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The Volvo Group 2005
Strong increase in earnings
Aggressive product renewal
Strengthened competitiveness
The Volvo Group 2005 www.volvo.com

Table of contents

  • Page 1
    The Volvo Group 2005 Strong increase in earnings Aggressive product renewal Strengthened competitiveness

  • Page 2
    ...events Financial performance Financial position Cash-flow statement Risk management Trucks Buses Construction Equipment Volvo Penta Volvo Aero Financial Services The Volvo Group is one of the world's leading producers of trucks, buses, construction equipment, drive systems for marine and industrial...

  • Page 3
    ... Net sales by market area, % 51% 29% 5% North America Net sales, SEK M Percentage of the Volvo Group's sales, % Production facilities Mack Trucks Renault Trucks Volvo Trucks Buses Construction Equipment Volvo Penta Volvo Aero Volvo Powertrain New River Valley (USA) St Claire, St Eustache (Canada...

  • Page 4
    The Volvo Group conducts sales in about 185 countries worldwide, either through wholly owned companies or independent dealers. The Volvo Group has production facilities in 18 countries. Most of the Volvo Group's sales are to markets in Western Europe and North America. An important element of the ...

  • Page 5
    ... investments in research and development for future competitivness of the next generation of engines and trucks â- Earnings per share increased by 37% to SEK 32.21 (23.58) â- Proposed dividend SEK 16.75 per share equal to a total dividend of SEK 6,775 M for 2005 Key ratios Net sales, SEK...

  • Page 6
    ... Group with diesel engines, transmission systems and axles. Volvo Parts supplies services to support the aftermarket for business areas within 3,500 the Group. 380 Volvo Technology develops new technologies and business solutions for the Group companies. 980 Volvo Logistics develops and manages...

  • Page 7
    ... for the aerospace industry. Financial Services conducts operations in customer finance and insurance, serves as the Group's in-house bank and is active in managing the Group's property holdings. Volvo Buses is one of the world's largest producers of buses. Volvo Construction Equipment is one of...

  • Page 8
    ... Group's mission The Volvo Group's vision is to be valued as the world's leading supplier of commercial transport solutions.onsequat. By creating value for our customers, we create value for our shareholders. We use our expertise to create transportrelated products and services of superior quality...

  • Page 9
    ... our internal crash investigation teams in product development. Our goal is to reduce the risk of accidents and on the prevention of injury in the event of an accident and to improve the safety and work environment for the drivers of our vehicles and machines. Environmental care We believe that it...

  • Page 10
    ...in Europe and January 1, 2007 in North America. This means that the intensive period of industrial realignment and product renewal will continue throughout 2006. All of the business areas, except Volvo Aero and Financial Services, are directly affected as an entirely new generation of diesel engines...

  • Page 11
    ... commercially viable alternative on the market within a few years. We are also conducting promising trials using non-fossil fuel to power diesel engines. Our position as the world's largest manufacturer of heavy diesel engines naturally provides a solid base for this development work. The rapid rate...

  • Page 12
    ... and North American markets, which are showing relatively firm underlying growth. However, the fastest growth rates are noted in parts of the world where the Group had very insignificant operations just 10-15 years ago. In these markets, such as Asia, the Volvo Group intends to grow. China and India...

  • Page 13
    ... fuels. In recent years, the rate of product renewal has increased significantly within all of the business areas and 2005 was another year dominated by major product launches. By capitalizing on economies of scale and Group-wide technologies and architecture, the Volvo Group will further strengthen...

  • Page 14
    ... the capital that has been released has created a strong cash flow, which has enabled the Volvo Group to engage in product renewal throughout the entire business cycle. In the coming years work in this area will focus on using sales and administrative resources more efficiently. 10 Volvo Group 2005

  • Page 15
    ... by the Volvo Group within the framework of its long-term strategy have in all significant respects been successful. They have resulted in an improved cash flow and a financial strength that can be used for business opportunities and substantial investments in product and market development for the...

  • Page 16
    ... industry average. The Group has a number of financial targets covering growth, operating margins, return on shareholders' equity and capital structure. These financial targets are set and evaluated over a business cycle. 10 0 01 02 03 04 05 50 (2) (1) 16 14 The Volvo Group's ambition is that net...

  • Page 17
    ... since 1995. 150 200 Competitive total return The total return on the Volvo share (share price development including re-invested dividends) has averaged 25% annually since 2001. During the same period, the total return on the Stockholm Stock Exchange as a whole was 4% annually, according to the SIX...

  • Page 18
    ... our competitiveness, generate value for our customers and thereby contribute to creating future value for our shareholders. Diesel engine in focus The Volvo Group is the world's largest manufacturer of heavy-duty diesel engines. A few years ago, all development and production of diesel engines and...

  • Page 19
    ..., Volvo VT 880. Renault Magnum and Renault Premium Route Renault Trucks maintained its high rate of product renewal in 2005 through the introduction of the new Renault Magnum intended for long haulage and the new Renault Premium Route for national haulage, both with new fuel efficient engines...

  • Page 20
    ... products' features and appearance, the quality of sales and service are of great importance, but more than anything else it is the people in our organization - their knowledge, values, attitudes and behavior - that give prominence to our brands and credibility to the company. 16 Volvo Group 2005

  • Page 21
    ... Volvo Group offers global transport solutions for customers with high demands. Our product range consists of trucks, buses, construction equipment, engines for leisure boats and commercial marine application and generator units. In addition, we have manufacturing of components for aircraft engines...

