Volvo Trucks to refine performance indicators

Sweden's Volvo Group, the world's second-largest truck maker, announced on Thursday plans to begin using new financial targets measuring not only growth but also how it fares against key competitors.

Volvo Trucks to refine performance indicators

“This new method of measuring the performance of our business areas and the new targets enable us to annually implement a distinct benchmarking of our operations in relation to the competition,” Volvo chairman Louis Schweitzer said in a statement.

The company said it next year would replace the financial targets adopted in 2006, calling among other things for 10-percent annual sales increases and operating margins of seven percent or more, with a system mainly comparing its performance to its main competitors.

“The annual organic sales growth for the truck, bus and construction equipment, as well as Volvo Penta, shall be equal to or exceed a weighted-average for comparable competitors,” was the top item on its list.

As for margins, they should now for all its businesses “be ranked among the top two companies when benchmarked against relevant competitors,” Volvo said.

The Swedish company meanwhile said it would maintain its 12-15 percent return of equity target and still aimed for an annual equity to assets ratio of over eight percent.

It also said it would stand by its target that net debt not exceed 40 percent of shareholder equity under normal conditions.

Swedbank analyst Niclas Höglund described the new targets as a bit “vague,” but told Dow Jones Newswires that “when you look at what they are really trying to say, it’s still a pretty strong signal.”

The new sales target of equal to or above the average of comparable competitors was on the low side, but nothing markets should be too concerned about, he said.

Following the announcement, the company saw its stock price slump 2.69 percent to 70.50 kronor per share in early trading on a Stockholm stock exchange down 2.66 percent.

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Sweden’s Volvo regains strength after pandemic puts brakes on earnings

Swedish truck maker Volvo Group was hit by a sharp drop in earnings due to the coronavirus pandemic, but business rebounded at the end of the year.

Sweden's Volvo regains strength after pandemic puts brakes on earnings
Volvo Group CEO Martin Lundstedt. Photo: Adam Ihse/TT

In 2020, the group saw “dramatic fluctuations in demand” due to the Covid-19 pandemic, chief executive Martin Lundstedt said in a statement.

For 2021, Volvo raised its sales forecasts in its trucks division – its core business – in Europe, North America and Brazil.

However, it said it also expected “production disturbances and increased costs” due to a “strained” supply chain, noting a global shortage of semiconductors across industries.

The truck making sector is particularly sensitive to the global economic situation and is usually hard hit during crises.

In March, as the pandemic took hold around the world, Volvo suspended operations at most of its sites in 18 countries and halted production at Renault Trucks, which it owns, in Belgium and France.

Operations gradually resumed mid-year, but not enough to compensate for the drop in earnings.

With annual sales down 22 percent to 338 billion kronor (33.4 billion euros, $40 billion), the group posted a 46 percent plunge in net profit to 19.3 billion kronor (1.9 billion euros).

Operating margin fell from 11.5 to 8.1 percent.

However, the group did manage to cut costs by 20 percent.

“We have significantly improved our volume and cost flexibility, which were crucial factors behind our earnings resilience in 2020,” the group said.

Volvo's business regained strength in the second half of the year.

“Customer usage of trucks and machines increased when the Covid-19 restrictions were eased during the summer and this development continued during both the third and fourth quarters,” it said.

“Both the transport activity and the construction business are back at levels on par with the prior year in most markets.”

For the fourth quarter alone, the company reported a 38-percent rise in net profit from a year earlier.