Volvo Group Annual Report 2011-EN PDF
Volvo Group Annual Report 2011-EN PDF
Volvo Group Annual Report 2011-EN PDF
world
TOGETHER WE MOVE THE 68 Financial strategy
69 Risks and uncertainties
Financial information
71 Financial information 2011
72 Financial performance
72 Consolidated income statement and
Other comprehensive income
76 Financial position
76 Consolidated balance sheet
78 Consolidated cash-flow statements
80 Changes in consolidated
Shareholders’ equity
81 Notes to the consolidated financial
statements
126 Parent Company AB Volvo
138 Proposed remuneration policy
139 Proposed disposition of unappropriated
earnings
140 Audit Report for AB Volvo
141 Eleven-year summary
Fold-out Definitions
Annual General Meeting
This report contains ‘forward-looking statements’. Such statements reflect management’s current expectations with respect to certain future events and
potential financial performance. Although the Company believes that the expectations reflected in such forward looking statements are reasonable, no
assurance can be given that such expectations will prove correct. Such statements are subject to risk and uncertainties and such future events and financial
performance could differ materially from those set out in the forward looking statements as a result of, among other factors, (i) changes in economic, market
and competitive conditions, (ii) success of business and operating initiatives, (iii) changes in the regulatory environment and other government actions, (iv)
fluctuations 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 Exchange Stockholm if and when circumstances arise that will lead to changes compared to the date when these
statements were provided.
The Volvo Group’s formal financial reports are presented on pages 46–139 in the printed version and has been audited by the company’s auditors.
the Volvo group
annual report 2011
world
TOGETHER WE MOVE THE 68 Financial strategy
69 Risks and uncertainties
Financial information
71 Financial information 2011
72 Financial performance
72 Consolidated income statement and
Other comprehensive income
76 Financial position
76 Consolidated balance sheet
78 Consolidated cash-flow statements
80 Changes in consolidated
Shareholders’ equity
81 Notes to the consolidated financial
statements
126 Parent Company AB Volvo
138 Proposed remuneration policy
139 Proposed disposition of unappropriated
earnings
140 Audit Report for AB Volvo
141 Eleven-year summary
Fold-out Definitions
Annual General Meeting
This report contains ‘forward-looking statements’. Such statements reflect management’s current expectations with respect to certain future events and
potential financial performance. Although the Company believes that the expectations reflected in such forward looking statements are reasonable, no
assurance can be given that such expectations will prove correct. Such statements are subject to risk and uncertainties and such future events and financial
performance could differ materially from those set out in the forward looking statements as a result of, among other factors, (i) changes in economic, market
and competitive conditions, (ii) success of business and operating initiatives, (iii) changes in the regulatory environment and other government actions, (iv)
fluctuations 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 Exchange Stockholm if and when circumstances arise that will lead to changes compared to the date when these
statements were provided.
The Volvo Group’s formal financial reports are presented on pages 46–139 in the printed version and has been audited by the company’s auditors.
+68%
Volvo Group
The Volvo Group is one of the world’s leading manufacturers of trucks, buses,
+49% +736%
2000 2011
construction equipment, drive systems for marine and industrial applications and 72.1 120.8
Europe
aerospace components. The Volvo Group also provides complete solutions for
financing and service. The Group has about 100,000 employees, production 2000 2011
40.7 60.6
facilities in 20 countries and sales in more than 190 markets. 2000 2011
North America
8.8 73.6
Asia
Global strength The development
of net sales since
Since the streamlining towards commercial vehicles was initiated more than ten 2000, SEK billion
years ago, the Volvo Group has grown into one of the world’s largest manufac-
turers of heavy-duty trucks, buses and construction equipment and is today also
a leading manufacturer of heavy-duty diesel engines, marine and industrial
engines as well as engine components for the aerospace industry.
+575%
More information. 10
+497%
2000 2011
Share of Group’s net sales Share of Group’s net sales by geography 5.2 35.1
2000 2011
3.4 20.3
South America Rest of the world
Trucks 64%
Europe, 39%
Construction Equipment 21%
North America, 19%
Buses 7%
products. For example, the sales and marketing of all of the truck
No. 3 in construction equipment.
companies will be organized in three regional organizational units,
One of the world’s largest manufacturers of heavy-
directly under the CEO. duty diesel engines.
More information. 8
Strong positions also in the other business areas.
Good market presence globally.
Finance &
Construction Business Business
Equipment Areas Support
+68%
Volvo Group
The Volvo Group is one of the world’s leading manufacturers of trucks, buses,
+49% +736%
2000 2011
construction equipment, drive systems for marine and industrial applications and 72.1 120.8
Europe
aerospace components. The Volvo Group also provides complete solutions for
financing and service. The Group has about 100,000 employees, production 2000 2011
40.7 60.6
facilities in 20 countries and sales in more than 190 markets. 2000 2011
North America
8.8 73.6
Asia
Global strength The development
of net sales since
Since the streamlining towards commercial vehicles was initiated more than ten 2000, SEK billion
years ago, the Volvo Group has grown into one of the world’s largest manufac-
turers of heavy-duty trucks, buses and construction equipment and is today also
a leading manufacturer of heavy-duty diesel engines, marine and industrial
engines as well as engine components for the aerospace industry.
+575%
More information. 10
+497%
2000 2011
Share of Group’s net sales Share of Group’s net sales by geography 5.2 35.1
2000 2011
3.4 20.3
South America Rest of the world
Trucks 64%
Europe, 39%
Construction Equipment 21%
North America, 19%
Buses 7%
products. For example, the sales and marketing of all of the truck
No. 3 in construction equipment.
companies will be organized in three regional organizational units,
One of the world’s largest manufacturers of heavy-
directly under the CEO. duty diesel engines.
More information. 8
Strong positions also in the other business areas.
Good market presence globally.
Finance &
Construction Business Business
Equipment Areas Support
The Volvo group 2011
Strong earnings
09
(17.0)
1
A global group 2011
CEO comment
For the full-year 2011, the Volvo Group generated the ucts and how we compare to the competition. Market
highest net sales, the best operating income and the shares comprise a clear acknowledgement that we are
highest operating margin to date. Net sales rose to SEK doing the right things.
310 billion (265), operating income improved to SEK 26.9 Let me provide a couple of examples from the past
billion (18.0) and the operating margin was 8.7% (6.8). At year. It is worth noting that Renault Trucks maintained its
the same time, return on operating capital in the Indus- market share in Europe despite weak demand in its his-
trial Operations rose to 28.8% and toric strong markets in Southern Europe. The Volvo brand
return on shareholders’ equity in the reaped great success and in the heavy-duty segment in
Group to 23.1%. Europe increased its market share to a record 16.0%.
The European market weakened somewhat towards
Success in many ways the end of the year but after that stabilized on the new,
Success can be measured in slightly lower level.
numerous ways; sales, orders Market shares in North America also increased. In
received or market shares. In par- the U.S., Volvo and Mack had a combined 19.8% of the
ticular, I believe market shares pro- market for heavy-duty trucks. After a number of slow years,
vide a rapid and key indication of our the situation is starting to appear very positive in North
customers’ true opinions of our prod- America where we have made breakthroughs with our
own engines and transmissions, an unbeatable
combination with a fuel-consumption that is
praised by our customers.
In Brazil, our market share rose to
17.1% for heavy-duty trucks and, for
the first time, Volvo is the leader at the
top of the heavy-duty truck segment.
In the short-term, the Brazilian market
will be impacted by the transition to
new emission standards that took
place at the turn of the year, but we
have a positive view on the long-term
development in Brazil and the other
markers in South America.
“We have now taken the first steps on a journey which will
be full of challenges, but I am convinced that there is poten-
tial to increase sales and improve profitability over time.”
2
Volvo Construction Equipment (Volvo CE) has also world’s largest manufacturers of commercial vehicles
strengthened its positions in several growth markets with strong positions in mature markets and with an
worldwide. In China our brands Volvo and SDLG gained increasingly important presence in growth markets. As a
the position as market leader within wheel loaders and step in further streamlining the Volvo Group towards
excavators. SDLG recently launched new models of exca- commercial vehicles, during the year we initiated a pro
vators, so we have hopes that the success in this giant cess aimed at divesting Volvo Aero.
market will continue.
I would also like to mention our hybrid buses that are Financially strong Group
attracting an increasing amount of interest around the Driven by improved profitability and the good cash flow,
world. the net financial debt in the industrial operation was
down to 25% of shareholders’ equity at year-end, which
Increased profitability means that the Group is financially strong in an environ-
Good market conditions in the main and increasing market ment that in the beginning of 2012 is characterized by
shares driven by competitive products translated into us turmoil in the financial markets and uncertain macro-
delivering some 238,000 trucks during 2011 – an increase economic trends.
of 32% compared to the preceding year. Net sales in the The Board of Directors proposes a dividend of SEK
truck operations surpassed SEK 200 billion and profit 3.00 per share for 2011, up SEK 0.50 per share com-
ability improved to an operating margin of 9.1%. pared with the preceding year.
Volvo CE increased its deliveries by almost 30% to the
new record level of 84,000 machines. The year was Reorganization to increase sales and profitability
intense with the launch of many new products and a con- We have a new vision – to become the world leader in
tinued expansion in growth markets. Despite a strong sustainable transport solutions. We shall fulfill this by
headwind from the weak dollar, Volvo CE delivered an creating value for our customers and by pioneering the
operating income of SEK 6.7 billion and an operating development in our industries. We have new financial tar-
margin of 10.2%. gets, a new organization and a number of new manage-
From a historic perspective, Volvo Buses had a good ment teams in place. On January 1, 2012, we introduced
year, both in terms of volumes and profitability. This was the new organization which was put in place to better
achieved by successful efforts to grow in emerging mar- capitalize on the global potential in our products and
kets, which offset the continued weak markets in Europe brands and to improve the Group’s efficiency.
and the U.S. Operating income increased to SEK 1 billion With the recent very positive trends in the Group’s
and operating margin improved to 4.6%, which is below the development, we are in a favorable position. However,
Group average but good when compared to competitors. this does not mean that everything will run on rails. A
Volvo Penta was impacted by a continued weak market great deal of work remains. We have now taken the first
for marine engines and towards the end of the year also steps on a journey which will be full of challenges, but I
for industrial engines, but despite this, achieved an oper- am convinced that there is potential to increase sales and
ating income of almost SEK 800 M with an operating improve profitability over time. This is a journey that I am
margin of 8.8%. very much looking forward to.
For our Customer Finance Operations, the trend pointed
in the right direction, with portfolio growth and lower
credit losses.
Volvo Aero also had to struggle with a significant
headwind from currency. Despite this, Volvo Aero’s oper-
ating margin amounted to 5.2%. Olof Persson
During my predecessor Leif Johansson’s 14 years as President and CEO
CEO, the Volvo Group established itself as one of the
3
A global group 2011
vision
values
wanted
position
4
Our vision
The Volvo Group’s vision is to become the world leader in sustainable transport solutions by:
Our values
The Volvo Group views its corporate culture as a unique asset, since it is difficult for competitors to copy. By applying and
strengthening the expertise and culture we have built up over the years, we can achieve our vision.
Quality, safety and environmental care are the values that form the Volvo Group’s common base and are important
components of our corporate culture. The values have a long tradition and permeate our organization, our products and
our way of working. Our goal is to maintain a leading position in these areas.
Volvo Group wanted position 2020
We are among the most profitable in our industry
5
A global group 2011
2011
Financial targets
until
The Volvo Group’s previous financial goals were established by the Board in September 2006.
The Board focused on three goals comprising growth, operating margin and capital structure
for the Group’s Industrial Operations.
1
Net sales growth, %
(30)
07 08 09 10 11
10 6 (28) 21 18
2
Operating margin, %
3
7.8 5.2 (7.8) 6.9 8.6
07 08 09 10 11
Financial goals for Customer Finance Operations 5.7 39.7 70.9 37.4 25.2
4
Return on shareholders’ equity, %
Target: 12–15%
The target for Customer Finance is a return on shareholders’ 15
equity of 12–15% and an equity ratio above 8%. The average 10
annual return on shareholders’ equity for 2007–2011 5
0
amounted to 6%. At year end 2011 the equity ratio was 9.1%.
(5)
(10)
07 08 09 10 11
15.9 12.6 (6.2) 0.4 7.3
6
New targets from 2012
In September 2011 the Board of Directors of AB Volvo decided to implement new financial
targets for the Volvo Group starting in 2012. The new targets have been set in order to enable
the growth and profitability of the various operations to be measured and benchmarked annually
against competitors.
7
A global group 2011
Volvo Group
new organization
The Volvo Group has a new organization which better utilizes the global potential of
the brands and products within the truck operations. For example, the sales and
marketing of all of the truck companies is organized in three regional organizational
units, directly under the CEO.
Finance &
Construction Business Business
Equipment Areas Support
In the same manner, all product development and pro- Aim of the new organization
duction of trucks and engines are placed in two new cen- The new Volvo Group organization aims to create an even
tral organizational units under the CEO. The new organi- more competitive company by:
zation was presented on October 4, 2011 and was set in • increased customer focus
place on January 1, 2012. • strengthening the brands
• clearer responsibilities and mandates
Background to the change • a more agile organization
The Volvo Group has grown significantly since the end • speed in execution of strategies and decisions
of the 1990s when the realignment toward commercial • improved efficiency.
vehicles began, and today the Group is one of the world’s
largest actors in heavy trucks, construction equipment,
buses and heavy diesel engines. The past ten years have
been characterized by major acquisitions and efforts to
integrate the acquired companies and create economies
of scale. However, companies are never done and the
reorganization now taking place is a natural next step for
becoming even better at assimilating the full potential of
our brands and the benefits of being a large global player;
we will acquire a clearer focus on our customers and their
needs. Going forward we need an organization that sup-
ports us in fulfilling our financial targets and our new
vision: to become the world leader in sustainable trans-
port solutions.
8
New organization FAQ 4. W
hat happens with Volvo Buses, Volvo Penta
and Volvo Aero?
1. What will the new organization bring that is The companies are organized under Business Areas,
so much better? headed by Håkan Karlsson. Per Carlsson has assumed
Governance will become clearer and more efficient with the position as new Head of Volvo Buses. Göran Gummeson
a clearer focus on brands and customers. Branded com- remains Head of Volvo Penta until April 1, 2012 when he
panies in the truck business previously operated as both is succeeded by Björn Ingemansson, but he no longer
independent units and part of a wider Group structure. reports directly to the CEO. Staffan Zachrisson remains
The branded companies’ operations, product planning, Head of Volvo Aero but does not any longer report
product development and manufacturing are now coordi- directly to the CEO. With respect to financial external
nated centrally, directly under the CEO, with a clear divi- reporting, there is no change – the business areas report
sion of responsibilities and minimum overlaps. their results as in the past.
2. What happens to Volvo Trucks, Renault 5. What happens with Volvo Financial Services?
Trucks, Mack and UD Trucks? The company is organized under Finance and Business
Sales and marketing of all of the truck companies is Support headed by the new CFO Anders Osberg. Martin
organized in three regional organizational units. Group Weissburg continues to head Volvo Financial Services
Trucks Sales and Marketing Americas (comprising all of but does not any longer report directly to the CEO. With
North and South America) with global responsibility for respect to financial external reporting, there is no change
the Mack brand, under the leadership of Dennis Slagle. – the business areas report their results as in the past.
Group Trucks Sales and Marketing EMEA (comprising
Europe, the Middle East and Africa) with global responsi- 6. What happens with the different
bility for the Volvo and Renault brands, under the leader- business units?
ship of Peter Karlsten. Group Trucks Sales & Marketing
Production is organized under Group Trucks Operations
APAC (comprising Asia and Pacific) with global responsi-
headed by Mikael Bratt, while product development is
bility for the UD Trucks brand, UD, under the leadership of
under Group Trucks Technology headed by Torbjörn Holm-
Joachim Rosenberg. All product development and pro-
ström. Volvo Parts has been divided into various units
duction of trucks and engines is organized in two new
based on their specific operations. The logistics portion
central units: Group Trucks Technology and Group Trucks
of Parts, as well as Remanufacturing, falls under Group
Operations. There are no changes to the financial external
Trucks Operations. Purchasing is organized under Group
reporting – truck companies report their earnings com-
Trucks Technology, where all other purchasing activities
bined as previously.
are collected.
Volvo Logistics falls under Group Operations, where all
3. What happens with Volvo CE? logistics are handled.
The organization remains intact. The Head of Volvo CE, Volvo Business Services, Volvo IT and Volvo Group
Pat Olney, continues to report directly to the CEO, Olof Real Estate are organized under Finance and Business
Persson. With respect to financial external reporting, there Support.
is no change – the business areas report their results as in Volvo Technology and Non-automotive Purchasing (NAP)
the past. are organized under Group Trucks Technology.
9
A global group 2011
Global strength
IN A CHANGING WORLD
Since the streamlining towards commercial vehicles was initiated more than
ten years ago, the Volvo Group has grown into one of the world’s largest
manufacturers of heavy-duty trucks, buses and construction equipment and
is today also a leading manufacturer of heavy-duty diesel engines, marine and
industrial engines as well as engine components for the aerospace industry.
2004
Acquisition of remaining
50% of the Canadian bus
manufacturer Prévost.
10
Economic growth in the U.S., Europe According to Consensus
and Brazil Economics, global GDP
Annual GDP-growth, % grew by 2.9% during
2011 compared with
4.3% in 2010. GDP in
the EU grew by 1.6%
(1.9%), in the US by
1.7% (3.0%). Japan’s
Source: Consensus GDP fell by 0.9% after
Economics
having risen by 4.5% in
2010. Growth in coun-
07 08 09 10 11 tries such as Brazil, India
6.1 5.2 (0.3) 7.5 2.9 Brazil and China was damp-
3.1 0.6 (4.1) 1.9 1.6 EU ened compared to the
1.9 (0.3) (3.5) 3.0 1.7 USA high levels of 2010. For
2012, global GDP is
Economic growth in Asia, % expected to grow by
Annual GDP-growth, % 2.6%. The fast-growing
economies primarily in
Asia and Latin America
continue to be the pri-
mary growth engines.
Source: Consensus
Strong positions Economics
One of the world’s largest manufacturers of trucks.
No. 3 in construction equipment. 07
14.2
08
9.6
09
9.2
10
10.4
11
9.2 China
One of the world’s largest manufacturers of heavy-duty
diesel engines.
9.0 6.8 8.0 8.5 7.0 India
7.2 3.8 1.9 7.1 4.4 Asia/Pacific*
Strong positions also in the other business areas.
2.3 (1.1) (5.5) 4.5 (0.9) Japan
Good market presence globally. * China, Hong Kong, South Korea, Taiwan, Indonesia,
Malaysia, Singapore, Thailand, Phillippines, Vietnam,
Australia, New Zealand, India, Japan, Sri Lanka
GROWTH
2005 2008 Volvo Group net sales, SEK bn
Sale of the service company Joint venture with Eicher
Celero Support. Motors of India within
trucks and buses. 300
2006
Acquisition of Japanese 225
Nissan Diesel (Now 2007
UD Trucks). Com- Acquisition of Chinese wheel 150
pleted in 2007. loader manufacturer Lingong.
75
2007
cquisition of Ingersoll Rand’s
A 0
02 03 04 05 06 07 08 09 10 11
road development division.
11
A global group 2011
Development by continent
12
Bus that lowers fuel
consumption by as much as
37%
Market development, heavy-duty trucks, Europe
Thousands
242
VOLVO FM
METHANEDIESEL
Volvo Group in Europe
• Net sales: SEK 120,828 M (102,947)
• Share of Group sales: 39%
• Number of employees: 55,121
• Share of Group employees: 56%
• L
argest markets: France, Sweden,
Great Britain, Germany and Russia.
13
A global group 2011
Focus
Russia
After a considerable drop in connection with the financial crisis, the
Russian market has recovered.
Russia back on the growth track come inside the duties and fees that apply to imported
During 2011, the total market for trucks over 12 tons was trucks were important reasons for the establishment.
approximately 106,200 vehicles in Russia, considerably There are a number of other foreign truck and auto makers
more than the 61,500 that were sold during 2010 and a established in Kaluga. At maximum capacity, the plant in
vast increase compared to the bottom in 2009 when the Kaluga can assemble 10,000 Volvo and 5,000 Renault
total market amounted to 37,100 trucks. trucks annually. In 2011, 3,800 Volvo and 1,400 Renault
Volvo is the biggest imported brand in Russia with a trucks were manufactured in the plant.
total population of more than 55,000 heavy-duty trucks
in the country. A population that has been built-up during Volvo Construction Equipment invests in Russia
a long period of time. The population of Renault trucks is Volvo Construction Equipment will invest SEK 350 M to
approximately 20,000 heavy-duty trucks. During 2011, build a 20,660 m2 excavator plant in Kaluga, Russia,
Volvo delivered 5,300 trucks (2,800) and Renault trucks highlighting the company’s continued commitment to the
delivered 1,300 trucks (800) in Russia. Russian market.
In January 2009, the Group opened a factory for the The new factory is part of the on-going expansion in
assembly of trucks in Kaluga, approximately 200 kilo developing markets. The plant will be built on the 15 hec-
meters south of the capital Moscow. A long-term con tares of land that Volvo acquired in 2007. The Kaluga plant
fidence in the Russian market’s growth prospects and to will initially manufacture five models of Volvo excavators
14
The market for trucks over 12 tons in Russia
No. of trucks, thousands
106
00 01 02 03 04 05 06 07 08 09 10 11
44 51 46 52 58 67 90 116 110 37 62 106
8.9
including the Volvo EC210, EC240, EC290, EC360 and
EC460, with production planned to begin in the first quarter
of 2013.
“The new investment in Russia is part of our strategy to
build machines where they are sold and thanks to a strong
0.2
partnership with our Russian dealer, Ferronordic, our cus-
tomer base is growing significantly in the country,” says
Head of Volvo Construction Equipment, Pat Olney. 00 11
At the same time, the distributor Ferronordic Machines
is implementing substantial investments in the distribution
network in the vast country. Ferronordic Machines plans
to invest in the region of EUR 100 M in the expansion of
141.8
its regional distribution network and will open as many as
60 new branches in the country by the end of 2015. This
will provide for a presence in all of Russia – from the Baltic
Sea to the Pacific Ocean.
million
inhabitants
15
A global group 2011
Development by continent
16
Volvo Group’s market share in the heavy-duty
segment increased from 18.0% in 2010 to
19.8%
Market development, heavy-duty trucks, North America
Thousands
216
in 2011
07 08 09 10 11
208 185 118 142 216
I-shift
den, and then sent to the US production plant in Hagers-
town, Maryland for adaptation to North American market
requirements. The company is now investing USD 7 M in
Hagerstown to build a new assembly line, install new
equipment and tooling, and train its employees. The
new assembly line is primarily intended to supply
the North American market.
17
A global group 2011
18
Multi-million dollar contract for Volvo Buses
in New York City
In June 2011, Volvo Buses secured an order for 328
articulated buses for New York City through its subsidiary
Nova Bus. The order is valued at SEK 1.5 billion.
The order applies to 328 Nova LFS articulated buses.
The client, MTA New York City Transit, has a fleet of more
than 6,000 buses, the largest bus fleet among all local
transport companies in North America and one of the larg-
est in the world. In the past year, MTA tested 90 of Nova’s
Since the acquisition of the Shippensburg facility in articulated buses, including on Line M15 in Manhattan.
2007, Volvo Construction Equipment has continuously They are the first buses in New York City with three doors
invested in the existing plant. In June 2010, a 18,580 m2, and low floors throughout the bus, which contribute to
USD 30 M expansion of the facility was finalized, to improve more rapid and comfortable boarding and alighting.
manufacturing flow and increase production space to The buses functioned very well during the test and
incorporate the production of Volvo motor graders. contributed to the new major order. The 328 new buses
Manufacturing Volvo wheel loaders, articulated haulers will be delivered from August 2011 to April 2013. One
and excavators in Shippensburg, PA will have no signifi- prerequisite for selling city buses in the US is that a large
cant impact on the current production in other Volvo loca- portion of the manufacturing must also occur in the
tions. It will, however, further improve the competitiveness country. The buses for New York City are manufactured
and profitability of the total business. in the Nova Bus plant in Plattsburgh, in the northern part
of New York State.
NOVA Bus
IN NEW
YORK CITY
19
A global group 2011
Development by continent
20
The South American bus
30%
market increased by more than
Market development, heavy-duty trucks, South America
Thousands
148
07 08 09 10 11
91 117 86 139 148
07 08 09 10 11
25 33 21 35 42
5,200
employees
21
A global group 2011
Focus
BRAZIL
The Brazilian economy has had a very good growth since the
beginning of the 21st century thanks to increased private
consumption and measures to reduce poverty.
Even though the global financial crisis a few years ago the opening of the 18th International
led to a recession also in Brazil, the economy there Transportation Fair – Fenatran 2011.
rebounded faster than in many other parts of the world. Fenatran is the largest trade fair of
During 2008 GDP grew by 5.2%, followed by a fall of the transport segment in Latin America
0.3% in 2009 but it turned around strongly and rose by and took place in São Paulo from
7.5% during 2010 and by 2.9% in 2011, according to October 24 to 28, 2011. The outcome of the fair was very
Consensus Economics. positive for Volvo do Brasil with large interest from cus-
tomers and more than 10,000 visitors to the Volvo stand.
New products Also, during the fair a large number of orders were signed,
During the year, Volvo Trucks was the first manufacturer to of which more than half were for the new Euro V trucks.
launch trucks that comply with the new emission regulation
according to Euro V that took effect on January 1, 2012. Increased production
The year also saw the launch of the all-new medium- During the year, Volvo do Brasil started the production of
duty truck Volvo VM, which is produced specifically for the automated mechanical gearbox I-Shift. Volvo also
the South American market. The truck is adapted to started local production of 11-liter engines. Previously,
applications such as regional and city distribution. components for the I-Shift were imported from Europe
In order to meet the increasing demand for buses in and assembled locally. The gearboxes will equip the
the front engine segment, which in South America Volvo FH and Volvo FM.
amounts to as many as 16,000 buses annually, Volvo “The I-Shift gearbox has been getting outstanding
Buses launched a new front engine bus that was well- acceptance in Brazil and in all the other countries of
received when it was introduced. South America. It already equips about 80% of the Volvo
FH and Volvo FM trucks and over 90% of the highway
Success at Fenatran buses which leave our assembly line in Curitiba”, says
Volvo do Brasil brought together 250 journalists from head of Volvo do Brasil, Roger Alm.
Brazil and other Latin American countries for a press The success of the electronic gearbox is mainly due to
conference with head of Volvo do Brasil, Roger Alm, at the noticeable consumption reduction that it allows –
22
26.1
I-shift 3.6
up to 5% compared to vehicles
with manual equipment. Besides,
00 11
it provides more durability to the clutch,
less tire wear, and increases the comfort and safety levels viously not been in contact with the Volvo Group regarding
for the driver. construction equipment.
With the 11-liter engine nationalization, the Curitiba
Volvo factory increases its portfolio of locally manufactured Largest contract for hybrid buses
products. The engines line is flexible and now both 13-liter In July 2011, Volvo Buses received its largest hybrid bus
and 11-liter engines are manufactured in the country. order thus far. The city of Curitiba in Brazil ordered 60
buses that generate up to 35% less fuel consumption.
Best employer in Brazil “Several of the largest cities in Brazil and the rest of
For the second time, Volvo do Brasil was chosen as the South America tested a Volvo 7700 Hybrid in 2010 and
best employer in Brazil. The survey is conducted by the at the beginning of this year,” says Luis Carlos Pimenta,
Você S/A and Exame magazines and comprises 504
companies in different sectors. It ranks the best 150
employers in Brazil. Volvo do Brasil has 3,900 employees
and headquarters in Curitiba and it has always been
ranked in the top ten. In the 2011 survey, Volvo do Brasil
obtained excellent results in all categories.
23
A global group 2011
Development by continent
Growing markets of strong growth. In total, the market grew by 7% during the
Sales in Asia accounted for 24% of Group net sales dur- year. The Volvo Group strengthened its position as leader
ing 2011. In 2000 the corresponding figure was 7%. The in the segment for wheel loaders and excavators. In Asia
sharp increase has primarily been achieved by the acqui- outside of China, the market for construction equipment
sitions of UD Trucks of Japan (which was named Nissan grew by 28%. In 2012 the Chinese market is expected to
Diesel at the time of the acquisition), the majority in Lingong be on the same level as in 2011. Asia excluding China is
of China and through the joint venture VECV in India, but expected to grow by 10–20%.
also through substantial organic growth in many markets.
Through the brands UD Trucks, Volvo, Renault Trucks Volvo CE number 1 in China
and Eicher, the Volvo Group has strong positions in With a volume totaling 405,000 machines, the Chinese
Japan, India, Korea and all of Southeast Asia. market for construction equipment is the world’s largest.
In Japan the heavy-duty truck market grew by 1% to When measured in number of units, it is in fact almost as
24,800 vehicles during 2011. The first half of the year large as the rest of the world put together. And the Volvo
was weak, primarily as an effect of the earthquake and Group is number 1 in wheel loaders and excavators in
ensuing tsunami that hit the country on March 11. China. During 2011 Volvo Construction Equipment’s both
Towards the end of the year, there were signs of a recovery brands Volvo and SDLG had a combined market share of
in the market, among other things against the backdrop 12% within wheel loaders and excavators. That made
of the work to rebuild devastated regions beginning to get them market leaders in China, ahead of all domestic manu
underway. For 2012, the Japanese market for heavy-duty facturers and with a good margin to the other global
trucks is expected to grow to approximately 30,000 vehicles. manufacturers. Contributing to the success was the fact
In China the largest part of net sales stem from con- that SDLG started selling a range of four excavators, a
struction equipment. The Chinese market slowed some- product they previously lacked. In January 2012, SDLG’s
what during the latter part of 2011 after a number of years new excavator plant in Linyi, China was inaugurated and at
the same time four updated versions of the excavators
were launched, In addition, the product range was
extended with one excavator.
24
Volvo CE and SDLG had
a combined market share of
12%
Market development, heavy-duty trucks, Japan
Thousands
in China
25
Growth plans for DND
Through UD Trucks, the Volvo Group has a joint venture
for trucks together with Dongfeng of China. A fact
unknown to many. The joint venture, DND, manufactures 07 08 09 10 11
heavy-duty UD trucks in a factory in Hangzhou in Southern 43 35 19 25 25
New Condor
During the year, UD Trucks
launched its new medium-duty
truck Condor, which had under-
gone a full model change. The
new trucks have a new cab
design that conveys the impres- Volvo Group in Asia
• Net sales: SEK 73,586 M (65,487)
sion of a unified family identity with the Quon heavy-duty
• Share of Group sales: 24%
truck series. They also feature various advanced techno
• Number of employees: 19,924
logies accumulated on the company’s heavy-duty trucks
• Share of Group employees: 20%
to deliver outstanding fuel economy, improved environ-
• Largest markets: China, Japan, India and South Korea.
mental and aerodynamic performance and safety.
FOCUS
India
The Indian market is in an exciting growth phase with
growing prosperity and increasing investments in infrastructure.
26
11%
of the total Indian market
facility in Pithampur will also conduct final assembly of Volvo Group sales in India, SEK bn
engines for India and all of Volvo Group’s global markets
with Euro III and Euro IV emission requirements. Production 6.0
and final assembly of the engines for the Japanese market
will be in Ageo, while final assembly of the engines for the
European market will take place in Venissieux.
By gathering base engine production in India, it will be
0.3
possible for us to meet the Group’s need for cost-effi-
cient medium-duty engines in Asia, while also contributing
00 11
to an increase in our competitiveness in the medium-duty
segment in other markets.
Production of the Group’s new medium-duty engine in the process re-defined how people see buses. The
program started in Ageo in 2010 for the Japanese and Indian market has witnessed a paradigm shift in the bus
U.S. markets. The production of medium-duty engines in business. While earlier, coaches built on truck chassis
Pithampur starts in 2012. were the norm of the day, the entry of Volvo Buses intro-
duced the concept of a true-bus chassis with rear engines.
Excavator production in India Volvo Buses also brought in the idea of BRT, efficient,
In November, the first excavator rolled out of Volvo CE’s bus-based public transport systems.
new excavator plant in Bangalore, India. The production of Mr Akash Passey, head of Volvo Buses in India, said,
excavators will increase substantially during 2012. The “The need for buses as sustainable transport solutions is
plant will continue to manufacture road machinery. The high in India and we aim to grow multifold in the years to
new excavator line is part of a SEK 144 M investment to come. From 1,000 buses to 5,000. From 1,000 people to
upgrade the plant. The local production of excavators will 5,000 people and be a billion dollar company.”
mean greater machine availability for Indian customers, as The ambition is to be there by 2015. By this time Volvo
well as shorten delivery lead times and respond to cus- aims to export 20–25% of its volumes not only in South
tomer requirements more quickly. Asia but to markets beyond.
Volvo Buses today has over 70% market share in the
Full speed ahead for Volvo Buses luxury inter-city coach segment and over 50% market
On the eve of its 10th year in India, Volvo Buses announced share in the low floor air-conditioned city bus segment
SEK 500 M investment plans for the next five years. In the respectively.
first phase the company will expand its current industrial Towards the end of the year, Volvo Buses launched
establishment and introduce a range of new products. three new city buses and coaches in India and thus
Over the last decade the company has emerged as a increased the product range to encompass ten buses.
leader in its class with a dominant market presence and
27
A global group 2011
Overall challenges
PRE DI TO
Challenges
1 Population growth, urbanization and megacities
2 Climate change, oil resources and alternative fuels
3 Shortage of natural resources and raw material
4 Safety and security
5 Competent labor
AND SHAPE
THE
Much has happened since 1927. Volvo has developed from
a small local industry to one of the world’s largest manufac-
turers of trucks, buses and construction equipment with
as pollution and noise need to be addressed through
specially adapted vehicles for urban environments.
more than 100,000 employees, production facilities in 20 Climate change, oil resources
countries and sales in more than 190 countries.
2 and alternative fuels
It is crucial to keep pace in a rapidly changing world. Climate change comprises one of the most complex and
Today, it is more important than ever to understand the difficult questions of our time. Fossil fuel is the single
operating environment, how it impacts the Volvo Group largest source of greenhouse-gas emissions, which are
and, first and foremost, to act on these changes to meet deemed responsible for climate changes.
future transport needs. The next pages define some of For a long time, oil was considered a
the more significant challenges and the actions being reliable source of energy but today oil
undertaken by the Volvo Group to meet these challenges. use is a highly contested issue. This is
primarily attributable to the environ-
opulation growth, urbanization
P mental problems associated with oil
1 and megacities but also since future access to oil is
The population of the earth is ever increasing. In 2050, uncertain due to dwindling oil reserves
the population is expected to exceed nine billion. Since and instability in the oil producing regions.
2008, more than half the world’s population live in cities It is no longer a question of whether we
and in fifty years that figure is expected to have risen to have to convert to a fossil-free society; it is now
two-thirds. The most intensive pace of urbanization is a question of how this will be achieved and at what
ongoing in Africa and Asia. In addition, the number of pace it will be performed. Major efforts have been
megacities and megaregions with populations exceeding made to develop the use of alternative, renewable-energy
ten million is growing rapidly. Approximately 20% of the sources. However, the development of alternative fuels
world’s population is expected to live in cities with popula- differs widely in different regions depending on the natural
tions in excess of two million inhabitants by 2015. resources available, which, in turn, entails a challenge in
This trend is leading to an increased need for transpor- the form of developing vehicles adapted for various dif-
tation. Large quantities of goods, products and people are fering types of fuel. The move towards large-scale use of
transported daily within as well as to and from cities. Cities, renewable fuel is also dependent on political decisions to
particularly major cities, have particular requirements for create the necessary infrastructure.
town and traffic planning. Furthermore, traffic jams as well
28
Shortage of natural resources Safety and security
3 and raw material
4 Traffic safety becomes increasingly important
Population growth, a rapidly growing middle class and as transportation increases. The subject is a high priority
increased purchasing power leads to increasing numbers for governments and institutions the world over. In the
of people consuming in line with western consumption pat- future, focus on safety in a broader sense will continue to
terns. Mankind is utilizing an increasing amount of land and increase because of military conflicts, crime, terrorism
resources. More efficient use of resources is required and and natural disasters, which will impact the safety of drivers,
the recovery of a greater proportion of material is becoming vehicles and goods.
PRE DICT
increasingly important to secure access to material.
