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The Volvo Group 2006
By creating value for
our customers, we
create value for our
shareholders

Table of contents

  • Page 1
    The Volvo Group 2006 By creating value for our customers, we create value for our shareholders

  • Page 2
    ... Volvo Trucks Trucks Buses Construction Equipment Volvo Penta Volvo Aero Financial Services Report Group Management Board of Directors and auditors Income statements Balance sheets Changes in shareholders' equity Cash-flow statements Notes to the consolidated financial statements Parent Company AB...

  • Page 3
    ... the Group's growth target. 2006 12.5 SEK bn 2000 4.7 SEK bn 2006 73.7 SEK bn 2000 38.2 SEK bn North America a Net sales, SEK M 73,657 Percentage of the Volvo Group's sales, % 30 Production facilities Mack Trucks Renault Trucks Volvo Trucks Buses Construction Equipment Volvo Penta Volvo Aero Volvo...

  • Page 4
    ... 129.6 SEK bn 2000 66.3 SEK bn Net sales 2006 Net sales 2000 2006 19.6 SEK bn 2000 8.7 SEK bn 2006 12.7 SEK bn 2000 3.4 SEK bn Europe 129,613 52 Asia 19,610 8 Rest of world 12,722 5 Brisbane (AU) Blainville, Bourg-en-Bresse, Limoges (FR), Villaverde (ES) Göteborg, Umeå (SE), Gent (BE) Bor...

  • Page 5
    ... (17.8). Major investments in R&D programs for the next generation of engines and products to ensure future competitiveness. Consolidation of the Group's presence in Asia as a result of the purchase of shares in Nissan Diesel and an agreement to purchase shares in Lingong, a Chinese manufacturer of...

  • Page 6
    ...000 employees is employed in the eight product-related business areas. Linked to these companies are a number of business units that supply components and services to support the Group's business areas globally. This organizational configuration permits companies to work closely with their customers...

  • Page 7
    ... largest producer of diesel engines for leisure boats. Volvo Aero holds a leading position as an independent producer, with engine components in about 90% of all large commercial aircraft delivered in 2006. Financial Services cooperates closely with the other business areas to strengthen the Group...

  • Page 8
    ...Volvo Group is one of the world's leading suppliers of commercial transport solutions. Our trucks, buses, construction equipment, marine and industrial drive systems and components and services for the aviation sector are important parts of the world's transportation networks, which are in operation...

  • Page 9
    .... Volvo Aero's many years of experience and leading-edge competencies in the field of aircraft engine components enable its customers to focus on their own core businesses - namely to provide optimally effective transport services. Volvo Penta is best known for its boat engines and marine drive...

  • Page 10
    ... shareholders. We use our expertise to create transport-related products and services of superior quality, safety and environmental care for demanding customers in selected segments. We work with energy, passion and respect for the individual. Our values The Volvo Group views its corporate culture...

  • Page 11
    ...the best business partner. Safety Safety is concerned with how our products are used in society. We have had a leading position in issues regarding safety for a long time; our goal is to maintain this position. A focus on safety is an integral part of our product development work. Our employees are...

  • Page 12
    ... during the year. Fuel costs are a significant part of the operating cost for many of Volvo Group's customers. Generally, Volvo Group customers have proven skillful in offsetting fuel costs. Growth in USA and Europe, % Growth in Asia and China, % USA Europe Asia China Annual GDP growth. Source...

  • Page 13
    ... world's leading supplier of commercial transport solutions. Volvo currently has well-established positions in the European and North American markets. However, the most rapid growth is occurring in regions in which the Group had very limited operations ten or 15 years ago. The Volvo Group plans to...

  • Page 14
    ... free up resources to develop more customer-adapted variants, which further strengthen positions. As a result of the increased benefits for the customer, we have been able to price our vehicles, equipment and services at the right levels. Group-wide production The changes implemented are not solely...

  • Page 15
    ...important part of our strategy for increased profitability is the growth of services, accessories and spare parts. New technology for a better New phase in Asia In order to strengthen our position in Asia, we have taken several steps of significant strategic importance. Within the truck segment, we...

  • Page 16
    ... strategy...The Volvo Group's customers mainly conduct transport-related operations. They impose rigorous requirements on both products and services. In a competitive market, customer satisfaction is a key factor, since it assures future sales and is essential for healthy profitability. Developing...

  • Page 17
    ... is making large investments in the dealer and service networks and concurrently carrying out a number of acquisitions. The aim is for markets outside Europe and North America, such as India, Japan, China and Russia, to account for a substantial portion of the Group's total sales in the long term...

  • Page 18
    ... forums that allow experience to be exchanged and contact to be made with cutting-edge technologies and innovations. The Volvo Group will continue to actively exchange information with many different players, such as universities, research institutes, customers, suppliers and government authorities...

  • Page 19
    ...VPS will create value for customers through improved quality, more reliable deliveries and reduced costs. Execution in focus A key competitive advantage in the commercial transport sector is the capacity to be efficient and suited to purpose. The Volvo Group's capacity to handle development projects...

  • Page 20
    ..., geographic Financial strategy The purpose of Volvo's long-term financial strategy is to ensure the best use of Group funds in providing shareholders with a favorable return and offering creditors reliable security. However, a prerequisite for the long-term competitive development of the company is...

  • Page 21
    ... end of 2006 total assets in Financial Services amounted to approximately SEK 84 billion and the equity ratio was 11.5 percent. Long-term credit rating The purpose of Volvo's capital structure is to balance expectations from the stock markets and other financial stakeholders. Each year, Volvo meets...

