Ladies and gentlemen, my name is Gossa Riordan, and I wish to welcome you all to this earnings call covering the Q3 2020. We will be listening to a presentation by the Board Member President and CEO, Marcin Lundstedt, followed by a presentation by Chief Financial Officer, Jan Gitte Berg. Well done, we will open the line for a Q and A session. And without further ado, Martin, please
go ahead. Thank you, Klas, and hello also from my side, and thanks for attending this press conference with shorter notice. As we all know, we are living in very challenging or maybe to be a little bit more clear at different times with lots of uncertainty and lack of normal reference points, not at least when it comes to the market development. So when we got ready with the full report, we decided to release it today actually and to give clarity on our view of the situation. First and foremost, I would like to say that colleagues and business partners have done a great job during quarter 3, and we stand on a strong platform for the future.
But also, still we're living in, as I said previously, very uncertain conditions. And still also, as we can see, not at least in Europe but also globally, in the midst of the pandemic. We therefore need to keep the eyes on the ball to preserve maneuverability and flexibility moving forward. So the focus in quarter 3 has continued be what we have communicated earlier on the 4 Cs: colleagues, customer, cash and cost with dedicated activities and actions and a very real time management, so to speak. Our decentralized structure with distributed decision power and accountability across our various truck divisions and business areas, regions and countries is serving us well during turbulent times like now, and the teams have done fantastic progress here.
The first priority is on colleagues where naturally health and safety is and will continue to be the top priority. In particular, I have to say related to the of course, to the pandemic continuous pandemic measures. It will continue to be so in our judgment during many quarters to come. And here, we really need to hold on now in the company and society at large, and we are communicating largely around this. Another focus has been to adjust the organizations for the future and to reduce temporary and fixed position for Line with expected activity levels and to refill also in areas with high priority, may that be now in the industrial value chains or in innovation areas with high priority.
This difficult work has progressed as planned, also working closely with the labor representatives. On the second note, the work to secure good and stable service levels to customers have followed also a good path. We have throughout the pandemic been able to secure customer uptime with right part supply, repair and maintenance activities, financial and fleet management services to mention a couple of the services we provide, but also step by step accelerating the ramp up of our industrial value chain and not at least in good cooperation with suppliers. High utilization of our customers' fleet is resulting in sequentially higher service sales and less contract modification also in the financial portfolio or Financial Services portfolio. And we still keep a very close eye on those developments obviously.
On the cash side, we have executed well on inventories both for new and used equipment and having also a cautious stance on CapEx to preserve maneuverability postponements and in some areas, cancellation also when we are reprioritizing making repriorities now in our portfolio moving forward. And on the cost side, focus have been to turn temporary actions that we had to do given the very quick development in quarter 2 into permanent cost reductions, flexibility and reshuffling also of capital allocation. The results of that focus of the 4 Seas has been encouraging, I have to say, showing that the underlying performance in our ways of working are continuing to give a better level of resilience and reinforcing our platform for the future. While FX excluded net sales for the group still had a big hit, I mean, decreased with 16%, SEK 22,000,000,000 and with big differences between business areas and regions. The whole organization showed good volume, flexibility and cost execution with OpEx decreasing with 26%, resulting then in an operating margin of the group of 9.4% and operating cash flow of a good level of almost SEK 12,000,000,000 And the ability to keep the different value chains more or less intact on both products and services have been impressive and includes a very close and constructive cooperation with suppliers, dealers, customers and other business partners.
I would like to thank everyone for that relentless effort. I mean, it has been a little bit more than 6 months, but it feels like a couple of years as a matter of fact. We are also despite continuing or you can say despite the continuing challenging of the restrictions with the pandemic, not at least on travels, Also the following the plans when it comes to the strategic alliance with ISOSO as well as the formation of the fuel cell hydrogen joint venture with Daimler Trucks. So that is also progressing well. Heavy duty and medium duty truck deliveries were around 34 1,400 units, so a decrease with 30% comparing with Q3 2019.
Obviously, also that related to the very weak order intake and that we were cleaning out the order board in Q2 and a gradual ramp up that we will come back to. While Construction Equipment deliveries increased with 20% and mainly related to a strong development in China and the SDLG brand of 37%. And here we can note actually when it comes to Construction Equipment in China that in growing market, we actually were increasing market shares with double digit margin. So it's a great job done by our organization in China, very good. Service sales reflected the activity levels in the installed fleet, of course, both in different regions and segments.
It has a good correlation with the utilization we can see in our connected platforms with more than 1,000,000 connected machines and trucks. If you adjust for FX, service sales decreased with 1%. And it was, of course, a sequential improvement in relation to 42. And that was, of course, linked with the gradual opening up of economies and transport demands and some also pent up demand obviously after the standstill. We are still in the midst of pandemic and have to follow how the future developments can be affected by 2nd or third wave outbreaks that we see right now.
