AB Volvo's CEO Presents at Annual General Meeting 2014 Conference (Transcript)

AB Volvo (VOLVY) Annual General Meeting 2014 Conference Call April 2, 2014 9:00 AM ET

Executives

Olof Persson – President and Chief Executive Officer
Jan-Inge Svensson – Engineer-Volvo Trucks

Unidentified Company Representative

Honored shareholders, ladies and gentlemen, Volvo’s CEO and Manager, Olof Persson.

Olof Persson

[Foreign Language]

Good afternoon and I wish you warmed welcome to Lisebergshallen and to this AGM for AB Volvo. 2013 was a very eventful year for the Volvo Group and I will give you a some of what’s happened during the year in a little while. But first according to tradition, we are going to present the Volvo Technology Award. This award was presented for the first time in 1988, so this is the 27th time that we present the award.

It’s given to outstanding technical contributions in the Volvo Group, and this year it’s an innovation that has received a great deal of attention and a lot of appreciation from our customers. And what I am talking about is of course the Volvo Dynamic Steering. You all saw the Jean-Claude Van Damme video where he makes his Epic Split between two trucks and as you probably know the video in itself has been enormously successful and has been shown over 70 million times on YouTube, and as late as last week it was also awarded the Swedish Communicator of the Year Award.

And what this video shows in addition to unusually agile 53-year old action film actor is the incredible position which you can reverse between two new Volvo FH trucks. And the explanation is of course Volvo Dynamic Steering, and we are going to watch a short video to explain how this technology really works.

[Video Presentation]

Difference with the VDS is that I don’t get as tired nowadays when I am driving my truck. I don’t get the heavy strain on my neck, my back, and my shoulders, and I don’t feel as tired when I come home. Well the difference is that it was much heavier before and when you get older, you get stiffer and it’s difficult to make the effort and you use up a lot of energy and you get more tired. Today I don’t notice, I notice that when I get home I feel so much better and I am a better driver.

Honored shareholders it’s a great honor for me to present the Volvo Technology Award for 2014 and I like to welcome on to the stage Håkan Andersson, Gustav Neander, Sten Ragnhult, Jan-Inge Svensson, Kristoffer Tagesson and Henrik Wiberg.

Unidentified Company Representative

And now according to tradition we will give you your diplomes. Jan-Inge, Håkan, congratulations. Gustav, Sten, congratulations to you too. Kristoffer and last but not least Henrik, congratulations to you too.

Question-and-Answer Session

Unidentified Analyst

Jan-Inge I have prepared some really difficult questions for you and that’s all we could take them here. If you look at the picture you see yourself during an ordinary day at work, what are you holding, it’s the VDS unit, the one that makes the whole thing work for the driver. I know you’ve been working a long time to develop this technology, how does it feel when you get this kind of reception?

Jan-Inge Svensson

Well it feels amazing; we’ve been working hard for many years and now we can see how the results are really benefiting the community.

Unidentified Analyst

And it’s been interesting for you because you become a bit of a film star as well; you were involved in the making of the video with Jean Claude Van Damme. Could you even dream about this development eight years ago?

Jan-Inge Svensson

No of course not. I was involved in the Amsterdam as well and I thought this is a once in a life time event and then it just been going on and on.

Unidentified Analyst

So perhaps that’s an alternative career for you possibly. I hope you will stay with us for a long time before you decide to become a film star instead. There are some people who say that Volvo Dynamic Steering is the most important innovation within steering since power steering was introduced in the 1980s. And of course is a major advantage that puts us ahead of our competitors. Where did you get the idea?

Jan-Inge Svensson

Well you could say that it was sort of in the air, we looked at passenger cars, when they had introduced power steering and that’s what we got the idea from. And then it just been rolling on and we did it in our own way and apparently it turned out really well.

Unidentified Analyst

Jan-Inge I know that you would like to say a few words, so the floor is yours.

