Volvo 2008 Annual Report Download

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• by telephone, +46 31 66 00 00 beginning February 27, 2009
• by mail addressed to AB Volvo (publ), Legal Department, SE-405 08 Göteborg, Sweden
• at Volvo’s website www.volvogroup.com
• name
• personal number (registration number)
• address and telephone number
• name and personal number (registration number) of the proxy, if any
• name(s) of any accompaning assistant(s)
should request the shares to be temporarily registered in the shareholder’s name several banking
April 6, 2009 has been proposed as the record date for dividends, which are expected to be
The following persons are members of Volvo’s Election Committee:
Finn Johnsson Chairman of the Board
Carl-Olof By AB Industrivärden
Anders Oscarsson SEB funds / Trygg Insurance
Lars Förberg Violet Partners LP
Håkan Sandberg SHB Pension Fund, SHB Pensionskassa,
SHB Employee Fund och Oktogonen
of candidates to serve as members of the Board of Directors, as Chariman of the Board and as
April 24, 2009
Six months ended June 30, 2009 July 21, 2009
October 23, 2009
February, 2010
-
Historical and current time series reecting the Volvo Group’s market information and share
Investor Relations:
Christer Johansson +46 31-66 13 34
Patrik Stenberg +46 31-66 13 36
Anders Christensson +46 31-66 11 91
John Hartwell +1 212 418 7432
Aktiebolaget Volvo (publ) 556012-5790
Investor Relations, VHK
SE-405 08 Göteborg
Tel +46 31 66 00 00
Fax +46 31 53 72 96
E-post investorrelations@volvo.com
3 CEO comment
6 Organized to drive synergies
8 Market overview
14 . . .and world-class services
24 The Volvo Group 2008
30 Financial strategy
34 Sustainable development
38 Financial performance
41 Financial position
43 Cash-ow statement
45 Risk management
49 Business Areas
50 Business area overview
52 Trucks
53 Volvo Trucks
54 Renault Trucks
55 Nissan Diesel
56 Mack Trucks
57 Buses
59 Construction Equipment
63 Financial Services
64 Report
70 Group Management
72 Board of Directors and auditors
75 Consolidated income statements
76 Balance sheets
77 Changes in shareholders’ equity
78 Cash-ow statements
79 Notes to the consolidated nancial statements
140 Proposed remuneration policy
141 Proposed disposition of unappropriated earnings
142 Audit Report for AB Volvo
143 Eleven-year summary
152 Customer offering
Flap Denitions
In every respect, 2008 was a year of extremes.
From record sales and earnings during the rst
Group’s business areas during the second half.
This report contains ’forward-looking statements’. Such statements reect management’s current
expectations with respect to certain future events and potential nancial performance. Although
the Company believes that the expectations reected in such forward looking statements are
reasonable, no assurance can be given that such expectations will prove correct. Such statements
initiatives, (iii) changes in the regulatory environment and other government actions, (iv) uctu-
ations in exchange rates and (v) business risk management.
This report does not imply that the company has undertaken to revise these forward-looking
statements, beyond what is required under the company’s registration contract with OMX Nordic
The Volvo Group’s formal nancial reports are presented on pages 24–63 and 74–141 in the
printed version and has been audited by the company’s auditors.
The Volvo Group 2008
During the year, the Volvo Group showed a

Table of contents

  • Page 1
    The Volvo Group 2008

  • Page 2
    ... position Cash-flow statement Risk management Business Areas Business area overview Trucks Volvo Trucks Renault Trucks Nissan Diesel Mack Trucks Buses Construction Equipment Volvo Penta Volvo Aero Financial Services During the year, the Volvo Group showed a number of products with the fourth...

  • Page 3
    ...of Group's net sales Trucks Buses Construction Equipment Volvo Penta Volvo Aero Financial Services Other 67% 6% Share of Group's operating income 77% 0% 11% 6% 2% 9% Volvo Parts Volvo Logistics 18% 4% 2% 3% Volvo Technology Volvo Information Technology Volvo Group Real Estate - Volvo Business...

  • Page 4
    ... world 00 08 3.4 20.2 Customers Volvo Group customers are active in more than 180 countries worldwide, mainly in Europe, Asia and North America. Group sales of products and services are conducted through both wholly owned and independent dealers. The global service network handles customer demand...

  • Page 5
    ...and wheel loaders. Earnings per share amounted to SEK 4.90 (7.37). Proposed ordinary dividend of SEK 2.00 (5.50). Key ratios Net sales Volvo Group, SEK M Operating income Volvo Group, SEK M Operating income Industrial operations, SEK M Operating income Customer Finance, SEK M Operating margin Volvo...

  • Page 6
    ..., mission and values Our vision 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...

  • Page 7
    ... the first half of the year to a weak close, with losses in the fourth quarter. From 12-month delivery times for trucks and problems with bottlenecks in production to weak order bookings, a large number of cancellations and shutdown days in our plants during the latter part of the year. ing the...

  • Page 8
    ... the products. During 2008, this part of our operations accounted for about 26% of total sales. This provides several advantages. The aftermarket business is much more stable in its development than sales of new vehicles and equipment. As long as our customers' trucks, buses, construction equipment...

  • Page 9
    ... regions such as Eastern Europe and Asia. We have advanced our positions in these markets during recent years through investments in our dealer and service networks, our acquisition of the Japanese truck manufacturer Nissan Diesel, the acquistion of the Chinese wheel-loader manufacturer Lingong and...

