March 26, 2015 / 5:08 PM / 2 years ago

Volvo CEO wins breathing space as chairman denies seeking replacement

Volvo's CEO Olof Persson speaks during a news conference in Stockholm February 6, 2014. REUTERS/Fredrik Sandberg/TT News Agency

STOCKHOLM (Reuters) - Volvo’s (VOLVb.ST) CEO Olof Persson appeared to have won some breathing space on Thursday after recent criticism of the Swedish truck maker’s performance but he needs to show progress over the next year to placate investors.

Volvo’s chairman Carl-Henric Svanberg on Wednesday denied a newspaper report that he was actively looking for a replacement for Persson, who has led a drive to boost profitability since taking over in 2011.

At the time, Persson pledged to increase profit margins by 3 percentage points by the end of 2015, but the target is looking increasingly out of reach.

Last year, Volvo’s margin fell to 2.1 percent, far below the 8.7 percent it stood at before the start of the efficiency scheme.

Analysts expect Volvo, which has been locked in battle with Daimler (DAIGn.DE) and Volkswagen’s (VOWG_p.DE) truck brands for market leadership, to reach an operating profit margin of 7.1 percent by the end of 2016, Thomson Reuters data shows.

Activist fund Cevian, the second biggest owner of the firm by votes, had called for it to end 2014 with a double digit margin.

A partner at an asset management firm with stakes in Volvo who declined to be identified said he still had confidence in Persson, and that there had been some unfair criticism of him.

“But if you ask me in a year and much still hasn’t happened within the company, then he’s probably in a worse position,” he said.

Since 2011, the Swedish firm has spent heavily on new model launches and to comply with tougher emission rules, while contending with weak demand in Latin America, a lackluster European recovery and a deep fall in demand for construction equipment in China.

Persson said in February the efficiency drive aimed at saving 10 billion crowns ($1.15 billion) was going “according to plan”.

Volvo has underperformed peers such as Volkswagen’s Scania and U.S. truck maker Paccar whose more nimble production structure have them left better able to cope with swings in demand and adjust output.

Since Persson took the helm in September 2011, Volvo shares are up around 34 percent compared with a nearly 75 percent gain in the STOXX Europe 600 Industrial Goods & Services Index .SXNP and a more than 135 percent rise for German rival Daimler.

Shares were down 0.95 percent at 1103 EDT, while the broader Stockholm share index .OMXS30 fell 1.4 percent.

Volvo’s four biggest owners were not immediately available for comment.

Additional reporting by Anna Ringstrom; Editing by Vincent Baby

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