  • Page 22
    ... expect complete transport solutions, which creates a need to be able to offer various services, accessories and spare parts to support Products key products. Vehicles and equipment The Volvo Group is the world's largest manufacturer of heavy-duty diesel engines for commercial use and also...

  • Page 23
    ... contracts, operating and financial leasing and dealer financing. Services Volvo Trucks has in the recent years developed its retail network in Europe through the wholly-owned Volvo Truck Centers. This is an important part of the company's strategy to work closer with the customers and hereby...

  • Page 24
    INTERVIEW However, crucial to our success is that we must successfully continue developing the intellectual capital and stimulate exchange of thoughts and ideas. Torbjörn Holmström, President, Volvo 3P 20 A global group 2006

  • Page 25
    ... planning, product development and purchasing for the three truck companies, Volvo Trucks, Mack Trucks and Renault Trucks. The business unit has 2,872 employees and offices in Gothenburg (Sweden), Lyon (France), Allentown and Greensboro (USA), Curitiba (Brazil), Bangalore (India), Shanghai (China...

  • Page 26
    ... one or a few years, product planning has a long-range 22 A global group 2006 In terms of the number of employees, product development is Volvo 3P's largest area. Nearly 2,300 employees work in close collaboration with the three truck brands and Volvo Powertrain. Volvo 3P concentrates on chassis...

  • Page 27
    Increased coordination creates resources for the Group's truck brands to develop customized solutions. A global group 2006 23

  • Page 28
    ... Renault Trucks and Mack Trucks were followed through. Volvo Powertrain - the Group's engine The Group now has common engine platforms that fulfill the latest environmental requirements, a more focused research and development program, more efficient production and a more focused supplier structure...

  • Page 29
    Jessica Sandström, who is in charge of ongoing hybrid-development projects at Volvo Powertrain, talks to Lars-Göran Moberg, President. A global group 2006 25

  • Page 30
    ...choices for customers is larger than before. The Volvo Group's engine offering is one of the broadest in the market, and engines are adapted to the size of vehicles, what type of transport work they will be doing, as well as the environment in which the product is to operate. "We develop and produce...

  • Page 31
    ... on the market as early as 2009. "Development is proceeding rapidly and we are positioned to capitalize on all the advantages that come from being a truly global company with world-leading technology and processes," says Lars-Göran Moberg. 18 Common engine platforms In 2001, the Volvo Group had 18...

  • Page 32
    INTERVIEW IN ASIA LONG-TERM STRATEGY 28 A global group 2006

  • Page 33
    ...company has developed favorably, with an increased rate of product renewal, rising volumes and improved profitability. 1998 Number of employees Net sales, SEK M Profitability, SEK M 1,565 2,028 Loss 2006 1,443 9,395 765 Long-term strategy in Asia During the past few years, the Volvo Group has taken...

  • Page 34
    ...shares were traded on the Stockholm Stock Exchange, corresponding to a daily average of 2.7 (2.2) million shares traded. At year-end 2006, Volvo's market capitalization totaled SEK 193 billion (150). Dividend The objective of Volvo's dividend policy is that the long-term total return to shareholders...

  • Page 35
    ... ten years and search for informa- tion concerning the share, insider trading in Volvo, earnings estimates and statistics for truck deliveries. It is also possible to access information concerning the Group's governance, including information about the Annual General Meeting, the Board of Directors...

  • Page 36
    ... development, both in environmental and social terms, as a vital prerequisite for long-term profitability and increased customer and shareholder value. The Volvo Group has a strong impact on the communities in which it operates. The Group's companies are major employers as well as providing work...

  • Page 37
    ...enterprise worldwide. By supporting the Global Compact, the Volvo Group commits itself to implementing and integrating ten principles regarding human rights, working conditions and the environment in its operations. For more information, see www.unglobalcompact.org. Sustainable development 2006 33

  • Page 38
    ...groups with customers in areas such as product development. The Volvo Group presents its interim reports and financial statements to the media, analysts and investors. In addition, representatives of the Group meet various financial market players during the year. Interest has increased in investing...

  • Page 39
    ... impact. The Volvo Group's first system was certified in 1995. There are also environmental management systems for other parts of the value chain, such as product development and marketing. At the end of 2006, 99% of the employees in the Group's production units were working according to certified...

  • Page 40
    Volvo's new diesel engines are leading in terms of fuel efficiency. Activities requiring a permit All the Volvo Group's production facilities have the requisite environmental permits. In Sweden, there are 16 facilities that require permits. These permits encompass waste, noise and emissions into ...

  • Page 41
    ... in a few years' time. To meet these requirements, the Volvo Group is continuously developing new engine technology to minimise fuel consumption and emissions. The primary focus of this development work is on diesel engines. One of the most 138 M and is the second stage in a total investment of SEK...

  • Page 42
    ...Europe, the Group's heavy engines meet the stricter Euro 4 emission requirements that took effect on October 1, 2006. Meanwhile, Volvo has developed an engine that already meets the new requirements to take effect in 2009. Since April 2006, a refuse truck has been in use with a D13 engine that meets...

  • Page 43
    ...-acid technology used in today's starter batteries. The new technology doubles the bat- Volvo's Environmental Prize awarded to three pioneers in marine ecosystems Volvo's Environmental Prize for 2006 was awarded to three distinguished scientists for their research regarding human impact on global...