Competent labor
5 For many years, interest has waned for education
and careers in the fields of mathematics, natural sciences
and engineering in industrialized countries. However, the
need for competent employees with these types of spe-
cialist skills will increase as the products and services are
becoming increasingly sophisticated.
HE FUTURE
Future transport solutions
Together, these challenges result in an increased need Green Corridors
for sustainable and efficient solutions for the transporta- The aim of Green Corridors is to increase efficiency and
tion and infrastructure sector. In parallel, they set raised safety while reducing environmental impact through con-
requirements for the Volvo Group and its ability to supply centrating freight traffic between major centers via effi-
the right products and services. The Volvo Group’s vision cient motorways, sea routes and railways that comple-
is to be world leader in sustainable transportation solu- ment each other. Read more about Green Corridors
tions. The Group works continuously on a wide front to on page 35.
improve the transportation of goods and people. Three
concrete examples of how the Volvo Group is Intelligent Transport Systems
already designing transport systems of Intelligent Transport Systems (ITS) is an area experiencing
the future are Bus Rapid Transit (BRT), rapid growth. The combination of new technology with
Green Corridors and Intelligent Trans- advanced IT and communication technology offers major
port Systems (ITS). opportunities to reduce congestion, environmental impact
and increase safety. Smart vehicles that communicate
Bus Rapid Transit with each other and their operating environment enable
Public transport plays a decisive role in traffic to be efficiently controlled and for fuel efficiency to
solving congestion and air pollution in be improved through the provision of real-time assistance
major cities. Bus Rapid Transit (BRT) is an to drivers by various sensors that assist the driver in moni-
extremely effective public transport solution toring other vehicles and traffic. Read more about ITS
that meets growing transportation needs in on page 35.
cities around the world. A combination of
high-capacity buses, exclusive bus lanes with
priority at junctions, efficient ticket systems, traffic
management and passenger information makes BRT an
effective solution for transporting many people quickly,
simply and comfortably. Read more about BRT on
page 30.
29
A global group 2011
t
Challenge
All over the world, there is a growing
need for safer, more efficient and
greener public transport. In particular,
cities are increasingly impacted by con-
gestion, pollution and noise. Conges-
tion costs society billions annually and
impairs life quality for every individual
that, each day, spends hours in traffic to
get to work, school or visit family and
friends.
30
d Transit
public transport problems
today
31
A global group 2011
Reduced emissions
of carbon dioxide
32
How much public transport does USD 1 billion buy?
33
A global group 2011
INTELLIGENT
transp
So
34
ort
lutions
Challenges
Population growth, urbanization and a rapidly
growing middle class are leading to an increas-
ing need for transportation. According to the
European Commission’s estimates, freight
volumes in Europe will rise by 50% between
2000 and 2020. However, infrastructure will
not be expanded at the same rate. If transpor-
tation is to continue to provide a driving force
for socio-economic development, the trans-
port system must be improved and made
more efficient. When traffic increases there
is a correlated risk that accidents will increase.
Another challenge is presented by the pro-
tection of drivers and cargos. Threats and
robbery are a few of the risks faced by the
Group’s customers and society.
The issues are complex and require col-
laboration between several parties. There-
fore, the Volvo Group collaborates with the
public sector, private sector, academic insti-
tutions and our customers to develop serv-
ices and solutions that make the transport
system smarter, safer and more efficient.
Read more about how the Volvo Group is
working to solve tomorrow’s transportation
challenges.
35
A global group 2011
36
The goal with Green
corridors is to reduce
the impact on the envi-
ronment while simulta-
neously increasing effi-
ciency and safety on
highways through spe-
cially adapted transport
stretches for heavy traffic.
37
A global group 2011
Brands
IMPORTANT ASSETS
FOR THE GROUP
By selling products with different brands, the Volvo Group can penetrate
many different customer and market segments in mature markets as well as
growth markets.
38
Volvo Penta Volvo Aero SDLG Prevost Nova Bus
Volvo Penta is one of the Volvo Aero is a world-leading SDLG is a leading brand in With more than 10,000 vehi- Nova Bus is a leading North
strongest and most global brand and develops, manu- the Chinese construction cles on North American American provider of sustaina-
brand names in the engine factures and services com- machinery industry, especially roads, Prevost is a leading ble transit solutions, including
industry. In addition to quality, ponents for aircraft engines for wheel loaders. The SDLG North American manufac- environmentally-friendly buses,
safety and environment, Volvo and gas turbines. Volvo Aero brand is sold primarily in turer of premium touring high-capacity vehicles and inte-
Penta is associated with has been committed to China and other emerging coaches and bus shells for grated intelligent transportation
innovative and performance- long-term relationships markets. high-end motorhomes and systems.
oriented products. Penta has since 1930. speciality conversions.
been a registered brand
name for more than 100
years.
39
A global group 2011
product offering
Trucks
All brands in the Volvo Group’s truck operations have a The trucks are sold and marketed under the brands Volvo,
unique and distinct brand-specific character that attracts Renault Trucks, UD, Mack and Eicher, which all offer customers
customers in their market segments. a broad range of products and services for efficient and
economic transports.
Buses
Volvo Buses’ product range includes complete buses and a global service network, efficient spare parts handling,
bus chassis for city, intercity and coach traffic. The com- service and repair contracts, financial services and traffic
pany has a total offering that, in addition to buses, includes information systems.
40
Construction equipment
Volvo Construction Equipment develops, manufactures and of wheel loaders, hydraulic wheeled and crawler excavators,
markets equipment for construction and related industries articulated haulers, road machinery and a wide range of compact
under the brands Volvo and SDLG. Its products are leaders equipment.
in many world markets, and include a comprehensive range
Compact Heavy
construction equipment construction equipment Road machinery
Crawler excavators Crawler excavators from Lingong Lingong wheel loaders Pavers
Aerospace industry
Volvo Aero develops and manufactures advanced compon The company is also responsible for the engines of the
ents for aircraft engines and space rockets with light weight Swedish Air Force’s Gripen fighters. Volvo Aero also has an
in focus. More than 90% of all new large commercial aircraft aftermarket business that comprises repair and maintenance
are equipped with engine components from Volvo Aero. of select aircraft engines as well as stationary gas turbines.
41
A global group 2011
World-class services
Strengthens customer
relationships
Many customers want long-term cooperation around total solutions to Soft product share of Industrial
O perations’ net sales 2011
execute their work as efficiently as possible with maximum profitability
Sales of hard
and reliability. products 77% (73)
When customers choose supplier of vehicles or machinery, and spare parts. The Volvo Group’s increasingly broad
the offering of supplementary services combined with range of these services and aftermarket products, so
excellent products is a crucial factor. Accordingly, the called soft products, is of ever-increasing importance to
Volvo Group offers such services as financing and insur- the Group’s competitiveness.
ance, various forms of service agreements, accessories
The services and aftermarket products business (so called soft products)
Service Offering
Aftermarket Product Areas
Security,
Service safety & Consultancy Insurance
contracts environment Services
42
Growing aftermarket business Starting January 1, 2012 these are instead defined as
In addition to vehicles and machines, the Volvo Group’s hard products. The numbers above and in the pie chart
offering includes various types of financing solutions, on page 42 reflect the new definition and the comparison
insurance, rental services, spare parts, preventive main- numbers have been restated.
tenance, service agreements, assistance services and IT
services. The range and flexibility of the offering means Develop and increase interface with customers
that the solutions can be customized for each customer. The majority of Volvo Group’s customers are companies
Since a large part of the offering within the aftermarket within the transportation or construction industries. The
business is requested as long as products are being reliability and productivity of the products are important
used, they contribute to balancing the fluctuations in the and in many cases crucial to the customers’ success and
business cycle for the Group. By strengthening the after- profitability.
market offering, profitability and revenue sustainability The goal is that Volvo Group companies shall be regarded
can improve for the Group throughout the business cycle. as number one in customer satisfaction, in terms of both
The strategy to increase sales of services and after- products and services. The Volvo Group shall also be
market products is an important element in the Volvo number one when the dealers’ customers assess customer
Group’s effort to achieve targets for profitability and satisfaction. A competent and professional dealer and service
growth, both in mature markets and in the Group’s new network is of vital importance to the Volvo Group and con-
markets. During 2011, the services and aftermarket prod- tributes to strengthening the Group’s various brands.
ucts business (soft products) represented approximately
23% of net sales in the Industrial Operations compared
to 27% in 2010. The extended product offering such as
used vehicles and machines, trailers and superstructures
and special vehicles were previously defined as soft products.
43
A global group 2011
Industrial structure
A m e ri
eration within trucks and buses with India-based Eicher
Motors the position has been strengthened in many 16% a
c
markets in Asia. Through its acquisitions the Volvo Group 15,427 employees
has also established a global industrial structure with
manufacturing as well as sales and distribution channels
on all continents.
So u t h
11%
5% A m e ri c
a
5,234 employees
Renault Trucks
Buses St Claire, St Eustache (CA), Mexico City (MX), Plattsburgh (US) Curitiba (BR)
Volvo Penta Lexington (US)
Volvo Aero Newington (US)
*Ownership ≥ 50%
44
Share of Group’s net sales
Trucks, 64% Construction Buses, 7% Volvo Penta, 3% Volvo Aero, 2% Customer Finance, 3%
Equipment, 21%
Eu r
39%
op
e
56%
55,121 employees
A si
a
24%
20%
19,924 employees
Ot h e
7%
r
m ark e
3% ts
2,456 employees
Göteborg, Umeå (SE), Gent (BE), Kaluga (RU) Bangalore (IN), Bangkok (TH) Durban (ZA), Brisbane (AU)
Blainville, Bourg-en-Bresse, Limoges, Vénissieux (FR),
Kaluga (RU)
Ageo (JP), Hangzhou* (CN) Johannesburg* (ZA)
Brisbane (AU)
Pithampur* (IN)
Köping, Skövde (SE), Leganès (ES), Vénissieux (FR) Ageo, Kounosu, Hanyu (JP)
Arvika, Braås, Eskilstuna, Hallsberg (SE), Konz-Könen, Changwon (KR), Shanghai, Linyi* (CN),
Hameln (DE), Belley (FR), Wroclaw (PL) Bangalore (IN)
Borås, Säffle, Uddevalla (SE), Wroclaw (PL) Bangalore (IN) Shanghai* (CN)
Göteborg, Vara (SE) Shanghai (CN)
Trollhättan, Linköping (SE), Kongsberg (NO)
45
Board of directors’ report 2011
Sustainable development
The Volvo Group’s vision is to become world leader in sustainable transport solutions. Efficient transport is
crucial for societal and economic development. While the Group’s products and services are closely linked to
growth and development, they also contribute to climate change, emissions, congestion and traffic accidents.
Transports are essential for a society, but need to be made sustainable. As one of the world leading manufacturers
of transport and infrastructure solutions the Volvo Group has both a responsibility and opportunity to address
the issues and reduce the negative impact.
Contributing to a more sustainable world In the following section you can read more about
The Volvo group has a long history of developing
Responsible business is good business
pioneering products and services for the trans-
port and infrastructure industries. The Group is Environmentally enhanced products
convinced that its products and services will
play an important part also in the sustainable
The Volvo Group – a high performing organization
society. The Volvo Group has the skills, resources Responsible sourcing
and global reach to shape the future of transport.
CREATING
SHARED
46
Responsible business is good business
The Volvo Group believes there is no contradic- From risk to value sectors of society. The expectations on business
tion in running a financially viable business while For a long time, CSR has primarily been seen as to provide solutions to the challenges are growing.
contributing to sustainable development. A stra- an effective risk management tool and for opti- Today, a company is largely judged by the value
tegic CSR (Corporate Social Responsibility) mizing the use of resources. Risk management it brings to society
approach is increasingly important for the Volvo and building relationships with stakeholders are The Volvo Group develops products and serv-
Group’s competitiveness by e.g. improving brand important components of the overall CSR strat- ices based on customer needs and the Group
image, reducing cost, creating new business egy. However, the Volvo Group believes that this intends to give its shareholders a good return on
opportunities and building stakeholder relation- approach fails to fully explain the business their investment. But the Group also strives to
ships. potential of CSR or how a proactive approach serve society by providing solutions that meet
The Volvo Group is convinced that responsible creates value for the Volvo Group. The Volvo the challenges of sustainable transport. This is
business contributes to long-term success. Group is convinced that CSR is much more than what the Volvo Group means with Creating
Responsibility is deeply rooted within the Volvo a risk management tool. shared value.
Group and is based on the values and principles
in the Group’s Code of Conduct. The Volvo Group Creating shared value
strives to assume economic, environmental and The world faces urgent global challenges, such
social responsibility for its operations, products as climate change, depletion of natural resources
and services within its sphere of influence in the and uneven distribution of wealth. The complex-
value chain. The Volvo Group believes this ity, size and scale of these challenges require The right product
approach is essential to build lasting relations cooperation among states, regions and different or service in order to
with customers, employees, suppliers and other contribute to high pro
stakeholders. ductivity in the transport
system
The Volvo Group’s global foot print has
changed dramatically in the past decade. The
Volvo Group has grown significantly and has
Sustainable Transport Solutions Energy efficient
welcomed new employees and new entities. As Sustainable transport solutions to transport solutions
a consequence, the Group is operating in approx-
Safe and secure
the Volvo Group are solutions that with very low emiss transport solutions
imately 190 markets. Local conditions differ – as “improve the short and long term ions of CO2 , PM,
economic and environmental per
do the expectations on business in different parts formance meanwhile social impact
NOx and noise
of the world. is considered”, by providing:
VALUE
Sustainability is part of
our business
– Responsibility is part
of our culture
47
Board of directors’ report 2011
48
30% Exhaust emissions 5% Maintenance
including CO2 from fuel use
-5% Recycling
12% Producing
ck
t ru
the truck
D r i v i n g t he
%
93
49
Board of directors’ report 2011
A high-performing organization
Increased global presence, new products, new an effect on the future competitiveness of Diversity enhances innovation
technology, demographic changes and more Europe. The Volvo Group is involved in a com- To create the dynamics required to succeed at a
rapid fluctuations in the global economy will lead prehensive series of cooperative ventures with global level the Volvo Group needs to recruit and
to challenges in the supply of expertise and research bodies and academic institutions to retain a broad spectrum of employees with dif-
resources. advance the technologies needed for future ferent backgrounds, experience and perspectives.
product development. One example is the In the Volvo Group diversity is considered to be
Attracting and retaining competence Academic Partner Program. a catalyst for innovation and a source of com-
The Volvo Group’s ambition is to offer interest- petitiveness and profitability. By expanding the
ing opportunities and a unique company culture Competence development knowledge base, skills and understanding, the
that help us attract and retain the best people, Investing in the Group’s employees is a funda- Group becomes more responsive to customer
whoever they are and wherever we do business. mental part of staying competitive, sustainable needs and it strengthens the Group’s market
Without engaged employees, who are willing and profitable. The Volvo Group’s training programs position.
to take an active part in the Group’s development are offered at all levels for employees, and the Diversity and inclusion have long been priori-
and future, the Volvo Group will not succeed in activities range from traditional and e-based tized within the Volvo Group.
pursuing its strategies. It is therefore important training to individual coaching and mentoring.
we attract the right expertise and competent Individual competence development is based Employee engagement
engineers to continue the development of envi- on a personal business plan, which provides In 2011, an Employee Engagement Index was
ronmentally enhanced products. The Volvo Group support for translating corporate strategic added to the Volvo Group Attitude Survey
regularly maps the strategic competence needs, objectives into individual objectives and contri- (VGAS). By including engagement there is a
and annually aggregate findings on a Group bution. The purpose is to ensure that employees clearer connection to the Group’s wanted position,
level to identify the most important future needs. clearly understand their role in the team and culture and business success.
what is expected of them. The results from VGAS is benchmarked
Academic Partner Program against an international database with data
The number of people in Europe graduating with Developing talents gathered from over 14 million employees, repre-
degrees in mathematics, science and technol- Every manager is responsible for assessing and senting over 80 countries. In the 2011 VGAS,
ogy (MST) is declining, and this trend may have developing talent in the organization. The Leader- the Volvo group reached an Employee Engage-
ship Pipeline provides the Group with a structured ment Index of 76%. This can be compared with
Academic Partner Program
approach to developing and preparing present the global norm of 68%. The survey reveals that
The Volvo Group Academic Partner Program leaders as well as potential leaders for future the Volvo Group’s general strengths are the
(APP) is a systematic approach for long-term roles. employees’ pride at manufacturing products of
cooperation with selected universities and
research institutes in areas of special interest.
The Leadership Pipeline has been set up high quality and that they clearly understand
The program aims to provide the Group with a jointly with research institutes and is based on their role and the business objectives.
holistic picture of important collaborative part- global research. It is also designed to support
ners and to increase the Group’s visibility to
students and researchers.
the Volvo Group’s culture and values as well as
Our involvement with universities is also the strategic objectives.
important for creating relationships with
students and potential employees to secure
access to future competence.
50
Responsible sourcing
Responsible supply chain management is about
managing risk, promoting responsible behaviour Production
and building long-term relationships with suppli-
ers to improve social, environmental and busi- The environmental effort is and has long been Focusing on energy-savings measures is good for
one of the cornerstones in the Group’s work. The both the environment and the Group’s financial
ness ethics in the supply chain. Ensuring good
joint environmental policy is one of the most results. A couple of years ago, when the Volvo
standards in the supply chain is important to the important documents for control. The policy is the Group launched the world’s first carbon-neutral
Volvo Group and its stakeholders. The Group foundation of the Group’s environmental manage- plant, the primary reason was to reduce the envi-
ment system, strategies and targets, audits and ronmental load, but it soon became quite clear
wants to ensure that unethical values are not
measures. that it was also a solid financial investment, which
built into the Group’s products and services. Already in 1995, the first environmental man- will generate significant cost savings in the long
Since 1996 the Volvo Group has gradually agement system was certified. At the end of 2011, term.
99% of the employees in production units were All production plants must comply with the
increased requirements for suppliers regarding
working in accordance with the certified environ- common minimum requirements pertaining to
environmental, business ethics and social respon- mental management system, primarily ISO chemicals, energy consumption, emissions to air
sibility aspects. 14001:2008. At each production unit, there is an and water, waste management, environmental
environmental coordinator. organization and improvement work. Since 1989,
The requirements placed on suppliers are
The Group’s environmental goals are used to environmental audits have been conducted to
based on the principles contained in the Volvo control, develop and monitor the environmental ensure compliance with the environmental policy
Group’s Code of Conduct and international norms effort. Strategies to achieve the goals are included and in the event of acquisitions; a review is con-
in the business plan. Since 2004, the Volvo Group ducted of the company and properties to observe
of behaviour.
has put an extra strong focus on energy reduction environmental factors and risks.
in its own production process. Energy consumption In 2011, 17 facilities in Sweden required permits.
Sourcing and risk assessments has since decreased by 46% per produced unit. All have the necessary environmental permits and
no permits needs to be renewed in 2012. The
In 2011, more than 39,000 suppliers delivered
The energy-saving goal for 2010–2012 is existence of contaminated land in our properties
products and services to the Volvo Group. Approx- divided into two parts: is documented annually. During 2011, no after-
imately 6,000 are suppliers of direct material • C ontinue the work with investigating the pos- treatment of contaminated land was in progress
sibility of making the Group’s facilities carbon on Volvo Group property in Sweden. During 2011,
used in automotive products. 8% of these suppli-
neutral. no spills were reported, no major environmental
ers are located in countries assessed as ‘high risk’ • Standby loss, i.e. energy consumption during incidents occurred and no environmental disputes
identified in the Volvo Group’s CSR country risk non-production hours, must decrease by 50% are ongoing.
and an additional 15% energy-saving per
model. The risk assessments are based on analy-
produced unit by 2012, compared with 2008.
ses conducted by internationally recognized insti-
tutions and include factors such as human rights,
labour standards and incidence of corruption. The
Volvo Group has chosen to apply the same require-
ments and the same process on all suppliers.
51
Board of directors’ report 2011
the share
The Volvo share is listed on the Nasdaq OMX The Volvo share was the most traded share Dividend
Nordic Exchange in Sweden. One A share enti- on Nasdaq OMX Stockholm in 2011. At year-end The Board proposes a dividend of SEK 3.00 per
tles the holder to one vote at Annual General 2011, Volvo’s market capitalization totalled SEK share for the financial year of 2011, which would
Meetings and one B share entitles the holder to 153 billion (238). mean that a total of SEK 6,082 M would be
one tenth of a vote. Dividends are the same for An increasing portion of the trading in Volvo transferred to AB Volvo’s shareholders. For the
both classes of shares. shares is carried out on alternative exchanges preceding year a dividend of SEK 2.50 per share
The Volvo share is included in a large number such as Bats Europe, Burgundy, Chi-X and was paid out, in total SEK 5,069 M.
of indexes that are compiled by Dow Jones, Turquoise. According to Fidessa the direct trad-
FTSE, S&P and Nasdaq OMX Nordic. ing on Nasdaq OMX Stockholm accounted for Communication with shareholders
56% of the turnover in the Volvo B share while Dialog with the shareholders is important for
Negative development on the the trading at Chi-X accounted for 11%, Bur- Volvo. In addition to the Annual General Meeting
stock market gundy for 5%, Bats Europe for 3% and Tur- and a number of larger activities aimed at pro-
In general, the development on the world’s lead- quoise for 2%. The remainder of the trading fessional investors, private shareholders and
ing stock exchanges was negative following two took place outside these exchanges. stock market analysts, the relationship between
years of positive trends. On Nasdaq OMX Nordic, Volvo and the stock market is maintained through
the OMXSPI index fell by 18% during the year. Share conversion option such events as press and telephone confer-
Trading in Volvo A shares on Nasdaq OMX In accordance with a resolution on the AGM on ences in conjunction with the publication of
Nordic decreased by 35% compared to 2010. April 6, 2011, the Articles of Association have interim reports, meetings with retail sharehold-
The share price decreased by 34%, and at year- been amended to include a conversion clause, ers’ associations, investor meetings and visits,
end the price for the Volvo A share was SEK stipulating that series A shares may be con- as well as road shows in Europe, North America
75.95. The highest price paid was SEK 119.50 verted into series B shares, after a request sent and Asia.
on January 3, 2011. to the Board. On the website www.volvogroup.com it is pos-
Trading in Volvo B shares on Nasdaq OMX During the year a total of 14.1 million A shares sible to access financial reports, search for infor-
Nordic increased by 30% compared to 2010. was converted to B shares, representing 2.1% mation concerning the share, insider trading in
The share price decreased by 36% and was of the initially outstanding A shares. A total of Volvo and statistics for truck deliveries. It is also
SEK 75.30 per share at year-end. The highest 50 requests from 33 persons or entities were possible to access information concerning the
price paid was SEK 121.70 on January 3, 2011. handled. Group’s governance, including information about
In 2011, a total of 3.1 billion (2.5) Volvo shares Further information on the procedure is avail- the Annual General Meeting, the Board of Direc-
at a value of SEK 282 billion were traded Nas- able on the Volvo Group’s web site: tors, Group Management and other areas that
daq OMX Stockholm, corresponding to a daily www.volvogroup.com are regulated in the “Swedish Code of Corporate
average of 12.0 million shares (9.8). Governance.” The website also offers the possi-
bility to subscribe to information from Volvo.
52
Price trend, Volvo Series B shares, 2007–2011, SEK The largest shareholders in AB Voting
160 Volvo, December 311 rights, %
2011 2010
60
Share capital, December 31, 2011
Registered number of shares1 2,128,420,220
40 of which, Series A shares2 663,527,946
of which, Series B shares3 1,464,892,274
90
80
70
60 Q1 Q2 Q3 Q4
Events
1 Truck deliveries for December 2010, 6 Olof Persson appointed new Volvo 11 Truck deliveries for May, June 17 17 Volvo Group restructures, October 4
February 4 CEO, March 16
12 Truck deliveries for June, July 22 18 Truck deliveries for September, October 25
2 Year-end report 2010, February 4 7 Annual General Meeting 2011, April 6 13 Report on the second quarter, July 22 19 Report on the third quarter, October 25
3 Truck deliveries for January, February 16 8 Truck deliveries for March, April 27 14 Truck deliveries for July, August 30 20 Capital markets day in Stockholm, November 8
4 Annual Report 2010, March 16 9 Report on the first quarter, April 27 15 Truck deliveries for August, September 15 21 Truck deliveries for October, November 16
5 Truck deliveries for February, March 16 10 Truck deliveries for April, May 17 16 New financial targets for AB Volvo, 22 Truck deliveries for November, December 19
September 22
Significant events
DURING 2011
Some of the important events during 2011 was that Olof Persson assumed position as
new CEO, the Group received new financial targets and a new organization was adopted.
The first quarter Fund, SHB Pensionskassa and Oktogonen, and with a newly developed common rail system that
Olof Persson appointed new Volvo CEO Lars Förberg, representing Violet Partners LP, increases the maximum fuel injection pressure
The Board of Directors of AB Volvo decided to and the Chairman of the Board were elected for achieving high levels of power and torque in
appoint Olof Persson, 46, then President of Volvo members of the Election Committee. The Meet- a small displacement volume.
Construction Equipment, as the new President ing resolved that no fees would be payable to
and Chief Executive Officer of Volvo. Olof Pers- the members of the Election Committee. The third quarter
son assumed the position as President of AB The Annual General Meeting adopted a pro- New financial targets
Volvo and CEO of the Volvo Group on Septem- posal from Renault S.A. and Industrivärden con- In September it was announced that the Board
ber 1, 2011 when Leif Johansson retired. cerning an addendum to AB Volvo’s Articles of of Directors of AB Volvo had decided to imple-
Association that will permit voluntary conversion ment new financial targets for the Volvo Group
Pat Olney new CEO of Volvo CE of Series A shares to Series B shares. The starting in 2012. The new targets have been
Effective May 1, Pat Olney, 42, was appointed amendment of the Articles of Association was set in order to enable the growth and profitabil-
new President and CEO of Volvo Construction subject to approval by shareholders represent- ity of the various operations to be measured
Equipment. Pat Olney has an extensive experi- ing at least two thirds of the votes cast and the and benchmarked annually against relevant
ence spanning 17 years in the construction voting rights represented at the Meeting. competitors.
equipment industry, with 10 of these in senior The financial targets for the Group are as
management roles within Volvo CE. He assumed Volvo CE invests in its North American follows:
his new position on May 7, 2011. operations • The annual organic sales growth for the truck,
Over the next couple of years, Volvo Construc- bus and construction equipment operations,
Annual General Meeting of AB Volvo tion Equipment plans to invest USD 100 M in its as well as Volvo Penta, shall be equal to or
The Annual General Meeting of AB Volvo held Shippensburg, PA, USA manufacturing facility exceed a weighted-average for comparable
on April 6, 2011 approved the Board of Direc- and start production of wheel loaders, excava- competitors.
tors’ motion that a dividend of SEK 2.50 per tors and articulated haulers in North America. • Each year, the operating margin for the truck,
share be paid to the company’s shareholders. Also, Volvo CE’s North American sales head- bus and construction equipment operations,
Peter Bijur, Jean-Baptiste Duzan, Leif quarters and Volvo Rents will relocate from as well as Volvo Penta, shall be ranked among
Johansson, Hanne de Mora, Anders Nyrén, Asheville, NC to Shippensburg, PA by September the top two companies when benchmarked
Louis Schweitzer, Ravi Venkatesan, Lars West- 2012. against relevant competitors.
erberg and Ying Yeh were reelected as mem-
• For Customer Finance Operations, the exist-
bers of the AB Volvo Board. Leif Johansson was The second quarter
ing targets of 12-15% return of equity (ROE)
reelected for the period extending to August 31, UD Trucks launches new Condor
and an equity ratio exceeding 8% stand firm.
2011, when he stepped down from his assign- In July, UD Trucks launched its new Condor
Volvo Aero has an ROE target of 15–25%.
ment as President and Chief Executive Officer medium-duty trucks, which have undergone a
When calculating the ROE, Volvo Aero will be
of Volvo. In addition, Olof Persson was elected full model change. The new models adopt a new
assigned the same equity ratio as that for the
to the Board for the period starting on September cab design that conveys the impression of a uni-
Group’s Industrial Operations.
1, 2011, when he took office as President and fied family identity with the Quon heavy-duty
Chief Executive Officer of Volvo. Louis Schweitzer truck series. They also feature various advanced • The capital structure target is set to a net
was reelected Chairman of the Board. technologies accumulated on the company’s debt, including provisions for post-employ-
Jean-Baptiste Duzan, representing Renault heavy-duty trucks to deliver outstanding fuel ment benefits, for the Industrial Operations of
s.a.s, Carl-Olof By, representing AB Industrivärden, economy, improved environmental and aero a maximum of 40% of shareholders’ equity
Håkan Sandberg, representing Svenska Han- dynamic performance and safety. The new under normal conditions.
delsbanken, SHB Pension Fund, SHB Employee Condor models are powered by engines fitted
54
Pat Olney
Volvo Group restructures its truck busi- Carl-Henric Svanberg proposed as new
ness and launches new organization Chairman of AB Volvo
In October it was announced that the Volvo On December 12, 2011 the Election Committee
Group is to have a new organization which better of AB Volvo proposed the election of Carl-Henric
utilizes the global potential of the brands and Svanberg as new Chairman of the Board at the
products within the truck operations. For exam- Annual General Meeting on April 4, 2012. AB
ple, the sales and marketing of all of the truck Volvo’s current Chairman Louis Schweitzer has UD Trucks new Condor
55
Board of directors’ report 2011
Trucks
Demand in Europe and North America increased In 2011, the total market in Brazil increased New products
during the year, but towards the end of the year it by 2% to 111,500 heavy-duty trucks (109,800). At the annual Mid-America Trucking Show in Lou-
weakened in Europe. The Japanese market was The increase was lower than anticipated isville, Kentucky, both Mack and Volvo Trucks
negatively affected by the earthquake and tsunami because of less prebuying than expected ahead introduced trucks with new aerodynamic and
that hit the country in March but recovered of the new, stricter emission regulation that powertrain features which, when combined with
towards the end of the year. In Brazil demand came into effect on January 1, 2012. The total the improvements already achieved through the
was strong during the year. Brazilian market for heavy-duty trucks is use of SCR technology, deliver fuel efficiency
expected to record a slight decline and reach a gains of 8-12% over previous generations of
Total market level of about 105,000 trucks in 2012. The trucks (EPA 2007).
In 2011 the heavy-duty truck market in Europe beginning of the year is expected to be slow fol- The world’s most powerful hybrid truck was
29 (EU, Norway and Switzerland) increased by lowed by a gradual pick-up in demand driven by launched by Volvo Trucks in the first quarter. The
35% to 242,400 trucks compared to 2010. The a general increase in economic activity and Volvo FE Hybrid, the first parallel hybrid from
situation still varied significantly within Europe. increased acceptance of the new, more expen- Volvo Trucks, uses techniques able to reduce fuel
While parts of Southern Europe were struggling, sive Euro V trucks. consumption and carbon dioxide emissions by up
other regions in Northern and Eastern Europe In Japan the market for heavy-duty trucks to 20%, and it makes the truck much more silent.
had recovered from the low levels of 2010. In was 24,800 vehicles in 2011 (24,500), which In May, Volvo Trucks launched the new Volvo
2012, the total market for heavy-duty trucks in was an increase of 1%. Following the earth- FM MethaneDiesel truck, a gas-powered truck for
Europe 29 is expected to experience a moder- quake and the subsequent tsunami that hit long-haul operations enhancing its focus on alter-
ate decline to a level of about 220,000 trucks. Japan on March 11, 2011 there were signs of a native fuels. This truck can be powered by up to
The start of the year is expected to be slow with market-recovery during the latter part of 2011 75% gas and if run on biogas, emissions of car-
a gradual pick-up in demand as customers start and into 2012. For 2012, the total Japanese bon dioxide from fossil fuel could be cut by up to
to renew their fleets ahead of the new emission market for heavy-duty trucks is expected to 70% compared with a conventional diesel engine.
regulation in 2014. increase to about 30,000 trucks. In September, a 750 hp version of the Volvo
In 2011, the total market for heavy-duty trucks The Indian market for heavy-duty trucks grew FH16 was launched.
in North America increased by 52% to 216,100 by 12% to 237,000 trucks in 2011 compared to Renault Trucks delivered the first serial Renault
trucks compared to 142,100 in the previous 212,000 vehicles in 2010. Premium Distribution hybrid truck (Hybrys Tech).
year. Demand was strong throughout the year, Renault Trucks also launched a system called
driven primarily by the need to replace the Earnings Optiroll on the Renault Premium Route Optifuel
industry’s aging highway tractor population. In 2011, net sales in the truck operations increased truck, which further reduces fuel consumption.
Activity in the refuse vehicle segment was by 24% to SEK 207,703 M (167,305). The operat- In July, UD Trucks launched its new Condor
steady. Although the vocational truck segment ing income improved to SEK 18,260 M (10,112), medium-duty trucks, which have undergone a
continued to suffer as a result of the depressed while the operating margin was 9.1% (6.0). full model change.
construction market, some positive signs were Increased sales volumes, higher capacity utili-
seen in the energy sector, particularly natural zation and continued strict control on operating
gas production. In 2012, the total market for costs had a positive impact on profitability.
heavy-duty trucks in North America is expected
to grow to a level of about 250,000 trucks.
The truck operations consist of Volvo Trucks, Renault Position on world market
Trucks, UD Trucks, Mack Trucks and VECV in India In total, the Volvo Group is Europe’s largest and the
(50% direct and indirect ownership). The product world’s second largest Western manufacturer of
offer stretches from heavy-duty trucks for long- heavy trucks.
haulage and construction work to light-duty trucks
for distribution. Brands
Volvo, Renault Trucks, UD Trucks, Mack and Eicher.
Number of employees
41,469
Fuel-efficient engines is one important factor
behind the truck operations’ success.
56
Net sales as percentage
of Volvo Group’s sales
64% (63)
INCREASED
SALES IN ALL MARKETS
10 11 10 11 10 11 10 11 10 11 10 11 10 11
14.2 16.0 10.2 10.3 5.2 4.8 10.9 10.8 8.8 11.4 7.4 6.8 22.2 20.1
Volvo Renault Volvo Renault Volvo Mack UD
57
Board of directors’ report 2011
Construction Equipment
Volvo CE’s equipment is distributed to customers related consequences of the earthquake and Reduce break-even
through a global network of independent deal- tsunami that struck Japan in early March, which Further investments were announced that will
ers, and in some instances, Volvo-owned dis- had a negative effect on both sales and income. see efficiency gains and lower the break-even
tributors. The customer offering also includes point, as well as reducing currency exposure.
services such as financing, leasing and used Strengthen position in BRIC countries Localization of sourcing and production is essen-
equipment sales. Customers are using Volvo CE In 2011 Volvo CE saw strong momentum in all tial to this objective, with the most notable exam-
products in different applications, including BRIC markets. Significantly, it became market ple being the announcement of a USD 100 M
general construction, road building and mainte- leader in China for excavator and wheel loader investment in the company’s Shippensburg, US
nance, demolition, waste processing, material sales, with a share of 12%. Despite a softening facility to allow production of wheel loaders,
handling and extraction. of the Chinese market, Volvo CE’s sales there excavators and articulated haulers.
grew by 29% in 2011. In October the company
Widespread demand broke ground on its major new technology Launch Tier 4i/Stage IIIB engines
Measured in units sold, the total world market center in Jinan, China, which, when completed, Volvo has taken the lead in introducing envi
for heavy, compact and road machinery equip- will design products for the BRIC markets and ronmentally friendly Tier 4 Interim/Stage IIIB-
ment increased by 18% in 2011, compared to form part of the company’s plan to have a global compliant products in North America and Europe,
2010. After a long period of low growth, the footprint of engineering and design resources. with the successful launch of complete new
mature markets of Europe saw rises of 31% in The third quarter saw Volvo CE announce a generations of machines affected by the legisla-
2011, whereas demand in the previously slug- SEK 350 M investment in a new excavator plant tion. The company’s new V-ACT engine systems
gish North American market jumped by 37%. in Kaluga, Russia, which will see production start have the hallmarks of lower emissions, better
Asia excluding China grew by 28% and Other in early 2013. Distribution in Russia also got a performance, improved operational economy
Markets by 14%. In China, government efforts to boost; with new partner Ferronordic committing and higher quality. As well as advanced engine
cool inflation dampened demand, but sales never- USD 100 M to expanding dealer locations in the monitoring and control, the new Volvo system
theless increased by 7% in this, the world’s largest vast country. uses an advanced exhaust after-treatment sys-
construction equipment market. In India, dealer development was also in focus, tem that reduces particulate matter by 90%
Recoveries in mature economies coupled with and SEK 140 M is being spent on expanding compared to the previous machine series.
continued buoyant demand in emerging markets Volvo CE’s Bangalore facility to accommodate
and internal cost reductions saw Volvo CE to a excavator production. Elsewhere, the company New products
confident 2011 in terms of sales and income. saw strong market growth across South Amer- Volvo CE chose the ConExpo exhibition in Las
During 2011 the company sold a record 84,000 ica, with its SDLG wheel loader range gaining Vegas in March 2011 to unveil its fundamentally
machines, compared with 66,000 in 2010. the market leadership position among Chinese updated product range, which includes excava-
Net sales increased by 21% to SEK 64,987 M brands in the region. A SEK 65 M investment tors, wheel loaders, articulated haulers, backhoe
(53,810). Operating income rose to SEK 6,653 M will see Volvo CE excavators produced at the loaders – and the Red Dot award winning
(6,180) whereas the operating margin amounted Pederneiras, Brazil facility. L220G wheel loader. In all, over 50 new models
to 10.2% (11.5). These are solid results given the were introduced to dealers and customers in
significant currency headwinds and the supplier- Europe and North America, with a host of new
products also available in Asia and other
markets.
