AB Volvo (publ) (STO:VOLV.B)

Investor Day 2013

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Feb 28, 2013

Good morning, everybody. My name is John Hartwell, and I'd like to welcome you to our Investor Day. Just to get a few of the logistics out of the way. We're going to start with a presentation by Olof Persson, our President and CEO, followed by Dennis Slagle, EVP of Truck Sales and Marketing of the Americas. Olof will come back up and give you a presentation on construction equipment. We'll put a little more caffeine in you, have a little short coffee break. We'll come back, and Martin Weissburg, President of Volvo Financial Services, will give you a finance update. Anders Osberg, our CFO, will give you an update on treasury and lending. I will ask you to hold your Q&As for after all the presentations. We'll be running around with the microphones. The only other thing is, when the Q&A comes, we need you to speak into the microphone because it's being recorded. With that, I will turn it over to Olof. Thank you very much. Once again, very welcome. It's great to see so many of you here today. I would like to start with giving you a sort of a deep dive into both the changes we're doing in the group, particularly on the truck side, but also walk you through the strategy and the strategic plan that we have established now from 2013 to 2015. Before actually getting into the slides and all the details, just to give you a little bit of a framework and a history, because it's important to realize where we're coming from as a group in order to understand where we're going. If you look at the Volvo Group from an organizational point of view, it basically has had the same organizations for, let's say, 20-odd years, and that is basically focusing on the business area by business area, and then over time, adding a dimension of matrix on top of it over the last, let's say, 10, 15 years, in order to capture synergies, in order to capture platform development, and so on and so forth. The main focus has been focusing on business areas. Those business areas were rather independent. We talk about Volvo Truck, we talk about Renault Truck, we talk about Mack Truck, for instance. We talk about the Volvo Construction Equipment, and so on and so forth. That organization was brilliant for what actually happened over the last 10, 15 years, and that was the development for the Volvo Group going from a, I would say, almost a rather niche Western European, North American truck manufacturer and construction equipment manufacturer into a global player. That has been done, as you all know, by acquisition. That organization perfectly fitted by adding acquisition after acquisition as business area to the already existing organization. However, that meant also over time that we are, and we did see when I came in, that we have to take, and it was natural to take the next logical step, and that was actually to do exactly what we wanted to do, and that is to better utilize the full potential of the group. If you grow the way we have grown over the last 10, 15 years with acquisitions, then you of course, also create a lot of hidden potential. That potential has been taken on board by the engine platform we have done, by the architecture platforms. There were other synergies and there were other potentials that we had in the organization that we now wanted to really reap the benefit out of after have becoming truly global. This is not about, and if you look at the change we are doing, the organization change is one thing. That is the box movement. It is the dismantling of the business area. It is the dismantling of a lot of internal matrix doing and interactions and activities, and then going into a more functional/process-oriented organization. It is also a new way of working. It is a new way of actually dealing with the group in total. It is a fundamental change. This is not just one of those reorganizations. I put up some areas where we talk about this internally, what we really want to achieve. Looking at the transformation we did in 2012, it is very much about this going from the business area by business area and business units into one group thinking. That is, of course, easy to put on a slide, but it has to be done as well. It has to be lived by the people, by all employees. By having the organization on a business area by business area, naturally, you are looking at the pace and the rhythm that is basically very much on reviews coming on a monthly basis or a quarterly basis. You are looking at board meetings, internal board meetings. You recognize that from many companies. We changed all that because I wanted to have a much higher pace in the organization. We said that from 2012, and then particularly now going into 2013, I want the whole organization to run on a weekly rhythm because that is the speed that we need to have in order to achieve what we want to achieve over the next three years. For instance, I am having my management meetings on Mondays, the sales organizations on Tuesday, we have the technology on Wednesdays, and we have operations on Thursday. By end of the week, 82,000 people have had the top management going through one circle of management team meetings. We also open up, we post the minutes directly after each and every meeting on our internal Violin system, which means that all employees can read about what was discussed, what decision was taken. We have opened up the transparency in order to make sure that the rest of the organization also keep up with the weekly pace. I will talk a lot about brand today, and I will make a deep dive into the brand by brand versus the brand portfolio thinking, which we are shifting from and to. I will not spend too much time about that. Another effect of decades of business by business area thinking and rather, how should I say, rather self-standing business areas is, of course, the development of processes. Here we talk about everything from the sales process, the operations process, the production process, the quality process, all of that over time, of course, developed in different directions. Specifically, when we then added so many companies in terms of acquisitions as we have done. They brought in new processes, then you get further diversion and differentiation. One very important part is to get those 80,000 people now to work in the global processes to make sure that we can gain and reap the benefit of being such a big global and forceful group that we are. With the matrix and the shared accountability comes with it, so to say. That is, everyone who's worked in a matrix knows that you always have those cross points and so on and so forth. I've been working very long in matrix organizations, I must say that what we try to do now is to really take away the shared responsibility, by traditional functional organization, clarify the responsibility very, very fast. Now we have a sales organization in sales and marketing that only focus on the sales and marketing processes and only focus on selling the product we have. We have a technology organization that is focused on the technology, you have operations who is then focused on worldwide operation and production. By that, driving improvements. The risk by doing that is that you actually get silos. Basically, you just change the silos from business area by business area into a function. The answer to that is the global processes again. That is the glue that's going to make sure that we thrive and basically create this one plus one equals three. This transformation we worked on during 2012, I think it's important that you have that setting in front of you, not believing that this is just a box or reorganization. This is much more than that. It shows also on this picture, I think. We had a changed pace in 2012 that was quite amazing. These are the major parts, but we did a lot more than this. Can just give you a sort of an anecdotal show on how we worked before. In 2011, the organization generated 11 million internal invoices. Invoices that went from one side to the other in the organization between the business area and the business unit. We said from day one that the internal invoices will take away. We save 250 million SEK a year in administration costs, we got also a much more transparent process. We have done all these things, as you can see on top here, with the new financial targets, where we now started to look at ourselves in comparison with the peers. We have left the thinking of business cycle. Every year, we measure our gains against the peers. That is, of course, easy for you to measure have we succeeded or not? You can imagine the power to have that internally. Go up and show the slides. We are better, we are worse. This is what the board wants us to do, we can really have a discussion internally about have we met the target or not? Why? What can we do? So on and so forth. We also have a completely new management team, we managed basically, during the first six months to appoint 450 new managers in the organization, 99.9% internal. We have a very good pipeline of talent. Actually, why I say 99% is that we only have one guy coming from outside. Doing a change like this, you need to make sure that you don't lose control. You need to make sure that the governance framework that has been there for decades is changed with something new. You need to have a financial framework. You need to make sure that the closing are going smoother. During a process like we had in 2012, don't lose track of where you are. This is, of course, something we have put a lot of emphasis, I must say the organization has done a tremendous job during 2012 in order to do that. We came out, I will talk about that in quite detail about the strategic objectives and also the brand positioning. Giving you the setting, the framework, 2012 was a transformation year. We managed to do everything we put ourselves in front of, I think we did it on time and with the quality that we wanted. That means that we actually start now, 2013, with the foundation. We lay the foundation, we fill it with concrete, we let the concrete dry, now from 2013 onwards, we can really start to run in the new organization. The strategic objectives that we put forward is really now to take this to the next step. This is to take all the thinking we have done, all the analysis we have done, all the opportunities we found, formulate that in a strategy that really drives home both to the external world, of course, also very, very important to the internal world. We said very clearly on that the key issues we want to focus on the next three years now is to drive the organic revenue growth. Hence, we have the strategic or the financial target to grow equal to or higher than our peers. This is really focusing on our organic revenue growth. Then, of course, we have the improve the profitability. What we did then was to, in springtime last year, gather all the top management in my team. We worked during the spring and tried to formulate what is it we're targeting, what is it that we really need to achieve the next 3 years in order to drive home on the growth and drive home on the profitability. We forced ourselves to be specific. We forced ourselves to be specific in order to be able to measure, in order to be able to really follow up and do corrective actions how we want to do it. That resulted in this. That is the nowadays almost famous 20 targets. This is not a Friday afternoon squirting together or anything like that. This is something that we have worked through during two or three quarters together with the top management, the middle management. We have tested the wording, we have tested the definitions, and most important of all, we have tested the interaction between the targets. Is it possible to reach all the targets? Because I don't want to have a strategy where you have 20 targets, where actually, if you met five of them, six were impossible to meet. That is something we also spend a lot of time on. This is a well-anchored and a very time-conscious strategy that we have. You see up in the right-hand corner, we have 36 months to go. When we started 1st of January, two months have gone. We have 34 months to go. This is the approach we're taking to this, and I'll come back to that a bit later. If we look at the target per se, you can see that some of them are then focusing very much on the revenue growth. There you have, for instance, the whole capture profitable growth opportunity, 3.1, 3.2, 3.3.4. You have the commercial alternative fuels, you have each brand to rank number 1, and those have been clustered into the growth section. I will come back to, and we follow this up very closely now, each and every quarter, each and every month, what actions are we taking in order to support this? The strategy like this is as much what you should do as much as what you should not do. The problem is to make sure that you stop things that are not supporting the strategy, and that is something we're working on very much as well. On the profitability side, we clustered that together, 1.1 to 1.5. I know there is a lot of interest in this particular part of it. We have spent a lot of time into it. Therefore, we have been very open in what would it mean, how much would it give an impact on the profit and loss. Therefore, I would like to spend a few minutes on actually going through this so you understand it and so you bring with you also the sense of seriousness, the sense of actually commitment to all these targets. If we start from the top with increased vehicle gross profit margin per region by 3 percentage points, 3 percentage points, sorry. There are two important things there. That is the vehicle. That means that this is new vehicles, okay? This is not spare parts. Hence, you see 3% is translated into 2% in the operating margin. What we're looking about here and what we're talking about is actually the price management. If you would give it an umbrella title, it is price management, and it's mixed management, but it's also really going through each and every market, each and every product, and see where do we make enough money not to be diluted. We found already in the beginning, a couple of examples where we say, this product, this market is not profitable enough. We don't see that we will get it profitable. Therefore, we took the decision, for instance, to exit the UD brand from U.S. because we saw we didn't have a chance to really make that profitable. It's both in terms of growing, in terms of price management, but it's also to actually take and bite the bullet and dismantle exit businesses that we don't see will be profitable. To our support here, we have developed a rather sophisticated market-by-market grid, where we talk about different segments, different products, where we should be, how much we should allocate, what kind of focus we should have, and that is something that will support us very much as well. We have, and as you will see that coming in front of us, a huge amount of new launches, very exciting new product lineup that we will have coming into 2014. That is, of course, also something that we see an opportunity. A lot of people see this as a risk coming out with new products, new lineups, that you would have problems on the pricing side. We're turning around and say, this is something we do very seldom. We see it as a real opportunity, and we're going to make sure that when we launch the new value truck, for instance, or the FH or the new Renault launch that will come this summer, we're going to take that as an opportunity, not as a problem. When it comes to the next point, reduce standard cost of sales for current offer by 10%. This one demands a little bit of explanation, just as a definition. You who are into balance sheets and profit and loss, the first question is, of course, how come can 10% on standard cost of sales only generate 3% of operating margin? First of all, it goes in the definition. It is in the current offer. That means that the new launch product that will come is not included in this. Therefore, per definition, you will have a higher cost level on those products. Therefore, we are now focusing for the next three years, that we're going to reduce the current offer with 10%. That means that per percentage of the total will, of course, become less and less over time. Having said that, we have also indicated over the next three years, price and cost Not price, cost reductions for the new products coming in. If you weigh all this together, we come up with ±3% on the operating margin. That is the reason for it. How are we going to do that? Well, we have put one heading there saying the Volvo Production System. The Volvo Production System is, of course, a