Volvo's CEO Hosts Capital Market Day Conference (Transcript)

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Volvo AB ADR (OTCPK:VOLVY) Capital Market Day Conference Call December 4, 2013 3:30 AM ET


Olof Persson – President and Chief Executive Officer

Peter Karlsten – Executive Vice President-Group Trucks Sales and Marketing EMEA

Claes Nilsson – Senior Vice President-Volvo Trucks Commercial and Group Trucks Sales and Marketing EMEA NCE Sales Area

Bruno Blin – Senior Vice President-Renault Trucks Commercial and Group Trucks Sales and Marketing EMEA SWE Sales Area

Joachim Rosenberg – Executive Vice President-Group Trucks Sales and Marketing and JV’s APAC

Mikael Bratt – Executive Vice President-Group Trucks Operations

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

Dennis Slagle – Executive Vice President Group Trucks Sales and Marketing Americas

Kerstin Renard – Executive Vice President-Corporate Human Resources

Torbjörn Holmström – Executive Vice President Group Trucks Technology and Volvo Group Chief Technology Officer

Christer Johansson – Investor Relations


Erik Golrang – ABG Sundal Collier AB

Hampus Engellau – Svenska Handelsbanken AB

Fredric Stahl – UBS

Colin D. Gibson – HSBC Bank Plc

Laura I. Lembke – Morgan Stanley & Co. International Plc

Martin Viecha – Redburn Partners LLP

Fraser Hill – Bank of America Merrill Lynch

Tim Rokossa – Deutsche Bank

Björn Enarson – Danske Bank A/S

Olof Persson

I would like to start by introducing the whole team that I have with me today and with no particular orders starting with Anders Osberg, our CFO. We have Håkan Karlsson, responsible for the Business Areas; we have Martin Weissburg, still VFS President and VCE President to be; Joachim Rosenberg, Sales, APAC and Joint Ventures. We also have Mikael Bratt, who is Group Trucks Operation; Peter Karlsten, Sales & Marketing, Europe; we have Torbjörn Holmström, Group Trucks Technology and also the CTO of the Company; we have Dennis Slagle, sitting there on the first raw for Sales & Marketing Americas, North America and South America.

With us today we also have Bruno Blin who is responsible for the Sales of Renault plus the Southern Region in Europe and we have the guy who is famous on YouTube now Claes Nilsson standing 20 meters above in the Gothenburg Harbor on the hook responsible for the Volvo brand but also then the Nordic part of the sales of EMEA.

Please in the coffee break and whenever you have time discuss with the team members and we are happy to answer the questions you have and the different things you would like to discuss.

I would like to start just a few minutes before we’ll let those guys come on stage and talk about their business and their transformation by recapping somewhat. We’ve talked about it and I have talked to you about in the two Capital Markets Days that we have had before in 2011 and 2012 about the changes that we are embarking to. I think it’s good sometimes to reflect also and to put things into perspective what we are doing and what we are trying to do.

When it comes to the period from 1999 to 2011, I mean we then created the Volvo Group as it is today, it was an acquisition driven growth, it was a number of bold moves into new products, new regions, new brands, new markets and it then build us from being a local or a niche player into the global brand that we are today.

Moving our turnover from SEK100 billion in 1991 to SEK300 billion in 2011, and at the same time taking major decisions about product renewals decisions that we now see today and you see a lot of that in the backdrop of me going forward here.

We also had a very clear discussion and definition. When I came in 2011, I said listen now we have had this growth, we are where we are, we have enormous asset. We have enormous assets in our brands in our people, in our markets, and we need to makes sure that we capitalize on all those investments being done over the last decade. Because we want to have a group that is actually performing world-class and that was if you remember, also the financial target setting that we had from the board in 2011 that we want to be up there. We want to be up there in terms of profitability, we want to be up there in terms of growth, we want to be up there, we want to be world class.

When we looked at the status come into it, we had this sort of consolidation and transformation still to be done in order to reach that. We had all the assets and we still have all the assets, but we needed to do something with it in order to move into the future and the future is then a world-class and profitable driven organic growth company with the world-class profitability.

In order to achieve that we started the transformation and I would like to emphasize the word transformation and this is the period we are in the midst of right now which is a lot of focus right now and there should be a lot of focus on that, but I want to highlight that the transformation we’re in now is there for a purpose, is there for us to prepare our self in order to go into the 2016 and onwards being a transformed company.

And anyone who understands big transformation knows that only the way of succeeding with big transformation is to be extremely disciplined and planned transformation in structure steps. You have to do the first thing first, you have to do the second thing second, and the third thing third. If you don’t do that, you lose the transformation aspects and what you have a risk of actually ending up is that you’re going to end up in change. And they are going to come back to the definition where we talk a lot of internally the difference between change and transformation.

So this is where we are right now, we are exactly in the midst of the transformation process and I will come back just a few minutes now to talk about the structure that we have because I think it’s important for you looking at rest of the presentations coming into afternoon that you can relate back to this structure, because there is a structure and there is a pace and there is a schedule and that is what is very important in transformation.

I also would like to highlight that I’m going to transfer over to the trucks right now, but this change and the transformation we’re talking about is valid for the full group and therefore if you look at the right hand side of the slide, you see that when I talk about the Group asset it is not only the trucks, it’s also the CE, the buses, the Penta which we don’t call the business areas right now.

If we start with 2012, I will actually if I look back and see on this transformation process, and some well would ask me, which one was the most critical year? Which was the critical period in order to succeed with the transformation? I would definitely say 2012. That was the year of building the foundations. We talked about it last year when you were here, but if you look at the size of and width of all the activities that we actually did during 2012 and implemented during 2012, it created a basis and the foundation for then go on to the issues that I will talk about later and which you will see later as well.

The reorganization is much more than a reorganization. It’s a new way of working. We have talked about the accountability. We talked about the speed of decision. We talked about taking decisions and actually be bold in taking decisions, taking decisions that was not taken before that is actually necessary to take.

Culture when it comes to actually how we work together making sure that we take out red tape, making sure that we push decisions through once they are taken in a good and speeder way in order to get to the market and in short to move forward. Efficiency, something that is very much on, again they’re right now will be for 2014, where that we see that we have the efficiency.

When you do a transformation like this, the strategy is of utmost importance because that is for the organization, and particular if you have an organization with 115,000 people they need some thing to relate to transformation to. And this strategy is that guide and document. It is the map that we are following through in order to make sure that we end up where we want to end up and that we focus on the things that we want to focus on.

Especially for this transformation is of course the brand positioning. And the way that we actually talk to brands as a brand by brand approach and moved it into a consolidated and well defined brand portfolio, meaning that we are covering a bigger chunk of the market. We will talk more about it later and but I think in the backdrop of me you can actually see the results and the first result of that brand positioning.

When we come to 2013, and I will be very clear on that, when it comes to 2013 the focus was and is very much on the product launches. It is the largest product launch program that we ever have done in the Volvo Group, it is massive and the result you can see behind me and some of you have been test driving it as well, of a huge investments taking actually four, five, six years ago, now coming into a crescendo during this year.

And I just want to highlight that if you have a product launch of this size and complexity in organization this is impacting much, much more than just the sales people. This involves the procurement people, it’s the engineering, it’s the finance, it is the marketing, it’s the communication, if you’re really going to make this a success, you need to engage the whole company in launching products like this, and that has been the focus this year.

We wanted to make sure that investments that was made during five, six years actually was well taken care of and actually being executed in a way that we start to get a pay back on this huge investments. Both Bruno and Claes and Joachim will come back to that and talk about where we stand in that relation right now.

During the autumn now and I think you start to see a clock approach in our transformation. During the autumn in 2011, 2012 and also now 2013, we come out with the focus area for next year. So the focus area that was launched during 2012 was the product launch. In 2011 it was the strategy and now we’re then implementing it. So what we have done this year, in September we cut out in efficiency, and efficiency is the theme for next year. It’s the efficiency program that we have launched both in terms of the staff and support function organization, but also all other efficiency improvements that we are going to do because they are of course an integrated part in achieving the strategic objective both for the Group Trucks, but for the Group in total.

And you can see what we have done there in terms of announcing, so this is the clock. In the autumn, we then define both externally and internally what is the focus for next year. If we then take a jump into 2015 and what we see will be sort of conclusion of this strategy, that is of course to take now the effects of the new launches of the efficiency program and also in terms of the production changes and production set up that we are doing and that we also have announced going forward. Combined that into the basis and the new platform which will then take us into 2016 and we start work from there.

So I hope you see there is a plan. We are following the plan and I will come back to talking to you about where we stand exactly on the 20 targets. I will talk to you where we stand on the other issues later on but before doing that jumping into the numbers, I would like to then have the pleasure to inviting to start with Peter Karlsten, talking about the EMEA going forward.

Okay, Peter.

Peter Karlsten

Good afternoon. I will give you a short status update about where we are standing when it comes to the transformation in EMEA. I will start with a short recap what this program is all about. It is about network restructuring. Since the beginning of this year we have gone through, we have been driving a huge restructuring in the European system, in the distribution system with the objective to improve service quality and geographical coverage.

The second part is to utilize our brands in a more clever way, in a better way. So aligned with a brand positioning strategy we would like to develop all our brands to its full potential in our region. And for us in EMEA this means that in Africa and Middle East we can work with whole brand portfolio, but in Europe or inside the European Community we can only use Renault and Volvo because we have very strong legislations, making it difficult for other brands to enter into Europe.

The third leg of this program is to enhance the efficiency in our sales and marketing organization. So when it comes to network restructuring what we really are working forward to do is to create a state-of-the-art distribution network and with a very good and strong financial performance. What we are doing is to increase the density of the network and we’re using then a dual branded strategy and I will come back and talk a little bit more about that later on.

But in markets where we have strong market position today for both brands and where we have a sustainable business we are keeping what we call a separate network. In markets where we have one brand or perhaps even both brands, a weaker market position there we are now allowing that one dealer or supporting two brands that we called then an integrated market. So that is what I meant by dual branded workshops.

And around those dual branded workshops then of course you get then – then you are supporting brands or both brands then you get an increased running population around the leadership means that you get the better turnover for the dealer and for the workshop.

When you get a better population to explore with all the market services of course you can improve the profitability for the network and with increased profitability the dealer can invest in better competencies, better facilities and better tools and then you come into a positive spiral. You start to be better in supporting your customers. Customer satisfactions are improving and hopefully then sales and market shares starts to go in the right direction so that that is a little bit – the idea behind the whole strategy.

So where are we standing? What we are aiming for is to improve or increase the number of service points with 200 in the total network and here you can see the distribution between Volvo truck workshops today and Renault truck workshops and we are going to increase 50 new workshops or points where you can get service for Volvo and we are going to increase the Renault side with 150, so totally 200.

But at the same time, going down to the bottom part of chart, we are going to reduce the number of overall workshops from 2,400 to 2,100 meaning that we get a better population around each and every workshop so that can explore more of to market services so to say from that population and this is the way [indiscernible] can improve the profitability in the network, which is very, very important. And the trick we are doing here is to sue dual branded workshops. So in the end of the program 550 of the workshops will be dual branded meaning supporting both Volvo trucks and Renault trucks. So in the end of this journey more or less 25% of all our workshops in the EMEA region will be dual branded and 75% will remain separate.

I will give another example also on where we can enhance the efficiency. This was the previous organization when it comes to the market companies for Volvo trucks in EU 2013. We had nine of them and we also had nine on the Renault side, but now with the new Volvo group organization, it has enabled us to merge those organizations together. So we have gone from 18 market companies down to eight and this has already been done and that was effective already from January 1, 2013.

So to summarize a little bit the status, when it comes to the network, as I said before, in the end of this journey we are going to have 550 dual branded workshops and already in the end of the year I must say that I’m very pleased with the pace that we are executing these plans. In the end of this year we will already have 210 workshops dual branded. And the market coverage will be improved for the Renault truck brand with 30% to 40% in Northern, Central and Eastern Europe and with 10% for Volvo trucks.

This improved coverage will mainly benefit Renault trucks as we understand and it will help Renault trucks to really strengthen its market position in this part of my region. This is a region where market – Renault trucks are holding quite a weak position today. So this is really an opportunity to grow the Renault trucks brand in that region. But it is also benefiting Volvo trucks and this is mainly done supporting both brands in Germany where we have a growth strategy. So here we will benefit also from this improved geographical coverage when it comes to Renault trucks, Volvo trucks as well.

What we have done so far is that we have canceled 300 private workshop’s agreements, and as you know, this is quite a complicated process. There is a legal process and there is contracts in place and so on. So this takes more or less 24 months to come through this process. But many of those partners, the private partners are still continuously doing a very good job for us, but it’s also understandable that some of them that have been canceled, they lose a little bit of momentum and that is very much affecting short-term, mainly the Renault brand when it comes to sales, but this is temporary. We knew that we will come through this and we will come through this on the other side much, much stronger than we ever have been before.

When it comes to headcount reductions, what we have done so far, from the restructuring of the wholesale business, the market companies we have already taken out 200 heads and the countries mainly impacted here is Germany, Holland, Poland, Morocco, but also Czech. I see that Czech is not on this list here.

When it comes to the retail business, we have already also taken out non-profited businesses. We have reduced headcount at 160 and we have eliminated non-profited business in Lippstadt, in Ljubljana, in Sofia and in two sites in Holland and we can already now see quite significant improvements in our wholly-owned retail business. We can actually see a 20% improvement in profitability of the wholly-owned business this year compared to last year. So we already start to see the effects.

So that was the short update on our transformation program and where we are standing.

Claes Nilsson

Thank you, Peter. I love to do that. It’s been a fun journey and a fun 15 months launching these beautiful trucks that I have behind me. Started with the FH launch in September last year and I will now describe where we are, what we have done, the customer benefits of these products and some of the effects and results that we already see now.

Let me just take a minute first to position the Volvo truck brand. Volvo truck brand is the group’s real global brand, sold in more than 130 countries. It is also a truly premium brand competing with premium competitors wherever it is participating. Strong heritage with the values of quality, safety and environmental care and also heritage of adding features, innovations that customers appreciates and are prepared to pay for. We have used the driving progress umbrella for our marketing activity during several years and are continuing to do that.

So we started to launch the FH in September last year commercially; started production beginning of this year; ramp-up during the first six months; and full production after vacation. Also during the spring we did a commercial launch of the FM, FMX, FL, FE and also we had production start after vacation this year.

When we develop these products, there were four areas that we primarily focused on; improving fuel consumption, we all know how important that is for our customers. We have a strong reputation for good fuel consumption on our Euro V drivelines that has been even further improved with features like the I-SEE, which is an added feature on the I-Shift’s gearbox. And we’re also of course emphasizing now in Europe on the Euro VI driveline, where we will have different options for different types of transportation and we really believe that we have an extremely competitive driveline and thereby also really competitive fuel consumption.

Even better handling, those of you that have been driven the Volvo trucks out there, I think you can experience how easy these trucks are to drive and even for me as an amateur driver really with going from the Classic, which is a really good truck to the new generation, you really feel and see and sense the difference.