Brands
Volvo and SDLG (Lingong). Volvo CE launched more than 50 new models
during the year.
58
Net sales as percentage
of Volvo Group sales
21% (20)
6,653
SEK M
%
07 08 09 10 11
4,218 1,808 (4,005) 6,180 6,653
7.9 3.2 (11.2) 11.5 10.2
Record
DELIVERIES AND SUBSTANTIAL RENEWAL
59
Board of directors’ report 2011
Buses
Volvo Buses is one of the world’s largest manu- for long distances and is completely exhaust-free, New investments in India
facturers of heavy buses. The range comprises using only electricity. The technology has the In 2011, Volvo Buses celebrated ten years of
complete buses, chassis, transport solutions, potential to reduce fuel consumption by as much successful presence in India, where the com-
telematic systems, financial solutions, as well as as 65% compared with current diesel-driven pany is the market leader in luxuriously equipped
service and maintenance contracts. The com- buses. A prototype was developed in 2011 and intercity buses and air conditioned low-floor
pany offers global products adapted to local field tests will commence in Gothenburg in autumn buses. Comprehensive new investments are
conditions, with manufacturing in Europe, Asia, 2012. currently being planned, which will significantly
North America and South America. In China, there is major interest in alternative increase the industrial capacity. The invest-
Volvo Buses has sales in about 85 countries drivelines and fuels. Here, Volvo Buses and ments will meet demand in the domestic market
and is one of the bus industry’s strongest serv- SAIC (Shanghai Automotive Industry Corpora- and facilitate increased export.
ice networks, with more than 1,500 retailers and tion) have started a joint venture company for
service workshops globally. research, development and industrialization of Increased deliveries, decreased
buses with alternative drive systems, both order intake
Global leader in hybrid buses refined electric vehicles and hybrids. In 2011, the bus market continued to develop
During the year, the trend toward more efficient Within the framework of the EBSF research favorably in Asia and South America, while it
transport solutions continued within the bus program (European Bus System of the Future), decreased in Europe and North America.
industry, with less energy consumption and Volvo Buses has developed a demonstration Volvo Buses increased its deliveries by 25%
lower environmental impact. Volvo Buses intro- vehicle with various solutions that may contrib- primarily due to substantially higher deliveries in
duced a new bus model for city traffic – the ute to making public transportation more effi- South America and North America. In total,
Volvo 7900. The new bus model is available in cient and attractive for passengers, for example, 12,786 buses and bus chassis (10,229) were
hybrid and for natural gas/biogas, as well as by more rapid entering and alighting, shorter delivered, which are the highest deliveries to
diesel/biodiesel. The hybrid model has up to travel times and less crowding. Tests in traffic date. The final two quarters showed a somewhat
37% lower fuel consumption and carbon-dioxide commenced in Gothenburg in December 2011. slower order intake.
emissions than the corresponding diesel bus.
With the Volvo 7900, Volvo Buses will strengthen Lower operating costs with telematics Sales and income
its industry-leading position in terms of fuel- To assist customers in reducing their operating In 2011, net sales rose to SEK 22,289 M (20,516)
efficient hybrid vehicles. In total, Volvo Buses costs, Volvo Buses is also offering telematic strengthened by increased deliveries in South
has now sold more than 400 hybrid buses, of systems. In 2011, Volvo Bus Telematics with America, North America and Europe. Operating
which 110 were to the U.K., 60 to Curitiba, Brazil, Traffic Management, Fleet Management and income improved to SEK 1,036 M (780) and the
32 to Tromsö, Norway, 25 to Sweden, 10 to Vehicle Management was launched, which will operating margin amounted to 4.6% (3.8). Profit-
Hamburg, Germany and 8 to Mexico in 2011. make it easier for operators to monitor fuel con- ability was favorably impacted by increased vol-
sumption and service requirements for each umes and an improved market mix.
Developing the vehicle of the future vehicle.
The next development step in the hybrid area is
a chargeable hybrid, which can operate quietly
Buses has a product range comprising city and inter- Position on world market
city buses, coaches and chassis. The business area is one of the
world’s largest producers of buses.
Number of employees
7,400 Brands
Volvo, Prevost, Nova and Sunwin.
In addition to complete buses, Volvo Buses also delivers
bus chassis for completion at external body builders.
60
Net sales as percentage
of Volvo Group sales
7% (8)
LEADER IN
HYBRIDS
61
Board of directors’ report 2011
Volvo penta
Improved profitability
Volvo Penta offers complete drive systems for leisure boats and professional boats,
and for industrial applications such as power generation, cranes, pumps and container
trucks.
In the commercial shipping area, Volvo Penta Volvo Penta contributes substantial synergies the industrial engine range to meet future emis-
delivers diesel engines for the toughest-possible and economies of scale to the Group’s total die- sions regulations, while Volvo Penta can also
operating conditions. Coast guards, ferry com- sel engine manufacturing. About one-fifth of offer its customers significant installation ben-
panies, port authorities and shipyards all over volumes in the diesel engine plant in Skövde efits and favorable operating economy.
the world use Volvo Penta’s reliable engines for comprise engines delivered by Volvo Penta. On the marine side, Volvo Penta launched
towing, passenger transports, patrolling and sea More than half of the Group’s total volumes of D6-400 in 2011 – the world’s most powerful
rescue. 16-liter engines are delivered to Volvo Penta’s diesel sterndrive. This 400-hp power package
In the leisure boat industry, Volvo Penta customers. confirms Volvo Penta’s world-leading position in
develops and delivers complete drive systems to the diesel sterndrive segment.
world-leading boat builders such as Fairline, Total market
Sunseeker and Princess in the UK, Jeanneau/ The total market for industrial engines was Earnings trend
Beneteau in France, Chaparral in the US and strong during the first half of the year, but Sales amounted to SEK 8,859 M compared with
Schaefer Yachts in Brazil. demand in Europe and North America weak- SEK 8,716 M in the preceding year. Operating
Volvo Penta’s innovative technological solu- ened toward year-end due to the debt crisis and income was SEK 781 M compared with SEK
tions for boats create competitiveness and cus- global financial turmoil. Stable demand was 578 M in the preceding year. The operating mar-
tomer benefits in the form of lower fuel con- noted in China and many other countries in Asia gin was 8.8% (6.6). Earnings were positively
sumption, easier manoeuvering and shorter and South America. impacted by increased sales, effective cost con-
installation times. Through partnerships in the The total market for marine engines remained trol and a favorable product mix.
communication and navigation area, and by fully largely unchanged compared with the weak
integrated drive systems, Volvo Penta offers trend during recent years. European boat sales Production and investments
boat driving environments with a strong focus on were adversely impacted by bailout packages In 2011, Volvo Penta completed the launch of a
comfort and user-friendliness. and austerity measures in Southern Europe, new logistics system that enables efficiency
Volvo Penta’s customers have access to the particularly in Italy and Spain. Domestic boat enhancements across the entire chain – from
marine industry’s most global service and dealer sales in Italy, which is traditionally Volvo Penta’s order to delivery.
network with about 4,000 dealers worldwide. largest marine market in Europe, are estimated In recent years, Volvo Penta’s engine plant in
In the industrial engine area, Volvo Penta to have decreased about 70% over five years. Vara, Sweden has worked systematically to reduce
delivers diesel engines to world-leading customers In North America, boat sales were consistently its environmental impact and energy costs. The
such as Cargotech in Finland, Sany in China, at historically low levels and as a result, total plant has accepted AB Volvo’s challenge to all
Kohler in the US and Sandvik in Sweden. With demand for both marine gasoline and diesel plants within the Group to become energy-
their unique performance, operational and environ engines remained very low in the US. efficient and phase out fossil fuels. Due to these
mental features, Volvo Penta’s industrial engines efforts, all manufacturing in the Vara plant was
create strong competitiveness for this type of Product renewal carbon neutral from 2011.
global customers, and by utilizing the breadth With an aggressive focus on product develop-
and strength of the Volvo Group’s combined ment and product renewal, Volvo Penta has cre-
service offering, Volvo Penta can also offer effi- ated a modern and highly competitive product
cient support in the form of global service and range for industrial engines in recent years. The
aftermarket services. Volvo Group’s proven SCR technology enables
Volvo Penta provides engines and power systems for Position on world market
leisure and commercial craft, as well as for industrial Volvo Penta is the world’s largest producer of diesel
applications such as power generation and container engines for leisure boats and a leading, independent
trucks. producer of industrial engines.
Number of employees
1,338
SEK M
%
07 08 09 10 11
1,173 928 (230) 578 781
10.0 8.1 (2.8) 6.6 8.8
Good
EARNINGS
DESPITE WEAK
MARKET
63
Board of directors’ report 2011
Volvo AERO
IMPROVED PROFITABILITY
Volvo Aero develops and manufactures advanced components for rocket engines, and civil and military
aircraft engines. The company also carries out maintenance and repair on aircraft engines and stationary
gas turbines.
Since the 1980s, Volvo Aero’s civil operations Total market Earnings trend
have grown steadily in terms of sales and sig- According to the airline industry’s international Sales totaled SEK 6,509 M compared with SEK
nificance, while the company’s military opera- trade organization, IATA, passenger traffic 7,708 M in the preceding year. Operating income
tions have decreased in a corresponding fash- increased 5.9% in 2011 while air-freight declined was SEK 336 M compared with SEK 286 M in
ion to the present figure of about 5% of sales. 0.7%, compared with the preceding year. the preceding year. The operating margin was
Since Volvo Aero has an independent role, Airbus and Boeing reported 2,529 new orders 5.2% (3.7).
the company can sign agreements with all major during the year, nearly a two-fold increase com- On March 31, Volvo Aero acquired all of Pratt
manufacturers in the aircraft engine industry. As pared with the preceding year (1,269). The order & Whitney’s shares in Volvo Aero Norway and
a result, Volvo Aero’s engine components are book for large civilian aircraft rose from 6,995 thus became the company’s sole shareholder.
now found in more than 90% of all new large aircraft at the end of 2010 to 8,208 at the end On November 21, AB Volvo announced – as
civil aircraft. of 2011. The aircraft manufacturers delivered part of its efforts to further refine the Group’s
Volvo Aero can now also claim the role as a 1,011 aircraft in 2011, a 4% increase compared focus on heavy commercial vehicles – that it had
designer of new engine components. The com- with the preceding year. initiated a process to divest Volvo Aero.
pany has assumed a leading role in the field of
light-weight structures, which is now gaining Product renewal Production and investments
significance in the industry since less weight An agreement signed with aeroengine manu- In just a few short years, Volvo Aero’s North
leads to lower fuel consumption and, in turn, facturer Pratt & Whitney in June makes Volvo American subsidiary, VACT, outside Hartford in
lower emissions from aircraft – two vital issues Aero a program partner in the PW1100G engine, Connecticut in the US, has established itself as
for the airline industry. which is built with geared turbofan technology. one of the market’s leading players in the field of
A key component in the light-weight venture The engine will power the A320neo aircraft fan cases for large aircraft engines. The most
is the composite company ACAB, which Volvo and has been listed by TIME Magazine as one of recent example is a fan case for the GP7000
Aero acquired in 2007. During the year, ACAB the 50 best inventions of 2011. The PW1100G engine in the Airbus A380. The company already
secured a strategic contract with Korean Air engine was the most significant development in manufactures fan cases for the Trent 900 for
concerning future collaboration in the areas of the aerospace industry during the year. the same aircraft. Similarly, VACT has signed a
radomes, wing structures and other composite Boeing’s new 787 aircraft, Dreamliner, com- contract for manufacturing both of the engine
components. menced operation in 2011, as well as Boeing’s options offered with the new Boeing 787: the
The continued success of Volvo Aero’s focus modernized version of the 747 (747-8). Both air- Rolls-Royce Trent 1000, and GEnx 1B. Volvo
on high quality is confirmed by the fact that, in craft are offered with a GEnx engine, in which Aero has also signed a contract concerning the
2011, the single-engine military aircraft Gripen, Volvo Aero is a program partner. manufacture of GEnx 2B fan cases for the new
with a Volvo RM12 engine, exceeded 160,000 Development of the Rolls-Royce engine, Boeing 747-8. Other assignments include the
hours of operation with no engine-related Trent XWB, for the A350 XWB Airbus aircraft GE90 for the Boeing 777 and V2500 for the
breakdowns or serious incidents. This is unique continues as planned and several major milestones Airbus A320.
for all air forces worldwide. were passed during the year. Volvo Aero is
a program partner in the engine.
Volvo Aero offers advanced components for aircraft Position on world market
engines and space applications, with a focus on light- Volvo Aero holds a leading posi-
weight technology for reduced fuel consumption. tion as an independent producer,
Services for the aerospace industry and for stationary with engine components in over
gas turbines are also offered. 90% of all new, large commercial air-
craft delivered in 2011.
Number of employees
2,904
64
Net sales as percentage
of Volvo Group sales
2% (3)
336
07 08 09 10 11
529 359 50 286 336
6.9 4.7 0.6 3.7 5.2
SEK M %
ESTABLISHED
65
Board of directors’ report 2011
By developing long-term relationships with cus- execution and speed to market. This approach terms of maturity, interest rates and currencies
tomers and dealers, VFS seeks to establish a has prepared VFS to capitalize on profitable in accordance with Volvo Group policy. For fur-
number one market position for the financing of growth opportunities with stable, efficient and ther information see note 4.
Volvo Group products where we operate. scalable business platforms. The operating income for the year amounted
When customers choose a vehicle or equipment In the mature markets of North America and to SEK 942 M compared to SEK 167 M in the
supplier, the offer of supplementary services is Europe, VFS continues to improve operational previous year. Return on shareholders’ equity
an important factor. Customers desire solutions leverage and optimize results with standard was 7.3% (0.4). The equity ratio at the end of the
that can enable them to work more efficiently technologies, solutions and shared services. In year was 9.1% (9.0). The improvement in profit-
while maximizing profitability and reliability. VFS developing markets such as China, Russia and ability is driven mainly by lower credit provisions
creates value for Volvo Group customers by pro- Brazil, VFS continues to make investments in and higher earning assets. During the year,
viding solutions including financing, leasing and prudent growth with a focus on strengthening credit provision expenses amounted to SEK
insurance. These services are of increasing impor- local operations and maintaining a disciplined 682 M (1,438) while write-offs of SEK 804 M
tance to the Volvo Group’s total offer. risk management structure. Downturn prepara- (1,460) were recorded. The write-off ratio for
tion and readiness are always in focus for such 2011 was 0.93% (1.65). At the end of December
Portfolio improvements markets regardless of the current business envi- 31, 2011, credit reserves were 1.33% (1.69%) of
Although global economies and financial markets ronment. In India, VFS serves the market with a the credit portfolio.
continued to be characterized by uncertainty and branded private label alliance in support of Volvo As a consequence of the strong volume
volatility during 2011, the VFS portfolio showed Group unit sales. growth in Brazil, VFS executed on its second
strong improvements in customer repayment large portfolio syndication in the second quarter
patterns as evidenced by continued reductions Customer finance operations of 2011. This transaction of approximately SEK
in customer delinquencies, defaults and repos- Total new financing volume in 2011 amounted to 4 billion of the Brazilian credit portfolio served
sessions. During this period, VFS also success- SEK 44.8 billion (35.1). Adjusted for changes in as an important risk mitigation measure and
fully reduced inventories of repossessed units exchange rates, new business volume increased successfully freed up capital for reinvestment in
as used truck and equipment demand increased. by 35% compared to 2010 as a result of increased the country. The transaction generated a posi-
Reduced credit losses have primarily contributed sales volumes of the Volvo Group products and tive impact on operating income of SEK 45 M.
to VFS’ increased profitability during the year. stable penetration levels. In total, 49,757 new
Volvo Group unit deliveries strengthened and Volvo vehicles and machines (34,522) were
financing market shares remained stable during financed during the year. In the markets where
2011. As a result, VFS returned to growth with a financing is offered, the average penetration
disciplined approach to balancing new business rate was 25% (25).
development with risk and cost control. As of December 31, 2011, the credit portfolio
was SEK 95,544 M (84,550). During 2011 the
Market development credit portfolio increased by 13.8% (decrease:
VFS continues to strengthen and standardize its 4.4), adjusted for exchange-rate movements.
operations in ways that increase efficiency, The funding of the credit portfolio is matched in
66
Net sales as percentage
of Volvo Group sales
3% (3)
Penetration rate1, %
942
29 27 17 19 20 20 11 15 35 35 12 14
Volvo Renault Mack Buses Volvo UD
Trucks Trucks Trucks CE Trucks
07 08 09 10 11 10 11
1,649 1,397 (680) 167 942
1 Share of unit sales financed by Volvo Financial Services in relation to
Distribution of credit total number units sold by the Volvo Group in markets where financial
portfolio services are offered.
AN
IMPORTANT
PART OF THE TOTAL SOLUTION
67
Board of directors’ report 2011
Financial strategy
Volvo’s goal is a strong and stable The good demand for the Group’s products Funding
financial position continued in 2011 and has contributed to the Volvo works actively for a good balance between
A long-term competitive market position requires improvement of the Volvo Group’s profitability short and long-term loans, as well as borrowing
availability of capital to implement investments. and financial position. The financial net debt in preparedness in the form of credit facilities, to
The financial strategy ensures that the Industrial Operations declined during the year satisfy the Volvo Group’s long-term financing
Group’s capital is used in the best possible man- from 37.4% of shareholders’ equity to 25.2%. needs.
ner by: At the end of 2011, the Group had the equiva-
• balancing shareholders’ expectations on favora- Volvo strives for strong, stable lent of SEK 37.2 billion in cash and cash equiva-
ble returns with creditors’ demands for financial credit ratings lents and short-term investments. In addition,
stability The Volvo Group has continual meetings with the Group had SEK 33.4 billion in granted but
• strong and stable credit ratings the credit rating agencies Moody’s and Standard unutilized credit facilities.
• diversified access to financing from the capital & Poor’s (S&P) to update them on the company’s
markets development. These meetings contribute to the
• margin in the balance sheet to cope with a credit rating agencies’ ability to assess the
strong decline in the economy Group’s future ability to repay loans. A high long-
• financing at competitive conditions to customers. term credit rating provides access to additional
sources of financing and lower borrowing costs.
The goal concerning capital structure is defined In April, 2011, S&P changed Volvo’s credit rat-
as the financial net debt for the Industrial Opera ing from BBB-/Baa3 with stable outlook to
tions and it shall under normal circumstances be BBB/Baa2 with stable outlook. The change
below 40% of shareholders’ equity. was attributable to a change in Volvo’s credit
Volvo carefully monitors the trend of financial measurement.
key ratios to confirm that the financial position is Moody’s rating of Volvo is BBB/Baa2 with
in line with the Group’s policy. The financial key stable outlook since July 24, 2009.
ratios include order intake as well as operational
and financial development.
68
Risks and uncertainties
Managed risk-taking
All business operations involve risk – managed risk-taking is a condition
of maintaining a sustained favorable profitability.
Risk may be due to events in the world and can impact existing order books through cancella- Most of the regulatory challenges regarding
affect a given industry or market. Risk can be tions of previously placed orders. The cyclical products relate to reduced engine emissions.
specific to a single company. At Volvo work is demand for the Group’s products makes the The Volvo Group is a significant player in the
carried out daily to identify, measure and man- financial result of the operations dependable on commercial vehicle industry and one of the
age risk – in some cases the Group can influ- the Group’s ability to react to changes in demand, world’s largest producers of heavy-duty diesel
ence the likelihood that a risk-related event will in particular to the ability to adapt production lev- engines. The product development capacity
occur. In cases in which such events are beyond els and production and operating expenses. within the Volvo Group is well consolidated to be
the Group’s control, the Group strives to mini- able to focus resources for research and devel-
mize the consequences. Intense competition opment to meet tougher emission regulations.
The risks to which the Volvo Group are exposed Continued consolidation in the industry is Future product regulations are well known, and
are classified into three main categories: expected to create fewer but stronger competi- the product development strategy is well tuned
• External-related risks – such as the cycli- tors. Our major competitors are Daimler, Paccar, to the introduction of new regulations.
cal nature of the commercial vehicles busi- Navistar, MAN, Scania, Caterpillar, Komatsu,
ness, intense competition, changes in prices Cummins and Brunswick. In recent years, new Financial risk
for commercial vehicles and government reg- competitors have emerged in Asia, particularly In its operations, the Volvo Group is exposed to
ulations in China. These new competitors are mainly various types of financial risks. Group-wide policies,
• Financial risks – such as currency fluctua- active in their domestic markets, but are which are updated and decided upon annually,
tions, interest levels fluctuations, valuations of expected to increase their presence in other form the basis of each Group company’s manage
shares or similar instruments, credit risk and parts of the world. ment of these risks. The objectives of the
liquidity risk. Group’s policies for management of financial
Prices may change risks are to optimize the Group’s capital costs by
• Operational risks – such as market recep-
The prices of commercial vehicles have, at utilizing economies of scale, to minimize negative
tion of new products, reliance on suppliers,
times, changed considerably in certain markets effects on income as a result of changes in
protection and maintenance of intangible
over a short period. This instability is caused by currency or interest rates, to optimize risk exposure
assets, complaints and legal actions by cus-
several factors, such as short-term variations in and to clarify areas of responsibility. Monitoring
tomers and other third parties and risk related
demand, shortages of certain component prod- and control that established policies are adhered
to human capital.
ucts, uncertainty regarding underlying eco- to is continuously conducted. Information about
nomic conditions, changes in import regulations, key aspects of the Group’s system for internal
External-related risk excess inventory and increased competition. controls and risk management in conjunction
The commercial vehicles industry is cyclical Overcapacity within the industry can occur if with the financial reporting is provided in the
The Volvo Group’s markets undergoes signifi- there is a lack of demand, potentially leading to Corporate Governance Report on page 150–159.
cant changes in demand as the general eco- increased price pressure. Most of the Volvo Group’s financial transactions
nomic environment fluctuates. Investments in are carried out through Volvo’s in-house bank,
infrastructure, major industrial projects, mining Extensive government regulation Volvo Treasury, that conducts its operations
and housing construction all impact the Group’s Regulations regarding exhaust emission levels, within established risk mandates and limits.
operations as its products are central to these noise, safety and levels of pollutants from pro- Credit risks are mainly managed by the different
sectors. Adverse changes in the economic con- duction plants are extensive within the industry. business areas.
ditions for the Volvo Group’s customers may also
Sweden
Europe
The U.S.
Source: Reuters Source: Reuters
Government bonds, 10 year benchmarks
01 02 03 04 05 06 07 08 09 10 11 01 02 03 04 05 06 07 08 09 10 11
10.3 9.7 8.0 7.3 7.5 7.4 6.8 7.8 7.2 6.7 6.9 SEK/USD 5.1 5.3 4.6 4.4 3.4 3.7 4.3 2.4 3.4 3.3 1.6 %
9.2 9.1 9.1 9.1 9.2 9.3 9.3 10.9 10.4 9.0 8.9 SEK/EUR 4.8 4.8 4.1 4.0 3.4 3.8 4.3 2.9 3.4 3.0 1.8 %
7.9 7.3 6.7 6.5 6.7 5.8 5.8 8.6 7.7 8.3 9.0 SEK/100 JPY 5.0 4.5 4.0 4.2 4.3 4.8 4.0 2.2 3.8 3.3 1.9 %
69
Board of directors’ report 2011
The nature of the various financial risks and Reliance on suppliers k nowledge and competence. Future development
objectives and the policies for the management Volvo purchases raw materials, parts and com- depends on the company’s ability to maintain its
of these risks are described in detail in notes 4 ponents from numerous external suppliers. position as an attractive employer. To this end,
and 30. Various aspects of financial risk are A significant part of the Group’s requirements the Volvo Group strives for a work environment in
described briefly in the following paragraphs. for raw materials and supplies is filled by single- which energy, passion and respect for the indi-
Volvo’s accounting policies for financial instru- source suppliers. The effects of delivery inter- vidual are guiding principles. Every year a Group-
ments are described in note 30. The overall impact ruptions vary depending on the item or compo- wide survey is conducted, and according to the
on a company’s competitiveness is also affected nent. Certain items and components are standard survey the share of satisfied employees has
however by how various macro-economic factors throughout the industry, whereas others are been on a high level in recent years.
interact. internally developed and require unique tools
that are time-consuming to replace. Short-term risk factors
Interest-related risk The Volvo Group’s costs for raw materials and An increase in demand could potentially result in
Interest-related risk includes risks that changes components can vary significantly over a busi- delivery disturbances due to suppliers’ financial
in interest rates will impact the Group’s income ness cycle. Cost variations may be caused by instability or shortage of resources.
and cash flow (cash-flow risks) or the fair value changes in world market prices for raw materials Uncertainty regarding customers’ access to
of financial assets and liabilities (price risks). or by an inability of our suppliers to deliver. the financing of products in emerging markets
might have a negative impact on demand.
Currency-related risk Intangible assets Volvo verifies annually, or more frequently if
More than 90% of the net sales of the Volvo AB Volvo owns or otherwise has rights to pat- necessary, the goodwill value of its business
Group are generated in countries other than ents and brands that refer to the products the areas and other intangible assets for possible
Sweden. Changes in exchange rates have a Company manufactures and markets. These have impairment. The size of the overvalue differs
direct impact on the Volvo Group’s operating been acquired over a number of years and are between the business areas and they are, to a
income, balance sheet and cash flow, as well as valuable to the operations of the Volvo Group. varying degree, sensitive to changes in the busi-
an indirect impact on Volvo’s competitiveness, Volvo does not consider that any of the Group’s ness environment. Instability in the business
which over time affects the Group’s earnings. operations are heavily dependent on any single recovery and volatility in interest and currency
patent or group of patents. rates may lead to indications of impairment.
Credit-related risk Through Volvo Trademark Holding AB, AB The reported amounts for contingent liabili-
An important part of the Group’s credit risk is Volvo and Volvo Car Corporation jointly own the ties reflect a part of Volvo’s risk exposure, see
related to how the financial assets of the Group Volvo brand. AB Volvo has the exclusive right to note 24 for contingent liabilities.
have been placed. The majority are placed in use the Volvo name and trademark for its prod-
interest-bearing bonds issued by Swedish real ucts and services. Similarly, Volvo Car Corpora- Contractual conditions related to take
estate financing institutions. tion has the exclusive right to use the Volvo name over bids
and trademark for its products and services. Some of AB Volvo’s long term loan agreements
Liquidity risk The Volvo Group’s rights to use the Renault contain conditions stipulating the right for a bond-
Volvo ensures its financial preparedness by brand are restricted to the truck operations only holder to request repayment in advance under
always maintaining a certain portion of revenues and are regulated by a license from Renault certain conditions following a change of the con-
in liquid assets. s.a.s., which owns the Renault brand. trol of the company. In Volvo’s opinion it has been
necessary to accept those conditions in order to
Market risk from investments in shares or Complaints and legal actions receive financing on otherwise acceptable terms.
similar instruments The Volvo Group could be the target of com- Provisions stipulating that an agreement can be
The Volvo Group is indirectly exposed to market plaints and legal actions initiated by customers, changed or terminated if the control of the com-
risks from shares and other similar instruments, employees and other third parties alleging pany is changed are also included in some of the
as a result of managed capital transferred to health, environmental, safety or business related agreements whereby Renault Trucks’ has been
independent pension plans being partly invested issues, or failure to comply with applicable legis- given the right to sell Renault s.a.s.’ and Nissan
in instruments of these types. lation and regulations. Information about legal Motor Co. Ltd’s light-duty trucks as well as in
proceedings involving entities within the Volvo some of the Group’s purchasing agreements.
Operational risk Group are found in note 24 Contingent Liabilities.
The profitability depends on successful Even if such disputes are resolved successfully,
new products without having adverse financial consequences,
The Volvo Group’s long-term profitability depends they could negatively impact the Group’s reputa- urther information
F
on the Company’s ability to successfully launch tion and take up resources that could be used Note 27 Personnel contains information concern-
ing rules on severance payments applicable for
and market its new products. Product life cycles for other purposes.
the Group Executive Team and certain other sen-
continue to shorten, putting increased focus on ior executives.
the success of the Group’s product development. Risk related to human capital Note 4 and 30 contain information regarding
financial risks as well as goals and policies in
A decisive factor for the realization of the Volvo
financial risk management.
Group’s vision is our employees and their Further risk information is provided in note 24.
70
Content
Financial information 2011
page Note The Volvo Group page Note Parent Company page
Financial performance 72 1 Accounting principles 81 1 Accounting principles 130
71
Financial information 2011
Financial performance
Improved profitability
For the full year 2011, the Volvo Group generated the highest net sales, the best
operating income and the highest operating margin ever.1
Interest income and similar credits 644 544 0 0 (37) (102) 608 442
Interest expenses and similar charges (2,912) (3,244) 0 0 37 102 (2,875) (3,142)
Other financial income and expenses Note 9 297 213 0 0 0 0 297 213
Income after financial items 23,986 15,347 942 167 0 0 24,929 15,514
* Attributable to:
Equity holders of the parent company 17,751 10,866
Minority interests Note 11 364 346
18,115 11,212
Attributable to:
Equity holders of the Parent Company 16,551 7,016
Minority interests 446 315
16,997 7,331
1 Since 1999, when the Group’s operation was directed towards commercial vehicles.
72
The Volvo Group
Net sales by business area, SEK M 2011 2010 % Operating income (loss) by business area, SEK M 2011 2010
Trucks 200,703 167,305 20 Trucks 18,260 10,112
Construction Equipment 64,987 53,810 21 Construction Equipment 6,653 6,180
Buses 22,289 20,516 9 Buses 1,036 780
Volvo Penta 8,859 8,716 2 Volvo Penta 781 578
Volvo Aero 6,509 7,708 (16) Volvo Aero 336 286
Eliminations and other 242 (680) Eliminations and other (1,109) (102)
Industrial Operations1 303,589 257,375 18 Industrial Operations 25,957 17,834
1 Adjusted for acquired and divested units and changes in currency rates, net sales Change in operating income, SEK bn
increased by 20%.
Operating income 2010 18.0
Gross income 19.4
Operating margin, % 2011 2010
Recognition of VAT credits in Brazil relating to previous years 0.6
Trucks 9.1 6.0 Disturbances in operations in Japan as an effect of the
Construction Equipment 10.2 11.5 earthquake and tsunami (0.7)
Buses 4.6 3.8 Result from divestments of companies in 2010 0.2
Volvo Penta 8.8 6.6 Changes in currency exchange rates, Industrial operations (5.2)
Volvo Aero 5.2 3.7 Write-down of shares listed in Japan (0.2)
Industrial Operations 8.6 6.9 Higher capitalization of development costs 1.0
Volvo Group 8.7 6.8 Higher research and development expenditures (2.0)
Tax credit for research and development activities 0.3
Higher selling and administrative expenses (4.7)
Lower credit losses 0.6
Other (0.4)
Operating income 2011 26.9
2010 2011
07 08 09 10 11 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
285 304 218 265 310 2,799 4,770 4,913 5,518 6,522 7,648 5,774 6,955
73
Financial information 2011
Industrial Operations
In 2011, net sales for the Volvo Group’s Indus- preceding year. The operating margin for the Selling expenses increased by 8% and
trial Operations increased by 18% to SEK Industrial Operations amounted to 8.6% (6.9). administration expenses by 26%.
303,589 M (257,375). The earnings improvement is the result of Since return on equity was 23,1%, SEK 550 M
Compared with 2010, sales increased in all increased sales and improved cost coverage in was provisioned for profit-sharing to employees.
of the Group’s market areas. Sales increased the industrial system, as an effect of increased
strongly in Eastern Europe and had a very pos- production levels. Impact of exchange rates on
itive development in North America, South In 2011, research and development expenses operating income
America and Asia. In Western Europe demand amounted to SEK 13,276 M (12,970). The con- The combined effect of changed exchange
weakened towards the end of the year. tinued high cost level is primarily a conse- rates had a negative effect on operating income
quence of projects relating to new emission of approximately SEK 5.2 billion in 2011, com-
Considerable earnings improvement regulations in Europe and South America and pared with 2010. This is mainly attributable to
In 2011, the operating income for the Volvo the development of products for the growth that the USD was weak during most of 2011.
Group’s Industrial Operations amounted to SEK markets.
25,957 M compared to SEK 17,834 M in the
Income Statement Industrial Operations, SEK M 2011 2010 Net sales by market area, SEK M 2011 2010 %
Net sales 303,589 257,375 Western Europe 97,925 87,241 12
Cost of sales (231,516) (197,480) Eastern Europe 20,298 12,570 61
Gross income 72,073 59,895 North America 58,253 45,409 28
Gross margin, % 23.7 23.3 South America 34,013 27,876 22
Asia 73,017 65,072 12
Research and development expenses (13,276) (12,970)
Other markets 20,083 19,207 5
Selling expenses (24,383) (22,649)
Total Industrial Operations 303,589 257,375 18
Administrative expenses (7,105) (5,640)
Other operating income and expenses (1,045) (659)
Income from investments in associated companies (82) (86)
Income from other investments (225) (57)
Operating income (loss) Industrial Operations 25,957 17,834
Operating margin, % 8.6 6.9
Impact of exchange rates on operating income Operating net flow per currency
Compared with preceding year, SEK M Local currency, million 2011 2010
Net sales1 (20,286) USD 3,970 2,410
Cost of sales 13.280 EUR 57 373
Research and development expenses 397 GBP 555 405
Selling and administrative expenses 1.408 CAD 397 241
Total effect of changes in exchange rates JPY (x100) (218) (103)
on operating income (5.201)
1 Group sales are reported at monthly spot rates and the effects of currency hedges
are reported among Cost of sales.
Research and
development costs,
SEK bn
Research and
development costs,
% of net sales
07 08 09 10 11
11.1 14.3 13.2 13.0 13.3
3.9 4.9 6.3 5.0 4.4
74
Customer Finance Operations
Total new financing volume in 2011 amounted adjusted for exchange-rate movements. The SEK 682 M (1,438) while write-offs of SEK 804
to SEK 44.8 billion (35.1). Adjusted for changes funding of the credit portfolio is matched in M (1,460) were recorded. The write-off ratio for
in exchange rates, new business volume terms of maturity, interest rates and currencies 2011 was 0.93% (1.65). At the end of December
increased by 35% compared to 2010 as a in accordance with Volvo Group policy. For fur- 31, 2011, credit reserves were 1.33% (1.69%)
result of increased sales volumes of the Volvo ther information see note 15. of the credit portfolio.
Group products and stable penetration levels. The operating income for the year amounted
In total, 49,757 new Volvo vehicles and to SEK 942 M compared to SEK 167 M in the
machines (34,522) were financed during the previous year. Return on shareholders’ equity
year. In the markets where financing is offered, was 7.3% (0.4). The equity ratio at the end of
the average penetration rate was 25% (25). the year was 9.1% (9.0). The improvement in
As of December 31, 2011, the credit portfolio profitability is driven mainly by lower credit pro-
was SEK 95,544 M (84,550). During 2011 the visions and higher earning assets. During the
credit portfolio increased by 13.8% (decrease: 4.4), year, credit provision expenses amounted to
Income Statement Customer Finance, SEK M 2011 2010 Key ratios, Customer Finance1 2011 2010
Finance and lease income 8,883 9,031 Credit portfolio net, SEK bn 94.3 83.1
Finance and lease expenses (5,693) (5,974) Operating income, SEK M 942 167
Gross income 3,190 3,057 Return on shareholders' equity, % 7.3 0.4
Total penetration rate, % 24.8 24.5
Selling and administrative expenses (1,645) (1,526)
Credit provision expenses (682) (1,438) Penetration by business area , % 1
1 Share of unit sales financed by Volvo Financial Services in relation to the total
number units sold by the Volvo Group in markets where financial services are
offered.