  • Page 44
    ... changes faster than the competition, the Volvo Group aims to secure long-term success. The employees' working conditions Achieving success on individual markets requires extensive knowledge of the conditions prevailing on that market. It takes a long time to build up this knowledge and experience...

  • Page 45
    ... leaders in key positions at all levels. The Leadership Supply Process is linked to the Group's strategy process. Its starting point is the annual Performance Development Appraisal process, where leaders and employees meet to discuss the employee's performance during the year in relation to the...

  • Page 46
    ..., it is essential that the organization actively reflects its customers and understands the conditions prevailing in local markets, different cultures and future employees' require- Fredrik Lindvall, assembling the RM12 engine at Volvo Aero in Trollhättan, Sweden. 42 Sustainable development 2006

  • Page 47
    .... The Volvo Group aims to function as an active partner in society. Geographic distribution of employees, % Number of satisfied employees Sweden 33% Europe, excl. Sweden 36% North America 18% South America 5% Asia 5% Other 3% 02 74 03 77 04 81 05 83 06 84 Sustainable development 2006 43

  • Page 48
    ...received information on the Code of Conduct. In November 2006, an online training program on corruption was launched for all managers, 5,491 of whom had completed the training by year-end. All salaried employees will receive this training in 2007. Cooperation in trade associations The Volvo Group is...

  • Page 49
    ...raises safety requirements for both drivers and vehicles. For the Volvo Group, safety is about how its products are used in society. The company works consistently to minimize the risk and consequences of accidents, and to improve drivers' safety and work environment. The program's first focal point...

  • Page 50
    ...'s products and know-how represent a valuable complement to the Group's truck business. Nissan Diesel holds a solid position in Japan and the rest of Asia where the Volvo Group foresees substantial growth potential." Leif Johansson Cooperations and acquisitions AB Volvo became major shareholder in...

  • Page 51
    ... Asia, and create a further industrial cooperation with Nissan Diesel in such areas as engines and transmissions. AB Volvo, Nissan Motor and Dongfeng Group, intend, together with Chinese authorities, to evaluate how to best develop Dongfeng Motor Co Ltd's commercial vehicle business. Dongfeng...

  • Page 52
    ... M. Company information Annual General Meeting of AB Volvo At the Annual General Meeting of AB Volvo held on April 5, 2006, the Board's proposal to pay a dividend to the shareholders of SEK 16.75 per share, a total of about SEK 6,775 M, was approved. Per-Olof Eriksson, Tom Hedelius, Leif Johansson...

  • Page 53
    ...to start at mid-year 2007. Mack Trucks launches new truck in construction segment Mack Trucks, Inc. is launching a new truck model in the construction segment, the TerraPro Cabover. Mack holds a leading position in the US as a supplier of trucks in this segment. The model is a further development of...

  • Page 54
    ... for changed exchange rates corresponded to an increase of 7%. The increase was attributable to higher sales, primarily in North America, Europe and Other markets. Demand in North America was driven by the fact that customers chose to buy trucks before the new emission legislation came into force by...

  • Page 55
    ...2006 Trucks 6.6 Buses 2.0 Construction Equipment 6.5 Volvo Penta 10.4 Volvo Aero 5.8 Volvo Group 1 6.9 Volvo Group 7.3 7.5 2.8 7.9 9.6 11.1 7.9 7.9 8.6 3.8 9.6 9.6 4.3 8.9 8.2 Research and development costs, SEK bn Research and development costs, % of net sales 1 Excluding revaluation of shares...

  • Page 56
    ... in Nissan Diesel. The net value of assets and liabilities related to pensions and similar obligations amounted to SEK 6.7 billion on December 31, 2006, a Change in net financial position, excl Financial Services SEK bn December 31, 2005 18.7 Cash flow from operating activities 21.9 Investments in...

  • Page 57
    Consolidated balance sheets December 31 SEK M Volvo Group, excl Financial Services1 2004 2005 2006 Financial Services 2004 2005 2006 Total Volvo Group 2004 2005 2006 Assets Intangible assets Property, plant and equipment Assets under operating leases Shares and participations Long-term customer...

  • Page 58
    ... made in a new top coat line for cabs in Umeå, Sweden, increasing the number of Volvo Truck Centers (mainly in Europe), energy saving investments in the Macungie-plant in North America and develop- ment of production sites within Renault Trucks including the move from Villaverde to Bourgen-Bresse...

  • Page 59
    ....75 per share, was paid to AB Volvo's shareholders during the year. Change in liquid funds The Group's liquid funds increased by SEK 2.6 billion during the year amounting to SEK 10.8 billion at December 31, 2006. Consolidated cash-flow statements SEK bn 2004 2005 2006 Operating income Depreciation...

  • Page 60
    ... brands in the Group are developed and supported. Strong brands combined with an attractive product portfolio make it possible for Volvo to be competitive. Prices for commercial vehicles may change The prices of commercial vehicles have, at times, changed considerably in certain markets over a short...

  • Page 61
    ... competitiveness, which over time affects the Group's earnings. Currencyassociated risk as applies to Volvo's business operations relates to changes in the value of contracted and expected future payment flows (commercial currency exposure), changes in the value of loans and investments (financial...

  • Page 62
    ...business interruption and property. Risk related to human capital A decisive factor for the realization of the Volvo Group's vision is our employees and their knowledge and competence. Future development depends on the company's ability to maintain its position as an attractive employer. To this end...

  • Page 63
    ... volumes within purchasing, manufacturing and business support functions. The year 2007 will be exciting, particularly since we will roll out the entire new product generation on the markets and take new steps in the expansion eastward." Leif Johansson Percentage of Group's net sales Trucks...