But so far, it has gradually moved into levels that are close to previous levels or pre corona. Volvopanta had a strong growth linked with high boating activities during summer. And as they hit also in the report, with both new and experienced boat owners, if you understand what I mean. And buses on the other hand, on a serious note, are still very affected with heavy restrictions on tourism and travels and public transport. If we then move to the truck side, even if we are all still living in a world with many, many unknowns and different uncertainties, making the forecasting process and evaluation very challenging, we have decided to reinstall our forecast for 2020 and to give our first guidance on 2021.
We think that it's better to create also another reference point and give our view where we stand here and now with the judgment. For Europe, we expect a heavy duty market of 225,000 for this year with a continuous recovery for next year up to 240,000 units. Also in North America, we have almost the same level for this year, EUR 220,000,000 with an increase to EUR 250,000 next year. And in China, we see very strong level for 2020 of EUR 165,000,000 where as we are expecting, you can see a healthy correction next year with after these years of strong growth. India, we forecast a recovery next year after a very weak year this year, but so to speak, a recovery up to almost 300,000 next year.
And Brazil is expected to land at 65 this year and grow with another 10,000 units next year, also on the back of the replacement cycle in addition to the recovery. After a weak second quarter, if we start in North America, did see a start of the recovery mainly backed by regional and long haul activity levels, healthy dealer inventories. The dealers and the whole organization have done great job on focus both on new and used equipment and better spot prices. Orders were therefore up 150%, but it was also due to low comparison figures in Q3 last year where we had the situation with this excess dealer stocks and also in the beginning of the slowdown, whereas delivery still is lagging obviously much lower, but we are gradually now ramping up. In Europe, the gradual opening up also, combined with the pent up demand of the restrictions, gave an order intake of plus 21% comparison with the previous year.
And also in Europe, quarter 3 last year was rather weak, and that was related to the pre buy in the 1st semester of 2019 related to the TACO legislations, TACO Growth legislations. Deliveries was minus 17% with a gradual ramp up also during this quarter step by step. South America, very strong. Order increase of 100 and 40%, as I said, backed by, I mean, replacement cycle and also the fact that last year. But on another note then, you had the Fener Tram Fair Trade Fair in October.
And the tradition in the Brazilian market is also that you are doing the deals during the Panadram. And therefore, we had a very weak relatively weak Q3 last year, but still strong development. And then it's also with the stock situation, obviously, in Brazil, you're flushing out the stock in the downturn. And when markets are coming back, also the dealers are building up also certain levels that stocks, so you have a bigger swing. And then on a yellow note, since I like also Brazil, I mean you have the positive sentiments when things are turning that is giving another capital percentage points.
But yes, to conclude on this very important slide, yes, Asia also order increased with 90%. So that is also, of course, positive. But yes, to conclude, the Janon positive book to bill together with cleaning of the order boards in the beginning of Q2, very important activity that we did then swiftly in all business areas as well as a solid execution of taking out inventories of new and used vehicles that has also been very well executed. We have now gradually built up a healthy pipeline of orders and are gradually adjusting upwards to meet those demands. Upwards to meet those demands.
This causes also certain challenges since the whole supply chain. And as you know also with many tiers of suppliers, Tier 1, Tier 2, Tier 3, have taken down their levels during the pandemic and now need to show good flexibility upwards. And also the logistics system as such is under pressure with many freight routes being changed, both in the routes themselves, not at least the sea freight or in frequency. And we continue to put a lot of attention in this field moving forward now when we all gradually then moving back here. We have on the general note, had a good market share development in Europe.
Through August, Volvo had an increase to almost 16% with continuous positive momentum in the market share development, whereas Renault was somewhat positive. North America, both Volvo and Mack have gained slightly. And in Brazil, Volvo recorded an increase up to a very good level of more than 22%. Australia is also impressive with the combined market share of the group brands of around 30%, where UD trucks has gained thanks to a successful introduction of new applications and specifications covering broader part of the Japanese market of Australia. Japan has stabilized after a weak start of the year, and we do expect also there a gradual recovery moving forward.
So generally speaking, good momentum in the market share development. And also while in the midst of the pandemic, we are continuing our leading introduction of new technologies. We announced the fuel cell, as you remember, in the beginning of the pandemic. And we announced also earlier this year the start of production, serial production of medium duty fully electric trucks for Renault and Volvo in Europe. And following that start of serial production, now we are continuing to push that with the Volvo VNR for regional haul and regional distribution and mech LR for refuse collection activities that have been launched and serial production starts in 2021.
So feedback so far is great and customer interest is very high and we will also come back on those topics, of course, at the Capital Markets Day. Also the new model range of Onvo cab over engine, the FM, FMX, FH has been very well received. We have opened the order books and also they're showing good results. And the latest FH for long haul applications with I Save Energy Efficiency Package that is a combined software, hardware package of different features is giving savings up to 10% of fuel, which is, of course, extremely strong, both on the sustainability and on the efficiency arena. In addition, production and deliveries of the brand new range of matte and medium duty trucks has started in Roanoke in Virginia, United States.