More space for the drivers, some of our international drivers are spending may be up to five weeks-six weeks in a row in the cab. For them to have a cubic meter more of space is extremely valuable and a motivated good driver is also very good for its owners.

And high uptime; of course our customers prepare to pay an extra euro for the product is also expecting high and good uptime and there is a lot of ingredients and innovations in these product that enhances uptime. Then we have now with our service and maintenance contract, the Goal Contract also an uptime guarantee for our customers for the first time and I think we're unique in the industry with that.

Talking about innovations, we also have a number of industry unique innovations. Just mentioning a few of these, Volvo Dynamic Steering makes it very easy, effortless for the driver to drive a heavy loaded vehicle even in a construction pit. Not only that, when you let go of the steering wheel, it automatically goes into the central position and drives straight forward.

I-SEE is a fantastic innovation, where through the GPS you can download the road that you’re driving on and it has the geography of the hilliness of the road and you can optimize the gear shifting of the I-Shift gearbox and thereby even further improve the fuel consumption.

I-ParkCool, to take the third one, today when you are in a hot climate should sleep in a cab, you need to buy an extra accessory to put on the roof of the cab to cool the cab. Now with this I-ParkCool it has an integrated cooling system so you comfortably can sleep in the cab even in the hot climate.

Of course innovative products and innovative features like these also requires innovative marketing, and that’s why I think some of you at least have seen those YouTube virals where we try to boost one or several of these features. And between the four or five different virals that we have now published, we got almost 70 million clicks on YouTube. It is a difference, absolutely. And of course the latest one which is the one you see up to the right with VDS, without this dynamic steering Mr. Van Damme would have had difficulties to remain on these rearview mirrors and that’s a fantastic features.

And that leads me also to talk a bit more about the launch activities as such. Of course the YouTube virals is just a small portion of everything we have done. So we have had massive activities here in Gothenburg. We test driving with more presentations of the different features of the products and here in Gothenburg we have had more than 11,000 – almost 12,000 customers as you can see. And on top of that of course we are running a lot of local activities with test driving and where we have met another 10,000 customers.

We have launched it for our internal network what we call the commercial crew, 8500 people and we have had almost 500 journalists here. On top of that we have been running a massive training activity and I am continuing to do so. So as you can see we have trained more than 5000 sales and commercial crew people, we had initial technical training for the key technicians with some 1600 people that’s now spreading out in the markets of course. And all in all I think this has been a great journey, fantastic journey, very motivating for our organization, but also as all have said a very massive burden to manage this in a good way.

The feedback from the market is extremely positive and with the market I mean both from journalist, what we read in the press, but maybe even more important when I now meet customers who have tested these annual vehicles. They are extremely pleased with the experience, extremely happy with what they see and feel and sense and hear from their drivers and this gives us very much confidence going forward here.

And we also now start to see the result of this. So considering that we went full-time, full speed production only after summer, we can see that we now have more than 22,000 orders of the new truck and so now in parallel we have also been selling the Classic truck and we have invoiced more than 12,000 trucks so far.

We have been able to realize the gross profit margin ambitions that we had in our project and we now also clearly see the benefit in our penetration in the market. So the October EU 2013 market share was the best ever in Volvo trucks history with 18.7% market share.

With a slow start of this year, we have now also passed last year in cumulative market share. So after October we had 16.2% market share in EU 2013 which is actually the best market share that we have had since 2000. And now we also start to get some November market share figures and I can just conclude that in Germany in November we had 12% market share which is also the best ever market share figure we have seen in Germany.

So with that I think we are very pleased with the launch that we have made. Great confidence with the feedback we get from the market and during the autumn we received this award. So voted by 25 trade journalists in Europe, we got the International Truck of the Year award for 2014. And with that we will with confidence move into next year. Thank you very much.

Bruno Blin

Good afternoon. I am very pleased to stand on front of you this afternoon to talk about the launch of our new range, to talk about our R-Evolution as we have call it during those period. Because this is really a revolution for the Renault Trucks brands involving I’d say all the people that are working in the Volvo Group for the Renault Truck brand.

I’d like to start by talking about the fundamental customer needs. Our customers are professional. We are in the B2B, in the business-to-business. Of course, they are investing in trucks and they are expecting to make profit from that, then our trucks are profit-centered. Our customers have commitments with their own customers. They need to count on their investment. They need to count on our trucks.

A truck should always been available for them. A truck should never let them down. And of course, the truck should make the drivers very proud, because as it was mentioned by Claes, a motivated driver is very important for the owner of the fleet.

It’s about personal difficulties to recruit people is to keep them motivated and I met some customer some weeks ago. We had the pleasure to deliver the first trucks to this customer and he was telling me that the first T range that is getting, they will be given to his best drivers and because to motivate them and to motivate the other drivers.

What our answers from Renault Trucks? Of course, it’s about efficiency and especially on the fuel efficiency, which has been a real focus. We have a special shape on these trucks. We have been able to improve by 12% the aerodynamic and with that we are able to save up to 5% of fuel compared to our previous range. I think the fuel efficiency is really in the DNA of our new range.

Robustness has always been a credo also during the development of our new range. Robustness for reliability, but also robustness for the resale value, which has always been a weak point in the past of Renault Trucks, selecting the right material, the right production, and the right design.

And then of course, comfort. Comfort level has been really improved in this new range. We have been focusing a lot on the seat, on the resting area, on the lighting because of course, it is extremely important for the drivers and for the owner. The driver being less tired, being less stressed will be able to give a better productivity, and is also important for his own safety and for the safety of our trucks.

Then, with this R-Revolution and once again, it’s net of a change for our brand. It’s an enormous investment from the Volvo Group. This is seven years of development. We have involved 50 customers, drivers, fleet owners, fleet managers, owners, operators they have been working with our own engineers, involved in clinic test, Pro Series influencing the design of our trucks, especially in the interior cab. They have got Pro Series and we have some difficulties now with the customers that got Pro Series, we have difficulties to get our truck back, because they are so happy with the feature and with the performance, they don’t want to give them back to us.

Of course, we have been working a lot to secure the robustness through the testing activities. 300 test vehicles, 10 million kilometers from minus 40 degree up to 60 degree from the North Cape down to the Arabic Desert. This is the first time that the truck maker is renewing its full entire range in once.

On our new range that you can see on the slide from 3.5 tons up to 120 tons in specific activities. From distribution, the two metric D cab up to the long whole eight with the IC cab [ph] [5:34] of course with the construction, this is once again the entire range that we have renewed.

This is a big step, an enormous step, I would say between the previous range of Renault Trucks and our new range. And of course, we need to have the product meeting the customers. Our customers need to drive the trucks. They need to feel the improvement. They need to feel the new performances. This is far to be just a face lift. I think we have to realize that the Premium, the Magnum are face out now and they are replaced by the new Renault Trucks T-range that we have behind us.

And this is why we have launched this quite extensive program, launch program. Two of the customers already realizing the step as they believe us, but they want to measure it, and still we are at the beginning of this program, that more trucks are just eating the dealership as we speak, but even if we are at the beginning, we see some very encouraging sign, we have been able to get roughly 2,500 orders, which is very, very encouraging.

Yes, a very extensive launch program, starting in Lyon with the reveal show June 11. After we have local shows in the Euro 6 countries, in Poland with 1,200 customers, in France where we have shown 80 trucks, we have got and we have invited 3,000 customers. In total, it’s 18,000 customers prospect and journalists that has been involved in this activity.

Of course, we have a lot of test driving. 1,200 customers, 450 journalists and another very important activity, a massive training activity for our network; 1,800 sales people and commercial staff have been trained to really been able to sell our new range. And of course product demos has also been our focus with 700 trucks.

All the feedback from the journalists, the customer are extremely positive. They are talking about very low noise level. They are talking about the high quality of the materials, the fit and finish the ergonomic, they are talking about the fuel economy, which is of course extremely important. And I think one of the great pleasure during the test drive is to welcome back the customer after they are coming from the tour with our new truck and to see their smile and to see the big wow that they are telling us because they are really surprised, and they are understanding the big step that we are doing. This is of course extremely encouraging. I’d like just to encourage you also to look at the film that is behind the truck where you can see all the feedback and interviews from journalists that have been testing our trucks.

Now of course we have to focus to position this new range in the market at the right price and of course to start to drive sales. One big focus has also been the residual value which has as I said before has been a weak point for Renault Trucks in the past. Then we are really focused from the beginning of the development of these trucks in different aspect, high quality and durable material, bigger cab with more room, intensive testing routine, but it’s not enough.

We are also improving our used truck organization and processes. Speaking of the flow of used trucks, selling truck in our retail because we want to increase the share of our used trucks sale in our retail network; this is extremely important to strengthen the value of our second-hand trucks, but it is also very important to keep the population to built up the population selling parts and services.

And this is a very good transition to the next slide, because service is also very important area for us. We will just take some of the services that we are proposing, offering to our customers, starting with the fuel economy with the Optifuel solution. This is a complete package including first to select the right truck for the right usage, to train the drivers, because it’s of course a very important parameter when it comes to fuel economy. To follow the performance, we have a telematic equipment.

Another important topic for our customers and for the people that are investing in our trucks is to secure the operating cost and to be predictable in term of operating cost and with the start and drive contract, the maintenance contract, we are offering different level of maintenance contract and with that, we are able to secure for our customer the maintenance cost.

Trucks is of course an asset and assets need to be managed. This is why we have the Optifeed [ph] package, where we are with this equipment, our customer are able to track the trucks to follow the driver via VRS [ph], to check the consumption and of course to optimize the usage of their equipments.

Then to conclude, I think Renault Truck has got the best product range ever. This is not a new face lift. This is the new generation of trucks. With all the effort that we are doing to promote this new range, to strengthen the resale value, I think we are in a very good position to recapture our historical strong position. With what as described Peter just before, when he has come to the network transformation, we have also great opportunity to grow, especially in Central Europe and in Eastern Europe.

Thank you, very much and now I think it’s time to switch to Asia and I’d like to ask Joachim Rosenberg to join me. Thank you.

Joachim Rosenberg

Thank you so much Bruno and good afternoon everyone. It’s my great pleasure to share with you some of the exciting news that we’re doing in the Asia-Pacific region. I was chosen to structure this presentation in five sections; the first one we’ll talk about UD trucks in the growth markets; the second one, we’ll touch a bit upon UD trucks in Japan; the third one, we’ll be talking about our joint venture in India, VECV; the fourth one, our pending strategic alliance with Dongfeng, DFCV; and fifth, bring it all together to try to explain what we’re trying to build in the Asia-Pacific region.

Let’s go to the first one, UD in growth markets. If we take a look at the unique product portfolio and the brand portfolio that we have in the Volvo Group and you can see examples here of course behind me. In the Asia-Pacific region we sell and serve all of the Volvo Group truck brands, that’s one sort of important message. And the other one is that, in Asia-Pacific the volumes are more in the lower left corner of the truck behind me than the upper right corner. So the UD brand in growth markets becomes very important, you can also see that it’s distinctly positioned compared to the other brands.

Now obviously in order to be successful one needs to align the value chain to make sure that we can leverage this possibility to increase our addressable market. In order to do that, it’s important that the brand is distinct and clear. For those of you who had the chance to go into the UD truck behind me, it’s clear that it doesn’t have the leather seats. It doesn’t have some of the very advanced premium interfaces. It excels on the essentials. The customer will get all that the customer needs but not more than the customer wants. That’s the basic positioning. It’s a good, robust durable truck. It will do the job.

Secondly, being part of a Japanese manufacturer of course, the Genba Spirit so well known in Japan is very important. Genba means going to the place where the value is created. So in a factory setting, it means going to the factory floor. In a commercial setting what I work, it means making sure that the dealership gives the right service, the right omotenashi as its well known in Japan the right service level.

Thirdly, making sure that we deliver a smart and modern experience. This is not traditionally the strength of Japanese OEM’s and you can see it just by looking at the design of the truck behind me. That is different. But it’s not only the truck, it’s the whole package, it’s the after market, it’s how we communicate, it’s how we take care of our customers. That’s going to make the difference there. And of course, being UD ultimate dependability is a very strong heritage from the past that we will carry on into the future as well.

Pulling all this together, is the new brand premise going the extra mile. That’s new for UD trucks. It means that our products will go the extra distance and our people will make the extra effort. Going to extra distance because of the reliably, because of the quality, because of the uptime, because of the fuel efficiency et cetera, so going to extra mile.

Putting it together it’s not only about the product. From the product strategy what we are about to create or what we are creating is a modern, modular CAST-based, CAST common architecture share technology range from light duty to heavy duty for the growth markets. What is very important in these markets is the word affordability. The price point in these markets, is different from the U.S., it’s different from Europe, so affordability is key. You can also see it’s a full value range that we are aiming for. Quester is the first step on that journey, it’s the heavy duty, I’ll comeback to that in a short while.

Secondly we need to have a value-value-chain delivering our value products. It’s very important of course if you want to secure profitability, that it’s adapted underlined, and therefore we have chased a business model. If we are selling the growth markets in Asia, we’ll source in Asia, we’ll manufacture in Asia, we’ll sell in Asia, we’ll serve in Asia. So the older model of doing it in Japan is sort of trying to export it overseas, is a model that we don’t think has the profitability prospects and that of course will have impact on our operations in Japan something that Mikael Bratt will comeback to after the coffee break.

Well now, with these things in place, it gives us an opportunity to broaden the market coverage, along several dimensions of course new customer segments and how deep we can go with the share of wallets or the scope of the engagement, how deep can we go with those customers. We are carrying more about the after market that we did before friends, I’ll comeback to that. And also of course, in terms of geography, yes Asian markets, but also Middle East, Africa, Latin America. I’m not saying all countries in those regions, but there will be countries in those regions and that will underpin the growth of the UD brand. And as I mentioned we will need to adapt Japan setup because of this and we are gives opportunities in Japan that we can leverage back from our let’s say, growth structures.

Now let’s focus on the first point which is product and Quester. Quester is a real heavy duty truck, specifically designed for growth markets. This is the first time ever that UD trucks has specifically designed a truck at all for markets outside Japan. With real heavy duty, I mean a real heavy duty cab with a real heavy duty chassis and a real heavy duty engine. But the funny thing is that’s not just a first for UD trucks, it’s the first for any Japanese manufacturer.

There are no other manufacturers that has a specific heavy duty truck with all those attributes developed for growth markets. They are still using the older structure that we were using before.

Secondly, the Quester is a new range, a new platform for the Group and its’ very wide, but is on one modular platform. So it can address needs in long haul, in distribution, in construction, in mining et cetera but based on one modular platform. This obviously gives efficiency.

Thirdly there are number of unique features for Quester, for these kind of markets and these kind of customer segments. For instance the engine brake, for instance the hub reduction axle. This is obviously available in European markets since a long time, but that is not common at all in these markets that we are talking about the growth markets.

