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North America drags down Volvo profits

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09:56 CEST+02:00
Swedish lorry maker Volvo, the world's number two big truck manufacturer after Daimler-Chrysler, said on Wednesday that new environmental standards in the United States had hit sales hard and dragged down profits in the second quarter.

Net profit fell by 13.9 percent on a 12-month comparison to 4.03 billion kronor (437.33 million euros, 603.92 million dollars) for April to June.

Overall sales rose by 5.0 percent to 71.446 billion kronor but slumped by 36 percent in North America.

And operating profit, a vital measure of underlying performance, fell by 6.0 percent to 6.11 billion kronor.

Volvo said that its decline on the American market had been caused by the introduction of new environmental standards on January 1, 2007.

Volvo's sales last year had been boosted exceptionally by buying in anticipation of the introduction of the new standards. Greenhouse gas emissions restrictions are to be tightened further until 2010 in the United States and in Europe and Japan.

A 3.0-percent rise in sales on its biggest market, western Europe, to 31.610 billion kronor (after a four-percent rise in the first quarter), was not enough to compensate for the weak North American results.

In eastern Europe, the sales jumped by 60 percent to 7.1 billion and in the rest of the world it rose by 40 percent to 4.358 billion.

In the Asian region, now Volvo's third-biggest market, the sales soared by 106 percent to 10.347 billion as a a result of the consolidation with Nissan Diesel.

Over the last six months, the sales rose slightly by one percent to 132.48 billion, compared to 130.72 billion in the first semester of 2006.

"During the second quarter, demand remained favorable in most of our markets in Europe, Asia and South America. As anticipated, the trend was weaker in North America and Japan," the CEO of the Volvo Group Leif Johansson said in a statement.

"The trend in Asia and Eastern Europe is particularly favorable, and these are important markets in which we are continuously strengthening our position and expanding our distribution network to provide our customers with even better service," he added.

The group chief stressed that these are fast growing markets.

"With rising demand, there is an increased need for both heavy diesel engines and gearboxes. To meet this demand, Volvo will invest a total of 1.7 billion kronor (184.35 million euros) through 2009 in engine and gearbox production," he said.

"The acquired companies strengthen our competitiveness in key markets and strategic product segments," he said.

Earnings by Nissan Diesel, which Volvo acquired in a friendly takeover in March, were integrated into the accounts for the second quarter as were results from the American group Ingersoll Rand.

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