Acquisition brings Volvo profit down

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The Independent Online

Industrial Correspondent

Volvo, the Swedish automotive group, saw pre-tax profits fall in the first half of the year to Skr5.3bn (pounds 472m) after exceptional items, from Skr9.02bn a year earlier.

The results included a Skr1.5bn charge, which was mainly related to the company's acquisition of Clark Equipment's half-share in Volvo Construction Equipment.

But Volvo cheered observers by announcing plans to list its Swedish Match subsidiary, distributing Match shares to Volvo shareholders. Plans for the flotation will be presented at the group's annual meeting early next year.

Volvo said its truck division's operating profit almost doubled in the six months to 30 June, to Skr3.11bn from Skr1.83bn . Profits in car operations were affected by unfavourableforeign exchange developments, as well as rising marketing costs.

The group said that increased investment in new products would hamper the profitability of the car division.

During the six months, the operating profit in the car division rose slightly to Skr1.58bn from Skr1.56bn in the same period last year.

Overall group turnover rose to Skr85bn from Skr69bn a year ago.

The cost of buying out Clark was partially offset by a Skr280m profit from the sale of stockbroker Alfred Berg. Even allowing for exceptional charges, said one industry analyst, "the result was below expectations, particularly for cars".

Volvo has benefited from the announcement at the weekend of the planned merger of Upjohn of the US with Pharmacia, the Swedish pharmaceuticals company in which Volvo has a 27.5 per cent stake. The car maker has said that it will exchange its holding for 13.8 percent of the merged company.

The merger should make it easier for Volvo to sell its stake in Pharmacia, as it will end up with a smaller stake in the enlarged group.

Detailing the results for the first half of the year, Volvo said truck sales rose by 18 per cent, with total deliveries of 38,340 medium-heavy and heavy trucks.

The group said that the world market for heavy trucks had continued to strengthen and should reach its highest-ever level in 1995.

During the six months there was an increase in demand in Europe and Brazil, while in the United States demand is gradually levelling off.

Volvo's share of the European market for heavy trucks rose to 16.4 per cent from 15.5 per cent a year earlier.

In the US, Volvo's market share fell to 11.3 per cent from 12.3 per cent a year earlier, and in Brazil it declined slightly to 31 per cent.