With that, would like to cede the floor to Martin Lundstedt and interviewer Mia Odabas. Please.
You should be on that side, Martin. Hi.
Hi.
Hey there, Martin.
Hello. Hi.
Hi.
Hi, Mia.
Hello, everyone, of course, who are here. My name is Mia Odabas. I'm an economist from the School of Economics here. Originally, I worked as a journalist for many years, primarily from Svenska Dagbladet, Swedish Newspaper and Swedish Television, and I'm moderating the little conversation we'll have, Martin, which will be about the past year. We'll delve into that and also look to the future. I have one share in Volvo. I told you that before. I still have it. I bought that in 2007, but at the peak, so it wasn't long-term. Yes, very true. Martin, in 2018, Svanberg has already told us that was financially an amazing year for you. You broke several records, the most successful one ever. How would you yourself describe that year?
I think we can describe it from several perspectives. Of course, it's been a very strong year.
First of all, maybe we should conclude that it's been a strong year for the markets. We've seen very strong markets in our primary areas in Europe and North America is very strong, but also several of the major markets in Asia, such as China, Japan, and India. All in all, a very strong demand from the markets. What is particularly pleasing is that we see that we have very clear improvements in results and reinforcements in all 10 business areas. That is what tells us, as Carl-Henric said, we have a well-working strategy that is being realized in both tactical plans, and then at the end of the day, in activities together with the customers. Of course, that applies to the sale of our products, but also in the very important service sector, which is growing very strongly.
We should mention in that context that we've talked a lot this past year about bottlenecks in our production and in our supplier systems. We have seen that in spite of that, we have seen increases in volumes, and on the whole, we've been able to satisfy our customers in a good way. Sometimes that have come with extra costs, particularly in terms of logistics. All in all, a very strong year by the group as a whole and all our employees.
Yeah, across the board, as you said. When you started a few years ago, you said it's more fun to do than to play business, and you proved that.
This strong underlying result hasn't really been reflected in the share price. Its past six months have been a bit slow, even though it's picked up in the past week or so.
What is it that investors don't understand? Well, I think that to begin with, I'm very happy to see the share recovering. That was very good timing, I have to say, so that's nice. I think that we should refrain from commenting the price of the share. What we can do in the group is to constantly work on creating value that will benefit our company and hence also our shareholders, and also to establish the fact that this is a share worth investing in. We feel that we're on our way there. We've had 16 quarters now with constant improvements, and we see not only that it's happened, but we know why as well, because we have a well-working strategy. We know that there has been certain uncertainty, not least among international investors, about the Volvo Group's ability to handle the cycles.
We're working with that very actively, and we've proven in a number of major regions that it's working. In North America and Latin America, Russia, just to mention but a few, where we've seen huge fluctuations over this period. I also see that gradually they want to ascertain that we have the strength to handle the transformation that we're faced with now. At the end of the day, it's about being clear about where the Volvo Group is heading and why we have excellent opportunities to strengthen and improve Volvo's competitiveness and win in the future. We're working on that.
Yeah, you mentioned that what we're talking about, whether it's heading downwards now. Is it true? Because they said that that is your next test, next trial, that you have to prove yourself in the next recession.
Svanberg said himself in Dagens Industri in November, they said that our next challenge is to show that we can maintain profitability even in a recession. You've touched upon that. It's almost as if you long for a recession, do you?
Well, no. That is maybe taking it a bit too far, I think. Of course, it's been a very interesting situation that we're in right now. That said, we do know, and I think we should respect that we're in a very cyclical industry, not least because we're such a global corporation, and the world is becoming more and more coordinated. We need to work on our flexibility. We need to have good input signals.
We need to have a good balance, not least when it comes to post-sale service, to have a good opportunity to work with our customers when it comes with a rolling fleet or the equipment in use or whatever it may be about. There are a number of different measures we can look to, and we have excellent dialogue with our employees, and at least our union representatives, because this is something that we have to do together, take responsibility for the company as a whole, but also for our employees. This is a very important area where we are preparing diligently. I think that we have proven across several regions that we can manage it.