huge umbrella. You have probably been in many presentations when people talk about their company's production system. Let me give you a few concrete examples of what we are looking at. Remember I told you that we had the business area by business area. In the production, that was very much the same. We had one Renault Trucks production manager who managed all the Renault Trucks production facilities. We had one Volvo Trucks production manager who managed those, and then you had the other business areas as well. That meant that the cross-fertilization, good ideas for new development and implementation really wasn't on the level where you would expect it to be. Now with one head of operation, Mikael Bratt, and one organization taking care of all the sites, you all of a sudden start to find a lot of different issues that you didn't expect. For instance, when we did analysis of the efficiency related to Kaizen Events, the Toyota production methodology that we're utilizing, we saw that the Renault factories were actually way ahead of the Volvo, if we take Europe. What we're doing now is really to implement the Renault Kaizen thinking into the Volvo factories. When we started to look at the quality on assembly processes, we found out that the Volvo quality processes were much better than what we have seen here in the U.S. Therefore, we're now transferring the online quality processes from Europe into the U.S. If you look at it and go line by line, you will find a number of these things that sort of open up and are actually low-hanging fruit that you can start to address rather quickly. Of course, the dynamic when you start to put all these production people together is quite enormous. In the organization, we also merged three purchasing organizations. It was the 3P, which was in technology. You have the powertrain, which has to do everything with engines, and then you have the non-automotive purchasing. That is now one purchasing organization. Just by adding all that together, per se, you are getting benefits because the volumes are going up, you can negotiate in a better way. It also means that we now can completely work together with the technology organization for the full vehicle in a much better way. We can do trade-offs between what is coming on the product side, engine side, and so on and so forth. For me, further optimizing sourcing goes the other way as well. It's as much about how flexible are we to get the product out to the market because we have a huge footprint all over the place. Example, Brazil, we see right now that we have had a positive trend in Brazil, the production and the capacity we would like to have to the Brazilian market. Now, we can use the European system where we do have capacity over and actually can supply finished trucks right into Peru and other areas in South America in order to optimize that. We are looking at, for instance, we have a CKD factory in Saudi Arabia that very well can start to support trucks into Africa, and thereby offload the European system that then can focus more on the European system. This kind of matching, so sourcing goes both in terms of procurement, which is a natural thing to think about, but also very much going into our flexibility to supply complete trucks or knock-down kits into the market. Quality is another issue, and I mentioned that with the quality process. I think here as well, we do have a lot of untapped opportunities in order to really get the on-build quality and the on-road quality harmonized throughout the regions and the different brands. The next one is the wholesale. For us, wholesale is we separate between the selling expenses that occur in the dealership and the one that we have, as you can call it, centrally. That is the price management, it's the system management, it's everything you have to do in order to support your dealers and in order to support the sale, but it's not done in the dealership. That one you can control yourself. That one is really just cost, and we need to make sure that those costs are as efficient as possible. Therefore, we didn't want to have this mix-up, which you very often get when you own a dealership, is that if you actually add service people in the dealership, the selling cost goes up. The payback on that service guy who's selling service hours, it's mega enormous. It's like a very good business case. On the cost line, selling, it goes up. Therefore, we didn't internally want to have that discussion. We said, okay, let's look at what we can control and what we believe is true cost, and that is the wholesale selling expenses. There, of course, it's the streamlining. One very good example of this is what we have done in Europe now. In Europe, we had a complete separate selling structure between Renault and Volvo. The big reorientation that we're doing now is that we actually divide Europe into regions. In the regions, they are responsible for both the Renault and the Volvo brands. This is from an orientation point of view, really easy to understand. From a culture point of view and from an opportunity point of view, it's of course, something that is quite new, and we have to really push through to make sure that has happened in a speedy way. The result of this is actually that if you look at the Renault dealer and the dealer density, one of the big problem with the Renault in Eastern Europe, for instance, was that they were too small. The dealer density was too little or too weak. The profitability in many markets were absolutely too weak. Therefore, we can now by joining forces with Volvo, which has a much better, and we do dual branding and we have dual workshop, we actually increased the number of service points for Renault in one go just by doing this reorganization with up to 40%-50%. All of a sudden, the Renault customer, and that is something that they have been suffering from, have access to a service network that is actually much, much bigger than it had before. What also happened is, of course, that when you do that, you can take out management level because we have double of everything in every region out in the market, and that we've also done. Hence, the reorganization charge that we have taken now in order to reduce the number of people. By doing this, we all of a sudden get a marketing organization in Europe that is really taking the benefit of both of the brands, promoting both of the brands, and also now with the new launches we're having going to have an extremely updated and modern product fleet to deal with going forward. What we also said is that the key market for Renault, which is France, Southern Europe, and U.K., we keep it separate. We don't want to mix it where it's not necessary, but we do mix it and blend it where we see it's under critical, and it's particularly on the Renault side where I've seen the under criticality. This is definitely a win-win situation for everyone in this one. Japan, another example. We took out basically 10% of the whole workforce in Japan. It is a mega enormous step. 10% of the workforce basically has left the company in Japan. A big chunk of that was in the selling side and the wholesale side of it, which is now being done, and we restructure also the Japan distribution system and the sales system. Soft offer has always been something we have been focusing on and something that we have pushed on. Here again, I want to make sure that we have a target that's really focusing on the fact that we want to create not only spare parts sales. We want to create new solutions. We want to create new products in the aftermarket because just focusing on the spare parts sale in the long run, I don't think it's going to be enough. By actually measuring this as an own dealer soft offer absorption means that we get to drive in two directions. One, that we get stronger dealer because they absorb the running cost better. Secondly, we get an enormous focus on actually developing new soft offer products. Reduce R&D expenses to SEK 11.5 billion. That's a SEK 2 billion reduction compared to the running cost that we had in Q4. Here is, of course, I would say a top-down, we have to do it. I mean, we can wait and see how the efficiency improvements are coming along, but I choose to say the other way around. We have to fix this. We have to start the reduction in R&D gross, I'm talking about now, the gross R&D already now, then we have to fix the things as it goes along without doing stupid things. Because otherwise, the engineer organization have a tendency sometimes to have difficulties to actually measure the improvements. We have turned it around and said we start with the cost reductions, then guys, you find improvements and efficiency gains, then we continue to do that. We are taking out 200 consultants in the engineer organization during Q1 this year in order to start that journey to make sure that we get the run rate where it should be by the end of the day. This means the improvement on price is six points. I would like to add something just for clarity because this is also important almost to the record. When we set this up, we wanted to make sure that we didn't get a fluent kind of thinking around this. Therefore, we fixed the volumes. What you see here is based on the SEK 200 billion turnover. Nobody knows what the market will look like in 2015, but based on a SEK 200 billion, this is what we're going to see in 2015. This is where all the plans, all the roadmaps and everything is guiding us for. If we then move over and look at the other areas, the business areas, Volvo Construction Equipment, Buses, Volvo Penta. We have put targets on those as well. As you can see on the total, they will then contribute with 0.5% for the group based on another SEK 100 million, coming up to the SEK 300 billion for the group. Of course, Volvo Construction Equipment is by far the largest in this. Volvo Construction Equipment has, as you know, gone through a transformation process since 2008 and has transformed into a new company. They have, and I will come back to that, a lot of opportunities still to grasp. But just to give you a flavor of the changes. In the crisis in 2008, Q4, Volvo Construction Equipment had a turnover of SEK 12 billion, made a huge loss and had massive negative cash flow. Q4 2012, the same turnaround, SEK 12 billion, turnover SEK 12 billion, but they have a substantial positive cash flow and they showed a positive margin. The transformation of Volvo Construction Equipment has happened. Of course, that's good, a tap on the shoulder for that, but now we need to look forward to the next three-year period. They have actually been through this one time. They have done exactly this strategic process that we're now doing for Volvo Trucks, and I can tell that because I was there, I did it at that point in time. The result is actually, unfortunately, you have to say, the proof is that the 2008 and the 2012 rather low volumes, but you can see the differentiation on the cash flow and on the results. Adding this all up is 5%. I think it would not be serious to me to stand in front of you and say, "That is exactly what it's going to be to the dot." We know that things will happen that we don't know today. We know that there will be issues that we haven't foreseen. Therefore, we put in what I call the headwind factor, that then gets us down to the three percentage points, which is then the effect that those activities will give the group over the next three years based on a SEK 300 billion turnover. Talking about this is one thing, putting on slides is one thing. How do we monitor it? How do we follow it? How do we make sure that it's actually happening? We have five key focus areas. We have the 20 strategic objectives you have seen. We have developed this into, as per date, 35 targets and roadmaps, and we have more than 400 activities that we're now focusing on. This is not a quarterly or half year or a yearly update with a red dot or a green dot or a yellow dot. This is coming and reported to us in the management team on a monthly basis. One Monday a month, we get a full report where we stand on the different 20 targets and have a discussion around it. Where are we falling behind? Where do we need more resources? What do we need to do in order to correct things? Because a lot of things is happening all the time. 12 times a year, we're going through this in quite the detail. Leaving that part of it. Then looking into what I consider one of our absolute largest assets that we have, that is our unique brand portfolio and the new thinking that we are implying and putting into leveraging this unique brand portfolio. If you look at the brand position, you see there's a lot of connections into the different targets, both on the brand positioning, the sizes, the growth and all of that. There's a lot of targets out of the 20 to pick from when it comes to how we're going to utilize our brand positioning. If you look at it, we do have a very good position to manage, and we have a very good heritage that we now need to bring to the next level. We have strong brands. You can see them there. We have a enormously global industrial footprint. I'll talk about that. It's becoming more and more global. We have our customer relations, technology platforms, and of course, a very strong global distribution and presence. We are actually active in 192 countries in the world, and I think there are in total 200 something countries in the world. We are truly global when it comes to our global presence. If you look at the map as was, as it used to be, there are two things I would like to comment here. One is, of course, as you can see, our tendency to be up in the right-hand corner where you have the high price level and when you have the increasing solution requirements to the customer. What we saw over the years was that the brands, in their independency and in their eager to move themselves, they wanted all of them to move up in that corner. The Renault Trucks, the UD Trucks, the Mack Trucks. Everyone wanted to be there. Volvo Truck was up there. That meant, of course, that we got stacked, or we got heavy loaded up there in that corner. If you look at the whole lower left quadrant, that represents something between 1.3 million-1.5 million trucks a year around the world. That is both the basic segment and the value segment. You can see how well established we were there, or is. It is actually a big chunk of trucks, steel wheels that we leave on the table. What we set out to do then, beginning of last year, was that we need to rethink this really and see how we can do it. The result of that work, which actually was an almost one-year work, was to come up with this. Instead of having a tendency and slippages up to the right-hand corner, we were very firm and very clear to the different brands. This is where we as a group, because you are a group asset, this is where we want you long term to be in the marketplace. We could, of course, have expected a lot of pushbacks on that, but on the contrary, there was a lot of acceptance and actually a lot of positive comments coming back to it that they wanted. Everyone wants to have a clear position. Everyone wants to know what they should fight for. Now with this lineup of brands, we actually can say that we do have that in a good way, recovering all the way from the basic segment. The UD segment has its place now, that is UD outside Japan. The Renault has actually been a much wider scope than it was before. For the Renault people, this was really positive because before they were squeezed in in the upper-hand corner. Now they really have the task to go out and do product plans and other to make sure that you cover all this. Then you have the Volvo brand there. Five brands that is covering the whole area of trucks. This is, of course, that chart is very easy to do, and it's actually not too much of. It's a lot of work behind it, but it's quite natural once you see it. The problem is, of course, how do we get the right products? The issue to me was actually we have to make sure that we have competitive products because you cannot keep on downscaling the Volvo truck to fit in the value segment. It's not possible. It would be a bad truck, it would be too expensive, and it would be a failure. We need to make sure that we have the platforms covering the different areas. We do have now, for the first time really, a full lineup also on the product side. With the Eicher products and the basic platform, we are, and I will talk a little bit more about it, our newly developed value platform that is then covering both the value and value basic. Then we have the Renault and the Volvo premium platform taking care of premium end and high end. It's not only that we have