  • Page 10
    ... and development program, more efficient production and a more focused supplier structure. Number of employees: 9,181 Volvo Parts Volvo Parts provides services and tools for the aftermarket. The services start with the suppliers and proceed via the dealers all the way to the end-customers. This...

  • Page 11
    ... and space applications with a focus on light-weight technology for reduced fuel consumption. Services for the aerospace industry are also offered. Number of employees: 3,262 Financial Services Conducts operations in customer and dealer financing. Number of employees: 1,290 A global group 2008 7

  • Page 12
    ... next few years, major investments in the road network will be carried out in markets such as China, India and Eastern Europe while stimulus packages in the form of investments in infrastructure are on the agenda in a number of countries. Increased global wealth means that there is a long-term need...

  • Page 13
    ... 2001 1999 1998 Joint venture within trucks and buses with Eicher Motors in India Acquisition of Ingersoll Rand's road construction operations Acquisition of Chinese wheel loader manufacturer Lingong Acquisition of Nissan Diesel of Japan, completed in 2007. Sale of the service company Celero Support...

  • Page 14
    ... competition, customer assurance of future sales and is a condition of good profitability. Strategy satisfaction is a key factor, as it represents an The products and services have high performance characteristics, quality, safety, ï¬,exibility and total economy. Customers are offered solutions...

  • Page 15
    ... Further develop the service range, to help balance sales of vehicles and equipment, which are more cyclical in nature. DME (dimethylether). • Commercially viable offering of hybrid city buses. • Volvo Aero signed contracts regarding taking part in a number of large engine programs with light...

  • Page 16
    ... in trucks, buses, construction equipment, marine engines, industrial engines and the aerospace industry. The Volvo Group's acquistion of Renault Trucks and Mack in 2001 created Europe's largest and the world's second largest heavyduty truck manufacturer, with a very broad product program. Mack is...

  • Page 17
    ... from Volvo, bus operators can earn a very competitive payback on their investment. Volvo Construction Equipment At the major ConExpo fair in Las Vegas, Volvo Construction Equipment showcased its revolutionary hybrid wheel loader prototype. Furthermore the new line of road machinery and close to...

  • Page 18
    It is not enough to manufacture and sell high-quality products for the Volvo Group to realize its vision to become world leader in commercial transport solutions. Many customers want long-term cooperation around total solutions to execute their work as efficiently as possible with maximum profi...

  • Page 19
    ... Aero spare parts sales Training Credit cards, Vehicle and equipment insurance. Customer and dealer fi nancing Transport and vehicle management Financial services Super structures Attachments Parts Repair and maintenance agreements Customer assistance Workshop services A global group 2008...

  • Page 20
    ... A global group 2008 D uring the year, the Volvo Group showcased the fourth-generation hybrid solution on a broad front in buses, trucks and construction equipment. site for the hybrid technology's ability to have a widespread commercial impact in the market for heavy vehicles." Volvo has been...

  • Page 21
    ... of the world's largest companies in refuse handling. In the A global group 2008 17 During the autumn, a number of the Group's hybrid vehicles were displayed at various trade shows, including IAA in Hanover, Germany. Volvo Trucks showcased the world's first heavy hybrid refuse truck, the Volvo FE...

  • Page 22
    ... investment that will be of great importance for the future demand for hybrid buses in London. Volvo Construction Equipment Volvo Construction Equipment is also at the leading edge of development in the field of hybrid technology. At the ConExpo trade show in Las Vegas in March 2008, Volvo Construc...

  • Page 23
    ... technology generates economy of scale Engine Powertrain Management Unit Transmission SHARED HARDWARE Battery management unit Electric architecture, voltage levels Control system Motors Energy storage Cables and connectors DC/DC converter Inverter Commonality Short development times Volumes of key...

  • Page 24
    ...main task. So we must always think about which activities are value-adding and which activities drive inefficiencies. We want all employees to take part in the work on improvements to eliminate inefficiencies," explains Katarina Lindström, head of global production at Volvo Power train, who leads...

  • Page 25
    ... Customer è ê ë Built-in quality Continuous improvement Just-intime ç Teamwork é Process stability å The Volvo Way number of large companies work according to this model and many suppliers have introduced similar systems and approaches. The acquisition-driven growth of recent years...

  • Page 26
    ... facilities Volvo Trucks Renault Trucks Nissan Diesel Mack Trucks Construction Equipment Buses Volvo Penta Volvo Aero Volvo Powertrain "It is not about taking over someone else's way of working. It is all about us using all the knowledge and experience from other companies and within the Group to...

  • Page 27
    ... is not a new campaign that will lose focus after a while. It's a way of thinking. A program that will continue at all time. The production plants have come the farthest in the development, but VPS is gradually being introduced also in the other functions of the Volvo Group. A global group 2008 23

  • Page 28
    ... in the truck operations The second quarter • Net sales increased by 13% • Operating income increased by 17% • Operating cash ï¬,ow in Industrial Operations SEK 4.9 billion • Improved profitability in truck operations • Cautiosness in Europe 1 2 24 Board of Directors' Report 2008

  • Page 29
    ... The fourth quarter • Net sales decreased by 9% • Operating income was negative in an amount of SEK 999 M • Inventory reduction contributed to positive operating cash ï¬,ow of SEK 1.8 billion in Industrial Operations • Weak demand in most markets 3 4 Board of Directors' Report 2008 25

  • Page 30
    ... all production in the plant for almost two months. In total, the strike had a negative impact on operating income during the first quarter amounting to approximately SEK 250 M. On March 15, it was announced that employees represented by the UAW had ratified a new three-year agreement that ended...

