Volvo 2006 Annual Report Download - page 52

Dongfeng Motor Group, Nissan Motor
and AB Volvo deepen discussions on
possible future cooperation
In January 2007, it was announced that
Dongfeng Motor Group Company Limited
(DFG), Nissan Motor and AB Volvo is deepen-
ing discussions on a possible AB Volvo invest-
ment in the heavy and medium-duty commer-
cial vehicle business currently included in
Dongfeng Motor Co, Ltd (DFL) – the Chinese
joint venture between DFG and Nissan Motor.
Nissan Motor will focus on passenger cars
and light commercial vehicles and has divested
its holding in Nissan Diesel to AB Volvo.
Subsequently, DFG, Nissan Motor and AB Volvo
initiated discussions at the end of 2006 with the
Chinese authorities on the future possible co-
operation of the parties. DFG intends to estab-
lish more competitive alliances with Nissan and
AB Volvo respectively, in order for all parties to
achieve the best development in their special-
ized field.
To move forward on this issue, DFG, Nissan
Motor, DFL and AB Volvo also have signed a
non-binding framework agreement with the
intention of AB Volvo to invest in the heavy and
medium-duty commercial vehicle business and
future engine business, while Nissan Motor
remains committed to the long-term coopera-
tion with DFG regarding passenger vehicles and
the light commercial business. Any future defini-
tive agreement regarding such a transaction will
be subject to approval by Chinese authorities.
Renault Trucks in agreement with Nissan
Motor regarding distribution of light
trucks
Renault Trucks announced in January 2007
that it had signed a distribution agreement cov-
ering the Renault Maxity light-duty vehicle with
the manufacturer Nissan Motor. An agreement
in principle was signed in February 2006.
Renault Maxity is a cab-over-engine light-duty
vehicle developed and produced for Renault
Trucks by Nissan Motor. Sales by Renault
Trucks’ dealers will begin in March 2007.
Renault Maxity complements Renault Trucks’
existing range of light trucks, comprising
Renault Master and Renault Mascott, and is
produced in a range of weight classes from 2.8
to 4.5 tons, with three engine alternatives.
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, Louis Schweitzer and Finn
Johnsson were re-elected members of the
Board of AB Volvo and Ying Yeh, Philippe Klein
and Peter Bijur were newly elected. Finn
Johnsson was elected Board Chairman.
The Meeting resolved to establish a share-
based incentive program during the second
quarter of 2006 for senior executives in the
Volvo Group. The program mainly involves that
a maximum of 518,000 Series B shares in the
Company could be allotted to a maximum of
240 senior executives, including members of
the Group Executive Committee, during the
first six months of 2007. The allotment shall
depend on the degree of fulfillment of certain
financial goals for the 2006 fiscal year, which
have been set by the Board. For more informa-
tion on share-based incentive programs see
note 34 pages 127 to 129.
Volvo Board decided on new
financial targets
AB Volvo’s Board
of Directors has de-
cide d to adopt new
financial targets for
the company. The
decision is based on
the Board’s assessment that Volvo today has a
structurally higher profitability, stronger cash
flow and a different risk profile. The Board
focuses on three external financial targets cov-
ering growth, operating margin and capital
structure.
The previous target for operating margin
was 5-7% over a business cycle, including the
operations within Volvo Financial Services. The
new target for operating margin is more than
7% over a business cycle and includes all oper-
ations within the Group except Volvo Financial
Services, which currently contributes approxi-
mately another 1 percentage point. The
restricting ratio for net debt to equity has also
been increased from 30% of shareholders’
equity to 40% of shareholders’ equity. With
regard to the Group’s growth target, the Board
has chosen to retain the target of an annual
growth of at least 10%.
Reversal of reserve for tax receivables
yields positive earnings effect
AB Volvo has decid-
ed to reverse a valu-
ation reserve for
deferred tax receiv-
ables in the Mack
Trucks Inc. subsid-
iary. The decision is 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 SEK
2,048 M. In accordance with prevailing
accounting rules, Volvo is adjusting goodwill by
SEK 1,712 M, which affects operating income
adversely. The combined earnings effect for
the third quarter was a positive SEK 336 M.
48 Board of Directors’ Report 2006