New models boost Volvo Cars as profitability soars in first quarter

By Niklas Pollard

STOCKHOLM (Reuters) - Chinese-owned Volvo Car Group swung to a profit in the first quarter as its new up-market models helped drive profitability to a level more in line with bigger rivals and seen as key in its quest to carve out a niche in the premium car market.

The Gothenburg-based carmaker, bought by China's Zhejiang Geely Holding Group Co. from Ford Motor Co. (F.N) in 2010, said operating earnings rose to 3.1 billion Swedish crowns (270 million pounds) in the quarter from a year-ago loss of 11 million.

Volvo, a small player compared to the likes of Germany's Daimler's (DAIGn.DE) Mercedes-Benz and BMW (BMWG.DE), has said it must boost profitability to the level of rival premium carmakers in the coming years, mooting an operating margin of around 8 percent as a benchmark level.

While launch costs for its new S90 and V90 models are likely to weigh later this year, Volvo posted a record operating margin of 7.5 percent in the quarter as the pricier XC90, its first model developed under Geely ownership, lifted both sales and earnings.

"The new XC90 proves that customers like what they see from the transformed Volvo Cars - one in five new Volvo cars sold in the first quarter was an XC90," Volvo Cars CEO Hakan Samuelsson said in a statement.

"We also unveiled the new S90 sedan and V90 estate in the first quarter and we expect these cars to have a similar positive impact on sales."

By comparison, BMW's operating margin stood at 9.4 percent in the first quarter.

Volvo, one of Sweden's biggest companies by sales and staff numbers, is banking on a 75 billion crown investment plan in new models and plants to secure a firm foothold in a premium market where it had struggled to make inroads under Ford tutelage.

The unlisted carmaker has previously not issued quarterly results and its decision to do so is likely the strongest sign to date it is gearing up to tap international capital markets and loosen its reliance on loans out of China.

It also repeated its expected retail sales of its cars to rise this as new models increasingly came on-stream.

"Based on the volume increase, albeit influenced by launch costs for the new models reaching markets during the year, we anticipate our full year net revenue and operating income to increase year over year," Samuelsson said.

(Editing by Alistair Scrutton)