  • Page 31
    ...Volvo's 50% interest in the joint-venture company was consolidated during the third quarter 2008. The third quarter Volvo CE moves motor grader business as part of North American consolidation plan Volvo Construction Equipment (Volvo CE) will move its North American Board of Directors' Report 2008...

  • Page 32
    ... concentration of Mack's truck production to the plant in Macungie, Pennsylvania. The transfer of production has been put on hold awaiting a new labor agreement with UAW. The fourth quarter Credit rating On October 31, 2008 Moody's Investors Service changed AB Volvo's A3 long term rating outlook to...

  • Page 33
    ... market. Mack's head office with support functions will be transferred from Allentown, Pennsylvania to Greensboro, North Carolina where Volvo Trucks' North American operations are already gathered. Plans also include reorganization of the distribution network for Board of Directors' Report 2008...

  • Page 34
    ... other 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. Long-term credit rating The purpose of Volvo's capital structure is to balance...

  • Page 35
    ... to 5.2%. The average annual operating margin for the Volvo Group was 7.4% from 2004 to 2008. Capital structure The capital structure target is set to a net debt including provisions for post-employment benefits for the industrial operations of a maximum of 40% of shareholders' equity under normal...

  • Page 36
    ... and to be able to continue to invest in the development of products for the future, the Board of Directors proposes that the Annual General Meeting approves that the ordinary dividend be lowered to SEK 2,00 per share for fiscal year 2008. That corresponds to a cut of 64% compared to the previous...

  • Page 37
    ...General Meeting, the Board of Directors, Group Management and other areas that are regulated in the "Swedish Code of Corporate Governance." This website also invites shareholders to personally determine the information to be received from Volvo. 13,146 Credit rating at February 24, 2009 Short term...

  • Page 38
    ... for its customers. Volvo views sustainable development, both in environmental and social terms, as a vital condition for long-term profitability and increased customer and shareholder value. The Volvo Group s vision is to be valued as the world's leading supplier of commercial transport solutions...

  • Page 39
    ... product development and marketing - also have management systems. Most employees work in operations that have quality management systems certified in accordance with ISO 9001:2000. The Group's environmental goals are used to monitor the entire organization, and they are closely linked to business...

  • Page 40
    ... numerous starts and stops. Fuel savings for a delivery truck with this sort of driving pattern is estimated at between 15-20%. Extensive work is currently under way to develop and test hybrid solutions. CO2-neutral transports As part of the efforts with alternative fuels, the Volvo Group was...

  • Page 41
    ...for current and future employees. At the end of 2008, a total of 101,380 people were employed by the Group. Every employee is expected to take an active role in the Group's development, process of change and future. The Group is working in a number of different areas, such as fitness programs, skill...

  • Page 42
    ... the Volvo Group 1 Adjusted for acquired and divested units and changes in currency rates, net sales for Industrial operations increased by 4%. Net sales by market area SEK m 2007 2008 % Western Europe Eastern Europe North America South America Asia Other markets Total Industrial operations 124...

  • Page 43
    ... year. Towards year-end almost all markets were affected by the financial crisis and the global economic downturn. Income Statement Volvo Group SEK M 2007 2008 Change in % Net sales Volvo Group Operating Income Volvo Group Operating income Industrial operations Operating income Customer Finance...

  • Page 44
    ... new Volvo vehicles and machines (46,686) were financed during the year. In the markets where financing is offered, the average penetration rate was 25% (24). At December 31, 2008 total assets in Customer Finance amounted to SEK 118 billion (95). Excluding the Nissan diesel receivables, the credit...

  • Page 45
    ...xed assets Disposals Operating cash-ï¬,ow Investments and divestments of shares, net Acquired and divested operations, net Capital injections to/from Customer Finance operations Currency effect Payment to AB Volvo shareholders Revaluation of loans Other Total change Net financial position at end of...

  • Page 46
    Balance Sheets Volvo Group Industrial operations Mkr Dec 31 2007 Dec 31 2008 Customer Finance Dec 31 2007 Dec 31 2008 Elim. and reclassifications Dec 31 2007 Dec 31 2008 Total Dec 31 2007 Dec 31 2008 Assets Non-current assets Intangible assets Tangible assets Property, plant and equipment Assets ...

  • Page 47
    ...the year and the expansion of dealer network and workshops, mainly in Europe, has continued during 2008. Product related investments refer to Euro V and US10 emission standards as well as the introduction of the new range of Volvo trucks and other renewals in the product program. Capital investments...

  • Page 48
    ... assets and leasing vehicles Operating cash ï¬,ow Investments and divestments of shares, net Acquired and divested operations, net Interest-bearing receivables including marketable securites Cash-ï¬,ow after net investments Financing activities Change in loans, net Payment to AB Volvo shareholders...

  • Page 49
    ... to credits and loan financing, which may negatively affect customers, suppliers, dealers as well as the Volvo Group. Suppliers' financial instability could result in delivery disturbances. A sound balance between Heavy truck registrations, > 16 tons Europe North America Japan Emissions...

  • Page 50
    ...The commercial vehicles industry is cyclical The Volvo Group's markets have undergone significant changes in demand as the general economic environment has ï¬,uctuated. Investments in infrastructure, major industrial projects, mining and housing construction all impact the Group's operations, since...

  • Page 51
    ... 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 52
    ... year a Group-wide survey is conducted, and according to the survey the number of satisfied employees has continually increased. Intangible assets AB Volvo owns or otherwise has rights to patents and brands that refer to the products the Company manufactures and markets. These have been acquired...