On Construction Equipment, and also here on the same note, we are despite the uncertainties and forecast challenges reintroducing the guidance also for Construction Equipment. For Europe, we expect the market to shrink between 10% to 20% this year with a smaller increase next year. And for North America, we have an expectation to that it will be we will see a decrease with around 20% this year and also in that market with a small increase next year. Scania, China has been very strong, and the level is expected to be 20% to 30% higher than last year when a healthy correction is expected next year or approximately a decrease of 10%. And Brazil is expected to grow slightly this year with a further increase of 10% to 20%.
Overall, we had, of course, a positive book to bill and orders for Volvo brand were up with 44% and SGLG with 37%. In Europe, orders were up 28% with increases of key markets such as UK, France, Germany and Russia. And also North America was up in the same magnitude. In North America, it was mainly driven by medium sized and larger machines. Asia and then primarily China, of course, continued to develop very strongly in both orders and deliveries and also strong pattern in Africa and Oceania.
And in South America, the positive order intake was related to mainly to better demand in the resources industries. Inventory management has been well executed also in this area and with a good and balanced pipeline moving forward for Construction Equipment. Also in Construction Equipment, we are pushing for electric solutions in relevant segments. And the 1st compact electric machines that we have revealed previously are delivered to end customers in November. The concentration on core product segments where we have strong market position continues also within Volvo Construction Equipment.
And as part of that strategy, we are pruning that portfolio and the small Blownocks paver business was divested during the quarter. On the buses, we see that the buses continues to have considerable challenges with the low market activities and demand levels. And as I've said previously related to restrictions on travels and tourism, but also on public transportation. This is reflected both as regards the service market that we have already touched upon with a big decrease, but also on orders and deliveries. So continuous focus is to align the organization to the new reality and good steps and measures have been taken.
Jan will come back to that. At the same time, we are broadening the scope of providing complete and circular solutions in the electric bus segments by reusing battery for second life in a partnership with Stena Recycling and Battery Loop. This is yet another good sustainability step, obviously, but also to give a good competitive offering as a whole where the 2nd life battery part is important. In India, we are also creating a strong combined offering of buses together with Eicher through our joint venture Volvo Eicher Commercial Vehicles. And this setup will create further clarity and strength, simplicity also, I would like to and to reinforce the joint leading position that we already have in those segments, but we see that it will further reinforce that position.
Volvo Penta, finally then on the product business areas, had a more stable business climate. Orders up a little bit and delivery slightly down, but much better balance. Service sales strong as we said. And Volvo Penta is also, together with key customers, driving the electrification journey and the Penta powered and Rosenbauer fire trucks or fire engines will go into customer trials in various markets very soon here. Financial Services, if always, have been very much of a key asset to support and reinforce the relation with customers and dealers across markets, and the penetration continues to improve in all segments.
Better activity levels in transport and infrastructure have improved the customers' financial position and the request for modifications have decreased. At the same time, this will continue to be an area of very high attention to continue to support customers and at the same time protect the portfolio. We have still segments with very challenging conditions such as buses linked to the activity levels. So that is the business and trading update, and I will leave the word down to Jan for the financial update.
Thank you, Martin. Cost discipline, when you are able to maintain cost discipline in and after a crisis and get some support from demand, you get good financial leverage and earnings. And that is what we performed here in the Q3, and that is what we need to secure going forward as well. If we start with net sales, and we can see how the gradual recovery of activities and demand after the measures to halt the pandemic outbreak regions from East to West, and that was clearly seen in our net sales. Net sales decreased all in all by 22% for the group, where we had decreases in North and South America of some 40% each, reflecting both low deliveries of vehicles and machines, but also then weaker dollar and substantially weakened Brazilian real.
Asia was flat compared to the Q3 last year as increased machine deliveries compensated for a drop of vehicle sales. China was the main contributor behind this development in Asia. Moving over to the earnings. This Q3 of gradual recovery had similar trends and explanations if we compare it with last year as we experienced here in the Q2. All in all, adjusted operating income in the quarter was some SEK 7,200,000,000 and an adjusted operating margin of 9.4%.
The decrease compared to the Q3 last year was mainly related to then the lower new vehicle volumes, impacting, of course, negatively on the less gross income on the lower sales, but also as reduced capacity utilization. And on the capacity utilization side, we have a very good volume flexibility in production in the quarter, continue to be impressive and mitigating a substantial part of the volume effect by then reducing fixed and variable costs. And this was further mitigated by continued hard work to maintain low cost level also on the indirect side by eliminating and postponing activities, which was clearly seen in reduced R and D cash, selling and administrative expenses. FX impacted negatively with some SEK 1,500,000,000 for the group, reflecting the strongest Swedish krona in general and the weakening dollar and Brazilian real. The transaction effect for the Q4 2020 is expected to be somewhat over €500,000,000 and we do not provide forecast for the full FX effect on operating income.