So this is a game changer for UD trucks and I dare to say I believe it’s a game changer for Japanese truck manufacturers in this regions and has been extremely well received by our customers. We ramped up production recently and the first deliveries of Quester is next week.

I spoke about the breath of the range. I just wanted to share with you some specifics around that. You can see here that the Quester comes in 8 different axle configurations from 4/2 to 8/4. There is a standard cab, there is a high roof cab, there is an single axle reduction, there is hub reduction. There is three different gearboxes, there is two different engines and so one and so forth.

Why do we have that breath, because our customers operate very different businesses and as long as you can do this on one platform again unique, for UD trucks and the Japanese automotive manufacturers or truck manufacturers? So obviously you can do it on one platform than efficiency still there even if you have the breath. So we can go to new customer segments by doing this.

I talked about the engine brake, I talked about the heavy duty cab, so I won’t go into the details, but there is one feature I would like to talk about and that’s the one in red the Fuel Coach System. This gives the driver real-time information in a very simple way on how he or she is driving.

In addition of course, it can be downloaded, it can be stored, it can be send, it can be checked by the fleet manager and so on. You might say, that’s nothing new and it is nothing new in a European context or U.S. context. But it’s not common in an Asia-Pacific context outside the develop markets.

Secondly it’s extremely simply, because many of the drivers in these markets they don’t read. So it’s based on symbols. You can see the symbols there, right. That means, please press the accelerator or please change the RPM and if you are in the engine sweet spot, where the engine is working most efficiently, you get two thumps up, right. That’s where you want to be. It’s that simple, because that is what is required in those markets. But the product is not everything, right. Network is extremely important, of course distribution is important. So I just wanted to share with you two examples from South East Asia.

We are aggressively expanding the network for UD trucks in the Asia-Pacific region. You can see the example from Thailand. Thailand, it’s a Volvo Group owned network that we are investing in. It’s dual branded. It will sell both Volvo trucks and UD trucks, because their obviously there is no overlap between those two brands at all. And you can see the growth rate there on the screen +240%. It will be ready fully implemented by September 2014.

In Indonesia, we have a partner the Astra Group the largest automotive company in Indonesia. In Indonesia, by the way it’s not possible for a foreign company to invest in retail. So Astra Group is investing in retail and you can see almost doubling the number of dealerships also by next year then. So a substantial growth also on the distribution side and well underway.

Like for Claes, like for Bruno both on the Volvo side and the Renault side respectively. We of course have had a significant and extensive launch program for Quester. You will see a lot of numbers on the screen, but essentially there is a big roll out. You can see it goes to the end of 2014. We are about a third on the way. We are touching thousands of customers, many hundreds of journalists’ et cetera, et cetera, very well received.

But of course it’s not only about us, both Claes and Bruno mentioned. It’s not only about the event, it’s a huge training exercise to make sure that the network is ready on the sale side, on the after-sale side to take care of these new products. And this is big, because obviously with Quester we are moving from a mechanical stage to an electronic stage. The engine has an EMS, an engine management system. And that is good, because on the aftermarket side it means that not everyone with a wrench can basically fix the truck, right. It means that you need special diagnostic tools. So it will attract the truck to the authorized network.

From a volume perspective in manufacturing which Mikael will come back to, we are gradually ramping up Quester production during 2014 to secure quality, all the way out to the customers, very, very important.

Let’s talk a bit about the aftermarket. Many of the things that we take for granted in more mature markets like service contracts or service scheduling or things like that is not as prevalent in Asia-Pacific. This is in general true. It’s true for Chinese manufacturers, Korean manufacturers, Indian manufacturers and for Japanese manufacturers outside Japan. So what we are doing now is we’re taking the basics of how we do business in other places in the Volvo Group and making sure that the Quester in the growth markets also gets benefit of our knowledge in these areas. And as we all know having the aftermarket is important to make sure that we retain and own the customer interface and it’s also helpful from a profitability aspect.

So there is a big, big emphasis now where we have the chance to have a Volvo Group engineered UD trucks product to make sure that we get as much of the aftermarket as possible. So that concludes the section on UD in the growth markets.

Now in Japan, UD is of course also our main brand and in Japan as we all know that is not – maybe considered as a growth market. So efficiency becomes very, very important. What we saw early on and enabled by the new organization was that we had the chance now to further the efficiency. What you see on the screen is during one year substantially reducing the support resources here defined as non-revenue generating employees, and at the same time reinvesting part of that efficiency again, increasing the number of colleagues in the front line selling trucks, selling parts, serving trucks and so on and so forth. The net reduction is minus 12% on headcount. But again I would like to emphasize that the number of people generating revenue, in fact, increased with 13%. So substantial efficiency gain in the backend.

And wholesale versus retail, you might wonder what the definition is? Retail is, if you go and work in the dealership. Everyone else is wholesale. That’s the simple definition of how we split wholesale and retail. But it doesn’t stop there. At the same time we've realized that we have more to do in our Japanese operation. So we launched a three-year transformation program, Retail Excellence Program, we call it REX.

It has the eight modules you see on screen and on the right hand side of the screen, you see the one-year outcome. It’s comparing year-to-date Q3 2013 with year-to-date Q3 2012. And you can see a number of KPIs. For instance, unit sold/salesman increasing with 20%. The bottom line, the market contribution increasing with 4 percentage points. The parts penetration increasing with 3 percentage points and so on and so forth. So we clearly see positive early results from our efforts.

Of course there is much more to do. We will continue with this program throughout the strategic planning period to 2015 for sure. And this is important for the whole Group Trucks. Because Japan is one of the three largest markets last year for the Volvo Group, not in terms of units sold, but because we own 137 dealerships in Japan. We have more than 3,500 colleagues in the front line. So from a top line perspective, Japan is one of the largest markets for the truck business in the Volvo Group. So this has substantial impact. Again, good early results still more to do. So that’s on Japan.

So we now shift gears and we move to VECV and with the main focus in India. In India, we have a changing market landscape. First, let’s recap where the market is. As many of you know, the market in India overall has been struggling for the past one to two years. And also in November, the market was down quite a lot year-on-year, year-to-date comparing to last year, heavy duty is down 25%. So there are short-term challenges for sure.

In India, the market is in the basic segment. It’s down to the left hand corner what you see here. India is very special. India is the markets in the world with the lowest price point, world-wide. And there is a duopoly; there are too many factories on the heavy duty truck side that command currently more than 90% of all heavy duty truck sales. Here the Eicher brand is the clear leading challenger to this duopoly. I’ll let get into the details shortly.

But also we see new solutions appear between the Eicher brand and the Volvo Truck brand that you see on the far upper right corner. And here, Volvo Trucks is the clear market leader in the premium segment in India commanding almost two-thirds of all imported trucks and taking market share this year.

So VECV, our joint venture in India, was inaugurated in 2008. And since then, we have pulled a number of levers to improve the business situation. We have put Japanese Volvo Group colleagues in the plant for five years, raising the quality level of the trucks coming out substantially improving the full frequency, the mean time between failure, all those things.

We have revamped completely the manufacturing setup; I’ll come back to that. We have taken the process as to way of working into the joint venture and reinforced both on the sales side and on the after sales side, the processes and how we do things. As I mentioned before it’s quite common for Asian OEMs, not to pay as much attention to the after market as to selling the vehicle. That is obviously something in our context, which is different and therefore we have reinforced the focus on the aftermarket quite a lot, obviously injecting Volvo Group technology in an adapted fashion and all of this is done and underpinned by an excellent relations with our partner.

We take those things and then you can see that the market shares have evolved quite nicely, we have been able to retain our 30%-sh on the light and medium duty, the buses have improved quite a lot and on the heavy duty, we have basically a one percentage point gain year-on-year. This is of course good, it is not enough, particularly on the heavy duty and I will come back to that. So we are okay, but we want to see much more and I will come back to that shortly.

On the operating margins, you can also see VECV coming in at around 6% and you can see main competitors struggling and this is of course because of the downturn, the unprecedented price pressure that we see in India today.

Two days ago, Eicher launched its new range, it’s a full range renewal, 11 new models, light duty, medium duty, heavy duty and buses. I mentioned that we weren’t really happy or we weren’t satisfied I will say. I think taking a percentage point per year is acceptable, but we are not satisfied with that. Therefore, we will have two new heavy duty ranges that we launched in two days ago; the Eicher Pro 6000 Series which is the yellowish truck behind me and the Pro 8000 Series which you can see on the slide at the center of the page.

In addition, we have for the first time ever for the Eicher brand, developed dedicated expert variance at first. Before, we developed for India and tried to export. So to speak now, we will of course develop dedicated variance, we will take the Eicher brand to Africa, to the Middle East, to of course strengthening the South Asia position and also over time to the South East Asia.

So we are broadening the footprint for the Eicher brand. And needless to point out the engines are of course compliant and also prepared, and as Mikael will talk about later, the Volvo Group’s on-road medium duty platform center factory is in India in Pithampur in the joint venture.

And you can see on the right hand side of the picture, some of the new and upgraded features that comes with this series. Very high hopes, launched two days ago including 200 journalists, a lot of attention, actually first for a truck manufacturer trending on Twitter apparently in India two days ago has never happened before.

Now this is backed by as I mentioned before state-of-the-art facilities coming on line. We have a new engine plan, we have a new bus body plant, we have new assembly line, we have a new paint shop and so on and so forth. So this strategic investment is INR25 billion investment, INR18 billion of which are completed and INR7 billion, which will be completed from today until the end of 2014, fully funded through own generated cash flow. The company VECV is debt free.

From an industrial structure, this is a single integrated facility and of course that gives high efficiency gains. These industrial assets are already producing as we speak and of course we have then blended the best of the Volvo Group’s technology and processes with the traditional Indian way of frugal engineering and let’s say, a very high cost sensitivity and this has resulted in what you saw on the previous page.

So in India, we are satisfied and now we have the new product line, we have the new assets coming on line and of course, we’d like to see a continued market share increase. If you put all the market shares together, it has basically doubled from seven point something in 2008 to 13.8% year-to-date 2013.

DFCV and preparing for the strategic alliance then. As you know, we announced on the January 26 this year that we had an agreement with Dongfeng Motor Group Company that we will have a strategic alliance. The Volvo Group will have 45% and Dongfeng or DFG will have 55%, the Company will be called DFCV. DF Commercial Vehicles with the transaction price of RMB5.6 billion.

We have received the EU approval, the anti-trust approval in May. On November 20, so around two weeks ago, we received a MOFCOM approval that is the Chinese anti-trust agency as well and we are expecting to receive the NDRC approval, the National Development and Reform Commission within short. We believe that after we have received that, there is about six month lead time to finalize the transaction and therefore our current assessment is Q2 2014 for doing that.

From the management team perspective, we will have four management team members nominated from the Volvo side and four from Dongfeng side, of course all eight of them officially appointed by the Board of the legal entity.

Dongfeng has been the leading Chinese manufacturer for both medium and heavy duty trucks for the past nine years, it’s still so today. You can see the volumes, you can see that there is a volume increase in 2013 compared to 2012. The Chinese market for your information is up 17% year-to-date October on heavy duty.

You can see that the financials has improved as well and is trending around 3.5% or so and that the market shares are stable or slightly improving and we are talking around 28,000 people in the strategize once it’s finalized then.

On the product side, there is a strong product range already covering all the segments; distribution, construction, mining et cetera. Behind me, the red truck is a long-haul truck, but you will notice that there is a new truck on the picture, the one in the front side on the picture that’s the new long-haul flagship, which has already been displayed at the Shanghai Motor Show in April this year as well as the Wuhan Truck Show in October. It will come out and be ready for production first half of next year and it takes the game one step up. The basic engine won’t be a 11 liter engine, it will be a 13 liter engine that has leading aggregates and has had very positive reception in both Shanghai and Wuhan when displayed.

The products of course is not everything. We also need the industrial structure. Here you will see a lot of numbers and I think the key takeaway on this slide is that there is a well invested industrial structure in Shiyan. The numbers are very large, normally in the hundreds of thousands. There are current factories, there are new factories coming on line and its all following an industrial plan.

Now if we take the DFCV Company; today pro forma so to speak it is very much focused on selling trucks in China and therefore looking forward there are a number of levers that can be pulled to create value. Of course, we will make sure that we have a good technology structure to make sure that we continue to lead on the vehicle at China, but in addition, working much more on the aftermarket will be something we will be focusing on.

Looking outside China, today only 5000, 6000 trucks per year are sold outside China for the Dongfeng brand and as we have stated already on January 26, we have here the dual purpose of both strengthening China as well as taking Dongfeng to become a major player around the world in relevant markets.

In addition, there is a large degree of components business in Dongfeng and here we see that we could accelerate the sales through external constituency where that makes sense of course. The wave 1 export countries are identified and to the extend it is allowed under the legislation we are preparing and how to move forward with these priorities.

So if you put all these pieces together, what are we looking at. We are looking at creating a significant business in the Asia-Pacific region on trucks where business under management including then the whole JV revenue, business under management is over SEK100 billion and annually selling more than 300,000 units. This is a few years down the road that is what we are talking about.

In order to get there, one, we believe needs to have a Glocal approach. We need both to have make sure we have the industrial structure and the volumes and the efficiency in order, but also that we are local, why, because in China last year, in the world’s largest market for heavy duty trucks, 97% of the truck sold are Chinese. In Japan, 99% are Japanese and in India, 99.5% are Indian and you can see the South East Asia is very much Japanese.

So in our view, if you want to be a real player in these markets, you have to be Japanese in Southeast Asia, you have to be Indian in India, you have to be Chinese in China and you obviously have to be Japanese in Japan. And with our brands and our position and the trucks that you see behind me, we believe of course, we are extremely well positioned to going forward take care of these market opportunities. Then for the European part of that business, which you can see is about 2%.

Volvo Trucks is the market leader and we are taking market share this year as well. So we will continue with the Volvo Trucks business, we will also sell Renault Trucks and Mack Trucks, but if you want to be a real player, you need to be Japanese, Indian, and Chinese.

Olof Persson

So back from coffee and we’re soon going to hear Mikael talking about the production side and operation side of the house. I just want to sort to wrap up and I hope you wrap the first part. I hope you get a good feeling for the complexity and the effort that we have done when it comes to those product launches during 2013. I just want to – actually we have to remind ourselves, this time last year there was no guarantee that we would have these trucks standing here. There was no guarantee that Claes could be standing here reporting our record margin, share of markets, market shares. There was no guarantee that we had a Quester and the others out there.

The only thing we knew at this time of the year last year was that we have an immense amazing amount of work to be done and that we had to fix it because we wanted to get this done during 2013 in order to move into the next phase of our transformation. And I must say that the sales guys are getting the credit now, standing and talking about it, but definitely if you look at both Mikael’s organization and perhaps particular Torbjörn’s organization in terms of GTT has put in an enormous effort during this year. I summarized it, but I didn’t said that it’s on the slide. I would summarize 2013 when it comes to the launchers as busy, costly, but successful. Well, that is that what we have done and now we move on to the next phase.