  • Page 53
    .... Construction Equipment accounted for 18% of net sales and for 11% of operating income. In 2008, the largest market was Europe, which accounted for 52% of the Volvo Group's net sales. Asia accounted for 18%, North America for 16%, South America for 7% and Other markets for 7%. Business areas 2008...

  • Page 54
    ... from light trucks for delivery to heavy trucks for long haulage. Number of employees: 10,100 RENAULT TRUCKS In total, the Volvo Group is Europe's largest and the world's second largest manufacturer of heavy trucks. Nissan Diesel's products range from medium-heavy to heavy trucks used for long-haul...

  • Page 55
    ... note 7. 2. Excluding adjustment of goodwill in 2006. 3. Excluding write-down of shares in Henlys Group 2004. 4. Years starting 2006 are reported according to a new reporting structure, in which Volvo Group Real Estate and Volvo Treasury are not included in VFS. See note 7. Business areas 2008 51

  • Page 56
    ... Key ratios Trucks 2007 2008 Net sales as percentage of Volvo Group's sales Net sales, SEK bn Operating income, SEK bn Operating margin, % Net sales by market Trucks, SEK M 66 187.9 15.2 8.1 67 203.2 12.2 6.0 2007 2008 Europe North America South America Asia Other markets Total Deliveries...

  • Page 57
    ... 2008 Western Europe Eastern Europe North America South America Asia Other markets Total 41,009 18,456 16,692 10,166 9,002 4,784 100,109 41,025 17,162 15,887 12,890 13,440 5,548 105,952 Retail a core business Volvo Trucks' new retail strategy has further improved customer understanding. Volvo...

  • Page 58
    ... 2008 Western Europe Eastern Europe North America South America Asia Other markets Total 59,097 9,488 517 1,107 4,216 5,017 79,442 54,944 8,699 494 1,172 5,252 5,918 76,479 The positive trend for "business around the truck" continues Total service solutions to support the truck customer account...

  • Page 59
    ... tons) Heavy trucks (over 16 tons) Total 12,338 12,342 13,504 38,184 18,661 15,095 15,607 49,363 1 Nissan Diesel was consolidated in the Volvo Group on April 1, 2007. Deliveries by market Nissan Diesel1 2007 2008 Western Europe Eastern Europe North America South America Asia Other markets Total...

  • Page 60
    ... ever in sales, engineering and service activities to support customers' business operations from the widest possible perspective concerning their use of Nissan Diesel trucks. Mack Trucks - weak North American truck market The low demand for heavy-duty trucks experienced in the second half of 2007...

  • Page 61
    ... key markets. • Comprehensive North American restructuring plan to improve efficiency and effectiveness. • Financial condition of Mack dealer network strong despite low new truck sales levels. Ambitions 2009 • Execute on cost reduction and adjust production to ensure inventory levels in line...

  • Page 62
    ... Key ratios Buses 2007 2008 Net sales as percentage of Volvo Group sales Net sales, SEK bn Operating income, SEK M Operating margin, % Deliveries by market Buses 6 16.6 231 1.4 6 17.3 (76) (0.4) 2007 2008 Western Europe Eastern Europe North America South America Asia Other markets Total Net...

  • Page 63
    ... Construction Equipment 2007 2008 Net sales as percentage of Volvo Group sales Net sales, SEK bn Operating income, SEK bn Operating margin, % Net sales by market Construction Equipment, SEK M 19 53.6 4.2 7.9 18 56.1 1.8 3.2 2007 2008 Europe North America South America Asia Other markets Total...

  • Page 64
    ...2008 Net sales as percentage of Volvo Group sales Net sales, SEK bn Operating income, SEK M Operating margin, % Net sales by market Volvo Penta, SEK M 4 11.7 1,173 10.0 4 11.4 928 8.1 2007 2008 Europe North America South America Asia Other markets Total Engine volumes Volvo Penta, No. of units...

  • Page 65
    .... In Asia and many markets in other parts of the world, for instance the Middle East and South America, demand for industrial engines and marine engines continued to be favorable. Market share development With aggressive investments in product development and product renewal, Volvo Penta has created...

  • Page 66
    ... aircraft. Key ratios Volvo Aero 2007 2008 Net sales as percentage of Volvo Group sales Net sales, SEK bn Operating income, SEK M Operating margin, % Net sales by market Volvo Aero, SEK M 3 7.6 529 6.9 2 7.4 359 4.8 2007 2008 Europe North America South America Asia Other markets Total 3,462...

  • Page 67
    ... as President of Volvo Aero. Staffan Zackrisson has worked for Volvo Aero for a number of years and in recent years he has been a member of the business area's management team. build retention and add value to Volvo Group's customers. 2008 was a very challenging year with the financial markets...

  • Page 68
    ... proposes candidates to serve as Board members, Board Chairman and external auditors. The Board 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...

  • Page 69
    ...The Board In 2008, 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 2008, six regular meetings...

  • Page 70
    ... Board of Directors. Since Renault controls more than 10% of the shares and votes in Volvo, these persons may not, pursuant to the Code and the rules of the Stockholm Exchange, be considered as independent in relation to one of the company's major shareholders. Also the Election Committee must meet...

  • Page 71
    ... the Board regarding terms of employment and remuneration for the President of AB Volvo, principles for remuneration, including pensions and severance payment for other members of the Group Executive Committee, and principles for variable salary systems, share-based incentive programs, pensions and...

  • Page 72
    ... 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 described in The Volvo Way, an internal document concerning Volvo's busi...

