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ld leader
The Volvo Group 2007

Table of contents

  • Page 1
    The Volvo Group 2007 leader

  • Page 2
    ...Risk management Business areas Trucks Volvo Trucks Renault Trucks Nissan Diesel Mack Trucks Construction Equipment Buses Volvo Penta Volvo Aero Financial Services The Volvo Group is one of the leading suppliers of commercial transport solutions providing products such as trucks, buses, construction...

  • Page 3
    ... in Europe, Asia and North America. Group sales of products and services are conducted through wholly owned and independent dealers. The global service network handles customer demand for spare parts and other services. During 2007, the Group's workforce rose to about 100,000 employees. The majority...

  • Page 4
    ... ...and build infrastructure ...Volvo Construction Equipment's yellow machines are common on construction sites in Asia. ...all over the world. Rapid air transport is becoming more important. Around 90 percent of all new larger civil aircraft have engine components from Volvo Aero. Europe, SEK bn...

  • Page 5
    ... growth markets and in key product segments through the acquisitions of the Japanese truck manufacturer Nissan Diesel, the Chinese manufacturer of wheel loaders Lingong, Ingersoll Rand's road development operations and through a proposed joint-venture with Eicher Motors in India. • Continued...

  • Page 6
    ... The Volvo Group's vision is to be valued as the world's leading supplier of commercial transport solutions. Our mission By creating value for our customers, we create value for our shareholders. We use our expertise to create transport-related products and services of superior quality, safety...

  • Page 7
    A global group 2007 3

  • Page 8
    ... started FINANCIAL SERVICES VOLVO GROUP Net sales per market, % Western Europe 45% Eastern Europe 10% North America 18% South America 6% Asia 15% Other markets 6% The Industrial operations' net sales per business area, % Trucks 68% Construction Equipment 19% Buses 6% Volvo Penta 4% Volvo Aero...

  • Page 9
    ... other business areas to strengthen the Group's competitiveness. 03 04 05 06 07 SEK M 926 1,365 2,033 1,686 1,649 1,149 The Volvo Group is one of the leading suppliers of commercial transport solutions providing products such as trucks, buses, construction equipment, drive systems for marine and...

  • Page 10
    ... dealers all the way to the end-customers. This entails planning, purchasing, shipping and storing parts, as well as inventory management, order management, and tools and services for the aftermarket. Renault Trucks Nissan Diesel Mack Trucks Construction Equipment Buses Volvo Penta The number...

  • Page 11
    ... process and provides unique expertise in product lifecycle management, SAP solutions and IT operation. Its customers include the Volvo Group, Ford-owned Volvo Cars, and other large industrial companies. Business Services Volvo Information Technology Real Estate Treasury The number of employees...

  • Page 12
    ...the weak development of the US economy thwarted a recovery. We estimate that the truck market in Europe will grow by 5-10% compared with 2007, with the industry's delivery capacity as the limiting factor. The North American truck market is difPenta captures market shares Volvo Penta's marine engines...

  • Page 13
    ... of 21% annually. Profitability for the Volvo Group during 2007 will also benefit Leif Johansson President and CEO A global group 2007 Following the acquisitions of Nissan Diesel, Lingong and Ingersoll Rand's road development division, we now have a significant industrial structure in Asia, with...

  • Page 14
    ..., factories and shopping centers, as well as housing and recreational facilities. Collectively, it implies a healthy demand for construction equipment. Brent Oil GDP-growth in the US and in Europe, % Growth in Asia, % USA Europe China India Asia/Pacific* Annual GDP growth Source: Consensus...

  • Page 15
    ... for the production of trucks and buses with the India-based Eicher Motors. At the same time, by strengthening its dealer and service network, the Volvo Group has positioned itself to take advantage of the strong growth in Eastern Europe. To meet the challenges and distribute development costs over...

  • Page 16
    ... from the start increases customer satisfaction, keeps costs down and saves time and energy. The Volvo Group's capacity to handle development projects, combined with its ability to rapidly introduce processes for new ways of working, contributes to increased profitability. 12 A global group 2007

  • Page 17
    ... services. Product renewal • Invested about SEK 11 billion in research and development during the year. • New generation of engines. • CO2-neutral trucks for seven types of renewable fuels. • New generations of construction equipment. • Light-weight designs by Volvo Aero. • Volvo Penta...

  • Page 18
    ... competitiveness while creating value for customers and thus helping to generate future shareholder value. It is not enough to produce and sell highquality products in order to realize the Volvo Group's vision of being the world-leader in commercial transport solutions. Many customers want long-term...

  • Page 19
    ... the next few years. Service The Volvo Group consistently strives to improve its products and reduce customers' operating costs. The machines from Volvo CE increase productivity for work involving the most challenging types of terrain, and at any conceivable construction work site. To ensure that...

  • Page 20
    ... products. 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...

  • Page 21
    ... annually over a business cycle. The operating margin for 2007 was 7.8%. The average annual operating margin for the Volvo Group was 6.7% from 2003 to 2007. Capital structure The capital structure target is set to a net debt for the industrial operations of a maximum of 40% of shareholders' equity...