You feel fairly safe in that. You have a margin of 10% as a target. You delivered 10.3% with that in the latest
report. If we're seeing a slowdown in the market, what will you manage to achieve this year?
Well, what we've said, and as the board has decided concerning our financial targets, this is over a cycle just to show what we think is reasonable to be a good company that has the strength to invest in the future. Then we need to be able to manage this across the whole cycle. That means that when times are good, like now, we have to continue strengthening our profitability to be able to manage it. That is no doubt about that. I would have to say that if we look at the improvements that we've made, we are well on our way there.
Of course, we will continue working on having the flexibility that is required, both in terms of which often comes to mind are costs, so that we have a good flexibility there, but also when it comes to revenue, so that we can create a better foundation. What is very interesting, if you want to talk about the future, is that we are moving more and more towards solutions where we work together with our customers for longer periods of time. That is very good when it comes to handling those fluctuations in the cycle. We're well on our way to strengthen our profitability.
What do you think about the economy? What's your feeling? You always say when you're up here, that's very difficult to say.
I would say it is probably more difficult than ever right now to try to estimate that because there's so many, both geopolitical and purely political major events that are taking place at the moment. That is very difficult to say anything about. The basic scenario that we've talked about, that we also presented in the third quarter interim report and also reiterated now when we reported on the fourth quarter and for the full year of 2018, is that we are, after all, in a good year, 2019. We can see a Europe that we believe will settle a little bit, but will remain a strong market. We have North America that is doing very well, and there are huge needs, of course, in developing infrastructure and transport in several developing countries across the world. That is good.
That said, we have been through a period now of healthy growth internationally. The preparedness for a slowdown is there. There are a number of elements of uncertainty, both when it comes to trade conflicts, Brexit, for example. If you operate in 190 countries and come from a country with 10 million inhabitants, you learn to live with these uncertainties. That is one of our most pressing matters. You can sum up your answer by saying that you're doing well, but you understand that there will be a small dip ahead and you're prepared for it. Yes, you could. Excellent. If you're in a good position, you're on track. Many people still think that we're heading into a recession, today we're voting for an extra dividend, which is the same amount as the ordinary dividend, SEK 5 per share.
Why is that a good decision right now? To begin with, we've had a discussion, of course, between the board and the management, this proposal is presented here today. My perspective here as the head of the Volvo Group, together with my crew, as it were, we've reasoned around what's important here, and we talked to the board about this as well, is to strike a good balance. We have to ensure that we have a good and strong balance sheet so that we can always act from a position of strength, not least in these economic cycles, because it's about having a good financial position to manage that in a good way. We also know that it's in those situations where you can advance your positions, and for that, you need to act from a position of strength.
I'd like to begin by saying that that is our point of departure in our reasoning here. In addition to that, I think it's very important to remember as well that we feel that we're a far better company now. We have generated a good, strong balance sheet, we see excellent conditions for the near future as well. We think it's a recent decision because we want the shareholders to feel that the company is doing well as well. We still have to maintain that balance so we can act forcefully in the future.
Let's have a look at 2018 in more detail. There have been a number of challenges. You talked about a matter of damages after the fine imposed by the commission. That's still relevant. What's happened here? Where are you at in this matter?
Well, what's happened since we talked about this last time is, just like our auditor, Jan, said, there's been a number of claims for damages filed against Volvo and also other truck manufacturers in Europe. There's a number of processes ongoing. We could go back a little bit and remind ourselves what was said in that ruling by the commission or this decision to settle, which was what it was actually about. They don't say anything about an impact on market prices or transaction prices. As I mentioned last time as well concerning this matter in the Volvo Group, we're convinced that our customers have not suffered any damages, and we saw a continued fierce competition on the European market, and the transaction prices were not impacted. It's important to keep that in mind.
Another thing that we're also convinced about where we are right now is that we are in a position where we in the management assess that what is in the best interest of Volvo and also all our shareholders is to, as it were, be very restrictive right now and not comment in any detail this matter, because there are a number of processes ongoing. We have to respect those processes, and above all, we don't want to negatively affect the position of the Volvo Group in this matter. I want to be very clear about that so that there is an understanding about this, and we work in the best interest of the company to assuage this matter.