  • Page 64
    ... continues to build Mack's legendary reputation in terms of toughness, reliability and high value. Production Manufacturing operations at the Macungie plant reached record levels in summer 2006, with output reaching 107 construction vehicles daily. Higher demand was partly due to purchases ahead of...

  • Page 65
    ... and cost control. • Continue working with the completion of Mack Trucks' product renewal. • Continue the development of the North American dealer network to strengthen sales, customer support and aftermarket services. • Continuing growth in Mack Trucks' international operations. Business...

  • Page 66
    .... In the Volvo Group, Renault Trucks seeks to develop its market shares and profitability using proprietary values, products and services. The phrase "Committed to customer success" expresses the moral contract between Renault Trucks and its customers, which reflects how the company's employees view...

  • Page 67
    ... development of dealer network. Outcome 2006 • Truck product offer completely renewed. • Heavy-duty truck assembly transferred to Bourg-en-Bresse. • Euro 4 engines were introduced during the year. • A reduction cost program has been launched. • The Service Quality improvement program...

  • Page 68
    ... transportation solutions to professional and commercial customers in more than 130 countries worldwide. The largest markets are Europe and North America. The company has a complete product offering of medium to heavy trucks with a strong global network of 3,000 service operations. In 2006, Volvo...

  • Page 69
    ... expected sharp decrease in demand in North America. • Ensure production capacity for a continued strong European market. • Continue developing customer relations in line with the implemented dealer strategy. • Stronger focus on communicating the company's core values. Business areas 2006 65

  • Page 70
    ... volumes and regional softening in certain market segments. Volvo Trucks' market share in North America rose 0.3 percentage points to 10.2%. Net sales as percentage of Volvo Group's sales Net sales 1, SEK bn Operating income1,2 , SEK bn Operating margin1,2 , % 67% 1 Years 2004, 2005 and 2006...

  • Page 71
    ... to higher sales, primarily in Europe, North America and South America. Demand in North America was driven by favourable market conditions in the US, which resulted in increased need for transports. In addition customers chose to buy trucks before the new emission legislation came into force by...

  • Page 72
    ... sound engines. Already today, customers can purchase Volvo engines meeting emissions standards that are not proposed to become effective until 2009. In addition, a new gas engine with very low emission levels was released during the year, an engine that can operate on biogas from renewable energy...

  • Page 73
    ...) in 2006. The company decided during the year to start a joint-venture company in India that will build a plant in the country for production of bus bodies, primarily for the Indian market. Number of vehicles delivered 2004 2005 2006 Western Europe Eastern Europe North America South America Asia...

  • Page 74
    ... wheel loader so far. Construction Equipment - increased sales and enhanced profitability Volvo Construction Equipment has grown considerably in recent years. Customers from all parts of the world have shown their appreciation of Volvo CE's comprehensive investments in new products and the company...

  • Page 75
    ... a share of 11% of the Chinese market for wheel loaders in 2005, is a technologically advanced company with very modern production plants. Products Products launched in 2006 included the L350F, a new wheel loader. Equipped with a 16-liter Volvo diesel engine, the L350F is the largest wheel loader in...

  • Page 76
    ... global service support, Volvo Penta contributes to enhanced competitiveness for customers, such as Kalmar Industries and Atlas Copco. Strong market in Europe The total European market for marine as well as industrial engines was strong in 2006. The total market for marine engines weakened in North...

  • Page 77
    ... income and strong operating margin. • Strengthened market shares in inboard segment. Ambitions 2007 • Increased growth and strong focus on profitability. • Broadened customer base in industrial engines. • Delivery precision and shortened lead times in production. Business areas 2006 73

  • Page 78
    ...Group sales Many important milestones Volvo Aero is in the midst of an expansive period with many new production start-ups for aircraft engine components. During 2006, some 20 new production starts were initiated, the largest number ever in a single year. The company has invested heavily in research...

  • Page 79
    ... of SEK 258 M for discontinuation costs. Development in the engine component business remained strong, with increased production volumes and higher sales volumes for new spare parts. The positive trend was offset partly by many production start-ups of new engine components, which had a negative...

  • Page 80
    ... more closely with the sales processes of the business areas, enhance the depth and breadth of the product offering and develop the supply of services to key accounts. Within the Danafjord real estate unit, a number of projects were started aimed at meeting the Volvo Group's growing need for office...

  • Page 81
    .... • Enhance employee recruitment, development and retention activities. • Execute on market growth plus fee income opportunities. • Use better technology and processes to improve productivity and customer service. • Continued to sharpen risk management activities. Business areas 2006 77

  • Page 82
    ... is responsible for the Group's long-term development and strategy as well as controlling and evaluating the company's operations. In addition, the Board appoints the President of AB Volvo, who is also the Chief Executive Officer (CEO). The duties of the Board are partly exercised through its Audit...

  • Page 83
    ... the CEO. During 2006, the Board focused specifically on issues pertaining to the Volvo Group's strategy with regard to Asia and thereby decided to acquire shares in Nissan Diesel Motor Co Ltd and on initiating discussions on the commercial operation Dongfeng Motor Co Ltd. During the year, the Board...

  • Page 84
    ...as the company's largest shareholders with regard to the Board members who were elected at the Annual General Meeting in 2006: Finn Johnsson, Peter Bijur, Philippe Klein, Louis Schweitzer and Ying Yeh are all independent from the company and company management. Leif Johansson, as Volvo's CEO, is not...

