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AB Volvo has acquired a 45% stake in Chinese automaker, Dongfeng Commercial Vehicles.
The Swedish truck and bus manufacturer completed the deal, which was originally signed in January 2013, with a purchase consideration amounting to $885m (RMB 5.5bn).
Dongfeng Commercial Vehicles Company (DFCV) is a subsidiary of Dongfeng Motor Group Company Limited (DFG), and produces the majority of Dongfeng’s medium- and heavy-duty commercial vehicles.
“This strategic alliance is a real milestone and entails a fundamental change in Volvo Group’s opportunities in the Chinese truck market, which is the largest in the world,” commented Olof Persson, president and CEO of AB Volvo.
“At the same time, it will provide us with the opportunity to become involved in growing DFCV’s international business in a manner that will benefit us and our Chinese partner,” he added.
DFCV’s pro-forma sales for 2013 amounted to $5.95bn (RMB 37bn), and its pro-forma operating income was $153m (RMB 950m) during the same year.
Approximately 774,000 heavy-duty trucks in total were sold in China during 2013, whilst the equivalent figure in the medium-duty truck segment amounted to around 286,000 vehicles. DFCV achieved a leading position in both the heavy-duty and medium-duty truck segments, with sales of 120,600 and 51,000 units, respectively.
During the first three quarters of 2014, DFCV achieved sales of $4.2bn (RMB 26bn), with an operating profit of $177mn (RMB 1.1bn). During the same period, the Chinese manufacturer sold 85,000 heavy-duty trucks and 31,000 medium-duty trucks, and as of 30 September 2014, it had a net financial assets of around $482.7m (RMB 3bn).
DFCV is expected to be recognised as an associated company of AB Volvo. It has been consolidated as of January 2015 according to the equity method, and reported in the trucks segment.
The payment of the purchase consideration will impact Volvo Group’s cash flow and net financial debt in Q1 2015 by approximately $870m (SEK 7bn), but since it has been hedged, the net amount paid for the stake in DFCV is approximately $700mn (SEK 5.6bn).