Maybe the most important part of that I'd like to bring up as well, is that when this investigation was initiated in 2011, ever since then, when it comes to the commission and the collaboration with them, the Volvo Group has chose to actively collaborate and be completely transparent versus the commission. Also that the Volvo management, including the current management, have taken steps and are taking steps that are relevant to the sequence of events that led to the commission's decision. It's important to stress that.
As a shareholder, we should feel safe in the fact that you collaborate as you should, and you are involved in these processes without telling us as shareholders, because you think that's better?
Yes. I'd like to comment also what Jan said, that we have very diligently and very seriously, it's a very robust process, both in terms of the management and of course, also when it comes to the audit committee. When it comes to our auditors that we talked about and our different experts, we have reviewed what the actual situation is in terms of accounting as well. That's very complex because there are unknown variables. We're fairly early on in the process, and we've concluded that a sufficiently reliable estimate is not possible to do. I insist that we have a very robust organization and processes in place around this, and we're working to ensure the interest of the Volvo Group.
There are a number of other challenges as well.
Let's talk about the European Union CO2 legislation, because there is a historic decision now to reduce emissions from heavy vehicles by 15% to 2027, over 30% to 2030. Is that a sufficiently ambitious goal?
Well, I think we need to keep in mind that when we have these discussions with the commission, and also with other authorities and our customers and society as a whole, we are, all of us, entirely convinced that the transports we have around the world must be considerably more sustainable if we're going to be able to manage the future. In that regard, we are entirely on board with this and continuing this work. It's important that we get the laws in place and that we take an overarching perspective so that we can come up with a solution where the actual impact is included.
The discussions are ongoing about that, but that we have to head in this direction and that we have to set very ambitious goals and requirements as well to be able to have a world in the future that we can hand over to the next generation. That's vital.
You are saying that you have a very clear road ahead, but you might go about it different ways. You said that politicians have to create the conditions for you to achieve the targets here. What do you want them to do?
Well, again, what I'm saying is that I think it's important that it partly has to be done through legislation, as we can see here, and above all, when it comes to emissions that are not naturally in the direction of the customer, such as nitrogen oxides and particulates, et cetera. CO2, partly.
What's important in that regard is also that we have a long-term perspective on this transformation so that our customers, not least, can take investment decisions that can cover the technical life of these products. That's very important. There will be a number of very important infrastructure challenges that we will have to face, not least when it comes to electrification. Here we need to collaborate in an ecosystem between private companies, the entire supply chain, our customers, their customers, and of course, governments and authorities as well. But that we are going to do this, there's no doubt about that. That's a wonderful opportunity for Volvo as well. All right, you will go hand in hand with politicians there in the future. There's some other issues you've talked about, and here I have to read it. That is emissions post-treatment problems.
That's a catalyst that can clean it, that degrades more earlier than expected and releases more nitrous oxide.
You've reserved, you have set aside SEK 7 billion for that. Do you think that will be enough?
Well, as always, and again, to fall back on what I said, we have been through this very diligently. Of course, it's an ongoing process as we learn things and find new things out. What can be ascertained to begin with here, and I think that is very important, and I was proud of that when it comes to our way of handling this matter, and it also shows that our ambition is always to be transparent about what happens. That was when we discovered that this may happen, because this is a wear and tear matter, to put it simply.
We have the requirements on us, and rightly so, that things should last either X number of kilometers or X number of years. That depends on the country you're in. We saw that there were risks, that is because we have a very diligent follow-up on how we actually comply with the requirements that we have to follow, not least within the area of environmental aspects, which is very important to us. When we saw the risk, we contacted the relevant authorities. We said, "We've discovered this matter.
We start working on it and alleviating it." During the period thus passed, my team, I think, has done an excellent work to identify this, where we not least have used modern technology with connected vehicles to be able to capture and identify risk populations and then take action and have a solid dialogue with the authorities, of course, but also with our customers. I think we have a good process in place.
That's our assessment. Absolutely. Things have happened on the product side, haven't they? You've set out some novelties to the market.