Jan-Inge Svensson

Well we’ve had our ups and downs in the project and we’ve had our due share of bumpy roads and strong winds and now we are standing here in front of you incredibly proud to receive the Volvo Technology Award. We would like to thank everyone who have contributed to Volvo Dynamic Steering, all of you who are not invited on to the stage today, but I hope you feel that this is for you as well and you’ve done a really fantastic job.

It’s been an exciting and very pleasant journey. We started thinking about this in 2006 after looking at passenger cars where they’ve started introducing systems for active steering and we felt that the advantages for trucks would be much greater and so we initiated a development project.

The vision was to create a system that would make the truck easier to drive and that would elevate the problems for old drivers who are suffering from repetitive strain injuries. We built a prototype and we asked a number of people to test drive it and it turned out that there weren’t enough positive grades for the overwhelming reaction that we received.

And since then it’s been full speed ahead and the project was initiated in earnest in 2008 when the CPAC Systems got involved. I think the key to success has been that everyone who was involved in the project understood the potential of the Volvo’s Dynamic Steering from an – right from the start and we’ve been working hard towards our common goal.

We’ve focused on the product and we’ve had a fantastic team spirit. The project reached its peak in September last year, when we released the system in the market. Some of us were lucky enough to be able to participate in the advertising videos with the Hamster Charlie drives an FMX of the winding road in an opencast mine and the Hollywood icon Jean-Claude Van Damme makes an Epic Split between two FM’s at sunrise.

The video has received a lot of attention in the media, but we mustn’t forget too, it’s the big star in the videos, it’s our new system. All around on the roads, all around the world, there are millions of heroes who make the world go around. They make sure that the milk gets to the food store that icy roads, the gravel is put on icy roads, that the planks reach the builder.

And among these drivers, there are many who suffer from pain and aches on a daily basis. We hope and we believe that Volvo Dynamic Steering will make a difference to them in their daily work. One example of this is Henrik, our field test drivers who you could see in the video before, he can now drive his logging truck with Volvo Dynamic Steering without symptoms after having problems with his shoulders. But the journey doesn’t end here.

Volvo Dynamic Steering is good already now, but we also see this system as a platform for future function of development. We’ve put the first hurdle behind us. We’ve stopped for a while to take a break, but now the journey continues. And we hope to see you again somewhere along the journey. So once again, thank you so much from all of us. Thank you.

Unidentified Company Representative

[Foreign Language]

Thank you so much, a warm hand. Thank you all. Now, I thought I would spend the next few minutes telling you a little bit about 2013. It was a very eventful year for Volvo Group as I mentioned, but before I move on to talking about 2013, I thought I would say a few words initially to ensure that you all understand precisely where in the process we are in the Volvo Group. We’re somewhere in the midst of the largest transformation program ever initiated by our Group, and I think it’s important to bear in mind why we launched this program.

We and senior management and many of our employees saw that if we changed our ways of working, if we work to know our – efficient manners one company, we could clearly see that the Volvo Group had a lot more to give to reach its full potential and we did this against the backdrop of the very successful globalization and growth phase that we’ve experienced over the past 10 years.

The program covers a total of four years, and you could say that it has two parts. One is the work on continuous improvement which we’re permanently focusing on processes, efficiency improvement, et cetera. In addition, we have a special theme for every year. And that is the theme we focus on in particular for that particular year, including a vision that by December of 2015, we will have completed the entire transformation program.

We – but going back into 2012, and last year I told you a little bit about the organization. I would just like to recap and emphasize that we made a number of very important and thorough changes based on decisions made back. Then in 2012 we laid the foundation for the new Volvo Group for a new working method, which we wanted to be implemented fully by 2015.

So we are talking about a new organization not just the case of shifting the organizational chart, but focusing on how we work together, how can we ensure that we improve our efficiency, how do we make sure that we make the most of enormous resources and assets within the group. We also rollout a new strategy to be extremely clear both in relation to you as shareholders, the market, and not least internally to all our employees. So that everyone knows precisely what we are expecting of them, what do we hope to achieve over the course of the number of years. So that we can reach the final anticipated pace. We went through and revised our brand strategy.