75
Financial information 2011
Financial position
Improved during the year
Net debt in the Volvo Group’s Industrial Operations amounted to SEK 19.3 billion at December 31, 2011,
equal to 25.2% of shareholders’ equity. Excluding provisions for post-employment benefits the Industrial
Operation’s net debt amounted to SEK 15.0 billion, which was equal to 19.5% of shareholders’ equity.
Cash-flow statement
Strong operating cash-flow
During 2011, operating cash flow in the Industrial Operations amounted to SEK 14.1 billion (19.0).
Financing activities
Change in loans, net Note 29 8,734 (25,711)
Dividend to AB Volvo shareholders (5,069) –
Dividend to minority shareholders (2) (75)
Other (30) (25)
Change in cash and cash equivalents excl.
translation differences 7,575 2,092
78
The cash flow within Industrial Operations was previous year, the majority of the investments Acquisitions and divestments
positively affected by the operating income and refer to expansion of the excavator business for Acquired and divested operations 2011 had a
negatively affected by the increased working both Volvo brand and SDLG brand. During 2011 negative impact on cash flow of SEK 1.6 billion
capital. Accounts receivables and inventories mainly China and Korea have been impacted, in (positive 0.6).
increased with SEK 3.1 and 7.1 billion respec- capacity investments in machining and assem- Acquired operations refer mainly to several
tively, partly offset by the increase of trade pay- bly area. Product related investments during minor acquisitions of assets and liabilities in
ables of SEK 9.9 billion. the year refer to the emission regulations in construction equipment rental operations. The
Financial items and paid income taxes had a Europe and North America, and Tier 2 and Tier remaining minority interest in Volvo Aero Norge
SEK 6.9 billion negative effect on cash flow 3 requirements for new models in the BRIC and UD Trucks South Africa has also been
within Industrial Operations, mainly through countries. acquired during the year.
payments of interests and income tax. The investments within Volvo Aero was during
Operating cash flow within Customer Finance 2011 SEK 0.5 billion (0.8). The majority of the Financing and dividend
was a negative SEK 14.1 billion (pos: SEK 1.4 investments refer to the involvement in the new Net borrowings increased cash and cash equiv-
billion), mainly due to increased customer engine programs, PW1100G and PW1000G alents by SEK 8.7 billion during 2011.
financing-receivables. with Pratt & Whitney, and Trent XWB with Rolls- During the year dividend of SEK 5.1 billion,
Royce. The investments also refer to finalization corresponding to SEK 2.50 per share, was paid
Investments of a number of investments in Volvo Aero’s pro- to the shareholders of AB Volvo.
The Industrial Operations’ investments in fixed duction facilities in order to secure the capacity
assets and capitalized R&D during 2011 required for the XWB and GP7000 program Change in cash and cash equivalents
amounted to SEK 12.6 billion (10.3). (P&W), and rationalizations in the spool shop. The Group’s cash and cash equivalents
Capital expenditures in Trucks amounted to The investments in Buses were SEK 0.3 billion increased by SEK 7.4 billion during the year and
SEK 8.4 billion (7.2). The capital expenditures (0.2), and in Volvo Penta SEK 0.2 billion (0.2). amounted to SEK 30.4 billion at December 31,
within Trucks consist to a large extent of invest- Investments in leasing assets amounted to 2011.
ments related to product renewals in our product SEK 1.4 billion (0.3), the increase versus previ-
Refer to Note 29 for principles for preparing
program, with product development activities ous year refers mainly to expansion of the rental
the cash flow analysis.
and required adaptations in the plants. In the fleet as well as replacement of existing fleet.
plants there are also ongoing investments aim- For 2012, the Volvo Group estimates that
ing for increased capacity and flexibility, mainly investments in property, plant and equipment
in the cab plant in Umeå, Sweden, and in the will be around SEK 10 billion. The investment
engine plants with machining and assembly level is however pending the market develop-
processes in Skövde, Sweden, and Ageo, ment, and in order to be able to adapt the level,
Japan. During 2011 we have also invested in the ongoing and future investments are contin-
the dealer network and workshops, mainly in uously reviewed and prioritized. The invest-
Europe and Asia, as well as in our joint venture ments in coming product programs continue
VE Commercial Vehicles (VECV). during 2012, as well as the expansion of the
Capital investments for Construction Equip- business in the BRIC countries.
ment amounted to SEK 1.9 billion (1.4). As for
07 08 09 10 11
07 08 09 10 11
8.0 10.5 7.7 7.1 8.5
265 78 (16) 294 210
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2.1 2.1 2.6 3.2 4.1
(2.7) 8.5 (1.9) 15.1 (4.0) 5.2 2.2 10.7 3.6 4.3 5.0 4.0 4.1 Cash-flow from operating activities
divided by net investments in fixed
assets and leasing assets.
79
Financial information 2011
Balance at December 31, 2009 2,554 123 6,112 57,616 66,405 629 67,034
Total income for the period – (8) (3,841) 10,866 7,017 314 7,331
Balance at December 31, 2010 2,554 115 2,271 68,170 73,110 1,011 74,121
Total income for the period – (105) (1,095) 17,751 16,551 446 16,997
Balance at December 31, 2011 2,554 10 1,176 80,841 84,581 1,100 85,681
80
Notes to financial statements
Amounts in SEK M unless otherwise specified. The amounts within parentheses refer to the preceding year, 2010.
The consolidated financial statements for AB Volvo and its subsidiaries have 2004 Annual Report for a description of the previous Swedish accounting
been prepared in accordance with International Financial Reporting Stand- policies applied by Volvo.
ards (IFRS) issued by the International Accounting Standards Board (IASB),
as adopted by the EU. The portions of IFRS not adopted by the EU have no
material impact on this report. This Annual Report is prepared in accordance How should Volvo’s accounting policies be read?
with IAS 1 Presentation of Financial Statements and with the Swedish Com- Volvo describes the accounting policies in conjunction with each note in
panies Act. In addition, RFR 1 Supplementary Rules for Groups, has been the aim of providing enhanced understanding of each accounting area.
applied, which is issued by the Swedish Financial Reporting Board. As of Volvo focuses on describing the accounting choices that the Group has
2005, Volvo has applied International Financial Reporting Standards (IFRS) made within the framework of the prevailing IFRS policy and avoids
in its financial statements. In accordance with the IFRS transitions rules in repeating the actual text of the standard, unless Volvo considers it par-
IFRS 1, Volvo applies retrospective application from the IFRS transition date ticularly important to the understanding of the note’s content. Refer to the
at January 1, 2004. The details of the transition from Swedish GAAP to IFRS table below to see the note in which each accounting policy is listed and
are set out in Note 3 in the annual reports of 2005 and 2006. Refer to the for the relevant and material IFRS standard.
Non-current assets held for sale and discontinued 3, Acquisitions and divestments of shares in subsidiaries IFRS 5
operations
Joint ventures 5, Shares and participations IAS 31
Investments in associates 5, Shares and participations IAS 28
Operating segments 6, Segment reporting IFRS 8
Revenue 7, Income IAS 17, IAS 18
Shares and participations 5, Shares and participations IAS 28, IAS 32, IAS 36,
IAS 39
Financial income and expenses 9, Other financial income and expenses IAS 39
Income taxes 10, Income taxes IAS 12
Minority interests 11, Minority interests IAS 27
Research and development expenditure 12, Intangible assets IAS 38
Intangible assets 12, Intangible assets IAS 36, IAS 38
Tangible assets 13, Tangible assets IAS 16, IAS 40
Leasing 14, Leasing IAS 17
Customer-financing receivables 15, Customer-financing receivables IAS 17, IAS 18, IAS 39, IFRS 7
Inventories 17, Inventories IAS 2
Earnings per share 19, Shareholder's equity IAS 33
Pensions and similar obligations 20, Provisions for post-employment benefits IAS 19
Provisions for residual value risks 21, Other provisions IAS 17, IAS 18, IAS 37
Warranty expenses 21, Other provisions IAS 37
Restructuring costs 21, Other provisions IAS 37
Liabilities 22, Liabilities IAS 37, IAS 39, IFRS 7
Contingent liabilities 24, Contingent liabilities IAS 37
Transactions with related parties 25, Transactions with related parties IAS 24
Government grants 26, Government grants IAS 20
Share-based payments 27, Personnel IFRS 2
Cash-flow statement 29, Cash flow IAS 7
Financial instruments 4, Goals and policies in financial risk management IAS 32, IAS 39, IFRS 7
16, Receivables
18, Marketable securities and liquid funds
30, Financial instruments
81
Financial information 2011
Consolidated financial statements Exchange rate differences on loans and other financial instruments in
foreign currency, which are used to hedge net assets in foreign subsidiaries
Principles for consolidation
and associated companies, are offset against translation differences in
The consolidated financial statements have been prepared in accordance
the shareholders’ equity of the respective companies. Exchange-rate
with the principles set forth in IAS 27, Consolidated and Separate Financial
gains and losses on assets and liabilities in foreign currencies, both on
Statements. Accordingly, intra-Group transactions and gains on transac-
payments during the year and on measurements at year-end, impact profit
tions with associated companies are eliminated. The consolidated finan-
or loss in the year in which they are incurred. The more important exchange
cial statements comprise the Parent Company, subsidiaries, joint ventures
rates applied are shown in the table.
and associated companies.
– Subsidiaries are defined as companies in which Volvo holds more than
50% of the voting rights or in which Volvo otherwise has a controlling Exchange rates Average rate Closing rate
interest. Country Currency 2011 2010 2011 2010
– Joint ventures are companies over which Volvo has joint control together
with one or more external parties. Joint ventures are recognized using Brazil BRL 3.8850 4.0925 3.7109 4.0560
the proportionate method of consolidation. Canada CAD 6.5694 6.9973 6.7808 6.8085
– Associated companies are companies in which Volvo has a significant China CNY 1.0057 1.0643 1.0998 1.0300
influence, which is normally when Volvo’s holdings correspond to at Denmark DKK 1.2137 1.2823 1.2044 1.2086
least 20% but less than 50% of the voting rights. Holdings in associated Euro zone EUR 9.0430 9.5502 8.9540 9.0113
companies are recognized in accordance with the equity method. Great Britain GBP 10.4179 11.1319 10.6831 10.5538
Japan JPY 0.0817 0.0823 0.0892 0.0835
Translation to Swedish kronor when consolidating companies using Norway NOK 1.1596 1.1926 1.1515 1.1530
foreign currencies
South Korea KRW 0.0059 0.0062 0.0060 0.0060
AB Volvo’s functional currency is the Swedish krona (SEK). The functional
United States USD 6.4982 7.2060 6.9247 6.8038
currency of each Volvo Group company is determined based on the pri-
mary economic environment in which it operates. The primary economic
New accounting principles for 2011
environment is normally the one in which the company primarily generates
None of the new accounting principles or interpretations that came into
and expends cash. In most cases, the functional currency is the currency
effect as of January 1, 2011 has had any significant impact on the Volvo
of the country where the company is located. AB Volvo’s and the Volvo
Group’s financial statements.
Group’s presentation currency is SEK. In preparing the consolidated
financial statements, all items in the income statements of foreign sub-
New accounting principles for 2012 and later
sidiaries and joint ventures (except for subsidiaries in hyperinflationary
When preparing the consolidated financial statements as of December
economies) are translated to SEK at monthly exchange rates. All balance-
31, 2011, a number of standards and interpretations has been published,
sheet items are translated at exchange rates at the respective year-ends
but has not yet become effective. The following is a preliminary assessment
(closing rate). The differences in consolidated shareholders’ equity, arising
of the effect that the implementation of these standards and statements
from variations between closing rates for the current and preceding year
could have on the Volvo Group’s financial statements.
are charged or credited directly to other comprehensive income as a separate
component.
Amendment to IAS 19 Employee benefits*
The accumulated translation difference related to a certain subsidiary,
As from January 1, 2013 the amendment to IAS 19, Employee benefits
joint venture or associated company is reversed to profit or loss as a part
will become effective. The revised standard is applied retrospectively, and
of the gain/loss arising from the divestment or liquidation of such a company.
hence the closing balance for 2011 will be adjusted in accordance with
IAS 29, Financial Reporting in Hyperinflationary Economies, is applied
revised IAS 19 and the reported numbers for 2012 will be restated
to financial statements of subsidiaries operating in hyperinflationary
accordingly for comparison reason.
economies. Volvo’s method of recognition is based on cost. Translation
The amended standard removes the option to use the corridor method
differences due to inflation are charged against earnings for the year. Cur-
currently used by the Volvo Group. Discount rate will be used when calcu-
rently, Volvo has no subsidiaries with a functional currency that could be
lating the net interest income or expense on the net defined benefit liabil-
considered a hyperinflationary currency.
ity (asset), hence the expected return will no longer be used. All changes
in the net defined benefit liability or asset will be recognized when they
Receivables and liabilities in foreign currency
occur. Service cost and net interest will be recognized in profit and loss
Receivables and liabilities in foreign currency are measured at closing
while remeasurements such as actuarial gains and losses will be recognized
rates. Translation differences on operating assets and liabilities are rec-
in other comprehensive income.
ognized in operating income, while translation differences arising in finan-
In accordance with IAS 19 revised, the recognized pension liability will
cial assets and liabilities are charged to other financial income and
increase by approximately SEK 12 billion as the unrecognized part of the
expenses. Financial assets and liabilities are defined as items included in
pension liability no longer can be reported off balance. Shareholders’
the net financial position of the Volvo Group (see Definitions at the end of
equity will decrease by approximately SEK 8 billion net of deferred taxes
this report). Derivative financial instruments used for hedging of exchange
in the opening balance for 2012 in accordance with IAS 19 revised. Net
and interest risks are recognized at fair value. Gains on exchange rates
financial position including post-employment benefits would increase by
are recognized as receivables and losses on exchange rates are recog-
SEK 12 billion while the equity ratio would decrease. Further changes in
nized as liabilities. Depending on the lifetime of the financial instrument,
the net defined benefit liability will be the modified net interest calculation
the item is recognized as current or non-current in the balance sheet.
and the removal of the amortisation of actuarial gains and losses.
82
Effect on operating income of proportionate method used by Volvo when recognizing jointly controlled
Unrecognized actuarial amortization of unrecognized companies will be abolished, meaning that the equity method will remain
Off-balance gains and losses actuarial losses
for the type of joint ventures that Volvo has. Hereafter Volvo will not con-
Dec 31, 2009 SEK 9 billion – solidate the assignable part item by item, the assignable part will be
shown as income from investments in associated companies. The equity
Dec 31, 2010 SEK 7 billion SEK 420 M
interest of the joint ventures result will be affect the investment in joint
Dec 31, 2011 SEK 12 billion SEK 335 M
ventures in the balance sheet.
IFRS 12 Disclosure of Interests in Other Entities requires more detailed
For the Swedish part of the net pension liability there are still some uncer- disclosure reports on subsidiaries, associated companies and non-
tainties regarding the accounting for Swedish special payroll tax and consolidated structured companies, in which the company is involved.
Swedish yield tax. Swedish special payroll tax’ assignable to the amount Volvo is currently conducting a full analysis of the significance of these
reported as the corridor for the Swedish entities amounts to approximately standards and how they will affect Volvo. Although the standards are con-
SEK 1 billion. In the opening balance for 2012 in accordance with IAS 19 sidered to change the recognition of joint ventures, they are not consid-
revised, this will likely be reported as an increase of the recognized pension ered to have any significant impact on the consolidation of other compa-
liability and in shareholders’ equity net of deferred taxes. nies of which Volvo has ownership or is involved. The scope of the
For further information of provision for post-employment benefit, see disclosures will probably increase in this area due to IFRS 12.
note 20.
IFRS 9 Financial instruments*
IFRS 10 Consolidated Financial Statements*, IFRS 11 Joint Arrangements* IFRS 9 is published in three parts: Classification and Measurement,
and IFRS 12 Disclosures of Interests in Other Entities* applicable from Impairment and Hedge Accounting, which will replace the current IAS 39
January 1, 2013. with application not earlier than January 1, 2015. Prior application is vol-
IFRS 10 replaces the consolidation instructions in IAS 27 Consolidated untary, subject to EU approval. Volvo is currently conducting a review of
and Separate Financial Statements and SIC-12 Consolidation – Special how the implementation of IFRS 9 will impact the Group. A joint position
Purpose Entities and aims to implement a consolidation policy based on will be taken in conjunction with the final version of all three components
control, defined as the extent to which the owner (i) has control of the of the project being published.
investment object, (ii) receives, or is entitled to, variable returns from his/
her involvement in the investment object and (iii) has the ability to exercise * These standards/interpretations had not been adopted by the EU when
his/her control of the investment object to influence the size of the return. this Annual Report was published. The dates listed for application may
IFRS 11 replaces IAS 31 Interests in Joint Ventures and implements thus be subject to change due to decisions made during the EU approval
new accounting requirements for joint ventures. The ability to apply the process.
Volvo’s most significant accounting policies are primarily described Source of estimation uncetainty Note
together with the applicable note. Refer to Note 1, Accounting Policies for
a specification. The preparation of Volvo’s Consolidated Financial State- Revenue recognition 7, Income
ments requires the use of estimates, judgements and assumptions that Deferred taxes 10, Income taxes
affect the recognized amounts of assets, liabilities and provisions at the Impairment of goodwill and other intan-
date of the financial statements and the recognized amounts of sales and gible assets 12, Intangible assets
expenses during the periods presented. In preparing these financial Assets and other non-current assets 13, Tangible assets
statements, Volvo’s management has made its best estimates and judge- Credit loss reserves 15, Customer-financing
ments of certain amounts included in the financial statements, giving due receivables
consideration to materiality. Since future results are an unknown quantity, 16, Receivables
actual results could differ from these estimates due to the application of Inventory obsolescence 17, Inventories
these assumptions. In accordance with IAS 1, the company is required to Pensions and other post-employment 20, Provisions for post-
provide additional disclosure of accounting policies in which estimates, benefits employment benefits
judgments and assumptions are particularly sensitive and which, if actual Product warranty costs 21, Other provisions
results differ, may have a material impact on the financial statements. Legal proceedings 21, Other provisions
Residual value risks 21, Other provisions
! The sources of uncertainty which has been identified by Volvo and
which fulfil those criterias are presented in connection to the items con-
sidered to be affected. The adjacent table shows where to find those
presentations.
83
Financial information 2011
Divestments
The Volvo Group has not made any divestments during 2011, which solely
or jointly have had a significant impact on the Volvo Group’s financial
statements. Comparative figures for 2010 include the divestment of Volvo
Aero’s US subsidiary, Volvo Aero Services (VAS) and Volvo CE’s distribution
networks in Turkey and Russia.
The impact on the Volvo Group’s balance sheet and cash-flow statement
in connection with the divestment of subsidiaries and other business units
are specified in the following table:
84
Divestments 2011 2010
Intangible assets (5) 0
Property, plant and equipment (4) (32)
Assets under operating lease 0 (190)
Shares and participations 0 0
Inventories (45) (1,096)
Other receivables (130) (334)
Cash and cash equivalents (21) (176)
Other provisions 17 (10)
Other liabilities 143 540
(45) (1,298)
Goodwill 0 (122)
Divested net assets (45) (1,420)
Cash and cash equivalents received (41) 1,007
Cash and cash equivalents, divested
companies (21) (176)
Effect on Group cash and cash
equivalents (62) 831
85
Financial information 2011
Volvo’s global operations expose the company to financial risks in the form
of interest rate risks, currency risks, credit risks and liquidity risks. Work on
financial risks comprises an integrated element of Volvo’s business. Volvo
Group strives to minimize these risks by optimizing the Group’s capital
costs by utilizing economies of scale, minimize negative effects on income
as a result of changes in currency or interest rates and to optimize risk
exposure. All risks are managed pursuant to Volvo’s established policies
in these areas. For further information on Accounting principles for Financial
Instruments refer to note 30, Financial Instruments.
Volvo’s risk management related to specific balance sheet items are thus
also described in other areas of the Annual Report. Refer to the Note’s
instructions.
Financial risks
USD 7.8
interest-rate risks currency risks credit risks liquidity risks
commercial currency
cash-flow risks Commercial credit risk
exposure
financial currency
price risks Financial credit risk
exposure
BRL 6.6
interest-rate risks
* The Note’s sensitivity analysis on interest rate risks is based on simplified assumes a parallel deferment of the return curve, and that the interest rates on
assumptions. It is not unreasonable for market interest rates to change by 1 per- assets and liabilities will be equally impacted by changes in market interest rates.
centage point (100 basis points) on an annual basis. However, in reality, these Accordingly, the impact of real interest-rate changes may differ from the analysis
rates often rise or decline at different points in time. The sensitivity analysis also presented above. D
86
Net financial Impact on earnings Impact on Net financial
Currency
position incl. before tax if interest rate position if SEK rises
pensions rises 1% 10%
A (Interest-rate risks) B (Currency risks)
Volvo’s net assets in SEK M
different currencies (SEK bn) = JPY (24,272) (182) 2,427
USD (5,644) (42) 564
INR 811 6 (81)
CNY 2,453 18 (245)
SEK EUR 7,286 55 (729)
16.9 Other 20 0 (17)
Total C (19,346) (145) 1,919
GBP 2.6
Read more about the Volvo Group’s net financial position on page 77.
EUR D
22.1 JPY 2.3
KRW 3.6
CNY 7.2
currency risks
The aim of Volvo’s currency risk management is to secure cash flow from cont. >>
firm flows through currency hedges pursuant to the established currency
The Volvo Group’s outstanding forward contracts and options contracts for hedging of commercial currency risks
Other
Currencies currencies Market value
Millions USD GBP EUR JPY Net SEK
Due date 2012 amount 1,100 75 (22) (5,514) 604
Due date 2013 amount (2) – – (115) 17
Due date 2014 amount (2) – – – -
Total local currency 1,096 75 (22) (5,629) 621
Average contract rate 6.76 10.73 9.21 0.08
Market value of outstanding forward
contracts SEK M (147) (3) (37) 16 (1) (172)
F
87
Financial information 2011
The table on the preceding page F shows outstanding forward and option Group is affected by exchange-rate fluctuations since financial assets
contracts for the hedging of commercial currency risks. The table on page and liabilities are distributed among Group companies that conduct their
74 shows commercial net flows per currency (transactional flows net). operations using different currencies.
The Impact on Net financial position table on the previous page shows
Translation exposure during the consolidation of operating income the impact on earnings before tax of Industrial operations financial net
in foreign subsidiaries position, including pensions and similar net obligations, if the SEK were to
In conjunction with the translation of operating income in foreign subsidi- strengthen by 10%. D
aries, Volvo’s earnings are impacted if currency rates change. Volvo does
not hedge this risk. For more information on currency hedging of equity Currency exposure of equity
see below. The consolidated value of assets and liabilities in foreign subsidiaries is
affected by current exchange rates in conjunction with the translation of
Sensitivity analysis – currencies* assets and liabilities to Swedish kronor. To minimize currency exposure of
The tables below show the impact on sales and operating income for equity, the size of equity in foreign subsidiaries is continuously optimized
Volvo if key currencies fluctuate. The sensitivity analysis include the trans- with respect to commercial and legal conditions. Currency hedging of
action impact from commercial flows and the translation impact during the equity may occur in cases where a foreign subsidiary is considered over-
consolidation of foreign subsidiaries. capitalized. Net assets in foreign subsidiaries and associated companies
amounted at year-end 2011 to SEK 67.8 billion (60.3). The remaining
Financial currency exposure loans used as hedging instruments have expired in 2011. For more infor-
Loans and investments in the Group’s subsidiaries are performed mainly mation on hedging of net investments in foregin operations recognized in
through Volvo Treasury in local currencies, which minimizes individual equity refer to note 30 Financial Instruments.The need to undertake cur-
companies’ financial currency exposure. Volvo Treasury uses various rency hedging relating to investments in associated companies and other
derivatives to facilitate lending and borrowing in different currencies with- companies is assessed on a case-by-case basis.
out increasing the company’s risk. The financial net position of the Volvo Volvos net assets in different currencies are presented on the map on
the previous page.
Volvo’s currency review When Volvo communicates the currency impact on operating income, the following factors are included:
Currency impact on operating income SEK billion 2011 2010 Change
Net flows in foreign currency (3.7)
Realized gains and losses on hedging contracts 0.2 0.5 (0.3)
Unrealized gains and losses on hedging contracts (0.3) 0.2 (0.5)
Unrealized gains and losses on receivables and liabilities in foreign currency 0.3 0.1 0.2
Currency effect from devaluation in Venezuela 0 (0.1) 0.1
Translation effect on operating income in foreign subsidiaries (1.0)
Total currency impact on operating income (5.2)
Currency impact on Net flows in foreign currency and Translation effect on operating income in foreign subsidiaries are detailed in table
H in key currencies for Volvo.
i
* The Note’s sensitivity analysis on currency rate risks is based on simplified same direction at any given time, so the actual effect of exchange-rate changes
assumptions. It is not unreasonable for the value in SEK to strengthen by 10% in may differ from the sensitivity analysis. Please refer to table D G H
relation to other currencies. In reality, currencies usually do not change in the
88
credit risks
89
Financial information 2011
liquidity risks
Liquidity risks The adjacent graph j shows expected future cash-flows including deriv-
atives related to financial liabilities. Capital flow refers to expected pay-
Liquidity risk is defined as the risk that Volvo would be unable to finance ments of loans and derivatives, see note 22. Expected interest flow refers
or refinance its assets or fulfill its payment obligations. to the future interest payments on loans and derivatives based on interest
rates expected by the market. The interest flow is recognized within cash
flow from operating activities.
POLICY In addition to derivatives included in capital flow in the table there are
also derivatives related to financial liabilities reported as assets, which are
Volvo assures itself of sound financial preparedness by always keeping a expected to give a future capital flow of SEK 0.8 bn and a future interest
certain percentage of its sales in liquid assets. A sound balance between flow of SEK 3.4 bn.
short and long-term borrowing, as well as borrowing preparedness in the
Read more about the maturity structure concerning bond loans and other
form of overdraft facilities, are intended to meet its long-term financing
loans, as well as granted but unutilized credit facilities in Note 22.
needs.
Read more about contractual term analyses of Volvo’s future rental payments
from non-annullable financial and operational lease contracts in Note 14.
(10)
(20)
(30)
(40)
(50)
2012 2013 2014 2015 2016 2017 2018
(44.5) (28.2) (20.9) (11.3) (13.0) (11.8) (0.7) Capital flow, SEK bn
(5.6) (3.3) (2.7) (1.3) (0.9) (0.6) (0) Interest flow, SEK bn
90
NOTe 5 Shares and participations
Joint ventures
Accounting policies Group holdings of shares in joint ventures are listed below.
91
Financial information 2011
Associated companies
The following table presents summarized financial information for Volvo’s associated companies. The income statement and balance sheet below reflect
the total associated companies, not only the part consolidated by Volvo.
Shares and participations in associated companies, Registration Percentage Dec 31, 2011 Dec 31, 2010
equity method of accounting number holding Carrying value Carrying value
Blue Chip Jet II HB, Sweden 969717-2105 50 405 319
UD Trucks Doto Corporation, Japan – 38 103 94
UD Trucks Niigata Corporation, Japan – 34 69 61
Merkavim Metal Works Ltd, Israel – 27 17 37
JV Fonderie Venissieux, France – 49 35 32
PK-UD Axle Co.,Ltd. (HangZhou), China1 – 51 – 30
Diamond Finance Ltd, Great Britain2 – – – 18
Blue Chip Jet HB, Sweden 969639-1011 50 8 3
Quingdao Sunwin Bus Corp, China – 43 9 9
Arabian Vehicle & Truck Industry Ltd, Saudi Arabia – 25 9 9
Effpower AB, Sweden3 556570-8541 9 – 29
Powercell Sweden AB, Sweden 556759-8353 47 17 27
Other holdings – – 12 16
Total shares and participations in associated companies4 684 684
1 In 2011 Volvo acquired additional 6% and the company is now a subsidiary. In 3 In 2011 the holding was reduced to 9% and the company is therefore no longer
2010 the holding in PK-UD Axle Co., Ltd was 45%. accounted for as an associated company. In 2010 the holding in Effpower AB
2 The company was liquidated during 2011. In 2010 the holding in Diamond was 34%.
Finance Ltd was 40%. 4 Volvo’s share of shareholders’ equity in associated companies (incl. equity in
untaxed reserves) amounted to 684 (684).
The following table presents summarized financial information for Volvo’s Income from investments in associated companies
associated companies. The income statement and balance sheet below
reflect the total associated companies, not only the part consolidated by Income/loss 2011 2010
Volvo.
UD Trucks Niigata Co 5 7
Income statement data 2011 2010 JV Fonderie Venissieux 4 (1)
Merkavim Metal Works Ltd 17 15
Net sales 2,543 3,794 Blue Chip Jet I & II HB (46) (39)
Cost of sales (2,491) (3,840) Holdings of Volvo Technology Transfer1 (6) (58)
Financial income and expense (29) (32) Other companies 2 1
Income before taxes 23 (78) Subtotal (24) (75)
Income taxes (23) (46) Revaluation and write-down of shares
Income of the period 0 (124) Blue Chip Jet I & II HB – (11)
Holdings of Volvo Technology Transfer1 (48) –
Balance sheet data Dec 31 Dec 31 Other companies (4) –
2011 2010
Subtotal (52) (11)
Non-current assets 2,094 2,085
Gains (losses) on divestment of shares in
Current assets 1,485 1,558 associated companies
Total assets 3,579 3,643 Holdings of Volvo Technology Transfer1 (5) –
Shareholders' equity 1,605 1,686 Subtotal (5) –
Provisions 53 61 Total income (loss) from investments in
Non-current liabilities 621 452 associated companies (81) (86)
Current liabilities 1,300 1,444 1 Investments held by the Volvo venture-capital company.
Total shareholders' equity and liabilities 3,579 3,643
92
Shares and participations in other companies Income from other investments
The carrying amount of Volvo’s holdings of shares and participations in
other companies as of December 31, 2011, is shown in the table below. Dividends received 2011 2010
93
Financial information 2011
94
Income from investments in associated Investments in associated companies 2011 2010
companies 2011 2010 Trucks 228 241
Trucks 10 8 Construction Equipment – –
Construction Equipment – – Buses 23 46
Buses 13 15 Volvo Penta – –
Volvo Penta – – Volvo Aero 1 1
Volvo Aero 0 0 Customer Finance 0 18
Other (105) (109) Other 432 378
Industrial Operations (82) (86) Volvo Group total 684 684
95
Financial information 2011
NOTe 7 Income
The Group’s recognized net sales pertain mainly to revenues from sales of In certain cases, Volvo enters into a buy-back agreement or residual value
goods and services. Net sales are, if the occasion arises, reduced by the guarantee after Volvo has sold the product to an independent party or in
value of discounts granted and by returns. combination with an undertaking from the customer to purchase a new
Revenue from the sale of goods is recognized when significant risks Volvo product in the event of a buy-back. In such cases, there may be a
and rewards of ownership have been transferred to external parties, nor- question of judgement regarding whether or not significant risks and
mally when the goods are delivered to the customer. However, if the sale rewards of ownership have been transferred to the customer. If it is deter-
of goods is combined with a buy-back agreement or a residual value mined that such an assessment was incorrect, Volvo’s recognized revenue
guarantee, the transaction is recognized as an operating lease transaction and income for the period will decline and instead be distributed over
if significant risks in regard to the goods are retained in Volvo. Revenue is several reporting periods. Refer to Note 21, Other provisions, for a descrip-
then recognized over the period of the residual value commitment. If the tion of residual value risks.
residual value risk commitment is not significant and the sale was made to
an independent party or in combination with a commitment from the cus- Hard and soft products
tomer to buy a new Volvo product in connection to a buy-back option, the The Volvo Group’s product range is divided into hard and soft products. The
revenue is recognized at the time of sale and a provision is made to reflect sale of new vehicles, machinery and engines comprise hard products. Soft
the estimated residual value risk (refer to Note 21 Other provisions). products include all products and services apart from the sale of new and
Revenue from the sale of workshop services is recognized when the used vehicles, machinery and engines and some extended product offer-
service is provided. Interest income in conjunction with finance leasing or ings, that are sold to customers to provide the customer with an enhanced
instalment contracts is recognized during the underlying contract period. experience and greater satisfaction.
Revenue for maintenance contracts are recognized in line with the alloca-
tion of associated costs over the contract period. Refer to page 42 for more about the Volvo Group’s services.
Interest income is recognized on a continuous basis and dividend
income when the right to receive dividend is obtained. Refer to Note 6 for information regarding net sales by product and market.
96
NOTe 8 Other operating income and expenses
Changes in provisions for doubtful accounts receivable and customer- Read more regarding the company’s management of credit risk and credit
financing receivables are recognized in Other operating income and reserves in Note 4.
expenses, which during the period impacted the Group in an amount of
770 (1,326).
2011 2010
97
Financial information 2011
2012 40 64
! Source of uncertainty in estimates 2013 77 50
2014 180 190
Volvo recognizes valuation allowances for deferred tax assets where man- 2015 434 363
agement does not expect such assets to be realized based upon current 2016 2,302 757
forecasts. In the event that actual results differ from these estimates or
2017– 19,429 23,445
adjustments are made to future periods in these estimates, changes in
Total 22,462 24,869
the valuation allowance may be required, which could materially impact
the financial position and the income for the period. At December 31,
The Swedish corporate income tax rate is 26.3%. The table below shows
2011, the valuation allowance amounted to 263 (339) of the value of
the principal reasons for the difference between this rate and the Group’s
deferred tax assets. Most of the reserve consists of unused loss carry
tax rate, based on income after financial items.
forwards. Net of this valuation allowance, deferred tax assets of 18,552
(20,109) were recognized in the Group’s balance sheet.
Volvo has significant tax-loss carryforwards that are related to coun- 2011, % 2010, %
tries with long or indefinite periods of utilization, mainly Sweden, Japan
Swedish corporate income tax rate 26 26
and France. Volvo considers it to be most certain that the Group will be
able to generate sufficient income in the coming years to utilize the tax- Difference in tax rate in various countries 3 4
loss carryforwards. Other non-taxable income (3) (3)
Other non-deductible expenses 1 1
Current taxes attributable to prior years 0 (1)
Remeasurement of deferred tax assets 0 1
Income tax rate for the Group 27 28
98
Specification of deferred tax assets Tax-loss carryforwards are largely attributable to countries with long or
and tax liabilities 2011 2010 indefinite periods of utilization, mainly Sweden, Japan and France. Of the
Deferred tax assets: total deferred tax assets of 6,907 (7,327) attributable to tax-loss carry-
forwards, 2,914 (3,665) pertains to Sweden, with an indefinite period of
Unused tax-loss carryforwards 6,907 7,327
utilization.
Other unused tax credits 141 121
The cumulative amount of undistributed earnings in foreign subsidiaries,
Intercompany profit in inventories 780 711 which Volvo currently intends to indefinitely reinvest outside of Sweden
Allowance for inventory obsolescence 368 439 and upon which deferred income taxes have not been provided is approx-
Valuation allowance for doubtful imately SEK 62 billion (47) at year end. The main part of the undistributed
receivables 482 587 earnings is pertaining to countries where the dividends are not taxable.
Provisions for warranties 2,067 1,722
Provisions for residual value risks 288 306 Refer to Note 4 for information on how Volvo handles equity currency risk.
Provisions for post-employment
benefits 1,188 2,068
Provisions for restructuring measures 42 61
Adjustment to fair value during corpo-
rate acquisitions
Market value of derivative instruments
0
28
12
45
NOTe 11 Minority interests
1 The deferred tax assets and liabilities above are partially recognized in the
balance sheet on a net basis after taking into account offsetting possibilities.
Deferred tax assets and liabilities have been measured at the tax rates that are
expected to apply during the period when the asset is realized or the liability is
settled, according to the tax rates and tax regulations that have been resolved or
announced at the balance-sheet date.
