April 22, 2015 / 5:29 AM / 2 years ago

Volvo ousts CEO and turns to rival Scania for replacement

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

STOCKHOLM (Reuters) - Swedish truckmaker Volvo (VOLVb.ST) named Martin Lundstedt, the head of rival Volkswagen-owned (VOWG_p.DE) Scania as its chief executive on Wednesday, replacing embattled Olof Persson who has led a sweeping efficiency drive.

Volvo, vying for dominance of the truck market with Germany’s Daimler (DAIGn.DE) and VW, also released better than expected quarterly earnings two days ahead of schedule and said it would seek an external partner for parts of its IT business.

While Persson’s nearly four-year restructuring program has contributed to some of the strongest earnings of his tenure, Lundstedt is considered one of the most respected executives in the trucking industry and shareholders hope he will improve the company’s global position.

Shares in Volvo, which have underperformed competitors’ during what Sweden’s shareholders association has called “four lost years” under Persson, shot up 12.4 percent to 113.7 crowns by 0847 GMT, higher than any time during his helm.

“The action program that Persson initiated seems to be biting and he should get credibility for that,” Christer Gardell, managing partner at Cevian, Volvo’s second-biggest owner by votes, told Reuters.

“But at the same time we support the board’s decision to appoint Martin Lundstedt, who is widely recognized as one of the best leaders in the trucking world. Now he has the assignment to make Volvo the world’s best trucks company.”

Persson’s plan aimed to cut 10 billion Swedish crowns ($1.2 billion) in costs and boost profitability to the level of more nimble rivals such as Scania, a task it has yet to achieve and so pressure from shareholders has been building.

Chairman Carl-Henric Svanberg, who as recently as April 1 had said he was confident in the work Persson was doing amid reports he would get the axe, told a news conference Lundstedt was being brought in to lead a new chapter for Volvo.

“We are now entering into a new phase. You can’t reach world leadership through just cost savings,” Svanberg said.

The choice of a new CEO with such strong truck-making credentials is likely to lead to expectations for a further streamlining of a group that still generates nearly a third of revenues from other businesses so that he can focus on trucks.

Investors like Gardell have made no secret further spin-offs in the wake of the 2012 sale of Volvo’s aero operation would be welcome, though a downturn for construction gear makes a deal for the biggest unit outside trucks unlikely in the short term.

Volvo shares have gained roughly half as much as the STOXX Europe 600 Industrial Goods & Services Index .SXNP. over the past five years and underperformed the stocks of competitors such as Daimler and U.S. Paccar Inc (PCAR.O).

SCANIA SYSTEM

Lundstedt is a 25-year veteran at Scania, whose flexible production system modeled on the ground-breaking techniques of Toyota (7203.T) in the 1990s has helped it outpace Volvo in terms of profitability over the past decade.

Scania’s fine-tuned manufacturing, which uses a modular system that is the back bone of car making across the globe, has long been the envy of the trucking world and underpinned VW’s decision to buy out Scania last year.

Owners will be looking to Lundstedt to find similar answers for the sprawling production base of Volvo that has historically struggled to adapt to rapid swings in the highly cyclical demand for commercial vehicles.

“Their (Scania‘s) success story was that they could continue being the small company, only with a lot of sales,” Hampus Engellau, analyst at Handelsbanken, said.

“And Volvo probably lost that along the road-side in its empire building, building huge walls of white-collar workers.”

Lundstedt, whose easy-going manner endeared him to Scania staff and helped smooth its integration into VW, will assume his role in October, with CFO Jan Gurander serving as acting CEO in the interim.

Persson meantime delivered some of the strongest earnings of his tenure. Sweden’s biggest listed company by sales and top private sector employer said adjusted operating profit rose to 4.60 billion crowns from a year-ago 2.59 billion, topping a mean forecast of 3.47 billion in Reuters poll of analysts.

Volvo also kept unchanged its outlook for growing heavy-duty truck markets in both Europe and North America this year, but further lowered its expectations for a decline in Brazil and a sharp fall for construction equipment in key market China.

To placate investors Volvo has touted the possible sale of parts of its large IT unit while selling a stake in Indian partner Eicher Motors (EICH.NS).

Volvo, which also makes buses, construction equipment and boat engines, said it was looking to bring in a partner for parts of its IT business, with annual sales totaling about 1.5 billion crowns, opening the door to a deal.

($1 = 8.6567 Swedish crowns)

Additional reporting by Anna Ringstrom and Sven Nordenstam; Editing by David Holmes and Anna Willard

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