really defined the places for the brands in the market, we also said clearly, "Yes, you will get the product that goes with it." We then start with the premium end. We are very proud to, and we have done a, if I can say so myself, a heck of a job on this truck. It has been five years of development. We have spent SEK 11 billion in development cost of it, and we have come up with something that really has moved the premium end upwards. This truck is a game changer. We have a new cab, new dynamic steering. We have fuel efficiency, and we have the latest of the latest in terms of features in this truck. It has received very good acceptance from the customers. We have run through thousands of training hours. We have launched it now properly in Europe. We're ramping up production, the order intake that we see right now is actually exceeding our already high expectations in order intake. A very good acceptance for that, and we'll fill that spot up there on the premium end in a very good way. The next thing to come is actually a full range of new heavy duty trucks from Renault. There we have the big launch in June, so we'll not be able to talk about the features and those kind of things. You would have to wait and see when it comes in June. We are already now looking at the production ramp up during the second semester, second half of this year to then start really to get the delivery volumes out in 2014. This is very exciting news for Renault as well. With that, we then have a product that is designed for, attached to, and also working very nicely in the high end. Moving on to the value. One of the most frequently asked question is when we will launch this platform. For competitive reasons, we will not reveal that. We haven't done it, and we will not do it today. On the question if it exists, I can say that much that I have been driven it. It does really exist. This is a game changing offering. This is a family, basically, of a product range covering the haulage, covering the construction, and covering the mining. This is really much more than just a truck. This is really a platform thinking and a family thinking that we have developed. This truck has been developed in Asia, by Asia, designed for Asia. This is a design for purpose and design for markets that we have seen. This will then be marketed across South Asia and Southeast Asia, of course, and we will see how we will deploy this value truck going forward. Developing that truck is one thing, but we didn't have the industrial setup in order to really make sure that we could benefit from it because you also need to have the production. In parallel to this development, we have also invested heavily in Bangalore, and we're looking also into Hangzhou to make sure that we have local production for the markets because I didn't want to have a situation where we actually have sort of a hub thinking or too far distance between the production, local sourcing and into the marketplaces. For the big chunks of the market, we're going to have our own production in order to take care of the supply of and thereby also increasing the flexibility in our production system. This is, of course, combined with the development. The industrial project has been huge. This is a big project that we have been running in parallel in order to facilitate that. It's coming along very nicely. Finally, the basic, which is then the end of 2013, we launched a new lineup of Eicher heavy duty. This is then basically combining the best of the two worlds when it comes to India frugal engineering, Volvo knowledge. I must say that the joint venture we have with Eicher is working very good. We have extremely good cooperation, and we actually are pushing things in the best possible way. Looking at 2012, for instance, in a decreasing market in India, Eicher managed to continue to take market shares both in the medium duty, but actually now also getting a foothold in the heavy duty, which they haven't been very present before. Now and again, this is a product designed for the market that it's going to be in. We're very pleased to see that. That was sort of the last bit and the last part of the truck puzzle. Now we need to move on because we have done a lot of things. We have during 2012 defined the product strategy. We have added on with the product platforms. We have added on reinvestment in industrial systems, and now we need to take these assets step by step further. Of course, we cannot from one day to another reshape the whole product line. We need to bring it in. We need to make sure that we do it step by step. In Q2 this year, we're now going to align all the features that we have and that we need to have in the future for the new products. We need to define aftermarket solutions because that's very much different in different parts of the world. We then need to come in with those revised products plan. That will bring us into the next generation, the next update, the next one, and then we're looking five, 10 years ahead. That's the kind of foresight you need to have in order to have the development cycles being in the right way. Now we have the whole bits and parts of the puzzle, including the thing I'm going to talk about next, which is then going to be about China at the end. We had, as you know, up until the 26th of January this year, we still have, we hope that within a year we will have closed the largest sort of bit that was missing in our global puzzle, and that was China. We were present there with our Western European brands. We were present there with our Dongfeng joint venture, with the UD knock-down kits that were coming from Japan, but we were not really a player. With this Volvo Group and Dongfeng strategic alliance, where we buy 45% of Dongfeng Commercial Vehicles, we have sort of made sure that we, together with our partner, become a very strong player in China as well. China, as you know, is by far the largest truck market in the world, actually equals the size of Europe and North America together. It is very important, and I'm really pleased that we managed to get to this deal because it's a win-win deal for everyone, and it supports very much our strategy on the capture growth opportunities. By optimizing the brand assets to become number 1 or number 2 in the heavy-duty truck market, and by combining this, looking at 2011 numbers, we would actually be the largest heavy-duty truck manufacturer in the world. The deal by itself, it's going to be a newly formed company called the DFCV, Dongfeng Commercial Vehicles. In there, the Dongfeng Group will put absolute majority of their truck manufacturing, also buses. That will then constitute, if you look at the volume, some 142,000 trucks and with a 16% market share. This will, from the start off, be a big company. It's a difference as compared to the other setups we have seen with a small joint venture in front of a big partner, that then Western technology or other technology went into, and that small joint venture was there. This one is actually really a strategic alliance, and it is a substantial company. It is a company that is one of the largest in China producing trucks. We see a lot of benefits here. We see benefits, of course, both for the Dongfeng side and for the Volvo side. We do have a lot of benefits when it comes to transmission, engines, volumes in general, both purchase and production volumes. A lot of synergies when it comes to R&D costs, making sure that we can spread our R&D costs on higher volumes. Also, we have been very clear saying that this is a partnership that will strengthen Dongfeng substantially in the Chinese market, that's one target, but also to create the prerequisites and making sure that Dongfeng also becomes a global company coming out to other markets around in the world. I see that only positive. I think this is, if you look at the value segment and the basic segment I talk about around the world, somewhere between 1.3, 1.5 million trucks a year, that segment is big enough to really making sure that we can have also Dongfeng in that, and by that, also making sure that we are part of that expansion from the Volvo side and benefit from it. Important to say that the transaction is due to and awaiting authority approval, and that is a process that we believe would take approximately a year from the 26th of January. We will have to wait and see. There is nothing today that we see that wouldn't. On the other hand, we're very humble. This is an approval process that has to be run, and we'll see what comes out of it. The transaction per se is quite straightforward. We have the DFCV, the newly formed company, which we own by 45 of Volvo Group and 55 by Dongfeng, and we paid them 5.6 billion RMB for that 45% ownership. We also include then the DNV joint venture in the setup. We're also going to have that joint venture as a branch in the DFCV joint venture. I will not go through this. You have it in your slides. We can just say that you see the size of it, you see the profitability. Of course, 2012, you can see there the profit. Also, you can see it on the volumes. Of course, the 2012 was a tough year on the truck industry in China, as it's been in other places in the world as well. 28,000 employees and a market share in this big market of 16%, 17%. Strong lineup, a new lineup, a modern lineup, but it is a Chinese lineup. The logo you see is the double swallow. If you look at it closely, you can see there are two swallows flying around in a circle. The name is then the Dongfeng written in those letters. That's the trademark or the brand and the logo. You can see the products, Kinland, Tianlong, Kingrun, and then you have other basic products as well. It's a complete lineup of trucks that we see both for medium duty and heavy duty, and as I said before, also bus activities included in this. This will give us a really strong position in China. If you look at it from a total activity point of view, including 100% of our partners, and you look at 2011 operations, we are actually 34,000 people in China and having a SEK 62 billion of turnover. I would like to emphasize, we're talking about SEK here and no other currency. You can see that we're well-positioned, and as one of the largest on the truck side. We are number one on the construction equipment. We reinforce that position during 2012, growing our market shares. We also are active in the high level and the new technology on the bus side, together with STI Craft. We are actually in China, and we haven't this on here, but we are one of the few countries in the world where we have all activities present. VFS, we have Volvo Penta, and we have all the others represented in China. That's really a home market, and it's a big market for us as well. Now, the next step is to execute and deliver, and I will come back at the back end of this presentation to show you some examples more on what we have done in order to make it really concrete and not too much of fluffing. With that, I think I leave it over to you, Denny. Thank you, Olof. I am tasked with the execute and deliver part of this thing. First of all, this is my region, the Americas. You can see the numbers, really positive about North and South America or the Americas in general. You see Canada coming on quite nicely. Mexico, really some good growing demand there. The U.S. may be moving sideways, but still turning green. When you go through even Latin America into Brazil, you're seeing, particularly in Brazil, there's a situation where the growth that was interrupted a couple of years ago has resumed. A lot of positive activities there and stimulus for Brazil. By and by, I have a pretty good region. Lots of opportunity. I want to talk today about drilling down a bit to what we see as sort of the growth opportunities and how we are positioned to take advantage of them. First thing, you will see this slide not only by me, but if you meet any of my people, because this is our roadmap, as Olof said, and we'd like to make sure any of our activities are supporting this. First one I want to talk about, though, is distribution development, and it goes without saying that the strength of your distribution is fundamental to delivering on almost anything you have on that map related to revenue, profitability, and share. My comments are going to be primarily centered on North America when I talk about distribution. We have a great and strong distribution in Brazil, delivering a number one position in heavy-duty market share. The U.S., if you wanted to sell against Volvo 10 years ago, you would talk about distribution. It was a long road for Volvo. Volvo is still young in the North American market by many standards. We have gone to work on this, particularly in the last 3 or 4 years, and along with our dealers, have invested heavily on this. We're keeping an eye on continuous improvement, dealer operating standards, grinding away at it, and also doing some restructuring where we've had chronic underperformers or succession, et cetera. We've been pretty successful in that. Some of the metrics there are very important. Important to us, obviously important to our customers. We've grown 50 outlets since 2010. We've had SEK 175 million in private investment and upgrades and a lot of medium size and medium large projects going on within dealers, aside from building new facilities and new locations. Importantly, we've increased the number of bays available to our customers by 25% in two years. That's a great metric, and I'll come back to the importance of that later. Our dealers had record profitability in 2011 and 2012, they are believers, and they're willing to reinvest, as we said earlier. We've added 800 new technicians. That's quantitative. Qualitatively, we've increased the number of what we call the highest level of service support, a master technician. We've increased those numbers by 125% in two years. There's a lot of real improvement in our network, and frankly, you can't talk about distribution for being a weakness in either Mack or Volvo now. Our work is not done. It's continuing. There's some very ambitious plans on the drawing board with our dealers this year. A very important part of our success, our profitability, is the aftermarket. Of course, we have to be good at that. We have to service our customers well, and we have to be good at the marketing it. Fundamental to that is to own, in a proprietary way, the powertrain and the things that produce the parts and produce equally in this era of constantly challenges around emissions and other things. It's good to have control of and be able to develop a powertrain, all of which are your components. Yeah, the things that rather than bringing them in for different vendors. If they're yours, you can optimize on the efficiencies, of course. We've had some, again, good success here. On the Volvo side, we still offer Cummins as an alternative, as you can see, the penetration of Volvo engines is up to 79%. The thing I'd like to, if leave you with anything as far as the positioning of Volvo and Mack in North America, it's about I-Shift. Let me talk about I-Shift. Wherever I-Shift has been introduced in the world, it's had a slow start and then just meteoric growth as customers got the feel of and the potential of I-Shift. Not only is it easier, safer, et cetera, it also is a fuel saving over the standard transmission. In the case of Volvo, we've seen it rise to 45%. In the case of Mack, from a standing start, just a couple of years ago, we're up to 27% of Mack's business is I-Shift. Customers love this product. I can tell you, for example, we just hired Euan Nyberg from the U.K. He was in charge of Volvo there. His goal was to get up to 40% penetration a couple of years ago. They're up to 85%. In Brazil, it's almost 100%. This is a game changer. I-Shift, if you think about it makes so much sense. Customers love it, and we are obviously in a good position, and we will continue to lead the customers and share the benefits of this automated manual transmission. We also, of course, answering the bell, so to speak, on the demands around alternative fuel, particularly natural gas. In our offering today, where we can't offer it in our engine, we're integrating the Cummins engine. We're also working our own HPDI LNG engine, as well as some other interesting things around DME, et cetera, coming later. The next one. This is one that, again, I think if you know the industry, you talk to customers, and they talk easily and have a lot of metrics around things like fuel economy and running costs, et cetera. The thing that is hard to measure that is most important to any of these customers who are measured quite closely by their customers on things like on-time delivery, et cetera, is