  • Page 85
    ...the share price. The Committee comprises the heads of the departments, Corporate Finance, Internal Audit, Investor Relations, Corporate Legal, Business Control and Financial Reporting. Principles for remuneration and other employment terms for the Group Executive Committee The Annual General Meeting...

  • Page 86
    .... Bachelor of Business Administration. President of Volvo Aero Corporation since 2006. Member of Group Executive Committee since July 1 2006. With Volvo since 2006. Board member: Bombardier Transportation Sweden AB. Holdings in Volvo: None. President of Volvo Financial Services Born 1960. Bachelor...

  • Page 87
    ..., responsible for finance, strategy and business development. Pär Ã-stberg has held various senior positions in the financial areas in the Volvo Group since 1990, most recently as Senior Vice President and CFO of Renault Trucks. Holdings in Volvo: 1,000 Series B shares. Pär Ã-stberg Senior Vice...

  • Page 88
    ...shares. Principal work experience: AB Industrikredit; numerous positions with Svenska Handelsbanken (Credit Director, Executive Vice President, President and CEO, Chairman). Tom Hedelius Leif Johansson Born 1951, Master of Engineering. President of AB Volvo and Chief Executive Officer of the Volvo...

  • Page 89
    ...President of AB Volvo and General Counsel of the Volvo Group. Secretary to the Volvo Board since 1997. Holdings in Volvo: 500 shares, including 248 Series B shares. Auditors PricewaterhouseCoopers AB Göran Tidström Authorized Public Accountant. Lead Partner. Auditor since 2006. Other assignments...

  • Page 90
    ... Associated companies Segment reporting Other operating income and expenses Income from investments in associated companies Income from other investments Other financial income and expenses Income taxes Minority interests Intangible and tangible assets Shares and participations Long-term customer...

  • Page 91
    ... income statements 2006 SEK M 2004 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...

  • Page 92
    ... balance sheets SEK M December 31, 2004 December 31, 2005 December 31, 2006 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...

  • Page 93
    ... Note 23 Net income recognised directly in equity Income for the period Total recognised income and expense for the period Cash dividend Share based payments Other changes in Nissan Diesel's equity Other changes Balance at December 31, 2006 Note 34 - - - - 2,554 Financial information 2006 89

  • Page 94
    ...changes for the balance sheet items in the cash-ï¬,ow statement. The effects of currency movements in translation of foreign Group companies have also been excluded since these effects do not affect cash ï¬,ow. Cash and cash equivalents include cash and bank balances. 90 Financial information 2006

  • Page 95
    ... the Swedish Financial Accounting Standards Council. In the preparation of these financial statements, the company management has made certain estimates and assumptions that affect the value of assets and liabilities as well as contingent liabilities at the balance sheet date. Reported amounts for...

  • Page 96
    ...in the consolidated accounts with a certain time lag, normally one quarter. Dividends from associated companies are not included in consolidated income. In the consolidated balance sheet, the book value of shareholdings in associated companies is affected by Volvo's share of the company's net income...

  • Page 97
    ...in the segment reporting of Volvo Financial Services 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 are still reported as operating leases. Reclassification...

  • Page 98
    ...Machinery Buildings and Investment property Land improvements Product and software development 94 Financial information 2006 2 to 8 years 3 to 5 years 5 to 20 years 25 to 50 years 20 years 3 to 8 years In connection with its participation in aircraft engine projects with other companies, Volvo Aero...

  • Page 99
    ... the average number of outstanding shares per reporting period. To calculate the diluted earnings per share, the average number of shares is adjusted with the value of the share based incentive program and employee stock option program recalculated to number of shares. Financial information 2006 95

  • Page 100
    ... with repurchase agreements. The products, primarily trucks, for which Volvo has a residual value commitment, are generally recognized in the balance sheet as assets under operating leases. Depreciation expenses for these products are charged on a straight-line basis 96 Financial information 2006

  • Page 101
    ..., inï¬,ation, salary growth, long-term return on plan assets, retirement rates, mortality rates and other factors. Discount rate assumptions are based on long-term high quality corporate bond and government bond yields available at year-end. Health care cost trend assumptions are developed based on...

  • Page 102
    ... Volvo accounts for all investments in companies, except if these investments are classified as associated companies 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...

  • Page 103
    ... with end-customers are in segment reporting for Financial Services reported as financial leasing contracts if the residual value in these contracts is guaranteed to Financial Services by another Volvo business area. In the Volvo Group's consolidated balance sheet, these leasing agreements are...

  • Page 104
    ... balance for the 2005 reporting. Financial Services Dec 31 2004 IFRS adjustments Dec 31 2004 Volvo Group total 2 Dec 31 IFRS ad2004 justments Dec 31 2004 Dec 31 2004 Assets Intangible assets Property, plant and equipment Assets under operating leases Shares and participations Long-term customer...

  • Page 105
    ...2005. Financial Services Dec 31 IAS 39 2004 adjustments Jan 1 2005 Volvo Group total 2 Dec 31 IAS 39 2004 adjustments Jan 1 2005 Jan 1 2005 Assets Intangible assets 17,570 Property, plant and equipment 27,260 Assets under operating leases 8,477 Shares and participations 10,116 Long-term customer...

  • Page 106
    ... 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 Financial Services Other units Operating income1 Revaluation of shares Operating income...

  • Page 107
    ...intangible assets Minority interest Non-amortization of goodwill Post employee benefits Investments 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...

