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Volvo profits plummet on rising material costs

Swedish automaker Volvo Cars said on Thursday that rising raw material costs and inflation had driven down profits in the third quarter.

Volvo profits plummet on rising material costs
Volvo cars are seen on the forecourt of a Volvo dealership in Reading, west of London. Photo: Ben Stansall/AFP

The group posted a net profit of 665 million kronor ($61 million) in the July-September period, a drop of 71 percent compared to 2.3 billion kronor during the same quarter a year ago.

The figure was far below analysts’ forecasts of between 2.15 and 2.19 billion kronor, according to Bloomberg and Factset.

The company’s share price was down by around seven percent in midday trading on the Stockholm stock exchange.

Chief executive Jim Rowan said the company was hit hard by rising raw material prices, record inflation, higher interest rates and the war in Ukraine.

“The macroeconomic uncertainties around the world weighed on our third quarter performance”, he said in a statement.

Revenue meanwhile rolled in slightly higher than analysts’ expectations, rising by 30 percent to 79.3 billion kronor, boosted by “robust” demand for the company’s SUVs.

Analysts had predicted third quarter sales of between 78.1 and 78.7 billion kronor.

Retail sales declined however in some markets, including its main markets Europe and the United States, where the number of vehicles sold fell by 14 and 32 percent respectively.

The carmaker insisted however that its order book remained solid.

Volvo Cars, which aims to have an all-electric fleet by 2030, also reported “sharp pick-up” for its fully-electric vehicles at the end of the quarter, especially in September.

It said sales of fully-electric cars soared by 87 percent in the third quarter, accounting for seven percent of its total sales during the period.

The company, a subsidiary of Chinese group Geely, said manufacturing output continued to improve in the third quarter, but “unforeseen factors” such as power outages and Covid-19 related lockdowns in China “slowed down the pace of normalisation”.

It expected production, wholesale and retail growth in the second half of the year.

“For the full year 2022, we expect slightly lower wholesale volumes than 2021, assuming no further major supply chain disturbances. Wholesale and retail volumes will be on similar levels”, it said.

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BUSINESS

EU approves buyout of Swedish Match tobacco company

The EU commission on Tuesday approved Philip Morris International's purchase of smokeless tobacco company Swedish Match, after the Marlboro cigarette maker agreed to sell off a tobacco distribution business in Sweden.

EU approves buyout of Swedish Match tobacco company

With the green light from Brussels, Philip Morris passed a key hurdle as the US group looks to steer away from its traditional cigarette business.

To secure the $16 billion deal, Philip Morris International offered to divest SMD Logistics, an arm of Swedish Match that gave it “a de facto monopoly on distribution of tobacco and nicotine products in Sweden,” the EU’s antitrust enforcer said in a statement.

The transaction is not yet final, and Philip Morris increased its offer for Swedish Match on October 20th in order to win over investor holdouts.

Stockholm-based Swedish Match derives more than 65 percent of its revenue from smoke-free products, including chewing tobacco and the Zyn brand of nicotine pouches.

The group is also known for making cigars and “snus”, a form of snuff particular to Nordic countries.

Philip Morris announced in 2016 a long-term goal to stop selling cigarettes and replace them with alternatives that it says are less harmful.

The US company sells cigarette brands such as Marlboro and Chesterfield in 180 markets outside the United States and has invested billions of dollars since 2008 in vapour products, oral nicotine and other “reduced-risk” products.

Last year it clinched a controversial takeover of British breathing inhaler manufacturer Vectura, despite fierce opposition from health campaigners and medical groups.

The Philip Morris group plans to generate at least $1 billion in annual net revenues from nicotine-free products by 2025.

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