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Author: Tan KW   |   Latest post: Sat, 23 Feb 2019, 05:15 PM

 

Volvo Trucks to take US$780mil charge over emissions flaw

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LONDON: Volvo AB, the world’s second-largest truckmaker, will set aside 7 billion kronor (US$780mil) to address a faulty emissions-control component that’s worn out more quickly than expected.
 
The charge will eat into operating income in the just-finished fourth quarter, while the drag on cash-flow will impact the coming years, the Gothenburg, Sweden-based manufacturer said on Thursday in a statement issued after trading closed in Stockholm.
 
Citigroup said the size of the provision was “better than feared,” and Volvo shares gained as much as 2.3%.
 
The expected cost is made up of several factors, including testing of vehicles, statistical analysis and discussions with authorities, Volvo said. The company will “continuously assess the size of the provision as the matter develops.”
 
Volvo fell the most in six months on Oct 16 after disclosing that issues with the part, which comes from an outside supplier, “could be material.”
 
The company has said that a component in trucks widely sold in Europe and the US was degrading faster than expected, potentially leading to the release of emissions exceeding limits.
 
The cost of addressing the component issue is “uncomfortable but affordable” according to Jefferies analysts including Graham Phillips, who still expects Volvo to pay shareholders an extra dividend, after a year in which the truckmaker has seen orders surge and profits reach record levels.
 
The revelation by Volvo has come against a backdrop of Volkswagen AG’s emissions scandal that erupted in 2015, when the carmaker was caught using software to circumvent pollution controls. Truckmakers like Volvo have so far escaped scrutiny.
 
The company is still considering how to address the problem, and is working with authorities to come up with a solution, it said on Thursday.
 
The US Environmental Protection Agency said in October it was in talks with Volvo over the matter. — Bloomberg 
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