Volvo Cars suffers steep fall in profit margins

Volvo Cars suffers steep fall in profit margins

Volvo Cars suffered a steep fall in profit margins last year as the global trade war that forced the company’s Chinese owners Geely to postpone a planned flotation also hit the Swedish group’s earnings.

Sales rose 21 per cent to SKr252.7bn ($28bn), but operating profits increased only 0.9 per cent to SKr14.2bn. Margins, the amount revenue from sales exceeds costs, fell to 5.6 per cent in 2018 compared with 6.7 per cent previously.

The fall in operating margins puts pressure on Volvo’s strategy to catch the profitability of premium rivals such as Germany’s Daimler and BMW. They enjoy operating profit margins of about 8 per cent.

Håkan Samuelsson, chief executive, said: “Revenue growth and sales in 2018 were healthy, but profitability was affected by external factors such as tariffs and increasing price competition in several markets.”

“This result is in line with our expectations, but does not totally live up to our longer-term ambitions.”

Volvo’s results come amid a torrent of profit downgrades across the industry, with Daimler on Wednesday warning that 2019 would be “adversely affected”, while Toyota downgraded expectations for its 12-month profits to March by 21 per cent.

Fiat Chrysler and Jaguar Land Rover will announce results on Thursday, and are expected to echo warnings about the outlook for the sector.

Volvo’s annual profits are still a record for the company, and follow a strong final quarter when operating profits rose 25 per cent to SKr4.5bn, with margins of 6.2 per cent, up from 5.9 per cent in the same quarter a year earlier.

Sales in the fourth quarter rose 7.3 per cent to 169,700 vehicles, leading to a 20 per cent rise in revenues to SKr73bn.

Last year Volvo’s owner Geely put a planned initial public offering of the carmaker’s shares on ice over concerns that the global trade war would hit the long-term value of the business.

Volvo recently opened a plant in South Carolina that it plans to use for global exports of the S60 saloon, but the company has warned it may be forced to re-purpose the facility if the US imposes tariffs on imported cars, particularly from China where it builds some of its vehicles.

“For 2019, we see another year of volume growth as we continue to benefit from our strong product programme and increased capacity,” said Mr Samuelsson. “But we have to be realistic and acknowledge that margins will remain under continued pressure.”

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