If we move over to the cash flow, normally, you know, the Q3 is seasonally weak. As regard to cash flow, the operating cash flow in industrial operation this time was close to plus SEK 12,000,000,000 after resetting the payables to the low production volume in the Q2, the gradual ramp up of production during the 3rd and coming quarter impacted payables positively. The real achievements actually in the cash flow and in the quarter was the good inventory management of new and used vehicles, where hard work and support from a pent up demand compensated for the higher inventory of parts and components needed for present and future production. U. S.
Vehicle deliveries continue to be elevated also here in the Q3, and CapEx level continue to be low to safeguard cash. And as a consequence of the good cash inflow in the quarter, net cash position for industrial operation was back at the same level as in the beginning of the year of some SEK 62,000,000,000 If we move over to the business areas, start with trucks. Despite that, a recovery since the Q2, truck deliveries were some 15,000 units lower than last year. That affected both net sales and operating income negatively for Groupe Trucks. Adjusted operating income, SEK 4,500,000,000 and the margin of 9.5%, The same explanation of the decrease of adjusted operating income as for the group was valid here also for our main segment, Group Trucks.
Additionally, Group Trucks was positively impacted by a favorable tax ruling on indirect tax of some SEK 360,000,000 in the quarter. And since this ruling also included an interest component, the financial net for the group was positively affected by some SEK 280,000,000 in the quarter. All in all, for FX and trucks, it was negative with SEK 0.8000000000. Moving on with to Construction Equipment. Machine deliveries increased by 20% in the 3rd quarter, where the increase was particularly strong for compact machines, limiting then the decrease of FX adjusted net sales to 6%.
Beside the positive effect on the earnings from the machine deliveries, the cost execution, especially on the indirect expense side, was impressive. 3rd quarter included also an impairment of VAT credits in Brazil of over SEK 300,000,000. And we had a negative headwind from the FX of some SEK 400,000,000. All in all, meaning that our adjusted operating income decreased slightly to close to $2,000,000,000 giving an operating margin of 11.1% in the quarter. Buses and Pentane, if we start with buses, they continue to be hampered by the reduced personnel mobility around the globe and parts of the bus fleet stood idle also here in the Q3, affecting service revenues and deliveries of new buses substantially where the Coach and Tourist segments were specifically hurt.
The lower sales and very low capacity utilization as well as a negative FX effect of some SEK 170,000,000 were more than offset by a strong cost execution where short term work was one of the tools in the toolbox. The adjusted operating income was $240,000,000 giving a margin of 5.2% in a challenging quarter, a really impressive work done by the Bas organization. But high uncertainty prevails in this area also for the coming quarters, potentially leading them to continued earnings volatility. For Penta, they continue to perform well with engine deliveries just below last year's, whereas the service revenues improved 11% FX adjusted, which together then also here, good activity in cost reductions contributed to an improved adjusted operating income up to SEK 570,000,000 giving an impressive 18.6 percent of adjusted operating margin despite negative FX effect. And on the Financial Services, the improved penetration in general for VFS mitigated the substantial drop of deliveries across the group.
So adjusting for currency, both then new retail volume and credit portfolio were actually somewhat higher than the Q3 last year. The provisioning for potential future credit losses increased, reflecting the still challenging business environment for our customers. Compared to the Q3 last year, credit provisioning was some SEK 200,000,000 higher, which together with a negative FX effect of some SEK 75,000,000 were the main reasons behind the lower adjusted operating income compared to the Q3 last year. By that, I hand the presentation on the financials.
Thank you very much. Then we will be opening up the line for a Q and A session. Operator, will you please get the first question through?
Thank Our Our first question is from Akshayat Gaker from JPMorgan.
Thank you. Akshayat from JPMorgan. Two quick questions for me, please. The first one on industrial profitability. It has been a solid quarter across all divisions.
Congratulations on that. Very healthy profitability and looking at good business momentum into the Q4. How are you thinking about the business directionally into the Q4? And what are your expectations for margins, especially as the furlough benefits and some temporary actions that you were able to take fall away? Are the underlying business momentum actions better to offset those short term actions?
That was the first one. And the second one, if I can ask you on your progress made on the discussion with Daimler on hydrogen. Any new timeline to discuss over there? And what does this mean for your R and D spend going forward? In the Q3 specifically, your gross R and D was still maintained at relatively low level?
Thank you.
Thank you very much for those two questions. Of course, Johan, you can complement also. But if I start with the first one, obviously, with on the back of the order intake, we are continuing to gradually now increase production to meet that. And still remembering also to Jan's point that we were on the truck side, for example, coming from relatively low levels, it was 15,000 less shipped units in relation to Q3 last year. So we are still, so to speak, climbing up here.