  • Page 73
    .../or changing business circumstances. Policies and instructions relating to the financial reporting are updated and communicated on a regular basis from management to all affected employees. In addition, there are a number of committees and networks within Volvo that serve as forums for information...

  • Page 74
    ... of Science in Accounting. President of Volvo Financial Services since 2001. President of Volvo Car Finance Europe 1999-2001. Member of the Group Executive Committee since 2001. With Volvo since 1985. Holdings in Volvo, own and related parties: 22.015 Series B shares. 70 Corporate Governance 2008

  • Page 75
    ...has been Vice President and Head of Corporate Finance at AB Volvo since 2002 and has worked for the Volvo Group since 1988. He has held management positions in Volvo Treasury North America and Volvo Trucks' operations in Brazil. Olof Persson, President of Volvo Aero, was appointed to take over after...

  • Page 76
    ... President Industri AB Euroc; President United Distillers, UK; CEO of Mölnlycke Health Care AB. Ravi Venkatesan Born 1963. MBA and M Sc Industrial Engineering. Board chairman of Microsoft Corporation (India) Pvt. Ltd, and responsible for the company's marketing, operational and business development...

  • Page 77
    ... Series B shares. Auditors PricewaterhouseCoopers 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...

  • Page 78
    Financial information 2008 75 76 77 78 79 126 140 141 142 143 Consolidated income statements Consolidated balance sheets Changes in consolidated Shareholders' equity Consolidated cash-flow statements Notes to consolidated financial statements Parent Company AB Volvo Proposed remuneration policy ...

  • Page 79
    Consolidated income statements SEK M 2007 Note 7 2008 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 80
    ... assets Property, plant and equipment Investment property Assets under operating leases Financial assets Associated companies Other shares and participations Long-term customer-financing receivables Deferred tax assets Other long-term receivables Total non-current assets Current assets Inventories...

  • Page 81
    ... of shares to Volvo's shareholders Share based payments Change in consolidation of Nissan Diesel1 Minority regarding new acquisitions Other changes Balance at December 31, 2007 Translation differences Translation differences on hedge instruments of net investments in foreign operations Accumulated...

  • Page 82
    ...leasing assets Shares and participations, net Acquired and divested subsidiaries and other business units, net Interest-bearing receivables including marketable securities Cash-ï¬,ow after net investments Financing activities Increase/(decrease) in bond loans and other loans Cash payment to AB Volvo...

  • Page 83
    ... for Groups, has been applied, issued by the Swedish Financial Reporting Board. 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...

  • Page 84
    ...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 85
    ... is guaranteed to Customer Finance by another Volvo business area. In the Volvo Group's consolidated balance sheet, these leasing agreements are reported as operating leases. Reclassification from operating to financial leasing contract also affects the income statement with regards to sales and...

  • Page 86
    ... as part of net financial items in accordance with the effective interest method. Dividends received attributable to these assets are recognized in the income statement as Income from other investments. Volvo reports shares and participations in listed companies at market value on the balance-sheet...

  • Page 87
    ... credited to equity. The fair value is calculated according to share price reduced by dividend connected to the share before the allotment. The additional social costs are reported as a liability, revalued at each balance sheet date in accordance with UFR 7, issued by the Swedish Financial Reporting...

  • Page 88
    ...risks are attributable to operating lease contracts or sales transactions combined with buy-back agreements or residual value guarantees. Residual value risks are the risks that Volvo in the future would have to dispose used products at a loss if the price development of these products is worse than...

  • Page 89
    ...Volvo, the products, primarily trucks, 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 90
    ... and reï¬,ect the time-value of money but not the actuarial or investment risk. The market situation at the end of the financial year 2008 makes discount rate assumptions specially difficult to determine. Volvo's assumptions regarding discount rate are presented in note 24. Health care cost trend...

  • Page 91
    ...to the application of Income Statement Volvo Group SEK M Industrial operations AdjustReported ment Restated Customer Finance AdjustReported ment Restated Elim and reclassifications AdjustReported ment Restated Volvo Group Total AdjustReported ment Restated Net sales Cost of sales Gross income...

  • Page 92
    ... Volvo Group Total AdjustReported ment Restated Assets Non-current assets Intangible assets 43,909 Tangible assets Property, plant and equipment 57,185 Assets under operating leases 16,967 Financial assets Shares and participations 1,935 Long term customer financing receivables 467 Deferred tax...

  • Page 93
    ...shares in subsidiaries solidated in the Volvo Group from May 1, 2007. Ingersoll Rand's road development division is reported in the Construction Equipment segment. Nissan Diesel The acquisition of Nissan Diesel was achieved in stages during 2006 and 2007. At the beginning of 2007, the reported value...

  • Page 94
    ...effects on the Volvo Group's balance sheet and cash-ï¬,ow statement in connection with the divestment of subsidiaries and other business units are specified in the following table: Divestments Intangible assets Property, plant and equipment Assets under operating lease Inventories Other receivables...

  • Page 95
    ...statement data Net sales Cost of sales Financial income and expense Income before taxes Income taxes Income of the period 2007 2008 7,401 (7,293) (18) 90 (24) 66 6,479 (6,439) (22) 18 (6) 12 Balance sheet data Property, plant and equipment, net Other non-current assets Current assets Total Assets...

  • Page 96
    ... Volvo Parts. As the four truck brands share product development, production and other activities in business units such as Volvo 3P and Volvo Powertrain and also share certain infrastructure in distribution such as dealers, the four truck brands are reported as one business segment. The Volvo Group...