Mikael, you will talk about operations. You will also give a little bit flavor to the complexity you have had during this year and then looking forward. So please, Mikael.

Mikael Bratt

Thank you, Olof. Thank you. I’m really happy to be here today to share what we are doing inside Group Trucks Operations and the activity plan we have in order to reduce manufacturing costs inside the Volvo Group. I will be covering in my presentation not only, I would say the manufacturing cost to say, but I will also talk a little bit about our logistics costs, taking about inbound, outbound logistics

But before we get into the activity plan here, I would like to say a few words about what this enormous product launch has meant for us within – in operations. And as you have heard from my colleagues here in the beginning of the presentations here, it has been an extensive exercise for the whole company here. We have had numerous challenges here. We have introduced, as you’ve seen, the Volvo Renault line-up in Europe. We have had the Quester in Asia here and parallel to that we have also had Euro 5, Euro 6 challenge.

During this period we have kept the old or I would say the classic products inside Volvo Group here. So we have had dual offers, meaning dual production in terms of the variance here. If we talk variance, I will say we have a double number of variance in the European system today compared to more a classic setup here. What this has meant for us is a lot of extra manual work. We have, I will say, gradually ramped up the workload inside our plants and what you see on the slide here is an illustrative workload sort. So don’t start to calculate on what you see here because you see out there to really show how we, during 2012 gradually have increase the workload in our factories and then coming to 2013, seeing a true peak and then we will see the gradual phase out of this workload during 2014.

And when we have this kind of new product introductions we have in the Cab & Vehicle and I will say, especially in the assembly factories here, introduced a new concept that we haven’t had before, which is the pilot plants where we together with technology and during the product development phase or testing out new ways of assemble the vehicles and I will come to that later on here.

When then have brought them into the normal production and then for those of you that were in two VOC that we have one dedicated line for a new product. We have also added on a fair amount of extra resources to secure the quality of the new products. Even though we have these pilot plants, testing out the new products we also have a number of variants that go direct into the production and there we really need to make sure that we have enough manpower to secure that.

That has amount a lot of extra people we have to manage that securing quality and so on when the truck comes off-line. With the dual offer we also have significant amount or more of material inside the factory. In terms of port numbers we have roughly 10,000 part numbers extra right now compared to what we will have when we get into the new products, meaning more space for managing this and also more manpower to manage the logistics there. So a lot of extra work done.

I’m happy to report that we now see that the new products has come down in terms of manual adjustments, I will say. So we are pretty much back to where we have been with the classic products now when it comes off-line already. So the additional work at the end of the line is coming down significantly as we are doing good, good progress here. We see here that the double – dual offer will come to an end in the first quarter when it comes to the Volvo. We’ll continue with the CKD markets after that for not a quarter and then on the renewal side, will come to an end in July. So we will see it gradually coming out.

We have talked about the training earlier today about the commercial crew et cetera. We of course have had enormous training exercise inside the plants as well. During the introduction of these new products we have also introduce new ways of working in our factories. We have done significant investments to upgrade our facilities to the new production ways and for that we have trained more than 10,000 assembly workers year-to-date here.

So a lot of focus on the training side here as well. But these new products will give us an opportunity to take a significant step forward when it comes to improve our industrial productivity. So the product itself is not only improved in the sense of the market aspects as you heard before here, but also from a production perspective. We have a much higher modularization in the products today. For example, you see on the slide here a picture, the front module where we have the bumpers, the lights and also some electronics pre-mounted before it comes onto the line. We have on the cab side, for example, preassembled doors. We have the dashboard coming in complete into the cab et cetera, so a lot of great opportunity here to simplify the assembly process and securing higher quality product when it comes off-line.

We also are seeing improvement when it comes to designer product. For example, we are putting on routing of the cables on the chassis upside down, which helps the operators to do it quicker. We have more [indiscernible] harnesses et cetera. So the interfaces between the modules is supporting the assembly time significantly. This has given us opportunities also when we have upgraded the plans to take a step forward when it comes to our fishbone layout and also the internal logistics is significantly improved.

For those of you who are on Tube I hope you notice the difference between the old line with a classic product and then new line with a new product here and the line façade which has come down significantly here and for sure helps to support the logistics setup there.

So the end result of the combination of the product and to upgrade our plants gives a much more efficient assembly process, higher first time through and better economics for our operators. So I would say a very challenging year, but very successful year and has helped us to take a step forward for what we are trying to achieve within operations here. So let me then zooming be a little bit more specific on the activity in terms of improving the manufacturing cost here.

During 2012, when we formed the new organization and the new structures and we had Group Truck operation coming together, we started early on here to create really good overview of the potential by having one operational unit inside the Group Truck organization here.

So you can say that we have the number of hypothesis already during next year coming into the launch of the strategic objectives during the third quarter here. And the ones that are in scope here in terms of manufacturing cost is the strategic objective 1.2, which is about reducing the standard cost of sales by 10%. So even though we have a much broader scope to manufacturing cost and cost of sales, I will still focus on that during the day – today here.

When we came into 2013 we had brought these hypotheses into very detailed planning phase. So during the first half of this year we have brought these into road maps, but a clear distribution of responsibility inside the Group Truck operation here on who does what and forming then the decision basis that we have used now during Q3 and Q4 to put this into implementation.

2014 and 2015, we’ve done the implementation here. For us when it comes to really making the structural changes here, the vacation periods in 2014 and 2015 will be significant time in this two-year time period. So you will see the improvements coming in here stepwise and backend loaded with more heavier changes in the structure here. And I will give you some examples on what kind of structural changes we have in pipeline here.

So I would say we are on track and on time in our way towards the strategic objective 1.2 here from a manufacturing perspective. What you see behind me here is the current locations of Group Truck operations. This is a footprint based on legacy. The history of the Volvo Group, the acquisitions that we have made, you saw earlier on here today have resulted in this footprint today. For me it shows great potential to streamline and optimize the industrial footprint throughout the globe here.

Today, Group Truck operation is organized in a number of operating units. So you have for the cab and vehicle, you have a regional setup with Americas, EMEA, and APAC to correspond to the sales and marketing organization here, because that’s where the product is coming out towards our sales and marketing colleagues.

Then we have a global setup for Powertrain production supporting not only the truck side, but also the rest of the group and the same goes for logistic services which also is a global setup. We have already today started to change this map. We have started consolidating a number of activities throughout the group here.

As a starting point you can say we have something we call the industrial plan. The industrial plan that is the guide or I would say the – setting the direction for us in terms of how to change these global footprint we have today into more optimized footprint for the future.

Here we’re taking about taking us from I would say European U.S. centered organization to a truly global organization here supporting the segmentation on truck side to global ambitions in terms of the different brands to make sure that we have a true brand neutral supportive organization across the group here.

Also today we see that we have an unbalance in terms of capacity. We have in certain areas, a lack of capacity. We are running flat out in some part of the systems, while we are having a redundant capacity in others, which if we combined I mean in a good way could offset each other. But we have built this up over the years as a brand unique structure and therefore we see a great opportunity to better utilize the fixed assets we have inside the group by being more balanced.

I will also say on the flexibility side, we need to be more flexible. I would say both in terms of being quicker up and down relative to the overall market demand in terms of fuel volume, but I will also say, also improve the flexibility when it comes to the product mix that we have inside the group here. So we can quickly respond towards the market expectations here.

I would say historically we are also a very much premium organization focusing on the premium segment. Also here it comes back to the fact that we need to better serve from the basic segment up to the premium. So we need to be I will say for the value products more focusing on the value chain in that aspect, so we match the different levels of segment here.

So coming down from today a sub optimized structure based on the legacy of the Volvo Group moving into more optimized setup here. If we then dive into the manufacturing costs and the cost per say to put in these products together, we are targeting the reduction in two ways you can say. We are looking at the variable costs and activities around us and on fixed cost. And as you can see here, fixed cost is roughly 40% of the manufacturing cost while the variable is 60%.

We have also looked at it from a pure manufacturing perspective but also on a logistic perspective here. We are manufacturing 70% and logistics 30%. There is of course opportunities across these two areas also because some of the structural changes we are doing give the opportunity to better improve on the variable cost as well here.

But let’s start with the fixed cost side. We have today a number of activities being rolled out as we speak around fixed cost structure. We have something we call the 50 list that is a list of the different ideas we have. We on hypothesis you could say, they are done validated if they fly off to a more deep analysis that moves into a decision category and we take the decisions to move forward and then start implementation part of it. If it’s not we put it aside and or review it from another angle here. So it’s a constant I would review of this 50 list, securing that we actually look behind every stone and making sure that all opportunities are put on the table here.

When we look at some of these examples, let me start with Asia here and I will have that as a deep dive also to go through a little bit more what we’re doing there because I think Asia is a little bit special here because it’s both growth case. We see expansion needs from an operation perspective and also we see rightsizing especially when it comes to Japan.

In North America we are doing a number of things there consolidating the footprint. I will say primarily then within the Reman area, where we are utilizing Hagerstown that has done a fantastic job over the years to consolidate their operations in that site, freeing up a lot of space. So we have space available to consolidating operations into Hagerstown, if it fits to overall strategy here. And we have some examples you see on the slide here.

We’re also doing further improvements of Hagerstown where we improve the assembly sequence in Hagerstown to implement straight flow which we’ll have a significant impact on the manufacturing cost there. And we also recently this week announced that we are closing our CKD operation in Florida and to move that into our main plant.

I will come back on the warehouse footprint in North America on a later slide here. In Europe, and I think you can see here that the number of activities in Europe is slightly higher and it’s also here we have the longest history and therefore needs to do more adjustment here. You have seen during the spring here a number of announcements. We do similar exercising hub to income to assembly flow there. We have started ongoing when it comes to logistic services activities. And we have already started to exit some of the external business that logistics service did in the past and if we see that it doesn’t fly for margin perspective.

We did some business we have on a group level we take them – to a exit them. We take a decision to exit them. I will say, we are also looking at plant structure here and in power train we have for example now announced the closure of Leganes, where we produced crankshafts, and that will come to an end now during spring 2014.

So you see a number of structures there. On a global level, we have also something we call white collar efficiency. The white collar efficiency is on top of I would say the structural changes is to make sure that from [indiscernible] perspective that we have the right number of white collars here. Of the total 35,000 people inside Group Truck operation, roughly 8,000 are white collars. So there is a significant number in terms of white collars here that we are looking through.

If we move back then to Asia, as I said before Asia little bit special here, because it’s both the growth case and the right sizing case. Joachim before here talking about the Quester that we have launched in August here. And for that we are building a completely new industrial set up. It’s a new product meaning new suppliers, new industrial structure where the center of gravity right now is Thailand where we have the first production of the Quester.

There we will step wise build up a capacity up to 20,000, 25,000 and we are also in India building up the capacity in our Bangalore plant. These plants were in the past CKD plants for Volvo brand, roughly 1,500 capacity on the CKD side and now we are coming a port number of factory with this type of capacity. So it’s a huge change in these sites.

We also have China together here with our current joint venture and that we have had since a couple of years back.

Also on the building upside, I would say is the engine plant. The medium-duty engine plant that we have together with Eicher, where we will step wise come to capacity of 100,000, today we are around 25,000 capacity in that plant. And there we are sourcing also long blocks to be addressed for Europe here in our facility in Lyon. So it’s a truly global set up around medium-duty plant in Pithampur.

If we then go to Japan, which I said is the right sizing exercise. We are putting the capacity at 13,500 and we will also have secured and capacity swings plus minus 20% around those levels. So you could say that Japan set up will be Japan for Japan going forward. We have started to do a number of things there already. We have also there started to consolidate our footprint in Japan. We have moved in activities that have been done outside at Ageo site.

We have roughly 10 sites manufacturing sites outside Ageo and we are reviewing this and gradually we have already started to move them in. So we will have also Ageo becoming a more vitalized site than what we have today. We have also stopped some external business there, so we are looking at the core activities securing data what we are doing there. So a lot of things going on in Japan right now to get it calibrated for the future.

The announcement we made a couple of months ago around European optimization in the cabin vehicle area is what you see behind me here. What we are doing is actually that we are taking out one heavy-duty assembly line, we are consolidating that here in Tuve, so we will have one assembly line going forward. We are moving medium-duty from Gent to Blainville and we are then taking the trimming activities from Umeå down to Tuve.

So when all of this is said and done, we will have a capacity in Tuve of 75 trucks per day in one shift optimized at 60. We will have again 200 trucks per day in two shifts optimized at 160, and we will have Blainville at 80 per day and optimized at 60 and trim in Tuve than Umeå focusing on their core processes, which is stamping body in white and paint of the cabs.

This is creating a lot of opportunities now when it comes to the internal logistic, I will say in all the three assembly plants and we can then move forward towards the Volvo assembly concept. And you see in Tuve today, we have a lot of forklift traffic for example that we will completely disappears, so besides the logistics improvements, it also will become a much safer factory for all our employees.

Within U.S. we are doing one significant change and that’s around our logistics services activities and the warehouse structure where have the long history of the Mack brand in the U.S., the built-up of the Volvo brand and then we have had Volvo Parts setting up activities in the old structure here to support rest of the business areas here.

And now we see that we can consolidate this into two central warehouses; one, for fast and medium moving parts and one for slow parts. And one big gain here is of course that you separate these from each other and you could say in general, that fast and medium moving parts requires a lot of staff, less space and slow moving requires a lot of space and less people. So by separating that, we will get good efficiency gains on both the surface as well as the staffing side. So we have moved onto two central warehouses, then we will close three of the sites, it will be Dallas, Memphis and Atlanta, we will close down completely, while we will downsize three outdoors here.

So besides the cost savings we see here, we will for sure see and I will say more importantly want to see improvements towards the customer base here. We will be able to expedite orders much quicker, we will have shorter cut off times and we will have good improvements when it comes to realistic efficiency, when it comes to overnight shipments here. So a lot of benefits with this exercise here. So that was the fixed cost side.

If we then move over to the variable costs; you could say that, we are here working very much around Volvo production system to support the variable cost improvements here. As I said, the structural changes we are doing enables us to do much more in this area.

When I look at this slide, you will see that we have for sure great improvement possibilities inside the Company. The scale here shows the Volvo production audit score, it’s how well we rank the different plants in terms of set number of activities.

So the best one here scoring 3.5 points in our internal system that goes down to 0.5 point here. And we see that internally, collectively, we know how to do it well, but we have not in the past been able to get all the plants up to the same levels and I will say, even the two ones that are performing very well here are not performing well on the same things. So even there, you will see great opportunities by sharing best practicing.

I will say we are not only pushing best practice sharing, but we also really encourage people to seek best practices, and I think that’s something we really see taking off right now that we have plans at the bottom half here that can quickly gain traction here by looking at the best ones directly and by themselves. So I’ll say we will have a very good momentum here now to see improvements coming along.