So there, obviously, we climbing up here. So there, obviously, we will gradually now increase that. Then as we also said in the presentation, a lot of focus and attention have been to mitigate, so to speak, the short term cost actions that you need to do when the market is disappearing overnight, first with supply restrictions and then gradually with demand hesitations, including a border border and reshuffling, etcetera. But then, I mean, we are now moving in. We have done adjustments when it comes to temporary workforce.
We have also given notice when comes to layoff, and we are executing according to plan there. We have re prioritized and put focus in different activities and projects, still keeping high attention on the transformation activities when it comes to new technologies, obviously. So that is very much about, I mean, in the short term cost adjustment to long term permanent, so to speak, levels and thereby keeping high flexibility. So that is ongoing. And then we also see the sequential improvement of the service activities related to the utilization rate among our customers.
We have seen in the midst of the pandemic and therefore high level of flexibility is the key asset. And then obviously, we are guiding for where the market will move as we see it right now, a gradual recovery. And yes, you can say, I mean, both in U. S. And Europe to lower levels than we guided for 2020 before the pandemic.
But at the same time, I mean, with all the actions we have done, we have been showing that we can, so to speak, handle that in a good way. So continuous focus on that. And then thank you very much also on the fuel cell and hydrogen area. This is a super exciting project for us, complementing, of course, the battery electric layer we will utilize, as we said before, the same electric powertrain, but another energy layer fuel cells, progressing, as I stated also in my part of the report well. And according to plan, it does obviously be challenging given, I mean, the size of this.
But the beauty of it is twofolded. 1st and foremost, for the battery cell or the fuel cell stack parameter, you can actually share development cost in a smart way and still compete in the end markets. And you're sending a very strong signal to the rest of the industry upstreams and down streams about investments in infrastructure, charging and production of hydrogen. So progressing well. Big step for the fossil free long haul and heavy haul transportations, obviously.
Then on the R and D investments, as we have said, I mean, of course, we will prioritize and reallocate capital to the new technologies that we'll continue to do. And in certain years, obviously, we will I mean, invest aggressively in order to really take the opportunity to be the market maker, but in frames that are absolutely reasonable. So again, automotive industry is not the right reference because we have another setup. But we will and that is also the reason why we have such created a strong platform, have the means of making priorities for the transformation here.
And Martin, maybe I should add, and that's also where I started on the first note that you asked, actually starting with the cost discipline. So important now when we get the momentum that we are not going back to the old normal and that we learn from what we have been going through right now and be very diligent in the activities we will start and not start. So that's very important to get the leverage that I assume you are looking for.
Thank you very much and all the best.
All right. Please have the next question please.
And the next question is from Tom Diffein from RBC. Please go ahead.
Hi, yes. It's Tom Diffein, RBC. Thanks for taking the questions. First, and apologies if I missed this, but was there a reason for the change in the timing of today's earnings release? And then I have a couple of quick North America truck questions.
The August number, I think, was like 20,000 units. It would suggest something like 240,000 for an annualized basis for North America. Your 2021 guidance is for $250,000 Given the strong order book, this 2021 level appears conservative, would you agree? And then lastly, are you happy with the level of exposure you have in North America trucks? Would you ever consider acquiring a U.
S. Truck OEM should the opportunity arise? Thank you.
Maybe to start on the last note, as you know, we have Mack Trucks that I think is one of the most iconic American brands and then Volvo Trucks. And more on, so to speak, information piece here, we are actually the only OEM that are producing 100% of our trucks for U. S. In U. S.
So from that perspective, I think we have a relevant footprint. Then, of course, we are not satisfied with the level of market share. We have seen small improvement now, but of course, there is headroom for that. We have a great program. We have reinforced the investments in the dealer footprint, and the dealers have done a great job there as well.
So that will continue to push. And we see also now with the new introduction. So for example, electromobility, the VNR lights project in California, the MAC push for electrification, etcetera. We have a lot of great opportunities there. So I think we have a strong platform to build from when it comes to the U.
S. OEM footprint. Then when it comes to the market in North America, as you said, I mean, we were guiding for like 240,000 this year. We did see a correction coming in, obviously, and now we are saying 220,000. So that delta is rather small actually if you think about but that was also because we did already in the beginning of the year, see this correction has started also to take down activity levels.
And then for next year, 250,000, again, it's this is our best judgment as we stand right now. We have a rather solid process, but we are also saying clearly that there are high level of uncertainty. And the reason why we cannot just take the order net order intake figures and put them moving forward is also that there is, of course, the pent up demand after we have had very low order intake in quarter 2. So there is a mix between, so to speak, the gradual recovery in opening up of economy and economic activities and mix together then with that pent up demand. At the same time, what is on the positive note that can be part of the upside is that the utilization of the fleet is good.