  • Page 22
    ...is a large-scale industry like any other in which smoothly functioning logistics are essential. At the illustrious Universal Studios, Volvo Trucks plays a part in keeping the production of movies and TV programs rolling. Universal's transport department is comparable to a major haulage company. With...

  • Page 23
    19

  • Page 24
    ... bus lanes, high-frequency service, efficient ticket systems, modern high-capacity buses and bus stops adapted to ensure rapid entering and exiting from buses. A modern mass-transit system based on buses is just as effective as a railway system, at a fraction of the cost. In addition, the time...

  • Page 25
    21

  • Page 26
    ... wheel loaders working with motor graders, their Volvo design, quality and safety are what gave Volvo Construction Equipment its good reputation. Outside the Whistler ski resort in British Columbia, Canada, Volvo excavators are handling the toughest excavation conditions. The 2010 Winter Olympic...

  • Page 27
    23

  • Page 28
    24 Volvo Group 2005

  • Page 29
    ... boat's performance is superior in most areas and, naturally, the world's leading boat builders realize this. In the past year, increasing numbers of boat models adapted to the new drive system have been launched. Volvo Penta IPS is refined continuously. The latest addition is the acclaimed joystick...

  • Page 30
    ... the company's largest-ever commercial aviation contract, Volvo Aero will be responsible for the development of three and manufacturing of five key components in General Electric's new engine program, the GEnx. These comprise the fan hub frame, booster spool, turbine rear frame, aft fan case and...

  • Page 31
    Volvo Group 2005 27

  • Page 32
    ...the total number of outstanding ADRs at year-end was about 13 million (20 million). Sweden (51) France (22) US (11) UK (7) Switzerland (2) Others (7) The majority of trading in Volvo shares takes place via the Stockholm Stock Exchange, where the shares have been listed since 1935. Trading in Volvo...

  • Page 33
    ...the Annual General Meeting approve a cash dividend of SEK 16.75 per share, a total of approximately SEK 6,775 M. This corresponds to a direct return of 4.5% calculated at the year-end 2005/2006 rate of SEK 374.50 for the Volvo B share. Long-term credit rating In October, AB Volvo signed an agreement...

  • Page 34
    Volvo Group works for sustainable development 30 Volvo Group 2005

  • Page 35
    ... from the financial markets and the Group's corporate values. Volvo Group also encourages suppliers, dealers, consultants and other business partners to observe the principles of the Code. The Code of Conduct is used to evaluate both current and future suppliers. All Volvo Group managers have...

  • Page 36
    ...related products and services. This goal is to be achieved through a customer focus based on: • working to achieve maximum customer satisfaction and zero defects • commitment from managers • the active involvement of all employees • a process-oriented approach. Clear customer focus Quality...

  • Page 37
    ...means, for example, that subcontractors must have an explicitly stated target of zero defects, as well as established quality management systems, a focus on continuous improvements and a holistic view of the product life cycle that also covers how our customers use the products. Volvo Group 2005 33

  • Page 38
    ...and quality controlled. We encourage our customers to provide their employees with the right training and the opportunity to follow the safety guidelines of the Volvo Group and authorities. For example, using the safety belts currently provided in Volvo's trucks, buses and construction equipment. An...

  • Page 39
    ... vehicles from the Volvo Group. Since 1969, Volvo Trucks has had its own team for accident research, which is an integral part of product development. Renault Trucks also has such a team. These two teams cooperate and share methods, basic statistics and analysis. They conduct detailed investigations...

  • Page 40
    ...Senior Vice President of AB Volvo. He will be succeeded by Jan-Eric Sundgren in 2006. Environmental management system in place Environmental care is a key aspect of daily work within the Volvo Group. At the close of 2005, 96% of all production unit employees were working in accordance with certified...

  • Page 41
    ... for diesel engines. The Group's solution to meet the requirements is diesel engines with even more efficient combustion and after treatment of exhaust gases with the additive AdBlue and Selective Catalytic Reduction (SCR). In North America, the Volvo Group has chosen to use an exhaust recirculation...

  • Page 42
    ... and paint technology. Total emission levels will be one same vehicle's fuel consumption can vary by as much as 20% between different drivers. In some markets, the Volvo Group companies offer driver training programs that cover both fuel-efficient driving and safe driving. Alternative drivelines...

  • Page 43
    ...a historical background. During 2005 cleaning-up activities took place in five properties. The Volvo Group generates transports to and from production facilities all over the world. The Group's logistics managers regularly review these flows and continuously make improvements to achieve considerably...

  • Page 44
    ...in fulfilling this vision. The Group had 81,856 employees at the end of 2005. Each employee is part of a team and is expected to participate actively in the Group's development, process of change and future. To support such development, a work environment characterized by energy, passion and respect...

  • Page 45
    Key figures Number of employees at year-end Share of women, % Share of women, Board members, % Share of women, Presidents and other senior executives, % 2004 2005 81,078 16 15 16 81,856 17 10 16 Geographic distribution of employees, % Sweden (33%) Europe, excl. Sweden (36%) North America (18%) ...

  • Page 46
    ... 2006. Volvo Construction Equipment in China, whose plant was certified in accordance with OHSAS 18001 during 2005, received recognition during the year for its efforts in the work environment field from the Pudong Safety Production Supervising Bureau, part of the Chinese Department of Labor. Volvo...

