Restructurings need to progress. Shareholders and managements are frequently at odds about the pace of change, but if there is minimal sign that a company is moving towards defined goals, investors have every right to fret. Sweden’s Volvo, one of the world’s biggest truckmakers, has been in that stalled situation. Chief executive Olof Persson moved into the driving seat in September 2011. Yet Volvo’s shares, at SKr85, have gained less than 10 per cent since and generally underperformed peers. Profitability has been volatile: in the first nine months of 2013 operating income before restructuring charges fell 60 per cent year-on-year to SKr6.3bn ($965m), as margins more than halved to just over 3 per cent.
True, truck markets have been difficult for everyone, with Brazilian profits fading and European demand contracting. A slower mining market has also depressed sales in Volvo’s smaller construction equipment arm.
Mr Persson has set goals – an extra 3 percentage points of margin (or SKr9bn of operating income on sales of SKr300bn) by end-2015. With that in mind, some recent changes in the asset portfolio look positive. The sale of Volvo Rents, the US construction equipment rental arm, to private equity for SKr7.2bn on Tuesday removes a business that offered limited operating income benefits – it lost SKr47m in 2013’s first nine months – yet by its nature absorbed capital. Even better, the proceeds will offset outgoings – SKr5.6bn for a stake in the yet-to-be completed joint venture with China’s Dongfeng, and SKr1bn for Terex’s hauler arm – helping to keep gearing within the target range.