Spot prices relatively high and inventory is low. So there are pros and cons that we need to, but this is our best estimate as we speak. And on your first question, it was a very simple answer to that. We felt I mean, we have put a high level of attention to work through this report given the high uncertainties, the big interest. And when we were ready, we didn't want to have that ready and not disclosing that to the market.
So when we felt ready about that analysis, we released the report, give the full context to the market as we do both with the report as such and also with this press conference. So nothing more complicated than that.
Okay. Thank you. I'll turn it over.
And our next question
First on Europe, there is obviously a very big catch up effect here. What are you seeing there now into October, Martin? And are we staying at these levels looking at orders? Are we seeing weakness in Europe in light of the renewed shutdowns there? Or maybe even orders are even increasing?
Some interesting in the field here going into October? I will start there.
No, I mean, what we see actually is, I mean, it continues, I mean, relatively good on activity level as we have seen during Q3. And at the same time, as you said, I think it's you need to be very humble here. It's early to judge what the recent developments when it comes to the pandemic can bring to the market development. I don't see I don't feel that we see that into the figures, and I've been talking with quite some of our regional and country heads on that as well, obviously. I think what we will in that case, the Autofill first is what will happen with utilization in the market because that is so linked with the confidence of our customers if they have we'll continue to have a good utilization of their fleet that will play an important role for them.
So but that is where we stand for the time being. And of course, when it comes to Volvo, we have also a good effect recently with the launch of the new FH, FM and FMX that we will start producing in the beginning of next year or in mid-1st quarter where we have opened up the order books as well. So we have a number of good rabbits in the hat for the time being when it comes to the order intake.
That makes sense. Shifting to North America and your own orders, looking at the Volvo brand, very strong outperformance versus the market. And obviously, dealers close to you have lower inventories than for the market. And I think there is some market share ambition here on your side to move more towards fleet. This was something you talked about before, COVID shifting from owner operated more to fleet.
I just want to confirm, Martin, if this is still the case here. So if it is, it would suggest that this outperformance maybe can continue here for another couple of quarters.
No, but I think you have been into a number of areas where, of course, we have put a lot of attention. And in addition to that, I would say also, as we said in the presentation clause, that the recovery, as we see in North America, is also very much propelled by regional and long haul activities and thereby orders in that area where Volvo from a product and customer, so to speak, segment point of view have a relatively stronger position than in other segments. So it has been a number of areas. And in that regard, obviously, we expect also the continuous recovery also to be propelled by those segments because they are normally the most volatile, both on the upside and on the downside. So in addition to what you said, I think that is what I would like to ask.
And maybe on one more note is you touched upon it, but that is the excellent execution in the dealer community as regards to inventory. It has been coming with some price sacrifices, but that has been worthwhile doing that on the inventory side in order to really get that out, both on the new and used side, more so on the new side actually than the used side, but both new and used on good levels, and that is giving a good starting point also moving forward, yes.
My final one is on services. It obviously takes some time until service starts growing after mileage increases as the supply chain is sort of gradually ramping, I guess. Would you say that service has started growing here in October? Or are we still staying at this flattish level?
No. But what I mean, what we said was, of course, if you look FX adjusted for trucks and construction equipment more or less a wash in relation to last year's quarter. And we also said a sequential improvement. And that is not only, of course, digital between last June 1st July and then flat. This has been a sequential improvement over the quarter because that is also how we see the utilization.
Then in addition to that cost, obviously, we're continuing to work also on the measures that we have had as the focus area already for R and M contract penetrations as one measure, for example. So that will continue as well. But it has been a sequential improvement related to the better fleet utilization.
Thank you.
And our next question is from Olof Siedrajom from ABG Sundal Collier. Please go ahead.
Hi, thank you. It's Ulla from ABG. Just a couple of questions from my side. I know this is quite a difficult question, but is it possible to further elaborate on how much in the order intake that's boosted by orders that you should have received earlier, I. E, the pent up part of the market?
And also on your order book now, what kind of duration does it have? How much of the orders you take now or do you expect to have delivered by year end and so forth? And then on the inventory situation, we talked about trucks. How is it in Construction Equipment? You work well there to lower inventories as well.
And how is the situation there now? And could we see you sort of your production moving at a better speed than the market also in Q4? And lastly, the government support situation. Would it not be prudent to repay what you've received given how strong your results are? I mean, that would give you much more flexibility on dividend payments, etcetera.
And I'm just curious on your view regarding this. Thank you.
Thank you, Ulf. If we start then with
the order intake, as we said, we are still also judging what is working in this situation. But I think we are giving a certain guidance on that when we are reinstalling both the forecast for 2020 and also our view on 2021 because then we can also have, I mean, with a number of public numbers, if I put like that, market shares and different regions, I think it's possible to at least make some own judgments on that. And that is also related on to the order board request. What I think we have been executing in a good manner and a very professional manner and quicker also way than historically is how we cleaned the order board in the beginning of quarter 2, how we have been executing on reducing stocks and thereby making sure that the orders that are coming in now are clean, so to speak, they're consistent and the order book that we have built up now is, so to speak, healthy. So that is how we have been doing it.
