Volvo

Volvo is one of the world’s leading manufacturers of trucks, buses and construction equipment, with strong market positions across the world and a portfolio of operating brands from Volvo, Mack and Renault Trucks. It has radically improved its corporate performance over a multi-decade period and transformed itself from a modestly profitable, deeply cyclical and operationally leveraged company into one able to benefit from structural growth within global freight and construction markets while generating significant services revenues and healthy cash flows. It has a very strong net cash balance sheet and a track record of paying out excess cashflows to shareholders, while at the same time embracing the more Nordic approach to stakeholder capitalism. The next challenge for the company is managing the transition away from combustion engine technologies and towards the renewable power sources. In the commercial transport sector, this change has come more slowly than in the passenger car arena but is now starting to accelerate. The Investment Manager believes that Volvo is now very well positioned to capture an outsized share of the shift towards battery and fuel cell powered commercial vehicles, driven by its strong expertise in battery electric vehicles and leading technology within fuel cells. The most exciting part of the transition from a commercial perspective is the potential for the company to expand its services offering around all facets of the batteries, software and electric powertrain. The Investment Manager believes this should allow it to reduce capital intensity and enhance the recurring nature of its revenues, enabling a transition to new more environmentally sustainable technologies while also allowing its business to prosper.