downtime. The unplanned stop is the worst thing that can happen to our customers. Most expensive. It's hard to put a number on it because you have the physical numbers, then you have the impact on the customer's customer. We are grasping this and marrying technology with the already capabilities we had in our product support system, such as 24/7 breakdown services. We're putting it together to focus on downtime, and not just focus on downtime, but anticipate downtime. Let me give you a quick example of what I'm talking about. You're going down the road. We have installed in the truck a telematic. Someone's monitoring. It gets a fault code, and that fault code has already been filtered so that we know that it is probable the customer is going to have a downtime event. It can be something lighter than that that we'll let them know. Let's follow the downtime event. Not only do we just tell the customer and call them, "Hey, we see this fault code. You should be aware." What we have done is also called ahead to our dealer, found out that he had an open bay, made sure he had the parts in stock, so that when the customer comes in, if he's not just falling in line and somebody's doing the initial diagnosis, we've also, by the way, told the dealer what the fault code is, and he's already done the work to diagnosis. It goes through. You talk to any customer, they call it dwell time. From the time you go down to the time you're up. You go down inside the road, you got a hotel bill, you got somebody missing their kid's baseball game. You've got problems. We're gearing this uptime focus around exactly what the customer cares most about. I think we're ahead of the game here. I think we've got some tools here that are unique to us. A lot of people have telematics, but the underlying, the work, the heavy lifting of this is done by systems underneath telematics. We have it. I mentioned geocoding on the slide, or geofencing. Think about it. The most important thing, again, to a customer is dwell time, the time you go down, the time you get back up. What if we drew a circle around every one of our dealers and we had a truck with a fault code go into it, then we could measure exactly how long that truck has been there. What you measure, you can improve. We measure the time the truck has been in a dealership. We'll give them a call. "Hey, what's going on here? You've been down two or three days." It could be us. It could be a part or it could be a misdiagnosis. It could be a lot of things, but at least we measure it and we'll act on it. The whole company is becoming sensitive to the customer's most important thing, and that is uptime, so he can deliver a better product to his customer. Let me just finish by talking a little bit about South America. The opportunity here is to position, we have this great brand portfolio. As you can see, you take Brazil, for example. We have number 1 in Brazil, as you can see, number 1 in customer satisfaction, number 1 in brand image, number 1 in heavy duty trucks with 27% of the market. Overall, 18% of the market. Good dealers. We've got a great network, and we've been there for 30 years. We've built up a good fortress, I call it, where you have a great distribution, great people, and we are number 1 in image, et cetera. But we have this opportunity where 75% of that market is really not addressed properly by our existing offering. Over the next year or so, we will be making a decision on the value of trucks, which value truck to bring in, how we bring it in terms of not only how we distribute it, but how we build it. We'll be making that offering, expanding our offering, in Brazil, leveraging off the strengths that we already have. Quite excited about this. I think it will ensure that not only we have a leading position, but we're taking advantage of a very profitable market. Same exercise will be done for the rest of all the markets in Latin America to determine whether we have the right set in the brand portfolio to optimize our potential in South America, which again gets back to the strategic objectives and delivering on our full potential. With that, I'll hand it back to the boss for construction equipment. Thank you very much, Denny, let me talk a few minutes on construction equipment and the, as I said, the second strategic period that they are now entering, having run through the first strategic period in this same system as we have done now implementing for the trucks. If you look at it, I talked about it before with the starting point, it is, as I said before, a new construction equipment, a reshaped construction equipment compared to before 2008, where we then have, of course, focused a lot on the dual brand. With the examples that we talked about is China, has been a real success in order to capture market share we didn't see coming before. Also, which is being done in Brazil right now, where we had, and we took the decision two or three years ago to go in with SDLG brand in Brazil, doing exactly what Denny was talking about on the truck side. What we did there was actually to take the existing dealer network and ask them, "Are you interested, dear dealer, to invest in a complete separate dealer network and then bring in the SDLG product? We don't want to have the same front office. You can have the same back office. Ownership, yes, but you're not allowed to mix the two brands." They said, "Yes, definitely." We went in two years, basically from being zero in the Chinese segment in Brazil, and today we're number 1 in the Chinese segment in Brazil with SDLG wheel loader. That is a model that we tested out in construction equipment, and we're looking at a similar model around the world, coming back to utilizing our brand and distribution. We do have, and I think looking at CE today, we have just started to really grasp the opportunity that we do have with the dual brands. I come back to that a little bit, but we believe that by utilizing the two brands in the most intelligent and effective way, we still have a lot of opportunities going forward, and that is to grow the share in the margin markets with the same principle as we have for the truck side. That is, of course, interesting, I will come back to a little bit more in detail, but we also had to look at what is so important in all businesses to make sure that we do have the aftermarket business coming with us as well. If you look at the profitability growth of SDLG globally, we are now looking at a case, here we have put an absolute number. We said that we're going to, by the end of this period, export or have a business of 10,000 units of SDLG products outside of China. I think it's 3,900 or something in 2012. It's quite an aggressive growth plan that we're looking at in order to achieve here. When it comes to develop branded products for emerging markets, it is very important that we do have the philosophy, and basically what this story says, is that you need in each and every market to have the right product for the customer. It means that you have to design it in the right way. You need to have the right quality in order to make sure that you have a runner in that market. That is basically a shift of thinking strategically coming from the Volvo system, where you always put the total quality and the supreme quality and also the durability and everything on top. Now you need to make sure that when you design the products coming into the emerging markets, you need to have all that, but it has to be on a level where the cost level is right in order to be competitive and profitable. I think we have a very good example where we achieve that coming. Common architecture and shared technology is very important when you do this kind of. This is something that is not only between the brands, but is perhaps even more so within, for instance, the Volvo brands. CE is under the same kind of lineup as we have done on the trucks. You can see that basically we have the same premium value and basic segment in the CE construction equipment as we have in the trucks. There we have shown something a little bit different compared to the truck side, because on the truck side, we have the five brands. You can actually line them up and making sure that you cover bigger segments or smaller segments. Whereas with the two brands we have here, we do have to make sure that we have a little bit of stretch in the brand. This is a delicate, but I think very interesting concept that we are embarking on now to see where is the Volvo brand stretch. It has to be very carefully managed so you don't have a rubber band that actually snaps. You move into segments you don't want to be in or quality you don't want to be in, both from a reputation brand point of view, but also from a cost and profitability point of view. The same goes with SDLG. How much can that brand really, in terms of moving up the ladder, take? It's of course always easier. It's always easier to move up the ladder with a brand because you add on features, products, and slowly you will get there. The thing we've done and the growth opportunities we see is, this kind of gives the opportunity in China in a good way, this slide and the next slide. Here you can see on excavator 3.5%. We should remember that three, four years ago, that was zero. Now it's 3.5% on the excavator for SDLG, and you have an almost 19% on the reloader side, which actually was, if I remember correctly, don't quote me on the number, down on the 14%, 13% some years ago. We have seen growth definitely on the SDLG side, on both sides. Remember that there was 3.5 and 18.7, look at this slide, and you see 6.5 and 0.1. Then you can start to see the opportunities. The 3.5 on the SDLG side, on the excavator side, is of course a great opportunity to grow. The 0.1 on the wheel loader on Volvo is, of course, even more a good way of growing. I mean, we're selling a handful of Volvo wheel loaders into China today. Therefore, we have developed this BRIC loader, which I will come back to, which is actually done in a cooperation between the SDLG and the Volvo brand. Here we see the growth is definitely coming from both sides, both from the excavator side, on the SDLG side, and an enormous potential if we get this right on the loader side in China for the Volvo brand. The way we've been working on it is basically we started off in the excavator case by taking Western technology into the SDLG. We did make that in a very cost-conscious way, and we had a really deep dive into the features, into the functionality, into the cost structure in order to make sure that when they started to build the first SDLG excavator, and that came out to the market, that we had the profitability we wanted and that we had the cost structure that we wanted. That was done, and it was done in a very good way. The next step was to do the reverse. Basically what we did was that we looked at the concepts and the technology that have been extremely successful in China for SDLG on the wheel loader side. We said, what can we take there? What platform things can we do? Then be very cautious not destroying the cost structure, then moving that upwards and adding on features. That's exactly according to the school book the way you should be doing. Take a low-end product, add features, add components, then bring it upwards, not the other way around. That is now what we launched just a few months ago, the new Volvo BRIC loader that will be launched. It has been launched, and now is going to be sold, produced in China and sold in China the year to come. Very exciting, and we're really having great hopes for this product because it's hitting in a spot in the market where we believe there is definitely room for market share without taking them from SDLG. That is actually capturing new market shares for the Volvo side. Then we can roll this concept out, then we have it. We have done it in China. We have tested it in Brazil with great success. Then you can start to move it on now. Looking into Africa, you have the same kind of structure in terms of the Volvo customers, mainly into mining, heavy production, very quality-conscious customers, international companies. Then you have the big base of construction work and other things that is going on in China, which we are not addressing with the Volvo products, which we now can use the SDLG product. Then you have the Southeast Asia all the way down into Australia. Then, of course, long term, you can look at other markets as well going forward. Russia is another example where we also have great opportunities. Again, combining the brands, it's a key issue to create volume and always keep an eye on the profitability. You can see that I was right, 3,900, and we want to grow that to 10,000 in the next three years to come. I think all in all, there are a lot of activities and things with CE that we need to focus upon, of course. Coming to the main thing that I would like to share with you today is about what I just talked about when it comes to really utilizing these two brands, really making sure that we are pushing these two. I think we have gained so much experience over the last three years and such a good cooperation with our partner that I think we are in a very good position to do that. The real test in the water was actually the BRIC loader. It seems to be easy once you have it, but it required a lot of thinking and a lot of work in order to do that. Our setup of a Volvo Research Center in China was instrumental for this, because there we attracted the Chinese people coming in. It was easy also to get Lingong engineers coming, and thereby we created a really Chinese environment, and that is so much easier to design the right product for the Chinese market, rather if you want to export good thinking and good design from Western European into China. That setup was also instrumental to this. Now we need to look forward. We have other products, we have other types of products, and you can continue to do that as well. A few words on the engine legislation and the Tier 4, both the interim and the final, has sort of sailed under the radar screen. This is a major change in the construction equipment industry with those kind of emission legislation. We have been, I would say, very successful. We were absolutely on time launching the interim. We are on time for the final. The feedback we get from the customers on the interim solutions are very good because we do have a functionality that is actually mean that the customer can go without regeneration and burn the soot and burn the filters, and they can do that up and running. We are very proud of that solution, and the customers are liking that as well. We are well-positioned in the engine legislation part of it. All in all, set for growth with two global brands. Good work done during the previous three years. Believe me, even though I'm not sitting in Brussels anymore leading it, I keep a very close eye on that. The CE is developing in line with those plans, and all the piece in the puzzle is there. Now it's again a matter of execution. Just for your information, the same process I talked about when it comes to the truck with monthly follow-ups, with the same principles of limited amount of targets, roadmaps follow-up. It's the same process we do in trucks, we do it in CE, we do it in buses, we do it in Penta. I took the example of the trucks, but this is something that we do throughout the company now. Strategy is no longer quarterly, half-year, it's monthly. It's like the financial result. There's something up there every month. Now I think it's coffee time, right? Yes. Good. We reconvene in 30 minutes, roughly from now. Okay. Hello, and welcome back from the coffee break. My name is Martin Weissburg, and I'll be presenting some topics on our customer finance company, Volvo Financial Services. I'll be showing where and how VFS is integrated into the truck strategy and the impact and the importance of this as we're taking a holistic view as a group to execute on group truck strategy, but also the CE strategy, et cetera. As a captive finance company, VFS is, of course, a tool to help with the sale of the products and to stay close to the customers throughout the customer's experience with the Volvo Group products. We do this, of course, through well-controlled and disciplined operations and within very distinct risk and pricing parameters. VFS is indeed well-positioned today, even more so into the future, to help drive group product sales and to do so with these profitable solutions. To give you a bit of an overview, we're about 1,400 employees globally. We're offering group financial services in 40 countries now, these 40 countries represent about 85%-90% of group unit sales. While our footprint today is 40 