In the beginning of the new organization, I went around to basically all our major sites and in a very short timeframe, normally if you visit a plant every now and then, you don’t get the same impression. What I did is, just in a few months and I must say that there is a strong feeling after all is this was that, if the plants that is making it here is not the ones that only have started and given have their visible VPS tools in place is the one that really have taken it to the DNAs and really embedded into daily work here, and we see that now being spread throughout the organization in a much higher pace than what we have seen in the past.

If we take the new organization here in Europe for example, we never had really good context between our cab plant in Umeå and our cab plant in Blainville, because they were operated in separate business areas.

Today, when we have all operations under one roof, it’s open doors between and we have early started actively around the cab side here, and I must say just in I think it’s 25 weeks, we have seen a 20% improvement in OEE coming through in one of the plants, here just by sharing what we already inside the company. So I’d say a tremendous leverage in the organization is coming through here in this area.

I will not go through in great details this slide here, but it is just to show you that the way we are moving forward here is of course with the Volvo Production System in combination with our future factory concept and the Volvo assembly concept where we have a very clear target style for each and every of the what we call the cornerstones, and that is building a very strong solid base when we then looking at the products to get the Volvo technology and therefore we can make these steps as you have seen with the new products that we have been in notion here. So a lot of emphasis in this area, we have also now put all these activities into one global organization here and therefore we see this momentum coming through.

If I summarize you can say the activities we are doing inside Group Truck Operation here, we need to focus on three things, and that is really on top of our agenda. And it’s not only supporting the strategic objective, 1.2, but it’s actually to a very large extend supporting most of the strategic objective in one way or another and that is through focusing on quality, lead time and cost efficiency.

Quality is critical for us. First of all, it is customer commitment. We need to deliver the product that the customer expects and pay for. So that’s the number one, I will say in this list and if you don’t do that, we are not only jeopardizing the customers trust in our product, in our abilities, we also having a cost effect here by managing that situation. The way we are looking at qualities of course through what we call frequency 1 it’s within the one month period from the products leaving the factory. And then of course it’s the responsibility together with technology when we looked at the boarder aspects there. But the manufacturing quality is right in the middle of our activities here.

First time through is a very good indicator on how we’re performing here, I will say the first time through is also I will say common denominator for many of our KPIs in operations. This really shows how the truck is coming off the line with a green okay at the end from the beginning without the manual adjustments I talked about that is required when introducing a new product before you get everything right in all the process etcetera.

Lead time; here we’re measuring lead time on the factory delivery precision as a KPI. It’s a critical one making sure that we honor the commitment of levy time towards the customer. If we don’t manage that right, we will see that in the inventory in one way or other. And then of course the cost efficiency side which is what I mostly have talked about here today, which we done measuring on variable cost per unit and of course the fixed cost in absolute amount here. So these three focus areas is always with us in Group Truck operation when we’re looking at our activities here.

So with that I would like to summarize this presentation here to say that we feel that in, say Group Truck operation we have traction on the activities towards manufacturing cost reduction and by that also reducing the outstanding cost of sales. We have clearly one target in the organization. We have rolled out the comprehensive program, yes touched on a few of them here today.

It’s well underway in our organization. I’ve been this year alone around meeting up to 11,000 face-to-face like this of our colleagues in Group Truck operation and discussing the activities and once I get a very good feedback when I talk to the team there. So full attention and commitments towards the goal and focus is end of 2015 for everything we do here right now.

Thank you. I will finish there.

Olof Persson

Thank you very much Mikael and we now come to the implementation and the follow-up on the strategic objectives. When we met last year I promised you to come back in exactly one year time that was 25 September last year. I am afraid we are little bit late because this Capital Market Day is now in December, but here I am and I am going to report back to you as I said on where we stand on the 20 strategic targets that we do have.

When it comes to the strategic target I think you are well aware of them. They are well published and I must say that the reason why we went so transparent is of course for you to in the market analyzing making sure that you have a good understanding what we are trying to do, but has also as I said last year, a great tool for us to be completely transparent also internally to our 115,000 people and coming back to actually addressing those issue, explaining why and why they are so important to achieve.

Again this year I will focus on to one point that is to increase profitability. The 1.1 to 1.6 and I would like now to go through one by one and give you a quick update on where we stand. This one you also know, we done also last year, very transparent, translated for you the impact that we saw that would come at the end of 2015. There is nothing new in this. If you take the target including the headwind factor and multiply it by a run rate of SEK300 billion, you come to the SEK9 billion. New for this year is that we're giving you also the sort of the improvement facing over the next three years as for you to better to jive when are the improvements then coming into our results.

We have not talked about the BA’s and I will not talk too much about the BS going into this as well. But I would like to highlight the importance of that. And I don't want to leave you the impression from last year and this year that this is a truck only exercise. The focus on VCE, on buses, on governmental sales and the other areas that we have, Penta, in the BA’s is something that we are increasing. And the appointment of Anders now coming in and strengthening that out is a good sign of that because when he comes to the strategic challenges both on the VCE side, but on bus of course and on Penta is there and we need to really make sure that the traction is coming on the 0.5 points that we have there as well on the BA’s.

But then living that and going into the little bit of an update and basically we have heard some of it, now you see it specified in terms of the strategic targets. So if we start with 1.1 which is of course the crucial one, now with a new platform that is coming in, that we actually manage that in the right way in order to get the gross margin increases that we need to have with the new technology and investments that we have done. There has been a good progress on this.

Claes reported on the Volvo side when it comes to actually realizing the gross margin. We have been working very hard on that all over the different regions we have communicated to you that we have in Brazil, increased our market share combined with actually also increasing the margins.

So this focus has really taken grip in not only Europe and the new products, but also we’re looking into what other products can we attack now in terms of increasing the gross margin. Where do we have pricing deficiencies? Now when we look at this as one group and that is very interesting and a good discussion and this program is rolling forward with good progress and you can see some other activities that we have ongoing right now. And special attention, we do have now and as Bruno pointed out before it is extremely important that we now get the residual value ambitions on the Renault. Bruno mentioned that a couple of times. That has been a weak point. We need to make sure that now with the new range that we go into and also get the residual value that those beautiful products actually deserves.

And then Joachim and his team has now of course also in the beginning of the Quester launches making sure that in the different markets coming out with the right product, price and therefore also securing the margins. So good progress on them and you will see then when it come to the phasing and the actual Q3 result that we have had that this has played a major role during this year.

This one is basically what Mikael was talking about and I think the important thing here is that all major decision has been taken. That means that on a fixed cost side as Mikael was addressing we have a time drag on this. This means you cannot go in and do the European footprint optimization in one go, it has to be done in a phased one and that’s why it is so important that we took the decision coming back to my clock before that we took it early enough in order to be able to introduce it and get the effects coming into the end of 2015.

And that is now the plan not only for that European manufacturing, but also the other decisions that has been taken. If you look at the number of decisions as Mikael and his team has taken during the spring coming into this autumn, it constitutes a huge change. If you just add them altogether, and that is exactly what you describe both on the structure side and on the operations.

In focus now, in 2014 and also into 2014 is an area where Mikael didn't talk about, which is a very important part when it comes to the 1.2 and that is the material and purchase cost. We have a huge amount of activities ongoing in a cross functional set up in order to really drive the combination of getting the product cost effects, that means getting the purchase material down, but doing that in a very conscious and responsible way not to jeopardize the quality of the final product. And that is also an ongoing project that we have going on and it’s 100s if not 1000s of activities ongoing as well.

Improve product quality, you can ask me, two years ago you can ask me, now you can ask me five years we’ll always be on there. There is always something we can do even though we have very good product quality and as Mikael said when it comes to the new FH and the assembly times and the quality coming out of the factory, we are coming down really quickly on the new FH. Now we have to do it on Quester, we have to do it on the Renault Truck as well going forward in terms of quality.

We have also done a major activity in U.S. when it comes to really making sure that we also improve the quality of the U.S. products going forward with good results. And also of course at the end of the day we have to ensure because this is a backend loaded program, we have to make sure that we don't sleep because if we sleep then of course we would do. So far so good, but we have to keep a very high focus on that as well. So this is a very challenging target and I think everyone understands that.

Next one; decrease wholesale selling expenses to 5% of sales. I just want to clarify once again, I did it last year, but when you look at the selling, expenses in the profit and loss we divide that into two. One is what we call, retail selling expenses connected to actually selling the product that means that everything that goes into retail including mechanics is retail selling expenses. Then you have the back offices, you have the regional structure, you have the market communication, you have all the other functions that sort of you can call it back office functions, but they then supporting the retail expansion, that’s where we want to get higher efficiency.

Coming back to the picture Joachim showed, it’s a brilliant example, calling it revenue generating and non-revenue generating, that’s exactly we want to do. We want to increase the revenue generating. We want to expand now looking into the EMEA and looking at the dual branded workshops, we need to do a lot of activities there but on the back office side that’s where we need to go on efficiency.

Again, here is then very much coming into the activities we have talked about before, strengthened the retail excellence in Japan, Joachim talk about that the EMEA optimize the distribution, support functions in EMEA that’s the program, that we launch the EMEA program as we remember that is very much focusing on that one. And I just want to stress that when it comes to the execution of that and Peter pointed that out, with the staff reduction that we need to look at during this program that would be finalized in 2015.

Then as Peter showed you will have some activities going into, so all in all, I would say that if 90% of this program will be finalized in 2014 and it will be some small activities in 2015. And attention will be very much on actually executing now on the headcount reduction and take out the launch cost that is extremely important. Let me now see the launch comes really coming out and we start to see that already and we’ll accelerate next year.

The increase on dealers soft offer absorption, again a definition that I would like to make sure that we understand; a dealer who doesn’t sell one single new truck, but still makes a zero result because of soft product sales. He has a soft offer absorption of 100%. So actually that is a measure to show how good is the dealer to actually capture soft offer in order to cover for his cost and if he cover 100% then he is making breakeven, and there are actually the dealers who are actually covering more and that’s good for us. Because if that is progressing then you actually build up a strong dealers that means also that it could take up and downs without having any problem from a financial point of view. And this also derives a lot of thinking about, how can we go further with a soft offer and making sure that we sell more of these.

And then there is number of activities going there as well and I think the most important one is of course increased penetration service agreement. That is the key issue to actually get into that activity.

Where we then look at the R&D, and I want to make very clear, here I talked to some of you in the break. The R&D today is a one decision for the Group, so we take one decision for a Group for a whole R&D budgets. Before it was business area by business area, who took their own decisions on the R&D and they adding up to it become the Group’s R&D, we have reversed that completely so saying that we are taking the decision then it’s been executed in the total Group. And that has of course meant that we as the management team can take decisions according to what we want the R&D to be.

So then we are aligning that into a long-term plan, we align it into the product and the brand positioning and we also aligning it into the actual reality. So in this program right now we have taken the decision needed in order to make sure that at 2015, we’re going to fulfill the target that we have communicated to you that we’re going to reduce R&D to get to zero percent impact from the switch between capitalization and amortization.

And we are continuously monitoring that to make sure that by end of 2015, and you can see that also in the cash R&D side that we are now starting to see that coming down. So that is the second if I look at actuals from Q3 that is the second major contributor apart from the gross margin improvement.

What we have to make sure though is that we don’t shoot our self in the foot. I don’t want to come into a situation where we have had that we go in for cost reductions only in R&D, when we reduce R&D it has to be according to a plan. It has to making sure that we take out things that doesn’t impact your success, offerings that’s actually behind that. We have to make sure that we have that, therefore the scope of the plan has to be just about also that we now have to align R&D plans to the position on the brand position situation we want to have.

And I think if you look at it and feel about it and hear about it, you see and hear the embryo of something completely new, if you look, if you talk, if you listen to Bruno, Claes and Joachim. It is different brands they are talking about.

If we then move on to the IT costs, which is down 2% of the Volvo Group total. Here we have limited impact as per yet, and the reason for that is that before you can actually do their harmonization, get the IT cost out in a substantial way, you need to migrate into common system, and migration cost money and takes time and it’s a sort of a – has to be done, if you don’t want to take out the complete costs.

However, the migration plans and the things we are doing is working in the right direction. So the impact we’re going to get will come in 2014 and 2015, so it is according to the plan, but it is limited impact right now, and you can see then the activities and of course, special attention here is that we also need to reduce this structural headcount when it comes to ISIT and face out of all systems, and we emerged and when we looked at the total consolidation of systems surrounding the Group it was a lot, let’s put it that way. And we have to make a plan, which one should we take first, which one should we take – then we’ve taken one by one to harmonize. Looking at basically the most critical ones and the ones that we get best pay back for in terms of harmonization and migration.

So by that we gave you the phasing of the SEK9 billion that we have been committing to and basically we can see down on the slide that SEK1.4 billion is then positively impacting the result in Q3 coming from these 20 objectives or at least the first section of it. You can ask where were those SEK 1.4 billion down in Q3. There are two aspects to it to me; one is, the Q3 showed me how extremely important these kind of programs are, and it’s also show me that SEK1.4 billion is far not enough to take a real headwind when it comes in terms of currency, in terms of the R&D, capitalization and amortization to double production and what have you. but it at least you can say that if we wouldn’t have done the SEK1.4 billion the Q3 would have been SEK1.4 billion lower so that is at least the good thing about it. But it shows also the important thing and now there’s sort of effect of this is that when we talk to our employees they’re going back to this engagement issue. They start to realize how important these kind of programs are because it is about our future ability to continue invest and continue to succeed.

We’re going to have three phases here as well. Everything in this program is divided into years. So the first year, as you see, R&D cash expense is going down and the gross profit margin is to mainly contribute to this year, will be around SEK2 billion. That will continue of course next year and on top of that it will be then mainly focus next year on the efficiency program, as I’ve communicated, and focusing on then the staff reduction. And so you can see that we will have a wave coming because announcements, and then you need to execute and then you will see the effects coming at the back end of the year accumulating up.

Then it’s flattening out and then you see another wave coming and the second wave then is basically the product cost, which Mikael was talking about. That is the activities that he will implement during summer break in 2014 and 2015 and then basically have the structural activities done and then we start to see the impact coming at down the road. So it’s perfectly logical. It’s perfect. Makes, at least to me, perfectly sense that you have this kind of development going forward.

When you look at the accumulated restructuring charges, you can see that also there you can divide it into sections. The first one which we are taking now is very much related to the industry structure, the product cost that Mikael was talking about, the charges related to different activities and then of course you will have coming into the efficiency program next year and then you will have that one coming as well. So these are the plan that we have in front of us to reach the SEK9 billion.

Leaving the numbers I’m talking about what is perhaps the most important in order to achieve this is how can we get the whole organization understanding the difference between change and transformation. Change is something that you see. Change is something that to the outer world is happening to the company. Transformation is something that has to take place inside the company, inside our culture and inside the way we’re working and that means also that we need to put a lot of emphasis on actually measuring how is our 115,000 people accepting this and how do they see it and how much do they understand.

