AB Volvo's CEO Hosts Investor Day Conference (Transcript)

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AB Volvo (OTCPK:VOLVY) Investor Day Conference Call February 28, 2013 7:00 AM ET


John Hartwell – Investor Relations- Volvo Group North America

Olof Persson – President & Chief Executive Officer-Volvo Group

Anders Osberg – Chief Financial Officer & Executive Vice President-Corporate Finance & Control

Denny Slagle – Executive Vice President-Group Trucks Sales & Marketing Americas

Martin Weissburg – Executive Vice President-Volvo Financial Services


Ashik Kurian – Goldman Sachs International

Eli S. Lustgarten – Longbow Research LLC

Christian Nødtvedt – DNV

James Irwin – Moon Capital Management

John Hartwell

Good morning, everybody. My name is John Hartwell, and I’d like to welcome you to our Investor Day. Just to get into the logistics out of the way, we’re going to start with presentation by Olof Persson, our President and CEO followed by Dennis Slagle, EVP of Truck sales and Marketing in the Americas. Then 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. Then we’ll come back and Marty Weissburg, President of Volvo Financial Services will give you a financial update and then, Anders Osberg, our CFO will give you an update on treasury and lending. So I will ask you to hold your Q&As for after all the presentations and then we’ll be running around with microphones. The only other thing is, when the Q&A comes, we need you to speak into the microphone, because it’s being recorded.

So with that, I will turn it over to Olof.

Olof Persson

Thank you very much. And once again, very welcome. It’s great to see so many of you here today. And I would like to start with giving you a sort of a deep dive into both the changes we’re doing in the Groups, 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.

But 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. And if you look at Volvo Group from an organization point of view, it’s 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. But the main focus has been focusing on business areas. And 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 will say, almost a rather niche West European, North American truck manufacturer and construction equipment manufacturer into a global player. And that has been done as you all know by acquisition. And 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 all and we did see when I came in that we have to take and it was natural to take the next 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, because 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 head in potential.

That potential has been taking on board by the engine platform we have done, by the our detective platforms, but there were others synergies, 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.

So this is not about – and if you look at the change we’re doing, the organization change is one thing. That is the box movement as it dismantling of the business areas – it’s the dismantling of lot of internal matrix doing and interactions and activities and then going into a more functional/process oriented organization. But it’s also a new way of working. It’s a new way of actually dealing with the Group in total. So it is a fundamental change. This is not just one of those reorganizations. And I put up some areas where we’ll talk about this internally what we really want to achieve and 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, and 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. We also, by having the organization on a business area by business area naturally, you’re looking at the pace and the rhythm that is basically very much on reviews coming on a monthly basis or a quarterly basis. You’re 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. So we say that, from 2012 and then particularly now going into 2013, I want the whole organization to run on a weekly rhythm, because that’s the speed that we need to have in order to achieve what we want to achieve over the next three years.

So for instance, I’m having my managements on Mondays, the sales organizations on Tuesday. We have the technology on Wednesdays, and we have operations on Thursday. So by the end of the week, 82,000 people have had the top managements going through one circle of management team meetings. We also open up, so we post the minutes directly after each and every meeting on our internal Wi-Lan system, which means that all employees can read about what was discussed, what decision were taken. So we have opened out the transparency in order to make sure that the rest of the organization also keep up with a weekly base. 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’re shifting from and to. So we’ll not spend too much time about that.

Another sort of 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. And here we talk about everything from the sales process to operations process, the production process, the quality process, all of that over time of course, develop in different directions, specifically, when we’re adding so many companies in terms of acquisitions as we have done.

They brought in new processes and then you will get further diversion and differentiation. So one very important part is to get those 80,000 people now to work in a 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, sort of saying. That is everyone who’s working the matrix knows that you always have those cross points and so on and so forth. I’ve been working very long in matrix organizations, and I may say that what we try to do now is to really take away the shared responsibility and by traditional functional organization, clarify the responsibility very, very fast.

So now we have a sales organization in sales and marketing that only focus on the sales and marketing processes and only focus on the sales and marketing processes and only focus on selling the product we have. We have a technology organization that is focus on the technology and then you have operation who is then focus on worldwide operation and production and by that driving improvements, now there is by doing that is that you actually get sidles. So basically, you give chains to sidles from business area by business area into a function. And the answer to that is the global processes again. So we need that is the glue that’s going to make sure retrieve and basically trade this one plus one equal to three.

So this transformation we worked on during 2012. And I think it’s important that you have that setting in front of you not believing that is, as your books are reorganization, this is much more than that. And it shows all on this picture, I think. We have a change pace in 2012 that was quite amazing, and these are the major parts where we did a lot more than this. I can just give you a sort of anecdotal show on how we worked before.

In 2011, the organization generated $11 million internal invoices. Invoices that run from one site to the other in the organization between the business area and the business units, we said from day one that the internal invoices we take away. Then we said $250 million sec a year in administration costs and we’ve got also much more transparent process.

So we have done all these things as you can see on top, where 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. So every year, we measure against the peer and that’s of course, easy for you to measure how we succeed or not, but you can imagine the power to have that internally, drop and show the slides, we are better, we are worse, this is what the Board wants us to do, and we can really have a discussion internally about how we met the target and what can we do and so on and so forth.

We also have completely new management team, and we manage basically during the first six months to appoint 450 new managers in organization, 99.9% internal. We have a very good pipeline of talent, and with our excellent, I’d say 99% is that we only have one guy coming from outside.

During the 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 decade to change for something new. You need it as the financial framework, you need to make sure that the closing are going smoothest less and during a process like we had in 2012 don’t lose track where you are. And this is of course something we have put a lot of emphasis, but outside the organization has done a tremendous job during 2012 in order to do that.

We came out and I will talk about that in quite detail about the strategic objectives and also the brand positioning. So giving you the setting the framework, 2012 was a transformation year. We managed to do everything. We put ourselves in front of, and I think we did it on time and with the quality that we wanted. So that means that we’re actually start now 2013, and I use to talk about the foundation, I mean we laid a foundation. We failure to concrete, we left the concrete drive, and now from 2013 onwards, we can really start to run in the new organization.

The strategic objective that we put forward is really in order to take this in to the next step. This is the take all the thinking we have done, all the analyses we have done, all the opportunities we found and formulate that in a strategies that really drives on both to external work, but of course also very, very important to the internal work.

And 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 or higher than our peers. This is really focusing on our organic revenue growth.

And then of course, we have improved the profitability. And what we did them was to in spring time last year, gather all the top managements in my team, we worked during the spring and tried to formulate what is it for, what is that we really need to achieve the next three years in ordered to drive home on the growth, and drive home on the profitability, and we forced ourselves to be specific. We forced ourselves to the specific in order to be able to measure, in order to be able to really follow up and do corrective actions and we want to do it.

And that resulted in this that is nowadays almost famous mentor targets, so this is not a Friday afternoon scribbling 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 definitions and most important of all, we have tested the interaction between the targets.

It is possible to reach all the targets, because I don’t want to have strategies where you had 20 targets where actually if you map five of them, six were impossible to meet. And that is something we also spend a lot of time. So this is a well anchored and a very time conscious strategy that we have. And you see up in the right hand corner, we have 36 months to go, when we started 1 of January, two months have gone, we have 34 months to go. This is the sort of the approach we’re taking to this, and I’ll come back to that a bit later.

If you took at the target per se, you can see that some of them are then focusing very much on the revenue room. And there you have for instance to capture profitable growth opportunity 31, 32, 33, 34. You have the commercial alternative fuels. You have each brands ranked number one. And those have been sort of clustered into the growth section, and then we’ll come back to it. We’ll follow this up every closely in each and every quarter, each and every month, what actions are we taking in order to support it.

The strategy like this is as much what you should do, as much as what you should not to do. And the problem is to make sure that you stop things, but it’s not supporting the strategy and that is something we’re working on very much as well.

On the profitability side, we cluster that together in 1.1 to 1.5 and I know there is a lot of interest in this particular part of it and we have spend a lot of time into it, and therefore we have been very open in what would it mean, how much would it sort of give an impact on the profit and loss. And then therefore, I would like to spend a few minutes on actually going through this. So you understand it and see you bring with you also the sense of seriousness, the sense of actually commitment to all these targets.

We’ll start from the top with increased vehicle gross profit margin per region by 3% points. There are two important thing there. That is the vehicle that means this is new vehicles, okay, so this is not spare parts, hence you see 3% is translating into 2% in the operating margin.

What we’re looking about here and what we’re talking about is actually the price managements. I mean if you would give it on umbrella type, it is price managements and it’s mix management, but it’s also really going through each and every market, each and every product and say where do we make enough money not to be diluted. And we founded 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. So it’s both in terms of growing, in term of price management, but it’s also to actually take and bite the bullet and dismantle exit business 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 line up that we will have coming into to 2014 and that is of course also something that we see an opportunity, a lot of people see this as sort of a risk coming out of a new product, new line ups that you would have problems on the pricing side.

We’ll turn it around and say, this is something that we do very seldom. We see it as a real opportunity and we’re going to make sure that why we launched a new value truck for instance, or the FH, sort of new Renault launch that you will come this summer. We’re going to take that as an opportunity, not as a problem.

When it comes to the next point, reduced down the cost of sales for current offer by 10%; this one demands a little bit of explanation, just as a definition because you who are into balance sheets and profit and loss, the first question is of course; how come can 10% on Santa Claus sales only generate 3% of operating margin. First of all, it goes in the definition. It is in the current offer, so that means that the new launched products that will come is not included in this. So therefore for definition, you will have a higher cost level on those products.

Therefore, we are now focusing for the next two years. We’re going to reduce the current offer with 10%. So that means that for a percentage of the total will of course become less and less over time. Having said that, we have also indicated over the next two years, price and cost reductions for the new products coming in, so there are. But if you weigh all this together, we come up with plus or minus 3% on operating margin. So that is the reason for it.