  • Page 97
    ...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 2007 2008 2007 2008...

  • Page 98
    ... Equipment Buses Volvo Penta Volvo Aero Other Industrial operations Customer Finance Reclassification Group versus segment Customer Finance Volvo Group total Reporting by geographical segment Net sales Europe North America South America Asia Other markets Volvo Group total* *of which: Sweden United...

  • Page 99
    ...LP Subtotal Total income (loss) from investments in associated companies 2007 2008 - 7 11 3 76 11 108 (3) (3) 13 10 8 0 - (16) 15 0 0 Dividends received Deutz AG Holdings of Nissan Diesel Other Subtotal Revaluation and write-downs of shares Vindic Holding AB Holdings of Volvo Technology Transfer1...

  • Page 100
    ... countries Capital gains Other non-taxable income Other non-deductible expenses Adjustment of current taxes for prior years Recognition and derecognition of deferred tax assets Other, net Income tax rate for the Group 28 4 0 (2) 1 (1) (1) 1 30 28 4 (1) 0 0 0 0 (2) 29 96 Financial information 2008

  • Page 101
    ... as in 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 2007 Capital expenditures Sales...

  • Page 102
    .../scrapping Acquired and divested operations3 Translation differences Reclassifications and other Value in balance sheet 2008 Net carrying value in balance sheet 2008 4 Goodwill Entrance fees, industrial programs Product and software development Other intangible assets Total intangible assets...

  • Page 103
    ... development of Volvo's operations. In the model, Volvo is expected to maintain stable capital efficiency over time. The evaluation is made on nominal values 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 104
    ...Co.,Ltd. (HangZhou), China Diamond Finance Ltd, USA Blue Chip Jet HB, Sweden Thomas Hardie Commercials Ltd, Great Britain Quingdao Sunwin Bus Corp, China Arabian Vehicle & Truck Industry Ltd, Saudi Arabia Dong Feng Nissan Diesel Motor Co.,Ltd., China Other holdings Total shares and participations in...

  • Page 105
    ... in the company were divested in 2007. Nissan Diesel Nissan Diesel is consolidated in the Volvo Group as of the first quarter of 2007. 2007 2008 Changes in the Volvo Group's holdings of shares and participations: Balance sheet, December 31, preceding year Change in Group structure Acquisitions and...

  • Page 106
    ... for inventory obsolescence in Volvo Aero's operations in Bromma during 2008. 28,077 15,568 43,645 39,137 15,908 55,045 2007 2008 2,015 757 (239) 2 302 2,837 2,837 1,229 (325) 305 (524) 3,522 Note 19 Short-term customer-financing receivables 2007 2008 Installment credits Financial leasing...

  • Page 107
    ...420,220 registered shares. Cash dividend decided by the Annual General Meeting 2008 was SEK 5.50 (25.00) per share or total 11,149.6 (10,127.5). Unrestricted equity in the Parent Company at December 31, 2008 amounted to 27,678 (22,254). Financial information 2008 103 The share capital of the Parent...

  • Page 108
    ... held by Nissan Diesel Fair value adjustments regarding holding in Vindic AB Other Balance at December 31, 2008 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 109
    ...long-term return rate on plan assets, based upon historical yield rates for different categories of investments and weighted in accordance with the foundation's investment policy. The expected return has been calculated net of administrative expenses and applicable taxes. Financial information 2008...

  • Page 110
    ... contributions Actuarial (gains) and losses Exchange rate translation Benefits paid Obligations at December 31, 2007 of which Funded defined benefit plans by about 169 and reduce costs by approximately 11. Calculations made as of December 31, 2008 show an annual increase of 9% in the weighted...

  • Page 111
    ... return on plan assets Actuarial gains and (losses) Employer contributions Employee contributions Exchange rate translation Benefits paid Plan assets at December 31, 2008 Sweden Pensions United States Pensions France Pensions Great Britain Pensions US Other benefits Other plans Total (13...

  • Page 112
    ...) and losses Unrecognized past service costs Net provisions for post-employment benefits at December 31, 2008 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...

  • Page 113
    ...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 as of December 31, 2008. Bond loans EUR 2002-2008/2010-2017 SEK 2006-2008/2010-2017 JPY 2001/2011 USD 2007/2010 Total1 Actual interest rate...

  • Page 114
    .... Other loans include current maturities of long-term loans, 26,336 (22,554), and commercial paper, 17,876 (6,547). Non-interest-bearing liabilities accounted for 91,759 (85,406), or 59% (66) of the Group's total current liabilities. Advances from customers Wages, salaries and withholding taxes VAT...

  • Page 115
    ... under operating leases Chattel mortgages Receivables Cash, marketable securities Total The liabilities for which the above assets were pledged amounted at year-end to 1,102 (1,395). 202 265 364 600 125 1,556 190 155 369 569 97 1,380 Note 29 Contingent liabilities 2007 2008 Credit guarantees...

  • Page 116
    ...317) Investments in shares and participations: New issue of shares Capital contribution Acquisitions Divestments Revaluations Other (24) 14 0 106 15 325 436 (13) (43) (94) 78 - 43 (29) Note 31 Leasing Volvo as a lessee At December 31, 2008, future rental payments (minimum leasing fees) related...

  • Page 117
    ... 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. 2007 2008 Sales to...

  • Page 118
    ...: SEK 3.43 M Share-based incentive program: SEK 0.05 M Total: SEK 15.81 M Remuneration policy decided at the Annual General Meeting in 2008 The Annual General Meeting of 2008 decided upon principles for remuneration and other employment terms for the members of Volvo's Group Executive Committee...