  • Page 108
    ... divestments within the Group are listed below. Shandong Lingong Construction Machinery Co. Volvo Construction Equipment (Volvo CE) has made an equity investment of 70% in Shandong Lingong Construction Machinery Co. China is the world's largest market for wheel loaders. The total market for 2005 was...

  • Page 109
    ...display the assets and liabilities in Volvo Aero Engine Services held for sale. Note 5 Joint ventures Volvo's share of joint ventures' balance sheets Non-current assets Current assets Total assets Shareholders' equity Provisions Long-term liabilities Current liabilities Total shareholders' equity...

  • Page 110
    ... Volvo's shareholding, see notes 9 and 15. 2006 Nissan Diesel1 The following table presents summarized financial information for the associated companies partly owned by Volvo. Volvo consolidate Income statement data Net sales Cost of operations Financial income and expense Income before taxes...

  • Page 111
    ... 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 2006 8,992...

  • Page 112
    ... Investments in associated companies Trucks Buses Construction Equipment Volvo Penta Volvo Aero Financial Services Other Volvo Group total 2004 2005 2006 37 20 - - 37 172 647 913 47 35 - - 3 23 87 195 5,498 43 - - 1 24 228 5,794 Net sales Europe North America South America Asia Other markets...

  • Page 113
    ...2005 2006 Financial instruments at fair value through profit or loss Exchange rate gains and losses on financial assets and liabilites Financial income and expenses related to taxes Write-down pertaining to the restructuring of Henleys Group Plc Costs for Treasury function, credit facilities, etc...

  • Page 114
    ... Mack Trucks subsidiary. The decision was based on the fact that Volvo assesses that the company has a long-term higher profitability. Reporting of the deferred tax receivables reduced tax expenses in the income statement in the third quarter by 2,048. In accordance with prevailing accounting rules...

  • Page 115
    ...shareholders' equity consisted mainly of the minority interests in Volvo Aero Norge AS (22%), in Wuxi da Hao Power Co, Ltd (30%) and in Berliet Maroc S.A (30%). Note Intangible and tangible assets Entrances fees, aircraft engine programs Intangible assets, acquisition costs Value in balance sheet...

  • Page 116
    ...Volvo Group Notes to consolidated financial statements Tangible assets, acquisition costs Value in balance sheet 2004 Value in balance sheet 2005 Capital expenditures Sales/scrapping Acquired and divested operations 3 Translation differences Reclassifications and other Value in balance sheet 2006...

  • Page 117
    ... for this judgment is long-term forecasts of the market's growth, two to four percent, in relation to the development of Volvo's operations. In the model, Volvo is expected to maintain stable capital efficiency over time. The evaluation is made on nominal value and the general rate of inï¬,ation...

  • Page 118
    ...truck manufacturer at December 31, 2006. In addition, AB Volvo acquired all 57.5 million preference shares in Nissan Diesel from Nissan Motor and Japanese banks for a total of SEK 3.5 billion. The book value for the shares in Nissan Diesel was SEK 5.445 M at December 2006. 114 Financial information...

  • Page 119
    ... the Board of Directors of Nissan Diesel on June 28. Volvo reports its share in earnings of Nissan Diesel with a timelag of one quarter. Please find further information under Significant events, page 47, regarding Volvo making a public offer for Nissan Diesel. Deutz During 2006 Volvo has invested...

  • Page 120
    The Volvo Group Notes to consolidated financial statements Note 17 Other long-term receivables 2004 2005 2006 Other loans to external parties Prepaid pensions Other financial receivables Other receivables Total 720 364 672 1,007 2,763 348 524 1,514 741 3,127 300 2,041 1,394 665 4,400 Note...

  • Page 121
    ... amounts to 2,554 and is based on 425,684,044 registered shares. Cash dividend decided by the Annual General Meeting 2006 was SEK 16.75 (12.50; 8.00) per share or total 6,775 (5,055; 3,356). Unrestricted equity in the Parent Company at December 31, 2006 amounted to 39,345 (41,220; 44,075). The...

  • Page 122
    ...Deutz Fair value adjustments regarding holding in Nissan Diesel Other Balance at December 31, 2006 Earnings per share Earnings per share is calculated as income for the period, attributable to the Parent Company's shareholders, divided by the Parent Company's average number of shares outstanding for...

  • Page 123
    ... increases Inï¬,ation Great Britain Discount rate Expected return on plan assets 1 Expected salary increases Inï¬,ation 2004 Dec 31 2005 Dec 31 2006 Dec 31 Post-employment benefits, such as pensions, healthcare and other benefits are mainly settled by means of regular payments to independent...

  • Page 124
    ...amount exceeds the so called corridor. The income or expenses are then recognized over the expected average remaining service period of the employees. Costs for post-employment benefits other than pensions Current year service costs Interest costs Expected return on plan assets Actuarial gains and...

  • Page 125
    ... changes Current year service costs Interest 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, 2006 of which Funded...

  • Page 126
    ... statements Fair value of plan assets in funded plans Acquisitions, divestments and other changes Expected return on plan assets Actuarial gains and (losses) Employer contributions Employee contributions Exchange rate translation Benefits paid Plan assets at December 31, 2006 Sweden Pensions...

  • Page 127
    ... liabilities 2006. Volvo hedges foreign-exchange and interest-rate risks using derivative instruments. See Note 36. 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. Information on loan terms is...

  • Page 128
    The Volvo Group Notes to consolidated financial statements Other loans USD 1999-2005/2008-2011 EUR 2003-2006/2008-2010 GBP 2005-2006/2008-2010 CAD 2002-2006/2008-2012 MXN 2005/2010 JPY 2006/2013 CHF 2006/2009-2011 Other loans Total other long-term loans 1 Deferred leasing income Residual value ...