We are fortunate enough. So we have over the last, I don’t know, 15, 20 years done Attitude Survey. And we have managed to get into a culture that everyone answered the Attitude Survey. So actually out of the 115,000 people we are at 80% to 90% answering rate, which gives us statistically enormously good basis for knowing what is it going on out in organization and for us as a management team this is a crucial information to know, because if we see those things are not moving in the right direction out there then we will not see it in the numbers coming either. But luckily enough or thanks to all the communication we have done, all the explanation we have done there are a number of good things that we now see in the Volvo Group Attitude Survey.

One, which is of utmost importance, is the understanding on the strategy and the reason why we’re doing it. That sort of number of questions has increased substantially. But the most interesting movement in this survey is actually the question, do I understand what my work does in order to influence the strategy, do I understand how I can contribute to the strategy and that has moved up substantially over the last year. So not only do we have an understanding about the strategy and the importance of it we also start now, as Mikael has done, very, very successfully being out and talk to everyone on the line.

How this work, this welding operation, how do you support 1.2 and when I come out and visit, me and Danny was traveling around in both South America and North America for two weeks and we’re visiting the plants, wherever you go you see the basketball, which is Mikael’s, what you call it, hoof, I think, symbol of the 1.2. And then you start to go out and you see the boards on the different workplaces and when you ask the operator how do you contribute to the 1.2, it could be a small cards they are taking down some inventory with a couple of hundred thousand Swedish kroner or whatever, but still it is there and that is the attitude that we need to have very much anew.

Another thing which is very interesting and encouraging is this improved accountability and follow-up. It’s a positive movement in the Vegas reporting that accountability and the follow-up has increased and that is exactly what we have been addressing within the organization. People should know that you are accountable of something, but you should also be – have the tools for fixing that accountability and that is also increasing. Well, we need to improve because there’s always something we need to improve that is the next big phase and that is moving into a process-oriented company where we actually now not looking at functions by functions, but looking at how do we solve problem in a process way and there we still have a lot work to do.

That is in the plans. We need to start to doing that and with this feedback now we are starting special programs immediately in order to attack that issue in terms of understanding what is the problem, how can we attack it and then how can we resolve it. Change versus transformation, incredibly important to get out to the organization and always have a measurement how do we stack up and how do we feel and where do we start in terms of vis-à-vis all our employees. Without that transformation is very difficult to do.

I just want to end this presentation with two slides on really making – first of all, I understand it is a huge amount of interest about this transformation period. It is up to 2015. We need to catch up on efficiency, we need to catch up on constructions, we need to catch up on a lot of things. And I hope you feel that what you have seen today that we are doing everything we can to catch up on that, but that’s not going to be the game changer. This is something we have to do. That’s something we’re going to do. The real game changer is going to be this.

At the end of the day, and there is much that goes into the product, but at the end of the day our brand portfolio combined with all the people, all the processes, all the good things we’re doing that’s the game changer going forward. We will continue to improve efficiency. We will continue to do other things. But our position when it comes to dual, triple branding the way we cover the whole market what I can explain, the way we’re building up industry systems like Mikael described, the way we’re actually moving in Europe, as Claes and Bruno explained, the way we are attacking the U.S. and the South American market with the different brands, the way that buses is operating with three brands, the way that [indiscernible] and CE that is the game changer, that is the real future foundation going forward.

And then we have a great respect and a lot of humbleness and understand it’s going to be a heck of lot of work both this year, next year and 2015 to perform the transformation, but as I said before, if you ask me which year was the most critical in the transformation that was 2012. If we can fix that, what you see behind us in 2013, I feel extremely confident that we can fix the efficiency during 2014 and that that we can combine it all, been [indiscernible] in Swedish, combine it all into 2015 where you see the different issues coming back, again coming back to the 9 billion improvements we have seen.

I hope that you feel that we have transmitted a lot of confidence and started by saying that having a outdoor driving Gothenburg in December needs a lot of confidence. I hope that we have transpired to you humbleness, confidence, but also a structure and a clear way forward when it comes to meet the targets we have set out to do and that we are on track of doing it.

So with that I close my presentations and Christer I think that close all presentations. So thank you very much for listening in then.

If I can ask Peter, and Dennis and Michael, Joachim to come up on stage and we’ll do a – I’ll ask Peter, and Dennis and Joachim to gives us a two minute business update on what are the current trends in the market and starting in Europe with Peter.

Peter Karlsten

I think, I can have this one. Yes. I will start then in Africa, Africa has not developed as expected when we went into 2013. Actually the market in Africa has walked side ways and we expect that Africa will be the same size in 2013 as in 2014. Big difference is of course in different part of Africa and northern part of Africa is slowing down in some countries very significantly, Morocco and Tunisia down 25% and a very important country for us, South Africa is holding up quite well with an increase of 5%.

Moving from Africa into Middle-East, Middle-East is holding up quite okay. The most important country there Saudi Arabia is actually growing with 7% this year and we are holding a very strong position in Saudi Arabia. So that is good. We have reductions in Iraq, and then of course Iran now is very much in our focus what is going to happen there, will the sanctions be lifted or not. It is traditionally a very strong market for the Volvo Group and of course now we are following this very big interest and see what we can do going into the future.

Going then up to Turkey, Turkey is slowing down significantly down 13% compare to last year. It is not a very important market for us. It’s a big market but we are holding it quite weak market position, so the impact on the Volvo Group is not very big.

Then going up to Russia, Russia is a much more important market, it is the biggest market actually in my region 100,000 market and it is divided in two pieces, one is the western part of the market, where we are selling western type trucks. The other one is the domestic where we have the local players and also the Chinese. The total market in Russia so far is down 29%. For us the western part is down 25% so the good news in this is that the western part or the western type of trucks are gaining every year, we are taking bigger, bigger portion of the Russian market. And that is a good sign because the customers are demanding more advanced products and so on.

So that is of course then a market where I think our fore cost is actually in the beginning of the year that we saw an increase in that market so that is, I think the market where we have misjudged the most when it comes to my region.

Then going over to Europe, Europe is also walking sideways. We have some pockets that are increasing very strong like U.K. 9% up, Poland I think it also up 9% and some other countries that are down Germany down 8%, France 6.5%. But overall we believe that October over October we are actually down 3.7% but we believe the pre-buy that we have seen and the high deliveries we have now in the end of the year, we believe that the market will be the same size as last year or perhaps slightly above last year.

Then going into the future next year, we also believe here that we’re going from side ways. We think that the markets will be the same size also next year and the reason for this is that some of the pre-buy that we have this year will be registered in the first quarter next year. But then we have of course a slower demand right now in trucks that you will only see in lower registrations in the second quarter.

But there is an underlying improvement in freight demand in Europe but it’s very slow but that will help up to make the balance of the year to be below 2013. So that – I think was a short summary of Europe and EMEA.

Dennis Slagle

Good afternoon, greetings from America and good news for the Americas. So I’ll start with South America and Brazil. I think the strength and profitability of Brazil is well-know, but three recent awards I think tells the story for Brazil.

First of all, number one in MH from the market, secondly from the dealers, the most desired brand and then from the employees in general or the market in general for all Brazil the best place to work, Volvo and Corte. So the business when you have that kind of base is you just tend to want to move from strength to strength. What we are focusing on is the density of our distribution because you have to remember it was only ten years ago that market was only a 20,000 to 25,000 size market.

We’re now up to around 100,000 and the population is building, so you have to build that distribution to take care of that extra population. So the focus very much is been on investing. We have 30 new outlets in the pipeline and we are moving very rapidly to meet that the customer satisfaction and demand. Overall in Brazil, up 2% of market share in some very stiff competition and obviously we look right down the pipe there is even more competition coming from all sort of sectors.

So business in Brazil good stable if you look at the market as I mentioned is about a 100,000, it will end up around 105,000 this year. We look forward to be basically flat next year. That 105,000 represents about a 15% increase and the Volvo business with the 2% market share is up about 20% to 25%. So good business, profitable moving from strength to strength in Brazil. The rest of South America we have a couple of markets there in Argentina and Venezuela where we have good businesses but we really have to carefully navigate the political waters there, but still contributing still good.

The other big markets Chile, Peru, Columbia very much sensitive to commodities, we have an excellent business again number one image I mentioned. And Peru that’s staying there and we are able to – we’ve opened up some new facilities there. We have an excellent business going on there, Chile if you look at as all of mentioned we sell all of the brands in the rest of South America outside of Brazil.

So we begin looking at the cumulative share of the brands and how we best position those brands in the marketplace. So to sum up South America, good market we expected to be again side ways in South America and we look for gaining share through the way we position our brands there.

Moving up to North America, I don’t have to tell you that the journey in North America for the Volvo group is been challenging particularly last ten years, where we’ve had the deal with very, very aggressive emission standards. And we’ve had our share of difficulty out there but recently again focusing in on the block and tackling of good distribution, improved quality and getting the team focused on the segments using all the resources of the group. We are beginning to see positive traction, we chipped out of the, hell of the blocks in 2013 in terms of market share.

But if you look at the last six to nine months, you see a growing combine share for both Mack and Volvo. I think the big news in North America is on the Volvo side where the penetration of Volvo engines and Volvo power train, has been incredible. We’re up to 87% penetration of our engines. And I-Shift which we declare to be our standard offering in this spring is now up to over a 60% year-to-date in an isolated month for October is over 80% of our orders.

So that leadership in that technology others are beginning to notice and they are starting to increase their offering and their discussion about automated manuals. That automated manual transmission also place well into one of the head wings we have which is driver shortages in the North America that’s popping up again and I-Shift not only allows you to retain the driver but also widens the base population of people of who can drive and be potential drivers for you.

So we see that playing very, very well and we are very excited about – obviously both market share and after market opportunities of having increased penetration of our own proprietary items. Same with Mach we went from zero a couple of years ago in terms of what we call and drive from Mach up to 40% now the highway is also, so Mach is also driving their. The other thing in dynamically in the market, the market year-to-date is down a bit, but we do see leaving more recently last couple of months good strong order in take for the industry around – over 20,000 last month and over 26,000 two months ago. So you are stating to see we are projecting a flat market next year around 250,000 for North America.

And we are hoping to see, maybe some upward pressure on that number, so in general again we see positive traction. We are proud to be a positive contributor to the group coming out in North America and I think we will be leaving this year in a very strong fashion and no tripping out of the block for next year. Thank you.

Joachim Rosenberg

In Asia-Pacific, there are so many markets. I will focus on the four largest ones. In China, year-to-date October, the market for heavy duty has grown 17%. To some extend driven by a pre-buy effect anticipating the enforcement of the CN4, almost equal to Euro IV mission standard which will happen then in the beginning of next year. There is an anticipation, that while the total market for next year as we have communicated in the Q3 report, will be at the same level for 2014 as 2013. The first part of the year will be a bit slower because of the pre-buy and then going down and coming back up. Also this year 2013 in China, the second half of the year is stronger than the first half of the year. So that’s China.

In India, the market has been meeting challenges for the last one to two years. We are foreseeing that it continues to be a challenging environment. We have in our Q3 report, reporting the specific estimates. We don’t have any changes that obviously today. There is an election coming up in India in 2014 and prior to that, we don’t anticipate to have any big changes in the market sentiment.

As I mentioned before, in India, the Eicher brand is continuing to taking market share and Volvo Trucks is taking market share and is and has been the clear market leader on the premium truck side.

In Japan, we have the same 35,000 heavy duty outlook as we communicated in Q3. The first half of 2013 was actually a decline versus 2012. The second half of 2013 has been strong, riding on the wave of the so called Abenomics and we are projecting roughly a flat market and going into 2014, the first quarter, we believe will be very strong in Japan for two main reasons; one, seasonally it is the strong quarter, it is the strongest quarter and secondly, because of a VAT increase first of April, we believe there will be a pre-buy effect in Japan in the first quarter of 2014.

Then I will just pick the largest market for heavy duty in Southeast Asia, which is Thailand, which has reached an all-time high of around 30,000 heavy duty trucks this year, which almost then puts the par with Japan in size.

In Thailand, UD Trucks has taken market share this year, Volvo Trucks compared to let’s say the European part of the Thailand market, because the majority is Japanese as I showed before is steady at their own 75% to 80% of all European trucks sold in Thailand are from the Volvo trucks brand.

Question-and-Answer Session

Anders Osberg

Thank you, then, I’d say let’s see. We can get some fractions here. Then we sort of with the questions and answers, if you have some we will have the microphones here, if you can, yes – if we start from the bottom up, if we start here and then we…

Erik Golrang – ABG Sundal Collier AB

Thank you. Erik Golrang with ABG Sundal Collier. Two questions. The first one is on looking at all these new trucks in front of us and I guess concerned scale and complexity and I just wanted if you could remind us the advantage really of being one of the biggest truck manufacturers globally and how you can make better use of those advantages with these new products that you are now launching compared to what it has looked like historically?

And then the second question is on the sort of change you see in the competitive environment. Profitability has stopped quite a bit across your peers over the last two years, so just if you can give an update on where you would, how do you think about the absolute EBIT margin if you would reach the three percentage point improvement today compared to when you first talked about it? Thank you.

Olof Persson

I can start with the last question and as I said we don’t give that. The transparency we give now is the SEK 9 billion. We are looking at where it comes and that what it will be 2014, 2015. As I said last year, it depends on how the business develops and how the market develops and what kind of currencies we have and all of that. So basically the commitment we are doing is the SEK 9 billion.

When it comes to the advantage of being a big group, I think the big change and I hope that we have communicated that clear enough, it is a big change compared to just being one brand one big going out and try to sell across the market, because as Joachim clearly pointed out, that is of course that if you come to the Southeast Asia, you are taking very small segment and that was our problem before. We are now moving into much bigger segments with our brand portfolio.

And the trick of doing that is two; one is to make sure that you build new products and that’s why the future plan and brand position plan according to certain system to making sure that you have a basic cast as detectors as Joachim was talked about common, once you take and share technology to the right level without destroying it, but by doing that, you can then start to populate that track with components and then you can overtime making sure that those components seems to have fitting into a cast build vehicle, you can now start to liberate on the different volumes that you get pending on what product you are doing. And that is a different way of looking at it then basically coming out with one system and then just try to big scales.

It is one the engine side, definitely sold at, if you look at the long block side, there is no doubt, I mean that we have talked about all the time, but looking at the size, somewhere you have to put the cap and listen, if we want to be a really competitive in India or in Thailand, there we need to have a different approach for the cab, we need to have a different approach.

At some point in time, you have to stop there and then you have to start to look at how we are making sure of we get the profitability out and that gives us the best of two words, that gives us the scale, it gives us the opportunity vis-a-via to suppliers and it gives us the product differentiation that is and the trick is where to couch, where to stop the sort of the standardization and go brand specific and I think by showing what we have done requested, we can prove that we have become much, much better than that because Quester is on a cast, it is built, designed in Asia and supplied from Asia and it’s fitting into the price picture for that product in Asia. Okay.

