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Europe:Volvo delivers profits above expectations

Financial Times
By Christopher Brown-Humes in Stockholm
Published: July 23 2003 9:25 | Last Updated: July 23 2003 11:57

Volvo, the world's second largest heavy truckmaker, continued its recovery on Wednesday, when it reported a better-than-expected 56 per cent jump in second quarter profits helped by cost-cutting in the face of weak markets.

Leif Johansson, chief executive, said it was the fourth consecutive quarter when results had improved, and the upturn had come despite a 10 per cent fall in turnover to SKr44.6bn($5.45bn) caused by the weaker dollar.

Like other truckmakers, the Swedish group has been battling declining sales in the North American and European markets in the last two years. It has responded by cutting thousands of jobs and closing a US factory. The company struck a slightly more positive note about market prospects, saying there were signs of stabilisation. Although it stuck to a prediction of 200,000 heavy truck sales in Europe and 170,000 in North America this year, it said the outcome was more likely to surprise on the upside than come in lower.

"Neither the situation in the Middle East nor the outbreak of Sars had any further negative impact on our primary markets, and we are seeing stabilisation in several of our operations," said Mr Johansson.

Pre-tax profits in the second quarter reached SKr2.04bn, up from SKr1.31bn a year ago and ahead of the SKr1.84bn which the market had expected.

The outperformance was due to the trucks division, where operating profits climbed to SKr1.02bn from SKr483m.

"Synergies from the truck operations contributed a great deal to the improvement, as did the new and highly successful product programme of Volvo Trucks and the clearly improved profitability of Renault Trucks," said Mr Johansson.

But the bus division again caused disappointment by remaining in the red, when analysts had expected it to record a modest profit. The operating loss at SKr89m took first half losses from buses to SKr172m.

Scania, Volvo's Swedish truck rival which also reported its second quarter figures on Thursday, was more downbeat about the market.

Leif Ostling, Scania chief executive, said the west European market had continued to deteriorate during the first half, and demand had not wholly recovered after the Iraq war. A further deterioration in the second half was likely, before a recovery some time next year. Scania does not sell in the US but it said its markets in South America were starting to look healthier.

Scania reported a second quarter pre-tax profit of SKr1.29bn, down from SKr1.37bn a year ago, but above the SKr1.1bn which the market had expected. Despite this, the company's shares fell SKr8 to SKr213 on its cautious comments about the outlook.

Volvo holds a 45 per cent capital stake in Scania which the European Commission has ordered it to sell by April next year. The company declined to comment on the progress of discussions to sell the stake.

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