  • Page 129
    ... selling price of used products, amounted to 3,650 (4,479; 5,135). Tax claims pertain to charges against the Volvo Group for which provisions are not considered necessary. Other contingent liabilities pertain mainly to residual value guarantees. Legal proceedings In March 1999, an FH 12 Volvo truck...

  • Page 130
    ...-ï¬,ow of SEK 5.8 billion (positive 0.3; positive 15.1), mainly related to the investment in Nissan Diesel. The net investments in 2004 are mainly related to the sale of Volvo's holding of B-shares in Scania. Acquired and divested subsidiaries and other business units, net in 2006 amounted to SEK...

  • Page 131
    ...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 supply of goods and services to/from associated companies. 2004 2005 2006 Sales to associated companies Purchase...

  • Page 132
    ...fixed annual salary. Leif Johansson also participates in the Volvo Group long-term incentive program. In 2006, Leif Johansson received 4,000 shares, since the financial goals for 2005 were achieved. Leif Johansson's pension benefits are a defined-contribution pension, meaning that Leif Johansson...

  • Page 133
    ... terms and conditions of the option program, recalculation shall take place under certain circumstances such as extra dividends, issues of new shares and dividend of shares. At the AB Volvo Annual General Meeting in 2004, a decision was taken to distribute shares in Ainax AB to Volvo's shareholders...

  • Page 134
    The Volvo Group Notes to consolidated financial statements 2004 2005 of which women, % Number of employees of which women, % Number of employees 2006 of which women, % Average number of employees AB Volvo Sweden Subsidiaries Sweden Western Europe Eastern Europe North America South America Asia ...

  • Page 135
    ... Volvo's industrial operations through the use of derivatives. On December 31, 2006, after taking derivatives into account, the average interest on these assets was 3.5%. Apart from loans raised to finance the credit portfolio of the customer-financing operations, at this same point in time, Volvo...

  • Page 136
    ... of the reported balance sheet may be affected by changes in different exchange rates. Currency risks in Volvo's operations are related to changes in the value of contracted and expected future payment ï¬,ows (commercial currency exposure), changes in the value of loans and investments (financial...

  • Page 137
    ...interest method. Dividends received attributable to these assts are recognized in the income statement as Earnings from other shares and participations. Volvo reports shares and participations in listed companies at market value on the balance-sheet date, with the exception of investments classed as...

  • Page 138
    The Volvo Group Notes to consolidated financial statements for sale. Note 15 Shares and participations lists Volvo's holdings of shares and participations in listed companies. Impairments Financial assets at fair value through profit and loss Impairments do not need to be reported for this ...

  • Page 139
    ... Investments held to maturity Loan receivables and accounts receivables Customer financing receivables Loans to external parties and other interest-bearing receivables Financial assets available for sale Shares and participations for which: a market value can be calculated 1 a market value cannot...

  • Page 140
    The Volvo Group Notes to consolidated financial statements Various categories of financial instruments are treated separately as specified in the notes above. Below is an accounting of derivative instruments and options. Financial assets at fair value through profit and loss Outstanding ...

  • Page 141
    ... are fulfilled. To the extent that the requirements for hedge accounting are not met, any changes in value attributable to derivatives are immediately charged to the income statement. Gains and losses related to hedges are reported at the same time as the gains and losses on the items that...

  • Page 142
    Parent Company AB Volvo Parent Company AB Volvo Corporate registration number 556012-5790. Board of Directors' report During the year, AB Volvo acquired 58.2 million shares, corresponding to 19% of the shares, in the Japanese truck manufacturer Nissan Diesel. The investment amounted to ...

  • Page 143
    Balance sheets SEK M December 31, 2004 December 31, 2005 December 31, 2006 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 ...

  • Page 144
    Parent Company AB Volvo Changes in Shareholders' equity Restricted equity Unrestricted equity Share premium reserve Fair value reserve Retained earnings Total shareholders' equity SEK M Share capital Statutory reserve Total Balance at December 31, 2003 Effect due to change of accounting ...

  • Page 145
    ... taxes paid/received Cash ï¬,ow from operating activities Investing activities Investments in fixed assets Disposals of fixed assets Shares and participations in Group companies, net Shares and participations in non-Group companies, net Interest-bearing receivables including marketable securities...

  • Page 146
    ... the Annual General Meeting as from 2004 are covered by IFRS 2 Share-based payments. Investments in other companies In accordance with IAS 39, all investments in companies, except if these investments are classified as associated companies, should be reported in the balance sheet at fair value. The...

  • Page 147
    ... companies. Of the dividends, 300 pertain to anticipated dividend from Volvo Financial Services AB. The shares in Volvo Information Technology AB have been written down by 32 and the shares in Kommersiella Fordon Europa AB have been written down by 160. In 2005, the shares in Volvo Global Trucks AB...

  • Page 148
    ... tax assets 987 2005 2006 - 1 177 20 - 198 - 1 196 - - 197 Note 11 Intangible and tangible assets Value in balance sheet 2004 Value in balance sheet 2005 Value in balance sheet 2006 Acquisition cost Rights Total intangible assets Buildings Land and land improvements Machinery and equipment...

  • Page 149
    ...Volvo Bussar AB, 18, to Volvo Global Trucks AB, 1 and to Volvo Financial Services AB, 345. Write-downs were carried out at year-end on the holdings in Sotrof AB, 600, Volvo China Investment Co Ltd, 99 and Volvo Penta UK, 10. Shares and participations in non-Group companies On March 21 2006, AB Volvo...