What we see now is that we have lead times or guidelines, as we call it, that are coming back to rather normal levels, and that is important also for the industrial value chain to have a certain visibility. This year is rather much the same story, good execution on inventories, as we have said, across regions, both on new and used. And also there, I mean, as we see it now, we have the and balanced pipeline moving forward. So and depending on region there, obviously, you need to have certain levels of stock cost because you have seasonality and you need to make certain bets when you would like to be leaning forward.
What we can add there, Martin, is if you remember last year, we were very cautious in Q4 and beginning of the year because we were anticipating a downturn. So already there, we started to work down the inventory out in the dealers, and also they were very careful of renewing their rental fleets, etcetera. So we were coming into this in a good situation in most of the regions.
And on the last question, I mean, in second quarter, we had governmental support levels of SEK 1,700,000,000 globally. It was a little bit more than SEK 1,000,000,000 in Sweden. In 3rd quarter, it was slightly less than SEK 600,000,000. And out of those, a little bit less than 50% was related to Sweden. So we have a gradual winding down of this.
That is the intention of the short time program. What I think is important here to say is that, that has been, of course, installed in Sweden and also since long in other countries. So from a Swedish perspective that I assume that you are talking about, Ulf, I think it's important to take a step back and have a discussion that is not related to what you have said. That is sorry for the expression, a little bit populistic. What it's all about is install a system.
The intention of that has been, 1, to align Swedish labor market and thereby Swedish jobs with conditions that are existing in the competitive markets that where we have production. Plants and others have production plants like Germany, France, Belgium, Netherlands, Denmark, just to mention a few. Secondly, to avoid much bigger layoffs and thereby, I mean, losing the contact with the labor market, utilizing that for competence development. And thirdly, to have a much better ability to quickly restart economies and thereby creating, so to speak, revenues, exports and thereby jobs and generation of taxes and other, so to speak, revenue generators for the Swedish public sector as well. We see and we have had a great cooperation with our unions on this same view that the program has given that result.
So I mean the alternative that we did see in 2,008, 2009 was much worse from those perspectives. So the answer is no, we will not do that. The program has worked as we have it was intended, and it has been good for Swedish competitiveness.
Excellent. Thank you. And I agree on the populistic part. I guess, the question was more related to what how media will might deal with this. Sorry to take one more.
Jan, how should we think about the cash flow in Q4? You had such a good cash flow in Q3. Should we still see a seasonal uptick in Q4? Or is it different this time?
Well, you know our seasonality as a group where we normally have the strong cash flow quarters when we have the strong delivery quarters being then second and fourth quarter. And that is then normally seen also in cash flow. So we don't expect anything else than a good cash generation also coming into the Q4, provided, of course, that we have stability around ourselves and all the disclaimers you can do around the COVID-nineteen, of course. In general, yes.
Thank you very much for all your questions. Appreciate it.
All right, operator.
And our next question is from Guillermo Pagnol from UBS. Please go ahead.
Hi, good morning. Guillermo Peigneux from UBS. Thanks for taking my question. I guess most of my questions have been asked, so I'll basically limit it to 1. Of the 2 roughly speaking of the €2,600,000,000 savings that you were able to factor in the quarter, I guess my Q4 and probably incremental into 2021?
Thank you.
Sorry, I have to come back there. When you're saying SEK 2,600,000,000 savings, what do you refer to? Is it
the specific P and L line or? It's on your presentation, Rob is speaking on the operating profit bridge. So SG and A going down and
Okay. And we were into that in the first question here around our cost discipline and how we must be very careful now when starting up activities and to secure then get the leverage, but also secure that if we have some kind of disturbances that we can quickly come back to lower level. So I mean, the aim is, of course, to have as much as cost reductions compared to last year left, maybe come to the Q4 as we had this quarter.
And even if activity resumes back or continues to be at high levels, you will not need to put SG and A back on place?
SG and A is, of course, more ambition driven than pure related to volumes. Volume related are things that are then related to production, the service side. And of course, there are some part of the selling that is directly linked to the sales and the market activities as such. But the rest is actually, if you think about it, very much up to ourselves to decide if we want to do things. So now coming back to the cost discipline, we have to be very careful in what we start and do and what we not do and what we postpone and what we will not do at all.
So that is my answer to the question. We have that in our hands actually to a big extent.
Fantastic. Thank you. Maybe I have to add from my side also, Martin. And I think that is, I mean, a very important opportunity that we have now also to look through our allocation of the different lines in the P and L moving forward, because this gives us also opportunity to be more offensive in certain areas and still keep, so to speak, a high level cost discipline and that good execution and module flexibility that we have seen.