  • Page 22
    ... a risk that investments are made in too many and possibly even unsuitable alternatives, which would delay the introduction of carbon-dioxide-neutral transport." Jan-Eric Sundgren | Member of the Group Executive Committee, responsible for Environmental and Public Affairs Clea 18 A global group 2007

  • Page 23
    ... problem, but we have shown that carbon-dioxide-neutral transports is a possibility and that we as a vehicle manufacturer want to be a part of the solution, says Volvo CEO Leif Johansson. A part of the solution Environmental care is one of the Volvo Group's corporate values together with quality...

  • Page 24
    ... impossible could be solved just a few years later. This is true in important areas such as energy efficiency and exhaust emission control. I am an optimist and believe in a similar development in carbon-dioxide-neutral transport," says Leif Johansson. vehicle, the cost of the fuel and how easily...

  • Page 25
    ... Major potential to reduce fuel consumption. • Stores braking energy for later use (charges batteries). • No emissions when the vehicle is electrically powered. • Low noise level when electrically powered. • Less wear on the brakes, resulting in lower maintenance costs. A global group 2007...

  • Page 26
    ... dealer and service networks, primarily in Asia, but also in other parts of the world. years, Nissan Diesel has devel- oped and marketed a broad range of light, medium-heavy and heavy trucks, as well as buses, bus chassis, engines, vehicle components and specialized Stro 22 A global group 2007

  • Page 27
    ...will retire on April 1, 2008. Pär Ã-stberg has worked in Asia for many years, including in the role as the manager of Volvo Treasury Asia. He has also been a member of the Board of Nissan Diesel and was deeply involved in efforts to integrate Renault Trucks into the Volvo Group as the former CFO of...

  • Page 28
    ... Volvo Group owns 70% as of 2007, has been given a clear place in the Construction Equipment business area and is its own business line in much the same since 1998, when the South Korean excavator manufacturer Samsung Heavy Industries was acquired. "We learned a great deal from the work conducted...

  • Page 29
    ...the Volvo Group to be able to take part and offer Indian customers products specially adapted to their market and needs," says Volvo CEO Leif Johansson. The Indian market for trucks over 5 tons totaled 300,000 vehicles in the fiscal year that ended on March 31, 2007. Eicher is India's third largest...

  • Page 30
    Increased transport in fast-growing economies. Clo 26 A global group 2007

  • Page 31
    ... expansion of infrastructure," says Tom Jörning. The Volvo Group's products and services play an important role when roads, bridges, tunnels and buildings are to be built. This applies to everything from wheel loaders, excavators and trucks for construction transport to generator units that supply...

  • Page 32
    ...is the largest country in Europe, both in terms of size and population. The country is experiencing rapid economic growth driven primarily by rising global market prices on oil, natural gas and other commodities of which Russia has a rich supply. Russia is the Volvo Group's largest market in Eastern...

  • Page 33
    ...of service centers, a training center and various representation offices for the use of Volvo Trucks, Volvo Construction Equipment, Volvo Buses and Volvo Financial Services. Poland is an important market for international transport companies with its population of nearly 40 million and its location...

  • Page 34
    ...NASDAQ exchange on December 13, 2007, the price was USD 17.86, corresponding to an increase of 35% during the year. Dividend The objective of Volvo's dividend policy is that the long-term total return to shareholders should exceed the average for the industry. Historically, dividends on Volvo shares...

  • Page 35
    ... determine the information to be received from Volvo. Sweden 45% France 22% USA 15% United Kingdom 7% Luxenbourg 2% Switzerland 2% Others 7% 1 Share of capital, registered shares. Non-Swedish owners 54% Savings funds 14% Pension funds and insurance companies 8% Private shareholders 10% Others...

  • Page 36
    ... the use of its products. Environmental management system in place The Volvo Group's first system was certified in 1995. At year-end 2007, 96% of the employees in the Group's production units were working according to certified environmental man- The Global Compact The Volvo Group supports the...

  • Page 37
    ...2004. There are also environmental management systems for other parts of the value chain, such as product development and marketing. The environmental program includes cooperation partners. Environmental demands have been used as an integrated part of the evaluation of suppliers and for follow-up of...

  • Page 38
    ..., health risks, support programs and medical examinations. Supply of strategic competence In their business plans, the companies in the Volvo Group specify the skills that must be assured and developed to enable the com- In production • Reducing energy consumption by 50% per produced unit by 2008...

  • Page 39
    ... Code of Conduct. Of the Group's employees, 81% states that they have received information on the Code of Conduct. In November 2006, an online training program on corruption was launched. At year-end 2007, 21,000 employees had received the training. Cooperation with universities and colleges Sharing...

  • Page 40
    ...Exchange. At year-end, the Volvo Group owned all outstanding shares in the company. Nissan Diesel was consolidated in the balance sheet of the Volvo Group as of the close of the first quarter of 2007. Sales and earnings are reported from the beginning of the second quarter. Operations within Nissan...

  • Page 41
    ...'s entire truck and bus operations and the Volvo Group's Indian sales operations within trucks. The joint-venture company will have its production mainly concentrated to Eicher's current plant in Pithampur in India. The joint-venture company will have about 2,300 employees and the operations within...

  • Page 42
    ...These loans were raised to finance the acquisitions during 2007 of Nissan Diesel, Ingersoll Rand's division for road development equipment and Lingong, as well as for the share repurchase and dividend approved by the Annual General Meeting. Company information Annual General Meeting in AB Volvo At...