“How we’re going to do that?” Well, we have just put one heading there, saying the Volvo Production System. The Volvo Production System is also used umbrella, so and you have probably in many presentations when people talk about their company’s production system. But let me give you few concrete examples that what we are looking at.

Remember, I told you that we have the business area by business area. In the production that was very much the same. We had one Renault truck Production Manager, who will manage all the Renault truck production facilities. We had one Volvo Truck Production Manager, who will manage those. And then you had the other business areas as well. The demand that cross fertilization, the cross fertilization good idea, some 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 analyses of the efficiencies related to Kaizen, Kaizen events; the Toyota production metallurgy that we’re utilizing. We saw that in Renault factories. We’re actually weigh the head of the Volvo to take Europe.

So 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 U.S. So therefore, we’re not transferring the online quality processes from Europe into U.S.

And if you look at it and to go line-by-line, you will find a number of these things that sort of open up and/or actually low hanging fruit that just 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 organization. It was the 3P, which was in technology. We have the Powertrain; it has to do everything with engines, and doing the Non-Automotive Purchasing. That is now one purchasing organization and 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. But it also means that we now can completely work together with the technology organization for the full vehicle in much a better way. So we can do the trades up between what is coming on the product side, engine side and so on and so forth.

FME, further optimize sourcing goes that way as well. It has much about how flexible or to get the products out to the markets, because we have the huge footprint all of the places. Example, bus sale, we see right now that we haven’t had a positive turn in brazil to 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 American in order to optimize that. We are looking at for instance, we have a CKD factory in Saudi Arabia, but very well can support, start to support trucks into Africa and there by offload the European system that they can focus more on the European system. And this kind of matching, so sourcing goes both in terms of procurement which is a natural thing you think about, but also very much going into our flexibility to supply complete trucks or no time kits into the market.

Quality is another issue. I not 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 on road quality harmonize throughout the regions and the different brands.

The next one is the wholesale. And for us, wholesale is – we separate between the selling expenses that are pure into dealership, and the one that we have as you can call it [temporarily]. That is the price management is a 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.

We need to make sure that those costs are as efficient as possible and therefore, we didn’t want to have this mix up which you very often get when you’re your own dealership, is that if you actually add service people in the dealerships, the selling cost goes up. But the payback on that service guy who is selling service hours, it’s like an enormous, so that’s a very good business kit. But on the cost line, selling, it goes up. And therefore we didn’t internally want to have that discussion.

So we said, okay, let’s look at what we can control and what we believe is throughput. And that is the wholesale selling strategy. And 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 reorganization that we’re doing now is that we actually divide Europe in two regions. And in the regions, they are responsible for both the Renault and the Volvo brand. And this is from an organization point of view ready easy to understand from a currency point of view and from an opportunity point of view, it’s of course something that it’s quite new, and we have to really push through to make sure that is happening in a speed of 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 a little or too weak, the profitability in many markets were absolutely too weak, and therefore we can now by joining forces with the Volvo, which has a much better and we do have dual branding and we have dual workshop. We actually increase the number of service point for Renault in one goal just by doing this reorganization with up to 40%, 50%.

So all of a sudden to Renault customer and that is something that that they have been suffering from have access through a service network that is actually much, much bigger than it had before. What also happening is of course that when you do that, you can take out management level, because we have double on everything in every region out in the market. That we also done and hence the reorganization charge that we have taking now in order to reduce the number of people.

So by doing this, we all of a sudden and 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 haven’t going to have a extremely update in a modern product fleet to deal with going forward.

What we also said is that the key markets for Renault, which is France, Southern Europe, UK, we keep it separate, we don’t want to make sit where is not necessary, but we do make sit and blended where we see under critical and its particularly on the Renault side, where I’ve seen down to criticality. So this is definitely a win-win situation for everyone in [industry].

Japan another example, we took out basically 10% of the whole work force in Japan it’s a magnanimous step, 10% of the work force basically its left the company Japan, a big shank of that was in the selling side and the wholesale side of it, which is now being done and we restructure also the Japan, and the distribution system.

Soft offer has always being something we have been focusing on and something that we’ve pushed, and here again I want to make sure that we have a targeted really focusing on the fact that we want to create not on the spare parts side, we want to create new solutions, we want to create new products in the aftermarket, because just focusing on the spare part sale in the long run, I don’t thing it’s going to enough, and by actually measuring this and I say the own dealer soft offer absorption means that we get to drive in two directions; one that we get stronger dealer, because they absorb their running costs better, and second we get an enormous focus and actually developing new soft offer products.

Reduced R&D expenses to SEK 11.5 billion that’s a SEK 2 billion reduction compared to the running costs having in Q4, and 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 chose to say the other way around we have to fix this, we have to start the reduction in R&D, to us, I’m talking about now, the gross R&D already now, and now we have to fix the things as it goes along without doing different things, because otherwise organization have a tendency sometimes to have difficult distracted measured improvements, we have turned it around and said, and we started cost reductions, then guys you find improvements and efficiency guys and that we continue to do that.

We are taking out 200 consultants in the engineer organization during Q1 this year in order to start up journey, to make sure that we get this run rate where it should be write-down every day. This means the improvement on 26 points and I would like to add something just to clarify, because this is also important, almost to the record and we set this up, we wanted to make sure that we didn’t get a fluent kind of thinking around this, so 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 going upward.

If we then move over and look at the other areas, the business areas: CE, Buses, Penta, we have put targets on those as well. And as you can see on the total, they will contribute their 0.5% to the Group, based on another SEK 100 million coming up to the SEK 300 billion for the Group, basically of course CE is by far the largest in this, and CE has as you know went through a transformation process in 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.

And the prices in 2008, Q4 Volvo CE had a turnover of SEK 12 billion, made a huge loss and have massive negative cash flow.

Q4 2012 the same turnover SEK 12 billion, but have a substantial positive cash flow and they showed a positive margin. So the transformation of CE has happened now of course that’s good and tap on the shoulder for that, but now we need to look forward to the next three year. They have actually been through this one time. They have done exactly the strategic process that now doing for the trucks, and I can tell that because I was there and I did it at that point in time. And the result is actually fortunately you have to say the truth is that 2008 and 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 be nothing serious to me to stand in front of you and say that is exactly, what it’s going to be to the top. You know that things will happen but we don’t know today. We know that there will be issues that we haven’t foreseen. And therefore we put what I call the headwind factor that then gets us down to the 3 percentage points, which is the effect of those activities will give the Group over the next three years based on the 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 is actually happening? We have five key focus area; we have the 20 strategic objectives you have seen. We have developed this into as per day 35 targets in our roadmaps and we have more than 400 activities that we know focusing on.

And this is not the quarterly or half-year or yearly update with the red dot or green dot or yellow dot; this is coming and reported to us in the management team on a monthly basis.

One Monday months, we get the full report where we stand on the different 20 targets, and have a discussion around it. Where are we falling behind? Where we, 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 times, so 12 times a year we are going through this in quite a detail.

Leaving that part of it, and I’m looking into what I consider one of our absolute largest asset that we have and 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 positioning, you see there is lot of connections into the different targets both on the brand positioning, the sizes, the growth and all of that, so there is a lot of targets out of the 20 to pick from, when it comes to, and how we are going to utilize our brand positioning. And if you look at it, we do have a very, very good position to mange, and we have a very good heritage that we now need to bring to next level.

We have strong brands, we can see them there, and we have enormously global industrial footprint, I talk about that, and it’s becoming more and more global. We have our customer relations, technology platforms, and of course a very strong global distribution, in presence we are actually active in 192 countries in the world, and I think there are in total to 200 something countries in the world, so we are truly global when it comes to our global presence.

If you look at the map as was it used to be, there are two things, I would like to convey, 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, and what we saw over the year, was that the brands in their independency and in the eager to move themselves. They wanted all of them to move up in that corner. The Renault truck, the UD truck, the Mack truck, everyone wanted to be up, the Volvo truck was up there.

And that meant of course that we got stuck. 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 and 1.5 million trucks a year around the world. That is both the basic segment and the value segment, and you can see how well established we were there or it is actually a big shank of trucks steering wheels that we believe on the table.

What we set out to do in the beginning of last year was – we need to rethink this really and see how we can do it. And the result of that work which actually was an almost one year work was to come up with this. So instead of having a tendency and slippage 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 market place.

And we could of course have expected a lot of push backs 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, every one wants to have a clear position. Everyone wants to know what they should fight for. And now with this line up of branch, we actually can say that we do have that in a good way. Recovering all the way from the basic segment, UD segment has its place now. That is UD outside Japan.

The Renault has actually been a much a wider scope than it was before.

So for the Renault people, this was really possible, because before that was squeezed in, in the upper hand end corner. Now they’re really have the task to go out and do product plans and other make to sure that you cover all this and then you have the Volvo brand there. Five brands that’s discovering the whole area of trucks.

Now this is of course that chart is very easy to do and it’s actually not too much of – there is a lot of work behind it, but it’s quite natural once you see it. From this of course how do we get the right products? And the issue to me was actually we have to make sure that we have competitive products, because you cannot keep on downscaling the Volvo Trucks to fit in a value cycle, 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 platform discovering the different areas and we do have now for the first time really a full line of also on the product side. With the Eicher products in the basic platform we are and I will talk a little bit more about our newly developed value platform that has been covering both of the value and value basic and then we have the Renault and the Volvo premium platform taking care of Premium-End and High-End. So it’s not all that we have really defined the places for the brands and the market we also set clearly, yes, you will get the product that goes with it.

We will now start with the Premium-End. We’re very proud to and we have been done a – if I can say it’s almost of a heck of a job to on this truck; that’s been a five year of development, we have spend a SEK11 billion in development cost of it and we have come up with something that really have moved the Premium-End upwards, and this truck is a game changer.