Our brands is one of our greatest assets in the group, then what we didn’t 2012 was to ensure that we truly focused on our given positions in the market to ensure that we used every single one of our brands in the most efficient manner possible. So in 2012, we’ve seen thorough changes – changes in that of the start of this transformation and then 2013 our main focus for today’s meeting. I think you can sum up this year in a very efficient manner by using this heading, it was hectic, it was costly, and it also contained a number of successful launches.

If we start with the launches: Volvo Trucks first of all, we started in September 2012 and from then and the biggest launch for the past 20 years, full and full Classic. So the light of day, about 20 years ago, we’ve had a number of upgrades. But what we’re now selling at onto the roads and selling to our customers is a completely, newly developed platform, a new type of truck. And we are not just talking about, we’re talking a lot about the FL – but it’s a completely new FM and FMX et cetera. We have review the entire program of products to ensure that we’re competitive, now we have a good program which really corresponds to the premium status of the Volvo brand across the globe and in particular and to start with in Europe. That was a large scale launch.

Let’s looks at the Renault launch which came in the summer – summer of 2013, we see that if Volvo was a large scale launch the Renault launch as a company was probably the single largest launch in such a short period of time ever for such to any brands. We replaced in one single day the entire product range normally you would do it in sequences, but we decided that it was better to take a thorough genuine step for the Renault brand runs before, because the difference between the new and the old version is so significant that we made a huge leap and we’ve started in the summer of last year.

Last year was also the year when we – for the first time in the Volvo Group launched our own designed in-house designed truck for the Asian market, the truck which was designed in Asia will be produced in Asia, will be sold in Asia with Asian suppliers. And I am referring to UD Quester of course it’s more than a truck, it’s an entire family of trucks on the heavy duty segment to serve the Asian market, they’re getting back to the importance of the Asian market as we move forward a little bit later in my address.

And then in December of last year finally, Eicher our joint venture partner came in with the completely new product range, which was launched in December. A range where they’ve gone through medium duty, heavy duty and light trucks, we’ve talked about this, these are well known launches, they’ve been getting a lot of publicity. But let’s not forget the other business areas where there where important significant launches – buses, Volvo bus took further steps to strengthen already strong market shares in the electrification of bus travel.

And I firmly believe that when it comes to city buses in the future the electrification will be extremely important we started quickly with our plug-in hybrids – first the hybrids and then the plug-in hybrids and we looked at fully electrified buses. We’ve been successful in various parts of the globe in the launching of this type of product.

Construction equipment has gone through a major engine and motor program to comply with the restrict or requirements at least in Europe and in the U.S. And Penta has also launched a number of products, mainly on the industry – in the industrial segment.

So it’s been a year full of launches, and we also say hectic. And the heading to the slide, it could be hard I think to imagine as an outsider the extent of the activity, which a launch of this nature would drive in a company. we have major launches Scandinavian, the Bangkok or other trade fair exhibit venues of course. but it’s a lot more a great deal more thousands and thousands of dealerships of dealers, of resellers that had to be trained production systems that need to learn to build and assemble completely new product, while still assembling the old version, it’s about ensuring that you have the right logistics in place to get thousands of new article numbers and that hint is in place.

It’s how you organize your team of engineers to make sure that they are permanently attentive to any initial problems, fire-fighting and other problems to deal with. Now this drives the level of activity in the company in a phenomenal manner. And if in addition, you also look at the large number of launches last year, we really can’t see that it has been hectic, and therefore also costly.

I’m going to get back to the financials later on in today’s AGM. But let me say already at this stage that we’re obviously not satisfied with the 2013 results. On the other hand, let me also underline that what we’ve done as I said is investing in the future, we’ve laid a very stable platform for future developments. And we also say here that the launches were successful. And how do we measure success?

