things. 1 is that we have had a good return on our assets in the pension foundations as you alluded to. And the second one is that the long term interest rates have gone up, which means that the discount rates that are being used every quarter are higher. And therefore, when you discount these pension liabilities, you get a lower liability.
So what's the discount rate you are using right now?
I know that question would come and I'm looking into my binders here. You can say in general, we have increased the discount rate between 25 basis points up to 75 basis points. Correct. But it's a number of currencies. Yes.
Depending if it's in U. K, U. S. Or in Sweden.
Fair enough. But that feels fair given what's been happening in the bond market. Thank you very much,
Our next question comes from Fraser Hill from Bank of America. Please go ahead.
Hi, good afternoon. Fraser Hill from Bank of America. Just a couple of follow ups. On the cash, again, then you said focusing on the cash for the year. You've obviously seen one sizable disposal in Volvo rents.
Should we be expecting more disposals? Is that key to the strategy this year? And will that be partly a source of funds in terms of looking at your cash flow for the year and paying the dividend going forward? Or is your focus on cash really just more organic and operational? The second question is looking at the competitive environment in Europe.
The Renault brand as you've spelt out quite clearly has come a little bit late to the party, but you are picking up some orders now. What are you seeing in terms of the competitive landscape? Obviously, Scania and Daimler have been quite early along with your Volvo brands. But in terms of other players, are there other players that you feel are even further behind the Renault brand? And perhaps what are you seeing in pricing from some of those players who might be a little bit behind schedule as well?
Okay. Thank you. The first question first. My message is quite clear, and that is that we have a structure now which we have aligned into the new organization, the new way of working. And the focus for this year is definitely to, as you call it, organically grow and generate both result and cash.
And that is absolutely the main focus. Then of course, it's part of my job to always keep an eye opening what's happening in the industry and all of that. But to answer your question, I'm fully focused on now making sure that with the structure we do have generate organically both growth in terms of market shares and successes out
in the
markets and internally with extremely strong focus we're going to have on cost and efficiency during this year. When it comes to Renault, I always refrain from comment on competitors. I focus very much on our own story here. And when it comes to Renault, we do have a work to be done. I think we are aligning all the forces.
We should remember for instance that the new setup of the European dealership where we now use a lot more dual branded Volvo Renault has increased the service points for Renault substantially. That means that we have much more selling points. We do have much more touch points with the customers. And that means that we can start to really go out and starting to selling. When it comes to the acceptance, which I think it's extremely important when it comes to the acceptance of the new truck, it has been very, very good.
And that gives me courage and encouragement to also believe that now we're going to push very hard in order to increase the sales of the new renewal range. And realistically, as I said, it will take the first half year to really get back into the race again. But with that product and with that sales force and with that determination that everyone within the Renault brand has to make this a success, I'm confident that we'll be successful.
Thank you.
Okay. Mr. Operator, if there was no other questions.
There are
no further questions at this time.
Okay. Then I thank you all very much for dialing in and asking questions and listening. And wish you all the best. And we're going to hear you again when we present the quarter 1 results. Thank you very much.
Bye bye.