We have a new CAD, new dynamic steering, we have fuel efficiency and we have the latest of the latest in terms of features in this sector. We received a very good acceptance from the customers. We have gone through thousands of training hours and then we have launched it now properly in Europe. We're ramping up production and the order intake that we see right now is actually exceeding our already higher expectations in the order intake, so a very good acceptance for that and we’ll fill that spot up there on the premium-end in a very, very good way.

The next thing to come is actually a full range of new heavy duty trucks from Renault and that 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. But we are already now looking at the production ramp up during the second semester or second half of this year to then start really to get to deliver volumes out in 2014. So this is very exciting news for Renault as well and we will then have a product that is designed for that too and also working very nicely in the high-end.

Moving on to the Value; one of the most recently asked question is when we will launch this platform and for competitive reasons we will not reveal that. We haven't done anything, we will not do it today, but on the question, does it exists, I can say that much that I have been driving this, so it does really exist. And this is a game changing offering, this is a family basically of a product range covering the haulage, covering the construction, covering the mining.

So this is really much more than you have to track, this is really platform thinking and a family thinking that we have developed. This track has been developed in Asia, by Asia, designed for Asia. So this is designed for purpose and designed for markets that we have seen. And this will then be market across South Asia and South East Asia of course and that 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 set up in order to really make sure that we could demonstrate from it, because we also need to have the production, so in parallel to this development we have also invested heavily in Bangkok, Bangalore and we’re looking also into Hangzhou to make sure that we have local production for the markets because I think that we 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. So the big chunks of the markets, we’re going to have our own production in order to take care of the supply off and thereby also increasing the flexibility in our direction system. And this is of course combined with the development the industrial projects as we use. This is a big project that we have been running in parallel in order to facilitate that. And it’s coming along very nicely.

And then finally the basic which is down the end of 2013, we launched a new line of

Eicher heavy duty and this is done basically combining the best of the two works when it comes to India engineering, Volvo knowledge and I must say that the joint venture we have with Eicher is working very, very good. We have a extremely good corporation and we actually are pushing things in the best possible way and 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 we’re also getting the foothold in the heavy duty which they haven’t been very present before. And again, this is a product design for the market that’s going to be in. So we’re very pleased to see that. So that was sort of the last bit and the last thought of the buses.

Now we need to move on, because we have done a lot of things, we have during 2012, defined the product strategies, we have added on with the product platforms, we have added on reinvestment in the buses systems and now we need to take it as a step-up further and of course, we cannot turn one day to another, reshape to the product down. We need to bring it in, we need to make sure that we do it step-by-step. So in Q2 this year, we’re now going to line all the features that we have and that we need to have in the future for the new products.

We need define aftermarket solutions, because that’s very much different in different parts of the world and with a need to come in with those revised products and that will bring us into the next generation, to next update, to next one and that we’re looking five, 10 years ahead. That’s the kind of foresight you need to have in order to have the development cycles been in a reliant way, but now we have the whole bits and parts of the puzzle including the thing I’m going to talk about next, which is I’m going to be about China, yeah.

We had as you know, up and until January 26 of this year, we still have, we hope that within a year, we will have closed the largest sort of bits that was missing in our global buses in China. We were present there with our Western European brands, we were present there with our DND joint venture with the UD (inaudible) that was coming from Japan though we were not really a player.

With this Volvo Group and Dongfeng strategic alliance where we buy 4% to 5% 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. And China, as you know is by far the largest market, truck market in the world actually equals the size of Europe and North America together.

So it’s very important and I’m really pleased that we managed to get to this field, because it’s a win-win deal for everyone and it supports very much our strategy on the capital growth opportunities. So by optimizing their brand assets to become number one and number two, they have due to direct market and by combining this looking at 2011 numbers, we would actually be the largest heavy-duty truck manufacturer in the world.

So the deal by self, it is a newly, it is going to be newly formed company called the DFCV, Dongfeng Commercial Vehicles, and in there the Dongfeng Group will put absolute majority of their truck manufacturing also buses. And that will then constitute if you look at the volumes some 142,000 trucks and with a 16% market share.

So this will from the start of be a be a big company and the differences compared to the other setups we have seen with a small joint-venture in front of 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’s 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, bus purchase and production volumes. A lot of synergies when it comes to R&D cost, making sure that we can spread our R&D costs on higher volumes. And also we have been very clear saying that this is a partnership that was strengthened on things substantially in the Chinese markets, that’s one target, but also to create the prerequisites and making sure that Dongfeng also becomes a global company, coming out of the markets around the world.

And 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 million, 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 waiting authority approval and that is a process that we believe would take approximately a year from the 26 of January. So we will have to wait and see. There is nothing today that we see that wouldn’t. But on the other hand, they’re very humble. I mean this is an approval process that has to be run and we will see what comes out.

The transaction per se is quite straight forward. We have the DFCV, the newly formed company, which then – owned by 45% of Volvo Group and 55% by Dongfeng. We paid them $5.6 billion RMB for that 45% ownership and we also include and DND joint venture in the set up. So we are 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 slides, we can just say that you see the size of it, you see the profitability, and of course on the Q3, 2012 you can see there the profit. And also you can see it on the volumes that of course the 2012 was a tough year on the truck industry in China has been in other places in the world as well.

28,000 employees and a market share in this big market over 16%, 17%. Strong line-up, and new line-up and modern line-up, but it is the Chinese line-up. So this is the logo you see is the double swallow, if you look at it closely, you can see the two swallows flying around in that circle. And the name is under Dongfeng written in those letters. So that’s the trade mark of the brand and the logo.

And then you can see the products, Kinland, T-Lift, Kingrun and then you have other basic products as well. So it’s a complete line up of trucks that we see both on 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, and 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 turn over. And I would like to emphasize we are talking about SEK here and no other currency.

And you can see there and we are well positioned then as one of the largest in – on the truck side. We are number one on the construction equipment. We’ve reinforced our position during 2012, growing our market shares. And then we also are active in the high level, the new technology on the bus side, together with sites. So, we are actually in China and we haven’t this one, but we are one of the few countries in the world, but we have all activity presence, VFS, we have Penta, and we have all the others represented in China. So that’s really a home market and it’s a big market for us as well.

So now it’s 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 profit.

And with that, I think I’ll leave it over to you Denny.

Denny Slagle

Thank you, Olof and I’m tasked with the Execute Delivery 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, U.S. maybe moving sideways but still turning green, and then when you go through even Latin America, and to Brazil you’re seeing particularly in Brazil there is a situation where the growth that was interrupted a couple of years ago has resumed, a lot positive activities there and stimulus for Brazil, so by and by have a pretty good region, lots of opportunity.

And I’m going to talk today about drilling down a bit as to what we see is 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 within 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 wanted to talk about those 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. Now 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 number one position in heavy duty market share.

But 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 still young in the North American market by many standards. But we have gone to work on this particularly in last three or four years and along with our dealers have invested heavily on this. We're keeping an eye on continuous improvement, dealer operating standards, grinding our way at it and also doing some restructuring where we've had chronic underperformers or succession. We've been pretty successful on that.

Some of the metrics there are very, very important. Important to us, obviously important to our customers, we’ve grown 50 outlets since 2010, we’ve had $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 base available to our customers by 25% in two years. That is a great metric and I'll come back to the importance that later.

Our dealers had record profitability in 2011, 2012 say there are believers and they are willing to reinvest as we said earlier. We trained or we’ve added 800 new technicians and that's 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. So there is 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. And that our work is not done, it’s continuing some very ambitious plans on the joint work with our dealers this year.

A very, very important part of our success or profitability is the after-market. And of course we have to be good at that. We have to service our customers well and we have to be good at marketing it. But fundamental to that is to own in a proprietary way the power train and 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 being able to develop a power train all of which are your components. So, yeah the things that rather than bringing them from different vendors, if they’re yours, you can optimize on the efficiencies of cars.

We had some again good success here. On the Volvo side, we still offer (inaudible) alternative, but as you can see the penetration of Volvo Engines is up 79%. The thing I’d like to leave you with anything as far as kind of 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 and the potential of I-Shift. Not only is it easier, safer et cetera, but it also – it’s a fuel saving over the standard transmission.

So in the case of Volvo, we’ve seen it rise to 45%. In the case of Mack, from a standing start, just couple of years ago, we’re up to 27% Mack’s business is I-Shift. Customers who love this product, I can tell you for example, we just hired Goran Nyberg from the UK. He was in-charge of Volvo there. His goal was to get up to 40% penetration in a couple of years ago. They’re up to 85%. In Brazil, it’s almost 100%. This is a game changer. I-Shift, when you think about it, 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 show the benefits of this automated manual transmission.

We also of course answering the bell so to speak on the demands for an alternative fuel particularly natural gas. So in our offering today, where we get offered in our engine, we’re integrating the Cummins Engine. We’re also working on our own HPDI LNG engine as well as some other interesting things around the 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. But 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 worse thing that can happen to our customers, most expensive. It’s hard to put a number on it because you have the physical numbers and 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 24x7 break down services and we’re putting that together to focus on down time and not just focus on down time but anticipate down time. So far let me give you a quick example what I am talking about. You are going down the road, we have installed the truck a telemetric, some one is monitoring, it gets a fault code, that fault code is already been filtered so that we know that it is probable, the customer is going to have a downtime event or it can be something lighter than that, but that will (inaudible) there but let’s follow the downtime event.

Now what we do is just tell the customer and call him and hey we see this down fault code. You better – you should be aware, what we have done is also caught ahead 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 he is not just falling in line with somebody doing that initial diagnose, we’ve also by the way told the dealer what the fault code is and he has already done the work to diagnose this.

That goes through – you talk to any customer, they call duel times. The time you go down to the time you are up, you go downside the road, you got a hotel bill or you got somebody missing the kids base game, you’ve got problems. This is we’re gearing the sub-time focus on around exactly what the customer cares most about. And I think we’re ahead of the game here. I think this is – we’ve got some tools here. They’re unique to us. A lot of people have telematics, but the underlying work – the heavy lifting and this is done by systems underneath telematics. We have it. I mentioned geo-coding on the slide or geo-fencing. Think about it. The most important thing again to a customer is real time, the time you go down, the time you get back up.