  • Page 43
    ... with the EGR (Exhaust Gas Recirculation) and SCR (Selective Catalytic Reduction) emission-control systems. The VN model trucks have been delivered to a customer, which will now field test the SCR technology that is common in Europe. To date, the emission requirements in North America were met by...

  • Page 44
    ... due to share dividend and the share redemption program in 2007. Higher short-term interest rates in Sweden, where the Group's liquid funds are invested, and lower costs for post-employment benefits, owing to the transfers to pension foundations carried out in the preceding year, had a positive...

  • Page 45
    ... of a new generation of engines and changes to the industrial production system. Also during the fourth quarter of 2007, there was an increase in warranty provisions of SEK 370 M for some Income Statement Volvo Group SEK M 2006 2007 Change in % Net sales Volvo Group Operating Income Volvo Group...

  • Page 46
    ... with 2006. At December 31, 2007 total assets in Customer Finance amounted to SEK 95 billion (80). Excluding receivables from acquired operations, the credit portfolio grew by 12.6% (5.3), adjusted for exchange-rate movements. Operating income amounted to SEK 1,649 M (1,686). Return on shareholders...

  • Page 47
    ...based on the share price at year-end. Balance sheet Total assets in the Volvo Group amounted to SEK 321.6 billion at December 31, 2007, an increase of SEK 63.2 billion compared to yearend 2006. The increase is mainly a result of the acquisitions made during the year of Nissan Diesel, Ingersoll Rand...

  • Page 48
    ... 31, 2007, a decrease from year-end 2006 by SEK 4.7 billion, mainly as a result of the reclassification of Nissan Diesel from associated company to group company after AB Volvo's acquisition of the remaining shares in Nissan Diesel. The net value of assets and liabilities related to pensions and...

  • Page 49
    ...451 32,293 321,647 2006 is restated according to the new reporting structure for the Volvo Group. Shareholders' equity in Customer Finance operations have been adjusted by SEK 650 M compared to the press release April 17, 2007. Contingent liabilities 7,726 8,153 Board of Directors' Report 2007 45

  • Page 50
    ...renewal of the Renault Trucks sites, a new crankshaft plant in Spain and investments related to renewals and improvements in the product program. Capital investments for Construction Equipment increased to SEK 2.6 billion from SEK 1.7 billion previous year. The main part of the investments refers to...

  • Page 51
    ... Industrial operations SEK bn 2006 2007 Customer Finance 2006 2007 Elim. and reclassifications 2006 2007 Volvo Group Total 2006 2007 Operating activities Operating income Depreciation and amortization Other non-cash items Change in working capital Financial items and income taxes paid Cash...

  • Page 52
    ... engine emissions. The Volvo Group is a significant player in the commercial vehicle industry and the world's largest producer of heavy-duty diesel engines. The product development capacity within the Volvo Group is well consolidated to be able to focus resources for research and development to meet...

  • Page 53
    ... market risks from shares and other similar instruments as a result of managed capital transferred to independent pension plans being partly invested in instruments of these types. Credit-related risk Volvo's extension of credit is governed by Group-wide policies and rules for classifying customers...

  • Page 54
    ... The Volvo Group's long-term profitability depends on the Company's ability to successfully launch and market its new products. Product life cycles continue to shorten, putting increased focus on the success of the Group's product development. It is highly important to meet and exceed customer...

  • Page 55
    ... units in which we gain from the combined volumes within purchasing, manufacturing and business support functions. Leif Johansson VOLVO TRUCKS RENAULT TRUCKS NISSAN DIESEL MACK TRUCKS Percentage of Group's net sales Trucks Construction Equipment Buses Volvo Penta Volvo Aero Financial Services...

  • Page 56
    ...the new EU countries. The total European market is currently limited by the production capacity of the industry, where order backlogs are substantial and delivery times are long. The strained production in Europe affects the supply of trucks also on markets in Asia, the Middle East and South America...

  • Page 57
    ... by continued low deliveries of trucks and an increase in warranty reserves for phased-out legacy engines and quality issues on truck engines produced for the North American market during 2007. Net sales by market SEK M 2006 2007 Europe North America South America Asia Other markets Total 93,282...

  • Page 58
    ... called the country's largest construction project since the Great Wall of China. Work is going on around the clock in order to be completed by the start of the Games in August 2008. Volvo Trucks is helping to ensure that construction moves forward at record speed. Ma Gui Chun is head of a company...

  • Page 59
    ... Volvo Trucks 2006 2007 Western Europe Eastern Europe North America South America Asia Other markets Total 39,011 10,217 37,145 7,940 7,501 3,705 105,519 41,009 18,456 16,692 10,166 9,002 4,784 100,109 Ambitions 2007 • Ensure production capacity for the European market. • Continue developing...

  • Page 60
    ... vehicles for emergency services. Renault Trucks - striving for improved customer productivity The efficient transport solutions of Renault Trucks is advantageous for both customers and the environment. During 2007, Renault Trucks was able to start harvesting the fruits of a renewed product line...

  • Page 61
    ...Renault Trucks 2006 2007 Western Europe Eastern Europe North America South America Asia Other markets Total 58,063 7,126 561 1,078 5,241 5,505 77,574 59,097 9,488 517 1,107 4,216 5,017 79,442 Ambitions 2007 • Achieve the Service Quality program. • Improve brand image based on the new product...

  • Page 62
    ... service Customers want a trouble-free transport environment, which means transporting cargo safely to the designated place and delivering it on schedule. Vehicle quality must be maintained in order to prevent accidents, breakdowns or other troubles during transport. Even though Nissan Diesel trucks...