  • Page 47
    ... in Europe and Asia and Volvo China Open, the Gothenburg Symphony Orchestra, the Gothenburg Opera and the Nobel Museum in Stockholm. In addition, Renault Trucks sponsors the Olympique Lyonnais soccer team. Active exchange of information The Volvo Group engages in an active exchange of information...

  • Page 48
    ... 2.8 1 Years 2004 and 2005 are reported in accordance with IFRS and 2001, 2002 and 2003 in accordance with prevailing Swedish GAAP. See Note 1 and 3. In the Board of Directors' Report through page 79, Volvo Financial Services is reported in accordance with the equity method. 44 Volvo Group 2005

  • Page 49
    ...necessary to meet EPA 2007 emissions standards. Mack Trucks also plans to launch a 13-liter version of the engine, the MP8, in 2007. New Renault Magnum Volvo Trucks launched new flagship in North America In February, Volvo Trucks unveiled its new flagship for the North American market, the Volvo VT...

  • Page 50
    ... an estimated order value of about SEK 2 billion during the next ten years. Volvo Aero will start production of several components of the engine in 2006. Volvo Aero reported in January 2006 that it had signed a contract covering production of the largest component in an aircraft engine, the fan case...

  • Page 51
    ...for Volvo Financial Services, which manages Danafjord. case, which has broad implications beyond the heavy-truck industry, was supported by the US Department of Justice. mented during the second quarter of 2005. After the cancellation, AB Volvo owns 5% of its own shares. The Annual General Meeting...

  • Page 52
    ...development in Europe in many important countries. Net sales in South America were up 71% as a consequence of the increased sales of mainly trucks and buses. Net sales in 2005 amounted to SEK 231,191 M +14 +30 +19 +8 +9 (2) +14 Trucks Buses Construction Equipment Volvo Penta Volvo Aero Other Volvo...

  • Page 53
    ... 7.9 1 Excluding revaluation of shares in Scania AB and Henlys Group Plc. Change in operating income SEK bn Operating income 2004 Higher volumes and improvement of gross margins Higher income from Financial Services Changes in currency exchange rates Higher capitalization of development costs 14...

  • Page 54
    ... Dividend paid to AB Volvo's shareholders Currency effect Other Total change December 31, 2005 16.1 (9.3) 6.8 0.6 (3.3) 4.4 (1.8) (5.1) (1.6) 0.5 0.6 18.7 Investments and divestments of shares, net 0.1 mainly attributable to credit guarantees. Net sales1 Cost of sales Research and development...

  • Page 55
    Consolidated balance sheets December 31 SEK M Volvo Group, excl Financial Services1 2004 2005 Financial Services 2004 2005 Total Volvo Group 2004 2005 Assets Intangible assets Property, plant and equipment Assets under operating leases Shares and participations Long-term customer-financing ...

  • Page 56
    ...development of production plants and in tools and equipment for new products. In Volvo Aero the level of capital expenditures increased from 0.5 billion to SEK 0.8 billion. A major part of the investments relate to entrance fees to become a partner in the new GEnx engine and in the LM2500 industrial...

  • Page 57
    ... Group total Investments and divestments of shares, net Acquired and divested operations, net Interest-bearing receivables including marketable securities, net Cash flow after net investments Financing activities Change in other loans, net Repurchase of own shares Dividend to AB Volvo's shareholders...

  • Page 58
    ... housing construction all impact the Group's operations, since its products are an important part of these activities. Economic trends in Europe and North America are particularly important for the Volvo Group, since a significant portion of the Group's net sales are generated in these markets. The...

  • Page 59
    ... business cycle. Cost variations may be caused by changes in world market prices for raw materials or by an inability of our suppliers to deliver. The companies in the Volvo Group and their suppliers work closely together to manage material flows by monitoring suppliers' financial stability, quality...

  • Page 60
    ... principles in Sweden (Swedish GAAP) to International Financial Reporting Standards (IFRS), as was also done by other listed companies in Europe during 2005. Many of the standards are new and we anticipate a rapid development of new standards, including many conceptual changes. Companies, auditors...

  • Page 61
    Business areas Percentage of Group's net sales Trucks, 67% Buses, 7% Construction Equipment, 15% Volvo Penta, 4% Volvo Aero, 3% Other, 4% Percentage of Group's operating income Trucks, 62% Buses, 3% Construction Equipment, 15% Volvo Penta, 5% Volvo Aero, 4% Financial Services, 11% Volvo Group ...

  • Page 62
    ... material costs through active pricing. More efficient purchasing and closer cooperation with suppliers resulted in improved component supply. Ambitions 2006 • Successful introductions and production change-overs. • Introduce engines in all trucks that meet future emissions standards in Europe...

  • Page 63
    ... brands, Mack, Renault Trucks and Volvo, was carried out. With the new trucks, the Group's truck operations are improving their rankings in a number of key segments and further strengthening competitiveness. Western Europe Eastern Europe North America South America Asia Other markets Total 90,746...

  • Page 64
    ... was introduced Net sales per market SEK M 2004 2005 with a year earlier. Deliveries rose 23% in North America and 2% in Asia, in which the Middle East accounted for 80% of the volumes. Deliveries in Europe decreased by 1%. During the year, Volvo Trucks continued to strengthen its dealer network in...

  • Page 65
    ... the North American market continued in Hagerstown, Maryland in the US. During the year, series production of Volvo's 12- and 16-liter engines was started and preproduction of the new Mack engines series was initiated toward year-end. Volvo Trucks opened a new assembly plant in Durban, South Africa...