countries compared to the group's footprint, which is larger, it covers the vast majority of where the group sells product. We serve all the group brands, I'll show some information on this later. Today we have internal share or penetration of approximately 20% of group sales. We are a global company, and we're a growing company. What are the opportunities? Organic growth. As the Volvo Group grows, so too will and so too shall financial services. Geographic growth, expansion into new markets. We are always looking at this, and we have this as part of our joint strategy as well. Integrated commercial offerings. How do we together, hard product plus soft product, bring this together? We'll show you some examples of how it ties to Group Trucks strategy to make sure we're getting multiple revenue streams from the same important customer and giving them good service, then operational excellence in capital market activities and the continued advances in these areas. Especially on capital markets, how do we, together with Volvo Group Treasury and the rest of the Volvo Group team, have even more diverse and sophisticated manners in which we raise funds and manage the VFS balance sheet? Our Group CFO, Anders Osberg, will be touching on this in his presentation, which comes next as well. VFS has the fortune to have a diversified portfolio and scalable operations. From a product standpoint, on the left of this slide, you see about 20% of our portfolio is lending to our distributors. This is for inventory finance, also called floor plan financing. Of course, gives us, between Denny's organization and mine and the other parts of the sales and industrial organization, a very clear and good look into the dealer health and dealer relationships. As Denny and Olof had mentioned, it's that strength of distribution and our close ties to them that are key to execution of the strategy. That's 20%, then the other 80% of course, is financing and leasing we do for the end customer, for the retail customer. Installment sales or loans, finance leases, operating leases. In the center, you'll see how our portfolio globally is split up amongst the product types that the group manufactures and sell. No surprise, just as the group revenues are about 70% trucks, so too is the VFS portfolio 65%-70% trucks, then Volvo Construction Equipment 25% and bus the remainder. Again, similar to the structure of Group Trucks and Volvo Construction Equipment, our operations are set up in three regions, EMEA, the Americas, and APAC. You can see the distribution of the portfolio amongst those three regions. I will tell you that APAC, our newest region, continues to be a fast-growing region and a very solid one. On the bottom left, you see some statistics, I would tell you both the size of the portfolio, the penetration, and the volume completed in the year just ended, 2012. Those were all records since the inception of VFS some 12, 13 years ago. We processed about 70,000 transactions last year, and maybe if you're in the credit card business or the auto finance business, that doesn't sound like a lot, but for commercial lending of trucks and Volvo Construction Equipment, it is a big back office, where some of the operational efficiency is actually quite important. This represents new equipment, used equipment, very large fleets to down to the single owner/operator or individual proprietor. You can look, this is return on shareholder equity. You can see pre-crisis, pretty good performance. Then during the crisis, certainly had a significant impact on the VFS result. We had been, I would say, overweighted and under structured in Eastern Europe. We are neither of those things today. We had net amortization. We shrank. That, and of course, write-offs during the tough times then resulted in lower performance in the terms of operating income and ROE. The last few years have seen good growth, good margins, excellent integration with the rest of the group as we continue to present these customer solutions and transport solutions together. This has resulted then in a stable, growing portfolio, much more stable and better performing portfolio statistics, which of course leads to fewer customer defaults, repossessions, write-offs, et cetera. The result being higher levels of operating income, higher levels of return on shareholder equity, which in turn gives a more stable platform for continued growth, for continued investment, and for execution of the strategy. Olof showed you this, I'm going to show also as part of the Group Trucks strategy, the same links and the similar links are in existence for Volvo Construction Equipment, Bus, and Volvo Penta, but the focus today on the Group Trucks strategy and show you the impact or the link that the captive finance company, Volvo Financial Services, has in this as well. Of the strategic objectives, eight of them, Volvo Financial Services have direct links where we are, what we call internally, co-owners of the strategic road mapping activities, which is very sharp, focused, and measurable, then Volvo Financial Services has jointly responsibility to help execute on the strategy. I'd say in the past, the group had been always reasonably integrated, but under the new structure, the group is extremely well integrated. That's how we bring all these resources together to execute on the strategy. I won't speak to all of these, but I'll speak to two of them to give you some examples as to the importance. The first of these two will be the 2.2 retail excellence and 3.1 number one and number two in market share. First strategic objective for Group Trucks 2.2, rollout of the integrated customer interface tool. It's all about being close to the customer and retaining the customer. Okay. You could say that, well, this is not a new concept, but I would tell you this is a concept not well executed from an industry standpoint in the truck and construction equipment business, and that Volvo and the Volvo Group has actually advanced in this. How are we doing it? We're doing it by investment in technology, which is point of sale technology. As the customer comes into a dealership, be it an independent dealer or one of our own dealers, we're bundling the offering up front. As they're speccing the truck, we're saying, "Here's your financing, here's your insurance, here's your preventive maintenance," and trying to get those multiple sources of revenue. Implementation of this has started well in Europe already, and we're expanding it around the globe, not just truck, but construction equipment as well. Again, the key is to have, as I like to say, larger share of customer wallet. Not allow any part of our product offering, hard product financing to be potentially commoditized, but rather really protect the margins and increase our share of the customer experience. The next example of a truck strategic objective where there is really clear integration and again, together driving the truck strategy is the market share, number 1 and number 2 market share. I might tell you, while we are called Volvo Financial Services, we go to market as Mack Financial Services, Renault Financial Services, UD Financial Services. Customers have significant pride in the brands that they buy. A lot of that pride is in turn linked to financing with the brand as well. Part of the strategic execution then will be to further this experience, to deepen this experience, and really have that brand pride and brand equity, and tie that in. That results in customer retention, increased market share, multiple selling points throughout the customer experience. Just two examples of many, where the strategies are very deeply integrated. All this comes together then, of course, to realizing the full potential, delivering the full potential. In summary, a couple of these points. Volvo Financial Services, fully aligned and integrated with group truck strategy and as well with the other parts of the Volvo Group. Strong coverage of group sales and growing. Where there is a need, we will help to satisfy that need in support of the truck strategy. Increased productivity through our growth. Again, we have returned to a much more solid and stable return on shareholder equity, which in turn allows us to fund growth, investment, and it becomes self-fulfilling then for the execution of the truck strategy and providing an acceptable return to the shareholders. Brief comments from me. I turn over to Anders, our group CFO. Thank you. Thank you, Marty. Let me then talk to you a little bit about our funding and treasury strategy, and also of course how it contributes and fits in with the strategic direction here between 2013 and 2015. What you see here is a little bit of a breakdown or a background really on how our financial management creates stability and flexibility really works today, and how it has worked, I should say, and how we expect it to work tomorrow going forward. If we look at it today, we have a good liquidity situation, as I will show you in a second here. It is solid. We have untouched, committed bank facilities in place with our core banks. We also have very limited refinance needs the next couple of years. We have a number of diversified funding sources. We learned a lot from the financial crisis a few years ago, that we need to be present in global markets. We need to have a toolbox of funding that we can use in many different ways and in many different markets. We also see that this has created access to funding in recent years at very competitive pricing. Of course, this is something that we would like to constantly improve, and I will show you in a minute how we have actually administered and set that up. Going forward, we see, of course, that our finance team, consisting with people from treasury, financial services, and the businesses, they have a great task going forward, because we see that our group is growing. We are coming into new areas. We are coming into Asia, Africa, Pacific, and so on and so forth. There's a need for operational excellence, not only so much new markets and new challenges there, but also the need to understand new jurisdictions, taxes, legal obstacles, and so on and so forth. When we look at capital market activities in itself, we sometimes have to come up with new solutions, tailor-make them for financial services and for our strategic purposes. Support for the revenue growth in APAC and Africa, of course, very important for us and very much in line with the strategic direction and our objectives. Export financing, I put that up here because this will be key, of course, going into parts of APAC, Africa, and also to South America. First, let me just expand a little bit on how our funding operations actually work. The way it's set up is that we have a funding strategy that is executed by our corporate strategy. You could say that this is pretty much a centralized approach when we come to the market. We work as one unit there, even though we have a lot of people involved in the financing activities, everything comes down to the treasury unit. We have two different debt portfolios. We have, of course, the industrial operations, which you can say is the more strategic part. It's of course, the capital structure, what we look at there. We have longer maturities, presumably in that portfolio. Of course, as we say, it is a more stabilizing factor for the balance sheet. This relates very much to Marty's operation within Financial Services. We have the customer finance portfolio. This matches, of course, the lending to our dealers and customers a great deal, and it's really driven by our sales financing activities out there. Of course, all these available markets out there and talking to and working with all the debt providers that we have possible really supports and contributes to a strategy that altogether comes to what I will show you in a second. If we look at the first portfolio, which is really the industrial part of it, we will see here that this is a portfolio on the graph that is longer term in its nature, and it's also an aim that we have to actually prolong this. With interest rates now coming down to almost nothing, at least as we see it now, we need to push out our maturities as much as we possibly can, which is a strategy for us. We see very limited refinancing needs the next couple of years, as you can see. Although the average portfolio maturity is less than four years today, the aim for us is to push it out and really take advantage of the positive markets right now. Even though the main currencies may be SEK, JPY, US dollars, et cetera, we are very flexible there. We enter the market when there is an opportunity, and we execute, and we see very many opportunities in different markets, and we are all depending on the whole market, so to speak. Very important, and that's the lower graph here, is, of course, the liquidity position that we have a very sound financial situation where a mix of different activities builds up this strong liquidity position. We have cash and marketable securities on the balance sheet. We also have revolving credit facilities with our core bank groups, we also have shorter-term activities that builds up this and really ensures that we stay strong for the future. The second portfolio, which is really relating that to sales finance activities. It's really, of course, what we call the input to a successful funding strategy, and we saw this during the financial crisis. If we can't raise the funds, it's very hard to refinance our customers, because if we can't raise the funds, the banking system is usually also not very healthy, and that is what we saw during 2009. If we look at this portfolio, you see a nature that is shorter term. You see a big bar in the very beginning there on the upper hand, and that is, of course, relating to what Marty said was floor planning and inventory financing. It's a big part. It's primarily, I would say, in the U.S., but it's also existing in other places. That's one of the reasons why U.S. dollar is so heavy on the currency part there. Of course, having said that, the longer part of the curve relates very much to leases and loans and so on, typically with maturity structures of 2-4 years, I would say. In this portfolio, the most important thing for us to stabilize it and to make sure that we have a long-term commitment to it is to have matching ratios close to 100%. On the currency side, on the interest rate side, and on the liquidity side. Whereas the task for financial services is to manage credit, the task for our policy here is, of course, to manage all the other risks, the financial risks, and that we do. The average portfolio maturity is low, but you could say if you divide it into two parts, it's very much normal for this type of business. Needless to say, we take a very opportunistic funding approach to satisfy all the needs of all the financial services. Again, I will come back to that, a global funding strategy is key to be able to do this. Just a word on the currency distribution there. You see that the major currencies are quite present, of course. But note also that the currency in Brazil, also the renminbi out of China, coming stronger and stronger, really just reflecting how what happens to our business in the new markets, like in South America and Asia. I talked about diversification, of course, if you look at this world map, you see that we are putting great emphasis on the fact that we should be present, first of all, as a treasury unit, as a treasury center, which is illustrated by the red dots and the green dots also, so that we have people in place that can actually manage the funding on a day-to-day basis. Equally important is, of course, that we have funding programs and access to funding and liquidity at all times. Some of the additions, of course, and some of the things that we have developed is the fact that we work very closely with all different types of agencies and agency financial institutions. Like in Brazil, for instance, where it's very crucial to have that type of funding opportunity. Of course, also the capacity to be able to issue bonds out of Hong Kong into China. Access to core banks and closely related banks in China, which we have developed. As you see, funding programs pretty much all over the globe to really satisfy the needs that we have for our activities. It matches well the business activities, I would say here. Complementing this is, as I said, a global core bank strategy. It's a give and take. We have to give back to the banks. We demand from the banks to give back to us. We see that we have worked this strategy out for the past five, 10 years, and it's worked very well. Out of this big map, we do actually access a lot of money in different