  • Page 63
    ... oil exports. In 2007, Nissan Diesel delivered 7,634 light-duty trucks for Nissan Motor Co., Ltd. Nissan Diesel became a member of the Volvo Group in 2007 and is working to promote the Group's success in Asia, which will be necessary for the Volvo Group to develop into the world's number one truck...

  • Page 64
    ...Granite dumps, mixers, and crane trucks, Williams Brothers is among the many customers taking advantage of the most comprehensive product renewal program in Mack history. Mack now approaches the market with an entirely new product line - including a new range of MP engines that meet the strict US'07...

  • Page 65
    ... and cost control. • Continue working with the completion of the product renewal. • Continue the development of the North American dealer network to strengthen sales, customer support and after market services. • Continuing growth in the international operations. Outcome 2007 • A strong...

  • Page 66
    ... the industry will take remains unclear, there is an openness to the use of new fuel types (biofuels) and power systems (e.g. hybrids). Increased deliveries During 2007 Volvo CE sold more than 64,000 machines, an increase of 72% compared with 2006. To help meet record customer demand, Volvo CE has...

  • Page 67
    ... companies added another 80 products to the Volvo CE portfolio. Net sales by market SEK M 2006 2007 Europe North America South America Asia Other markets Total 20,326 11,280 1,358 6,903 2,264 42,131 25,294 11,170 2,155 12,179 2,835 53,633 Outcome 2007 • Comprehensive product renewal. New...

  • Page 68
    ..., the diesel Coach of the year 2008 The business area received proof in 2007 that its investments in recent years to develop its tourist coaches have paid off. The Volvo 9700 was named Coach of the Year in Europe, with Fewer deliveries Volvo delivered 9,916 (10,360) buses and bus chassis during 2007...

  • Page 69
    ... • New bus body plant in India and new versions of coaches in China have strengthened positions. • More than half of the employees are engaged in the Operational Development programme, the start for the remaining employees have been scheduled. Ambitions 2008 • Strong focus on cost control and...

  • Page 70
    ... years have risen sharply. During 2007, Volvo Penta sold slightly more than 26,000 marine and industrial engines based on the Group's diesel engine platforms. Overall market The overall market for marine engines remained strong in Europe, while demand in North America declined. The general trend...

  • Page 71
    ... 2008 • Focus on delivery capacity to ensure favorable product supply in the market. • Intensify work to ensure a positive product cost development. • Establishment of a new global dealer network structure. • Continued introduction of soft products and service programs. Business areas 2007...

  • Page 72
    ... program. Several important milestones Volvo Aero's expansion into the commercial component sector continued during 2007. Work on developing components for General Electric's new GEnx engine, the single most important investment in Volvo Aero's history, continued according to plan. During the year...

  • Page 73
    ... 2008. Deliveries are expected to begin early 2009. For Volvo Aero, order bookings remain strong and the value of the order book in the component business at December 31 was 19% higher than at the same date in the preceding year. Net sales by market SEK M 2006 2007 Europe North America South...

  • Page 74
    ...% in 2006. In total, 46,686 new Volvo vehicles and equipment (41,732) were financed during the year. The acquisitions of the Volvo Group provided VFS with growth opportunities in several markets. During 2007, VFS began offering financing to road development customers in the newly acquired operations...

  • Page 75
    ...502) 1,147 15.9 Credit portfolio by business area, % Volvo Trucks 47% Mack Trucks 7% Volvo CE 22% Other 4% Buses 4% Renault Trucks 16% Distribution of credit portfolio, net % 2006 2007 Operational leasing Financial leasing Installment contracts Dealer financing Other customer credits 0 40 42 17...

  • Page 76
    ... of new products and development of the Group's operations in Asia. The Board also visited Volvo's facilities in Russia. Corporate bodies in corporate governance The governance and control of the Volvo Group is carried out through a number of corporate bodies. At the Annual General Meeting, the...

  • Page 77
    ...The Board In 2007, AB Volvo's Board of Directors consisted of nine members elected by the Annual General Meeting. In addition, the Board had three members and two deputy members appointed by employee organizations. The CEO, Leif Johansson, was a member of the Board. During 2007, six regular meetings...

  • Page 78
    ...the company's largest shareholders with regard to the Board members who were elected at the Annual General Meeting in 2007: Finn Johnsson, Peter Bijur, Philippe Klein, Louis Schweitzer, Ying Yeh and Lars Westerberg are all independent from the company and company management. Leif Johansson, as Volvo...

  • Page 79
    ..., Corporate Legal, Business Control and Financial Reporting. Group Executive Committee An account of their respective age, education, Board memberships, ownership of shares in Volvo as of February 26, 2008, and year of joining Volvo for the CEO and each member of the Group Executive Committee is...

  • Page 80
    ... contained in Volvo Financial Policies & Procedures (FPP). Fundamental to Volvo's control environment is the business culture that is established within the Group and in which managers and employees operate. Volvo works actively on communications and training regarding the company's basic values as...

  • Page 81
    ... of improvement in the processes for financial reporting. Follow-up/Supervision Ongoing responsibility for follow-up rests with the business area's management groups and accounting and controller functions. In addition, the Internal Audit and the Internal Control functions conduct follow-up and...