  • Page 66
    ... costs through such measures as increased standardization and enhancement of the production process. • Renewal of the engine program to meet the requirements of Euro 4 and Euro 5. • Improved customer service through expanded cooperation with dealers and service centers. 62 Volvo Group 2005

  • Page 67
    ... on service contracts and financial solutions. Also during the year, the company began to offer customers assistance with the analysis and improvement of fuel consumption. Growing market in Asia The total bus market rose moderately or continued at a high level in most parts of the world during 2005...

  • Page 68
    ... distribution network acquired from Bilia. • Introduce Tier-3 engines in the US. • Launch products for new segments and new customer groups. Outcome 2005 • Sales of spare parts, accessories and services rose 20%. • Sales in international markets increased 23%. • Volvo CE Rents opened ~40...

  • Page 69
    ...are located in Sweden, Germany, France, Poland, the US, Canada, Brazil, Korea and China. Volvo Construction Equipment's rental initiative, Volvo Rents, continues to develop favorably. During the year, about 40 new outlets were opened and the total number at year-end amounted to 116, with 65 in North...

  • Page 70
    ... 2005, the IPS was launched for commercial marine applications. • Good cost control helped improve operating income. • Volvo Penta's global production was grouped under a single organization. Ambitions 2006 • Ensure more efficient production and logistics solutions for Volvo Penta customers...

  • Page 71
    ... favorable balance between production pace and demand. At Volvo's joint engine plant in Skövde, Sweden, Volvo Penta helped improve capacity utilization through sales of 12- and 16-liter engines. Net sales per market SEK M 2004 2005 Europe North America South America Asia Other markets Total 4,907...

  • Page 72
    ... on costs. • Ensure that the development and production of components for the GEnx engine proceeds smoothly and on schedule. • Integration of American component manufacturer Aero-Craft, acquired in 2004. Expansion of these operations to include fan housings. • Improve after-market business by...

  • Page 73
    ... time. The A380 has Trent 900-type Rolls Royce engines, an engine program in which Volvo Aero is part-owner. In addition Volvo Aero delivers components for the second engine alternative, the GP7000. Net sales per market SEK M 2004 2005 Europe North America South America Asia Other markets Total...

  • Page 74
    ... 2 Share of business funded by VFS in markets where VFS offers financial services. Ambitions 2005 • Growth in financing volume and assets. • Maintain discipline in pricing and credit decisions. • Conservative management of customer finance portfolio. • Assure low-cost funding. Outcome 2005...

  • Page 75
    ... customer finance operations cover Europe, North America, Australia, and parts of South America and Asia. VFS conducts customer finance operations in more than 50 countries. Finance programs are offered to the dealers and end-customers of Volvo's business areas. The range of financial services...

  • Page 76
    ... solution for the Code's rules about internal controls for financial reporting, the Board's report on internal control in accordance with Section 3.7.2 of the Code, within the scope of this corporate governance report, is limited to a description of how internal control is organized without making...

  • Page 77
    ... description of the rules o the Stockholm Stock Exchange and the Code. The independence requirements mainly mean that only one person from the company's management may be a member of the Board, that a majority of the Board shall be independent of the company and the company management and that at...

  • Page 78
    ... the accounting and financial reporting processes and the audit of the financial statements. The Audit Committee is responsible for preparing the Board's work through quality assurance of the company's financial reporting through reviewing the interim reports and the annual report. In addition, the...

  • Page 79
    ... as well as to listing rules to timely disclose to the financial market all material information that affects the share price. The Committee comprises the heads of the corporate staffs, Corporate Finance, Internal Audit, Investor Relations, Corporate Legal and Financial Reporting. Principles for...

  • Page 80
    Group Management Göran Gummeson • Leif Johansson • Stefan Johnsson Paul Vikner • Jorma Halonen • HÃ¥kan Karlsson Tony Helsham • Lars-Göran ... Eva Persson • Salvatore L Mauro Per Löjdquist • Staffan Jufors Karl-Erling Trogen • Pär Ã-stberg • Michel Gigou 76 Volvo Group 2005

  • Page 81
    ...in Accounting. President of Volvo Financial Services since 2001. President of Volvo Car Finance Europe 1999-2001. Member of Group Executive Committee since 2001. With Volvo since 1985. Holdings in Volvo: 1,003 American Depositary Receipts (ADRs) and 25,000 employee stock options. Lars-Göran Moberg...

  • Page 82
    Board of Directors and Auditors Finn Johnsson • Leif Johansson Johnny Rönnkvist • Martin Linder • Berth Thulin Ken Whipple • Olle Ludvigsson • Tom Hedelius Per-Olof Eriksson • Louis Schweitzer Patrick Faure • Haruko Fukuda • Margareta Ã-hlin 78 Volvo Group 2005

  • Page 83
    ... AB. Member of Volvo Board since 2001. Holdings in Volvo: None. Principal work experience: Numerous positions with Ford Motor Company mainly within finance and marketing, President Ford Credit, Chairman and CEO Ford Europe, President Ford Financial Services Group, Chairman and CEO Ford Motor Credit...

  • Page 84
    ... current liabilities Contingent liabilities Cash ï¬,ow Financial risks and instruments Personnel 130 Parent Company AB Volvo 144 Proposed disposition of unappropriated earnings 145 Audit report for AB Volvo 145 Examination of the Corporate Governance Report 146 Eleven-year summary 80 Volvo Group...