We really have, yes. Very interesting year it was, not the least, in order to achieve those targets that we had when it comes to sustainable transportation. We talk about sustainability, then we name sociological, ecological, financial, and ethical. I brought a little movie with me, so maybe we could look at that.
Very well planned. Can you tell us what we see here? The first thing we can see, those are the initial trials with Brønnøy Kalk that Carl-Henric mentioned. There's not going to be a driver later on, but there are going to be a number of trucks that are going to go between this mine for limestone in the mid Norway, down to a terminal.
It's seven, eight kilometers journey.
Here is what we've got Electric Site. Fantastic project together with Skanska. Automated electrical vehicles, where we've shown that we can reduce the CO2 emissions by 98%. 98% reduction of CO2. Yes, fantastic. This is Vera. You had the possibility to see Vera outside. It's been very much being noticed. Initially, we're going to use it for shorter transport, for instance, between terminals at ports, and then it's fully electrical, fully automated. There's no cabin. It looks like a Lamborghini. It looks, yes, but even more beautiful, right? Here we've got the launch of Volvo Trucks, fully electric trucks, both for distribution and handling of refuse. Lots of things have happened. There's going to be something more coming. There's like powertrain electrical. Volvo Buses. As you know, we've been at the cutting edge. We've been at the lead, spearheading the Volvo Group's thrust into electrification.
It's fully electric buses, next generation with a high capacity. A strong year on this front. What I would like to point out, what you can see here is not just merely product, it's complete system solutions, where we've got a completely different possibility to work together with customers in designing, maintain, and operate these solutions. We get fantastic leverage when it comes to going towards those challenges we have. I can just mention one we touched about, Electric Site that we saw. The project between Volvo Construction Equipment and Skanska, where we've run it fully now, trials. We can, as I said, more than 95% reduction of CO2 emissions. We see that we can take down the operational cost about 40%, fuel consumption by more than 70%, et cetera. Safety, not the least, because this is system design, and personal safety is very important.
This goes to show that when you work together in an ecosystem like this, it's not either finances or environment. They go hand in glove. I think that's the message that you should feel comfort with, that that is why we have a good possibility to win in the future.
This creates new corporations, new business models, and one wonders, in this transformation, automated vehicles, electrically powered, how would you describe Volvo's competitive edge is affected?
What happens is that you have to realize that the business models are changed. You cannot imagine in future that you got a traditional transactional, for instance, model where you sell a product. You are there partly participating in the customer market, in the after-sales market, which I'm not really happy about the word after-sales market, because we can't name the customer's main market our after-market sales market.
In the future, the client's market is going to be our market. We have to be much more involved, as I said, in order to design the systems. Maybe not just the customer, but the customer's customer in turn. If you're going to get full leverage on electromobility automation, on the right lever and connectivity, we need to be very clear, what is it that we really want to achieve? We want to achieve a completely different level when it comes to functionality, output, environment, making more efficient and sustainable transportation, and naturally safety aspect. It's going to change a lot. It's going to change our way of relating to our customers, much more partnership-wise and trust. It's so exciting. If we look out across the world, there's a lot of things happening. You touched upon it. I'm thinking about, for instance, trade barriers.
We're in an environment now where the free trade agreements are sort of being questioned. Maybe there's also a trade war between China and the U.S. They're talking about customs duties and what are you thinking? What do you say about that?
We are a global operation. We've got regular operations in more than 190 countries. We're very dependent on that. We've got open systems where trade and exchange is the most important component. We also understand, and it's important that we as a group actually invest in various parts of the world so that you can feel that we take part in driving development. That's why I'm proud when I look at we've got factories, plants, suppliers, research and development, and not the least sales and after-sales service in all these countries. We're contributing to their societies.
I think that's been one part that you feel that there's an imbalance, there's inequitable flows. One of those discussions that are taking place between our two superpowers right now, right? I also believe actually that there is a discussion on what is society going to look like? What's the division of resources, split of resources in on grow and in the small scheme of things?
We also need to take our responsibility. Lots of questions. Having said this, we need to maneuver through this Brexit trade barriers. We do it through investing in various countries and preparing ourselves as well as we can. When it comes to Brexit, for instance, we feel that we're well prepared. We, of course, hope we're planning for the worst, but hope maybe not for the best, but it seems to be difficult to arrive to the best solution.