  • Page 82
    ... of Volvo Aero Corporation Born 1964. Bachelor of Business Administration. President of Volvo Aero Corporation since 2006. Member of the Group Executive Committee since 2006. With Volvo since 2006. Board member: Bombardier Transportation Sweden AB. Holdings in Volvo: 11,250 Series B shares. 78...

  • Page 83
    ...for business units and human resources. Senior Vice President of AB Volvo and CFO of the Volvo Group 1998-2005. President of Volvo Group Finance Sweden 1994-1998. Member of the Group Executive Committee since 1998. With Volvo since 1987. Board member: The Chalmers University of Technology Foundation...

  • Page 84
    ... Industri AB Euroc; President United Destillers, UK; CEO of Mölnlycke Health Care AB. Peter Bijur Member of the Audit Committee Born 1942, MBA Marketing, BA Political Science. Board member: Gulfmark Offshore Inc. Member of the Volvo Board since 2006. Holdings in Volvo: 3,000 Series B shares...

  • Page 85
    ... AB Göran Tidström Authorized Public Accountant Lead Partner Auditor since 2006 Other assignments: Auditor of Securitas, Telia Sonera och Trelleborg. Chairman of the Board of EFRAG (European Financial Reporting Advisory Group) and Board member of IFAC (International Federation of Accountants...

  • Page 86
    Financial information 2007 83 84 85 86 87 132 146 147 148 149 Consolidated income statements Consolidated balance sheets Changes in consolidated Shareholders' equity Consolidated cash-ï¬,ow statements Notes to consolidated financial statements Parent Company AB Volvo Remuneration policy Proposed ...

  • Page 87
    ... M 2006 Note 7 2007 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...

  • Page 88
    The Volvo Group Consolidated balance sheets SEK M December 31, 2006 December 31, 2007 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 ...

  • Page 89
    ... equity Income for the period Total recognized income and expense for the period Share reduction Bonus issue Dividends and payment for redemption of shares to Volvo's shareholders Share based payments Change in consolidation of Nissan Diesel1 Minority regarding new acquisitions Other changes Balance...

  • Page 90
    ... and other 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 payment to AB Volvo shareholders' Repurchase of own shares Dividends to minority shareholders Other...

  • Page 91
    ... 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 92
    ... exchange rates are reported as short term liabilities. Exchange rate differences on loans and other financial instruments in foreign currency, which are used to hedge net assets in foreign subsidiaries and associated companies, are offset against translation differences in the shareholders' equity...

  • Page 93
    ... 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 94
    ... unit. The required return is based on current property market conditions for comparable properties in comparable locations. Goodwill is reported as intangible non-current assets with indefinite useful life. Annually, testing is carried out to determine any impair- 90 Financial information 2007

  • Page 95
    ... the residual value risks are pertaining to products, which are not reported as assets in Volvo's balance sheet, these risks are reï¬,ected under the line item short-term provisions. Warranty expenses Estimated costs for product warranties are charged to operating expenses when the products are sold...

  • Page 96
    ...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 over the term of the commitment in amounts required to reduce the value of the product to its estimated...

  • Page 97
    ... respective countries of Volvo's operations. The assumptions include discount rates, health care cost trends rates, 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...

  • Page 98
    ... income of 745 in 2006. The acquisition is mainly an acquisition of assets; accounts receivables, inventory and plant and equipment. The purchase consideration amounts to SEK 8.8 billion. The final purchase price will be determined during the first quarter 2008, but is currently estimated to SEK...

  • Page 99
    ...other value acquisitions SEK bn Total Total Intangible assets Product development Trademarks Distribution network Other intangible assets Other assets and liabilities Property plant and equipment Shares and participations Inventories Current receivables Liquid funds Other assets Provisions Loans...

  • Page 100
    ... 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 and liabilities 2006 2007 Joint...

  • Page 101
    ... the equity method. For more information about Volvo's shareholding, see notes 9 and 15. 2006 2007 Total The following table presents summarized financial information for the associated companies partly owned by Volvo. Volvo consolidates the Income statement data Net sales Cost of sales Financial...

  • Page 102
    ... cost of sales, including calculated interest and product improvement expenses. Internal sales from service companies are generally made at market prices. Operating income Trucks Construction equipment Buses Volvo Penta Volvo Aero Other Industrial operations Customer Finance Volvo Group 2006 2007...

  • Page 103
    ... 13,987 39,697 31,327 2007 Investments in associated companies Trucks Construction Equipment Buses Volvo Penta Volvo Aero Customer Finance Other Volvo Group total 2006 2007 5,498 - 43 - 1 24 228 5,794 292 - 55 - 1 25 284 657 Trucks 2006 includes investment in Nissan Diesel of 5,445. 81,173 91...

  • Page 104
    ... Centers Holdings LP Other companies Subtotal Total income (loss) from investments in associated companies 2006 2007 39 (12) 3 10 15 55 (2) (2) 76 7 3 11 11 108 (3) (3) Dividends received Holdings of Nissan Diesel Other Subtotal Revaluation and write-downs of shares Holdings of Volvo Technology...

  • Page 105
    ... tax expenses in the income statement in the third quarter by 2,048. In accordance with prevailing accounting rules, Volvo adjusted goodwill by 1,712, which affected operating income adversely. The combined earnings effect for the third quarter 2006 was a positive 336. Financial information 2007...