99
Financial information 2011
gate and allow the project to progress to the next phase. During the Impairment of goodwill and other intangible assets
industrialization phase, the industrial system is prepared for series pro- Intangible assets other than goodwill are amortized and depreciated over
duction and the product is launched. their useful lives. Useful lives are based on estimates of the period in
which the assets will generate revenue. If, at the date of the financial
Goodwill statements, any indication exists that an intangible non-current asset has
Goodwill is recognized as an intangible asset with indefinite useful life. been impaired, the recoverable amount of the asset is calculated. The
For non-depreciable assets such as goodwill, impairment tests are per- recoverable amount is the higher of the asset’s net selling price and its
formed annually, as well as if there are indications of impairments during value in use, estimated with reference to management’s projections of
the year, by calculating the asset’s recovery value. If the calculated recov- future cash flows. If the recoverable amount of the asset is less than the
ery value is less than the carrying value, the asset’s recovery value is carrying amount, an impairment loss is recognized and the carrying
impaired. amount of the asset is reduced to the recoverable amount. Determination
Volvo’s measurement model is based on a discounted cash-flow model, of the recoverable amount is based upon management’s projections of
with a forecast period of four to six years. Cash-generating units, identified future cash flows, which are generally based on internal business plans or
as Volvo’s business areas, are measured. forecasts. While management believes that estimates of future cash flows
Goodwill assets are allocated to these cash-generating units on the are reasonable, different assumptions regarding such cash flows could
basis of anticipated future utility. Measurements are based on manage- materially affect valuations. The need for impairment of goodwill and cer-
ment’s best estimation of the operations’ development. The basis for this tain other intangible assets with indefinite useful lives is determined on an
estimation is long-term forecasts of the market’s growth, 2 to 4%, in rela- annual basis, or more frequently if required through calculation of the
tion to the performance of Volvo’s operations. In the model, Volvo is value of the asset. Such an impairment review will require management to
expected to maintain stable capital efficiency over time. Measurements determine the fair value of Volvo’s cash generating units, on the basis of
are based on nominal values and utilize a general rate of inflation in line projected cash flows and internal business plans and forecasts. Surplus
with the European target. Volvo uses a discounting factor calculated to values differ between the business areas and they are, to a varying
12% (12) before tax for 2011. degree, sensitive to changes in assumptions and the business environ-
In 2011, the value of Volvo’s operations exceeded the carrying amount ment. Volvo has performed similar impairment reviews since 2002. No
of goodwill for all business areas, which is why no impairment was recog- need for impairment losses was required for the period 2002 until 2011.
nized. Volvo has also tested whether a surplus value would still exist after
being subjected to reasonable potential changes to the assumptions,
100
Intangible assets, acquisition costs Capitalized product
Entrance fees, and software Other intangible Total intangible
Goodwill1 industrial programs development assets2 assets
1 Includes on the date of IFRS adoption, costs of 14,184 and accumulated amortization of 3,863.
2 Other intangible assets mainly consist of trademarks and distribution networks.
3 Includes capitalized borrowing costs of 112 (25).
4 Costs less accumulated depreciation, amortization and impairments.
5 Of which impairments 74 (7).
101
Financial information 2011
Depreciation/amortization periods
Accounting policies
Type-specific tools 2 to 8 years
Tangible assets Assets under operating leases 3 to 5 years
Volvo applies the cost method for measurement of tangible assets. Bor- Machinery 5 to 20 years
rowing costs are included in the acquisition value of assets that necessar- Buildings and investment properties 25 to 50 years
ily take more than 12 months to get ready for their intended use or sale, Land improvements 20 years
so called qualifying assets.
Investment properties are properties owned for the purpose of obtain-
ing rental income and/or appreciation in value. Investment properties are
reported at cost. Information regarding the estimated fair value of invest-
ment properties is based on discounted cash flow projections. The esti-
mation is performed by the Group’s Real Estate business unit. The
required return is based on current property market conditions for compa-
! Sources of estimation uncertainty
Balance-sheet amount 2009 31,859 12,641 68,851 4,578 117,929 31,993 149,922
Capital expenditures1 617 119 3,806 2,446 6,988 4,893 11,881
Sales/scrapping (472) (105) (1,730) (7) (2,314) (5,459) (7,773)
Acquired and divested operations 0 0 0 0 0 223 223
Translation differences (912) 50 (1,308) (148) (2,318) (2,843) (5,161)
Reclassifications and other 466 (138) 895 (1,160) 63 288 351
Balance-sheet amount 2010 31,558 12,567 70,514 5,709 120,348 29,095 149,443
Capital expenditures1 548 266 3,947 3,455 8,216 7,414 15,630
Sales/scrapping (299) (88) (1,969) 0 (2,356) (4,786) (7,142)
Acquired and divested operations 36 10 64 0 110 1,503 1,613
Translation differences 373 411 889 (33) 1,640 122 1,762
Reclassified to assets held for sale (706) (49) (4,586) (57) (5,398) (131) (5,529)
Reclassifications and other 619 141 1,897 (2,622) 35 (652) (617)
Balance-sheet amount 2011 32,129 13,258 70,756 6,452 122,595 32,565 155,160
102
Accumulated depreciation and Land and Construction in Assets
amortization land Machinery progress, includ- Total investment under Total
improve- and ing advance property, property, operating tangible
Buildings ments equipment3 payments plant and equipment leases assets
Reclassifications and other mainly consist of assets under operating relate to construction in progress, which are reclassified to the respective
leases related to legal sales transactions, where revenue is deferred and category within property, plant and equipment.
accounted for as operating lease revenue. Assets classified as inventory
will, when the operating lease model is applied for revenue recognition, be Investment properties
reclassified from inventory to assets under operating leases, when the The acquisition cost of the investment properties was 1,625 (1,692) at
legal sales transaction occurs. If the product is returned after the lease year-end. Capital expenditures during 2011 amounted to 39 (11). Accu-
period, there will again be a reclassification from assets under operating mulated depreciation was 742 (744) at year-end, of which 53 (55) during
leases to inventory. When a buy-back agreement has expired, but the 2011. The estimated fair value of investment properties was SEK 2.5 billion
related product is not returned, the cost and the accumulated deprecia- (1.8) at year-end. 91% of the investment properties were leased out during
tion are reversed in reclassification and other, within the line item assets the year (89). Net income for the year was affected by 235 (223) in rental
under operating leases. Most reclassifications within tangible assets income from investment properties and 53 (63) in direct costs.
103
Financial information 2011
NOTe 14 Leasing
Volvo as a lessee
Accounting policies At December 31, 2011, future rental payments (minimum leasing fees)
related to non-cancellable leases amounted to 3,799 (3,916).
Volvo as the lessor Future rental payments are distributed as follows:
Leasing contracts are defined in two categories, operational and financial
leases, depending on the contract’s financial implications. Operational Finance Operating
leasing contracts are recognized as non-current assets in Assets under leases leases
operational leases. Income from operational leasing is recognized equally
2012 459 834
distributed over the leasing period. Straight-line depreciation is applied to
these assets in accordance with the terms of the undertaking and the 2013–2016 360 1,660
deprecation amount is adjusted to correspond to the estimated realizable 2017 or later 63 423
value when the undertaking expires. Assessed impairments are charged Total 882 2,917
to the income statement. The product’s assessed realizable value at expi-
ration of the undertaking is reviewed continuously on an individual basis. Rental expenses amounted to:
Financial leasing agreements are recognized as either non-current or
current receivables in the customer finance operations. Payments from 2011 2010
financial leasing contracts are distributed between interest income and
amortization of the receivable in the customer finance operations. Finance leases:
Contingent rents (12) (8)
Volvo as the lessee Operating leases:
Volvo evaluates leasing contracts in accordance with IAS 17, Leases. In Contingent rents (20) (20)
those cases in which risks and rewards that are related to ownership are Rental payments (1,035) (923)
substantially held by Volvo, so-called financial leases, Volvo recognizes Sublease payments 5 6
the asset and related obligation in the balance sheet at the lower of the
Total (1,062) (945)
leased asset’s fair value or the present value of minimum lease payments.
Future leasing fee commitments are recognized as obligations. The lease
Carrying amount of assets subject to financial leases:
asset is depreciated in accordance with Volvo’s policy for the respective
non-current asset. The lease payments when made are allocated between
amortization and interest expenses. If the leasing contract is considered 2011 2010
to be a so-called operational lease, lease payments are charged to profit
Costs:
or loss over the lease contract period.
Buildings 92 124
Land and land improvements 53 69
Volvo as the lessor Machinery and equipment 1,901 1,863
At December 31, 2011, future rental income from non-cancellable finan- Assets under operating lease1 194 338
cial and operational leases (minimum leasing fees) amounted to 50,704 Total 2,240 2,394
(45,530). Future rental income is distributed as follows:
Accumulated depreciation:
Buildings (30) (41)
Finance Operating
leases leases Land and land improvements - –
Machinery and equipment (1,231) (1,174)
2012 12,562 4,111 Assets under operating lease1 (68) (81)
2013–2016 24,227 8,447 Total (1,329) (1,296)
2017 or later 604 753
Total 37,393 13,311 Carrying amount in the balance sheet:
Allowance for uncollectible future rental Buildings 62 83
income (414) Land and land improvements 53 69
Unearned rental income (3,100) Machinery and equipment 670 689
Present value of future rental income related Assets under operating lease1 126 257
to non-cancellable leases 33,879 Total 911 1,098
1 Refer to assets leased by Volvo as financial lease which are later leased to
customers as operating lease.
104
53,288 mm
Non-current and current receivables recognized in Volvo’s customer Current customer-financing receivables
financing operations.
Allocation of current customer-
! Source of uncertainty in the estimates
financing receivables 2011 2010
Non-current customer-financing
receivables maturities
Overdue amount – 391 230 648 1,269 – 490 405 805 1,700
Valuation allowance for doubtful customer
financing receivables (99) (63) (40) (172) (374) (91) (56) (74) (308) (530)
Customer financing receivables,
net book value (99) 328 190 476 895 (91) 434 331 497 1,170
The table above presents overdue payments within the customer financing operations in relation to specific reserves. It is not unusual for a receivable
to be settled a couple of days after its due date, which impacts the age interval of one to 30 days.
105
Financial information 2011
Change of valuation allowances for doubt- The total contractual amount to which the overdue payments pertain are
ful customer-financing receivables 2011 2010 presented in the table below. In order to provide for occurred but not yet
Balance sheet, December 31, preceding year 1,325 1,513 identified customer-financing receivables overdue, there are additional
reserves of 776 (795). The remaining exposure is secured by liens on the
New valuation allowance charged to income 910 1,586
purchased equipment, and, in certain circumstances, other credit
Reversal of valuation allowance charged to
enhancements such as personal guarantees, credit insurance, liens on
income (250) (207)
other property owned by the borrower etc.
Utilization of valuation allowance related to
Collateral taken in possession that meet the recognition criteria
actual losses (821) (1,451)
amounted to 412 (594) at December 31, 2011.
Translation differences (14) (116)
Balance sheet, December 31 1,150 1,325
Customer financing receivables 70,085 6,828 1,971 965 79,849 63,153 6,425 2,369 2,066 74,013
Read more about Volvo’s overriding description of all Group credit risks
in Note 4, Financial-risk management.
Read more about Volvo Financial Services’ trend during the year on
page 66.
NOTe 16 Receivables
Non-current receivables
! Sources of estimation uncertainty
2011 2010
Credit loss reserves
The establishment of credit loss provisions for account receivables is Other interest-bearing loans to external parties 98 204
entered as soon as it is probable that a credit loss has incurred. A credit Other interest-bearing financial receivables 596 562
loss has incurrent when there has been an event that has triggered the Other financial receivables 2,131 1,741
customer’s inability to pay. At December 31, 2011, the total credit loss Other receivables 2,184 1,676
reserves for account receivables amounted to 2.57% (2.87) of total Total1 5,009 4,184
account receivables. Refer to Note 4 for a description of the credit risk.
1 Of non-current receivables, 2,822 (2,528) pertains to financial instruments.
Refer to Notes 4 and 30 for financial instruments as well as goals and policies
governing financial risk and financial instruments.
106
Current receivables Credit risks in accounts receivable
NOTe 17 Inventories
2011 2010
Accounting policy
Finished products 28,985 24,572
Inventories Production materials, etc. 15,614 15,265
Inventories are recognized at the lower of cost and net realizable value. Total 44,599 39,837
The cost is established using the first-in, first-out method (FIFO) and is
based on the standard cost method, including costs for all direct manu- Inventories recognized as cost of sold products during the period
facturing expenses and the attributable share of capacity and other amounted to 219,946 (170,723).
manufacturing-related costs. The standard costs are tested regularly and
adjustments are made based on current conditions. Costs for research
Increase (decrease) in allowance for
and development, selling, administration and financial expenses are not inventory obsolescence 2011 2010
included. Net realizable value is calculated as the selling price less costs
attributable to the sale. Balance sheet, December 31, preceding year 3,382 4,101
Increase in allowance for inventory
obsolescence charged to income (213) (79)
Scrapping (264) (439)
107
Financial information 2011
2011 2010
Cash and cash equivalents include high liquid interest-bearing securities
that are considered easily convertible to cash. Interest-bearing securities Cash in banks 21,206 16,858
that fail to meet this definition are recognized as marketable securities. Bank certificates1 1,492 2,286
Time deposits in banks 7,681 3,822
Total 30,379 22,966
Marketable securities
Marketable securities comprise mainly interest-bearing securities, dis- 1 Bank certificates which matures within three months of the date of acquisition.
tributed as shown below:
Cash and cash equivalents at December 31, 2011, include SEK 0.7 billion
2011 2010 (0.7) that is not available for use by the Volvo Group and SEK 9.3 billion
(7.4) where other limitations exist, mainly liquid funds in countries where
Government securities 136 146 exchange controls or other legal restrictions apply. With that it is not
Banks and financial institutions 521 3,527 possible to immediately use the liquid funds in other parts of the Group,
Real estate financial institutions 6,205 6,094 however normally there is no limitation for use for the Group’s operation in
Total 6,862 9,767 the respective country.
Available-for-sale
Change in other reserves (SEK M) Hedge reserve reserve Total
108
Earnings per share 2011 2010
The long-term share-based incentive program decided by the Annual
General Meeting 2011 creates a dilution effect. For 2010 AB Volvo had Number of shares, December 31, in millions 2,027 2,027
no share-based incentive program. No other transactions have occurred Average number of shares before dilution in
that affected, or will have an effect on, the compilation of the reported millions 2,027 2,027
share capital. Average number of shares after dilution in
millions 2,028 2,027
Average share price, SEK 94.84 85.75
Net income attributable to Parent Company
shareholders 17,751 10,866
Basic earnings per share, SEK 8.76 5.36
Diluted earnings per share, SEK 8.75 5.36
administer pensions through defined-contribution plans. Provisions and costs for post-employment benefits, mainly pensions and
The remaining post-employment benefits are defined-benefit plans; health-care benefits, are dependent on assumptions used by actuaries in
that is, the obligations remain within the Volvo Group or are secured by calculating such amounts. The appropriate assumptions and actuarial cal-
proprietary pension foundations. The Volvo Group’s defined-benefit plans culations are made separately for the respective countries of Volvo’s
relate mainly to subsidiaries in the U.S. and comprise both pensions and operations which result in obligations for postemployment benefits. The
other benefits, such as healthcare. Other large-scale defined-benefit assumptions include discount rates, health care cost trends rates, inflation,
plans apply to salaried employees in Sweden (mainly through the Swedish salary growth, long-term return on plan assets, retirement rates, mortality
ITP pension plan) and employees in France and Great Britain. rates and other factors. Health care cost trend assumptions are based on
historical cost data, the near-term outlook, and an assessment of likely
long-term trends. Inflation assumptions are based on an evaluation of
Accounting policy external market indicators. The salary growth assumptions reflect the his-
torical trend, the near-term outlook and assumed inflation. Retirement and
Volvo applies IAS 19, Employee Benefits, for post-employment benefits. mortality rates are based primarily on officially available mortality statistics.
In accordance with IAS 19, actuarial calculations should be made for all The actuarial assumptions are annually reviewed by Volvo and modified
defined-benefit plans in order to determine the present value of obliga- when deemed appropriate to do so. Actual results that differ from man-
tions for benefits vested by its current and former employees. The actu- agement’s assumptions are accumulated and amortized over future periods.
arial calculations are prepared annually and are based upon actuarial
assumptions that are determined close to the balance-sheet date each
year. Changes in the present value of obligations due to revised actuarial The following tables disclose information about defined-benefit plans in
assumptions and experience adjustments constitute actuarial gains or the Volvo Group. Volvo recognizes the difference between the obligations
losses. These are expensed according to function over the employees’ and the plan assets adjusted for unrecognized actuarial gains and losses
average remaining service period to the extent they exceed the corridor in the balance sheet. The information refers to assumptions applied for
value for each plan. actuarial calculations, periodical costs and the value of obligations and
Deviations between the expected return on plan assets and the actual plan assets at year-end. The tables also include reconciliation of obliga-
return are also treated as actuarial gains or losses. Provisions for post- tions and plan assets during the year and the difference between fair
employment benefits in Volvo’s balance sheet correspond to the present values and carrying amounts reported on the balance-sheet date.
value of obligations at year-end, less fair value of plan assets, unrecog-
nized actuarial gains or losses and unrecognized unvested past service
costs.
As a supplement to IAS 19, Volvo applies UFR 4*, in accordance with
the recommendation from the Swedish Financial Reporting Board, in
c alculating the Swedish pension liabilities.
For defined contribution plans, premiums are recognized as incurred in
profit and loss according to function.
IAS 19 will be amended as of January 1, 2013. For additional information,
refer to Note 1 under New Accounting Policies 2011 and later.
* UFR 4 states how Swedish special payroll tax and Swedish yield tax should be
accounted for regarding the part of the net pension liability that is attributable to
Swedish entities. Swedish special payroll tax is shown as a receivable/liability on
the difference compared to the legal pension liability. Swedish yield tax is con-
sidered when estimating expected return on plan asset.
109
Financial information 2011
110
Obligations in defined-benefit plans United Great
Sweden States France Britain US Other Other
Pensions Pensions Pensions Pensions benefits plans Total
Obligations at January 1, 2010 9,881 13,358 1,897 4,438 3,697 4,799 38,070
Acquisitions, divestments and other changes – 10 – – 2 28 40
Current year service costs 302 258 54 45 39 247 945
Interest costs 401 665 77 233 167 157 1,700
Past service costs
– Unvested – 3 – – (4) (5) (6)
– Vested 27 3 (44) – – – (14)
Termination benefits 33 – (2) – – 5 36
Curtailments and settlements (6) (7) (18) (1) – (11) (43)
Employee contributions – – – 21 – 9 30
Actuarial (gains) and losses (1,170) 571 (2) 28 (33) 78 (528)
Exchange rate translation – (789) (245) (370) (207) (171) (1,782)
Benefits paid (324) (1,074) (112) (168) (220) (429) (2,327)
Obligations at December 31, 2010 9,144 12,998 1,605 4,226 3,441 4,707 36,121
of which
Funded defined-benefit plans 8,794 11,378 – 4,226 – 2,203 26,601
Acquisitions, divestments and other changes (1) (2) 1 (2) (59) (3) (66)
Current year service costs 246 295 52 31 74 255 953
Interest costs 435 582 70 226 144 145 1,602
Past service costs
– Unvested – 4 – – 9 1 14
– Vested – 40 – – – 18 58
Termination benefits 77 – (1) – – 26 102
Curtailments and settlements (8) (1) – (69) (44) (7) (129)
Employee contributions – – – 12 – 4 16
Actuarial (gains) and losses 2,434 925 136 52 115 39 3,701
Exchange rate translation – 301 (12) 54 66 58 467
Benefits paid (315) (782) (86) (161) (169) (968) (2,481)
Obligations at December 31, 2011 12,012 14,360 1,765 4,369 3,577 4,275 40,358
of which
Funded defined-benefit plans 11,624 13,925 – 4,369 – 1,817 31,735
111
Financial information 2011
1 Per December 31, 2011 pension obligation amounted to 1,394, plan assets amounted to 926 and unrecognized actuarial losses amounted to 532 in regards to Assets
held for sale.
112
corresponding to the value of the pension obligations at that time. Since
Plan assets by category 2010 its formation, net contributions of 2,228, whereof 756 during 2011, have
been made to the foundation. The plan assets in Volvo’s Swedish pension
foundation are invested in Swedish and foreign stocks and mutual funds,
Volvo 246 (1%) Shares and participation, Volvo 403 (2%)
and in interest-bearing securities, in accordance with a distribution that is
, other, 9,565 (40%) Shares and participations, other, determined by the foundation’s Board of Directors. At December 31, 2011,
11,494 (50%)
ng the fair value of the foundation’s plan assets amounted to 7,554 (7,059),
Bonds and interest-bearing
securities, 9,100 (40%)
of which 31% (57) was invested in shares or mutual funds. At the same
date, retirement pension obligations attributable to the ITP plan amounted
Property, 440 (2%)
to 11,624 (8,794).
Other, 1,517 (6%) Swedish companies can secure new pension obligations through
balance-sheet provisions or pension-fund contributions. Furthermore, a
credit insurance policy must be taken out for the value of the obligations.
Plan assets by category 2011
In addition to benefits relating to retirement pensions, the ITP plan also
Shares and participation, Volvo 246 (1%)
includes, for example, a collective family pension, which Volvo finances
Shares and participation, Volvo 403 (2%)
through an insurance policy with the Alecta insurance company. Accord-
Shares and participations, other, 9,565 (40%)
ing to an interpretation from the Shares
Swedish
11,494
and participations, other,
(50%) Financial Reporting Board, this
Bonds and interest-bearing is a multi-employer defined-benefit plan. For fiscal year 2011, Volvo did
securities, 12,460 (52%) Bonds and interest-bearing
not have access to information from Alecta
securities, 9,100that would have enabled this
(40%)
Property, 644 (3%) plan to be reported as a defined-benefit plan. Accordingly, the plan has
Property, 440 (2%)
Other, 958 (4%) been recognized as a defined-contribution plan. Alecta’s funding ratio is
Other, 1,517 (6%)
113% (146).
Volvo’s subsidiaries in the United States mainly secure their pension
obligations through transfer of funds to pension plans. At the end of 2011,
Actual return on plan assets amounted to 81 (2,259). the total value of pension obligations secured by pension plans of this
type amounted to 13,925 (11,378). At the same point in time, the total
Actuarial gains and losses 2011 2010 value of the plan assets in these plans amounted to 9,842 (9,535), of
Experience-based adjustments in obligations (3,492) 293 which 54% (59) was invested in shares or mutual funds. The regulations
for securing pension obligations stipulate certain minimum levels con-
Experience-based adjustments in plan assets (1,324) 861
cerning the ratio between the value of the plan assets and the value of the
Effects of changes in actuarial assumptions (209) 235
obligations. During 2011, Volvo contributed 829 (156) to the American
Actuarial gains and (losses), net (5,025) 1,389 pension plans.
During 2011, Volvo has made extra contributions to the pension plans
Volvo’s pension foundation in Sweden was formed in 1996 to secure obli- in Great Britain in the amount of 91 (103).
gations relating to retirement pensions for salaried employees in Sweden In 2012, Volvo estimates to transfer an amount of about SEK 1 billion
in accordance with the ITP plan (a Swedish individual pension plan). Plan to pension plans.
assets amounting to 2,456 were contributed to the foundation at its formation,
113
Financial information 2011
Warranties 7,841 7,718 (1,184) (5,651) (5) 31 (94) (5) 8,652 5,532 3,120
Provisions in insurance
operations 450 186 (49) (101) 0 3 0 0 488 4 484
Restructuring measures 247 123 (17) (152) 0 (1) 0 0 199 166 33
Provisions for residual
value risks 859 167 (63) (226) 1 (5) 0 8 741 290 451
Provisions for service
contracts 444 202 (57) (212) 0 (3) 0 6 380 182 198
Dealer bonus 1,651 3,401 (43) (3,007) 0 3 0 29 2,033 1,892 141
Other provisions 2,978 2,779 (427) (2,471) (18) (60) (65) (32) 2,686 1,467 1,219
Total 14,470 14,576 (1,840) (11,820) (22) (32) (159) 6 15,179 9,533 5,646
Non-current liabilities
The tables below show the Group’s non-current liabilities in which the hedges foreign-exchange and interest-rate risks using derivative instru-
largest loans are listed by currency. The main part are issued by Volvo ments. For more information refer to Note 4 Goals and policies in financial
Treasury AB. Information on loan terms is from December 31, 2011. Volvo risk management and Note 30 Financial Instruments.
Bond loans Actual interest rate Dec 31, 2011, % Effective interest rate Dec 31, 2011, % 2011 2010
1 Of which loans raised to finance the credit portfolio of the customer financing operations totalled 24,501 (14,940).
1 Of which loans raised to finance the credit portfolio of the customer financing operations 24,517 (21,064). Volvo Treasury employs cross-currency interest swaps to be
able to offer lending and borrowing in various currencies without increasing Volvo’s risk. The table on page 87 presents Industrial operations financial net position,
including pensions, listed by currency. Of non-current liabilities, 87,923 (86,184) pertains to financial instruments. Refer to note 30 Financial instruments.
Of the above loans, 516 (1,288) was secured. Refer to Note 15 for maturities of non-current customer financing receiv-
Refer to Note 23 for an explanation of changes to assets pledged. ables.
Non-current loans mature as follows: Most other non-current liabilities will mature within five years.
At year-end 2011, credit facilities granted but not utilized and which can
2013 28,228 be used without restrictions amounted to approximately SEK 33.6 billion
2014 20,912 (35.3). These facilities consisted of stand-by facilities for loans with vary-
2015 11,356 ing maturities through 2013 to 2016. A fee is normally charged for the
2016 12,954 unused portion of credit facilities and is recognized in profit or loss under
2017 11,800 other financial income and expenses.
2018 or later 707
Total 85,957
115
Financial information 2011
Current liabilities Balance sheet amounts for other current liabilities were as follows:
Balance sheet amounts for loans were as follows:
2011 2010
2011 2010
Advances from customers 3,642 3,416
Bank loans 12,639 12,261
Wages, salaries and withholding taxes 8,041 8,824
Other loans 31,883 27,340
VAT liabilities 2,099 2,023
Total1 44,522 39,601
Accrued expenses and prepaid income 12,528 12,626
1 Of which loans raised to finance the credit portfolio of the customer financing Deferred leasing income 1,683 1,640
operations amount to 31,844 (29,690) and financial derivatives at fair value Residual value liability 1,783 2,154
1,362 (458).
Other financial liabilities 367 242
Bank loans include current maturities of non-current loans 5,803 (3,246). Other liabilities 5,120 4,416
Other loans include current maturities of non-current loans, 17,681 Total 35,263 35,341
(22,007), and commercial paper, 8,393 (1,416). Non-interest-bearing
current liabilities accounted for 99,152 (84,457), or 69% (68) of the Group’s Current liabilities also include trade payables of 56,788 (47,250), current
total current liabilities. tax liabilities of 2,391 (1,732) and non interest-bearing and interest-bearing
liabilities held for sale, as recognized in Note 3. Secured bank loans at
year-end 2011 totalled 127 (216). The corresponding amount for other
current liabilities was 584 (1,442). Of current liabilities including trade
payables 102,331 (87,494) pertains to financial instruments. Refer to
note 30 Financial instruments.
2011 2010 At year-end, liabilities for which the above assets were pledged totalled
1,227 (2,946).
Property, plant and equipment – mortgages 128 168 In 2010 an asset-backed securitization was completed. Under the
Assets under operating leases 265 107 terms of the transaction, USD 616 M of securities were issued tied to
Receivables 1,333 2,964 US-based loans with trucking and construction equipment assets as
Cash, loans and marketable securities 78 100 collaterals. During 2011 the loans have been amortized and the collaterals
Other assets pledged 28 – reduced.
Total 1,832 3,339
Tax claims amounting to 521 (490) pertain to charges against the Volvo
Accounting policy Group for which provisions are not considered necessary.
Other contingent liabilities include for example bid and performance
Contingent liabilities clauses and legal proceedings.
A contingent liability is recognized for a possible obligation, for which it is The recognized amounts for contingent liabilities reflect the Volvo
not yet confirmed that a present obligation exists that could lead to an Group’s risk exposure on a gross basis. The recognized amounts have
outflow of resources; or for a present obligation that does not meet the thus not been reduced because of counter guarantees received or other
definitions of a provision or a liability as it is not probable that an outflow collaterals in cases where a legal offsetting right does not exist. At
of resources will be required to settle the obligation or when a sufficiently December 31, 2011, the estimated value of counter guarantees received
reliable estimate of the amount cannot be made. and other collaterals, for example the estimated net selling price of used
products, amounted to 3,726 (3,893) and mainly pertains to credit guar-
antees and residual value guarantees.
2011 2010
For more information regarding residual value guarantees, see note 21.
Credit guarantees issued for customers and
others 8,970 3,709 Legal proceedings
Tax claims 521 490 The former labor agreement between Mack Trucks, Inc. and the United
Residual value guarantees 2,969 2,993 Auto Workers Union (UAW) expired on September 30, 2007. Mack Trucks
Other contingent liabilities 4,694 3,811 and UAW subsequently entered into a new 40-month Master Agreement.
Total 17,154 11,003 The agreement includes the establishment of an independent trust that
will completely eliminate Mack’s commitments for providing healthcare to
116
retired employees. The trust was approved by the U.S. District Court for In September 2010, Volvo Trucks’ and Renault Trucks’ UK subsidiaries
the Eastern District of Pennsylvania in September 2011. The Volvo Group have, together with a number of other international truck companies,
will fund the trust with USD 525 M, whereof a significant part has been become the subject of an investigation initiated by the OFT (Office of Fair
paid during the fourth quarter 2011. The remaining funding obligation is Trading), the British Competition Commission. Volvo Trucks’ and Renault
recognized as a financial liability and the remaining amortizations will be Trucks’ British subsidiaries have received letters from the OFT as part of
recognized as cash flow from financing activities. the investigation.
In July 1999, Volvo Truck Corporation (VTC) and Volvo Construction In January 2011, the Volvo Group and a number of other companies in
Equipment (VCE) entered into a Consent Decree with the U.S. Environ- the truck industry became part of an investigation by the European Com-
mental Protection Agency (EPA). The Consent Decree stipulated, among mission regarding a possible violation of EU antitrust rules.
other provisions, that new stricter emission requirements for certain In April 2011, the Volvo Group’s truck business in Korea and a number
engines that would come into effect on January 1, 2006, should be of other truck companies became the subject of an investigation by the
applied by VTC and VCE from January 1, 2005. The Consent Decree was Korean Fair Trade Commission.
later transferred from VTC and VCE to Volvo Powertrain Corporation. Dur- In May 2011, Volvo Penta became part of an investigation by the European
ing 2008, the EPA demanded stipulated penalties from Volvo Powertrain Commission regarding a possible violation of EU antitrust rules.
Corporation in the amount, including interest, of USD 72 M, alleging that In August 2011, Volvo Penta became part of an investigation by the
the stricter standards under the Consent Decree should have been applied Swedish competition authority regarding a possible violation of antitrust
to engines manufactured by Volvo Penta during 2005. Volvo Powertrain rules. In December 2011, the Swedish Competition Authority closed the
disagrees with EPA’s interpretation and is defending the case vigorously investigation, without further actions.
based on, among other grounds, the fact that the Volvo Penta engines Given the nature of the ongoing investigations initiated by competition
were not subject to the Consent Decree. The dispute was referred to a authorities, the Volvo Group cannot exclude that they may affect the
U.S. court. The amount requested by the EPA is included in other contingent Group’s result and cash flow with an amount that may be material. How-
liabilities. ever, as regards the investigations initiated in Europe, it is too early to
Nissan Diesel Thailand Co. Limited (the “NDT”) on November 30, 2009 assess whether and when such effect may occur and hence if and when
filed a claim at the Pathumthani Provincial Court of First Instance, Thai- it could be accounted for. The Volvo Group has therefore not reported any
land, against AB Volvo and three of its employees, claiming damages in contingent liability or any provision for any of the investigations initiated in
the sum of Baht 10.5 billion (equivalent to approximately SEK 2.3 billion). Europe. Concerning the investigation initiated in Korea a contingent liability
NDT was one of UD Trucks Corporation’s (UDT), a wholly-owned subsidiary has however been registered.
of AB Volvo, private dealers. NDT claims that AB Volvo’s actions caused Global companies such as Volvo are occasionally involved in tax pro
UDT to unlawfully terminate two agreements dated December 27, 2002 cesses of varying scope and in various stages. Volvo regularly assesses
between UDT and NDT. In September 2011, a settlement was reached´, these tax processes. When it is probable that additional taxes must be
finally settling the submitted claims. The settlement had an insignificant paid and the outcome can be reasonably estimated, the required provision
impact on the consolidated operating income and financial position of the is made.
Volvo Group. Volvo is also involved in a number of other legal proceedings. Volvo
Volvo is subject to a number of investigations initiated by competition does not believe that any liabilities related to such proceedings are likely
authorities. The Volvo Group is cooperating fully with the respective to entail any risk, in the aggregate, of having a material effect on the
authority. financial position of the Volvo Group.
The Volvo Group engages in transactions with some of its associated The Volvo Group also engages in transactions with Renault s.a.s. and
companies. The transactions consist mainly of sales of vehicles to deal- its subsidiaries. Sales to and purchases from Renault s.a.s. amounted to
ers. Commercial terms and market prices apply for the supply of goods 53 (52) and 2,321 (1,654). Receivables from and liabilities to Renault
and services to/from associated companies. s.a.s. totalled 11 (15) and 372 (291), respectively, at December 31, 2011.
Sales were mainly from Renault Trucks to Renault s.a.s. and comprised
2011 2010 components and spare parts. Purchases were mainly made by Renault
Trucks from Renault s.a.s. and primarily comprised light trucks. Renault
Sales to associated companies 1,296 1,082 Trucks has a license from Renault s.a.s. for the use of the trademark
Purchase from associated companies 60 50 Renault.
Receivables from associated companies, Equipment of minor value was divested to a former member of Group
Dec 31 186 174 management after valuation by an independent valuer.
Liabilities to associated companies,
Dec 31 129 125
117
Financial information 2011
In 2011, government grants of 783 (472) were received, and 775 (413) Other grants were mainly received from the Swedish government and the
was recognized in income statement. The amount includes tax credits of European Commission.
545 (204) related to product development, which were primarily received
in France and the US.
NOTe 27 Personnel
than Sweden, can be offered pension solutions that are competitive in the
Accounting policy country where the members are, or have been, resident or to which the
members have a material connection, however primarily defined-contribu-
Share-based payments tion pension solutions.
Volvo applies IFRS2, Share-based payments for share-based incentive With regard to notice of termination of employment for members of group
programs. IFRS 2 distinguishes between “cash-settled” and “equity- management domiciled in Sweden, the notification period is 12 months if the
settled” payments. The Volvo program includes both a cash-settled and company terminates the employment and six months if the individual termi-
an equity-settled part. The fair value of the equity-settled payments is nates the employment. In addition, the employee is entitled to a severance pay
determined at the grant date, recognized as an expense during the vesting of 12 months’ salary if the employment is terminated by the company. Members
period and off-set in equity. The fair value is based on the share price resident outside Sweden or resident in Sweden but having a material connec-
reduced by dividends connected with the share during the vesting period. tion to or having been resident in a country other than Sweden can be offered
Additional social costs are reported as a liability, revalued at each balance notice periods for termination and severance payments that are competitive in
sheet date in accordance with UFR 7, issued by the Swedish Financial the country where the members are or have been resident or to which the
Reporting Board. The cash-settled payment is revalued at each balance members have a material connection, however primarily arrangements that are
sheet date and is reported as an expense during the vesting period and similar to what is valid for members domiciled in Sweden.
as a short term liability. An assessment whether the terms for allotment The Board of AB Volvo may deviate from the remuneration policy if there
will be fulfilled is made continuously. Based on such assessment, expense are specific reasons to do so in an individual case. The Board has decided
might be adjusted. on one such deviation by approving that the variable salary for the President
of Volvo Aero can exceed 60% of the fixed annual salary if certain conditions
related to the potential divestment of Volvo Aero are met.