What if you drew a circle around everyone of our dealers and we had a truck with a fault code go into it and we could measure exactly how long a truck has been there. What you measure, you can improve. So we measure the time the truck has been in a dealership. We’ll give him a call, hey, is this – 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 act on it. So the whole company is becoming sensitive to the customer’s most important thing and that it 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 the – with this great brand portfolio. As you can see, you take Brazil for example. We have – they were number one in Brazil, as you can see, number one in customer satisfaction, number one in brand image, number one 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 one in image et cetera. But, we have this opportunity where 75% of that market is really not addressed properly by our existing offering. So 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, in terms of not only how we distribute it, but how we build it.

And we’ll be making that offering, expanding our offering in Brazil, leveraging off the strokes that we already have. So quite excited about this. I think we’ll 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 of the markets in Latin America to determine whether we have the right set of – in the brand portfolio to optimize our potential in South America which again hits back to the strategic objective and delivered on our full potential.

With that, I’ll hand it back to the boss for construction equipment.

Olof Persson

Thank you very much, Denny. And let me talk a few minutes down on construction equipment and – as I said, the second strategic period that we are now entering them are having run through the first strategic period in this same system as we have done – now implementing for the trucks. So if you look at it and I talked about it before with the starting point.

I mean it is as I said before a new construction equipment, a reshaped construction equipment compared to before 2008, where we’ve done, have of course focused a lot on the dual brand and with examples that we’ve talked about at China has been a real success in order to capture market share we didn’t see coming before, but 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 SDLG brand in Brazil doing exactly what Denny was talking about on the truck side, and the data was actually to take the existing dealer networks and asked them are you interested be a dealer, to invest in a complete sector dealer to invest in a complete sector at dealer network, and then bringing the SDLG product. We don’t want to have the same front office. You can have the same back office, ownership yes. But you are not allowed to make such rest and I said, yes definitely.

And we went in two years basically from the hero in the Chinese segment in Brazil and today we are number one in the Chinese segment in Brazil with SDLG [reloader]. So that is a model that we tested out in construction equipment. And we are looking at a similar model then around the world, coming back to utilizing our brand and distribution.

We do have and I think looking at see today, we’ve just started to really grasp the opportunity that we do have wedded to your brands. And I’ll come back to that a little bit. But we believe that by utilizing the two brands in the most intelligent and a fixed way, we still have a lot of opportunities going forward. And that is to grow the share in emerging markets. With the same principal, as we have for the truck side. And that’s of course a interesting and I’ll come back to a little bit more in detail. But we also have to look at what is so important in all businesses to make sure that we do have, the after market business coming with us as well.

So if you look at the profitability growth of SDLG globally, we are now looking at a case and here we’ve put an absolute number. We said that we’ve gone about the end of this period export or have a business of 10, 000 units of SDLG products outside of China. Today it’s I think it’s 3,900 something in 2012, so it’s quite an aggressive growth plan that we’re looking at in order to achieve here.

When it comes to developing branded products for emerging markets, it is every important as we do have the philosophy and basically what the history says is that you need in each and every market have the right product for the customers. That 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 and 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. And that is I think we have a very good example where we achieved that coming.

Common architecture and share technology is very important when you do this kind of – and this is something that is not only between the brands but it’s perhaps even more so within for instance the Volvo brand.

CE is under the same kind of line up as we’ve 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. And there we have chosen to – we’re a little bit different compared to the trucks side, because in the trucks side, we have the brands. You can actually line them up and making sure that you cover the biggest segments or smaller segments, where else with the two brands we have here, we do have to make sure that we have a little bit of stretch in the brand and this is a delicate, but I think very interesting concept that we are working on now to see where does the Volvo brand stretch. And this has to be very, very carefully managed. So you don’t have a rubber band that actually snaps. So you move into segment. You don’t want to be in or call it; 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. And the same goes with SDLG. How much can that brand really, in terms of moving up the ladder take? And it’s of course, always easier, it’s always easier to move up the ladder with a brand because we add on features, products and slowly we will get that.

The thing we’ve done and the growth opportunities we see and this kind of gives the opportunity in China in a good way, this slide and the slide. Here you can see an excavated 3.5%. You sure remember that three or four years ago, that was zero. So now it’s 3.5% on the excavated for SDLG. And you have a so now we see 1.5% on the accelerated for SDLG and you have an almost 19% on the reloaded side, which actually was, if I remember it correctly, the improvement and the number down on the 14%, 13% some years ago. So we have seen growth definitely on the SDLG side on both sides.

Remember that there were those 3.5 and 18.7 and I look at this slide, and you see a 6.5 and 0.1. And then we just ought to see the opportunities. The 3.5 on the FDD side, on the excavated side is of course a great opportunity to grow. The 0.1 on the re-loader on Volvo is of course, even more; a good way of growing. I mean we’re selling a handful of Volvo re-loaders into China today.

And therefore, we have developed this brick loader, which I will come back to, which has actually done in a corporation between the SDLG and the Volvo brand. So here we see the growth is definitely coming from both sides, both from exactor side and the SDLG and an enormous potential if we get this right on the loader side in China for the Volvo brand. And the way we have been working on it, is basically we started off in the excavator case by taking western technology into the SDLG, but we did made 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, that came out to the market as we have the profitability we wanted and where that credit cost structure we wanted. That was done and was done in a very good way.

Now with it, the next step was to do the reverse. So basically what we did was that we looked at the concepts and technology that has been extremely successful in China SDLG on the wheel loader side, and we said, what can we take that? What platform things can we do and that would be very forced just not destroying the cost structure and then moving that upwards and adding all features and that’s exactly according to the school book duration we are doing. Take a low run product, add features, add components and then bring it up wards, not the other way around.

And that is now what we launched SDLG few months ago, the new Volvo BRIC-loader that would be launched and has now been and now is going to be sold, produced in China and sold in China to year to come, very exciting and we really having great hopes for this product, because it is hitting in a spot end of 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 what we say.

Then we can roll this concept out and then we have it, we have done it before in China, have tested it in Brazil, which was very 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, various quality conscious customers, international companies, and 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,. and then we have the South East Asia, all the way down in Australia. And 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.

So again, combining the brands, it’s a key issue to create volume, and always keep an eye on the profitability. so you can see that I was right, 3,900 and we want to grow that to 10,000 in the next few years to come. So I think it’s all in all, there are a lot of activities and things with CE that we need to focus upon of course, but 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, really making sure that we are pushing these two, and I think we have gained so much experience over the last three years as such a good cooperation with our partner and I think we are in a very good position to do that.

And the test in water was actually the brake 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. and our setup of a Volvo Research Center in China was instrumented for this, because there we attracted the Chinese people coming in, we attracted there. With (inaudible) 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 although if you want to sort of export good thinking and good design from Western European into China. so that setup was also instrumental to this. and 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.

Just a short, how should I say, a few words on the engine legislation and Tier 4, both the interim and final sort of sales under the radar screen. This is a major change in the construction equipment industry with those kinds 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, and the feedback we get from the customers on the interim solutions are very good, because we do have a functionality that actually mean that the customer can grow without regeneration and burned the sorts, and burned the filters and they can do that up and running and we’re really proud of that solution and the customers are liking that as well. So we are well positioned in the engine legislation part of it.

So all in all, set for growth within global brands. good work done during the previous three years, but believing, I’m not – even though, I’m not sitting in Brazil anymore, leading it, I keep a very close eye on that. The sea is developing in line with those plans and all the piece on the puzzle is there. Now it’s again, a matter of execution. And just for your information, the same process I talked about when it comes to the trucks with monthly follow ups, with the same principles of limited amount of targets, roadmaps follow up.

The same process we do in trucks, we do it in CE, we do it in Buses, we do in Penta. So this is a good example of the trucks, because that is something that we do throughout the company now.

Denny Slagle

Okay, so strategy is no longer quarterly, half-year, it’s monthly; it’s like the financial results or something out there every month. Now I think it’s coffee time Right?

Olof Persson

And may be returning in 30 minutes roughly from now.

Martin Weissburg

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, global 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. and as the Capital 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 customers’ experience with the Volvo Group products, and we do this of course, through well-controlled and disciplined operations and within very distinct risk in pricing parameters. VFS is indeed well-positioned today and even more so into the future to help drive Group product sales, and to do so with these profitable solutions.

to give you bit of an overview. we’re about 1,400 employees globally. we’re offering Group Financial Services in about, in 40 countries now. and these 40 countries represent about 85%, 90% of group unit sales. so while our footprint today is 40 countries to the Group’s footprint when it is larger, it covers the vast majority of where the Group sells product. we serve all the Group brands and I’ll show some information on this later. and today, we have internal share or penetration of approximately 20% of group sales.

So we are a global company, and we’re a growing company. and what are the opportunities, organic growth as the Volvo group grows, so to well and so to show 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 products plus soft products bring this together, and I’ll show you some examples in advertised to group truck strategy to make sure we’re getting multiple revenue streams from the same important customer and giving them good service, and then operational excellence in capital market activities and the continued advances in these areas. and especially on capital markets, how do we together with Volvo Treasury and the rest of the Volvo Group team have even more diverse in sophisticated manners in which we raised funds and managed that VFS balance sheet, and our Group’s 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, so on the left of the slide, you see about 20% of our portfolio lending to our distributors. this is for inventory finance is lending to our distributors. this is for inventory financing also called floor plan financing and of course, gives us between Denny’s organization and mine and the other parts of the sales in industrial organization, a very clear and good look into the dealer health and dealer relationships. And as Denny and Olof had mentioned, as that strength of distribution and our close ties to them that are key to execution of the strategy.

