Thanks to a strong recovery in the second half of last year driven by high activity level in the infrastructure segment and improved construction activity, Volvo Construction Equipment (Volvo CE) has seen overall demand in Q1 2021 increase sharply from the same period last year, with order intake also rising by 73 percent.
Demand in China, the world's largest construction equipment market, was strong due to governmental infrastructure investments. Together with an increase in sales across all global markets and segments, China's investment helped Volvo CE reverse the negative impact shaped by Covid-19 last year for the first quarter 2021 financial results. Deliveries also increased by 53 percent in Q1, driven by higher sales in all regions with the largest increase again in China.
During the first three months of 2021 Volvo CE saw net sales increase by 23 percent to SEK 24,742 M (SEK 20,148 M in Q1 2020) - slightly higher than the same period in 2019 before the pandemic hit. At SEK 3,822 M operating income also rose, up from SEK 2,678 M in the same period of 2020. Earnings were positively impacted by higher machine volumes and capacity utilization in the industrial system, cost reductions and increased service earnings, which were partly offset by negative mix effects. This was reflected in the operating margin, which at 15.4 percent was up from 13.3 percent in the same period the year before.
"It is heartening to see demand increasing in the first quarter of this year, with sales up across all regions and markets. We can take confidence that we have weathered a tough period for our customers, our employees and the wider industry and are beginning to now see higher activity," said Volvo CE president Melker Jernberg. "In many countries, we have seen increased investment in an aging infrastructure, something which we expect to continue for the future. Together with a high level of construction activity in several other sectors, this is driving demand for both new machines and services, reflected in both deliveries and order intake rising sharply for the first quarter."
As well as strong infrastructure investment, low inventory levels at dealers and their need to restock also contributed to the increase in order intake to 73% for Q1, 2021. In comparison to the expected slowdown and uncertainty created by the outbreak of Covid-19 of last year, deliveries across all regions increased. Demand for large and medium sized machines were stronger than those for compact machines.
Despite all markets showing increased overall demand, Europe had a slow start to the year impacted by Covid-19 restrictions in key markets such as France and Germany, but has since gained momentum. While its net order intake has increased by 87 pecent, thanks to stronger demand in the later half of the quarter, Europe's total market development has declined by 9 percent.
In China, Volvo CE's market development is up 142 percent in the first two months, when compared to the very low volumes caused by Covid-19 in Q1 2020. Asia (not including China) also enjoyed a positive start to the year with a 16 percent improvement, particularly prominent in key markets including India, Korea and South East Asia. South America is also strong, up 41 percent from last year, reflecting increased demand for commodities. While in North America, expectations for further government infrastructure investments are creating a positive sentiment among customers, leading to a 7 percent increase from Q1 2020.