Remuneration policy decided at
the Annual General Meeting in 2011 Fee paid to the Board of directors
The Annual General Meeting of 2011 decided upon principles for remu- According to a resolution adopted at the Annual General Meeting 2011,
neration and other employment terms for the members of Volvo’s group the fee to the Board of Directors appointed at the Annual General Meeting
management. The decided principles can be summarized as follows: for the period until the close of the Annual General Meeting 2012 shall be
The guiding principle is that remuneration and other employment terms paid as follows: The Chairman of the Board should be awarded SEK
for company management, shall be competitive to ensure that Volvo can 1,800,000 and each of the other members SEK 600,000 with exception
attract and retain skilled persons in group management. The fixed salary of the President and Chief Executive Officer of AB Volvo. In addition, SEK
shall be competitive and shall reflect the individual’s area of responsibility 300,000 should be awarded to the chairman of the audit committee and
and performance. SEK 150,000 to each of the other members of the audit committee and
In addition to the fixed salary a variable salary may be paid. The variable SEK 100,000 to each of the members of the remuneration committee.
salary may for the CEO amount to a maximum of 75% of the fixed salary
and for the other senior executives a maximum of 60% of the fixed salary. Terms of employment and remuneration to
The variable salary shall be based on the fulfilment of improvement tar- the CEO and Deputy CEO
gets or certain financial targets for the Volvo Group and/or the organiza- As of August 31, 2011, Leif Johansson retired from the position as Presi-
tional unit for which the executive is responsible. These targets are dent and Chief Executive Officer (CEO) of AB Volvo and was replaced by
decided by the Board of AB Volvo and can be related, for example, to Olof Persson from September 1, 2011. The President and CEO is entitled
operating income and/or cash flow. to a remuneration consisting of a fixed annual salary and a variable salary.
The Annual General Meeting can also decide on a share, or share- The variable salary is based on operating income in relation to the same
based, incentive program. At the Annual General Meeting 2011, as pro- period last year and/or cash flow for six months moving periods up to a
posed by the Board of AB Volvo, it was decided to implement a long-term maximum of 75% of the fixed annual salary.
share-based incentive program consisting of three annual programs covering For the financial year 2011, Leif Johansson received a fixed salary of SEK
each of the financial years 2011, 2012 and 2013. 8,640,000 and a variable salary of SEK 5,913,000. The variable salary cor-
In addition to fixed and variable salary, normally other customary benefits, responded to 68% of the fixed salary. Other benefits, mainly pertaining to
such as company car and company healthcare are provided. In individual car and housing, amounted to SEK 329,621 in 2011. Olof Persson received
cases, accommodation benefits and other benefits may be provided. for the period as President and CEO of AB Volvo during 2011 a fixed salary
In addition to pension benefits provided by law and collective bargain of SEK 3,840,000 and a variable salary of SEK 2,880,000. The variable
agreements, the members of group management domiciled in Sweden can salary corresponded to 75% of the fixed salary. Other benefits from Septem-
be offered a defined-contribution pension plan whereby the amount of the ber 1, 2011, mainly pertaining to car and housing, amounted to SEK 234,897.
individual’s pensions comprises the premium paid and any return. Members During his period as Executive Vice President and Deputy CEO of AB
of group management resident outside Sweden, or resident in Sweden but Volvo from May 1 until August 31, 2011, Olof Persson received a fixed
having a material connection to or having been resident in a country other salary of SEK 2,245,000 and a variable salary of SEK 1,111,275. The vari-
118
able salary corresponded to 50% of the fixed salary. For this period, other months’ salary. In certain older contracts, the payment could equal 24
benefits, mainly pertaining to car and housing, amounted to SEK 60,830. months’ salary depending on age at date of severance. In agreements
Leif Johansson was covered by the Volvo executive pension plans, concluded after the spring of 1993, severance pay is reduced, in the event
Volvo Management Pension (VMP) and Volvo Executive Pension (VEP). the employee gains employment during the severance period, with an
Olof Persson is covered both by pension benefits provided under collective amount equal to 75% of the income from the new employment. In agree-
bargain agreements and by the VMP and VEP plans. The retirement benefit ments concluded after the spring of 2004, severance pay is reduced by
under the Volvo executive pension plans is a defined-contribution plan with the full income from the new employment. With few exceptions, the sever-
refund protection. The disability pension is a defined-benefit plan. Contribu- ance payment is equal to twelve months’ salary.
tions to VMP and VEP are not tax-deductible, the benefit from the insur- Members having a material connection to a country other than Sweden can
ance is not taxable to the company, but pension paid will be tax-deductible. be offered notice periods for termination and severance payments that are
The pensionable salary consists of the annual salary and a calculated vari- competitive in the country to which the members have a material connection.
able salary component. The premium for the VMP is SEK 30,000 plus 20%
of the pensionable salary over 30 income base amounts and the premium Pensions
for VEP is 10% of pensionable salary. There are no commitments other Members of group management and certain other senior executives are
than the payment of the premiums. The disability pension for Olof Persson offered pensions that are competitive in the country in which the person
amounts to 50% of pensionable salary. The right to disability pension is is or have been domiciled or in the country to which the person is essentially
conditional to employment and will cease upon termination of duty. connected.
The President and CEO of AB Volvo is also covered by Volvo Företags Previous pension agreements for certain senior executives stipulated
pension, a defined contribution plan for additional retirement benefit. The that early retirement could be obtained from the age of 60. Agreements for
premium is negotiated each year. For 2011 the premium amounted to retirement at age 60 are no longer signed, and are instead replaced by a
SEK 512 a month. defined-contribution plan with pension premium payments at the longest to
Pension premiums 2011 for Leif Johansson amounted to SEK 3,317,621 the age of 65 years. The premium constitutes 10% of the pensionable salary.
and for Olof Persson, for the period as President and CEO and for the Earlier defined-benefit pension plans, which entitled the employee to
period as Executive Vice President and Deputy CEO, to SEK 1,943,988 50% of the pensionable salary after normal retirement age, have in Sweden
and 559,811 respectively. been replaced by a defined-contribution plan. The pension plan includes
Olof Persson is also participating in the long-term share-based incentive employees born before 1979 and is a complement to the collective agreement
program decided by the Annual General Meeting 2011. Based on ROE for regarding occupational pension. The premium constitutes of SEK 30,000
2011, Olof Persson will receive 97,109 shares during 2014/2015 related plus 20% of the pensionable salary over 30 income base amounts. The
to 2011 if all program conditions are met (see further information under pensionable salary consists of the twelve times the current monthly salary
Long-term incentive program below). The amount of taxable benefit and the average of the variable salary for the previous five years. Pension
related to these shares is determined at the time of allotment. premiums amounted to SEK 29,143,321 for other members of group
Olof Persson has a six-month notice of termination on his own initiative management in 2011.
and twelve months’ notice of termination from AB Volvo. If terminated by the
company within three years from entering the position as President and Volvo Group’s total costs for remuneration and benefits to
CEO, Olof Persson is entitled to a severance payment equivalent to twelve senior executives
months’ salary. Thereafter, he is not entitled to severance payments. Costs for total remuneration and benefits to the members of group manage-
ment in 2011 are pertaining to the following: fixed salary SEK 110 million
Remuneration to other senior executives (89); variable salary SEK 43 million (39); other benefits SEK 12 million
(10) and pensions SEK 46 million (51). The cost related to the long-term
Fixed and variable salaries share-based incentive program is reflected over the vesting period and
Members of group management and a number of senior executives amounted to SEK 26 million (0) for 2011. Total costs for members of
receive variable salaries in addition to fixed salaries. Variable salaries are group management include social fees on salaries and benefits, special
in most cases based on the fulfillment of certain improvement targets or pension tax and additional costs for other benefits. The remuneration
financial targets. The targets are decided by the Board of Directors in AB model of the Volvo Group is to a main part designed to follow changes in
Volvo and can, for example, relate to operating income in relation to cor- the profitability of the Group.
responding period previous year and/or cash flow for a six month rolling
period. During 2011, a variable salary could amount to a maximum of 60% Long-term incentive program
of the fixed annual salary. The Annual General Meeting held in 2011 approved a long-term share-
For the financial year 2011, fixed salaries amounted to SEK 58,225,074 based incentive program for up to 300 participants and comprising the
and variable salaries amounted to SEK 23,875,016 for members of group years 2011 to 2013. The program consists of three annual programs for
management excluding the CEO and the Deputy CEO. Group management which the measurement periods are each of the respective financial
comprised, in addition to the CEO and Deputy CEO, 16 members at the years. A prerequisite for participation in the program is that the partici-
beginning of the year and 16 members at the end of the year. Other benefits, pants invest a portion of their salary in Volvo shares and retain these
mainly pertaining to car and housing, amounted to SEK 7,243,479 in shares and continue to be employed by the Volvo Group for at least three
2011. Group management, excluding the CEO and the Deputy CEO, will years after the investment has been made. Under special circumstances,
receive 576,965 shares during 2014/2015 related to 2011 under the it is possible to make exceptions to the requirement of continued employ-
long-term share-based incentive program if all program conditions are ment (so called “good leaver” situations).
met (see further information under Long-term incentive program below). The AB Volvo Board is, in the event of exceptional conditions, entitled
to limit or omit allotment of performance shares. In addition, if the Annual
Severance payments General meeting of AB Volvo resolves that no dividend shall be paid to the
The employment contracts for members of group management and certain shareholders for a specific financial year, no matching shares are alloted
other senior executives contain rules governing severance payments for the year in question. Shares are granted under the program during the
when the company terminates the employment. For members domiciled in respective financial year. At the end of the vesting period, the main rule is
Sweden, the rules provide that, when the company terminates the employ- that the participants will be allotted one matching share per invested
ment, an employee is entitled to severance payment equivalent to twelve share and, assuming that the Volvo Group’s ROE (return on equity) for the
119
Financial information 2011
particular financial year amounts to at least 10 percent, a number of per- through Volvo owned, earlier re-purchased, Volvo shares. Participants in
formance shares. Maximum allotment of performance shares corresponds certain countries will be offered a cash-based version of the incentive
to seven shares for the CEO, six shares for other members of group man- program. For participants in these countries, no investment is required
agement and five shares for other participants in the program for each by the participant and the program does not comprise an element of
invested share, subject to ROE reaching 25 percent. ROE for 2011 was matching shares. Allotment of shares in this version is replaced by a
23.1%, which means that number of performance shares reached about cash allotment at the end of the vesting period. Other program condi-
90 percent of the maximum grant. Allotment of shares will be made tions are similar between the programs.
Long term incentive pro- Shares granted conditional under the plan but not yet alloted (in thousand shares)
gram (share settled plan Beginning of Cancelled/ Allotments Cost 2011
version) Vesting year the year Granted 2011 forfeited 2011 during 2011 End of the year (SEK M)1
Year 2011
incentive program 2014/2015 0 2,488 (11) (1) 2,476 69.8
1 The fair value of the payments is determined based on the share price at the grant date reduced by the discounted value of expected dividends connected with the
share during the vesting period. The cost for the program is recognized over the vesting period. The cost includes social security cost.
The cost for the cash-based version of the incentive program amounted to participants, and an additional 203,520 shares will be alloted to par-
to SEK 4 million including social security cost during 2011. ticipants when the employees leave the company.
A number of program participants that are leaving the company has The total cost for the 2011 incentive program over the period 2011 to
been determined to be “good leavers” and are therefore entitled to accu- 2014 is estimated to SEK 273 million including social security cost.
mulated allotment of shares. During 2011, 929 shares have been alloted Actual cost will be impacted by changes in the share price.
1 Including current and former Board members, Presidents and Executive Vice 4 In certain countries, such as Sweden, part of social cost relate to pensions. In
Presidents. previous years, Volvo has reclassified such portion of social cost to pension cost
2 The Parent Company’s pension costs, pertaining to Board members and Presidents for Swedish group companies. In the 2011 Annual Report, these pension related
are disclosed in Note 3 in the Parent Company. components of social cost has not been reclassified to pension cost, which
3 Of the Group’s pension costs, 96.8 (146.6) pertain to Board members and Pres- makes for a better comparison with other Swedish companies. Pension cost for
idents, including current and former Board members, Presidents and Executive 2010 has been adjusted downwards with an amount of SEK 1,166 million compared
Vice Presidents. The Group’s outstanding pension obligations to these individu- to the 2010 Annual Report.
als amount to 337.7 (334.4).
120
The cost for non-monetary benefits in the Group amounted to 1,876.8
(1,554.3) of which 68.8 (59.3) to Board members and Presidents.
The cost for non-monetary benefits in the Parent Company amounted
to 9.6 (9.0) of which 1.9 (1.7) to Board members and Presidents.
Fees to the auditors 2011 2010 Audit involves examination of the Annual report, financial accounting and
the administration by the Board and the President. Audit-related assign-
PricewaterhouseCoopers ments mean quality assurance services required by enactment, articles of
– Audit fees 97 102 association, regulations or agreement. The amount includes the fee for
– Audit-related fees 4 6 the half-year review. Tax services include both tax consultancy and tax
– Tax advisory services 18 16 compliance services. All other tasks are defined as other.
– Other fees 8 3
Total 127 127
Audit fees to others 1 1
Volvo Group Total 128 128
NOTe 29 Cash-flow
Accounting policy
Investments in shares and
participations: 2011 2010
cost in accordance with the effective interest method. Gains and losses
Accounting policy are recognized in profit and loss when the loans or receivables are
divested or impaired, as well as in pace with recognition of accrued interest.
Recognition of financial assets and liabilities
Purchases and sales of financial assets and liabilities are recognized on Assessment of impairment requirement
the transaction date. A financial asset is derecognized in the balance – loan receivables and other receivables
sheet when all significant risks and benefits linked to the asset have been Volvo performs routine controls to ensure that the carrying amount of
transferred to a third party. The same principles are applied for financial assets valued at amortized cost has not decreased, which would result in
assets in the segment reporting of the Volvo Group. recognition of an impairment loss in profit and loss. Provisions for doubtful
The fair value of assets is determined based on valid market prices, receivables are recognized on an ongoing basis following assessments of
when available. If market prices are unavailable, the fair value is deter- a possible change in the ability of customers to pay.
mined for each asset using various measurement techniques. Transaction Impairment comprises the difference between the carrying amount and
expenses are included in the asset’s fair value, except in cases in which the current value of the estimated future payment flow attributable to the
the change in value is recognized in profit and loss. The transaction costs specific asset with consideration to the fair value of any collateral. Dis-
that arise in conjunction with the assumption of financial liabilities are counting of future cash flow is based on the effective interest rate used
amortized over the term of the loan as a financial cost. initially. Initially, the impairment requirement is evaluated for each respec-
Embedded derivatives are detached from the related main contract, if tive asset. If, based on objective grounds, it cannot be determined that
applicable. Contracts containing embedded derivatives are valued at fair one or more assets are subject to an impairment loss, the assets are
value in profit and loss if the contracts’ inherent risk and other character- grouped in units based, for example, on similar credit risks to evaluate the
istics indicate a close relation to the embedded derivative. impairment loss requirement collectively. Individually impaired assets or
assets impaired during previous periods are not included when grouping
Financial assets at fair value through profit and loss assets for collective assessment. If the conditions that gave rise to the
All of Volvo’s financial assets that are recognized at fair value in profit and recognition of an impairment loss later prove to no longer be valid the
loss are classified as held for trading. This includes derivatives to which impairment loss is reversed in profit and loss as long as the carrying
Volvo has decided not to apply hedge accounting as well as derivates that amount does not exceed the amortized cost at the time of the reversal.
are not part of an evidently effective hedge accounting policy pursuant to
Refer to Notes 15 and 16 for more information regarding Volvo’s loan
IAS 39. Gains and losses on these assets are recognized in profit and receivables and accounts receivables.
loss. Short-term investments that are recognized at fair value mainly com-
prise interest-bearing financial instruments and are recognized in Note Assets available for sale
18. Derivatives used for hedging interest rate exposure in the customer This category includes assets available for sale and assets that have not
financing portfolio are included in this category. Unrealized gains and been classified in any of the other categories. These assets are initially
losses from fluctuations in the fair values of the financial instruments are measured at fair value including transaction costs. Any change in value is
recognized in net financial items, since it is not practically possible to recognized directly in other comprehensive income. The cumulative gain
apply hedge accounting in accordance with IAS 39 due to the large or loss recognized in other comprehensive income is reversed in profit and
number of contracts that the customer financing portfolio comprises. In loss on the sale of the asset. Unrealized declines in value are recognized
applicable cases, when the requirements for hedge accounting are con- in other comprehensive income, unless the decline is significant or pro-
sidered to be fulfilled, Volvo will hereafter consider the application of longed. Then the impairment is recognized in profit and loss. If the event
hedge accounting for these kinds of instruments. Volvo intends to hold that caused the impairment no longer exists, impairment can be reversed
these derivatives to maturity, which is why, over time, the market valuation in profit and loss if it does not involve an equity instrument.
will be offset as a consequence of the interest-rate fixing on borrowing Earned or paid interest attributable to these assets is recognized in
and lending for the customer-finance operations, and thus not affect profit and loss as part of net financial items in accordance with the effec-
operating income or cash flow. tive interest method. Dividends received attributable to these assets are
Refer to note 9 regarding derivatives used for hedging interest rate expo- recognized in profit and loss as Income from other investments.
sure in the customer financing portfolio recongniced in net financial items. Volvo recognizes shares and participations in listed companies at market
Financial instruments used for hedging currency risks arising from value on the balance-sheet date, with the exception of investments classi-
future firm commercial cash flows are also recognized under this category. fied as associated companies and joint ventures. Holdings in unlisted
Unrealized gains and losses from fluctuations in the fair values of the companies for which a market value is unavailable are recognized at
financial instruments related to a receivable or payable will be recognized acquisition cost. Volvo classifies these types of investments as assets
in the operating income of the respective segments. All other unrealized available for sale.
gains and losses from fluctuations in the fair values of the financial instru-
ments are reported in the operating income of the segment Group func- Assessment of impairment – assets available for sale
tions and other. When the financial instruments have been realized the If assets available for sale are impaired, the impaired amount is the difference
income effect is reported within the respective segments. between the asset’s cost (adjusted for any accrued interest if applicable)
and its fair value. However, if equity instruments, such as shares, are
Loan receivables and other receivables involved, a completed impairment is not reversed in profit and loss. On the
Loans and receivables are non-derivative financial assets with fixed or other hand, impairments performed on debt instruments (interest-bearing
determinable payments that are not quoted in an active market. Accounts instruments) are wholly or partly reversible in profit and loss, in those
receivables are recognized initially at fair value, which normally corre- instances where an event, proven to have occurred after the impairment
sponds to the nominal value. In the event that the payment terms exceed was performed, is identified and impacts the valuation of that asset.
one year, the receivable is recognized at the discounted present value.
After initial recognition, loans and receivables are measured at amortized Refer to Note 5 for Volvo’s holdings of shares and participations in listed
companies.
122
Hedge accounting During 2011, Volvo has applied hedge accounting for financial instru-
In accordance with IAS 39, derivatives used for the hedging of forecast ments used to hedge interest and currency risks on loans only for cases
electricity consumption have been recognized at fair value in the balance when hedge accounting requirements are fulfilled. The changes in the fair
sheet. During 2011, Volvo applied hedge accounting for these financial value of the hedge instruments outstanding and the changes in the car-
instruments. Unrealized gains and losses from fluctuations in the fair rying amount of the loan are recognized in profit and loss. For cases
value are debited or credited to a separate component in other comprehen- where hedge accounting is not considered to be fulfilled, unrealized gains
sive income to the extent the requirements for cash-flow hedge account- and losses up until the maturity date of the financial instrument will be
ing are fulfilled. Accumulated changes in the value of the hedging instru- recognized in net financial items in profit and loss.
ments are recognized in profit and loss at the same time as the underlying During 2011, Volvo has applied hedge accounting for certain net
hedged transaction affects the Group’s earnings. In the table in Note 19, investments in foreign operations. The ongoing result of such hedges is
Shareholders’ equity shows how the electricity consumption reserve has recognized as a separate item in shareholders’ equity. In the event of a
changed during the year. When cash-flow hedge accounting is applied for divestment, the accumulated result from the hedge is recognized in profit
previously entered financial instruments utilized to hedge electricity con- and loss.
sumption, Volvo tests for effectiveness. Hedging is considered to be
effective when the forecast factors that impact the electricity price agree Refer to page 125 for supplementary information on hedge accounting.
with forecasts of future electricity consumption and the designated hedg-
ing instruments. The hedging relationship is regularly tested up until its
maturity date. If the identified relationships are no longer deemed effec-
tive, the price fluctuations on the hedging instrument from the last period Information regarding carrying amounts and fair values
the instrument was considered effective are recognized in the Group’s In the table below, carrying amounts are compared with fair values for all
operating income. of the Volvo Group’s financial instruments. Detailed descriptions of the
policies applicable to financial hedging, hedge accounting and changes in
policies during 2011 are described later in this Note and in Note 4, Goals
and policies in financial risk management.
Derecognition of financial assets Gains, losses, interest income and expenses related to financial
Financial assets that have been transferred are included in full or in part instruments
in the reported assets of the Volvo Group pursuant to the degree the risk The table below shows how gains and losses as well as interest income
and rewards related to the asset have been transferred to the recipient. In and expenses have affected income after financial items in the Volvo
line with IAS 39, Financial Instruments, Recognition and Measurement, an Group divided on the different categories of financial instruments.
evaluation is performed to establish whether, substantially, all the risks
and rewards have been transferred to an external party. Where Volvo con-
cludes this is not the case, the portion of the financial assets correspond-
ing to Volvo’s continuous involvement is recognized. At December 31,
2011, assets corresponding to Volvo’s continuous involvement, primarily
within customer financing operations, in an amount of SEK 0.6 billion (1.2)
were recognized by Volvo.
124
Below is a presentation of derivative instruments and options of financial and commercial receivables and liabilities.
125
Financial information 2011
Board of Directors’ report Shares and participations in non-Group companies included 413 (170) in
AB Volvo is Parent Company of the Volvo Group and its operations com- associated companies that are reported in accordance with the equity
prise the Group’s head office with staff together with some corporate method in the consolidated accounts. The portion of shareholders’ equity in
functions. associated companies accruing to AB Volvo totaled 413 (322). Shares and
Income from investments in Group companies includes dividends participations in non-Group companies include listed shares in Deutz AG
amounting to 2,719 (8,145) and Group contributions, transfer price adjust- with a carrying value of 299, corresponding to the quoted market price at
ments and royalties net of 6,086 (5,126). Dividends include 2,500 from year-end. In 2011 revaluation of the ownership has decreased the value by
Volvo Construction Equipment NV. 159, recognized in equity and included in Other comprehensive income in
The carrying value of shares and participations in Group companies the income statement.
amounted to 59,460 (59,429), of which 58,934 (58,903) pertained to Financial net debt amounted to 30,665 (30,376).
shares in wholly owned subsidiaries. The corresponding shareholders’ AB Volvo’s risk capital (shareholders’ equity plus untaxed reserves)
equity in the subsidiaries (including equity in untaxed reserves but exclud- amounted to 42,163 corresponding to 55% of total assets. The comparable
ing minority interests) amounted to 99,139 (90,261). figure at year-end 2010 was 54%.
Income statement
SEK M 2011 2010
Net sales Note 2 721 564
Cost of sales Note 2 (721) (564)
Gross income 0 0
Administrative expenses Note 2, 3 (880) (652)
Other operating income and expenses Note 4 (146) 8
Income from investments in Group companies Note 5 8,743 13,252
Income from investments in associated companies Note 6 130 (94)
Income from other investments Note 7 4 3
Operating income 7,851 12,517
Interest income and similar credits Note 8 0 0
Interest expenses and similar charges Note 8 (1,677) (893)
Other financial income and expenses Note 9 (96) (65)
Income after financial items 6,078 11,559
Allocations Note 10 0 0
Income taxes Note 11 (597) (1,231)
Income for the period 5,481 10,328
126
Balance sheet
SEK M December 31, 2011 December 31, 2010
Assets
Non-current assets
Intangible assets Note 12 88 103
Tangible assets Note 12 80 16
Financial assets
Shares and participations in Group companies Note 13 59,460 59,429
Receivables from Group companies 38 0
Other shares and participations Note 13 2,953 2,498
Deferred tax assets Note 11 3,060 3,657
Total non-current assets 65,679 65,703
Current assets
Current receivables
Current receivables Group companies 10,843 12,226
Current tax receivables 0 0
Other current receivables Note 14 501 261
Cash and bank accounts 0 0
Total current assets 11,344 12,487
Total assets 77,023 78,190
Shareholders' equity and liabilities
Shareholders' equity
Restricted equity
Share capital (2,128,420,220 shares, quota value SEK 1,20) 2,554 2,554
Statutory reserve 7,337 7,337
Unrestricted equity
Non-restricted reserves 224 383
Retained earnings 26,563 21,251
Income for the period 5,481 10,328
Total shareholders’ equity 42,159 41,853
Provisions
Provisions for pensions Note 16 141 133
Other provisions Note 17 42 1
Current liabilities
Trade payables 164 78
Other liabilities to Group companies 34,260 35,835
Other current liabilities Note 19 235 269
Total shareholders' equity and liabilities 77,023 78,190
Assets pledged – –
Contingent liabilities Note 20 270,346 250,606
127
Financial information 2011
Cash-flow statement
SEK M 2011 2010
Operating activities
Operating income 7,851 12,517
Depreciation and amortization 16 16
Other adjustments of operating income Note 21 (404) (20,543)
Total change in working capital whereof (185) 142
Change in accounts receivable (171) 195
Change in trade payables 188 (7)
Other changes in working capital (202) (46)
Interest and similar items received 0 0
Interest and similar items paid (1,672) (888)
Other financial items (152) (65)
Income taxes (paid) – (176)
Cash-flow from operating activities 5,454 (8,997)
Investing activities
Investments in fixed assets (65) (11)
Shares and participations in Group companies, net Note 21 (93) (2,386)
Shares and participations in non-Group companies, net Note 21 (508) (63)
Cash-flow after net investments 4,788 (11,457)
Financing activities
Increase in loans Note 21 281 11,457
Dividend to AB Volvo’s shareholders (5,069) –
Change in liquid funds 0 0
Liquid funds, January 1 0 0
Liquid funds, December 31 0 0
Liquid funds
Liquid funds include cash and bank balances.
128
Changes in Shareholders’ equity
Restricted equity Unrestricted equity
Share Total
Share Statutory premium Fair value Retained shareholders’
SEK M capital reserve reserve reserve earnings Total equity
Balance at December 31, 2009 2,554 7,337 190 21 21,251 21,462 31,353
Income for the period – – – – 10,328 10,328 10,328
Balance at December 31, 2010 2,554 7,337 190 193 31,579 31,962 41,853
Income for the period – – – – 5,481 5,481 5,481
Balance at December 31, 2011 2,554 7,337 190 34 32,044 32,268 42,159
Further information regarding the share capital of the Parent Company is shown in Note 19 to the consolidated financial statements.
129
Financial information 2011
Amounts in SEK M unless otherwise specified. The amounts within parentheses refer to the preceding year, 2010.
The accounting principles applied by Volvo are described in note 1 to the as in previous years. Consequently there are differences between the
consolidated financial statements. Volvo Group and the Parent Company in the accounting for defined-benefit
The Parent Company also applies RFR 2 including the exception in the pension plans as well as in valuation of plan assets invested in the Volvo
application of IAS 39 which concerns accounting and valuation of finan- Pension Foundation.
cial contracts of guarantee in favour of subsidiaries and associated com- The difference between depreciation according to plan and tax depre-
panies. ciation is reported as accumulated additional depreciation, which is included
The long term share-based incentive program adopted at the Annual in untaxed reserves. In the consolidated balance sheet a split is made
General Meeting of 2011 is covered by IFRS 2 Share-based payments. between deferred tax liability and equity.
The Volvo Group has adopted IAS 19 Employee Benefits in its financial Reporting of Group contributions is in accordance with the alternative
reporting. The Parent Company is still applying the principles of Far’s rule in RFR 2. Group contributions are reported among Income from
Recommendation RedR4 ”Accounting of pension liabilities and pension costs” investments in Group companies.
Of the Parent Company’s net sales, 620 (499) pertained to Group companies while purchases from Group companies amounted to 602 (449).
Depreciation Personnel
Administrative expenses include depreciation of 16 (16) of which 0 (1) Wages, salaries and other remunerations amounted to 231 (211), social
pertains to machinery and equipment, 1 (0) to buildings and 15 (15) to costs to 68 (61) and pension costs to 69 (81). Of the pension costs, 7 (6)
other intangible assets. pertained to Board members and Presidents. The Parent Company has
outstanding pension obligations of 0 (–) to these individuals.
Fees to the auditors 2011 2010 Part of social costs relate to pensions. In previous years, AB Volvo has
reclassified such portion of social costs to pension costs. In the 2011
PricewaterhouseCoopers
Annual Report, this part has not been reclassified to pension costs as an
– Audit fees 17 17 adaption to praxis. Pension costs for 2010 has been adjusted downwards
– Audit-related fees 1 1 with 23.
– Tax advisory services 0 0 The number of employees at year-end was 181 (198). Information on
Total 18 18 the average number of employees, wages, salaries and other remunera-
tions including incentive program as well as Board members and senior
See Note 28 for the Group for a description of the different categories of executives by gender is shown in note 27 to the consolidated financial
fees to the auditors. statements.
130
NOTE 4 Other operating income and expenses
NOTE 7 Income from other investments
Other operating income and expenses include expenses of 101 (–) due A dividend of 4 (2) reveived from Eicher Motors Ltd. is included in Income
to damages from a settlement of a legal process. Further restructuring from other investments.
costs of 42 (–) and profit-sharing payments to employees of 3 (1) are
included.
NOTE 5 companies Interest income and similar credits amounting to 0 (0) included interest in
the amount of 0 (0) from subsidiaries, and interest expenses and similar
charges totalling 1,677 (893) included interest of 1,672 (888) to subsidi-
Of the income reported, 2,719 (8,145) pertain to dividends from Group aries.
companies. Of the dividends, 2,500 (1,801) pertain to dividend from Volvo
Construction Equipment NV, 156 (–) from Volvo East Asia Ltd. and 63 (–)
9
from Volvo Norge AS. The shares in Volvo Italia SpA were written down by Other financial income and expenses
60. Liquidation of Volvo Automotive Holding BV has resulted in a net loss
NOTE
of 2.
Group Contributions, transfer price adjustments and royalties total a
Other financial income and expenses include guarantee commissions from
net of 6,086 (5,126)
subsidiaries, cost for credit facilities, costs for credit rating and costs of
having Volvo shares registered.
Income from associated companies that are reported in the Group Allocation to additional depreciation has been made during the year with
accounts in accordance with the equity method amounted to 106 (neg 0 (0).
94). Dividend of 24 (14) was received from VE Commercial Vehicles Ltd.
The participations in Blue Chip Jet I HB and Blue Chip Jet II HB have
effected the income with 5 (8) and 101 (neg 116) respectively.
131
Financial information 2011
Acquisition cost Value in balance sheet 2010 Investments Sales/scrapping Value in balance sheet 2011
Rights 52 – – 52
Other intangible assets 138 – – 138
Total intangible assets 190 – – 190
Buildings 6 21 – 27
Land and land improvements 3 11 – 14
Machinery and equipment 46 1 0 47
Construction in progress – 32 – 32
Total tangible assets 55 65 0 120
1 Including accumulated write-downs. Capital expenditures in intangible and tangible assets amounted to – (22)
2 Including write-downs. and 65 (1) respectively. Capital expenditures approved but not yet imple-
3 Acquisition value, less accumulated depreciation, amortization and write-downs.
mented at year-end 2011 amounted to 1 (0).
132
NOTE 13 Investments in shares and participations
Holdings of shares and participations are specified in AB Volvo’s holding of shares. Changes in holdings of shares and participations are shown below.
Shares and participations in Group companies Shares and participations in non-Group companies
During 2011 AB Volvo acquired total shares in VFS Latvia SIA to a value During 2011 AB Volvo aquired 49% of the hold in CPAC Systems AB from
of 9. Shares were also acquired in Volvo Lastvagnar AB, Volvo Bussar AB Volvo Technology Transfer AB by 367. A capital contribution of 137 (76)
and AB Volvo Penta by total 85 from Volvo Italia SpA. AB Volvo conse- was given to Blue Chip Jet II HB. The book value of the participations in
quently has got 100% hold in these companies. the partnerships Blue Chip Jet I HB and Blue Chip Jet II HB increased
Write-down was made at year-end of the holding of shares in Volvo during the year by a net of 106 (neg 113).
Italia SpA with 60. The revaluation of AB Volvo’s ownership in the listed company Deutz
Volvo Automotive Holding BV with the book value of 3 has been liquidated. AG has decreased the value by 159, recognized in other comprehensive
During 2010 AB Volvo transferred the company´s holding of preference income (previous year increase by 172).
shares in UD Trucks Corporation, with the book value of 3,493, as share- Other shares and participations include the direct and indirect holdings
holders’ contribution to Volvo Group Japan Corporation. Shareholders’ of Volvo Eicher Commercial Vehicles Ltd. (VECV) for total amount of
contribution was also made to Kommersiella Fordon Europa AB with 1,848. In the consolidated accounts of the Volvo group, VECV is reported
1,801. as a joint venture and consolidated according to the proportionate method.
The indirect ownership is an effect of the acquisition of 8.1% of Eicher
Motors Ltd., which is the other venturer of VECV. These shares are not
separately valued as they form a part of the indirect ownership in VECV.
2011 2010 The valuation allowance for doubtful receivables amounted to 3 (4) at the
end of the year.
Accounts receivable 46 3
Prepaid expenses and accrued income 268 226
Other receivables 187 32
Total 501 261
133
Financial information 2011
Provisions for pensions and similar benefits correspond to the actuarially Non-current debt matures as follows:
calculated value of obligations not insured with third parties or secured
2013 11
through transfers of funds to pension foundations. The amount of pen-
sions falling due within one year is included. AB Volvo has insured the 2016 or later 7
pension obligations with third parties. Of the amount reported, 8 (0) per- Total 18
tains to contractual obligations within the framework of the PRI (Pension
Registration Institute) system.
19
The Volvo Pension Foundation was formed in 1996. Plan assets amount-
Other current liabilities
ing to 224 were contributed to the foundation at its formation, corresponding
to the value of the pension obligations at that time. Since its formation, net NOTE
contributions of 25 have been made to the foundation.
AB Volvo’s pension costs amounted to 69 (81).
2011 2010
In previous years, part of social costs has been reclassified to pension
costs. In the 2011 Annual Report, this part has not been reclassified to pen- Wages, salaries and withholding taxes 70 94
sion costs as an adaption to praxis. Pension costs for 2010 has been Other liabilities 19 2
adjusted downwards with 23. Accrued expenses and prepaid income 146 173
The accumulated benefit obligation of all AB Volvo’s pension obligations Total 235 269
at year-end 2011 amounted to 646, which has been secured in part through
No collateral is provided for current liabilities.
provisions in the balance sheet and through transfer of funds to pension
foundations. Net asset value in the Pension Foundation, marked to market,
accrued to AB Volvo was 9 lower than the corresponding pension obliga-
20
tions. A provision was recorded to cover this deficit. Contingent liabilities
NOTE
NOTE 17 Other provisions Of the contingent liabilities amounting to 270,346 (250,606), 270,336
(250,597) pertained to Group companies.
Guarantees for various credit programs are included in amounts cor-
responding to the credit limits. These guarantees amount to 261,576
Other provisions include provisions for restructuring measures of 42 (–).
(243,089), of which guarantees on behalf of Group companies totalled
261,576 (243,089).
At the end of each year, the utilized portion amounted to 125,123
(108,562), including 125,113 (108,476) pertaining to Group companies.
NOTE 21 Cash-flow
Other adjustments of operating income 2011 2010 Shares and participations in non-Group
Revaluation of shareholdings (46) 116 companies, net 2011 2010
Shares and participations in Group Increase in loans is related to the company’s liability in the group account
companies, net 2011 2010 at Volvo Treasury AB. The liability has increased by 281 (11,457).
Investments (94) (2,386)
Disposals 1 –
Net investments in shares and
participations in Group companies (93) (2,386)
Investments and sales of shares in Group companies are shown in
Note 13.