  • Page 150
    ... investments in Group companies Short-term investments in Group companies comprise deposits of - (7,047; 6,558) in Volvo Treasury. Note Untaxed reserves Value in balance sheet 2004 Value in balance sheet 2005 Value in balance sheet 2006 The composition of, and changes in, untaxed reserves Tax...

  • Page 151
    ... - Change in interest-bearing receivables, net 0 Increase/decrease in loans New loans Amortization Change in loans, net - 988 988 - - - (162) Investments and sales of shares in Group companies are shown in Note 12. - (3,180) (3,180) - (975) (975) 3,433 (690) 2,743 Financial information 2006...

  • Page 152
    ...number of employees at year-end was 176 (144; 144). Information on the average number of employees, wages, salaries and other remunerations including option programs as well as Board members and senior executives by gender is shown in Note 34 to the consolidated financial statements. 2004 2005 2006...

  • Page 153
    ... 148 0 18 6,400 Dec 31, 2006 Carrying value, SEK M AB Volvo's holding of shares and participations in major Group companies Volvo Lastvagnar AB, Sweden Volvo Truck Center Sweden AB, Sweden Volvo Finland AB, Finland Volvo Europe Finance NV, Belgium Volvo Europa Truck NV, Belgium VTC Holland NV, The...

  • Page 154
    ...Canada AB Volvo Penta, Sweden Volvo Aero AB, Sweden Volvo Aero Engine Services AB, Sweden Volvo Aero Norge AS, Norway VNA Holding Inc., USA Volvo Group North America Inc, USA Volvo Trucks Canada Inc., Canada Arrow Truck Sales Inc., USA Volvo Construction Equipment North America Inc., USA Volvo Penta...

  • Page 155
    ...) Ltd, China Volvo Truck & Bus Ltd, Great Britain 1 Volvo Holding Mexico, Mexico Volvo Technology Transfer AB, Sweden Volvo Technology AB, Sverige Volvo Powertrain AB, Sweden Volvo Information Technology AB, Sweden Volvo Parts AB, Sweden Volvo Group Insurance Försäkrings AB, Sweden Volvo Business...

  • Page 156
    ...the Annual General Meeting resolves in accordance with the Board of Directors' proposals regarding ordinary dividend, reduction of the share capital for repayment to the shareholders and bonus issue, SEK 18,680 M will remain of the Company's nonrestricted equity, calculated as per year end 2006. The...

  • Page 157
    ... 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 158
    ...- - Research and development expenses Selling expenses Administrative expenses Other operating income and expenses Income from Financial Services Income (loss) from investments in associated companies Income from other investments Income from divestment of subsidiaries Restructuring costs Operating...

  • Page 159
    ... Consolidated balance sheets with Financial Services reported in accordance with the equity method SEK M 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Intangible assets Property, plant and equipment Assets under operating leases Shares and participations Inventories Customer financing...

  • Page 160
    ... Services SEK bn 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Operating income Depreciation and amortization Other items not affecting cash Change in working capital Financial items and income taxes Cash ï¬,ow from operating activities Investments in fixed assets Investments in leasing...

  • Page 161
    ... from Sweden SEK M 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Volvo Group, total 54,589 58,569 64,401 52,719 46,251 50,394 52,730 49,300 62,653 71,133 80,517 Key ratios 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Gross margin % 1 Research and development expenses...

  • Page 162
    ...value at year-end minus net financial position and minority interests divided by operating income excluding restructuring costs and revaluation of shares. 6 Cash dividend divided by basic earnings per share. 7 Shareholders' equity for shareholders in AB Volvo divided by number of shares outstanding...

  • Page 163
    ... 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 Net sales excl Financial Services Financial Services Western Europe Eastern Europe...

  • Page 164
    ...9.6 9.6 4.3 8.2 8.2 Number of employees at year-end Number 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Trucks Buses Construction Equipment Volvo Penta Volvo Aero Financial Services Other Volvo Group, excluding divested operations Cars Other divested operations Volvo Group, total 20,860...

  • Page 165
    Employees Number 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Sweden Europe, excluding Sweden North America South America Asia Other markets Volvo Group total 43,330 15,290 6,900 2,130 2,260 420 43,650 16,100 8,450 2,000 1,720 980 43,900 17,880 12,100 1,980 3,340 ...

  • Page 166
    ...brands in the Volvo Group's truck operations have a unique and distinct brand-specific character and compete in certain markets. Mack Trucks, Renault Trucks and Volvo Trucks offer customers a broad range of products and services for efficient and economic transports. Long-haul Mack Trucks Regional...

  • Page 167
    ... Air Force's Gripen fighters. Volvo Aero also has a substantial after-market. Engine components Engine overhaul Space Financial services Financial Services contributes to create shareholder value through its customer and dealer financing activities, plus its treasury and real estate operations...

  • Page 168
    ..., plant and equipment, intangible assets and assets under operating leases. Investments in fixed assets included in the Group's cash flow statement include only capital expenditures that have reduced the Group's liquid funds during the year. Net financial position Cash-flow Combined changes in...

  • Page 169
    ... directly to all shareholders who have advised Volvo that they wish to receive financial information. Historical and current time series reflecting the Volvo Group's market information and share data are published regularly on www.volvo.com. Contacts Investor Relations: Christer Johansson +46 31-66...

  • Page 170
    AB Volvo, Investor Relations, 635 3104