  • Page 85
    ...Note 7 2005 Net sales Cost of sales Gross income Research and development expenses Selling expenses Administrative expenses Other operating income and expenses Income from investments in associated companies Income from other investments Operating income Interest income and similar credits Interest...

  • Page 86
    ...Consolidated balance sheets SEK M December 31, 2004 December 31, 2005 Assets Non-current assets Intangible assets Tangible assets Property, plant and equipment Investment property Assets under operating leases Financial assets Associated companies, other shares and participations Long-term customer...

  • Page 87
    ... the period Total recognised income and expense for the period Cash dividend Distribution of shares in Ainax AB to shareholders Note 23 Repurchase own shares Share based payments Note 34 Other changes Balance at December 31, 2004 IFRS Transition effect IAS 39 Balance at January 1, 2005 Translation...

  • Page 88
    ... business units, net Interest-bearing receivables including marketable securities Cash ï¬,ow after net investments Financing activities Increase (decrease) in bond loans and other loans Cash dividend to AB Volvo shareholders' Repurchase of own shares Dividends to minority shareholders Other Change...

  • Page 89
    .... Dividends from associated companies are not included in consolidated income. In the consolidated balance sheet, Volvo Group 2005 85 The consolidated financial statements for AB Volvo and its subsidiaries have been prepared in accordance with International Financial Reporting Standards (IFRS...

  • Page 90
    ... currencies at year- end are credited to, or charged against, income in the year they arise. The more important exchange rates applied are shown above. Net sales and revenue recognition The Group's reported net sales pertain mainly to revenues from sales of goods and services. Net sales are reduced...

  • Page 91
    ... Land improvements Product and software development 2 to 8 years 3 to 5 years 5 to 20 years 25 to 50 years 20 years 3-8 years In connection with its participation in aircraft engine projects with other companies, Volvo Aero in certain cases pays an entrance fee. These entrance fees are capitalized...

  • Page 92
    ...are not included. Net realizable value is calculated as the selling price less costs attributable to the sale. Share-based payments Volvo applies IFRS 2, Share-based Payments for the new share-based incentive program adopted at the Annual General Meetings in 2004 and 2005. IFRS 2 distinguishes "cash...

  • Page 93
    ... opening value at January 1, 2005 was used in calculating cash ï¬,ow. Cash and cash equivalents include cash, bank balances and parts of Marketable Securities. Marketable Securities comprise interestbearing securities, the majority of which with terms exceeding three years. However, these securities...

  • Page 94
    ..., management makes consideration of current price-level of the used product model, value of options, mileage, condition, future price deterioration due to expected change of market conditions, alternative distribution channels, inventory lead-time, repair and reconditioning costs, handling costs and...

  • Page 95
    ... in accordance with IAS 39, Financial Instruments: Recognition and Measurement. Companies listed on a financial exchange should be reported in the balance sheet to market value. Under Swedish GAAP such investments have been carried at their cost of acquisition unless there has been a permanent...

  • Page 96
    ... the fair value is determined at the grant-date, recognized as an expense during the vesting period and credited to equity. Additional social costs are reported as a liability and is revalued at each balance sheet day in accordance with URA 46. IFRS 5 Non-Current Asset Held for Sale and Discontinued...

  • Page 97
    ... end-customers are in segment reporting for Volvo Financial Services reported as financial leasing contracts if the residual value in these contracts is guaranteed to Volvo Financial Services by another Volvo business area. In the Volvo Group's consolidated balance sheet, these leasing agreements...

  • Page 98
    ... Dec 31 2004 Financial Services Dec 31 IFRS 2004 adjustments Dec 31 2004 Volvo Group total Dec 31 IFRS 2004 adjustments Dec 31 2004 Assets Intangible assets Property, plant and equipment Assets under operating leases Shares and participations Long-term customer finance receivables Long...

  • Page 99
    ...been used as opening balance for cash ï¬,ow calculation during 2005. Financial Services Dec 31 IAS 39 2004 adjustments Jan 1 2005 Volvo Group total Dec 31 IAS 39 2004 adjustments Jan 1 2005 Jan 1 2005 Assets Intangible assets Property, plant and equipment Assets under operating leases Shares and...

  • Page 100
    ...Depreciation (8,606) Amortization Industrial and Commercial Financial Services Total Amortization Basic earnings per share, SEK Diluted earnings per share, SEK Average number of shares, million Trucks Buses Construction Equipment Volvo Penta Volvo Aero Volvo Financial Services Other units Operating...

  • Page 101
    ... in listed companies Fair value gains and losses on derivatives for hedge of: - Commercial cash ï¬,ow - Electricity contracts Consolidation of temporary investments Share based payments Deferred taxes on IFRS adjustments Total adjustments to IFRS Equity under IFRS Summarized reconciliation of net...

  • Page 102
    ... AB Volvo's holding of shares (pages 141-143). Significant acquisitions, formations and divestments within the Group are listed below. Celero Support AB In November 2005 Volvo sold Celero Support AB to Coor Service Management for 680 before deduction for the company's net debt. The sale resulted...

  • Page 103
    ... Volvo's shareholding, see notes 9 and 15. Income statement data Net sales Cost of operations Financial income and expense Income before taxes Income taxes Income of the period 2004 2005 5,620 (5,449) (9) 162 (7) 155 5,779 (5,588) (10) 181 (11) 170 Balance sheet data Property, plant and equipment...

  • Page 104
    ... at standard cost of sales, including calculated interest and product improvement expenses. Internal sales from service companies are generally made at market prices. Operating income Trucks Buses Construction Equipment Volvo Penta Volvo Aero Financial Services Other Volvo Group total 2004 2005 136...