  • Page 106
    ... America, Inc (50%) and Nissan Diesel South Africa (Pty) Ltd (20%). Note Intangible and tangible assets Entrance fees, industrial programs Product and software development Other intangible assets Total intangible assets Intangible assets, acquisition costs Value in balance sheet 2006 Capital...

  • Page 107
    ... 7,954 11,169 Total investment property, property, plant and equipment 1,111 276 - (5) 2 11 151 1,546 3,841 8,945 2,719 - (548) 2 36 (15) 11,139 36,508 Tangible assets, acquisition costs Value in balance sheet 2006 Capital expenditures Sales/scrapping Acquired and divested operations3 Translation...

  • Page 108
    ...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, in line with the European target, is used. Volvo uses a discounting factor calculated to 12% before tax...

  • Page 109
    ... number Dec 31, 2006 Dec 31, 2007 Percentage Carrying value Carrying value holding SEK M SEK M Group holdings of shares and participations in non-Group companies Shares in associated companies, equity method of accounting Dong Feng Nissan Diesel Motor Co.,Ltd., China Blue Chip Jet II HB, Sweden...

  • Page 110
    ... the Board of Directors of Nissan Diesel in 2006. Volvo reported its share in earnings of Nissan Diesel with a time-lag of one quarter. Deutz During 2006 Volvo invested additionaly 95 in Deutz AG. 2006 2007 Changes in the Volvo Group's holdings of shares and participations: Balance sheet, December...

  • Page 111
    ...cations, etc. Balance sheet, December 31 20,396 13,815 34,211 28,077 15,568 43,645 2006 2007 2,401 186 (169) (130) (273) 2,015 2,015 757 (239) 2 302 2,837 Note 19 Short-term customer-financing receivables 2006 2007 Installment credits Financial leasing Dealer financing Other receivables...

  • Page 112
    ... 2006 2007 Cash in banks Time deposits in banks Total 6,702 4,055 10,757 10,262 4,282 14,544 Note Shareholders' equity ordinary dividend a total of 20,255 was distributed to Volvo's shareholders. The decision also included a bonus issue without issuance of new shares through the transfer...

  • Page 113
    ... held by Nissan Diesel Fair value adjustments regarding holding in Vindic AB Other Balance at December 31, 2007 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...

  • Page 114
    ... benefit plans apply for salaried employees in Sweden (mainly Summary of provision for post-employment benefits Obligations Fair value of plan assets Funded status Unrecognized actuarial (gains) and losses Unrecognized past service costs Net provisions for postemployment benefits 2006 2007 34...

  • Page 115
    ...fits other than pensions Current year service costs Interest costs Expected return on plan assets Actuarial gains and losses1 Past service costs - Unvested - Vested Curtailments and settlements Termination benefits Total costs for post-employment benefits other than pensions 2006 2007 132 348...

  • Page 116
    ...assets in Sweden funded plans Pensions Plan assets at January 1, 2006 5,925 Acquisitions, divestments and other changes - Expected return on plan assets 347 Actuarial gains and (losses) 233 Employer contributions - Employee contributions - Exchange rate translation - Benefits paid (111) Plan assets...

  • Page 117
    ... past service costs Net provisions for post-employment benefits at December 31, 2007 whereof reported as Prepaid pensions and other assets Provisions for post-employment benefits Plan assets by category Shares and participation, Volvo Shares and participations, other Bonds Property Other Total...

  • Page 118
    ...2008. Volvo's subsidiaries in the United States mainly secure their pension obligations through transfer of funds to pension plans. At the end of 2007, the total value of pension obligations secured by pension plans of this type amounted to 10,928 (11,830). At the same point in time, the total value...

  • Page 119
    ...was secured. Long-term loans mature as follows: 2009 2010 2011 2012 2013 2014 or later Total 23,336 12,624 5,681 2,441 1,409 17,956 63,447 Of other long-term liabilities the majority will mature within five years. At year-end 2007, credit facilities granted but not utilized and which can be used...

  • Page 120
    ... Cash, marketable securities Total The liabilities for which the above assets were pledged amounted at year-end to 1,395 (2,108). 310 609 367 576 98 1,960 202 265 364 600 125 1,556 Note 29 Contingent liabilities 2006 2007 Credit guarantees issued for customers and others Tax claims Other...

  • Page 121
    ... 476 Capital gains/losses on the sale of subsidiaries and other business units (281) Unrealized exchange rate gains/losses on trade receivables and payables 143 Incentive program 258 Other changes 56 652 2006 90 (558) (68) 210 (132) (458) 2007 Investments in shares and participations: 2006 New...

  • Page 122
    ... the use of the trademark Renault. 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. 2006 2007 Sales to...

  • Page 123
    ... 13.3 M of the payment was reported in 2006. Terms of employment of the CEO The President and Chief Executive Officer, Leif Johansson, is entitled to a fixed annual salary. In addition, he may receive a variable salary based on operating income and cash ï¬,ow for the Volvo Group up to a maximum...

  • Page 124
    ... held by AB Volvo may be used to fulfil the company's commitments in accordance with the program. Remuneration policy decided at the Annual General Meeting in 2007 The Annual General Meeting of 2007 decided upon principles for remuneration and other employment terms for the members of Volvo's Group...