134
AB Volvo’s holding of shares
AB Volvo’s holding of shares and Dec 31, 2011 Dec 31, 2010
participations in major Group companies Registration Percentage Carrying value, Carrying value,
number holding SEK M SEK M
Volvo Lastvagnar AB, Sweden 556013-9700 100 8,711 8,678
Volvo Truck Center Sweden AB, Sweden 556072-7777 100 – –
Volvo Finland AB, Finland – 100 – –
Volvo Group Belgium NV, Belgium – 100 – –
Volvo Group UKLtd, Great Britain – 100 – –
Volvo India Ltd, India – 100 – –
Volvo Holding Sverige AB, Sweden 556539-9853 100 7,634 7,634
BRS Ltd, Great Britain – 100 – –
Volvo Construction Equipment North America, Canada – 100 – –
Volvo Polska Sp. O.O., Poland – 100 – –
Volvo (Southern Africa) Pty Ltd, South Africa – 100 – –
Volvo do Brasil Veiculos Ltda, Brazil – 100 – –
Banco Volvo (Brasil) SA, Brazil – 100 – –
Volvo Group Canada Inc., Canada – 100 – –
Prévost Car Inc, Canada – 100 – –
Volvo Group Australia Pty Ltd, Australia – 100 – –
Volvo Group Automotive Ticaret, Ltd, Sirketi, Turkey1 – 100 – –
Volvo Holding France SA, France – 100 – –
Volvo Trucks France s.a.s., France – 100 – –
Volvo Compact Equipment s.a.s., France – 100 – –
Volvo CE Europe s.a.s., France – 100 – –
VFS Finance France s.a.s., France – 100 – –
VFS Location France s.a.s., France – 100 – –
135
Financial information 2011
AB Volvo’s holding of shares and Dec 31, 2011 Dec 31, 2010
participations in major Group companies (cont.) Registration Percentage Carrying value, Carrying value,
number holding SEK M SEK M
Renault Trucks s.a.s., France – 100 – –
Renault Trucks Deutschland GmbH, Germany – 100 – –
Renault Trucks Polska SP Z OO, Poland – 100 – –
Renault Trucks, España, Spain – 100 – –
Renault Trucks Italia Spa, Italy – 100 – –
Volvo Group Japan Co, Japan – 100 6,379 6,379
UD Trucks Corporation, Japan – 100 – –
DRD Co., Ltd, Japan – 100 – –
UD Trucks Japan Co, Japan – 100 – –
UD Trucks South Africa (Pty) Ltd., South Africa – 100 – –
Volvo Bussar AB, Sweden 556197-3826 100 1,917 1,882
Volvo Construction Equipment NV, The Netherlands – 100 2,582 2,582
Volvo Construction Equipment AB, Sweden 556021-9338 100 – –
Volvo Maskin AS, Norway – 100 – –
Volvo Construction Equipment Europe GmbH, Germany – 100 – –
ABG Algemeinen Baumaschinen GmbH, Germany – 100 – –
AB Volvo Penta, Sweden 556034-1330 100 438 421
Volvo Aero AB, Sweden 556029-0347 100 2,885 2,885
Volvo Aero Norge AS, Norway – 100 – –
VNA Holding Inc., USA – 100 2,491 2,491
Volvo Group North America Inc., USA – 100 – –
Arrow Truck Sales, Inc., USA – 100 – –
Mack Trucks Inc., USA – 100 – –
Volvo Construction Equipment North America Inc., USA – 100 – –
Volvo Penta of The Americas Inc., USA – 100 – –
Volvo Commercial Finance LLC The Americas, USA – 100 – –
VFS US LLC, USA – 100 – –
136
AB Volvo’s holding of shares and Dec 31, 2011 Dec 31, 2010
participations in major Group companies (cont.) Registration Percentage Carrying value, Carrying value,
number holding SEK M SEK M
Volvo Financial Services AB, Sweden 556000-5406 100 1,945 1,945
VFS International AB, Sweden 556316-6064 100 – –
VFS Nordic AB, Sweden 556579-1778 100 – –
VFS Financial Services BV, The Netherlands – 100 – –
VFS Financial Services Belgium NV, Belgium – 100 – –
VFS Financial Services (UK) Ltd, Great Britain – 100 – –
VFS Deutschland GmbH, Germany – 100 – –
VFS Financial Services Spain EFC, SA, Spain – 100 – –
Volvo Finance (Suisse) SA, Switzerland – 100 – –
VFS Vostok, Russia – 100 – –
VFS Romania, Romania – 100 – –
VFS Canada Inc, Canada – 100 – –
VE Commercial Vehicles, Ltd, India2, 7 – 50 – –
Volvo Treasury AB, Sweden 556135-4449 100 13,044 13,044
Sotrof AB, Sweden 556519-4494 100 1,388 1,388
Volvo Group Real Estate AB, Sweden 556006-8313 100 – –
Volvo Korea Holding AB, Sweden 556531-8572 100 2,655 2,655
Volvo Group Korea Co Ltd, South Korea – 100 – –
Volvo China Investment Co Ltd, China – 100 1,096 1,096
Shanghai Sunwin Bus Co, China 2 – 50 – –
Shandong Lingong Construction Machinery, China – 70 – –
Volvo Automotive Finance (China) Ltd, China – 100 491 491
Volvo Group UK Ltd, Great Britain3 – 100 413 413
Volvo Holding Mexico, Mexico – 100 531 531
Volvo Technology Transfer AB, Sweden 556542-4370 100 361 361
Volvo Powertrain AB, Sweden 556000-0753 100 498 498
Volvo Information Technology AB, Sweden 556103-2698 100 663 663
Volvo Parts AB, Sweden 556365-9746 100 200 200
Volvo Group Insurance Försäkrings AB, Sweden 516401-8037 100 182 182
Volvo Business Services AB, Sweden 556029-5197 100 107 107
Volvo Danmark Holding AS, Denmark – 100 104 104
VFS Servizi Financiari Spa, Italy4 – 100 79 79
Kommersiella Fordon Europa AB, Sweden 556049-3388 100 1,890 1,890
Volvo Norge AS, Norway – 100 56 56
Volvo Malaysia Sdn, Malaysia – 100 48 48
ZAO Volvo Vostok, Russia5 – 100 34 34
Volvo Italia Spa, Italy – 100 496 556
Volvo Logistics AB, Sweden 556197-9732 100 85 85
Rossareds Fastighets AB, Sweden 556009-1190 100 26 26
Alviva AB, Sweden 556622-8820 100 5 5
Volvo East Asia (Pte) Ltd, Singapore – 100 9 9
Volvo Automotive Holding BV, The Netherlands – 100 – 3
Volvo Information Technology GB Ltd, Great Britain – 100 3 3
VFS Latvia SIA, Latvia – 100 9 –
Other holdings 5 5
Total carrying value Group companies 6 59,460 59,429
137
Financial information 2011
138
Proposed disposition of unappropriated earnings
AB Volvo SEK Group have capacity to assume future business risks as well as to bear
contingent losses. The proposed dividend is not expected to adversely
Retained earnings 26,787,875,659.22
affect the Company’s and the Group’s ability to make further commercially
Income for the period 2010 5,480,540,903.23 justified investments in accordance with the Board of Directors’ plans.
Total retained earnings 32,268,416,562.45 In addition to what has been stated above, the Board of Directors has
considered other known circumstances which may be of importance for
The Board of Directors and the President propose that the above sum the Company’s and the Group’s financial position. In doing so, no circum-
be disposed of as follows: stance has appeared that does not justify the proposed dividend.
SEK If the Annual General Meeting resolves in accordance with the Board
To the shareholders, a dividend of SEK 3.00 of Directors’ proposal, SEK 26,186,132,700.45 will remain of the Compa-
per share 6,082,283,862.001 ny’s non-restricted equity, calculated as per year end 2011.
To be carried forward 26,186,132,700.45 The Board of Directors has the view that the Company’s and the
Group’s shareholders’ equity will, after the proposed dividend, be sufficient
Total 32,268,416,562.45
in relation to the nature, scope and risks of the business.
The record date for determining who is entitled to receive dividends is Had the assets and liabilities not been estimated at their market value
proposed to be Wednesday April 11, 2012. pursuant to Chapter 4, Section 14 a of the Swedish Annual Accounts Act,
In view of the Board of Directors’ proposal to the Annual General Meeting the company’s shareholders’ equity would have been SEK 34,680,896.00 less.
to be held April 4, 2012 to decide on the distribution of a dividend of SEK
1 The total dividend amount is based on the number of outstanding shares as of
3.00 per share, the Board hereby makes the following statement in February 23, 2012, i.e. 2,027,427,954 shares. The total dividend amount may
accordance with Chapter 18, Section 4 of the Swedish Companies Act. change before the record date for determining who is entitled to receive dividends
The Board of Directors concludes that the Company’s restricted equity due to transfer of treasury shares to participants in the company’s long-term,
is fully covered after the proposed dividend. The Board further concludes share-based incentive program.
that the proposed dividend is justifiable in view of the parameters set out
in Chapter 17, Section 3, second and third paragraphs of the Swedish
Companies Act. In connection herewith, the Board wishes to point out the The Board of Directors and the President certify that the annual financial
following. report has been prepared in accordance with generally accepted account-
The proposed dividend reduces the Company’s solvency from 54.7 per ing principles and that the consolidated accounts have been prepared in
cent to 50.9 per cent and the Group’s solvency from 24.3 per cent to 22.9 accordance with the international set of accounting standards referred to
per cent, calculated as per year end 2011. The Board of Directors considers in Regulation (EC) No 1606/2002 of the European Parliament and of the
this solvency to be satisfactory with regard to the business in which the Council of July 19, 2002 on the application of international accounting
Group is active. standards, and give a true and fair view of the position and profit or loss of
According to the Board of Directors’ opinion, the proposed dividend will the Company and the Group, and that the management report for the
not affect the Company’s or the Group’s ability to fulfil their payment obli- Company and for the Group gives a fair review of the development and
gations and the Company and the Group are well prepared to handle both performance of the business, position and profit or loss of the Company
changes in the liquidity and unexpected events. and the Group, and describes the principal risks and uncertainties that the
The Board of Directors is of the opinion that the Company and the Company and the companies in the Group face.
Louis Schweitzer
Board Chairman
Peter Bijur Jean-Baptiste Duzan
Board member Board member
Olof Persson
Hanne de Mora
Anders Nyrén President, CEO and
Board member
Board member Board member
PricewaterhouseCoopers AB
139
Financial information 2011
PricewaterhouseCoopers AB
140
Eleven-year summary
The eleven-year summary presents each year in accordance with the Reports. As from January 1, 2007, the benefits from the synergies created
Generally Accepted Accounting Practice (GAAP) for that year. Earlier in the business units are transferred back to the product areas. Also, as
years are not restated when new accounting standards are applied. The from January 1, 2007, the responsibility for the Group’s treasury operations
years 2001–2003 are accounted for in accordance with Swedish GAAP and real estate has been transferred from Volvo Financial Services, which,
for the respective year. As from 2004 the reporting is based on IFRS. The as from January 1, 2007, only are consolidated in accordance with the
transition to IFRS is described in Note 3 in the 2005 and 2006 Annual purchase method. Comparison figures for 2006 have been recalculated.
Income taxes (6,814) (4,302) 5,889 (3,994) (6,529) (3,981) (4,908) (3,129) (1,334) (590) 326
Income (loss) for the period 18,115 11,212 (14,685) 10,016 15,028 16,318 13,108 9,907 323 1,423 (1,540)
Attributable to
Equity holders of the Parent
Company 17,751 10,866 (14,718) 9,942 14,932 16,268 13,054 9,867 298 1,393 (1,467)
Minority interest 364 346 33 74 96 50 54 40 25 30 (73)
18,115 11,212 (14,685) 10,016 15,028 16,318 13,108 9,907 323 1,423 (1,540)
141
Financial information 2011
Eleven-year summary
Shareholders’ equity1 85,681 74,121 67,034 84,640 82,781 87,188 78,760 70,155 72,636 78,525 85,576
Provision for post-employment
benefits 6,665 7,510 8,051 11,705 9,774 8,692 11,986 14,703 15,288 16,236 14,647
Other provisions 20,815 18,992 19,485 29,076 27,084 20,970 18,556 14,993 15,048 16,721 18,427
Interest-bearing liabilities 130,479 123,695 156,852 145,727 108,318 66,957 74,885 61,807 74,092 72,437 81,568
Liabilities associated with assets
held for sale 4,716 135 272 – – 280 – – – – –
Other liabilities 104,888 93,554 80,571 101,271 93,690 74,340 73,020 62,310 54,188 55,303 60,707
Shareholders’ equity and
liabilities 353,244 318,007 332,265 372,419 321,647 258,427 257,207 223,968 231,252 239,222 260,925
142
Consolidated balance sheets, Industrial Operations
SEK M 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Intangible assets 39,385 40,613 41,532 43,909 36,441 19,054 20,348 17,570 16,662 16,919 17,366
Property, plant and equipment 54,446 54,169 55,208 57,185 47,132 30,493 31,330 27,260 27,248 27,789 30,370
Assets under operating leases 16,749 13,217 13,539 16,967 13,850 11,822 10,260 8,477 8,976 11,155 15,020
Shares and participations 1,871 2,080 2,025 1,935 2,189 16,565 10,357 10,116 30,022 34,750 35,145
Inventories 43,828 38,956 35,765 54,084 43,264 33,893 33,583 28,291 25,848 27,564 30,557
Customer-financing receivables 1,702 1,428 1,367 975 1,233 1,193 1,377 230 118 99 114
Interest-bearing receivables 6,734 11,153 8,010 6,056 13,701 13,214 7,691 12,127 9,413 8,495 12,426
Other receivables 59,062 52,358 49,008 60,586 55,970 43,335 43,992 36,535 33,079 34,256 38,815
Non-current assets held for sale 9,348 136 1,692 – – 805 – – – – –
Cash and cash equivalents 35,951 31,491 37,404 22,575 30,026 29,907 36,047 34,628 28,102 24,154 24,874
Assets 269,076 245,602 245,550 264,272 243,806 200,281 194,985 175,234 179,468 185,181 204,687
Shareholders’ equity 76,682 66,101 58,485 75,046 75,129 87,188 78,760 70,155 72,636 78,525 85,576
Provision for post-employment
benefits 6,635 7,478 8,021 11,677 9,746 8,661 11,966 14,677 15,264 16,218 14,632
Other provisions 19,101 17,240 17,456 27,015 25,372 19,385 17,164 14,115 12,792 13,893 14,085
Interest-bearing liabilities 55,394 59,857 78,890 46,749 38,286 9,779 13,097 13,968 24,677 22,494 29,710
Liabilities associated with assets
held for sale 4,716 135 272 – – 280 – – – – –
Other liabilities 106,548 94,791 82,426 103,785 95,273 74,988 73,998 62,319 54,099 54,051 60,684
Shareholders’ equity and
liabilities 269,076 245,602 245,550 264,272 243,806 200,281 194,985 175,234 179,468 185,181 204,687
143
Financial information 2011
Eleven-year summary
Investments in fixed assets (12.6) (10.4) (10.5) (12.7) (10.1) (10.0) (10.3) (7.4) (6.0) (6.7) (8.1)
Investments in leasing assets (7.4) (4.8) (4.2) (5.4) (4.8) (4.6) (4.5) (4.4) (5.3) (5.2) (5.8)
Disposals of fixed assets and leasing assets 3.3 3.1 3.8 2.9 2.9 3.2 2.6 2.4 2.9 3.2 2.6
Shares and participations, net (0.1) (0.1) 0.0 0.0 0.4 (5.8) 0.3 15.1 (0.1) (0.1) 3.9
Acquired and divested subsidiaries and other
business units, net (1.6) 0.6 0.2 (1.3) (15.0) 0.5 0.7 (0.1) 0.0 (0.2) 13.0
Interest-bearing receivables including
marketable securities 2.6 6.8 (8.9) 10.9 3.6 7.7 (1.3) (6.4) (2.0) (1.5) (3.7)
Cash-flow after net investments 3.9 27.9 (4.7) (4.9) (4.6) 12.5 1.5 14.5 2.3 (0.9) 12.3
Change in loans, net 8.7 (25.7) 12.6 18.2 28.7 (2.6) 3.6 (8.8) 1.9 (0.1) 6.2
Repurchase of own shares - – 0.0 – – – (1.8) (2.5) – – (8.3)
Dividend to AB Volvo’s shareholders (5.1) 0.0 (4.1) (11.1) (20.3) (6.8) (5.1) (3.4) (3.4) (3.4) (3.4)
Cash payment to minority 0.0 (0.1) – – – – – – – – –
Other 0.0 0.0 (0.1) 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1
Change in cash and cash equivalents
excluding translation differences 7.5 2.1 3.7 2.2 3.8 3.1 (1.8) (0.2) 0.9 (4.3) 6.9
Investments in fixed assets (12.6) (10.3) (10.3) (12.6) (10.1) (9.7) (9.9) (7.2) (5.8) (6.3) (7.7)
Investments in leasing assets (1.4) (0.3) (0.2) (0.4) (0.2) (0.5) (0.3) (0.3) (0.1) (0.1) (0.5)
Disposals of fixed assets and leasing assets 1.2 0.8 0.7 0.6 1.1 0.9 0.9 0.7 0.6 1.1 1.1
Operating cash-flow 14.1 19.0 (11.4) (2.7) 15.2 12.6 6.8 11.4 7.6 5.1 3.4
144
Exports from Sweden
SEK M 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Volvo Group, total 91,065 72,688 41,829 96,571 88,606 80,517 71,133 62,653 49,300 52,730 50,394
Key ratios
2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Gross margin, %1 23.7 23.3 13.9 21.3 22.6 22.7 21.8 21.6 19.2 17.9 17.2
Research and development expenses
as percentage of net sales1 4.4 5.0 6.3 4.9 4.0 3.4 3.3 3.8 3.9 3.3 3.0
Selling expenses as percentage of
net sales1 8.0 8.8 11.4 8.7 8.9 8.0 8.5 9.1 9.1 8.7 8.1
Administration expenses as
percentage of net sales1 2.3 2.2 2.8 2.3 2.6 2.6 2.7 2.6 3.0 3.1 3.6
Return on shareholders' equity, % 23.1 16.0 (19.7) 12.1 18.1 19.6 17.8 13.9 0.4 1.7 neg
Interest coverage, times1 9.6 5.9 (4.7) 8.8 20.7 26.1 16.7 11.0 1.9 2.2 neg
Self-financing ratio, % 118 270 137 5 153 189 116 163 152 110 92
Self-financing ratio Industrial
Operations, % 210 294 (16) 78 265 235 173 268 243 196 148
Financial position, Industrial
Operations, SEK M (19,346) (24,691) (41,489) (29,795) (4,305) 23,076 18,675 18,110 (2,426) (6,063) (7,042)
Net financial position as percentage of
shareholders' equity, Industrial Operations (25.2) (37.4) (70.9) (39.7) (5.7) 29.2 23.7 25.8 (3.3) (7.7) (8.2)
Shareholders’ equity as percentage of
total assets 24.3 23.3 20.2 22.7 25.7 33.7 30.6 31.3 31.4 32.8 32.8
Shareholders’ equity as percentage of
total assets, Industrial Operations 28.5 26.9 23.8 28.4 30.8 40.6 40.4 40.0 40.5 42.4 41.8
Shareholders’ equity excluding minority
interest as percentage of total assets 23.9 23.0 20.0 22.6 25.6 33.6 30.5 31.2 31.3 32.7 32.6
1 Pertains to the Industrial Operations. For periods up to and including 2006, Volvo Financial Services is included and consolidated according to the equity method.
145
Financial information 2011
Eleven-year summary
1 Basic earnings per share is calculated as income for the period divided by 5 Market value at year-end minus net financial position and minority interests
average number of shares outstanding. Reporting according to IFRS from divided by operating income excluding restructuring costs and revaluation of
2004. shares.
2 Proposed dividend in SEK per share divided by share price at year-end. 6 Cash dividend divided by basic earnings per share.
3 Share price at year-end, including proposed dividend during the year, 7 Shareholders’ equity for shareholders in AB Volvo divided by number of
divided by share price at beginning of the year, (2000 includes premium in shares outstanding at year-end.
connection with repurchase, 2003 includes distribution of shares in Ainax, 8 Including distribution of shares in Ainax equal to SEK 3.01 (share-split
2006 includes a share split 6:1 in which the sixth share was redeemed by adjusted) per Volvo share in 2004.
AB Volvo for an amount of SEK 5.00 per share). 9 Including extra payment of SEK 5 through redemption of shares.
4 Share price at year-end divided by basic earnings per share. 10 Proposed by the Board of Directors.
146
Business area statistics
Net sales1
SEK M 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Trucks Europe 85,173 69,606 65,874 109,914 108,651 93,282 79,706 77,431 70,101 67,830 66,367
North America 37,120 26,901 21,563 26,588 27,255 50,605 46,129 35,154 28,151 33,721 33,630
South America 26,822 21,680 12,490 14,680 11,483 9,213 7,657 5,223 3,464 3,277 3,993
Asia 37,551 35,231 26,943 37,515 26,593 8,975 13,551 12,378 9,206 5,919 4,659
Other markets 14,037 13,887 12,069 14,538 13,910 9,190 8,353 6,693 6,047 8,005 7,919
Total 200,703 167,305 138,940 203,235 187,892 171,265 155,396 136,879 116,969 118,752 116,568
Buses Europe 7,009 6,242 7,707 7,321 7,767 7,924 7,142 6,948 6,534 7,104 6,636
North America 7,541 7,200 5,673 5,355 4,630 4,910 4,247 2,960 2,984 3,838 6,847
South America 2,721 1,737 1,235 1,571 1,623 1,537 2,641 521 329 366 757
Asia 3,027 3,299 2,749 2,094 1,802 2,003 1,612 1,632 1,447 2,022 1,839
Other markets 1,991 2,038 1,101 971 786 897 947 661 684 705 596
Total 22,289 20,516 18,465 17,312 16,608 17,271 16,589 12,722 11,978 14,035 16,675
Construction Europe 19,052 16,138 12,987 25,192 25,294 20,326 15,524 13,453 12,348 10,837 10,667
Equipment North America 7,862 6,267 5,475 10,159 11,170 11,280 10,337 8,601 5,428 5,667 6,145
South America 4,177 4,130 2,578 2,913 2,155 1,358 1,238 922 636 709 847
Asia 30,151 24,352 12,957 13,738 12,179 6,903 5,717 4,961 3,707 3,048 2,773
Other markets 3,745 2,923 1,661 4,077 2,835 2,264 2,000 1,423 1,035 751 703
Total 64,987 53,810 35,658 56,079 53,633 42,131 34,816 29,360 23,154 21,012 21,135
Volvo Penta Europe 4,546 4,507 4,390 6,554 6,798 6,111 5,102 4,907 4,189 3,945 3,827
North America 1,386 1,500 1,100 1,947 2,674 2,815 2,832 2,500 2,109 2,261 2,175
South America 342 335 284 364 274 221 208 142 146 127 213
Asia 2,245 2,008 2,054 2,082 1,624 1,359 1,427 1,324 947 1,141 988
Other markets 340 366 331 486 349 268 207 184 205 195 177
Total 8,859 8,716 8,159 11,433 11,719 10,774 9,776 9,057 7,596 7,669 7,380
Volvo Aero Europe 3,036 3,768 3,942 3,497 3,462 3,798 3,406 3,179 4,000 3,450 4,875
North America 3,304 3,599 3,508 3,534 3,723 3,815 3,612 3,127 3,301 4,573 5,841
South America 8 27 34 58 127 173 168 138 152 177 187
Asia 108 233 205 234 234 356 284 400 428 497 708
Other markets 53 81 114 125 100 91 68 81 149 140 173
Total 6,509 7,708 7,803 7,448 7,646 8,233 7,538 6,925 8,030 8,837 11,784
Other and
eliminations 242 (680) (538) (575) (703) (654) 7,076 7,228 7,041 6,775 7,073
Net sales Industrial
Operations 303,589 257,375 208,487 294,932 276,795 249,020 231,191 202,171 174,768 177,080 180,615
Customer Europe 4,663 4,733 7,127 7,099 4,484 4,388 4,797 6,613 6,078 5,997 5,674
Finance North America 2,326 2,605 3,004 369 2,467 2,569 2,036 2,432 2,542 3,344 3,216
South America 1,131 1,156 1,070 791 620 608 570 396 358 403 451
Asia 571 435 435 158 87 45 101 90 65 49 24
Other markets 192 101 75 68 47 38 45 67 110 132 130
Total 8,883 9,031 11,711 8,485 7,705 7,648 7,549 9,598 9,153 9,925 9,495
Eliminations (2,104) (1,658) (1,836) 250 905 2,167 1,819 (693) (630) (807) (830)
Volvo Group total 310,367 264,749 218,361 303,667 285,405 258,835 240,559 211,076 183,291 186,198 189,280
1 Net sales 2001 have been restated in accordance with new organization effective As of January 1, 2007, the results from the synergies created in the busi-
from 2002. ness units are transferred back to the various business areas. Comparison
figures for 2006 have been restated.
147
Financial information 2011
Eleven-year summary
Operating income
SEK M 2011 2010 2009 2008 2007 20061 2005 20042 20033 2002 20014
Trucks 18,260 10,112 (10,805) 12,167 15,193 13,116 11,717 8,992 3,951 1,189 (2,066)
Buses 1,036 780 (350) (76) 231 745 470 158 (790) (94) (916)
Construction Equipment 6,653 6,180 (4,005) 1,808 4,218 4,072 2,752 1,898 908 406 527
Volvo Penta 781 578 (230) 928 1,173 1,105 943 940 695 647 658
Volvo Aero 336 286 50 359 529 359 836 403 (44) 5 653
Customer Finance 942 167 (680) 1,397 1,649 1,686 2,033 1,365 926 490 325
Other (1,109) (102) (994) (731) (762) (684) (598) 923 (3,142) 194 143
Operating income (loss)
Volvo Group 26,899 18,000 (17,013) 15,851 22,231 20,399 18,153 14,679 2,504 2,837 (676)
As of January 1, 2007, the benefits from the synergies created in the business 3 Operating income in 2003 included write-down of shares in Scania AB and
units are transferred back to the various business areas. Comparison figures for Henlys Group Plc amounting to 4,030, of which 429 was reported in Buses
2006 have been restated. (Henlys Group) and 3,601 was reported in Other (Scania AB).
1 Operating income in 2006 includes adjustment of goodwill of neg 1,712, 4 Operating income in 2001 included restructuring costs mainly related to the
reported in Trucks. integration of Mack Trucks and Renault Trucks of 3,862 of which 3,106 in
2 Operating income in 2004 included reversal of write-down of shares in Scania Trucks, 392 in Buses and 364 in Construction Equipment.
AB of 915, reported in Other, and write-down of shares in Henlys Group Plc of
95, reported in Buses.
Operating margin
% 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Trucks 9.1 6.0 (7.8) 6.0 8.1 7.7 7.5 6.6 3.4 1.0 (1.8)
Construction Equipment 10.2 11.5 (11.2) 3.2 7.9 9.7 7.9 6.5 3.9 1.9 2.5
Buses 4.6 3.8 (1.9) (0.4) 1.4 4.3 2.8 1.2 (6.6) (0.7) (5.5)
Volvo Penta 8.8 6.6 (2.8) 8.1 10.0 10.3 9.6 10.4 9.1 8.4 8.9
Volvo Aero 5.2 3.7 0.6 4.8 6.9 4.4 11.1 5.8 (0.5) 0.1 5.5
Volvo Group Industrial
Operations 8.6 6.9 (7.8) 5.2 7.8 7.9 7.9 7.3 1.4 1.6 (0.4)
148
Employees
Number1 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Sweden 24,663 23,073 22,763 28,190 28,660 27,830 27,070 28,530 26,380 25,420 24,350
Europe, excluding Sweden 30,458 29,239 29,793 32,940 32,780 30,070 29,650 28,930 29,120 27,130 27,800
North America 15,427 12,844 12,640 14,200 15,750 14,820 15,140 14,620 12,270 12,440 12,670
South America 5,234 4,322 4,257 4,380 4,640 3,890 3,690 3,110 2,640 2,020 2,090
Asia 19,924 18,535 18,416 19,090 17,150 4,420 4,210 4,130 3,710 2,590 2,550
Other markets 2,456 2,396 2,339 2,580 2,720 2,160 2,100 1,760 1,620 1,560 1,460
Volvo Group total 98,162 90,409 90,208 101,380 101,700 83,190 81,860 81,080 75,740 71,160 70,920
1 As of 2009 regular employees are shown, previously temporary employees were also included.
Delivered units
Number 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Heavy-duty trucks (>16 tons) 179,779 123,522 82,675 179,962 172,322 179,089 172,242 152,300 120,920 120,200 117,180
Medium-duty trucks (7–15.9 tons) 34,631 30,657 21,653 30,817 27,933 14,695 18,643 18,800 15,870 16,220 17,310
Light trucks (<7 tons) 23,982 25,811 23,354 40,372 36,101 26,147 23,494 22,120 19,200 20,710 20,820
Total trucks 238,391 179,989 127,681 251,151 236,356 219,931 214,379 193,220 155,990 157,130 155,310
Number 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
Trucks Total Europe 95,113 65,503 49,145 121,847 128,070 114,417 103,622 102,670 92,080 96,290 98,040
Western Europe 75,728 56,215 43,919 95,969 100,106 97,074 91,087 90,750 82,670 87,490 90,460
Eastern Europe 19,385 9,288 5,226 25,878 27,964 17,343 12,535 11,920 9,410 8,800 7,580
North America 42,613 24,282 17,574 30,146 33,280 70,499 64,974 49,270 34,760 36,510 34,650
South America 29,274 21,483 12,587 18,092 15,264 11,646 11,248 9,190 5,980 5,360 5,790
Asia 56,165 53,833 34,800 60,725 39,916 12,817 25,706 24,880 16,290 9,140 6,600
Other markets 15,226 14,888 13,575 20,341 19,826 10,552 8,829 7,210 6,880 9,830 10,230
Total 238,391 179,989 127,681 251,151 236,356 219,931 214,379 193,220 155,990 157,130 155,310
Buses Total Europe 2,695 2,395 3,164 3,313 3,748 3,570 3,723 3,417 3,087 3,413 3,115
Western Europe 2,601 2,336 2,896 3,140 3,377 3,081 3,385 3,073 2,782 3,076 2,899
Eastern Europe 94 59 268 173 371 489 338 344 305 337 216
North America 3,014 2,092 1,539 1,884 1,547 1,741 1,546 1,388 1,553 1,945 3,128
South America 2,620 1,174 690 995 1,318 1,236 2,297 624 369 495 1,009
Asia 3,417 3,477 3,839 3,033 2,757 3,349 2,554 2,341 2,227 2,639 2,209
Other markets 1,040 1,091 625 712 546 464 555 462 581 567 492
Total 12,786 10,229 9,857 9,937 9,916 10,360 10,675 8,232 7,817 9,059 9,953
149
Corporate governance report 2011
7 5 14
6 1 2
15 16 10
9
8
12 3 13 4
11
Group Management
Olof Persson assumed the position as deputy President Peter Karlsten, former President of Volvo Powertrain Mikael Bratt as CFO of the Volvo Group, with responsibility
of AB Volvo and deputy CEO of the Volvo Group on May 1, and Senior Vice President Technology of the Volvo Group, for among other things Volvo Financial Services and Volvo
2011. He was previously President of Volvo Construction assumed a newly established position as Executive Vice IT. He also became a member of the Group Executive Team.
Equipment since 2008. Patrick Olney was appointed new President Group Trucks Sales & Marketing EMEA, Magnus Carlander, former President of Volvo IT,
President of Volvo Construction Equipment and he assumed remaining a member of the Group Executive Team. assumed a newly established position as Executive Vice
his position on May 1, 2011, when he also became a member Joachim Rosenberg, formerly responsible for Volvo President Corporate Process & IT, and became a member
of the Group Executive Team. Group Asia Truck Operations, assumed a newly estab- of the Group Executive Team.
On September 1, 2011, Olof Persson succeeded Leif lished position as Executive Vice President Group Trucks Karin Falk, former President of Volvo Group Non-
Johansson as President of AB Volvo and CEO of the Volvo Sales & Marketing APAC, and became a member of the Automotive Purchasing, assumed a newly established
Group. Group Executive Team. position as Executive Vice President Corporate Strategy,
In conjunction with the introduction of the new organi- Pär Östberg, formerly responsible for Trucks Asia, and became a member of the Group Executive Team.
zation on January 1, 2012, the following changes were assumed a newly established position as Executive Vice Kerstin Renard, former Senior Vice President Human
made to Volvo’s Group Executive Team: President Truck Joint Ventures, remaining a member of Resources for the Volvo Group under Stefan Johnsson,
Staffan Jufors, President of Volvo Trucks, retired and the Group Executive Team. assumed a newly established position as Executive Vice
thus resigned from the Group Executive Team. Torbjörn Holmström, former President of Volvo 3P, President Corporate Human Resources, and became a
Stefano Chmielewski, former President of Renault assumed a newly established position as Executive Vice member of the Group Executive Team.
Trucks, Göran Gummeson, President of Volvo Penta, Satoru President Group Trucks Technology, and became a Eva Persson, Executive Vice President Corporate
Takeuchi, President of UD Trucks, Martin Weissburg, Presi- member of the Group Executive Team. Legal & Compliance and General Counsel, Per Löjdquist,
dent of Volvo Financial Services and Staffan Zackrisson, Mikael Bratt, former CFO of the Volvo Group, assumed Executive Vice President Corporate Communication,
President of Volvo Aero, are not included in the Group Exec- a newly established position as Executive Vice President Patrick Olney, Executive Vice President Volvo Construction
utive Team as of January 1, 2012. Group Trucks Operations, remaining a member of the Equipment and Jan-Eric Sundgren, Executive Vice Presi-
Stefan Johnsson resigned from his position as a director Group Executive Team. dent Public & Environmental Affairs, remain in the Group
of the Group Executive Team responsible for HR matters Håkan Karlsson, former President of Volvo Buses, Executive Team and retain their current areas of respons
and several business units assumed a newly established position as Executive Vice ibility materially unchanged.
Dennis Slagle, former President of North American President Business Areas, remaining a member of the
Trucks and Mack Trucks, assumed a newly established Group Executive Team.
position as Executive Vice President Group Trucks Sales Anders Osberg, former President of Volvo Treasury,
& Marketing Americas, remaining a member of the Group assumed a newly established position as Executive Vice
Executive Team. President Finance & Business Support and succeeded
150
Group Management
151
Corporate governance report 2011
1
13 10
11 6
8 2 5
12 7 4
3
9
152
Controller, Executive Vice President and CFO, and President Board members and deputies Secretary to the Board
of STC Venture AB; President and Chief Executive Officer
at OM International AB; Executive Vice President and appointed by employee organisations Eva Persson
CFO at Securum; Director with executive responsibility
for Markets and Corporate Finance at Nordbanken; Born 1953. Master of Laws. Executive Vice President
10. Mikael Sällström Corporate Legal & Compliance and General Counsel of
Executive Vice President and CFO at Skanska.
Employee representative, ordinary member. Born 1959. the Volvo Group. Secretary to the Volvo Board since 1997.
6. Olof Persson With Volvo 1980–1999 and since 2009. Member of the Holdings in Volvo, own and related parties: 60,036
Volvo Board since 2009. Holdings in Volvo, own and shares, including 58,560 Series B shares.
Born 1964. B. Sc. in Business Administration and Economics. related parties: None.
President of AB Volvo and Chief Executive Officer of the
Volvo Group since September 1, 2011. Member of the 11. Berth Thulin
Volvo Board since September 1, 2011. Holdings in Volvo, Auditors
own and related parties: 56,344 Series B Shares. Employee representative, ordinary member. Born 1951.
With Volvo since 1975. Deputy member of the Volvo PricewaterhouseCoopers AB
Principal work experience: Began his career at ABB; has Board 1999–2009, member since 2009. Holdings in
held a number of executive positions at AdTranz and Volvo, own and related parties: 1,425 Series B shares. Göran Tidström
Bombardier; President of Mainline and Metros Division in Authorized Public Accountant.
Bombardier; President of Volvo Aero; President of Volvo 12. Peteris Lauberts Lead Auditor.
Construction Equipment. Employee representative, ordinary member. Born 1948.
With Volvo since 1999. Deputy member of the Volvo Board Auditor since 2006.
7. Ravi Venkatesan 2010–2011, member since November 30, 2011. Holdings
Born 1963. MBA, Harvard Business School, and M.Sc. in Volvo, own and related parties: 216 Series A shares. Other assignments: Auditor of Meda AB. President of
Industrial Engineering, Purdue University. Board member: IFAC (International Federation of Accountants).
Infosys Ltd., Advisory Board of Bunge Inc., Non Profit 13. Lars Ask
Advisory Board Harvard Business School. Member of the Employee representative, deputy member. Born 1959. Born 1946.
Volvo Board since 2008. Holdings in Volvo, own and With Volvo since 1982. Deputy member of the Volvo Board
related parties: 700 Series B shares. since 2009. Holdings in Volvo, own and related parties: Johan Rippe
406 shares, including 250 Series B shares. Authorized Public Accountant.