  • Page 105
    ... Trucks Buses Construction Equipment Volvo Penta Volvo Aero Other Volvo Group excl Financial Services Financial Services Reclassification Group versus segment Financial Services Volvo Group total Reporting by geographical segment Net sales Europe North America South America Asia Other markets Volvo...

  • Page 106
    ..., customer financing Change in allowances, and write offs for doubtful receivables, other Expenses for industrial relocation of Renault Trucks Villaverde plant in Spain Expenses for closing Volvo Buses Heilbronn plant in Germany Volvo profit sharing program Other income and expenses Total 828...

  • Page 107
    ...of inventories Capitalized product and software development Untaxed reserves Fair value of derivative instruments: Change of hedge reserves Other taxable temporary differences Deferred tax assets, net 1 (2,592) 10,214 Income taxes were distributed as follows: 2004 2005 2005 Current taxes relating...

  • Page 108
    ... sheet Capital 2004 expenditures Acquired and Sales/ divested Translation scrapping operations 5 differences Reclassifications and other Value in balance sheet 2005 Acquisition costs Goodwill1 Entrance fees, aircraft engine programs Product and software development Other intangible assets Total...

  • Page 109
    ... market value. The revaluation is booked to Equity and amounts to 83 (-). Carrying value Market value Deutz AG Total holdings in listed companies Holdings in non-listed companies 1 Total shares and participations in other companies 1 reported at cost 253 253 303 556 253 253 - - Volvo Group 2005...

  • Page 110
    ... year IFRS transition effect Acquisitions and divestments, net Net of write-downs/revaluations New issue of shares and shareholders' contributions Share of income in associated companies Change in Group structure Fair value of shares Translation differences Dividends Other Balance sheet, December...

  • Page 111
    ... Other long-term receivables 2004 2005 Other loans to external parties Prepaid pensions Other receivables Total 1,377 364 1,022 2,763 909 524 1,689 3,122 Note 18 Inventories 2004 2005 Finished products Production materials, etc. Total Inventories recognised as cost of sale during the period...

  • Page 112
    The Volvo Group Notes to consolidated financial statements Note 19 Short-term customer-financing receivables 2004 2005 Installment credits Financial leasing Dealer financing Other receivables Total 10,382 5,488 8,850 1,286 26,006 13,174 7,132 12,067 909 33,282 Note 20 Other short-term ...

  • Page 113
    ...in 2005. Cash dividend decided by the Annual General Meeting 2005 was 12:50 (8:00) per share or total 5,055 (3,356). Unrestricted equity in the Parent Company at December 31, 2005 amounted to 41,220. Changes in outstanding Volvo shares Balance December 31, 2004 Buy-back of shares in 2005 Share-based...

  • Page 114
    ... the Volvo Group. Volvo report the difference between the obligations and the plan assets adjusted for actuarial gains and losses in the balance sheet. The information refers to assumptions applied for actuarial calculations, periodical costs and the value of obligations and plan assets at year-end...

  • Page 115
    ... costs Unvested past service costs Vested past service costs Termination benefits Curtailments and settlements Employee contributions Actuarial gains (-) and losses (+) Exchange rate translation Benefits paid Obligations at December 31, 2005 of which Funded defined benefit plans Sweden Pensions...

  • Page 116
    ....0). Volvo's subsidiaries in the United States mainly secure their pension obligations through transfer of funds to pension plans. At the end of 2005, the total value of pension obligations secured by pension plans of this type amounted to 12,962 (10,287). At the same point in time, the total value...

  • Page 117
    ...-rate risks using derivative instruments. See Note 36. 2004 2005 The listing below shows the Group's non-current liabilities in which the largest loans are distributed by currency. Most are issued by Volvo Treasury AB. Bond loans GBP 2004/2006, 5.18% SEK 1998-2005/2007-2009, 1.78-5.2% JPY 2001-2005...

  • Page 118
    ...Secured bank loans at year-end 2005 amounted to 186 (194). The corresponding amount for other current liabilities was 1,685 (1,578). Note 28 Assets pledged 2004 2005 Property, plant and equipment - mortgages Assets under operating leases Chattel mortgages Receivables Inventories Cash, marketable...

  • Page 119
    ... in cases where a legal offsetting right does not exist. At December 31, 2005, the estimated value of counter guarantees received and other collaterals, for example the estimated net selling price of used products, amounted to 4,479 (5,135). Tax claims pertain to charges against the Volvo Group for...

  • Page 120
    .... During the year, AB Volvo sold properties to market price to members in group management for an amount of 17. The Volvo Group has transactions with some of its associated companies. The transactions consist mainly of sales of vehicles to dealers. Commercial terms and market prices apply for the...

  • Page 121
    ... cash payments linked to the share-based incentive program. 2 In addition to the CEO, the Group Executive Committee (GEC) comprises 16 members at the end of the year. 3 Total costs for senior executives include social fees on salaries and benefits, special pension tax and additional costs for...

  • Page 122
    ... non-market based Financial instruments and shares Board Chairman CEO Other members of GEC Other senior executives Total financial goals for fiscal year 2004. The allotment was made from Volvo's treasury stock. Part of the allotment was carried out as a cash payment. The total costs for the share...

  • Page 123
    ...- (105,000) - 945,000 - (6,250) - 938,750 2005 Average number of employees AB Volvo Sweden Subsidiaries Sweden Western Europe Eastern Europe North America South America Asia Other countries Group total Number of employees of which women, % Number of employees of which women, % 136 54 144 50...