Thank you. Okay. Next one please.
And our next question is from Erik Golrang from SEB. Please go ahead.
Yes, thank you. I have three questions. The first one on the deal with Isuzu, which you say you hope to sign now before year end. Is that a change from previously? Do you still expect sort of final closure and sort of switch of assets in 2021?
Or could we see that happening already before year end? Then the second question is ties back to the discussion we just had in terms of resource allocation and so on. I'm a bit interested to learn sort of to the extent you're shifting R and D more towards new technologies. Could you put a number on what sort of percentage of R and D spend over the next 12 months would be on battery or fuel less electric relative diesel compared to sort of where we're coming from? How big is this change?
And then thirdly is also a question on electrification. You highlight a few things happening there on the buses side, which clearly seems to be electrifying first, and we've seen a lot of orders across the world. Could you perhaps estimate your market share on fully electric buses, particularly outside of China, I think Europe, South America and North America? Thank you.
Thank you, Erik. 1st and foremost, as I said, I mean and we have communicated that before regarding ISOsO and both, so to speak, the divestment of assets, but also the formation of the strategic alliance is going according to plan. We have communicated a certain delay of that, and that was purely driven by the very severe restrictions we had in the beginning of Q2, maybe, and then it has restarted in a good way. But therefore, as we say now, we proceed with the plans to sign before year end and to close the deal and the reallocation of assets into Isuzu in next year. But going according to plan.
And on the R and D piece, obviously, we are continuously now reallocating and reinforcing our investments in the areas of electrification, fuel cell electrification because it's both battery electric and fuel cell electric, as we have said, about the connected platforms in order to drive efficiency utilizing our assets and products and also the self driving piece. What is coming for us now, obviously, both on trucks where we are in serial production and the ramp up has been a little bit challenged at the start related also to the pandemic. But on distribution, refuse, regional haul, etcetera, urban construction is coming and we have a good momentum. So we have the products out there, which is always not known. We will also come back to this in more detail at the Capital Markets Day, how we look upon, so to speak, the way forward here, Jirik.
So hope that you can attend that. And then as you correctly said on buses, it started with hybrid and then fully electric. We have a good market share in markets outside Europe, big interest and also a rather big scope of it because you need to be able to deliver in different forms, both when it comes to the normal rigid buses, but also the articulated ones. But also, I have to say, strong momentum now on the truck side, broadening that strong modular platform of the electric powertrain and thereby being able to utilize that for a number of different applications. So it's coming rather quick, and you need to think in segments and regions where it makes sense to sort with, but we are all in for that.
Okay. Could you put
a number on the number of fully electric buses you've delivered year to date or something on those lines?
I have the full number. I mean, it's many thousands when it comes to, I mean, both fully electric and hybrid electric. And in many aspects, I mean, you gain the same type of experiences. And then we're talking about 7, 8000, if I remember on top of my head. So the fully electric piece, I don't have in my head exactly now because it has been different type of tenders and fleets, etcetera.
But it's getting there, and we see that it's increasing steeply also. And we have taken a number of big deals as we have seen also the last couple of quarters and years here.
Thank you.
Operator, could we please have the last question?
Okay. And our last question is from Danielle Costa from Goldman Sachs. Please go ahead.
Hi, good morning. Thanks for taking the question. I'll make it a short one. And I just wanted to you're helping sort of summing up some of the comments around costs, the cost structure and your ambitions going forward. You still have the 10% over the cycle target.
Has 2020 in any shape changed your views of what sort of peak and trough could be given you're doing 9.5% margin this quarter on still pretty depressed top line? How shall we think about that 10% and the peak to trough going forward? Thank you.
I have sort of talked about this in the past. And of course, our financial target stands. What we are doing is actually testing the downside of that target. We have said before that if we should be able to pass 10% over cycle, we need to level out that full year of 6% to 7%. And I think we are, at least for the time being, fulfilling that target.
So it's a little too early to say something, but at least for now, we are on track as we see it and we are maintaining the financial targets.
Yes. And absolutely. And I mean, I think we have discussed this before. And one of our important parts to drive confidence and show confidence is obviously and eventually outcome is on the resilience through the cycle. And this is, if I may say so, an interesting point in time with the pandemic and everything.
So from that perspective, I think we have been able to show a considerable improvements in our resilience when it comes to volumes and how we handle that with cost execution, to Johan's point, and volume flexibility. And we will continue to drive that.
All right. Any final words?
No, I think everything what we wanted to say have been said. And again, I mean, thank you for attending. We're shorter notice. And we are Yes, full steam ahead.
We are proud.
Yes, we are proud and full steam ahead.
Great. So this concludes
the earnings call for Q3 2020. We are all looking forward to meet you in 3 months' time. Bye for now. Over and out.