  • Page 119
    ... employee stock options revenue of SEK 6 million (cost of 17) and pensions SEK 61 million (66). Total costs for members of the GEC include social fees on salaries and benefits, special pension tax and additional costs for other benefits. The remuneration model of the Volvo group is to a main part...

  • Page 120
    ... proposal is that treasury shares held by AB Volvo may be used to fulfil the company's commitments in accordance with the program. Shares1 Outcome of the sharebased incentive program decided at the Annual General Meeting 2008 CEO Other members of GEC Other senior executives Total 1,333 10,811 73...

  • Page 121
    Average number of employees AB Volvo Sweden Subsidiaries Sweden Western Europe Eastern Europe North America South America Asia Other countries Group total 2007 Number of of which employees women, % 2008 Number of of which employees women, % 178 27,826 27,340 5,027 11,716 4,664 12,824 2,685 92,260...

  • Page 122
    ...forward-rate agreements). Most of these contracts are used to hedge interest-rate levels for short-term borrowing or investment. Cash-ï¬,ow risks The effect of changed interest-rate levels on future currency and interest-rate ï¬,ows refers mainly to the Group's customer financing operations and net...

  • Page 123
    ... of retail customers and 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...

  • Page 124
    ...sheet, December 31 2008 For details regarding the long-term customer finance receivables and the short-term customer receivables, refer to Note 16 and 19. 1,363 483 (39) (475) 110 1,442 Age analysis of portfolio value - Accounts receivable and Customer financing receivables 2007 2008 >90 Total...

  • Page 125
    ... customers in Customer Finance account for 4.7% (4.7) of the total asset portfolio. The rest of the portfolio is pertinent to a large number of customer. This way the credit risk is spread across both many markets and among many customers. Concentration by geographical market The table below shows...

  • Page 126
    ... 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 listed shares. 2 Unlisted, for which a reliable fair value can not be determined, are reported at...

  • Page 127
    ... losses Foreign exchange gains and losses pertaining to financial instruments have affected income after financial items in the Volvo Group according to the below below. 2007 2008 Derivative instruments Cash and cash equivalents Loans originated by the company and Financial liabilities value at...

  • Page 128
    THE VOLVO GROUP Notes to consolidated financial statements Below is a presentation of derivative instruments and options. Outstanding derivative instruments for dealing with currency and interest-rate risks related to financial assets and liabilities Dec 31, 2007 Notional Carrying amount value ...

  • Page 129
    ... in foreign operations. Current earnings from such hedging shall be accounted for in a separate item within shareholders' equity. A total of neg 473 (neg 59) in shareholders' equity relating to hedging of net investments in foreign operations was reported in 2008. Financial information 2008 125

  • Page 130
    ... AB Volvo totaled 303 (286). Shares and participations in non-Group companies include listed shares in Deutz AG with a carrying value of 212, corresponding to the quoted market price at year-end. In 2008 revaluation of the ownership has decreased the value by 324, recognized in equity. Financial net...

  • Page 131
    Balance sheets SEK M December 31, 2007 December 31, 2008 Assets Non-current assets Intangible assets Tangible aseets 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 132
    PARENT COMPANY AB VOLVO Changes in Shareholders' equity Restricted equity Share capital Statutory reserve Share premium reserve Unrestricted equity Fair value reserve Retained earnings SEK M Total Total shareholders' equity Balance at December 31, 2006 Share reduction Bonus issue Dividends ...

  • Page 133
    ...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 Change in liquid funds Liquid funds...

  • Page 134
    ... 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 SRS's Recommendation No. 4 "Accounting of pension...

  • Page 135
    ... Construction Equipment NV and 1,041 from Sotrof AB. The shares in Volvo Group Finance Europe BV (VGFE) have been written down by 1,003. In 2007, the shares in Note 5 6 7 8 9 Income from investments in associated companies Income from associated companies that are reported in the Group accounts...

  • Page 136
    ...11 Intangible and tangible assets Value in balance sheet 2007 Capital expenditures Sales/ scrapping Value in balance sheet 2008 Acquisition cost Rights Other intangible assets Total intangible assets Buildings Land and land improvements Machinery and equipment Total tangible assets 52 - 52 6 3 46...

  • Page 137
    ... of preference shares with a carrying value of 3,493, were reclassified from shares in non-Group companies to shares in Group companies at the time Nissan Diesel was consolidated in the balance sheet of the Volvo Group. During the year, Ericsson AB's share in Alviva AB was acquired by AB Volvo with...

  • Page 138
    ...fit obligation of all AB Volvo's pension obligations at year-end 2008 amounted to 570, which has been secured in part through provisions for pensions and in part through funds in pension foundations. Net asset value in the Pension Foundation, marked to market, accruing to AB Volvo was 42 lower than...

  • Page 139
    ...Group companies. Note 19 Cash-ï¬,ow 2007 2008 Other adjustments of operating income Revaluation of shareholdings Gain/loss on sale of shares Group contributions and transfer price adjustments, current year Payments of previous year s Group contributions and transfer price adjustments Other Total...

  • Page 140
    ... Fair value Interest-rate swaps - payable position 5,110 (2) (2) 1,551 (1) (1) Note 21 Personnel The number of employees at year-end was 196 (182). Information on the average number of employees, wages, salaries and other remunerations including option programs as well as Board members and...