  • Page 124
    ... Volvo Sweden Subsidaries Sweden Western Europe Eastern Europe North America South America Asia Other countries Group total Wages, salaries, other remunerations and social costs, SEK M AB Volvo 2 Subsidiaries Group total 3 2004 Board and Presidents 1 of which variable salaries Other employees Board...

  • Page 125
    ..., Financial Instruments: Recognition and Measurement. In accordance with this standard all derivatives shall be reported at fair value in the balance sheet. In calculating the fair values of financial instruments, Volvo has primarily used official rates or prices quoted on the capital markets. In...

  • Page 126
    ... determine the estimated fair value, the major part of the outstanding contracts have been marked to market. Discounted cash ï¬,ows have been used in some cases. interest rate risks is reduced. Interest rate swaps are used to change the fi xed interest rate periods of the Group's financial assets...

  • Page 127
    ... Volvo's pension plans, investments in shares are only made if motivated by operational purposes. A comparison between carrying values and market values of Volvo's holdings in listed companies is included in Note 15. Credit risks Volvo's granting of credits is governed by common policies and rules...

  • Page 128
    ... Volvo's investment in Deutz AG. For the purpose of these disclosures, fair values of listed shares are based upon quoted market prices at the end of the period. 3 No single investment represents any significant amount. 4 All derivative instruments has been booked to fair value in the balance sheet...

  • Page 129
    ...) reported shareholders' equity Derivative instruments and hedging activities (A) Business combinations (B) Investments in debt and equity securities (C) Restructuring costs (D) Post-employment benefits (E) Product development (F) Entrance fees, aircraft engine programs (G) Other (H) Income taxes...

  • Page 130
    ... In 1995, AB Volvo acquired the outstanding 50% of the shares in Volvo Construction Equipment Corporation (formerly VME) from Clark Equipment Company in the US. Surplus value (goodwill) of SEK 2.8 billion was reported in conjunction with the acquisition. In the Volvo Group's consolidated financial...

  • Page 131
    ...nancial benefits for the company. The acquisition value of such intangible assets should be amortized over the useful lives of the assets. Under US GAAP, all expenditures for development of new and existing products should be expensed as incurred. Net periodical costs for post-employment benefits...

  • Page 132
    ... 1997. Share-based payments: Volvo applies IFRS 2 Share-based payments: At grant date, the fair value of share payments is determined and the cost is recognized during the vesting period against shareholders' equity. Adjustment in 2005 pertains to settlement of old options programs. Guarantees: In...

  • Page 133
    ... interest is recognized a part of shareholders' equity and are included in net income for the year in the income statement. Under US GAAP, minority interest is reported as a separate item in both the income statement and balance sheet. Comprehensive income (loss) Net income (loss) in accordance...

  • Page 134
    ... accruing to AB Volvo totaled 85 (90). Shares and participations in non-Group companies included listed shares in Deutz AG with a carrying value of 253, corresponding to the quoted market price at year-end. The holding in Deutz AG is reported at market value as of January 1, 2005 in accordance...

  • Page 135
    Balance sheets SEK M December 31, 2004 December 31, 2005 Assets Non-current assets Rights Property, plant and equipment Financial assets Shares and participations in Group companies Other shares and participations Deferred tax assets Other long-term receivables Total non-current assets Current ...

  • Page 136
    ... Company AB Volvo Changes in Shareholders' equity SEK M Restricted equity Share capital Legal reserve Unrestricted equity Total shareholders' equity Balance at December 31, 2003 Effect due to change of accounting principle Balance at January 1, 2004 Cash dividend Distribution of shares in Ainax AB...

  • Page 137
    ...in Group companies, net Shares and participations in non-Group companies, net Interest-bearing receivables including marketable securities, net Cash ï¬,ow after net investments Financing activities Increase/(decrease) in loans Cash dividend to AB Volvo shareholders Repurchase of own shares Change in...

  • Page 138
    ... shall be reported at closing rate. The Shareholders' equity according to previous Annual report 60,768 Revaluation of loans 235 Share-based payments - Investments in listed companies - Shareholders' equity after change of accounting principle 61,003 Summarized reconciliation of net income SEK...

  • Page 139
    ... from investments in Group companies AB, after which shares in Volvo Global Trucks AB were written down by 8,420. In 2004 write-downs of shareholdings amounted to 1,364. Transfer price adjustments and Group contributions total a net of 5,360 (5,673). Divestment of total shares in Celero Support...

  • Page 140
    ... Acquisition cost Rights Total intangible assets Buildings Land and land improvements Machinery and equipment Total tangible assets Capital expenditures Sales/ scrapping 52 52 9 4 49 62 Value in balance sheet 2004 2 - - - - 0 0 - - (3) (1) (1) (5) Sales/ scrapping 52 52 6 3 48 57 Value in Net...

  • Page 141
    ... made to Volvo Bussar AB, 18, Volvo Global Trucks AB, 1 and Volvo Financial Services AB, 345. Write-downs were carried out at year-end on holdings in Sotrof AB, 600, Volvo China Investment Co Ltd, 99 and Volvo Penta UK, 10. Shares and participations in non-Group companies As of January 1, 2005, the...

  • Page 142
    ...benefit obligation of all AB Volvo's pension obligations at year-end 2005 amounted to 637, which has been secured in part through provisions for pensions and in part through funds in pension foundations. Net asset value in the Pension Foundation, marked to market, accruing to AB Volvo was 53 higher...