At least you're well prepared about something that no one knows anything where it's going to end up. Yes, we follow it very closely. Management, together with our teams working on these issues. Brexit, we're not going to sell here now, but I know that you've been to China Development Forum. What were your debates there? What we feel naturally is that China continues to develop very rapid pace. Environmental matters, not the least the question I mentioned when it comes to emissions concerning their cities is on top of their agenda. We can see that they're pushing an agenda around logistics, very interesting one, et cetera. Naturally, there were many different types of discussions. When I look at our area and see how China develops, we see major opportunity, but we also need to be watchful.
We need to keep the pace because there's going to come very strong competition from China. They develop quickly. We need to benefit from that by also investing in China in a good way, and also contribute to that development. I'm personally curious. I know that the President usually speaks two, three hours during these commercial. It was the Vice Premier who was there because the President was in Europe visiting, for instance, Italy, and he kept to 45 minutes, roughly I'd say. But it's a lot of content per minute, if I may say so. Lots of- Yes, long action plan. There was a 20-minute agenda from the outset, turned into 45 minutes. Yes.
For one year you've had Chinese Geely as a major owner. How's that been? Well, I've seen results. The year has gone well.
I think we're very proud of what we accomplished. When it comes to the shareholders, we feel, and I was speaking in general terms, not the least when it comes to our major shareholders in both Swedish and foreign. We feel strong support of our strategy for activities and how the way we work, we feel it goes also for Geely, and they've also said this. We'll see. Of course, Geely, I feel that it's undoubtedly so. They've shown to be very competent, not least when it comes to possibilities in the agenda in China, for instance. If there are opportunity there for good cooperation that's based on what's good for the Volvo Group, that's very important for us, though. All shareholders are going to benefit from. We'll see what it can give in the future. But undoubtedly, they're both supporters and very competent.
We'll have to return to this in the future, I'm sure. When it comes to employees, you also started a very exciting project, Future Industrial Worker project, together with the trade unions on how to use new technology to create some sort of cooperation, joint agreement, like Saltsjöbaden agreement to maybe we should call it Lundby in name of our factory, or Lumio and Hövda, because we're doing it on various sites. What we're talking about here is that all the time ensure the starting point is not so much technology, but how do we take all of the competency from our employees and benefit from them? One of the things we discovered was that when the Volvo Group was very progressive, and we are very progressive in lots of areas, not the least when it comes to production.
Not the least also during the 80s and 90s when it came with teams that were autonomous. We had modular factories. There were a number of drawbacks, and that was for the factories. We removed these systems. In connection with that, the good things that were about those things, how do we cooperate together in team? How do we use technology? How do we improve our competencies? What decisions can we take? How can we create flexibility required, not the least for cyclicality, et cetera? That went away when we abolished those systems. We took a new review on this. We've been very pragmatic, ensure that we got a very high involvement of our production managers in this. It's all about the practical leadership that we create preconditions for our managers, not just to be managers sit and reporting all that crap.
Not crap, but be out in the field and be a leader together with the team and leverage the competencies with the associates. Now we feel we're doing well, and we've got positive discussions. We need to propagate this quicker and wider, and that more are involved. It's not crap, but we need to have a balance between.
There could be some new Lundby spirit. Is this in Sweden, these projects?
T hese projects are now in Sweden, but I'd like to point out we're naturally working in the same way. Volvo Production System, it's about teamwork. That's a central part. The Volvo spirit, I think that's a good. Last year we talked about having the AGM this year at CampX, your center where you've got innovation cooperation with startup, et cetera. I know it was too small because you can only fit 140 there.
There's such a big attendance, yes, we couldn't. On the other hand, you've inaugurated that recently, though, CampX. What's so gratifying with CampX is that I know several of you know about this, who are seasoned or are, or have been employees at, well, that's what's called the ex-venue at, well, that was the last production hub before we moved to Tuve. Now we've remodeled this fantastic building, which is 400 times 100 meter long and wide, and we take the first half as phase 1, and made it into an innovation platform where we co-locate various competencies, because that's what it's about in the beginning, in the future. Work in ecosystems, get competencies together, iterate with the customers. We invite other partners, both established companies and startups, create more rapid solutions for the clients, and new steps within these important areas. We talked about electromobility, autonomous vehicles. It's great.