  • Page 141
    ... Group UK Ltd, Great Britain Volvo Otomotiv Turk Ltd STI, Turkey Volvo India Ltd, India Volvo Holding Sverige AB, Sweden Volvo Logistics AB, Sweden BRS Ltd, Great Britain Volvo Construction Equipment North America, Canada Volvo Polska Sp. O.O., Poland Volvo (Southern Africa) Pty Ltd, South Africa...

  • Page 142
    ... Sales, Inc., USA Mack Trucks Inc, USA1 Volvo Construction Equipment North America Inc., USA Volvo Penta of The Americas Inc., USA Volvo Aero Services LP, USA Volvo Commercial Finance LLC The Americas, USA VFS US LLC, USA VFS Leasing Co., USA Registration number Percentage holding Carrying value...

  • Page 143
    ..., Canada VE Commercial Vehicles, Ltd, India 2, 7 NA Co Ltd, Japan Volvo Treasury AB, Sweden Sotrof AB, Sweden Volvo Group Real Estate AB, Sweden Volvo Group Finance Europe BV, The Netherlands Volvo Korea Holding AB, Sweden Volvo Construction Equipment Korea Co Ltd, South Korea Volvo China Investment...

  • Page 144
    ... by the Board of Directors of AB Volvo to be adopted by the Annual General Meeting April 1, 2009 This Policy concerns the remuneration and other terms of employment for the Group Executive Committee of the Volvo Group. The members of the Group Executive Committee, including the President and any...

  • Page 145
    ...calculated as per year end 2008. 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 146
    ... 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 147
    ...the Group's treasury operations and real estate has been transferred from Financial services, which, as from January 1, 2007, only are consolidated in accordance with the purchase method. Comparison figures for 2006 have been recalculated. 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 212...

  • Page 148
    ELEVEN-YEAR SUMMARY Eleven-year summary Consolidated balance sheets SEK M 1998 Intangible assets 5,778 Property, plant and equipment 36,207 Assets under operating leases 22,285 Shares and participations 3,393 Inventories 32,128 Customer-financing receivables 46,798 Interest-bearing receivables 4,...

  • Page 149
    Consolidated balance sheets, Industrial operations SEK M 1998 1999 Intangible assets 5,692 6,518 Property, plant and equipment 33,944 17,318 Assets under operating leases 1,817 1,611 Shares and participations 11,744 35,296 Inventories 31,883 21,053 Customer-financing receivables 384 9 Interest-...

  • Page 150
    ... net 5.5 Acquired and divested subsidiaries and other business units, net (5.6) Interest-bearing receivables including marketable securities 3.5 Cash-ï¬,ow after net investments (14.0) Increase (decrease) in loans Repurchase of own shares Cash dividend/payment to AB Volvo's shareholders Other Change...

  • Page 151
    Exports from Sweden SEK M Volvo Group, total 1998 64,401 1999 52,719 2000 46,251 2001 50,394 2002 52,730 2003 49,300 2004 62,653 2005 71,133 2006 80,517 2007 88,606 2008 96,571 Key ratios 1998 23.2 Gross margin, %1 Research and development expenses as percentage of 4.9 net sales1 Selling expenses ...

  • Page 152
    ... dividend during the year, divided by share price at beginning of the year, (2006 includes a share split 6:1 in which the sixth share was redeemed by AB Volvo for an amount of SEK 5.00 per share). 4 Share price at year-end divided by basic earnings per share. 5 Market value at year-end minus net...

  • Page 153
    ... Asia Other markets Total Volvo Aero Western Europe Eastern Europe North America South America Asia Other markets Total Other and eliminations Net sales Industrial operations Customer Western Europe Finance Eastern Europe North America South America Asia Other markets Total Eliminations Volvo Group...

  • Page 154
    ... 7.9 2006 7.7 9.7 4.3 10.3 4.4 7.9 7.9 2007 8.1 7.9 1.4 10.0 6.9 7.8 7.8 2008 6.0 3.2 (0.4) 8.1 4.8 5.2 5.2 Number of employees at year-end Number1 Trucks Buses Construction Equipment Volvo Penta Volvo Aero Financial Services Other Volvo Group, excluding divested operations Cars Volvo Group, total...

  • Page 155
    Employees Number Sweden Europe, excluding Sweden North America South America Asia Other markets Volvo Group total 1998 43,900 17,880 12,100 1,980 3,340 620 79,820 1999 24,840 11,900 11,880 1,930 2,480 440 53,470 2000 25,030 12,320 11,410 2,100 2,570 840 54,270 2001 24,350 27,800 12,670 2,090 2,550 ...

  • Page 156
    ... Volvo Group's truck operations have a unique and distinct brand-specific character and compete in certain markets. Volvo Trucks, Renault Trucks, Nissan Diesel, Mack Trucks and Eicher offer customers a broad range of products and services for efficient and economic transports. Long-haul Regional...

  • Page 157
    ... Excavators Lingong wheel loaders Pavers Skidsteer loaders Aerospace industry Volvo Aero specializes in a number of highly advanced components for aircraft engines and space rockets. More than 90% of all new large commercial aircraft are equipped with engine components from Volvo Aero, which is...

  • Page 158
    ..., 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-ï¬,ow Combined changes in...

  • Page 159
    ... of the Election Committee, Renault Chairman of the Board AB Industrivärden SEB funds / Trygg Insurance Violet Partners LP SHB Pension Fund, SHB Pensionskassa, SHB Employee Fund och Oktogonen The Election Committee is responsible for submitting to the Annual General Meeting the names of candidates...

  • Page 160
    AB Volvo, Investor Relations, 635 3204