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Volvo, the Swedish truck maker, on Friday reported a 22 per cent increase in year-on-year operating profit for 2006 to SKr22bn (€2.43bn, $3.16bn) as sales rose 7 per cent rise to nearly SKr250bn.

The company has been under pressure from activist shareholders led by Cevian Capital, which counts US billionaire Carl Icahn as an investor, who argued that it was being too conservatively managed and demanded the truck maker distribute its SKr19bn surplus cash in a special dividend.

But Leif Johansson, Volvo chief executive, rebuffed this criticism and argued that the full-year results would demonstrate that the company was not being conservatively run but properly run.

He added that Volvo needed a cash war chest to finance acquisitions.

Friday’s results add weight to Mr Johansson’s stance. Volvo reported an operating profit margin of nearly 9 per cent for the year and a 25 per cent increase in earnings per share rose to SKr40.2.

The company has proposed an ordinary dividend of SKr25 a share and an extraordinary dividend through a six-to-one share split, where the sixth share will be redeemed by Volvo for an amount of SKr25 a share.

On the acquisition front, attention has focused on China, where the Swedish truck maker is in discussions with Dongfeng Motor Group and Nissan Motor on a possible investment in the heavy and medium-duty commercial vehicle business currently included in a Chinese joint venture between DFG and Nissan Motor.

“We will now initiate more in-depth discussions about our possible future co-operation,” Xu Ping, chairman of DFG and Jorma Halonen, executive vice-president of Volvo said recently.

Nissan Motor will focus on passenger cars and light commercial vehicles and has divested its holding in Nissan Diesel, its trucks unit, to Volvo. Subsequently, DFG, Nissan Motor and Volvo initiated discussions at the end of last year with the Chinese authorities on possible future co-operation of the parties.

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