markets, obviously. For instance, during 2013, we raised money from the European Investment Bank. We also raised money from a number of other agencies and financial institutions, which is a very good way of accessing loan markets in an efficient way. We also set up a new revolving credit facility on the very top worth EUR 1.2 billion. We have another one in existence as well. As I said, we don't draw down on that, but we still have it as a safety, as a cushion for us. We utilize the EMTN, the Euro Medium Term Note program, quite a bit. Why do we do that? For instance, we don't like to go out and do large lumps of money. We just do a number of transactions. It increases our presence in the market, which is good. We are a frequent borrower. People know us. The investors like us, hopefully. Of course, with a number of transactions with small sizes, we're able to satisfy the matching criterias for Marty's team in a lot more better and efficient way, which is good, of course. The longer term, the latter part, the four or five, eight years is primarily done for the industrial part of the portfolio, really to strengthen the balance sheet and to improve the capital structure. Last but not least, of course, we have done the second term ABS, the securitization of about SEK 650 million in 2012. I would say a very successful piece for Volvo Financial Services books, appreciated by investors, and definitely a market that we will continue to access because our experiences have been only good from the two transactions that we have done. In order for us to maintain this type of funding strategy and really utilize the markets on a global basis, of course, a prerequisite for this would be the rating. As you can see from the table here, we do have ratings from the major two, of course, but also on a more local basis to satisfy the needs and really to make sure that we have backups on the programs on a global basis. Our target there is, of course, to have a solid investment-grade rating, and this is what we have, as you can see. There are a number of different stakeholders that both are watching us and depend on us to keep this good rating, and it goes without saying that this is very important for us. Of course, I mentioned the stakeholders, and these are two of the major stakeholders that look at us and look at our balance sheet and our funding capacities for the future. If you look at that scale here, we have to make sure that we can balance this in a good way and that we constantly actually do it. Shareholders on the left-hand side here, what they look at and what you look at is, of course, long-term attractive total returns. Typically, we will then measure really a net sales growth and operating margin comparison with our peers. Of course, very important that we keep a very stable and a good position there. We have the customer financing side that needs to have a good and solid profitability. We measure that. We have a target of 12%-15% there. These are the shareholders. If we now flip over to the debt providers, the banks, the financial institution, et cetera, a slightly different way of looking at it. Nevertheless, as equally important. Strong credit rating, I mentioned, financial strength and flexibility in order to be safe to lend to us and so on, very important. There we look at parameters like net debt over equity, that should be lower than 35%. Of course, then we have customer financing as well, also with an equity ratio above 8%. These are ratios that are the debt providers' first priority when they look at us as a company. This is, as I said, something that we keep a constant watch on and try to balance as good as we possibly can. To sum up a little bit what this all comes down to is the financial management to create stability and flexibility for the group is, of course, a prerequisite for us in order to provide the money, support the strategic objectives, and make sure that we have a solid base to stand on. Diversified funding sources, I think I made my point there. The investor base, extremely important for us. New key markets, we haven't seen them all yet. We will yet to see more. These are extremely vital and extremely important for us. The credit rating, the core bank group, and also to manage the group's currency position. All of this enable us to have efficiency and control in the balance sheet. I think I stop there, Olof. The stage is all yours. Thank you very much, Anders. I just want to wrap up this before we go into the Q&A session. Then come back a little bit towards the full potential and what I mean with this next step, execute and deliver. A little bit the purpose with my presentation before and all the other presentation as well, was to give you really a sense from top management, the confidence, the realism. Also the understanding that we are embarking on a journey over the next two years that is very important for us. We know what we're doing. We do follow it up. One thing that I tend to focus upon is actually that clock up in the right-hand corner. When you're a kid, 36 months is like an eternity. Everything is to the next birthday or to the next Christmas, that is long enough. When you grow older and when you're into it, 36 months goes very quick. This is my message to the organization. Don't wait, get going and get going now. These are the activities that we see that we have announced and that we now come back each and every quarter to give you an update on the different activities we have done. I think that you will see much more of these coming. There will be a continuous update because now this is our plan to execute, but we have also said from the very beginning that we will communicate, and we will come back to make sure that you can follow us and also see that and judge our performance going forward. If we look a little bit beyond 2013 and going into what kind of situation will we actually have 2014 and onwards. Whatever the way you look at it is a very exciting point of activities and actions that we have in place. If you look at the new product side, for the first time in 20 years, we now have a complete new FH on the Volvo side, which is actually, and it's perhaps not many of you that know that, but the classic FH is one of the largest export products out of Sweden ever. It is a very important product, and now we have the new one. We're going to have the new renewals coming out, which is also a major revamp and position of that. We have the value platform I talked about, that also will come out, and we have the basic platform. For the first time in the group's history, we actually have clearly defined products and product platforms. We have worked very much on, as you know before, on the engine platform and the chassis platform, now actually this comes together in a nice way of doing that. Talked about the CE and the BRIC loader, we haven't talked that much about it today, we're also coming out with a totally new line of engines. With the Euro 6, of course, that means that we have the whole range of all the emission legislations on the truck side. We have the medium duty, the MDOT platform, and as we talk about CE, again, a major shift in technology also on CE. Also, to give you the picture then, of course, with investments. The industrial investment around an industrial project, around the value truck, is something that is big. It's something that we are focusing down on Thailand and India. We have also communicated that we're now localizing CE production, in Kaluga, Russia, for instance. We do a continuous localization in Brazil, and we have the Shippensburg localization here in the U.S. for CE as well, to really make sure that we grow in the different markets that we do have. Both on the truck side and the CE side, we do see investments, and those investments has been done, decided, are performing, and will be in place. Then, of course, now on the growing market with India and China, talked about the China with a new strategic alliance and that we are number one in construction equipment. Gives a very good position in China. Looking at India, there is not many people knows that we are the third largest producer of commercial vehicles in India. We have a major position in the medium duty. We're growing in heavy duty, and we're well-positioned in the bus business as well together with our Eicher. These together, new products, investments in place, and strong position gives us, of course, a very good platform coming in 2014 to execute on the strategy, both on platform side, cost efficiency side, and all the other things we want to do. A lot of words, a lot of letters, but I think my last slide would actually be, and I think the saying about a picture says more than 1,000 words is absolutely correct. This is sort of a little bit of a summary of all the things that we have been planning for, and it comes into a little bit of a crescendo then coming into 2014 and going forward. With that, I leave you with hopefully a sense that we know what we're talking about. We are committed. We're going to execute on this one. We have the plans, we have the organization with us, and we're going to be communicating how we're proceeding. With that, I end my presentation and all the presentations, I think, and we go into the famous Q&A. The position of the tables here has nothing to do with good teamwork. I just want to point that out, that we have one table here and a few tables there. We will have microphones, then raise your hands. Okay. Yes, please. Good afternoon, everybody. It's Alex White at JP Morgan. I've got three questions, please. Firstly, on the margin mix, presumably the value truck is a lower margin than the premium end, particularly if we consider the size of the aftermarket opportunity. Is that perception correct, and how do you expect this to play out? Is this part of the unspecified headwinds that you talk about? Secondly, could you describe how you assess each growth initiative with regards to the return on capital employed? How does this enter into the decision-making process? Lastly, a question for Denny. There's a lot of capacity coming on stream in Brazil in the coming years. How are you preparing to defend against those new entrants, and what is the sustainable level you see in this market when you're planning for the coming five years? Thanks. Okay. If we look at the value truck, as I said in the 3% growth margin target that we have set up, one of the opportunities was actually the value truck. Therefore, I have sent a very clear message to the organization that we cannot have a market which is actually out there for 1.3, 1.5 million vehicles if you look at the basic and the value, and not go in with a firm approach that we're going to have this as a profitable market. I often get the question about China and construction equipment, about the profitability, because there is a perception that just because you move into those segments, that you have, and you must have lower profitability. You can have if you don't do it correctly. We have shown, I think, over the years in construction equipment, that rightly managed, rightly focused, you can actually have a good profitability. When it comes to the value truck, I definitely don't see that as being a delusion. You always have a run in and build up and all of that. Even there, I must say that I'm really firm on the business cases that comes in, that we have to work on the cost and we have to make sure that the price points are correct. The second one I didn't really understand each and every, how that will do on the capital. Just the return on capital employed. For the investment that you're doing for the growth, how does the return on capital employed enter into the decision-making process? You talk a lot about margin- Okay and value growth targets. No, that's not a question. That's an integrated part of the decision-making we are doing, and that is, of course, looking at how we can make sure that we get the capital efficiency and also the return on capital employed in the absolute right way. It is, and always been, an integrated part in the decision-making. That's going to continue also in the future. That's a part of it. Thirdly, capacity in Brazil. Good question, because it seems like everybody's conference call included some investment in Brazil. Of course, we'll just keep our eye on the prize, keep our eyes on the basics. We've been there since the mid-1970s. We built up number one image. We have a terrific distribution network, and we'll keep feeding that distribution network with great product, including eventually this value product. We're investing, and we're continuously investing and not standing still there. Bottom line, what I call Fortress Brazil is hard. It's a good hardened defense to these initiatives by competitors, but we feel confident that we're not going to take them for granted. We'll get better and better and better. Just the second part of that question was, where you see the sustainable level for the market in the coming five years, given we've got stimulus, et cetera, supporting demand at the moment? Sustainable levels in Brazil? Yeah. Good question. We were interrupted on our rise there last year. We went from 105, which was a record, 105,000 heavy-duty trucks, fell back to 86 this year. It looks like with the stimulus of the government and several other good things are happening in infrastructure and the Olympics and the World Cup, et cetera. There's a lot of movement forward. We will eventually. How sustainable that is anybody's guess. We'll be watching the question very closely. Thanks very much. Just when the microphone is handed over, just one comment on the capacity side. I very often get that question on China, by the way, China excavators, because you see all this announcement, and it goes a little bit the same way. One thing is to announce production assembly capacity. That's one thing. The other thing is, of course, to make sure that you have the dealer network and the whole process behind it. Also in assembly capacity, you can have a lot of different volumes with still making money because you can run one shift, two shifts, and the capital intensity on the assemblies is not that high. It's a little bit of a numbers game sometimes as well. It was back there, and then Laura. Hi. I have two questions about uncertainty. The first is about uncertainty in the U.S. over the budget talks. Is that going to give you some trouble? Is there any reason to be wary? My second question is about uncertainty in Italy. Is that going to make a dent in your European business because of the we don't know what's coming there? I think in the U.S., I'm moving back a few quarters. At first, we talked about the uncertainty regarding the presidential election. That was cleared out. We had the uncertainty about the budget cliff. That was sorted out. Now we have the next step of that. Uncertainty is, of course, never good, but I think at the end of the day, and I don't know the time frame of that, but the real economics will take over, and that goes also. If you look in Europe, there is a number of uncertainties in Europe that we monitor very closely, which also means that we are in a situation where it's very difficult to predict because we haven't been in this situation before, and the consequences of different things and a lot of high focused areas around there. Over time, gradually, those kind of uncertainties will be sorted out. The question is, of course, how quick will it go, and when will it come? That remains to be seen, and that is the big question. Yeah. Hi, it's Laura Alber from Morgan Stanley. I have three questions, please. The first one is more short-term. We're now at the end of February, I was wondering if you could give us a little bit of a feel of how Q1 is actually shaping up and also how the order trend has been more recently in the various regions. That's the first one. The second one is you talked about some low-hanging fruits with respect to your strategic plan. I was just wondering if you could somehow quantify a little bit of how much of the 300 basis points net or 500 gross is actually, or you would say is low-hanging fruit. The last question is, when you initially took over, you came out after taking a lot of time and kind of evaluating the organization, and you came back and said, "We think we can do 300 basis points of margin expansion." I think one year later, you came back and say, "Actually, we can do 500." What I'm just trying to get that straight, did you initially, when you talked about the 300, was that meant to be the net number, or was that a gross number, and basically you gave that to your organization, and the people came back and said, "Actually, I think we can do much more