Principal work experience: Several leading positions
within the American engine manufacturer Cummins.
Mats Henning Auditor since 2010.
Chairman of Microsoft India and responsible for Microsoft’s
marketing, operational and business development efforts Employee representative, deputy member. Born 1961.
in India. With Volvo since 1982. Deputy member of the Volvo Other assignments: Auditor of Getinge AB and Elanders AB.
Board since November 30, 2011 Holdings in Volvo,
8. Lars Westerberg own and related parties: 250 Series B shares. Born 1968.
Chairman of the Audit Committee
Born 1948. M.Sc. Engineering, Bachelor Business
Administration. Board Chairman: Husqvarna AB. Board Changes in the Board
member: SSAB, Sandvik AB and Stena AB. Member of
the Volvo Board since 2007. Holdings in Volvo, own and
Board members elected by the Annual General
related parties: 60,000 Series A shares.
Meeting
Principal work experience: President and CEO of Gränges Leif Johansson, CEO of the Volvo Group until and includ-
AB, ESAB AB and Autoliv Inc. ing August 31, 2011, resigned from the Board at the
same time and was replaced as Board member by Olof
9. Ying Yeh Persson from September 1, 2011, who then also
Member of the Remuneration Committee assumed the position as CEO.
Born 1948. BA, Literature & International Relations. Board members and deputies appointed by
Board member: ABB Ltd. Member of the Volvo Board employee organisations
since 2006. Holdings in Volvo, own and related As of November 30, 2011 Martin Linder left the Board and
parties: None. was replaced by Peteris Lauberts, former deputy member
of the Board. Mats Henning was appointed new deputy as
Principal work experience: Journalist NBC, New York. of the same date.
Numerous positions with the U.S. Government Foreign
Service in Burma, Hong Kong, Taiwan and Beijing. Various
positions with Eastman Kodak in China, latest as President
and Chairman, North Asia Region. Chairman of Nalco
Greater China.
153
Corporate governance report 2011
In March 2011, the Board of Directors resolved to appoint as of September 1, 2011, when Leif
Johansson resigned after almost 15 years as CEO, Olof Persson as the new President and CEO of
Volvo. During the year the Board of Directors also resolved to introduce new financial targets for
the Volvo Group. Based on the uncertainty in the macroeconomic trend, the Board focused during
2011 particularly on continuously adapting the company’s activities to the prevailing demand.
Corporate bodies in
The Volvo Group Corporate Governance Model
corporate governance
The governance and control of the Volvo Group
is carried out through a number of corporate Shareholders
bodies. At the Annual General Meeting, the
shareholders exercise their voting rights with
regard, for example, to the composition of the
Board of Directors of AB Volvo and election of
external auditors and as otherwise stipulated in Annual General Meeting Election Committee
the Companies Act. Information concerning the
largest shareholders in AB Volvo as of Decem-
ber 31, 2011, including information on share- Renumeration
holders, whose shareholdings in the company Committee
represent at least one tenth of the votes for all Board Auditors
shares in the company, is provided in the Board Audit Committee
of Director’s report for Volvo on page 53.
The notice for Annual General Meetings (and
for Extraordinary General Meetings if any) is
President
made through advertisement in the Post- and
Inrikes Tidningar (Swedish Official Gazette) and
on the company’s website. Announcement that
Group Executive Committee
the notice has been published is advertised in
Dagens Nyheter and Göteborgs-Posten.
An Election Committee, appointed by the
Annual General Meeting of AB Volvo, proposes
Board members, Board Chairman and external
auditors. The Board is responsible for the
Group’s long-term development and strategy,
for regularly controlling and evaluating the com-
pany’s operations and for the other duties set on October 4, 2011, and which among other The Group Executive Team comprises those
forth in the Companies Act. In addition, the things aims at the coordination of products and who report directly to the CEO. The Group
Board appoints the President of AB Volvo, who brands in the Group’s Trucks operations. In the Executive Team has 16 members including the
is also the Chief Executive Officer (CEO). The new organization, the CEO leads the operations CEO. The Group Executive Team meetings,
duties of the Board are partly exercised through the operations of the Group partly through the which are headed by the CEO, address Group-
its Audit Committee and its Remuneration Group Executive Team, as previously, but also wide issues and issues affecting individual
Committee. The CEO is in charge of the daily through the newly established Group Trucks business areas, Group functions or corporate
management of the Group in accordance with Executive Management Team. In addition, the functions. The Group Trucks Executive Man-
guidelines and instructions provided by the Board. CEO conducts regular follow-ups with the agement Team comprises, in addition to the
On January 1, 2012, the Volvo Group intro- heads of other business areas, Group functions CEO, mostly members of the Group Executive
duced a new organization, which was presented and corporate functions. Team. Members of the Group Executive Team
154
further have positions in management teams in the company and further to comment on their The Board’s composition and attendance at
meetings January 1, 2011 to December 31,
and decision-making bodies for other business material assignments and holding of shares in 2011
areas and Group functions. These bodies will Volvo. Moreover, the Committee shall report on Remu-
effect control and follow-ups of financial devel- how it conducted its work. Audit neration
Commit- Commit-
opment, strategies and targets as well as make In accordance with existing instructions, the Board tee tee
decisions regarding, for example, investments. Annual General Meeting shall select five mem- Peter Bijur 12 8
bers to serve on the Election Committee, of Jean-Baptiste Duzan 12 8
Swedish Code of Corporate Governance whom four shall represent the largest sharehold- Leif Johansson1 7
Olof Persson2 4
Volvo applies the Swedish Code of Corporate ers in the company, in terms of the number of
Hane de Mora 12
Governance (the Code), which is available at votes, who have expressed their willingness to Anders Nyrén 12 4
www.bolagsstyrning.se. participate. In addition, one of the members shall Louis Schweitzer 12 4
Between January 1, 2011 and December 31, be the Chairman of the AB Volvo Board. Addition- Ravi Venkatesan 12
2011, Volvo did not deviate from any of the ally, the Election Committee can offer other Lars Westerberg 12 8
regulations set forth in the Code. larger shareholders to appoint one representative Ying Yeh 11 3
Martin Linder3,
This Corporate Governance Report has been as a member of the Election Committee. If such employee
prepared in accordance with the Annual an offer is made, it should be directed in turn to representative 10
Accounts Act and the Code. the largest shareholder in terms of voting rights Mikael Sällström,
employee
not already being represented on the Election representative 11
Election Committee Committee. The number of members on the Elec- Berth Thulin,
employee
The Election Committee is the shareholders’ tion Committee, however, may not exceed seven. representative 12
body responsible for submitting to the Annual In accordance with its instructions, Volvo’s Peteris Lauberts4,
General Meeting the names of candidates to 2011 Annual General Meeting resolved to employee
representative 1
serve as Chairman at the Meeting and Chairman appoint the following individuals as members of Total number of
and other members of the Board, as well as pro- the Election Committee: Volvo’s Chairman meetings 12 8 4
posing fees and other compensations to be Louis Schweitzer, Jean-Baptiste Duzan, repre-
1 Left the Board on August 31, 2011.
paid to the Board members. In the years in senting Renault s.a.s., Carl-Olof By, representing
2 Was elected member of the Board as of
which Volvo elects auditors, the Election Com- AB Industrivärden, Håkan Sandberg, representing September 1, 2011.
mittee presents proposals for the election of Svenska Handelsbanken, SHB Pension Fund, 3 Left the Board on November 30, 2011.
auditors and proposals for fees to be paid to the SHB Employee Fund, SHB Pensionskassa, and 4 Joined the Board as member as of
auditors based on the preparations carried out Oktogonen, and Lars Förberg, representing November 30, 2011, previously deputy.
by Volvo’s Audit Committee. In addition, the Violet Partners LP. The Election Committee
Election Committee, in accordance with prevailing appointed Carl-Olof By as Chairman.
instructions for Volvo’s Election Committee, the number of Board meetings, matters to be
presents proposals for members of the Election The Board handled at regular meetings of the Board and
Committee for the following year. During the period January 1, 2011 – December 31, duties incumbent on the Chairman. In accord-
In accordance with the aforementioned 2011, AB Volvo’s Board of Directors consisted ance with these procedures, the Board’s Chair-
instructions, the Election Committee shall meet of nine members elected by the Annual General man shall organize and guide the Board’s work,
as often as required for the Committee to be Meeting. In addition, the Board had three members be responsible for contacts with the owners
able to fulfill its duties. and two deputy members appointed by regarding ownership matters and provide the
The Election Committee’s proposal shall be employee organizations. owners’ viewpoints to the Board, ensure that
presented to Volvo in sufficient time to be Leif Johansson, who was Volvo’s CEO until the Board receives adequate information and
included in the notice to attend the Annual September 1, 2011, was also a Board member decision documents for its work and ensure
General Meeting and to be published on Volvo’s until September 1, 2011, when he was replaced compliance with the Board’s decisions. In addition,
website at the same time. In conjunction with on the Board by Olof Persson who also the work procedures contain directives con-
the notice to attend the Annual General Meeting assumed the position of CEO. cerning the tasks of the Audit Committee and
being published, the Election Committee shall, During 2011, six regular meetings, one statu the Remuneration Committee respectively. The
among other duties, comment on whether those tory meeting and five extraordinary meetings Board has also issued written instructions
persons who are proposed to be elected as were held. specifying how financial information should be
Board members are to be considered as inde- The Board has adopted work procedures for reported to the Board, as well as defining the
pendent in relation to the company and company its activities that contain rules pertaining to the distribution of duties between the Board and
management as well as to major shareholders distribution of work between the Board members, the President.
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Corporate governance report 2011
The Annual General Meeting resolves on the During 2011, following preparation in the ensure that the decisions taken by the Board
fees to be paid to the Board members elected Remuneration Committee, the Board evaluated are executed. An account of each Board member’s
by the shareholders. The Annual General Meet- Volvo’s systems for variable remuneration to age, principal education, professional experience,
ing held on April 6, 2011, approved fee pay- senior executives, where the performance targets assignments in the Company, other important
ments to the Board, for the time until the end of were based on operating income and operating board memberships, their own and related par-
the next Annual General Meeting, as follows: rolling cash flow for executives in the industrial ties’ ownership of shares in Volvo as of February
Chairman of the Board should receive a fee of operation. For executives in the customer- 23, 2012, and the year they were elected on the
SEK 1,800,000 and each of the remaining financing operation, the performance targets Volvo Board, is presented in the section Board
members should receive a fee of SEK 600,000, were related to operating income and return on of Directors and auditors on page 153.
with the exception of the President. In addition, equity. The Board has concluded that the out- During 2011, the Board performed its yearly
the Chairman of the Audit Committee should come for 2011 has been satisfactory and con- evaluation of the Board’s work. The Chairman
receive SEK 300,000, the other members of sequently found that the existing system was has informed the Election Committee on the
the Audit Committee SEK 150,000 each and well-functioning. Irrespective of this, the Board result of the evaluation.
the members of the Remuneration Committee came to the conclusion that in future, the operating
SEK 100,000 each. margin would be a better measure of the per- Independence requirements
In March 2011, the Board announced that it formance of the industrial operation than oper- The Board of Directors of AB Volvo must meet
had resolved to appoint Olof Persson as the ating income. In view of the new financial targets independence requirements pursuant to the
new President and CEO for Volvo as of September for the Group presented by the Board in Sep- Code. The Audit Committee must also meet inde-
1, 2011, to replace Leif Johansson when he tember 2011, the Board also believes that the pendence requirements pursuant to the Code
would be stepping down. Olof Persson was new financial target pertaining to competitive and the Swedish Companies Act. Below is a short
previously the President of Volvo Construction comparison of operating margins should be description of the independence requirements. The
Equipment since 2008. Prior to that, he was the reflected in the performance targets for variable independence requirements mainly state that only
President of Volvo Aero. The Board also remuneration for 2012, pertaining to executives one person from the company’s management
resolved in September 2011 to introduce new in the industrial operation. According to the may be a member of the Board, that a majority of
financial targets for the Volvo Group to apply as Board, the operating cash flow is still relevant the Board members elected by the General
of 2012, with the aim of annually measuring as a measure of the performance of the indus- Meeting shall be independent of the company
growth and profitability among the Group’s various trial operation. The Board has also found that and the company management and that at least
operations and making comparisons with a for the customer financing operation performance two of the Board members elected by the Gen-
number of selected competitors. As a result of targets based on return on equity and operating eral Meeting who are independent of the com-
the uncertainty about the macroeconomic income are still relevant. pany and the company’s management shall also
trend, the Board specifically focused on moni- Based on the above mentioned evaluation of be independent of the company’s major share-
toring the business environment in order to the variable-remuneration systems, the Board holders. In addition, the Code stipulates that a
continuously adapt the company’s activities to resolved to introduce partly amended perform- majority of the members in the Audit Committee
the prevailing demand. The Board also focused ance targets for variable remuneration to senior shall be independent of the company and the
on the trend for the Group’s operations and visited executives to apply for 2012 pertaining to most company management, and that at least one of
several of the Group’s facilities in the US in of the industrial operation. The new perform- the members who is independent of the company
2011, meeting management and customers. ance targets are based on the following para and the company management shall also be inde-
The Board also reviewed the financial positions meters; (i) six months’ operating rolling cash flow, pendent of the company’s major shareholders.
of AB Volvo and the Volvo Group on a regular (ii) operating margin compared to last year and According to the Swedish Companies Act, the
basis and acted in order to ensure that there are (iii) profitability measured on operating margin members of the Audit Committee may not be
efficient systems with regard to follow-up and compared with competitors. For the customer employees of the company and at least one
control of the business and financial position of financing operation, the Board resolved that the member of the Audit Committee shall be inde-
the Volvo Group. In connection therewith, the performance targets for variable remuneration pendent of the company, company management
Audit Committee was responsible for preparing will continue to focus on return on equity and and the company’s largest shareholders and have
the Board’s work to assure the quality of the operating income. accounting or auditing expertise. With regard to
Group’s financial reporting by reviewing the The Board’s work is mainly performed within the Remuneration Committee, the Code sets the
interim reports, the Annual Report and consoli- the framework of formal Board meetings and requirement that members of the Remuneration
dated accounting. In connection therewith, the through meetings in the respective committees Committee, with the exception of the Board
Board met with the company’s auditors during of the Board. In addition, the Chairman of the Chairman if a member of the Remuneration Com-
2011. The Board continuously evaluates the per- Board maintains regular contact with the CEO mittee, shall be independent of the company and
formance of the CEO. in order to discuss on-going business and to company management.
156
Prior to the Annual General Meeting 2011, be independent of the company’s largest share- of the Group’s system for internal control over
considering the above requirements regarding the holder in terms of votes or any group of share- financial reporting, and with respect to the
Board’s independence, the Election Committee holders that act in concert in the governance of internal audit and risk management.
reported the following understanding concerning the company. Neither the CEO nor other members At the statutory Board meeting following the
the Board members who were elected at the of the executive management are to be members 2011 Annual General Meeting, Lars Westerberg,
Annual General Meeting in 2011: of the Election Committee. If Board members are Peter Bijur and Jean-Baptiste Duzan were
Peter Bijur, Hanne De Mora, Louis Schweitzer, included in the Election Committee, they may not appointed members of the Audit Committee.
Ravi Venkatesan, Lars Westerberg and Ying Yeh constitute a majority of the Election Committee’s Lars Westerberg was appointed Chairman of
were all considered independent of the company members. The Chairman of the Board of the the Audit Committee.
and company management as well as of the com- company or, any other Board member may not be The Audit Committee met with the external
pany’s major shareholders. the Chairman of the Election Committee. If more auditors and Head of Internal Audit at the meet-
Leif Johansson, as Volvo’s CEO, was con than one Board member is included in the Elec- ings of the Audit Committee. The Audit Com-
sidered independent of the company’s major tion Committee, not more than one of them may mittee has also met separately with the external
shareholders but not of the company and company be dependent in relation to the company’s largest auditors and the Head of Internal Audit without
management. Olof Persson, who at the 2011 shareholders. All members of the Election Com- the presence of the company management. The
Annual General Meeting, was the President of mittee have been considered to be independent Audit Committee and the external auditors
Volvo Construction Equipment and who was of the company and the company management. have, among other tasks, discussed the external
elected a member of the Board as from September All members of the Election Committee except audit plan and risk management. The Audit
1, 2011, when he also was to assume the position Jean-Baptiste Duzan have, prior to being Committee held eight meetings during 2011.
as Volvo’s CEO, was deemed independent of the appointed, been considered to be independent of
company’s major shareholders but was not Volvo’s largest shareholder in terms of votes. This Remuneration Committee
deemed independent in relation to the company conclusion is based on the facts that Renault In April 2003, the Board established a Remu-
and the company management, due to his position s.a.s. is Volvo’s largest shareholder in terms of neration Committee for the purpose of preparing
in the Volvo Group. votes and that Jean-Baptiste Duzan represents and deciding on issues relating to remuneration
Jean-Baptiste Duzan was considered inde- Renault s.a.s. in the Election Committee. to senior executives in the Group. The duties of
pendent in relation to the company and company the Committee include presenting recommen-
management. However, in his capacity as an Audit Committee dations for resolution by the Board regarding
advisor to the CEO of Renault S.A., he was In December 2002, the Board established an the terms and conditions of employment and
deemed to have such a relation to Renault s.a.s. Audit Committee primarily for the purpose of over- remuneration for the President of AB Volvo,
that he could not be considered independent seeing the accounting and financial reporting proc- principles for remuneration, including pensions
thereof. Since Renault s.a.s., prior to the 2011 esses and the audit of the financial statements. and severance payments, for other members of
Annual General Meeting, controlled more than 10 The Audit Committee is responsible for pre- the Group Executive Team, and principles for
percent of the votes in the company, Jean-Baptiste paring the Board’s work to assure the quality of variable salary systems, share-based incentive
Duzan was not considered independent in rela- the Group’s financial reporting by reviewing the programs, pensions and severance payment for
tion to one of the company’s major shareholders. interim reports, the Annual Report and consoli- other senior executives in the Group. In addition,
Anders Nyrén was deemed independent in dated accounting. In addition, the Audit Com- the Remuneration Committee shall approve pro-
relation to the company and company manage- mittee’s task is to establish guidelines specifying posals on remuneration of the other members of
ment. However, due to his capacity as CEO of AB what other services, beyond auditing, the com- the Group Executive Team in accordance with
Industrivärden, he was not deemed independent pany may procure from the company’s auditors the principles established by the Board.
thereof. Since AB Industrivärden, prior to the and to provide guidelines for transactions with The Remuneration Committee shall monitor
2011 Annual General Meeting, controlled more companies and persons closely associated with and evaluate ongoing programs and programs
than 10 percent of the votes in the company, Volvo. The Audit Committee also has the task of concluded during the year covering variable
Anders Nyrén was not considered independent in reviewing and overseeing the impartiality and remuneration for the Group Executive Team,
relation to one of the company’s major share- independence of the company’s auditor. The application of the guidelines for remuneration
holders. Audit Committee is also responsible for evalu- to senior executives on which the Annual General
The Election Committee must also meet inde- ating the internal and external auditors’ work, Meeting shall resolve and the current remuner-
pendence requirements pursuant to the Code. providing the Election Committee with the ation structures and levels in the Group. The
According to the Code, most of the members of results of the evaluation of the external auditors Board shall, not later than two weeks prior to
the Election Committee are to be independent of and to assist in preparing proposals for the the Annual General Meeting, submit a report on
the company and the company management. At election of auditors. Finally, the Audit Committee the results of the Remuneration Committee’s
least one member of the Election Committee is to shall evaluate the quality, relevance and efficiency evaluation on the company’s website.
157
Corporate governance report 2011
If the Remuneration Committee commissions their reviews to the Audit Committee twice a year activities, information and communication and
external suppliers for its work, it must ensure and once a year to the full Board of Directors. follow-up.
that there are no conflicts of interest in relation When PwC is retained to provide services Volvo has a specific function for internal control.
to other assignments this supplier may have for other than the audit, it is done in accordance with The objective of the Internal Control function is
the Group or the Group Executive Team. rules decided by the Audit Committee pertaining to provide support for management groups
At the statutory meeting of the Board follow- to pre-approval of the nature of the services and within business areas and Group functions, that
ing the 2011 Annual General Meeting, Louis the fees. allows them to continuously provide solid and
Schweitzer, Anders Nyrén and Ying Yeh were improved internal controls relating to financial
appointed members of the Remuneration Com- Disclosure Committee reporting. Work that is conducted through this
mittee. Louis Schweitzer was named Chairman A Disclosure Committee was established in function is based primarily on a methodology,
of the Remuneration Committee. The Remunera- 2004. The Committee contributes to ensuring which aim is to ensure compliance with direc-
tion Committee held four meetings during 2011. that Volvo fulfills its obligations according to tives and policies, as well as to create good
applicable legislation as well as to listing rules conditions for specific control activities in key
Group Executive Team to timely disclose to the financial market all processes related to financial reporting. The
An account of their respective age, principal share price sensitive information. Audit Committee is informed of the result of the
education, Board memberships, their own and The Committee comprises the heads of the work performed by the Internal Control function
related parties’ ownership of shares in Volvo as departments Corporate Finance, Internal Audit, within Volvo with regard to risks, control activities
of February 23, 2012, and year of joining Volvo Investor Relations, Corporate Legal, Business and follow-up on the financial reporting.
for the CEO and each member of the Group Control and Financial Reporting. Chairman of Volvo also has an Internal Audit function with
Executive Team is presented in the Group Man- the Disclosure Committee is the Executive Vice the primary task of independently monitoring
agement section on page 151. President responsible for Corporate Communi- that companies in the Group follow the principles
cation. and rules that are stated in the Group’s direc-
External auditing tives, policies and instructions for financial
Volvo’s auditors are elected by the Annual General Outstanding share and share-price reporting. The head of the Internal Audit function
Meeting. The current auditor is Pricewater- related incentive programs reports directly to the CEO, and in the new
houseCoopers AB (PwC), which was elected at An account of outstanding share and share- organization to the Group’s General Counsel
the 2010 Annual General Meeting for a period price related incentive programs is provided in and the Board’s Audit Committee.
of four years. Göran Tidström and Johan Rippe Note 27 Personnel in the Group’s notes.
from PwC, are responsible for the audit of Volvo. Control environment
Göran Tidström is the Auditor in Charge. Göran Report on the key aspects of the compa- Fundamental to Volvo’s control environment is
Tidström has announced that he will resign as ny’s and Group’s system for internal con- the business culture that is established within
Auditor in Charge at the Annual General Meeting trols and risk management in conjunction the Group and in which managers and employees
2012. He will be replaced by Peter Clemedtson, with financial reporting operate. Volvo works actively on communica-
partner of PwC. The Board is responsible for the internal con- tions and training regarding the company’s basic
The external auditors discuss the external trols according to the Swedish Companies Act values as described in The Volvo Way, an internal
audit plan and risk management with the Audit and the Code. The purpose of this report is to document concerning Volvo’s business culture,
Committee. The auditors review the interim provide shareholders and other interested parties and the Group’s Code of Conduct, to ensure
report for the period January 1 to June 30 and an understanding of how internal control is that good morals, ethics and integrity permeate
the Annual Report and the consolidated organized at Volvo with regard to financial the organization.
accounting. The auditors also express an opinion reporting. The report has been prepared in The foundation of the internal control pro
whether this Corporate Governance Report was accordance with the Annual Accounts Act. cess relating to the financial reporting is built
prepared or not and in such respect whether Consequently the report is limited to internal up around the Group’s directives, policies and
certain information therein coincides with the control over financial reporting. instructions, as well as the responsibility and
Annual Report and consolidated accounting. The authority structure that has been adapted to the
auditors’ report their findings with regard to the Introduction Group’s organization to create and maintain a
annual report, consolidated accounting and the Volvo primarily applies internal control princi- satisfactory control environment. The principles
Corporate Governance Report through the audit ples introduced by the Committee of Sponsoring for internal controls and directives and policies
reports and a separate opinion regarding the Organizations of the Treadway Commission for the financial reporting are contained in Volvo
Corporate Governance Report, which they (COSO). The COSO principles consist of five Financial Policies & Procedures (FPP), an internal
present to the Annual General Meeting. In addi- interrelated components. The components are: document comprising all important instructions,
tion, the auditors’ report detailed findings from control environment, risk assessment, control rules and principles.
158
Definitions
Risk assessment committees and networks within Volvo that 3. General IT controls: Processes for main Basic earnings per share Interest coverage
Risks relating to financial reporting are evaluated serve as forums for information and discussions tenance, development and access manage- Income for the period attributable to shareholders of the Parent Operating income plus interest income and similar credits divided
Company divided by the weighted average number of shares out- by interest expense and similar charges.
and monitored by the Board through the Audit regarding issues relating to the financial reporting ment of financial applications are evaluated
standing during the period.
Committee inter alia through identifying what and application of internal rules. Included in by testing of routines and controls. Joint ventures
types of risks that typically could be considered these committees and networks are represent- Capital expenditures Companies over which the Company has joint control together with
as material and where they would typically atives from the business areas and the Group’s The results of the evaluation activities are Capital expenditures include investments in property, plant and one or more external parties.
occur. The annual evaluation of internal control staff units who are responsible for financial reported to the Group management and the equipment, intangible assets and assets under operating leases.
Investments in fixed assets included in the Group’s cash-flow Net financial position
activities conducted by the Internal Control and reporting. Work in these committees and net- Audit Committee.
statement include only capital expenditures that have reduced the Cash and cash equivalents, marketable securities and interest-
Internal Audit functions, are based on a risk- works is aimed, among other things, at ensuring Group’s liquid funds during the year. bearing short- and long-term receivables reduced by short- and
based model. The evaluation of the risk that a uniform application of the Group’s policies, long-term interest-bearing liabilities and provisions for post-
errors will appear in the financial reporting is principles and instructions for the financial Göteborg, February 23, 2012 Cash-flow employment benefits.
based on a number of criteria. Complex reporting and at identifying and communicating Combined changes in the Group’s liquid funds during the fiscal
year. Changes in liquid funds are specified with reference to Operating margin
accounting principles can, for example, mean shortcomings and areas of improvement in the AB Volvo (publ)
changes in operations, operating activities, changes depending on Operating income divided by net sales.
that the financial reporting risks being inaccu- processes for financial reporting. investments in equipment, fixed assets etc. and financing activities
rate for those posts that are covered by such Board of Directors such as changes in loans and investments. Penetration rate
principles. Valuation of a particular asset or lia- Follow-up Share of unit sales financed by Volvo Financial Services in relation
bility according to various evaluation criteria Ongoing responsibility for follow-up rests with Diluted earnings per share to total number units sold by the Volvo Group in markets where
Diluted earnings per share is calculated as income for the period financial services are offered.
can also constitute a risk. The same is true for the business areas’ management groups and Auditor’s report on the Corporate
attributable to the Parent Company’s shareholders divided by the
complex and/or changing business circum- accounting and controller functions. In addition, G overnance Report average number of shares outstanding plus the average number of Return on shareholders’ equity
stances. the Internal Audit and the Internal Control func- To the annual meeting of the shareholders in AB shares that would be issued as an effect of ongoing share-based Income for the period divided by average shareholders’ equity.
tions conduct review and follow-up activities in Volvo, corporate identity number 556012-5790 incentive programs and employee stock option programs.
Control activities accordance with what is described in the intro- It is the Board of Directors who is responsible Self-financing ratio
EBITDA Cash-flow from operating activities (see Cash-flow statement)
In addition to the Board of AB Volvo and its duction of this report. More specifically, the for the Corporate Governance Report for the
EBITDA is the operating income before depreciation and amortiza- divided by net investments in fixed assets and leasing assets as
Audit Committee, the management groups and Internal Control function runs and coordinates year 2011 on pages 150–159 and that it has tion of tangible and intangible assets. This key figure is calculated defined in the cash-flow statement.
other decision-making bodies in the business evaluation activities through the “Volvo Group been prepared in accordance with the Annual by adding back depreciation and amortization on the operating
areas, Group functions and Group companies Internal Control program”, which gives a sys- Accounts Act. income of the Industrial operations.
constitute the overall supervisory body. tematic way of evaluating the quality and effec- We have read the Corporate Governance
Equity ratio
Several control activities are applied in the tiveness of the internal control over financial Report and based on that reading and our
Shareholders’ equity divided by total assets.
ongoing business processes to ensure that reporting on a yearly basis. A yearly evaluation knowledge of the company and the group we
potential errors or deviations in the financial plan is settled and presented to the Audit Com- believe that we have a sufficient basis for our
reporting are prevented, discovered and cor- mittee. This evaluation program comprises three opinions. This means that our statutory exami-
rected. Control activities range from review of main areas: nation of the Corporate Governance Report is
outcome results in management group meet- different and substantially less in scope than an
ings to specific reconciliation of accounts and ontrol policies and guidelines: Self-assessment
1. C audit conducted in accordance with Interna-
analysis of the ongoing processes for financial procedure carried out by management teams tional Standards on Auditing and generally
reporting. Responsibility for ensuring that control at business area and Group function levels as accepted auditing standards in Sweden.
activities in the financial processes are appro- well as local company level. Main areas eval- In our opinion, the Corporate Governance
priate and in accordance with the Group’s policies uated are the adherence to the Group’s Report has been prepared and its statutory
and instructions are compiled in the Group’s financial directives and policies found in FPP content is consistent with the annual accounts
shared service center. Within the framework for along with The Volvo Way and the Group’s and the consolidated accounts
the financial reporting, they are also responsible Code of Conduct.
for ensuring that authority structures are rocess controls at transaction levels: Pro
2. P
designed so that one person cannot perform an cesses related to the financial reporting are Göteborg, February 23, 2012
activity and then perform the control of the evaluated by testing of specific routines and
PricewaterhouseCoopers AB
same activity. Control activities within IT security controls based upon the Group’s framework
and maintenance are a key part of Volvo’s internal for internal control over financial reporting, Göran Tidström Johan Rippe
control over financial reporting. VICS – “Volvo Internal Control Standards”. Authorized Public Authorized Public
The framework focus on the financial reporting Accountant Accountant
Lead Auditor
Information and communication areas deemed to have a relatively higher risk
Policies and instructions relating to the financial for potential errors because e.g. complex
reporting are updated and communicated on a accounting principles, complex or changed
regular basis from management to all affected business operations etc.
employees. In addition, there are a number of
Definitions
Risk assessment committees and networks within Volvo that 3. General IT controls: Processes for main Basic earnings per share Interest coverage
Risks relating to financial reporting are evaluated serve as forums for information and discussions tenance, development and access manage- Income for the period attributable to shareholders of the Parent Operating income plus interest income and similar credits divided
Company divided by the weighted average number of shares out- by interest expense and similar charges.
and monitored by the Board through the Audit regarding issues relating to the financial reporting ment of financial applications are evaluated
standing during the period.
Committee inter alia through identifying what and application of internal rules. Included in by testing of routines and controls. Joint ventures
types of risks that typically could be considered these committees and networks are represent- Capital expenditures Companies over which the Company has joint control together with
as material and where they would typically atives from the business areas and the Group’s The results of the evaluation activities are Capital expenditures include investments in property, plant and one or more external parties.
occur. The annual evaluation of internal control staff units who are responsible for financial reported to the Group management and the equipment, intangible assets and assets under operating leases.
Investments in fixed assets included in the Group’s cash-flow Net financial position
activities conducted by the Internal Control and reporting. Work in these committees and net- Audit Committee.
statement include only capital expenditures that have reduced the Cash and cash equivalents, marketable securities and interest-
Internal Audit functions, are based on a risk- works is aimed, among other things, at ensuring Group’s liquid funds during the year. bearing short- and long-term receivables reduced by short- and
based model. The evaluation of the risk that a uniform application of the Group’s policies, long-term interest-bearing liabilities and provisions for post-
errors will appear in the financial reporting is principles and instructions for the financial Göteborg, February 23, 2012 Cash-flow employment benefits.
based on a number of criteria. Complex reporting and at identifying and communicating Combined changes in the Group’s liquid funds during the fiscal
year. Changes in liquid funds are specified with reference to Operating margin
accounting principles can, for example, mean shortcomings and areas of improvement in the AB Volvo (publ)
changes in operations, operating activities, changes depending on Operating income divided by net sales.
that the financial reporting risks being inaccu- processes for financial reporting. investments in equipment, fixed assets etc. and financing activities
rate for those posts that are covered by such Board of Directors such as changes in loans and investments. Penetration rate
principles. Valuation of a particular asset or lia- Follow-up Share of unit sales financed by Volvo Financial Services in relation
bility according to various evaluation criteria Ongoing responsibility for follow-up rests with Diluted earnings per share to total number units sold by the Volvo Group in markets where
Diluted earnings per share is calculated as income for the period financial services are offered.
can also constitute a risk. The same is true for the business areas’ management groups and Auditor’s report on the Corporate
attributable to the Parent Company’s shareholders divided by the
complex and/or changing business circum- accounting and controller functions. In addition, G overnance Report average number of shares outstanding plus the average number of Return on shareholders’ equity
stances. the Internal Audit and the Internal Control func- To the annual meeting of the shareholders in AB shares that would be issued as an effect of ongoing share-based Income for the period divided by average shareholders’ equity.
tions conduct review and follow-up activities in Volvo, corporate identity number 556012-5790 incentive programs and employee stock option programs.
Control activities accordance with what is described in the intro- It is the Board of Directors who is responsible Self-financing ratio
EBITDA Cash-flow from operating activities (see Cash-flow statement)
In addition to the Board of AB Volvo and its duction of this report. More specifically, the for the Corporate Governance Report for the
EBITDA is the operating income before depreciation and amortiza- divided by net investments in fixed assets and leasing assets as
Audit Committee, the management groups and Internal Control function runs and coordinates year 2011 on pages 150–159 and that it has tion of tangible and intangible assets. This key figure is calculated defined in the cash-flow statement.
other decision-making bodies in the business evaluation activities through the “Volvo Group been prepared in accordance with the Annual by adding back depreciation and amortization on the operating
areas, Group functions and Group companies Internal Control program”, which gives a sys- Accounts Act. income of the Industrial operations.
constitute the overall supervisory body. tematic way of evaluating the quality and effec- We have read the Corporate Governance
Equity ratio
Several control activities are applied in the tiveness of the internal control over financial Report and based on that reading and our
Shareholders’ equity divided by total assets.
ongoing business processes to ensure that reporting on a yearly basis. A yearly evaluation knowledge of the company and the group we
potential errors or deviations in the financial plan is settled and presented to the Audit Com- believe that we have a sufficient basis for our
reporting are prevented, discovered and cor- mittee. This evaluation program comprises three opinions. This means that our statutory exami-
rected. Control activities range from review of main areas: nation of the Corporate Governance Report is
outcome results in management group meet- different and substantially less in scope than an
ings to specific reconciliation of accounts and ontrol policies and guidelines: Self-assessment
1. C audit conducted in accordance with Interna-
analysis of the ongoing processes for financial procedure carried out by management teams tional Standards on Auditing and generally
reporting. Responsibility for ensuring that control at business area and Group function levels as accepted auditing standards in Sweden.
activities in the financial processes are appro- well as local company level. Main areas eval- In our opinion, the Corporate Governance
priate and in accordance with the Group’s policies uated are the adherence to the Group’s Report has been prepared and its statutory
and instructions are compiled in the Group’s financial directives and policies found in FPP content is consistent with the annual accounts
shared service center. Within the framework for along with The Volvo Way and the Group’s and the consolidated accounts
the financial reporting, they are also responsible Code of Conduct.
for ensuring that authority structures are rocess controls at transaction levels: Pro
2. P
designed so that one person cannot perform an cesses related to the financial reporting are Göteborg, February 23, 2012
activity and then perform the control of the evaluated by testing of specific routines and
PricewaterhouseCoopers AB
same activity. Control activities within IT security controls based upon the Group’s framework
and maintenance are a key part of Volvo’s internal for internal control over financial reporting, Göran Tidström Johan Rippe
control over financial reporting. VICS – “Volvo Internal Control Standards”. Authorized Public Authorized Public
The framework focus on the financial reporting Accountant Accountant
Lead Auditor
Information and communication areas deemed to have a relatively higher risk
Policies and instructions relating to the financial for potential errors because e.g. complex
reporting are updated and communicated on a accounting principles, complex or changed
regular basis from management to all affected business operations etc.
employees. In addition, there are a number of
Discover the world of the Volvo Group
www.volvogroup.com
AB Volvo, Investor Relations
Discover the world of the Volvo Group
www.volvogroup.com
AB Volvo, Investor Relations