Well, we look of course, the feedback we get from our customers. we look at the professional reviews and other media writing about our products and we see that for all the launches, we’ve had excellent; that they’ve been received in an excellent way. But it’s only when we start selling and we bring it to market that we can start measuring to success. And to me, it’s very important to look at the market shares therefore.

That’s the development in the market shares from 2012 to 2013, and if we look at Volvo Europe to start with that we see that we are now on an annual basis, last year at 16.3 up from 15.6, 12 years earlier. From an historical perspective, this is a very high and good market share for Volvo Trucks.

If we look at the latter part of 2013, we signed that we entered into a very positive trend. The second part of last year, we had figures reaching 17%, 18%, 19%, by a way of a market share for some of those months. And that positive trend stayed with us moving into 2014, where in January for the first time ever, we actually exceeded 20% of a market share for Volvo Trucks in Europe.

As for Renault, they’ve had a tougher journey in terms of market shares, the reasons can be found to a larger extent and the fact that the Renault launch has came between nine and 12 months later, after ours. So they’ve had to struggle for a longer period of time within older product range and older structure, but we’re starting to see signs on the Renault side, that products are starting to find their – the way to buyers. We get feedback from customers; we see what the press are writing about us. And we’re convinced that we’ve embarked on this journey to reclaim the historic market shares of Renault, where we feel that Renault as a brand should be positioned.

But it’s not just in markets where we’ve had new products that we’ve seen a good pace of development. I have to mention Brazil in this context, it’s an extremely important market to us and the Brazilian team has done an excellent work and moved the market positions forward in a highly competitive market and development of almost two percentage points.

What’s important to note for Brazil that we’re not just focusing on the sale of new vehicles, but we also have a dealership network the independent network, which we invest a great deal right now in new sales points, new organization to have a good after sales structure in Brazil. And that’s extremely important, now that we’re making progress for the future. But also due to the fact that we have a large existing fleet of vehicles already present in Brazil.

When it comes to North America we’ve seen a positive impact in Volvo for the brand and Mack has been more or less unchanged on a 12 month basis. But we saw during the second part of the year positive development, we had an extremely tough first quarter, when it comes to North American market shares. But gradually step-by-step we recovered and we see that we’re currently in a positive market share development trend. And in Japan, the long journey has begun to reclaim the market share and the position we’d like to have for UD Trucks in Japan. We put a lot of work in effort into that I’m going to get back to that in a few moment.

So generally speaking or you could say that 2013 was hectic, it was costly. However, we had many successful launches. Another very important element in 2013 is the foundation that we’ve laid for continued expansion on the Asian truck market. It’s based on local presence and we have our three legs to stand on, there is UD Quester’s, there is India and there is China. And why is it so important to have a local presence in the Asian markets.

Well, let’s look at the numbers, Chinese, Indian and Japanese, South East Asian markets. Somewhere between 1.3 million to 1.5 million trucks, medium and heavy duty trucks. The western segment trucks produced in Europe and exported or assembled and it’s reaching more somewhere between 20 and 25 trucks. So 98% of the market in these countries has manufactured by local manufacturer, local producers.

So if we want to grow and have a good platform in these markets. If we mean business we have to be local. So we have our three legs to rest upon I mention UD Quester already. We’ve seen excellent welcoming, we’ve really and very warmly welcomed in selling that product and our major challenge right now is to step-up the pace of production in our new industrial set-up in Thailand, rather than finding customers for this new product.

In India, Eicher is in a highly competitive environment. The Indian market has been very, very tough in 2013. But they’ve done excellent work in fact in maintaining their market shares and in some cases actually increasing them. And with Eicher we are now the third largest manufacturer of commercial vehicles in India. And we’ve invested, the joint venture has invested in production development, new technologies, and in addition we’ve launched a new platform. So, they’re very well equipped for the future.