So that’s 20%, and then the other 82 execution of the strategy. so that’s 20% and then the other 80% of course, is financing and leasing we do for the end customers, for the retail customers, installment sales or loans finance leases, operating leases. And then in your center, you’ll see how our portfolio globally is split up amongst the product types that the Group manufactures and sell. And they were surprised just as the Group revenues are about 70% trucks, so too is the VFS portfolio 65% to 70% trucks, and then construction equipment, 25% and bus, the remainder.

And 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. And you can see the distribution of the portfolio amongst those three regions. And I would tell you that APAC, our newest region continues to be a fast growing region and a very solid one.

On the bottom left, you’d see some statistics, and 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 years, 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 like a lot, but for a commercial lending of trucks and construction equipment, it is a big back office where still the operational efficiency is actually quite important. And this represents new equipment, used equipment, very large fleets down to the single owner/operator or individual proprietor.

You can look, and this is return on shareholder equity. And you can see pre-crisis, pretty good performance, and then during the crisis, certainly had a significant impact on the VFS results. We had been, I would say overweighted and under-structured in Eastern Europe. We are neither of those things today and we had net amortization, we shrank that and of course, write-offs during the tough times and resulted in lower performance in the terms of operating income and ROE.

The last few years, I’ve 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, and this has resulted then in a stable growing portfolio, much more stable and better performing portfolio statics, 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 investments and for execution of the strategy.

Well, I’ve showed you this, and I’m going to show also as part of the Group Trucks’ strategy the same links and the similar links are in existence for VCE, Bus and Penta, but the focus today on the Group Trucks’ strategy and show you the impact or the link that the Captive Finance Company, VFS has in this as well. and of the strategic objectives, eight of them, VFS have direct links where we are, what we call internally co-owners of the strategic roadmapping activities, which is very sharp focused and measurable, and then VFS has jointly responsibility to help execute on the strategy. and 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 in these two would be the 2.2, retail excellence and 3.1, number one or number two in market share. First, strategic objective for Group Trucks 2.2, rollout of the integrated customer interface tools, it’s all about being close to the customer and retaining the customer.

Okay. and you can 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 then Volvo and the Volvo Group is actually advanced in this. and how are we doing it? We’re doing it by investment in technology, which is point-of-sales technology.

so as the customer comes in to a dealership, being an independent dealer or one of our own dealers. we’re bundling the offering upfront, as they’re specking the truck. we’re saying here is your financing, here is your insurance, here is your prevented maintenance and trying to get those multiple sources of revenue.

The implementation of this has started well in Europe already and we’re spending it around the globe, not just Truck, but Construction Equipment as well, and again, the key is to have as we’d like to say larger share of customer wealth, not allow any part of our product offerings, 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 Trucks’ strategic objective where there is really clear integration and again, together, driving the Trucks’ strategy is the market share number one and number two market share. and I’d tell you well, we are called Global 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 brands as well.

okay. So part of this strategic execution then will be to further this experience, to deepen this experience, and really have that brand pride and brand equity and tied that in that results in customer retention, increased market share, multiple selling points through out 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. So 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 trucks strategy, increase productivity through our growth and again we’ve returned to a much more solid and stable return on shareholder equity, which in turn allows us to fund growth, investment and become self [filling] for the execution of the truck strategy and providing acceptable return to the shareholders.

So brief comments from me now I will turn over to Anders, our Group CFO.

Anders Osberg

Thank you, Martin. Let me then talk to you a little bit about our funding and flexibility strategy and also of course how it contributes and sits in with the strategic direction here between 2013 and 2015.

Now what you see here is a little bit of a break down, where our background really on how our financial management great 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 today, we have a good liquidity situation as I will show you in a second here. Its solid, we have untouched committed bank facilities in place with our core banks, we also have very limited refinance needs for the next couple of years. We have a number of diversified funding overseas. 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. So, 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.

Now 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 in Asia, Africa, Pacific, and so on and so forth. There is 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.

So when you 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. So 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.

Now first, let me just expand a little bit on how our funding operations actually work. The way it set up is that, we have a funding strategy that is executed by our corporate strategy and you could say that this is pretty much 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 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. And of course as we say, it is a more stabilizing factor for the balance sheet.

Then, and this relates very much to modus operation within financial services, we have the customer finance portfolio. This matches of course the landing to our dealers and customers to a great deal, and it’s really driven by our sales financing activities out there. And of course all these available markets out there and talking to and working with all the debt providers that we have possible really support and contributes to a strategy that all together comes to what I would show you in a second.

So if you 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 it’s 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 you see it now. We need to push out our maturities as much as we possibly can, which is the strategy for us and we see very, 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 maybe FEC, Yen, US dollars et cetera, we’re very, 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’re all depending on the whole market sort to speak.

Also 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 market securities on the balance sheet. We also have revolving credit facilities with our core bank groups and we also have a shorter term activates that builds up this and really ensures that we stay strong for the future.

Now, the second portfolio which is really relating them to sales finance activity. And 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, 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 say during 2009.

So if we look at this portfolio, you see a nature that in shorter term, you see a big bar in the very beginning there on the upper hand. And that is, of course related to what Martin said was store planning and the 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 and that’s one of the reason why U.S. dollar is so heavy on the currency part there.

But of course, having said that, the longer part of the curve relates very much due to leases and loans and so on typically with maturity structures of two to four year, 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. So the average portfolio maturity is low, but you can say, if you divide it into two parts, it’s very much enormous at this type of business.

And needless to say, we take a very opportunistic funding approach to satisfy all the needs of Volvo financial services, and again, and I will come back to that a global funding strategy is key to be able to do this.

And then just a word on the currency distribution there, you’ll see that the major currencies are quite present, of course, but no doubt to that the currency in Brazil, also the renminbi out of China, coming stronger and stronger really just reflecting what happens to our business in the new markets like in South America and Asia.

I talked about diversification and, of course, if you look at this world map, you see, of course, that we are putting great emphasis on the fact that we should be present first of all as a treasury units, as a treasury center, which is illustrated by the red dots and the green dots also, so now we have people in place they 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.

And some of the additions, of course, and some other things that we have developed is the fact that we worked very closely with all different types of agencies and agency financial institutions like in Brazil for instance, it was 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, also access to core banks and closely related banks in China, which we have developed, and as you see funding programs pretty much all over the globe to really satisfy, the needs that we have for our activities, so it matches well, the business activities I would say here.

Also complementing this is as I said a global core bank strategy to give and take, we have to give back to the banks, we demand from the banks to get back to us, but we see that we have worked this strategy out, for in the past 5, 10 years, and it worked very well.

Now 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 was €1.2 billion. We have another one in existence as well. As I said we don’t draw it down on that, but we still have it as a safety, as a cushion for us. We utilized the EMTN, Euro Medium Term Note Programme quite a bit, and 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 and of course with the number of transactions with small sizes, we’re able to satisfy the matching criterias for modest team in a lot more in efficient way, which is good of course. Now the longer-term, the latter part, the four, five, eight years is primarily done for the industrial part of their portfolio, really to strengthen the balance sheet and to improve the capital structure.

And last but not least of course, we have done the second term ABS, the securitization of about $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 contingent to access, because our experiences have been only good from the two transactions that we’ve done.

Now in order for us to maintain this type of funding strategy and really utilize the markets on a global basis, of course, the prerequisite for this would be the right thing. And as we can from the table here, would you 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 back ups 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 goes without saying that this is very important for us.

Now, 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 the scale here, we have to make sure that we can balance this in a good way and that we constantly have to do with.

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 very, very stable and a good position there. We have the customer financing side that needs to have a good and solid profitability, so we measure that. We have a target of 12% to 15% there. These are the shareholders.

If we then slip over to the debt providers, the banks, the financial institution, et cetera, slightly different way of looking at it, but 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, and there we look at parameters like net debt or equity that should be lower than 35% and, of course, then we have customer financing as well, also with an equity ratio above 8%. So these are ratios that are the debt providers first priority when they look at us as a company. And this is as I said something that we keep it constant watch on and try to balance as good as we possibly can.

So 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 is extremely important for us. New key markets, we haven’t seen them all yet. We are yet to see more, but these are extremely vital, and extremely important for us. The credit rating, the core bank group and also to mange the Group’s currency position, all of this enable us to have efficiency and control in the balance sheet. I think I’ll stop there Olof, and the stage is all yours.

Olof Persson

Thank you very much, Anders and I just want to wrap up this before we go into the Q&A session, and then come back a little bit on the source to full potential, and what I mean, what is next step, execute and deliver, and a little bit of purpose with my presentation before and all the other presentation as well was to give you really a sense from top management, the confident, the realignment, that also the understanding that we’re embarking on a journey of the next two years that is very, very important for us. So we know what we doing, and we do follow it up.

And one thing that I tend to focus upon is actually that clock up in the right hand corner when your are a kid 36 months is like an eternity, everything is to the next birthday or to the next Christmas, and that is long enough, but when you grow older and when you are into it, 36 months goes very quick, and this is my message to the organization, don’t wait get going, and get going now, and these are the activities that we see that we’ve announced, and we now come back each and every quarter to give you an update on the different activities we have done, and I think that the way you’ll see much more of these coming that 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 that you can follow us, and also see that and judge our performance going forward.

If you look a little bit beyond the 2013 and going into what kind of situation will we actually have 2014 and onwards, and it is a – whatever the way you look at it, it is a very exciting point of activities and actions that we have in place.

If you look at take new product side, I mean for the first time in 20 years, we now have a complete new FH on the Volvo side, which is actually perhaps not many of you would have know but the classic FH is the largest, one of the largest export products out of Sweden ever. So it is a very important product and now we have the new one, we are going to have the new Renaults coming out which is also a major revamp on and position of that. We have the value platform I talked about that also will come out and we have the basic platform.

