Volvo to Become World`s Largest Heavy-Duty Truck Manufacturer Following Strategic Alliance with Chinese Company Dongfeng Motor Group

Fri Jan 25, 2013 8:55pm EST

* Reuters is not responsible for the content in this press release.

http://pdf.reuters.com/htmlnews/8knews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20130126:nBw255869a

GÖTEBORG, Sweden--(Business Wire)--
Regulatory News: 

AB Volvo has signed an agreement with the Chinese vehicle manufacturer Dongfeng
Motor Group Company Limited (DFG) to acquire 45% of a new subsidiary of DFG,
Dongfeng Commercial Vehicles (DFCV), which will include the major part of DFG`s
medium- and heavy-duty commercial vehicles business. At completion of the
transaction, the Volvo Group will become the world`s largest manufacturer of
heavy-duty trucks.   "This is a very exciting venture that will combine the best
of two worlds, strengthening the positions of the Volvo Group and Dongfeng and
offering excellent opportunities to both parties," says Volvo`s President and
CEO Olof Persson. "Combining Dongfeng`s strong domestic position and know-how
with the Volvo Group`s technological expertise and global presence will offer
DFCV excellent potential for growth and profitability in and outside
China."Completion of the transaction is subject to certain conditions, including
the approval of relevant anti-trust agencies and Chinese authorities. The
purchase consideration amounts to RMB 5.6 billion. The ambition is to complete
the transaction as soon as possible and completion is expected to take place
within approximately 12 months from today.

The transaction with DFG follows the recent agreement between DFG and Nissan
Motors, in which DFG purchased the medium- and heavy-duty commercial vehicle
operation from the joint venture DFL (owned jointly by DFG and Nissan Motors).
The major part of the re-purchased commercial vehicle operation will be included
in the new company, Dongfeng Commercial Vehicles (DFCV). According to the
agreement between DFG and Volvo, Volvo will acquire 45% of Dongfeng Commercial
Vehicles for a total amount of RMB 5.6 billion, subject to adjustments, to be
paid on closure of the transaction. Payment of the purchase price will increase
Volvo`s net debt by approximately SEK 6 billion. 

The Volvo Group is the world`s third largest manufacturer of heavy-duty trucks
with 180,000 units sold in 2011. Dongfeng was the second largest producer of
heavy-duty trucks in 2011, with total sales of 186,000 units, of which
approximately 142,000 units were produced by the part of the company that will
be included in DFCV. 

"We are pursuing a clear strategy to achieve our vision of becoming the world
leader in sustainable transport solutions," says Olof Persson. "With this
agreement in place, we take a crucial step toward reaching a number of our key
strategic objectives such as size and growth in Asia." 

In 2011, DFCV reported net sales of approximately RMB 39 billion (pro forma) and
operating income of approximately RMB 1.2 billion (pro forma). DFCV has
approximately 28,000 employees and sold 142,000 heavy-duty trucks and 49,000
medium-duty trucks in 2011 (pro forma). 

For the first three quarters of 2012, DFCV`s net sales amounted to approximately
RMB 22 billion (pro forma) and operating income to approximately RMB 0.3 billion
(pro forma). During the same period, 81,000 heavy-duty trucks and 35,000
medium-duty trucks were sold by DFCV (pro forma). At the end of the third
quarter of 2012, DFCV had net financial debt of approximately RMB 500 million
(pro forma). The AB Volvo holding in DFCV is expected to be reported as an
associated company and consolidated in accordance with the equity method,
one-line consolidation, within the Trucks segment. 

During 2012, the Chinese market for heavy-duty trucks totaled approximately
636,000 vehicles, while the corresponding figure for the medium-duty market was
290,000 vehicles. DFCV occupied a leading position in China in both the heavy-
and medium-duty segments, with sales of 102,000 heavy-duty trucks and 45,500
medium-duty trucks, corresponding to market shares of 16.1% and 15.7%,
respectively. 

"China is the world`s largest truck market with a total market for heavy trucks
equivalent to the European and North American markets combined," says Olof
Persson. "The partnership between the Volvo Group and DFG will strengthen DFCV`s
already strong position in China and provide the company with the right
conditions for successful international expansion." 

The partnership with DFG not only provides the Volvo Group with ownership in the
largest heavy-duty and medium-duty truck manufacturer in China, but also offers
excellent opportunities to achieve economies of scale in terms of sourcing,
development and production for the Group`s truck operations. There are a number
of areas in which cooperation is planned between DFCV and Volvo, such as engines
and powertrain components, product platforms and purchasing. 

"In Dongfeng, we have a partner that we know well, having worked together for
several years, and with a management team and a product range that we really
appreciate," says Olof Persson, Volvo President and CEO. "Joining forces will
provide clear benefits for both parties and the right conditions to develop DFCV
into a competitive and successful international truck manufacturer with healthy
profitability." 

"This partnership will enable us to significantly strengthen the Group`s
position, both in and outside China," says Olof Persson. "With DFG as a partner,
we can improve our position in the increasingly important Chinese market and
become more internationally competitive by virtue of the Chinese volumes." 

The DFCV management team will consist of eight members, with Volvo nominating
four of the eight members and Dongfeng the remaining four. Dongfeng will
nominate the company`s Managing Director, while Volvo will be responsible for
nominating the Chief Financial Officer. The Board of DFCV will comprise seven
board members and it has been agreed that the Volvo Group will account for three
places and DFG four. 

The transaction is subject to certain conditions, including approval of relevant
authorities. The ambition is to complete the transaction as soon as possible and
completion is expected to take place within approximately 12 months from today. 

January 26, 2013 

Information about press conference and webcast:                                 
                      

There will be a press conference in Beijing hosted by the Volvo Group and
Dongfeng Motor Group Company Limited followed by a webcast with Volvo
management. The press conference is today at 11.00 a.m. Chinese time (3.00 a.m.
CET) at the InterContinental Beijing Beichen Hotel. 

At 11.00 a.m. CET the Volvo Group will hold a webcast with Olof Persson,
President and CEO of the Volvo Group. To view the webcast and down load the
presentation material, please visit www.volvogroup.com/investors. You can also
dial in using the following numbers: 

SE: +46 (0)8 506 307 79 UK: +44 (0)844 571 8957 US: +1 866 682 8490         

To download images please visit the Volvo Group image gallery.                  
           

For more stories from the Volvo Group, please visit
http://www.volvogroup.com/globalnews. 

The Volvo Group is one of the world`s leading manufacturers of trucks, buses and
construction equipment, and drive systems for marine and industrial
applications. The Group also provides complete solutions for financing and
service. The Volvo Group, which employs about 115,000 people, has production
facilities in 20 countries and sells its products in more than 190 markets. In
2011, annual sales of the Volvo Group amounted to about SEK 310 billion. The
Volvo Group is a publicly-held company headquartered in Göteborg, Sweden. Volvo
shares are listed on OMX Nordic Exchange Stockholm. For more information, please
visit www.volvogroup.com or www.volvogroup.mobi if you are using your mobile
phone. 

AB Volvo (publ) is required to disclose the information provided herein pursuant
to the Securities Markets Act and/or the Financial Instruments Trading Act. The
information was submitted for publication at 02:30 a.m. on January 26, 2013. 

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Copyright Business Wire 2013

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