Hampus Engellau – Svenska Handelsbanken AB

Hampus Engellau, Handelsbanken and I have three questions. Starting off with Europe and Volvo and Renault, what risk you do see in cannibalization between these two brands, given that you are improving Renault so much and you are also moving into Central Europe with this product?

Second question is on the same themes, what’s the commonality now between these two brand following all of the steps?

And then the last question is more on a speculative basis, but it seems like, around the corners, there should be a renewable program of Volvo Mack in North America and will that be on the same complexity as we have seen in Europe? Thanks.

Peter Karlsten

Yes, I can answer that. First of all, the two trucks are very much directed to very specific customer categories. They are in surveys also seeing that the second choice for a Volvo customer is definitely not Renault and the second customer for a Renault customer is definitely not Volvo, so that is assuring us that we don’t get cannibalization.

Then we have worked this through very thoroughly market by market, letting the people with the competence to see through which segments are we going to selling, what is the product offering that we have on each and every specific market, what is the price points that they are going to have on the different products, we don’t get cannibalization and that is very much related to what kind of image and position the brand is having in certain market.

If you take a country like Finland and a market image for Volvo is very, very, very high and Renault is not so big. You can have quite a big price span and you still don’t get any cannibalization. If you go to a country like France, where the image on the Volvo side and the Renault side is very equal, the price point needs to be adjusted and it needs to be very close to each other in order not to get risk for cannibalization.

So we feel very comfortable with the job that we have done. We feel very comfortable also with the customers way of selecting and its different customer categories definitely and the products are also designed for different categories, so we feel very comfortable with that.

The commonality between the two, that is not the way we see it what we have done and what is important is that we have different market organization taking in different demands from the customers and that we are then handing over to the R&D development people to really develop a track suit for those customer demands. And then if the commonality is [indiscernible] or if it’s 100% it doesn’t matter for us. And the exact number of commonalities depends very much on what kind of specifications and so on we have, but we are using this in a very clever way in order to optimize cost and customers features.

Unidentified Analyst

[Question Inaudible]

Olof Persson

The feature level, when you look into cast and harmonization through what I talked about before that is of course given, I mean any technology transmission and those kind of things.

Dennis Slagle

We have time. We are very good. We are still rated number one and number two in comfort and overall drivability of the truck. We’re also beating in very competitive with fuel economy, so we have some time, but so the next version, the next evolution of the truck will evolve rather than be a revolution. And we don’t see anything like the complexity that Europe has gone through with the two brands there.

Fredric Stahl – UBS

Hi, Fredric Stahl at UBS.

Olof Persson


Fredric Stahl – UBS

You gave us the production capacity that you envision for the Quester and I think you said, we will increase capacity gradually over time. I was wondering if you could give us a rough estimate for what that is, how many years do you think you need to reach those capacity levels? So that’s question number one. And then I want to go back to all of your comment on the Quester and the commonality. I got the impression that the commonality that you address in the group is not great. Is that correct and maybe if you could quantify that?

And then finally I would want to move to something more immediate, there is a pre-buy going on in Europe, I was wondering – it’s very hard I think at least to estimate how big that is. Could you give us how your orders have developed in Europe so far in the fourth quarter?

Olof Persson

On the last questions, I always look at Karlsten to making sure that the answer is correct. No, we cannot obviously. Before I hand over to you on the other question there, I would like to pin point, the CAST is not commonality per say. It is about that you create opportunity for actually changing components because you have build it in a structure that is similar that means the width, that means how is the whole structure in the frame, how do you actual merge to engine into the frame, how do you put on the cap, those kind of A interface which means then basically if that is commonality then you can put on the right component for that feature level.

So of course that is if you see the commonality on that, on the Quester compared to Renault or FH, it is not, but if you would go down and compare to holing you can see that you actually – the compressor is sitting on a whole number and so do you see what I mean, but the compressor it self is different. So that’s – now coming back to the first question, good okay and…

Christer Johansson

The second question was?

Olof Persson

That’s the reason why you got it because I always forget them always.

Christer Johansson

That was on Asia, as well you gave us the future capacity….

Olof Persson

Sorry it was the U.S.

Anders Osberg

I am looking at Karlsten first and see if that’s…

Joachim Rosenberg

No, I guess the issue here is how quickly can we get the production ramped up.

Anders Osberg

The demand is there.

Joachim Rosenberg

Well, let’s start by saying that the product has been extremely well received. They have lost it in four launches. So far we have nine to go. As I mentioned before to my presentation we’re launching it in China next week on December 10th and it will take a few years to ramp up to full capacity. And also it is important to note that as I mentioned the capacity ramp up in 2014 is gradual and that is because we have a new product is a new plant with new processes, new systems et cetera to make sure that the whole system delivers the quality required by the customers because if you send out a few thousand trucks and you don’t have VATs then obviously you have an issue later on that is more costly than we would like it to be so to speak.

Olof Persson

Next to you I guess you were nodding Mikael.

Anders Osberg

Then maybe if I can elaborate a bit on the demand side now, I would say that we are looking into a first quarter next year. On the Volvo side, we would of course see a reduction in our production output after the pre-buy. So we will come off elevated levels of production and come down to whatever we call maybe not normal, but still very okay level. So we are not foreseeing at this point the cliff effect in front of us here post the pre-buy on the Volvo side.

On the Renault side, it’s a very challenging situation as we discussed earlier that customers haven’t yet had enough time to test drive the trucks to see the confidence to put in the orders. So there we will face you can say a tougher situation, right now fairly week order intake and then as we build the confidence for the new generation that order intake will then gradually start to take off. So it’s a bit mixed picture between the two brands.

Colin D. Gibson – HSBC Bank Plc

Hi, it’s Colin Gibson from HSBC. Two questions if I can please, first of all help me to understand your thinking a little bit, I am going to replace some of your arithmetic to you. So I am going to ignore – sorry to the guys over there, I am going to ignore the rest of the group, I am just going to focus on trucks. You say everything you’re doing at trucks is going to increase all out equal. Volvo margins, group margins by 4% points by the end of 2015. You also say then you anticipate the competitive market environment to wipe way 2 percentage points of that by the end of 2015, and hence you’re 300 basis points because there is another 100 basis points move there right.

So my question is – sorry for the long introduction, my question is hang on, your program stops at then end of 2015, but the competitive market environment doesn’t presumably carries on. So if the competitive market environment is taken away 200 basis points of margin every three years, what’s your next trick?

Olof Persson

Let’s first of all be very clear on the program per say, so I have been very clear on what – we have been very clear on is that we have a program that gives a certain amount of improvement into a result in 2015 now. We are saying that we are very ambitious and we followed the plans and we do it but giving the stretch of the targets in order to make sure that we’re giving a number and I think that’s prudent to actually go out and talk to you and say we’re going to have headwinds factor from now and until 2015. And that headwind factor we have decided that means if you look out for the group now, if you look from the group and we haven’t specified that we haven’t divided that headwind factor into either or, okay. Fair enough.

So that is the headwind and that gives 9 billion improvement according to that. So that is what we’re doing and that is the only thing – let’s put it, the only thing which I think is quite substantial, are committing to based on what we said. And again there is no change from what we said last year, I want to repeat that, it’s exactly the same, but the only addition is that you now see how those 9 billion is coming out.

When it comes to continuing and I hope I said that on my first slide, that is of course I mean we’re in a transformation and when do you do the transformation like Mikael is doing his transformation. Peter is doing his and all over the group. Then of course you see and then find things and then we’re moving very quickly onward, but rest assured, I mean that is the whole point with my first picture moving into the future with a much more competitive structure and the base and then we’re going to continue. This game never ends. I mean we have to do it, but we have, I think I said that as well, a catch up thing to do right now, and that catch up effect we do but the real game changer as I said is [indiscernible]. Was that clear?

Colin D. Gibson – HSBC Bank Plc

It’s clear. Thank you. And my second question was regarding the joint ventures. I think Volvo shareholders has always been very generous by paying RMB5.6 billion to Dongfeng putting in lot of intellectual property in the production process, putting in lot of intellectual property no doubt in technology as well, what are you going to get out of it? Really, 45% shareholding but is that enough?

Joachim Rosenberg

First of all, I am not going to comment on whether that’s generous or not generous, but I mean the value being created is on several front. I mean obviously we have the 45% shareholding in one of the largest truck manufacturers in the world’s largest market. So that’s one and obviously as I mentioned we’re going to take Dongfeng outside China, that’s going to be a lever. We have the whole broadening of the value chain that’s the lever, we have the potential to tag onto a lower cost supplier chain than we are used to in terms of purchasing, that’s a lever.

On the technology front as is public we are [indiscernible] as one example, the VT transmission to Dongfeng and all of these will be buy the way guided by separate agreements. This is the only one so far and when that is localized of course in theory, we could potentially from the Group buy that from the joint venture as a supplier back to the Volvo Group and put it in maybe in one of these products behind me, right. So their value will be created on many, many levers as we see it.

Olof Persson

One thing to add this is also they are looking into, we believe that if you look on the Chinese truck market going forward, five, 10, 15 years, there will be a development and being part of the largest group, and then also looking at not only to the Dongfeng brand, but looking at, if you look at the distribution and coverage that Dongfeng has, that is of course, also something that you can over the long period of time be a part of and having as leverage this one. Okay.

Laura I. Lembke – Morgan Stanley & Co. International Plc

Hello, hi, it’s Laura Lembke from Morgan Stanley and I have three questions. Please, maybe we can take them one-by-one.

Olof Persson

Thank you.

Laura I. Lembke – Morgan Stanley & Co. International Plc

And the first one is on your strategic plan, you said that you want to be measured not by a margin target on absolute EBIT number by 2015, but rather by the SEK9 billion improvement that you are looking for and you said, that for example, for 2013, we are going to see SEK2 billion improvement from the plan, so what I am struggling with is really from a market perspective we as analysts or let’s say investors, how will it be possible for us to really identify what will be related to the savings in 2015 and what is the cycle?

Olof Persson

First of all, I just want to be very clear that the SEK9 billion comes out of the numbers from last year, that is the 3% of SEK300 billion in SEK9 billion, so the only thing we have done this year is to put the SEK9 billion, otherwise it’s the same, so there is no change to that.

Secondly, we don’t giving you the coming up the thing. We will then of course, since we are going out with this now, on a regular basis come back and say, are we on or off, because now we have a guidance and now we know are we on or off on that one and then of course again I invite you to next year and you will get a full update again, where do we stand, how do we progress, as transparent as we have been this year and we will do that again.

But of course now, since we have done this as a guidance for next year, we will of course in quarterly reports coming back and state, are we on plan or on a totality, not by target by target on a totality.

Laura I. Lembke – Morgan Stanley & Co. International Plc

Okay. And then the second question is on R&D, obviously the big burden from Euro 6 is now over, but I think especially in Europe, there are couple of other headwinds coming now on such as mandatory safety requirements and I think the CO2 regulation for the truck industry, so I am just wondering whether the SEK11.5 billion R&D run rate that you are setting out in the plant does actually feature these spending needs in the future?

Olof Persson

We will for sure cover all the legal requirements with very good technology going forward, I mean we have done that in the past and we will do it in the future as well. My point when I talk about R&D was that since we are now guiding this from a central point of view, deciding from a central point of view, we will make sure that whatever sort of the ambitions that we do have that we meet to see our impact at the end of 2015, because that is basically what I have said, and that is what we are pushing through and you can see then already now that we are pushing down the cash R&D in a good way and Torbjörn Holmström and his team has done a tremendous job of actually getting this under control now. So that’s how we are going to manage that.

Then I think in the future, coming back to what we have tried to and we will try to do in the future is to have a much more equal machine when it comes to R&D, that means that the input into capitalization and amortization should be much more inline we can have, because Torbjörn and his team and the rest of the organization is basically getting very inefficient with those ups and downs with the consultants, so we want to get as smooth as possible and that we can decide now with the product plans and all that.

Christer Johansson

I thought it would be good to have our Chief Technology Officer…

Olof Persson

Yes, that’s good, that’s good. So you can confirm or deny. Confirm would be good actually. Confirm would be more aesthetic.

Torbjörn Holmström

I can absolutely confirm – you are completely spot on…

Olof Persson

Thank you.

Torbjörn Holmström

And it tend to be big, it’s of course tend to have the possibilities of people there to really meet the challenges there, at the same time, keeping the R&D at that level, because we have competence all over the world, we have done a lot of things, CO2 regulations, this one, I don’t feel that this is a big threat, we are working very heavily then on fuel consumption reduction. For me, it’s a tough challenge, but it will be managed.

Laura I. Lembke – Morgan Stanley & Co. International Plc

Okay. And maybe one last question. Could you tell us, what the impact was of the launch cost in 2013 like some absolute number maybe? Thank you.

Olof Persson

I am looking at Christer.

Christer Johansson

Launch cost absolute number 2013 full year, it’s not over yet, so we don’t know that. We had about, let’s say SEK300 million in the third quarter, SEK500 million in the second quarter and we had an additional about SEK300 million in the first quarter of this year and we believe it will be another some SEK300 million or so coming into the fourth quarter. It’s still little high activity level, you can say yes, as you have heard, but when it comes to training and launch events, then it should start to taper off from beginning of next year.

Olof Persson

So did you do the calculation in your head, I’ll try but, okay.

Martin Viecha – Redburn Partners LLP

Hi, my name is Martin Viecha from Redburn. Just wanted three questions if I may; first one would be on planned closures, potential planned closures. You have showed us on one of the slides that their might be some consolidation of manufacturing and I just wanted to know how that would look like in the future and how much of it is achievable by 2015?

The second question is, you have just launched a new Volvo Truck and the new Renault Truck, is it possible to run them on the same assembly line? In other words, if there is a particularly strong demand for Volvo Truck, can you shift the production also to French factories and run it there?

And the last question is, would it make sense to split that SEK1.4 billion gain you have had year-to-date into the headwind factor and the underlying gain you had, because it seems like the headwind factor has been way more than 40%, which is something you have got it to last time around, so I just wanted to know if we could get a split by any chance? Thank you.

Olof Persson

Mikael, if you take the first two.

Mikael Bratt

Yes, the first question here is on planned closure and how that will be panned out, I mean what I gave you here was some example that we have announced and what we are actually implementing right now. On top of that, I mean if you take Sweden for example, we have closed two of our [indiscernible] site et cetera, so we announced that it is ready to be decided on and to be implemented on.

As you saw under big map there with a lot of sites, it’s of course saw that of all the sites, you can say roughly 25 of them stands for around 95% of the commercial cost, so they all concentration to some of the few bigger ones, so what we are working on is, on the outer circle you could say with the smaller size and so forth and that’s really where we are focusing on right now.

On the major side, it is more of getting aligned like what we are doing in Europe right now. So there we are more optimizing the sites program to have planned closures, but I mean the ones we are ready to communicate, we will communicate when it’s time.