So 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 trucking platform, but now actually it comes together in a nice way of doing that. Talked about the CE and the BRIC-loader but we also we haven't talk that much about it today, but we are also coming would hear totally new line of engines, but Euro 6 of course, that means that we have the whole set of range of all the emission legislations on the truck side. We have the medium due to the MDEP platform and as we have talked about again a major shift of technology also on CE.

And also to give you the picture and then of course with investments, I mean the industrial investment around and the industrial project around value truck is this something that is big, its something that we have focusing on Thailand and India, but we have also communicated that we now localized in CE production Kaluga, Russia for instance we do continues localization in Brazil and we have the Shippensburg localization here in U.S. for CE as well to really make sure that we grow into different markets that we do have.

So both on the truck side and the CE side, we do see investments and those investments has been done decided outperforming and will be in place and then of courser, 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.

And looking at India, I mean, there is not many people knows that we are the third largest producer of commercial vehicles in India. And we have a major position in the medium duty growing and heavy duty and we’re well positioned in the bus business as well together with Eicher.

So 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 works, a lot of matters, but I think my last slide would actually be and I think to saying about – the picture says more than thousands words is absolutely correct. So this is sort of a little bit of a summary of all the things that we are – has been planning for and it comes into a little bit of (inaudible) coming into 2014 and going forward.

So with that I will leave you with hopefully a sense that we know what we are talking about, we are committed, we are going to execute on this one, we have the plans, we have the organization with us and we are going to be communicating how we’re proceeding. So with that my presentation and all the presentations I think, we go into the same as Q&A.

The position of the table says, there is nothing to do with good team work. I just want to point that out that we have one table here I think.

We will have microphone, so, yeah, raise your hands. Okay, yes please.

Question-and-Answer Session

Unidentified Analyst

Yeah, good afternoon, everybody. It’s Alex (inaudible) at JPMorgan. I’ve got three questions please; firstly, on the margin mix, presumably the value truck is a lower margin in the premium end particularly if we consider the size of the after-market opportunity. Is that perception correct and how you expect the supply out as 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? And lastly, a question for Denny, there is a lot of capacity coming on stream in Brazil in the coming years. How you are preparing to defend against those new entrants and what is the sustainable level you see in this market when you are planning for the coming five years? Thanks.

Denny Slagle

I think if we look at the value truck and as I said in the 3% gross margin target that we have set up, one of the opportunities was actually the value truck. And therefore, I have sent a very clear message to the organization that we cannot have the markets, which is actually out there for 1.3 million, 1.5 million vehicles if you look at the basic and the value. And not going with the firm approach that we’re going to have is as a profit to market.

And I often get a question about China in 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, but we have shown I think over the years in construction equipment to rightly manage, rightly focus, you can actually have a good profitability.

So when it comes to the value truck added, I definitely don’t see that as being a dilution than you always have a run-in and buildup and all of that, but even there, I must say that I’m really firm on the business cases that comes in, but 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 we do on the capital?

Unidentified Company Representative

Yeah, just the return on capital employed, so for the investments that you’re doing for the growth, how does that the return on capital employed enter into the decision-making process? It’s an awful lot of…

Unidentified Analyst

Okay, okay, okay. That is nice, and 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. So it is – and I’ve always been an integrated part in the decision-making. So that’s going continue also in the future. So that’s a part of it and thirdly, capacity in Brazil?

Unidentified Company Representative

Good question, because there it seems like everybody’s conference call included some investment in Brazil. Of course, we’ll just keep our eye on the price; keep our eyes on the basics. We’ve been there since mid-70s, we build up number one image. We have a terrific distribution network that we’ll keep beating that distribution network with great product, including eventually this value product and we’re investing. And we’re continuously investing and outstanding still there. So bottom line, what I call it Porches 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 it for granted, we’ll get better and better and better.

Unidentified Analyst

And just the second part of that question was where you see sort of the sustainable level for the markets in the coming five years, given we’ve got stimulus et cetera supporting demand at the moment?

Unidentified Company Representative

Sustainable levels in Brazil?

Unidentified Analyst


Unidentified Company Representative

Good questions. We were interrupted on our rise there last year with 105, which was a record in terms of 105,000 heavy-duty trucks fell back to 86. This year, it looks like with the stimulus of the government and several all the 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. But we’ll be watching the question very closely.

Unidentified Analyst

Thanks very much.

Unidentified Company Representative

Just when the microphone is handed away, there is one comment on the capacity side. I very often get that question on China by the way. China excavators, because you see all these announcements and it goes a little bit the same way. One thing is to announce sort of the production in 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. And also in assembly capacity, you can have a lot of different volumes, we’re still making money, because we can run one shift, two shifts, and the capital intensity on the assembly is not that high. So it’s a little bit of a numbers game sometimes. And it was back there and then Laura.

Unidentified Analyst

Hi, so 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? And my second question is about uncertainly in Italy; is that going to make a dent in your European business because of the – we don’t know what’s coming there?

Unidentified Company Representative

I think in the U.S. and I’m moving back a few quarters. First, we talk about uncertainty regarding the Presidential election and that was cleared out. Then we have the uncertainty about budget cliff and that was forwarded out and now we have the next step of that. And uncertainly, is of course, never good, but I think at the end of the day and I don’t know what’s the timeframe of that, but the real economics will take over and that goes also.

I mean, 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 this situation before and the consequences of different things, and a lot of sort of high focused areas around there. But I mean over time gradually those kind of uncertainties will be sorted out. The question is, of course, how quick it will go and when will it come and that remains to be seen and that is the big question. Yeah.

Unidentified Analyst

Hi, it’s (inaudible), can I ask three questions please. The first one is more short-term and we’re now at the end of February, so 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? So that’s the first one?

And the second one is, you’ve talked about some low-hanging fruits with respect to your strategic plan. So I was just wondering if you could somehow quantify a little bit of how much of the 300 basis points net of 500 gross is actually, or you would say is a low-hanging fruit?

And then the last question is, when you initially took over, you came out after taking a lot of time kind of evaluating the organization and you came back and said, we think we can do 300 basis points of margin expansion?

Then I think one year later, you came back and said, actually we can do 500. So what I’m just trying just to get that straight. I mean did you initially, when you talked about this 300, was that meant to be the net number or was that a gross number? And basically you gave best to your organization and the people came back and say actually, I think we can do much more than that. Thank you.

Olof Persson

I will start with the last question and there are two different. What we said in when I came in and that we said that I and the management saw that over time we would be able to consistently raise the operating margin with 3% units, and that is something that is still there. Then when we did a strategic targets, we looked at the SEK200 billion and SEK300 billion trend and then we said, okay within that frame this is what we can do.

And that’s why we are so clear when I, and I tried to be very accurate when we talk about the strategic targets of 2016, those are the activities that we are going to do with that frame. The 3% over time was actually independent from volumes. So the two different time of the measures sort of saying, and we have and I was very clear on it, the 300 basis points over time, I have never put any time line on that. So that is the case.

Then the low-hanging fruit, I mean they are different and we take Europe restructuring. Europe restructuring is something that you can call 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 in engineering that means that we are gross looking at adopting the spend rate in engineering towards the target, then you have to realize that the net is different, because of the differentiation difference between the capitalization and amortization. So from a profit and loss point of view, it looks different. And basically the things that you saw there on the slide, also the things that we went out, we grabbed, we implement and we are now looking into the forward activities and what other actions that we can do.

But in general you can say that and we do and I hope you understand that we will not solely specified by year, I mean because you have things that you – you have small impact now, but you actually start to – that will accelerate and we are coming back, but in general you can say that all these types of programs has a little bit of backend loading, that’s the nature of it, because the things that you need to do.

Then we are not coming here to give any updates on – since it’s only, I mean it’s only three weeks since we head into Q4, but as I said we have the positive trend coming in from end of the quarter and December has continued into the first weeks into 2013 and we continue to see that trend into if you look at up to till today. So that’s the sort of the only thing I say right now about that markets. We announced our markets recently.

Unidentified Analyst

Does that apply to all the regions, the positive trend continues?

Unidentified Company Representative

I will say that, I mean there is no shift to what I said in Q4 and that we said and what we saw was particularly in Volvo Europe and that is only two weeks plus some days of loss.

Unidentified Analyst

Just a couple of quick question on your acquisition in China on Dongfeng; first we will talk about funding, timing, debt equity or whatever. The second question related to the same acquisition, how can you assure investors this is not something that forecasted most recently, in China they bought this thing that they think they know, capping in China well on time but in other day whole investment almost. So how do we assure yourselves that same thing won’t happen to Volvo?

Olof Persson

We have to remember that and you talk about ownership side or I didn’t get the question really. What did we…

Denny Slagle

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. So 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.

And of course with Osberg coming 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. So we are not buying an enterprise that is listed company that you cannot go in and do proper dividends on really not knowing that we will be very much into all the details in this carve out of the Dongfeng commercial truck business.

Unidentified Analyst

Okay, now I understand.

Olof Persson

Finally, you can say that it’s a part of our funding strategy in general. I mean we have a wide range of tools to take care of that and usually what we do is to look at our global funding strategy and then we decide exactly how do we deal with that? We don’t really say that we do it in a more specific way than that.

Unidentified Analyst

In the beginning of your presentation, you talked about pricing strategy as part of this improvement in gross margin. Can you elaborate on this and also how are pricing decisions made when you got this broad range of products at different value propositions with different cost of ownership, how you segment to make sure that who is responsible for that particularly when you got – I think you got certain markets where you’d be managing two different brands from the same folks. So how does pricing work in the new company?

Anders Osberg

I think the first job we have to do was actually to create a common view on customer segmentation and again it’s quite interesting, while we set 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 way. That includes also your sort of purchase power and where you should be in the metrics. So we have done one common model throughout the group.