than that." Thank you. I start with the last question, there are two different. What we said when I came in, and that we said and the management saw that over time, we would be able to consistently raise the operating margin with 3% units. That is something that is still there. When we did the strategic targets, we looked at the SEK 200 billion and the SEK 300 billion frame. We said, "Okay, within that frame, this is what we can do." That's why I was so clear and I tried to be very accurate. When we talk about the strategic targets of 2016, those are the activities that we're going to do with that frame. The 3% over time was actually independent from volumes. They are 2 different types of measures. I was very clear on that, the 300 basis points over time, I have never put any timeline on that. That is it. The low-hanging fruit. There are definitely. I am going to take the Europe restructuring. Europe restructuring is something that you can call a low-hanging fruit or not, but that you will see effects, particularly coming in at the back end of this year and then continues somewhat into 2014. That is on the cost basis. The Japanese restructuring is sort of concluded in terms of cost out. We also see that we are having the 200 consultants on engineering. That means that we are gross looking at adapting the spend rate in engineering towards the target. You have to realize that the net is different because we have the difference between the capitalization and the amortization. From a profit and loss point of view, it looks different. Basically, the things that you saw there on the slide, those are the things that we went out, we grabbed, we implement, and we are now looking into the 400 activities and see what other actions that we can do. In general, you can say that, and we do, and I hope you understand that we will not sort of specify it by year. Because you have things that you have small impact now, but you actually that will accelerate and become a back-end period. In general, you can say that all these types of programs has a little bit of a back-end loading. That is the nature of it because the things that you need to do. We are not coming here to give any updates on the since it is only, what is it, three weeks since we had the Q4. I said that we had the positive trend coming in from end of the quarter and December has continued into the first weeks into 2013. We continue to see that trend if you look at up till today. That is the only thing I say right now about that market since we announced our market so recently. Does that apply to all the regions, the positive trend continue? I would say that there is no shift to what I said in Q4, and there we said that what we saw was particular in Volvo Europe. That is only two weeks plus some days ago. Yes. Just a couple of quick question on your acquisition in China, on Dongfeng. First, we talk about funding, timing, bad equity, whatever. The second question related to the same acquisition. How can you assure investors this is not something like what CAT did most recently? They go to China, they bought this thing that they think they know. CAT been in China for a long time, but they had to write off their whole investment almost. How do you assure yourself that same thing won't happen to Volvo? You talk about Caterpillar and yeah. We have to remember. Are you talking about the ownership side, or? I didn't get the question, really. Maybe I can answer it. What will happen is actually that we will do a carve-out of Dongfeng Commercial Vehicles out of an existing joint venture between Dongfeng and Nissan Motors. The car business will remain with Dongfeng and Nissan Motors, and we will carve out the truck business, put into a new company, into a legal entity, so to say. Of course, with Åsnan coming in with the CFO position, it would be important to track each and every thing in that balance sheet of that carve-out that will be done. We are not buying an enterprise that is a listed company that you cannot go in and do a proper due diligence on, really. Now we will be very much into all the details in this carve-out of the Dongfeng commercial truck business. Okay. Now I understand. How about the funding? You could say that it's a part of our funding strategy in general. We have a wide range of tools to take care of that, usually what we do is to look at our global funding strategy, and then we decide exactly how do we do that. We don't really say that we do it in a more specific way than that. In the front, yeah. Okay, sorry. In the beginning of your presentation, you talked about pricing strategy as part of this improvement in gross margin. Can you elaborate on this? How are pricing decisions made when you've got this broad range of products at different value propositions with different total costs of ownership? How do you segment, who's responsible for that? Particularly when you've got certain markets where you'd be managing two different brands from the same book. How does pricing work in the new company? I think the first job we had to do was actually to create a common view on customer segmentation. It's quite interesting. When we sat down and made this, we found out that we had 16 different customer segmentation models in the company, which meant that at the end of the day, you could be looked at from our point of view as a customer in completely different ways. That includes also your sort of purchase power and where you should be in the matrix. We have done one common model throughout the group. Secondly, in terms of responsibility, we have three steps of responsibility. One is first we have global brand organizations, which is taking care of the product feature, the cost points, and the product plans. You have Denny and his colleagues on the sales and marketing with Peter Karlsten for Europe and Joachim Rosenberg for Asia. They make their strategy planning and pricing planning. That is the input for the tactics for the regional sales guys and for the local sales guys. There will be quite a steering coming back all the way from the top, all the way down in order to make sure that we do maximize the pricing, both in terms of hard products, but also making sure that we have the right offer on the soft offer to maximize, and financing is included there as well. I definitely see just by having this more centralized and also very, you can call it scientific approach in the beginning, but that everyone knows what they should be doing. You can also put targets. You can start to really compare the different segments between each other. You can tell the sales guy, "Listen, with this segment over here, he's getting this kind of margin." What is the reason that you're not achieving it? You start to get this really hands-on price thinking, which I think it's very good. From a follow-up point of view, we're now starting in my management team to follow up the gross margin per product line, per region, in our weekly meetings. Not every week, but we're following. We are drilling down to details to ensure that we actually are meeting the targets that we have. I definitely do see a lot of opportunities there. Hi, it's Ashik from Goldman Sachs. Just got three questions. Last year, you highlighted the focus on organic growth. Since then, we've had the announcement of the Dongfeng stake, which one could argue was an opportunistic deal. Going forward, can you rule out any further acquisitions either on the truck side or on the CE side till 2015? The second question, just curious on what your thoughts are on pricing for trucks in Europe going forward. Historically, the truck industry has been quite good in maintaining the pricing, so just keen on your thoughts on that going forward. The third, how long do you estimate you would have to continue paying the tariffs in Russia? When would you reach a localization rate to avoid this? Okay. When it comes to acquisitions and structural growth, I've been very clear. I must say now that we are focusing 100% on what you just saw here now. With that last puzzle we have put in place, the CE strategy now really going with the two brands and all the opportunities we have there. I think it's really the core of this strategy is to capture all the opportunities that, and the full potential we have. Having said that, it's my job to always have an eye on the industry. It's always to look at it. My focus, and I hope that has been very clear to all of you today, is actually to execute on this strategy now, both in trucks and CE and others. When it comes to pricing in the EU, I would say it's as always tough, but it's not worse or better than before. I think that we are having a very competitive situation. In general, we can say that we are fighting against the normal things. You can see, and I talked to bits and pieces here and there where the pressure increases, then you see a little bit easing some other places. In general, normal you can see both on the new pricing, on vehicles, on the used, and also on the spare parts. I have to use the answer when it comes to tariffs, which I don't use very often. I don't know. We will have to see on tariffs in Russia when and how that will develop going forward. What we do, and that was on the slide, we are investing in Russia with the cab and the painting and all of that. We are investing locally. Olof, maybe I can add that we intensely need to have the cab production up and running by the end of 2014. That would make us a local producer. Yeah We would avoid the scrapping fee, at least by that time. Yes. I give it to you, sir. Oh, thank you. Eli Lessard from Longbow. In listening to your strategic approach, I guess the breakdown of Volvo Group is basically something like 70% trucks and 25%. As you look out over the next three to five years, it sounds like you foresee that split remaining pretty constant, that you would expect trucks to be predominantly 70% of the business and construction 25%, and not really change that balance. It sounds like that's your strategic position for the next three to five years. That's question one. Okay. I have a second question. That is, you talked a lot about Volvo Finance, the construction equipment industry around the world and now in the U.S. has gone towards a rental market. You have, I almost say, fooled around with Volvo rental stores to some degree. Can you talk about specifically what you're trying to do with the rental group and increasing the rental participation within it? Probably the key growth part of the market. Yeah. When it comes to the split going forward, I think that it's difficult to judge in the future. We have put tough organic growth targets on both organizations. That also includes, we shouldn't forget, we don't talk about buses and the others. What kind of balance you will see 3 years from now is very difficult to say. I would assume that in rough terms, we will have this very predominant truck business. We will have a very big VC business, and then you will have buses and Penta. There's no strategic movement to make, to take a 70/30 and make it 60/40 or 50/50. No. Okay, I understand. No. Yeah. When it comes to rent, and for you to really follow that, we have done a transformation going from a franchise model, which we had up until some years ago, when we then has actually gone in ourself and invested in the rent stores. We are taking that ourself and also growing our presence and become, and also get the critical mass. For me, rents, it's a very important outlet of the compact and medium-sized construction equipment that we have. It is actually a piece that you need to look at, basically, the corporate view on it, because we also have Martin and his team in there with the financing. We do have the construction equipment, of course, and then rents by themselves. That needs to generate a profit and a return that is there. For me, this is a very good outlet. It is something, and taking the move and actually moving into owning it, I think was a good and right decision because we control it. We can control the expansion. We can make sure that we have the right stores and the right quality of stores. That is the strategy to make sure that we have that as a good business going forward. Okay. Hi, Michael Shlisky from JPMorgan. Just want to get your thoughts on the penetration of natural gas LNG into the heavy-duty truck market, just sort of broadly. How big can that get for you or for the overall market, and at what point can it get there? I guess also, what part of it is it of your 2015 goals? I guess secondly, just wondering why you chose HPDI over spark ignited engines for your larger heavy duty truck offerings. Any kind of concerns about your margins there? Any concerns about having additional maintenance, additional downtime, additional warranty costs, or even an additional separate maintenance network? I think, and it's a very hot topic here in the U.S. and what we have set our strategy, and Danny is a big advocate of that, of course, is that we have to make sure that we are prepared for all types of development when it comes to natural gas. The way that this will take long term, we don't really know. You have so many different aspects to this natural gas and how it will actually be deployed into as a fuel for long haulage in particular, but also for distribution. Will it be compressed gas? Will it be more liquefied gas? Will it be other types of gas or fuel that you do out of the natural gas and all that kind of the DME type of fuels. Our strategy is very much to make sure that we are covered, and we are covered today with the natural gas, the spark ignited from Cummins. We are very strong in that, and we see that penetration going up and being very strong in certain segments, waste management in particular. Up until today, the total volume of gas engines in, if you take the total market, it is not that high. I think we talk about 5,000 engines, something like that, Denny, on a year basis, but of course, on an increasing scale. For us, this is a little bit like when I get this question in Europe, because they have different types of fuels that you're looking into, and our strategy is not to pick a winner at this point in time because there are so many uncertain things that we want to make sure that we have the opportunities that we have. That leads me into the answer to the next question, and that is on the HPDI. That is one technology that we are looking into and that we have, making sure that we are positioned in that type of technology because it gives certain advantages compared to other technologies. It's basically one step in those things where we are looking at keeping out. In Europe, for instance, we're running on a fuel called DME, which then also can be taken out from natural gas if you want to. We truly believe that natural gas will, over time, play a more important role. In what form, and if it would be compressed, liquefied or others, that depends on distribution investment in refineries and what have you, and that remains to be seen. That's a little bit outside our control. Christer Magnergård from DNB. I have a couple of questions. First, on the headwinds, the 200 basis points you talk about. Is that the normal factor, 200 basis points over a three years period, or is it more than you're used to have? Secondly, what is the main headwinds you see over this period of time? Third, on a headwind question, what have you experienced thus far in terms of price pressure headwind in Brazil, China, Europe, compared to what you expected? I think that if you look at the headwind factor, as we call it, and we should remember, that is not a headwind in terms of market development, because that is since we fixed it on the SEK 200 billion/SEK 300 billion. It's not a market headwind we're looking at there. It's more the implementation headwind that making sure that all these 20 targets are coming together so they all execute fully by 2015. There, of course, as you can see, each and every one of them are extremely ambitious, and they should be, because we don't want a target that we easily can achieve. There is a lot of things that has to be managed in order to reach that. I think that my experience, it is more or less, I don't know. When we look at it in the top management team, we took a look at all of this, and then we said that coming out to the market and say that all this will just flush through wouldn't give a serious impression. Therefore, we are honest about that some of these things might run into some difficulties that we can't see today. If we would have seen them today, then we will adapt it in the targets already. The whole thing with those is things we do not yet seen, and after two months, we still don't see them, but they might come. Very