  • Page 143
    ...ï¬,ow 2004 2005 Other items not affecting cash Revaluation of shareholdings Dividends, transfer price adjustments and Group contributions Gain on sale of shares Other Total 545 (5,273) (27) 29 (4,726) 8,421 (6,940) (519) 260 1,222 Shares and participations in non-Group companies, net Investments...

  • Page 144
    ... AB Volvo Notes to financial statements Note 21 Financial risks and instruments are between 2006 and 2009. During 2004 AB Volvo has used forward exchange contracts for hedging of short-term receivable and liability regarding the amount of the settlement agreement between AB Volvo and Renault SA...

  • Page 145
    ... rights. - - 969639-1011 7 10 40 670 0 1 20 691 253 0 0 18 271 AB Volvo's holding of shares and participations in Group companies Registration number Percentage holding Dec 31, 2004 Carrying value, SEK M Dec 31, 2005 Carrying value, SEK M Volvo Global Trucks AB, Sweden Volvo Lastvagnar AB...

  • Page 146
    Parent Company AB Volvo AB Volvo's holding of shares and participations in Group companies (cont.) Registration number Percentage holding Dec 31, 2004 Carrying value, SEK M Dec 31, 2005 Carrying value, SEK M Renault Trucks, France Renault Trucks Commercial SA, France Renault Trucks UK Ltd, ...

  • Page 147
    ...Information Technology, North America, USA Volvo Treasury Canada, Inc. Canada Volvo Treasury AB, Sweden Sotrof AB, Sweden Danafjord AB, Sweden Volvo Group Finance Europe BV, The Netherlands Volvo Construction Equipment Korea Co Ltd, South Korea Volvo Financial Services AB, Sweden Volvo Truck Finance...

  • Page 148
    ...AB Volvo Retained earnings Net income 2005 Total SEK M 36,860 4,360 41,220 The Board is of the opinion that the dividend proposed below is justifiable on both the company and the Group level with regard to the demands on company and Group equity imposed by the type, scope and risks of the business...

  • Page 149
    ... financial position and results of operations. The Board of Directors' Report is consistent with the other parts of the annual accounts and the consolidated accounts. We recommend to the general meeting of shareholders that the income statements and balance sheets of the Parent Company and the Group...

  • Page 150
    ... for the respective year. As from 2004 the reporting is based on IFRS. The transition to IFRS is desribed in note 3. Consolidated income statements SEK M 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Net sales Cost of sales Gross income Research and development expenses Selling expenses...

  • Page 151
    ... Consolidated balance sheets with Financial Services reported in accordance with the equity method SEK M 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Intangible assets Property, plant and equipment Assets under operating leases Shares and participations Inventories Customer financing...

  • Page 152
    ... leasing assets Shares and participations, net Acquired and divested subsidiaries and other business units, net Interest-bearing receivables including marketable securities Cash ï¬,ow after net investments Increase (decrease) in loans Repurchase of own shares Cash dividend to AB Volvo's shareholders...

  • Page 153
    ... Key ratios 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Gross margin % 1 Research and development expenses as percentage of net sales1 Selling expenses as percent of net sales1 Administration expenses as percentage of net sales1 Return on shareholders' equity, % Interest coverage, times...

  • Page 154
    ...by the Board of Directors. The largest shareholders in AB Volvo, December 31, 2005 1 Number of shares % of total votes 2 Share capital, % 2 Distribution of shares, December 31, 2005 Volvo shareholders 1 holding Number of shareholders % of total votes 2 Share of capital, % 2 Renault SA AMF Pension...

  • Page 155
    ...Volvo Penta Western Europe Eastern Europe North America South America Asia Other markets Total Volvo Aero Western Europe Eastern Europe North America South America Asia Other markets Total Other and eliminations 1 Net sales excl Financial Services Financial Services Western Europe Eastern Europe...

  • Page 156
    ... to 12.3. Number of employees at year-end Number 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Trucks Buses Construction Equipment Volvo Penta Volvo Aero Financial Services Other Volvo Group, excluding divested operations Cars Other divested operations Volvo Group, total 21,450 3,620...

  • Page 157
    ... per market area reï¬,ects geographical definitions based on an ISO standard. The accounting for the years 1995- 1996 has been adjusted to conform with the new principle. Environmental performance of Volvo production plants Absolute values related to net sales 2001 2002 2003 2004 2005 Energy...

  • Page 158
    ... a global service network, efficient spare parts handling, service and repair contracts, financial services and traffic information systems. Marine leisure Marine commercial Industrial engines Marine and industrial Volvo Penta manufactures engines and drive systems for marine applications, for...

  • Page 159
    .... Volvo Aero also has a substantial aftermarket, which includes engine overhaul and spare parts sales. Customer financing In-house bank Property management Financial services Financial Services contributes to create shareholder value through its customer and dealer financing activities, plus...

  • Page 160
    ... similar charges. Net financial position Cash and cash equivalents, marketable marketable securities and interest-bearing short- and long-term receivables reduced by shortand long-term interest-bearing loans and provisions for post-employment benefits. Net debt in Financial Services is not included...

  • Page 161
    ... to all shareholders who have advised Volvo that they wish to receive financial information. Historical and current time series reflecting the Volvo Group's financial development, market information and share data are published regularly on www.volvo.com. Contacts Investor Relations: Christer...

  • Page 162
    AB Volvo, Investor Relations, 635 3004