Secondly, in terms of responsibility, we have three steps of responsibility. One is, of course we have global brand organizations, which is taking care of the product features and cost points and the product plans. Then you have Denny and his colleagues, in the sales and marketing, with the costing for Europe and also working for Asia. And there they make their strategic planning and pricing planning. That is the input for the tactics for the regional sales guys and for the local sales guys. So there will be quite a steering coming back from 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 our products, but also making sure that we have the right offer on the soft product to maximize and financing through that as well.

So 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 I should be doing, you can also put targets, okay. You can start to read and compare the different segments between each other and then you can tell the sales guy, listen with this segment over here is getting this kind of margin, what is the reason that you are not achieving it, and then you start to get this really heads on price thinking which I think is very good.

And then from a follow-up point of view, we now are starting to in my management team to follow-up the gross margin per product line per region in our weekly meetings, not every week, but we are following. So that we are drilling down to details to ensure that we actually are meeting the targets that we have. But I definitely do see a lot of opportunities.

Ashik Kurian – Goldman Sachs International

Hi, it’s Ashik from Goldman Sachs. Just got three questions. So last day you highlighted the focus on organic growth, since then we’ve had the announcement of the Dongfeng stake which one could argue is a opportunistic deal. But going forward can you rule out any further acquisitions either on the truck side or on the fee side till 2015 and then the second question, I am just curious on what your thoughts are on pricing for trucks in Europe going forward? Historically, truck industry has been quite good in maintaining the pricing, so just keen on your thoughts on that going forward.

And the third, how long do you estimate you would have to continue paying the tariffs in Russia and when would you reach a localization rate to avoid this?

Unidentified Company Representative

Okay. When it comes to acquisitions and structural growth, I have been very clear, and 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 to see strategy now really going with the runs, and all the opportunities we have there. And I think it’s really, the core of the strategy is to capture our all opportunities 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, but 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 EU, I will 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, but in general we can say that we are fighting against normal things. You can see and I talked, bits and pieces – and then what the pressure increases, then you see a little bit ease in some other prices, but in general, normally you can see, both on the new pricing, on vehicles on the used and also on the spare part.

And I have to use the answer when it comes to tariffs, which I don’t use very often that I don’t know. We will have to see on tariffs in Russia when and how that would develop going forward.

Now what we do and that was on the slide and we are investing in Russia with a cap and the paying thing and all of that. So we are investing locally.

Anders Osberg

Olof, maybe I can add to that. Definitely the intention is to have the cap production of around by the end of 2014 and that would make us a local producer and….

Ashik Kurian – Goldman Sachs International


Anders Osberg

We would avoid the scrapping fee at least by that time.

Ashik Kurian – Goldman Sachs International


Anders Osberg

I give it to you sir.

Eli S. Lustgarten – Longbow Research LLC

Thank you. Eli Lustgarten 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 to be remaining pretty constant, did you expect trucks to be predominantly 70% of the business and construction 25% and not really changed that balances. That’s the strategic – it sounds like that’s your strategic position for the next three to five years, that’s question one.

Anders Osberg


Eli S. Lustgarten – Longbow Research LLC

Well I have a second question and that is, why don’t you talk about Volvo Finance, the construction equipment industry around the world and now in the United States has gone towards a rental market. I always say, pull the ramp with Volvo rental stores to some degree. Can you talk about strategically what you are trying to do with the rental group and increasing the rental participation, because that’s probably the key growth part in the market?

Anders Osberg

When it comes to the split going forward, I think that’s it’s difficult to judge in the future, but we have put tough organic growth target on both organizations and that’s also included and we shouldn’t forget, we don’t talk about buses and the other. What kind of balance you will see three years from now, it’s very difficult to say, but I would assume that in a rough terms, I mean we will have this very predominant truck business, we will have a very big VCE business and then we will have buses…

Eli S. Lustgarten – Longbow Research LLC

But there is no strategic movement to make the stake of 70%-30% and make it 60%-40% or 50%-50%.

Anders Osberg

Okay, no, no, I understand. For once, it will be whatever it will be. As long as I execute on this, I am okay. Then when it come to Rents and for U.S. and to really follow that, we have done a transformation going from a franchise model which we had up until some years ago when we’ve done, then as actually gone in ourselves and invested in the rent stores. We are taking that ourselves and also growing our presence and become and also get the critical mass. For me rents is it’s a very important outlet of the compact and medium sized construction equipment that we have and it is actually a piece that you need to look at basically the corporate view on it, because we also have Mark 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 return that is there.

So for me this is a very good outlet. It is something I am taking to move and actually moving into owing it, I think it was a good and right decision, because we control it, we can control the expansion, we can make use of every right stores and the right quality of stores. So that is the strategy to make sure that we have that as a good business going forward.

Unidentified Analyst

Okay. Hi, [Michael Skorski] 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 I guess for you or for the overall market and at what point can I guess there and I guess also what part of it, is it of your 2015 goals? And I guess secondly, just wondering why you chosen HPBI over spark-ignited engines for your larger heavy-duty truck offerings, and you’re kind of concerned about your margins there, make sense about having additional maintenance, additional downtime, additional warranty costs or even in additional separate maintenance network?

Olof Persson

That’s a very hot topic here in U.S. and what we have said our strategy and then is a big advocate of that of course is that we have to make sure that we are perpetual types of developments when it comes from natural gas, because one thing is clear that we need, the way that this will take long-term, we don’t really know, I mean you have so many different aspects to this natural gas and how it will actually be deployed into as a fuel or a long-haul this is in particular, but also for distribution. Will it be compressed gas, will it be a more liquified 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, so our strategy is very much to make sure that we are covered, and we are covered today with a natural gas is spark-ignited from [commons]. We are very strong in that and we see that penetration going up and they are very strong in certain segments, waste management in particular. But up until today, the total volume of gas engines in – if you take the total markets, it is not that high. I think we talk about 5000 engines something like that on a yearly basis, but of course on an increasing scale.

So for us, this is a little bit like when I get this question in Europe, because there you 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 may have. And that leads me into that to the next question and that is on the HPTI and that is one technology that we are looking into. And as we have – making sure that we are positioned in that type of technology because it gives certain advantages compared to other technologies.

But it’s basically one step in those things where we are looking keeping out. Really, in Europe for instance, we’re running on a fuel called DME, which is down also can be taken out from natural gas if you want to. So we truly believe that natural gas will over time play a more important role, but in what form and if it would be compressed, liquefied or others. That depends on distribution investment in refineries and whatever and that remains to be seen. That’s a little bit outside our control.

Christian Nødtvedt – DNV

Christian Nødtvedt from DNV; I have a couple of questions. First on the headwinds; the 200 basis points you talk about. Is that a normal factor, 200 basis points over three years period, or is it more than you used to have?

Secondly, what is the main headwinds you see over this period of time? And thirdly, on headwind question, what have you experienced this far in terms of price pressure headwind in the Brazil, China, Europe, compared to what you expected?

Olof Persson

I think that if you look the headwind factor as we call it, it’s not I wish you remember it, that is not the headwind in terms of market development, because that is since we’ve fixed it on the SEK200/300 billion. So it’s not a market headwind we are looking at there, it’s more the implementation headwind up to, making sure that all this 20 targets are coming together, so they all execute fully by 2015. And there, of course, as you can see each and everyone of them are extremely ambitious and they should be, because we don’t want to have target that easily can achieve, and there is a lot of things that has to be managed in order to reach that.

And I think that my experience, if it’s more or less, I don’t know, it is when we looked at in a top management team, we took a look at all of this, and then we say that’s coming out to the market and say that, all this will just flush through wouldn’t give a serious impression. So 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 add up, that’s in the targets already.

So the whole thing – with those things we do not have seen and after two months we still don’t see that, but that might come.

Christian Nødtvedt – DNV

Okay. And the second question, on the Brazilian markets, where you see that on top potentialists of that market – the value market is 75% of the total markets. What is that market for the moment, because what I see when I look at the Brazilian market, we have mainly European players in the Brazilian markets, is that used trucks or how should I think of that?

Olof Persson

Denny, you might want to?

Dennis Slagle

I think you were asking what’s the 75% comprised of?

Christian Nødtvedt – DNV


Dennis Slagle

More than traditional players mainly VW for example has what we could call a value player there, so it’s a locally produced trucks that really built the market, and then Volvo developed.

Christian Nødtvedt – DNV

But you are in other places as well there?

Dennis Slagle


James Irwin – Moon Capital Management

Hi, it’s Jim Irwin at Moon Capital. I wondered if you can put a few more numbers around your aftermarket sales, some rough numbers, how much of your revenue worldwide is aftermarket sales? You have talked about your penetration of powertrain components, pretty dramatic growth on the transmission side of the engine, penetration has been happening for a while now. I only saw the reference about 12% growth per unit in aftermarket, so I am just trying to kind of put some numbers around, what that means over the next couple of years, because I know it’s a very high margin opportunity for you? Thank you.

Dennis Slagle

Looking at you, let’s see what kind of numbers do we reveal about that figure on this play tops, so I will leave that, the number gave you to there.

Olof Persson

I would say that typically spare parts is running around 15% to 20% of Group sales depending on where we are in the business cycle, and then you have an additional dealer revenue since we own quite a lot of dealers in Europe, in South Korea, Japan et cetera, so that brings another I would say 10% or so soft revenue. So typically we have 70% new truckload, 30% spare parts and dealer revenue et cetera.

Denny Slagle

So that and 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.

James Irwin – Moon Capital Management

And just if we looked at Volvo three years ago today and where you will be in three years that 15% to 20%. What is the moment that we are looking at?

Olof Persson

I don’t have that number here now, and I would say that to give you some background on the progress we’ve 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 point, if you compare to six years ago. So it gives you an idea about how important it’s to get the captive component into your trucks.

James Irwin – Moon Capital Management

That is very helpful, thank you.

Olof Persson

Okay. Any more.

James Irwin – Moon Capital Management

Still have follow-up question. If you try to translate your margin targets into cash flow and as you mean 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 leave you to increase your belt?