good. Second question, on the Brazilian markets, where you see that the untapped potential is, well, that value market is 75% of the total markets. What is that market for the moment? What I see when I look at the Brazilian market, we have mainly European players in the Brazilian market. Is that used trucks or how should I think of that? Danny, you might want to I think you were asking what's the 75% comprised of? Yeah. More the traditional players, mainly VW, for example, has what we would call a value player there. Locally produced trucks that really built the market and Volvo developed. You have other players as well there. Yes. Okay. Hi, it's Jim Irwin at Moon Capital. I wonder if you could put a few more numbers around your aftermarket sales. Some rough numbers. How much of your revenue worldwide is aftermarket sales? You talked about your penetration of powertrain components, pretty dramatic growth on the transmission side. I know the engine penetration's been happening for a while now. I only saw the reference about a 12% growth per unit in aftermarket sales. I'm just trying to put some numbers around what that means over the next couple of years, because I know that's a very high margin opportunity for you. Thank you. I'm looking at you, Christer, to see what kind of numbers do we reveal about that, because on the split up, so I leave that, the number game to you then. I would say that typically spare parts is running around 15%-20% of group sales, depending on where you are in the business cycle. Then you have additional dealer revenue since we own quite a lot of dealers in Europe, in South Korea, Japan, et cetera. That brings another, I would say, 10% or so of soft revenue. Typically we have 70% new truck volume and 30% spare parts and dealer revenue, et cetera. Again, that is, if you look at the strategic target between the 3% gross margin improvement on the vehicle only reflects 2% in the operating margin. The difference there on the total group is the spare parts. Just if we looked at Volvo three years ago today and where you'll be in three years, that 15%-20%, what's the movement that we're looking at? I don't have that number here now. I would say that to give you some background on the progress we have made here in the U.S., thanks to higher penetration of Volvo engines and our captive gearbox, we have moved the spare parts sales as a percentage of revenue up by 5 percentage points if you compare to six years ago. It gives you an idea about how important it is to get the captive components into your trucks. That's very helpful. Thank you. Okay. Any more? Still a follow-up question. If you try to translate your margin targets into cash flow, assuming there is no big step up in CapEx, how should we think about the dividend policy going forward? Is it likely that the strong cash flow should lead you to increase your payout? I think it's important to recognize we don't have a dividend policy. That means that the board have that decision and take a judgment depending on the situation going forward. That's the dividends. On the cash flow side, we haven't put out any targets, and we have not communicated anything on that. Of course, we are internally looking at what we're generating, but we have decided to keep the issues on what we have seen here in terms of transparency and communication. The cash flow is something we work on. Of course, if you do all these things, let's put it this way, when you grow organically, you need to also make sure that you capture that growth, and some of that needs investment. We do have investments already today, so it's a principle of actually reallocating investment to make sure that they're supporting the strategic targets. The rest of the activities that you see is, of course, from a share positive cash flow point of view, of course, positive. I think, Christer, we normally have a disclosure there on what we say on investments and those kind of things. I think with the capital expenditures running high 2013, and it will continue to run high about the same level in 2012 was high. It will continue to run on a high level in 2013 because of the massive product renewal that we've seen. Coming into 2014 and 2015, we have a new product portfolio, and we have a well-invested industrial footprint. There is, of course, opportunity to bring it down. When it comes to R&D, I would say that it will continue to run on a high level in 2013 due to the product renewal. We have the targets then to take basically our SEK 2 billion of R&D out of the truck R&D. Of course, if your profitability improves by 3 percentage points, then operating income will improve. Just one more question from my side. I know you don't disclose your margins by region, but just for us to think about it, when you compare to your 2011 peak and your 2015 targets, which region do you see the biggest improvement in the margins from? If you could just rank the regions where you expect the margin improvement to come from. I have to go back to your starting of the question and say that we disclose the results then. Coming back to your question over here, when it comes to the price management activities around that. At the end of the day, how are we going to play that between the regions, between the different products, and so on and so forth? I can tell you that much, that I see potential everywhere. There is no region where I don't see that we, by having this new way of looking at pricing, combining, and all of that we don't have opportunities. We have more in others, but that we keep to ourselves. There's one way back there. You said in February that there was still some inventory to take out at Renault. How is that going? Okay. According to plan, as I said, we are lining up all the regions and all the brands apart from the Renault by year-end. We are doing that as we go along. That means, of course, also, if you looking at the first quarter and looking at the situation we have with the production, you saw the deliveries came out here just some days ago, down around 23%, coming from a low order intake back end of last year. That means that we are looking at the first quarter where we will have under absorption in January and in February. We see that the positive trend that we have seen then in back end of last year in order intake will start then to get us much more in balance in March. The first quarter is still not only the balancing of Renault inventory, but also then having the flush through of the lower activity levels that we are carrying with us from last year. Now we have John, two more. Two more. Foreign exchange exposure. Could you just update us how the strong Swedish krona is affecting your operations? I know you're much more globally matched in terms of costs and revenues than you were a few years ago, but it's still, I would imagine, a bit of a headwind, if you could just update us on that. Yes. Basically, I'm looking at Anders here now, but basically we have one major currency exposure left, that is on the VC side in Swedish krona, U.S. dollar. That is something we have had for many years. With the Shippensburg investment we're doing now, but actually localizing a number of products over the next year in the U.S. means that we are building that currency exposure away. Taking that away, Anders, I think we are very well balanced. Yes In terms of our currency flow with our global industrial footprint being local, where we need to be local. It's the U.S. dollar. It's the US dollar. I have the annual report 2012 in front of me. I can give you the number. We had a net inflow, operating net inflow of $4.4 billion into the Swedish krona, and the majority of that was in our construction equipment business. The other currencies are very small. Is there any significant new trends in input costs? In? Input costs, CEO. No, nothing. You mean inflation into the Yeah. Cost inflation. No, I would say that wherever we see that, there are two things which we have developed over the years, one thing is that we always try to stay ahead of the curve and try to make sure that we get our price increases based on inflation sort of ahead, because we see that in our procurement contracts coming. I think we have been rather successful doing that as well, continuing now with a normal inflation. It's nothing unusual in any of the inputs that I'm aware of. I'm looking to the others, and they're shaking their heads as well. That should. Down here as well. Just a quick follow-up. Obviously, you are launching a lot of product now in the next 18 months. Are there any meaningful headwinds that we should factor into our models initially as we look into 2013, in particular? From the launch cost. Launch costs, that we said in the Q4, that in Europe now, we will have launch costs throughout the year, first with Volvo FH, then adding on the Renault coming, that we will have that on a much higher cost than normally this year. That is one headwind. When it comes to the startup of the production of the new Volvo FH, I must say that that is running very well. We get good feedback from the production system and the quality of the product that comes out now in the startup of production. The first ones are now actually entering to the end customers. Also the pre-production of the Renaults are looking good. That might come up something. Right now, the launch cost is definitely, if you call that a headwind, I call it investment, because it is necessary that we do the right thing, and we want to do it. Then we are going to see that fading out, of course, coming into 2014. Secondly, can you remind us of your exposure to mining, mainly in BCE, but also in the truck side? Mining is, of course, we're exposed on the mining side, on the truck side. The real big chunk is, of course, on the VC, which is a substantial part of the business based on the fact that we are big in the light mining. There, I think in general, you can say that it seems like we have reached the bottom out of it, but it's on very low levels, and we will see how this now comes back or when and how it comes back during, particularly the spring season, to see what kind of reinvestments is done in the mining side. Good thing, though, with the VC is that the inventory is definitely under control. I think they have done a great job over 6 months, basically starting already by the half year last year to adapt their inventory. That means that we are seeing a much shorter order intake into production and thereby getting leverage quicker than we would have done before. Okay. Just a couple of follow-ups from my side. Could you talk a little bit more about the transition of the sales and marketing organization in Europe, and just how long you think it will take for the Volvo dealers to ramp up the sales of the Renault brand? Secondly, you mentioned that order intake for the new FH is strong. Just wondering how pricing is trending relative to your expectations on that side. Starting with the transformation of the European sales, I think that it goes actually, should I put any sort of grading onto it right now, better than expected. That I'm not naive, so of course, there will be some impacts during this year when you do the transformation, especially perhaps in the eastern part of Europe, where you really get this combined. Not so much in the core markets, because in the core markets you have it, that we will see the risk of actually having a transformation, thereby also losing out some of the volumes. Renault hasn't been extremely strong in those markets, so the total impact is some. There, I think, is where I keep the most focus right now in the transformation, is on those combined markets. I must say that when talking to the people on the ground, talking to the new management teams, obviously, there's a lot of energy and opportunity seeking now when they see this coming together, both from the Volvo side and the Renault side. Shouldn't be naive. There will be some during this year, but after this year, I don't have the patience to wait longer, so it has to be done this year, and it will be. You asked about the pricing on the new FH. I think that we're definitely getting the price increases out to the market. That has always been the aim, and we're doing that. I've been very clear to the organization that with the new FH coming, we have to make sure that is playing a major part in the 3%. Otherwise, you will have a particle volume that makes impossible to reach. That has been a focus all the time. So far, so good. Perhaps just one more follow-up on pricing. Any update on Brazil? Are the increases starting to stick down there? Pricing, Denny, perhaps you want to, in general, good news. Pricing, of course, went through some pressure when we were transitioning from Euro III to Euro 5. Euro III is now out of the system. We're seeing it stabilizing at flat level, but we're expecting actually, as the new competition and other competitors who maybe suffered some share losses come at us. For now, we've recovered from the Euro III issue, there is only Euro 5 out there, it's a level playing field from that standpoint, we'll see what happens from pricing after that. Thanks very much. Yeah. Hi, Christian from STI Craft. Just a couple of follow-up questions. Used truck pricing in Europe and North America, can you just make a quick comment on that? What are your expectations for the Russian market in 2013? Thanks. Okay. Europe, I can answer very quickly. The used pricing are holding up. There is no major movements in any direction, I'm looking to Christer and Mark as well. That is the information I've got. When it comes to U.S., you know that much better, Danny, why don't you answer that? Used pricing for Volvo and Mack in North America has been a non-issue. We've handled it very well. The pricing itself, of course, came back from the lows of the crisis and have stabilized. It's just not an issue for us. Christer, on the Russia market, I don't know what we normally say there, so therefore. I would say the market is strong. We can say we have a somewhat slower order intake trend right now as we are trying to push through the scrapping fee, the EUR 5,000 scrapping fee. We are trying to push that into the hands of the customers. That is, of course, hampering order intake a bit right now. I would say that's more an issue for Western European truck producers rather than the domestic ones. Thanks. Do you have data on the average age of your fleet on the road, trucks? We definitely do. The question is where? There are quite a few of them out and running. Are you talking about in Europe? Are you talking about in general, all over? North America, Europe, that would be interesting data and how that has trended in the last few years. Is it trending up significantly, flatlining, or? I think if you start with U.S., I can take Europe later. I can only speak at an industry level. At industry level, it's the average age of fleets are still high. They didn't recover even with a couple of 100,000 truck market in the U.S. It's still some tension there between the age of the fleet and the cost and the advantages and disadvantages of moving to new trucks. Do you have a number? How many years? The average age. There's actually two that are published. I'll give you the highest one, about eight and a quarter years. That's for the market, not for us. That is the market. No. -average age? No. Okay. Christer, in Europe, if you take the markets? It's trending up, I would say particularly in Southern Europe. We can see that on our spare parts business, that is actually shrinking. That's because you have the number of trucks with the age of, I would say, six up to 10 years, it is actually increasing, and the number of newer trucks is decreasing. We typically lose out of the spare parts business as the truck gets seven, eight years old. That's a clear indication that the fleet's aging down there. The other part of Europe, I would say, it's aging, but not in a rapid pace. Spare parts business overall for Europe was down 5% last year, it was a lot more in Southern Europe and less in Northern Europe. You can say you have a big population of trucks that were sold in 2007 and 2008 that at some point in time need to be replaced. Now, 2007 and 2008 volumes were slightly elevated because you had Spain booming. That construction activity doesn't come back anytime soon. You had a bit of too much sales in the Eastern Europe in 2007 and 2008. It's a bit artificially high, that peak you have in 2007 and 2008. Otherwise, if you take down some of that, you should think that the trucks are typically replaced between four to six years in Europe. Okay. once again, thank you very much for taking your time.

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