And then, of course a strategic alliance with Dongfeng in China. This is a company which produced in 2013, 172,000 vehicles, 28,000 employees and one of the real market leaders in the gigantic Chinese market. We’ve talked a lot about Dongfeng, already we’ve shown you pictures and slides. And I thought that in addition to having a local production facilities et cetera, perhaps it could be nice for you to meet our Chinese CEO Gary. So, he is here and a short video clip for you.

[Video Presentation]

Unidentified Company Representative

Tomorrow I will tell Gary that he was given a round of applause by the AGM. We’ve had the most important approvals by the Chinese authorities for this major alliance. And we hope to conclude this towards the end of the second quarter or the beginning of the third quarter.

So, if we look back what can we see from 2013 when we look into 2014. What is important when we are continuing our journey? On the one hand it’s incredibly important that we use the dynamics that we have today, when it comes to organic growth. We have a good start in Europe with the Volvo Renault trucks and we will continue to launch those products around the world.

We also have to ensure that we work all the time to make our service network more efficient and we have a major project ongoing in Europe to do that at present. We must also make sure that we have the necessary volumes of Quester and maintain the positive pace for market development both in South America and North America. So these are definite focuses for 2014, but the heading is organic growth.

And then, we have to draw the conclusion, that 2013 involved a very high cost level and we now have to work at two levels to do something about that. We have to cool down the activity level in the organization to get from this very high activity and cost level, we now need to put the breaks on after the launches, after all the big investments and focus on the level that is sustainable and profitable.

In parallel with this we have to continue with our transformation program. The transformation program is now entering a phase, but we call 2014 the year of efficiency improvements. We now have to carryout the organizational changes that we think are necessary to safeguard the structure of the group and also put our costs at right level. So, we would focus on that as well in 2014. So, cool down the organization from a very high level of activities, and at the same time carryout construction and rationalization that are necessary in order to reduce our costs to become competitive.

I feel of course on a daily basis that this program and these activities are beginning to bare fruit. And of course when you make changes of this kind you have to be very careful and make sure that you’ve taken the decisions that are required in order for their organization to go through such a process. I’m not going to go through all the decisions that we’ve took during 2013 and 2012, in order achieve all this.

But all I can say now is that the transformation program will be completed by 2015, these are comprehensive decisions, which also means that the organization can focus on such the things that are necessary in order to achieve our targets.

I’m going to talk about two things here the European structure to begin with; we take major steps both when it comes to production, dealers and service. And from a production point of view, we’re doing this to make sure that we’re going to have one production system in Europe not a Volvo system and a Renault system, but one system. We’ve taken a number of decisions that we will implement during 2014 and 2015.

And as I said before, we’ve also restructured our dealer network. We worked above all in Eastern Europe, and in the regions where the brand has been critical and linked us together with a brand strategy to ensure that the workshop or a dealer can deal both with Renault and Volvo. And this means that we have now increased a number of service points in Europe by about 30% or 40%, so this is of course a major achievement for the Renault brand.

The other theme that we’re not really talking a lot about is Japan. Our Japanese organization has undergone fundamental change over the past two years, it started with reducing our sales and administrative staff by 950 people and after that we’ve gone through a large number of rationalization measures in the organization and the Japanese production system. And after this has been completed we will have approximately 15% to 20% fewer employees in Japan than we had two years ago.

We will have reduced the production capacity in Ageo, from 50,000 to 13,500 trucks per year and we will move our investments from the internal production system to the dealer network to ensure that we build a dealer network that can really take the Ageo brand forward in Japan.

And this makes me convinced that with these strategies and with our measures, we will execute the transformation program based on the new and more effective Volvo’s and an expansion of the truck business in Asia. And I’m sure that we will reach our targets by 2015. It’s a long and tough journey, but our feel that the organization is behind this, it would require a lot of hard work, but we will get there in 2015.

Thank you so much for your attention.