Olof Persson

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. So that the dividends on the cash flow side, we haven’t put out any targets. So we haven’t communicated anything on that, but of course we are internally looking at what we are generating. But we have decided to keep the sort of the issues on what you have seen here in terms of transparency and communication, and on the cash flow is something I work on. But of course, if you do all these things? I mean none of these are – 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.

Now, we do have investments already today. So it’s a principle of, actually reallocating investments to make sure that the supporting the strategic targets. Then the rest of the activities that you see is, of course from a cash flow point of view, of course positive, but I think Chris, we normally have a disclosure there on what we say on investments and those kind of things.

Olof Persson

I think, you can say capital expenditures are running high in 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. But then coming in 2014 and 2015, we haven’t but then coming into 2014 and 2015, we have a new product portfolio, and we have a well invested industrial footprint. So 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, and then we have the target then to bring, to take basically out SEK 2 billion of R&D output of the truck R&D. And of course, if your profitability improves by three percentage points, then operating income will improve so.

James Irwin – Moon Capital Management

Just one more question from my side, so just to, I know you don’t disclose your margins by region. But just as far as 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, and if you could just rank the regions, where you expect the margin improvement to come from.

Olof Persson

I have to go back to your starting of the question and say that I mean we disclosed the total then and coming back to your question over here, when it comes to the price management activities around that, but then 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 market, 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 that we don’t have opportunities than we have more in others, but we keep to ourselves. There is one way back there.

James Irwin – Moon Capital Management

You said in February that there was still some inventory to take out at Renault, how is that going?

Olof Persson

Okay, according to plan we have as I said we are lining up all the regions and all the brands apart from the Renault by year-end and we are doing that as we go along and that means of course also, if you look at the – looking at the first quarter and looking at the situation, we have with the production, you saw the deliveries came out here some days ago, down around 23% coming from a low order intake back in the last year that means that we are looking at the first quarter, where we will have under absorption in January and in February, then we see that the positive trend that we have seen in backend of last year and our intake will start down to get us much more in balance in March, but the first quarter is delay 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. John, two more.

James Irwin – Moon Capital Management

Foreign exchange exposure, could you just update us how the strong Swedish krona is affecting our operations, I know you are much more globally matched in terms of cost on revenue than you were two years ago, but it’s still, I would imagine a bit of headwind. So if you could just update us on that?

Olof Persson

And basically I am looking at under share now, but basically we have one major currency exposure less and that is the on the VCE side, on Swedish krona, U.S. dollar and that is something we have been had for many, many years. With our shipments for the investments we are doing now, but actually localizing number of products in the next year in U.S., means that we are building that currency exposure way, taking out of way on this I think we are very well balanced in terms our currency flow with our global industry footprint being local where we need to be local.

James Irwin – Moon Capital Management

That could be U.S. dollar?

Olof Persson

It’s the U.S. dollar.

Anders Osberg

I have the Annual Report 2012 in front of me. I think I will give you the number, it was we had operating net inflow of $4.4 billion into the Swedish krona, and the majority of that was construction equipment business, and the other currencies are very small.

James Irwin – Moon Capital Management

And is there any significant new trends in input costs, in input costs still?

Denny Slagle

Nothing that, you mean inflation into…

James Irwin – Moon Capital Management

Yeah, cost inflation.

Denny Slagle

No, I would say that we have been, and whatever we see that there are two things, which we have developed over the years, and 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 inflations sort of ahead, because we see that in our procurement contracts coming. And I think we have been rather successful doing that as well continuing now with normal inflation. But it’s nothing unusual in any of the input that I’m aware of them, and looking to there and also shaking our hands at once. (inaudible).

James Irwin – Moon Capital Management

And just a quick follow-up and obviously you’re launching a lot of product now in the next kind of 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?

Olof Persson

Launch costs that we said in the Q4 that in Europe now we will have launched cost throughout the year. First with FH then adding on the Renault coming, and that we will have that on a much higher costs than normal this year, so that’s one headwind.

When it comes to the startup of the production of the new FH, I must say that, that is running very well, good to see back production system and quality of the product that comes out now in the startup of production, and the first ones, on how actually enter into the end customers, and also the pre-production of the Renault are looking good, so there might come up something, but right now, I mean the launch costs definitely, you call it a headwind, I call it investment. And because it’s necessary that we do the right thing and we want to do it, and then we are going to see that fading out of course coming into 2014.

James Irwin – Moon Capital Management

And then secondly, can you remind us of your exposure to mining both in well mainly in VCE, but also in the truck side?

Denny Slagle

I mean mining is, of course we are exposed on the mining side on the truck side, but the real big chunk is of course on the VCE, which is a substantial part of the business, based on the fact that we are big in the light mining, but there are – I think in general, you can say that it seems like, we have reached bottom out of it, but it’s on a very low levels, and we will see, how it is now comes back to our, when and how it comes back during, particularly this spring season to see what kind of reinvestments is done in the mining side.

And what’s good thing about VCE is that the inventory is definitely under control. I think they have done a great job over six months basically starting already by half year, last year to duck their inventory, so that means that we are seeing a much shorter order in take into production, and there by getting leverage quicker than we would have done before.

James Irwin – Moon Capital Management

Okay, just a couple of follow-up 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? And then 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?

Unidentified Company Representative

Starting with the transformation of the European sales, I think that it goes actually – should I put them as sort of grading on to it right now better than I expected. But that’s not naïve. 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 too much into 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.

Now, Renault hasn’t been extremely strong in those markets. So the total impact is not there. But there I think as to where I keep the most focus right now in the transformation is on those combined markets. But I must say that, when talking to the people on the ground, talking to the new management team obviously has a lot of energy and opportunity seeking now when they see this coming together both from the Volvo side and the Renault side. But it shouldn’t be naïve. There will be some during this year.

But after this year, I’m not – I don’t have the patience to wait longer. So it has been done this year and it will be. Then 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. And I’ve been very clear to the organization that with the new FH coming, we have to make sure that that is playing a major part in the 3%. Otherwise you will have a bulk of volume that makes this impossible to reach. So that has been a focus all the time. So, so far so good.

James Irwin – Moon Capital Management

And perhaps just one more follow-up on pricing, any update on Brazil or the other increase you are starting to stick down there?

Olof Persson

The pricing, I have done it, perhaps you want to, but in general…

Anders Osberg

Pricing of course, it’s pressure when we were transitioning from Euro 3 to Euro 5. It’s Euro 3 is now out of the system, we’re seeing it stabilizing at flat level, but we’re expecting actually as the new competition and then other competitors who may be suffers from chain losses come out for now, we’ve recovered from the Euro 3 issue; there is only Euro 5 out there. So level playing from that standpoint and we’ll see what happens to the pricing after that.

James Irwin – Moon Capital Management

Thanks very much.

Unidentified Analyst

Hi, (inaudible). I have just a couple of follow-up questions, used truck pricing in Europe and North America, can you just make a quick comment on that. And then also what are your expectations for the Russian market in 2013? Thanks.

Olof Persson

Okay. Europe, I can answer very quickly, the used pricing are holding up, there is no major movements in any direction and I’m looking to it, (inaudible) well that’s the information I have got. And then when it comes to U.S. you know that much better than us.

Denny Slagle

The used pricing for Volvo and Mack in North America is done on an issue. We’ve handled that very well, the pricing itself of course came back from the loss of the crisis and have stabilized and it’s just not an issue for us.

Olof Persson

Then [Chris] on the Russia market I don’t know what we normally say there. So therefore…

Anders Osberg

I would say the market is strong, we can say that we have a somewhat slower order intake turn right now as we are trying to push through the scrapping fees, the €5,000 scrapping fee, we are trying to push into the hands of the customers and that is of course hampering order intake a bit right now. But that’s more an issue for Western European truck producers rather than the domestic one.

Unidentified Analyst

Thanks. Do you have data on the average age of your fleet on the road trucks?

Olof Persson

We definitely do and the question is I mean there are quite a few of the market running and are you talking about in Europe or you are talking about in general all over?

Unidentified Analyst

North America, Europe that will be interesting data and how that has trended in the last two years is it trending up significantly flat lining or…

Olof Persson

I think, if you start with U.S. and I can take Europe later.

Anders Osberg

I can only speak of the industry level, and the industry level, it’s the average age of fleets are still high. So they didn’t recover even with the couple hundred thousand truck market in the U.S. and so it’s still some intention there between the ages of the fleet and the cost and the advantages and disadvantages of moving to a new truck.

Unidentified Analyst

And do you have the number how many years?

Olof Persson

There is actually two they are published is about give me the highest, that eight in a quarter years.

Anders Osberg

That’s for the market, not for us, and I don’t think we...

Olof Persson

Yeah, that is the market.

Unidentified Analyst

You don’t reveal your own fleet?

Olof Persson


Unidentified Analyst

Average age…

Olof Persson


Unidentified Analyst


Olof Persson

In Europe if you take the markets...

Anders Osberg

It’s trending up and I will say particularly in Southern Europe, we can see that on our spare parts business that is actually shrinking that because you have number of trucks with the age of what I would say is expect to 10 years this is actually increasing and the number newer trucks is decreasing, and now we typically lose out of the spare parts business as the truck is seven, eight years old, so that the clear indication of that fleet to 18 down there.

The other part of Europe I would say it seems to be its ageing, but not in a rapid base, spare parts business overall portfolio Europe was down 5% last year and then it was lot more in Southern Europe unless in Northern Europe. But slight you can say you have the big population of trucks that will 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 (inaudible) that construction activity doesn’t come back anytime to and then you had bit of a too much sales into Eastern Europe in 2007 and 2008, so as you should need to bit artificially high that peak you have into 2007 and 2008 so when you otherwise, if you take down some of that and then you should think that the trucks are typically replaced between four to six years in Europe.

Olof Persson

Okay. Then once again thank you very much for taking your time and interesting afternoon and looking forward to see you all again. Thank you very much for coming.

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