  • Page 125
    ... to a severance pay of 12 months' salary if Volvo terminates the employment. Those members who are domiciled outside Sweden are offered terms in this respect that are competitive in the country in which the person is domiciled. 2003/2008 employee stock options, number Shares 1 50,000 50,000 37...

  • Page 126
    ... to consolidated financial statements 2006 2007 of which women, % Number of employees of which women, % 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 160 26,722 26...

  • Page 127
    ... of liquid assets invested in short-term interest-bearing securities. The objective is to achieve an interest-fixing term of six months for the liquid assets in Volvo's industrial operations through the use of derivatives. On December 31, 2007, after taking derivatives into account, the average...

  • Page 128
    ... dealers. Collaterals are provided in the form of the financed products. Credit provision aims for a balance between risk exposure and expected yield. The Volvo Group's financial assets are largely managed by Volvo Treasury and invested in the money and capital markets. All investments must meet...

  • Page 129
    ... Balance sheet, December 31 2007 For details regarding the long-term customer finance receivables and the short-term customer receivables, refer to note 16 and 19. 1,430 235 (92) (227) 17 1,363 2006 2007 >90 Total not due 1-30 31-90 >90 Total Age analysis of portfolio value - Accounts...

  • Page 130
    ... are reported at market value on the balance-sheet date. Holdings in unlisted companies for which a market value is unavailable, are recognized at acquisition value. Volvo classifies these types of investments as assets available for sale. Note 15 Shares and participations lists Volvo's holdings...

  • Page 131
    ... applies hedge accounting for certain net investments in foreign operations. Current earnings from such hedging are reported in a separate portion of shareholders' equity. At divestment, the accumulated earnings from the hedge are recognized in the income statement. Financial information 2007 127

  • Page 132
    ...exposure Financial liabilities valued at amortized cost Long term bond loans and other loans Short term bank loans and other loans Trade Payables 1 Refers to Volvo's ownership in Deutz AG valued at market value and Nissan Diesel's holdings in noted shares. 2 Unlisted, for which a reliable fair value...

  • Page 133
    ... Financial assets and liabilities at fair value through profit and loss Marketable securities Derivatives for financial exposure Loans originated by the company and accounts receivables Financial assets available for sale Shares and participations for which a market value can be calculated Shares...

  • Page 134
    ... to hedges are reported at the same time as the gains and losses on the items that are hedged effect the Group's consolidated shareholders' equity. The table in Note 23, Shareholders' equity shows how the currency risk reserve has changed during the year. 208 (530) 130 Financial information 2007

  • Page 135
    ... be accounted for in a separate item within shareholders' equity. A total of neg 123 (63) in shareholders' equity relating to hedging of net investments in foreign operations was reported in 2007. An amount of 0 (37) was reported in earnings relating to concluded hedges. Financial information 2007...

  • Page 136
    ... market price at year-end. Financial net debt amounted to 20,894 (3,589). AB Volvo's risk capital (shareholders' equity plus untaxed reserves) amounted to 35,379 corresponding to 59% of total assets. The comparable figure at year-end 2006 was 89%. Income statements SEK M 2006 2007 Net sales Cost...

  • Page 137
    Balance sheets SEK M December 31, 2006 December 31, 2007 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 138
    Parent Company AB Volvo Changes in Shareholders' equity Restricted equity Share capital Statutory reserve Share premium reserve Unrestricted equity Fair value reserve Retained earnings Total shareholders' Total equity SEK M Balance at December 31, 2005 Cash dividend Share-based payments ...

  • Page 139
    ... assets Shares and participations 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 payment to AB Volvo shareholders...

  • Page 140
    ... programs adopted at the Annual General Meeting as from 2004 are covered by IFRS 2 Share-based payments. The Volvo Group has adopted IAS 19 Employee Benefits in its financial reporting. The parent company is still applying the principles of FAR's Recommendation No. 4 "Accounting of pension...

  • Page 141
    ... reported, 841 (399) pertain to dividends from Group companies. Of the dividends, 719 pertain to dividend from Volvo Financial Services AB. The shares in VFS Servizi Finanziari Spa have been written down by 22 and the shares in Volvo Information Technology AB have been written down by 113. In 2006...

  • Page 142
    ... and tangible assets Value in balance sheet 2006 Capital expenditures Sales/ scrapping Value in balance sheet 2007 Acquisition cost Rights Total intangible assets Buildings Land and land improvements Machinery and equipment Total tangible assets 52 52 6 3 48 57 Value in balance sheet 2006...

  • Page 143
    ... Penta UK Ltd, 16, VFS Servizi Finanziari Spa 22, and Volvo Information Technology AB, 113. 2006: During the first quarter of 2006, 491 was transferred to the newly-formed company Volvo Automotive Finance (China) Ltd for the Volvo Group's future customer-financing activities in China. Shareholders...

  • Page 144
    Parent Company AB Volvo Notes and comments Note 12 Other short-term receivables 2006 2007 Accounts receivables Prepaid expenses and accrued income Other receivables Total 17 35 37 89 26 180 4 210 The valuation allowance for doubtful receivables amounted to 5 (5) at the end of the year. Note...

  • Page 145
    ...18 Cash-ï¬,ow 2006 2007 Other items not affecting cash Revaluation of shareholdings Dividends, transfer price adjustments and Group contributions Gain/loss on sale of shares Other Total 192 (3,296) 363 65 (2,676) 127 63 125 136 451 Investments and sales of shares in Group companies are shown in...