Olof Persson

And since there will be a lot of questions around this on the improvements there, Christer, why don’t you sort of set the stage on the…

Christer Johansson

Let me just see if I remember, the SEK1.4 million just o clarify it’s year-to-date, basically the P&L impact you have all had from this program year-to-date and if you think about the headwinds we had in the third quarter isolated, we had roughly if I remember now roughly SEK900 million in R&D, the cost moving from capitalization to amortization and then we had in the truck business, I think it was another SEK800 million, SEK900 million in currency movements coming back at us. So that’s partly of course shaving off the effects that you have coming through from this savings programs.

Martin Viecha – Redburn Partners LLP

Yes, there was more question on the running the Renault Truck and the Volvo Truck on the same assembly.

Mikael Bratt

And I meant that’s exactly what we are doing, now as the first step with the medium-duty trucks, where we are moving the Volvo medium-duty from Gent to Blainville, so we will run both Volvo and Renault in one plant. So that is a significant step and then of course if you look at other sites, outside Europe, we are already running in Moscow for example where we have dual brand already. So it’s also the same comment there, I mean when we do the steps we will announce one day.

Olof Persson

The trick there is to get the whole system up to on this fish pond [ph] structure, so you have the same structure in terms of feeding the line, which Mikael and his team is working on, we are not there yet.

Fraser Hill – Bank of America Merrill Lynch

Hi, good afternoon, it’s Fraser Hill from Bank of America Merrill Lynch. I’ve got three questions. The first one is a bit of a clarification on the overall target of the SEK 9 billion and the SEK 300 billion revenues. Is the SEK9 billion therefore, it’s my understanding of that, the SEK 9 billion is predicated upon the business being a SEK 300 billion revenue business and therefore if the business is not a SEK 300 billion revenue business in 2015 the SEK 9 billion will not be achievable.

Olof Persson

You can look at it from two points of view. It depends on what is not. If it’s lower or if it’s higher, but in order to set a base for everything to get there that is the issue that we need to do. We need to fix certain parameters in something we don’t know was going to happen. What we have decided is to fix the volumes, we fix the percentage and thereby we’re calculating the absolute numbers.

So by setting that frame that is what we have done. And then of course when we come there and getting closer to it, will it be higher and lower then we will see how we’re moving and the important thing to me is to translate to you now that on that journey to reaching the SEK 9 billion we are now starting with first SEK 1.4 and we have laid out how we’re going to make those coming into the profit and loss. So that is the…

Fraser Hill – Bank of America Merrill Lynch

Okay. Thanks. I’ve got two more. One is on Brazil. You mentioned the competitive pressures that are growing with new entrants in the market. I just wanted what you expected from those new entrants in terms of market share gains, especially with Packard, I mean do they have a sufficient network in place to really take market share quickly? What are you expecting overall for pricing in that market? And then, my second question outstanding was again a clarification. You gave the guidance on the truck launch costs this year. Is the removal of those, let’s say in future years part of the saving assumption or is the removal of those launch costs on top of the savings that you’ve laid out today?

Olof Persson

Okay. Start with America.

Dennis Slagle

First of all, coming – operating mainly in North America, we have a great respect for Packard. So we take them seriously. They’ve just opened the factory. We understand they’re just trying to establish a network. Rather than paying attention to that we are sticking to our knitting so to speak, making our fortress as strong as we can with investments from dealers, and I didn’t mention. We haven’t launched the new product yet in Brazil. We plan to do that sometime next year and we think that fortress will be even stronger. So although we have great respect for all of our competition and Packard I would rather be us than Packard.

Olof Persson

And to the second question we can say that the porch that is related to EME transformation back office because of course that the back office has also been in terms of costs higher because they’re taking care of the launches in terms of employees and staff and support functions. That part is included in the activity and in the target, but everything else like stop training, still not stop training, but I mean get through the training, commercial costs in terms of MARCOM activities, the glass and ice cream activities that is not part of the target. That is cost going out and that would have been too easy. But the part that is actually then going back into and now we finish with the launch, now we can reduce the number of consultants, the number of employees that is part of the wholesale target.

Frederic Stahl – UBS

Hi. It’s Frederic Stahl here again from UBS. If you look at the profitability across regions and we had Eicher obviously today at 6% and I think it’s still fair to assume that China is on VC is a better market and then average, Brazil on the truck side is better. I think Russia maybe prior to this year’s dropping the mall was somewhat better market. Then you look at, it’s these traditional, the BRIC markets there are higher margin than average. Is there something a lot of the focus on your product launch for the Quester obviously is to address these market and to aim better, but is there something you can learn that you can transfer to Europe and U.S. from the emerging markets rather pushing knowledge and best practice from Europe and U.S. into emerging world, but what you can take the other way?

Olof Persson

I think it’s quite interesting that you asked the question because if we go back like four, five years ago I think the general consensus was that Asia was for volume, not for profitability. And now we basically are coming into a situation by, exactly as you said, bringing in European thinking about how you can create profitability and you look at the total product including service and spare parts and that’s a major sort of movement that I think everyone has done there. Now looking back and coming back I think one thing is speed; speed and efficiency. Frugal engineering is something that both here I can talk a lot about Eicher [indiscernible] and I know is looking a lot about how can we have that kind of approach coming back into our development cycle, which will lead into profitability and efficiency and that’s something that we have a lot of experience from Quester.

When you look at the other activities, I also think the suppliers. That is what I see coming over time. When the supplier base is actually improving quality Eicher but at the same time still keeps a lower cost level. That’s something that is in the future we will see going forward.

Before the next question I just want to – and I could end it with it as well, but there’s also about a clarification that I will like to do to make sure that you leave this room fully enlightened and also understand about the targets we have set there. In 2010 around this time, I said that over time the Volvo Group should improve its profitability with 3% and that is a structural change that we are working on. We said over time we didn’t put any number to it and what I then explain was that in any given point in time compared to before transformation we should be 3% better. That means that in the ups and the downs we should move in that. And this program, the transformation program that we are doing and the SEK 9 billion is a part of that program.

Coming back to the question about should we continue, what’s the next trick that is of course something we need to continue to do, but over time the target is then to get over the second, obviously be 3% units better than we were before the transformation. So I just want to make that clear so we don’t mix those up and that was disclosed already in 2011 and it’s still very much there as much as the SEK 9 billion and the 3% on SEK 300 billion still are. Okay. That was answering a question not asked, which is normally not what you should do. Yes.

Tim Rokossa – Deutsche Bank

Yes, thank you. Tim Rokossa from Deutsche Bank. I would also have three questions please. The first one refers again to the 2015 target. Obviously you said, obviously you just committed to the SEK 9 billion and I previously understood that 2015 would be pretty much the year of delivery. Now despite you confirming this SEK 9 billion I had a bit, the feeling today that you are basically trying to push the full delivery out until the year 2016. Is that a fair takeaway or do you really think 2015 is actually the year of a full delivery?

Olof Persson

Yes, I mean definitely and I really want to emphasize that. My point and I don’t know I communicate it badly and it’s good that you asked the question. I mean my point is that with this done by end of 2015, we’re moving into 2016 with that with us and then we have to move on in that market situation, but we have that and that’s what I’m talking about. We’re moving on this part. So, definitely not.

Tim Rokossa – Deutsche Bank

Okay. So then a bit more short-term maybe. I think you caught the market relatively well this year, but on the margin side did you really expect to end up having something like 3% to 4% at the end of last year for this year, and if so why didn’t you prepare the market for that a bit better and if not what has really went differently from what you expected? And maybe also this deviation to the consensus estimates that we have pretty much seen for the last five, six quarters now, does that change your view on your guidance policy over time, so i.e. are you willing to give some sort of guidance in the future?

Olof Persson

No, I think to answer another part of your question, we will not give more guidance than what we do today and we don’t give forecast and we keep that system and I mean what happened this year, I mean looking in the mirror we also – different things that happens in Q1. There are different things that happened in Q3 and I think to be quite honest in Q3 if you look at it and look at the, particularly the exchange rates differences that happened quarter-over-quarter and looked at the currencies that came in as being done, the major contributed to that the currencies actually being the mining currencies that went down.

Given on a total group, Karlsten correct me if I’m wrong about whether we’re SEK 1 billion or something like that in that range and then you add on the things that we have done on the capitalization, amortization. I tried on Q3 to really see what we do operationally, how we do operationally, and I think quite this little bit on quarter-over-quarter you can actually take and then one of course we had in Q3 last year and you look at one of course, you get an operational difference, and then you add back the currency and the R&D switch and you can see that we operationally have had an improvement and somehow you are actually start and that the improvement is coming from different part.

But you actually see the quarter-over-quarter taking away those things is actually an improvement in the operation and to me of course, I need to, we as a team look at things, it’s the totality including currency that‘s the world we are living in. But our task here to combine this also to make sure that the people who are engaged in managing those things, they have to work on the things they can look at and operational.

So we are not thinking about changing on any principles and we are living in a environment, which is very complex. And we are a big company, where swings back and forth happens, but we try on a – we try to be as transparent as we can. We tried to be guiding in a way without giving forecast.

Christer, I do know if you want to as an expert was that well put. That was well put?

Christer Johansson

Yes, I think so, I’ve nothing to add.

Olof Persson

Reasonable Chris was reasonably happy with that one.

Tim Rokossa – Deutsche Bank

As a very last question maybe just on the pricing side in Europe next year, this year customer still had a choice to buy Euro 5, 6 truck. Next year obviously they will have to buy Euro 6 truck and you might face a situation where at least in Q1 a lot of OEMs will have idle capacity and do you expect pricing to be worse next year compared to this year, net pricing and on the gross pricing side does the price increase that you target fully capture the additional cost, that you have for Euro 6?

Peter Karlsten

When it comes to the pricing on the new Volvo, we have announced that it was €5,000 for the new model and we have been very successful as close management here before to realize that Chris and we are very happy with that. When it comes to Euro 6, you are asking for another €5,000 and that is covering the cost and we are very firmly holding to that, so that you really can get this out and of course time will help us here because right now the demand is very weak.

And there is no meaning actually to really push any trucks just to get this out to have adjust our production capacity to be prepared for the lower demand in the first quarter, then gradually this will comeback and we really, we do everything that we can in order to get that price realization in place. And other thing that is important is that the fleets, they have normally a fleet of four to five years of trucks.

So the additional cost you have to pay for Euro 6 is actually peanuts when you start to calculate on financing and everything in the total fleet. So they can normally absorb this and then we also hope that amount in Germany will come through and that will also been another incentive for not only the German customers. But also the customers in countries around traveling through Germany so it’s really be prepared to get an incentive to buy Euro 6 at good price.

Christer Johansson

Okay, yes.

Unidentified Analyst

Andreas Zsiga [ph] from Nordea Credit Research [ph]. Shifting focus a bit, you have a negative outlook from three rating agencies right now, and the next level is a level where a lot of investors are becoming bit uncomfortable. So my question is this a concern to you? What can you do to address those concerns and in a long run where do you want to be rating wise?

Olof Persson

I think, when it comes to the first part of the question, it’s definitely something we are focusing on heavily, and that is the balance sheet, and what we can do is actually making sure that the impacts that we had during this year in terms of increased both in terms of cost, but also in terms of the double production, in terms of build up of working capital.

And that is something that happens when you do this thing when you run you don’t get the efficiency out and we have been extremely capital efficiency when it comes to CE days and that is something that we now really addressing because we need to very quickly, now Mikael and the team is working heavily on actually working and getting to CE days and that will help a lot. Because that is then getting back, getting the cost down, getting the good capital efficiency back where you wants to be and then you back on the CE days again.

And this is not on the trucks, we are working on buses and CEs definitely putting a lot of emphasis on that, so that is a key focus area and has always been but some times you sort of have things that you need to take care of.

Chris, I’m looking at you when it comes to the what we talk about when it comes to the rating levels.

Christer Johansson

Yes, thank you. Of course, we cannot decide on our own rating, that’s done by the three or four rating agencies. But we can say rating is extremely important to us, and the reason is that we have a customer financing operation with a credit portfolio of SEK100 billion and of course, we need to be able to fund our selves at competitive rates out in the debt market to make sure that we can finance Volvo Trucks and Renault Trucks at a competitive level to sustain and then hopefully grow some market share, so you can say rating is important yes, without commenting on which level we should be at.

Olof Persson

I was wondering that if I look at actions and the things we are doing now and putting in place still a lot of focus, but I think we are doing the right things there.

Björn Enarson – Danske Bank A/S

Hello, Björn Enarson, Danske Bank. A question then back on production again, last year at this point of time you realized that you needed to take down production quite a lot and you ended in Q1 with close to a breakeven results, what is the difference this time around when you are now also planning to take down production except from the accumulated savings that we have seen so far?

Olof Persson

I think Mikael if you want to comment on that, it’s a lot of process issues that we’ve proved and a lot of lessons learned as well, but Mikael, I don’t – could you please comment on that?

Mikael Bratt

Yes, it’s of course a combination of the work we do together with our sales and marketing colleagues here and our challenge is to make sure that we have the right volume according to the product plan, to the production requirements from the sales and marketing side. I would say, coming back to what I said earlier what we need to improve in our end is the flexibility to be much quicker when it comes to ramping up and ramping down. And I think last year we had a situation where we actually ramped up to the bottom and we need to go down so quickly again and of course, we had a lag there in order to do that in a orderly fashion. And on top of what we just described or before here. So we see a lot of improvements here that we have learned from that exercise and we are implementing here so it should not be repeating like that, for sure.

Olof Persson

We have centralized the decision points when completed different level in order to ensure that we don’t have this time slot swings back and forth and it was quite interesting actually to see a decision in the beginning or the end of 2012 actually sort of hunted us through the full 2013, now we are in balance, and now we are going to do and we have implemented a new processes and we feel much more comfortable that what we are doing now and Mikael has actually over the last year or so increased the flexibility.

Björn Enarson – Danske Bank A/S


Christer Johansson

So let’s see, I don’t think there are any more questions?

Olof Persson

Are we getting hungry.

Christer Johansson

There is one more yes, Laura.

Laura I. Lembke – Morgan Stanley & Co. International Plc

Sorry, I have one more follow-up question regarding the topic of debt and credit, because I think you have a target debt to equity ratio of 40%, I think you probably again end up 2013 with a debt level of let’s say, close to SEK30 billion, you have to finance the acquisition of the Dongfeng stake in probably Q2, so I’m just wondering how that impacts your ability to sustain your current dividend at the level where it was in 2012.

Christer Johansson

If I answer the first question, the debt level is actually 35% net debt to equity for the industrial division, it’s not 40%. Then I don’t know if you want to answer the…

Olof Persson

You can answer the questions, those are standard answers.

Christer Johansson

It’s of course, it’s something for the Board to decide about what exactly the dividend level should be. Operationally you could hear, we are actually taking some actions on trying to improve the working capital, because we are too heavy due to the parallel production that we have running right now. And then we’re also looking at to see if we can free up some other assets like real estate, we are actually looking at for the time being here, we own some non-strategic assets actually not far from here Volvo Car plants for instance, is that something that you can say it can free up some capital. So there are a number of activities ongoing you can say, also to drive out cash so to say.

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