Cevian Says Scania VW Merger Will Help Volvo Lift Profits
Volvo’s second-largest shareholder has been lobbying the Swedish truckmaker to streamline operations and boost margins that lag behind those of other truckmakers. A combination between Scania and VW-controlled MAN SE could be a boon for Volvo, and help the company gain market share, Cevian Chief Executive Officer Christer Gardell said in an interview in Stockholm yesterday.
“In the short term, I think the integration of the two companies would create some confusion among the customers,” Gardell said. A merger between Scania and less-profitable Munich-based MAN “would benefit Volvo,” in which Cevian has held shares since 2006.
VW offered 6.7 billion euros on Feb. 21 for the shares in Scania it doesn’t already own to create a global heavy-trucks unit that can compete with industry leaders Daimler AG (DAI) and Volvo. The latter is reducing white-collar headcount and research and development costs to reach its target of giving its truck, construction-equipment and bus units the highest operating margins in their segments.
With about 9.5 billion euros in assets under management, Cevian holds stakes in companies such as U.K. security services firm G4S Plc (GFS), German steelmaker ThyssenKrupp AG (TKA) and Danske Bank A/S. (DANSKE) It held 11 percent of the voting rights in Volvo as of Dec. 30 last year, according to information on the truckmaker’s website. Gardell said Cevian now controls 10 percent to 15 percent of the votes, declining to specify the exact amount.
Cevian has started shifting its portfolio by investing in a listed company in Europe. To free up funds for additional moves, the investor plans to exit one of its current holdings this year, Gardell said, declining to identify the companies.
“We are fully invested and in order to make new investments we have to divest something,” he said.
Gardell co-founded Cevian in 2002, and like activist investors in the U.S. and U.K., he buys enough shares to gain board seats and then pushes for changes, such as divesting assets and installing new managers. Carl-Henric Svanberg, chairman of BP Plc and the former CEO of Ericsson AB, was named chairman of Volvo in April 2012.
Gardell, 53, expects Volvo’s trucks and construction equipment units to generate adjusted earnings before interest taxes and amortization at a pace of at least 10 percent of sales by the end of this year. “It would be a disappointment otherwise,” he said. 2014 will be “a year to deliver.”
Still, the margin for the full year 2014 will be lower than 10 percent, Gardell said. Volvo’s trucks and construction-equipment units reported Ebita margins of 4.3 percent and 4.7 percent in 2013, respectively, said Gardell.
Volvo’s operating margin excluding restructuring charges was 2.9 percent last year, down from 6.5 percent in 2012, according to the company’s Feb. 6 fourth-quarter earnings statement. Gardell said that the complexity of the company, which sold its North American construction-equipment rental business late last year, has crimped margins.
“Trucks is a very complicated business that requires full focus, which Volvo hasn’t had in the past,” said Gardell. That’s “a key explanation as to why Volvo has lower margins than peers like Scania and Paccar,” the executive said, adding that Volvo’s IT unit is one part of the company that Volvo CEO Olof Persson needs to make more efficient.
The combination of MAN and Scania would see them overtake Volvo as the world’s second-largest truckmaker. The two VW units’ 2013 deliveries totaled 220,800, compared with 200,300 for Volvo. Daimler sold 484,200 trucks last year.
Even with a new larger competitor, Volvo’s prospects are positive after the Gothenburg-based company renewed its product fleet last year, Gardell said.
“I have confidence that Volvo, under the leadership of Olof Persson and Carl-Henric Svanberg, will be able to deliver,” he said.
Since Svanberg became chairman in April 2012, Volvo shares have advanced 6.4 percent on the Stockholm bourse through March 18. They have gained 25 percent since Persson became CEO in September 2011. Volvo rose as much as 0.8 percent to 99.90 kronor in Stockholm trading today, making it the biggest gainer on the Nasdaq OMX Stockholm 30 benchmark index. The stock traded 0.6 percent higher at 9:48 a.m. Swedish time.