  • Page 146
    ...of employees at year-end was 182 (176). 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. 2006 2007 Wages, salaries...

  • Page 147
    ..., 2006 Dec 31, 2007 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 Trucks Center Hamburg Gmbh, Germany Volvo Group Belgium NV, Belgium Volvo Group UK Ltd...

  • Page 148
    ... AB, Sweden Volvo Aero Norge AS, Norway VNA Holding Inc., USA Volvo Trucks North America Inc, USA Arrow Truck Sales, Inc., USA Volvo Construction Equipment North America Inc., USA Volvo Motor Graders Inc., USA Volvo Penta of The Americas Inc., USA Volvo Aero Services LP, USA Volvo Commercial Finance...

  • Page 149
    ... Finance (China) Ltd, China Volvo Truck & Bus Ltd, Great Britain1 Volvo Holding Mexico, Mexico Volvo Technology Transfer AB, Sweden Volvo Powertrain AB, Sweden Volvo Information Technology AB, Sweden Volvo Parts AB, Sweden Volvo Group Insurance Försäkrings AB, Sweden Volvo Business Services AB...

  • Page 150
    ... yearly basis, the Board will evaluate whether a share or share-price related incentive program will be proposed to the Annual General Meeting or not. The Annual General Meeting decides upon such programs. In the report on 2007 operations released on February 6, 2008, it was announced that the Board...

  • Page 151
    ...calculated as per year end 2007. The Board of Directors has the view that the Company's and the Group's shareholders' equity will, after the proposed dividend, be sufficient in relation to the nature, scope and risks of the business. Had the assets and liabilities not been estimated at their market...

  • Page 152
    ... 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 annual general meeting of shareholders that the income statements and balance sheets of the Parent Company and the Group be adopted...

  • Page 153
    ...Reports 2005 and 2006. As from January 1, 2007, the benefits from the synergies created in the business units are transferred back to the product areas. Also, as from January 1, 2007, the responsibility for the Group's treasury operations and real estate has been transferred from Financial services...

  • Page 154
    ... 2001 2002 2003 2004 2005 2006 2007 Intangible assets Property, plant and equipment Assets under operating leases Shares and participations Inventories Customer-financing receivables Interest-bearing receivables Other receivables Non-current assets held for sale Liquid funds Assets Shareholders...

  • Page 155
    ... 2004 2005 2006 2007 Intangible assets Property, plant and equipment Assets under operating leases Shares and participations Inventories Customer-financing receivables Interest-bearing receivables Other receivables Non-current assets held for sale Liquid funds Assets Shareholders' equity Provision...

  • Page 156
    ... 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/payment to AB Volvo's shareholders...

  • Page 157
    ....2 40.4 30.5 40.6 33.6 30.8 25.6 Shareholders' equity excluding minority interest as percentage of total assets 37.6 1 Pertains to the Industrial operations. For periods before 2006, Financial Services is included and consolidated according to the equity method. Financial information 2007 153

  • Page 158
    ... total votes Share capital, % Distribution of shares, December 31, 2007 Volvo shareholders Number of shareholders % of total votes1 Share of capital, % 1 Renault SA Industrivärden Svenska Handelsbanken2 Violet Partners LP SEB fonder (savings funds)/ Trygg Försäkring AMF Pension and Funds Second...

  • Page 159
    ...Volvo Penta Western Europe Eastern Europe North America South America Asia Other markets Total 9,776 10,774 11,719 Volvo Aero Western Europe Eastern Europe North America South America Asia Other markets Total Other and eliminations Net sales Industrial operations Customer Finance Western Europe...

  • Page 160
    ...sale of shares in Pripps Ringnes amounting to 3,027. 8 Refers to Volvo Trucks for 1997-2000. Operating margin % 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Trucks Construction Equipment Buses Volvo Penta Volvo Aero Volvo Group excluding divested operations Operating margin, total Number...

  • Page 161
    ...,379 219,931 236,356 Buses Total Europe Western Europe Eastern Europe North America South America Asia Other markets Total Environmental performance of Volvo production plants, Industrial operations Absolute values related to net sales 2003 2004 2005 2006 20071 Energy consumption (GWh; MWh/SEK...

  • Page 162
    ... an engine range of 10 to 2,000 hp. Volvo Penta also supplies industrial engines ranging from 75 kW to 600 kW for irrigation pumps, generator units and other application areas. Marine leisure Marine commercial Industrial engines 158 Customer offering 2007 Nissan Diesel Renault Trucks Volvo Trucks

  • Page 163
    ...'s Gripen fighters. Volvo Aero also has a substantial aftermarket business. Engine components Engine overhaul Space Financial services Financial services such as customer and dealer financing, treasury and property management contribute to create shareholder value. Providing cost effective and...

  • Page 164
    ...and leasing assets as defined in the cash-ï¬,ow statement. Operating margin Operating income divided by net sales. Return on shareholders' equity Income for the period divided by average shareholders' equity. Cash and cash equivalents, marketable securities and interest-bearing short- and long-term...

  • Page 165
    ... SEB funds / Trygg Insurance Violet Partners LP AB Industrivärden AMF Pension The Election Committee is responsible for submitting to the Annual General Meeting the names of candidates to serve as members of the Board of Directors and as auditors. The Committee also proposes the amount of the fees...

  • Page 166
    World AB Volvo, Investor Relations, 635 3015