I've got so many good comments from my associates, how happy they are. I get tears in my eyes when I think about it. Is there something concrete that's come out of that? Yes, a number of very concrete things have come out of that, and we have taken from CampX. What's going to happen, my conviction is, that's going to be even quicker to go to market with these, because we're breaking down barriers and cooperating in a completely new fashion. It's so exciting. It sounds like you should have your office there. We've said that. We're going to try to spend time there in order to learn, because this is a lot about management, learning how things work, and how we can develop.
That's not just an iteration with partners and clients, but also an iteration throughout the entire organization to understand what new possibilities that these new modus operandi and this technology, you have to be humble, can yield. Lots of things happen in Lund, but you wanted to say something about that area. Yes, I think it's the spirit we want to do about, develop our existing buildings, and then get opportunities to continue to invest in order to assemble all our technology there and partners, associates, that we continue to invest in mobility. We've already got a mobility cluster, world-class, in Gothenburg. We continue prepared to invest in this. Right now we've got some lead times, but it's all going to pan out. Finally, Martin, I was thinking about that Carl-Henric mentioned in his presentation.
Carl-Henric, can't you join us here by the podium and we can speak all the three of us, couldn't you? Carl-Henric, you said 50 years ago, Volvo was facing a dire choice to decide. They had major problems with quality in the truck business. Then they invested SEK 1 million, and that panned out well, and we're standing here today, and you've now announced record results. You said, "I hope we're as farsighted today as 50 years ago." I'm wondering, what is it that you and the board and management now are deciding on and talking about that we, in 50 years from now, are going to have a possibility to stand then and look back upon? This is very interesting. I'm going to tell you, Martin.
If you looked at the last 120, 130 years, First we had the steam engine. Then we had the combustion engine. Then we had aircraft. These are the big six, seven inventions in the history of the world, when we got the transistor and others. There's three regarding transportation, aren't they? They fundamentally change society. I believe that the transition now from the combustion engine to electrical transmission, that is going to change so much more than just how you make an electrical engine, how to charge it. It's going to change the entire way of production, working together, and how society works. I think that's going to be a major change, and it's incredibly important that we are pushing there and we're leading this. The nice thing about it is that you just put in SEK 1 million, then it's going to be good, right?
It's sufficient, yes? We're going to do that. Do you have a board decision? Oh, sure. Yes, I fixed that afterwards here. Right now, Martin, what do you say about this? Anything within the transformation that you talk about? I believe that what makes it so incredibly exciting for us. We usually talk about that. We had our first kickoff meeting together with the board and said that we've got a great and fun cooperation with management and the group and the group management and the board. With the technology transition committee yesterday, two hours, are we going to do well? Are we going to start? We realized two hours, they go by so quickly, right? I want to start off by saying it's incredible, grateful to work in an industry. There are whole possibilities to contribute for better world.
I realize, I'm not naïve, I would say, and I would like to understand that we're going to do our bit. If we do our bit, and if we're there contributing to fossil-free society for real, which we can, because transportation is such a big part of it, we're also going to win business-wise. To be part of that and be able to drive that strategy, I find that incredible. That's what we're going to do. In that context, if I may, I would like to take the opportunity. It's so much fun to work with all these employees that are so great here to push this agenda. I said it at CampX when we had the inauguration. I said that, I quoted I always get a bit emotional, so bear with me. Sören Gyll was there. He's one of my predecessors.
Many of you know of him. He said, "I doff my cap to what we've achieved. I roll up my sleeves for the future." That's where we are now. With strong position, we can act from strength, and now we're going to really hit. We're really going to push. You're going to roll up your sleeve and you're going to have some transition. Carl-Henric, probably more than SEK 1 million. Okay, SEK 2 million then. Thank you, Carl-Henric. Thank you so much, Martin.