Volvo owners to get bumper payout from UD Trucks sale

Stockholm

VOLVO Group shareholders are in line for a big payout, with the truckmaker planning to pass along all of the proceeds from the sale of a Japanese business unit earlier this year.

The company announced plans to distribute to investors all of the roughly 19 billion Swedish kronor (S$3 billion) it received from the sale of UD Trucks to Isuzu Motors, sending shares up as much as 3.6 per cent shortly after the open of regular trading on Wednesday.

Under chief executive officer (CEO) Martin Lundstedt, the former head of Volkswagen Group's Scania, Volvo has sought to become better prepared to withstand market downturns by cutting costs and increasing service sales, which are less sensitive to demand swings. While sales slumped due to the pandemic last year, Volvo posted an operating margin of 8.4 per cent - not far off its 10 per cent target over a business cycle.

"The board believes that the Volvo Group's improved profitability, resilience in downturns and strong financial position enable a distribution of the proceeds," chairman Carl-Henric Svanberg said in the statement. "Even after the distribution, the group is financially strong with resources to invest in future technologies."

Analysts at Citi said Volvo's message was reassuring and that the proposal indicates the truckmaker should be able to deliver an 8-10 per cent dividend yield in the medium term.

The UD Trucks deal was reached in October, when Volvo and Isuzu also agreed on a partnership to develop technologies for autonomous driving, connectivity and electric vehicles. The transaction was completed in April.

The proposal for an extra dividend will be put to the vote at an extraordinary general meeting on June 29. BLOOMBERG