September 25, 2012 / 1:37 PM / 6 years ago

Volvo unveils plan for profitability push

GOTHENBURG, Sweden (Reuters) - World number two truck maker Volvo (VOLVb.ST) plans to cut costs in mature markets such as Japan and push further into emerging markets as part of its long-awaited plans to boost profitability.

Volvo is reorganising its business to lift its operating margin, which has tended to trail domestic rival Scania’s SCVb.ST, by 3 percentage points from last year’s 8.7 percent, a target most analysts see taking several years to achieve.

The company fleshed out how it would reach that goal in a plan for 2013-2015, saying in a statement it would raise its vehicle gross profit margin per region by 3 percentage points while curbing its cost of sales and IT and research and development spending.

“This strategy is a fundamental part in achieving our target,” Chief Executive Olof Persson told a presentation for media and analysts, adding the strategy could yield a margin boost for the trucks business alone of 6 percentage points.

Volvo shares gained on the news, standing almost 4 percent higher at 94.75 crowns.

Volvo also said it would reduce its costs by 10 percent in Japan and end production of its Japanese UD brand for the U.S. market due to weak demand and rising regulatory costs.

Those measures would cause a charge of about 600 million crowns ($91.26 million) in the third quarter, it added in the statement.

Volvo, which is launching a new flagship FH series truck, said it would also develop new heavy duty trucks for emerging markets, which it aimed to produce in India, Thailand and China.

The Gothenburg-based maker of trucks, buses, construction equipment and engines, said it would establish the commercial presence needed to support revenue growth of 50 percent across Asia-Pacific and 25 percent in Africa.

Volvo is number two after market leader Daimler. (DAIGn.DE) It also competes with German MAN SE (MANG.DE) and Scania SCVb.ST in Europe and takes on U.S. Paccar (PCAR.O) and Navistar (NAV.N) in North America.

Reporting by Niklas Pollard and Johan Ahlander; Editing by Louise Heavens

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