Volvo Car GROUP Interim report second quarter and first six months 2018

Transcription

1 Volvo Car GROUP Interim report second quarter and first six

2 VOLVO CAR AB GROUP (PUBL.) ( ) INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS, GOTHENBURG JULY 18 TH q2/h1 SECOND QUARTER Retail sales increased by 14.6 per cent to 170,232 (148,493) units Net revenue increased by 26.9 per cent to 66,039 (52,043) Operating income (EBIT) increased by 28.6 per cent to 4,226 (3,285) Net income increased by 39.8 per cent to 2,996 (2,143) Cash flow from operating and investing activities at 3,636 (-842) Expanded global manufacturing footprint with first US factory FIRST SIX MONTHS Retail sales increased by 14.4 per cent to 317,639 (277,641) units Net revenue increased by 23.6 per cent to 122,852 (99,416) Operating income (EBIT) increased by 15.7 per cent to 7,842 (6,776) Net income increased by 17.0 per cent to 5,554 (4,749) Cash flow from operating and investing activities at 850 (-3,146) 2 OF 27

3 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS Key figures Full year Net revenue, 66,039 52, ,852 99, ,646 Research and development expenses, -2,824-2,930-4,894-5,602-10,187 Operating income (EBIT), 4,226 3,285 7,842 6,776 14,061 Net income, 2,996 2,143 5,554 4,749 10,225 EBITDA, 7,573 6,363 14,436 12,724 26,159 Cash flow from operating and investing activities, 3, ,146-3,800 Gross margin, % EBIT margin, % EBITDA margin, % Net Cash (Net debt if positive) -14,460-13,122-14,460-13,122-12,513 Retail sales (units) Full year Europe 85,036 80, , , ,948 China 32,712 28,579 61,480 51, ,410 US 27,539 20,626 47,622 34,102 81,504 Other 24,945 18,801 43,923 35,812 76,715 Retail sales total 170, , , , ,577 Wholesales 1) 177, , , , ,334 Production volume 170, , , , ,030 1) Wholesales refers to new car sales to dealers and other customers including rentals. All amounts are in unless otherwise stated. Amounts in brackets refer to the same period for the preceding year, unless otherwise stated. All performance measures are further described on page 24. This report contains statements concerning, among other things, Volvo Car Group s financial condition and results of operations that are forward-looking in nature. Such statements are not historical facts but, rather, represent Volvo Car Group s future expectations. Volvo Car Group believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions, however, forward-looking statements involve inherent risks and uncertainties, and a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement. Such important factors include, but may not be limited to: Volvo Car Group s market position, growth in the automotive industry, and the effects of competition and other economic, business, competitive and/or regulatory factors affecting the business of Volvo Car Group, its associated companies and joint ventures, and the automotive industry in general. Forward-looking statements speak only as of the date they were made and, other than as required by applicable law, Volvo Car Group undertakes no obligation to update any of them in light of new information or future events. 3 OF 27

4 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS ceo COMMENT Volvo Cars has had a strong first half year selling more cars than ever before. During the period we have launched the S60, as well as opened a plant in the US, creating a truly global footprint for the first time. All that has been done while growing revenue by around 25 per cent and increasing our profits. Car volumes increased by more than 14 per cent during the first half year. The US increased by close to 40 per cent, China 18 per cent and Europe 6 per cent. In all markets, our new 90 and 60 cars are driving this growth. Reflecting a continued consumer demand shift toward SUVs, the XC60 has been our best-selling model for years and the new version has continued that trend. The new XC40 made its debut in the European and US markets, and has been very well received. In the US, the XC40 combined with our new direct-to-consumers subscription offering, Care by Volvo, has seen good demand and is also attracting new younger consumers to our brand. We launched the S60 in June at the inauguration of our plant in Charleston, South Carolina, US. It will be the first car to be produced in the US. Now we have manufacturing sites in all three regions, we have the flexibility and capacity we need to grow further. All our plants are part of a global production structure - producing both for the domestic market and international export, which is more important than ever given ongoing trade discussions on tariffs. Our relationship with the consumers is being redefined through M, the new brand from Volvo Car Mobility, as well as Care by Volvo. Volvo Cars can now offer mobility solutions and access to cars as the modern consumer wants it we provide Freedom to Move in a personal, sustainable and safe way. As the world of mobility evolves, we firmly believe that being open and collaborative is the best way to leverage our investments. Polestar and our strategic affiliates Lynk & Co and Zenuity will give us the advantage that comes with scale, R&D synergies and we can increase speed to market. This is our way forward. With this in mind, we recently announced new longer term ambitions to position our company as a leading player in the rapidly changing automotive business by the middle of next decade. Our ambitions are that half of the car volume built should be fully electric, 30 per cent to be autonomous driving and half to be delivered through subscription services, building over 5 million direct consumer relationships. All this combined with premium profitability and a continued superior growth. The robust first half year performance places Volvo Cars firmly on course to report another record full year. Håkan Samuelsson President and CEO 4 OF 27

5 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS The Volvo Car Group Volvo Car AB (publ.), with its registered office in Gothenburg, is majority owned (99 per cent) by Geely Sweden Holdings AB, owned by Shanghai Geely Zhaoyuan International Investment Co., Ltd., registered in Shanghai, China, ultimately owned by Zhejiang Geely Holding Group Ltd., registered in Hangzhou, China. Volvo Car AB (publ.) holds shares in its subsidiary Volvo Car Corporation and provides the Group with certain financing solutions. Volvo Car AB (publ.) indirectly, through Volvo Car Corporation and its subsidiaries, operates in the automotive industry with business relating to the design, development, manufacturing, marketing and sales of cars and thereto related services. Volvo Car Group and its global operations are referred to as Volvo Cars. Sales development In the second quarter of the year, all main regions increased quarter-on-quarter with the US being the main driver for Volvo Cars global growth. China continued to be the largest market, followed by the US and Sweden. Overall, retail sales increased by 14.6 per cent during the second quarter to 170,232 units; the XC60 accounting for 30.0 per cent of total sales. The demand for the 90 series remained strong. Following the launch of the XC40, sales reached 17,505 units during the second quarter. SUV sales accounted for 54.7 (47.0) per cent. In the first half year, Volvo Cars global retail sales increased by 14.4 per cent to 317,639 (277,641) units and wholesales increased by 15.5 per cent to 332,670 (288,074). Sales of the S90 increased to a total of 30,977 (17,346) cars closely followed by the XC90, up 18.6 per cent to 47,658 (40,186). Deliveries of the XC40, which completed Volvo Cars SUV line-up, started in February and 23,741 units were sold per the end of June. The best-selling models for the first half year were the XC60 and XC90. SUV sales accounted for 51.1 (46.9) per cent. Retail sales (units) Change % Change % Europe 85,036 80, , , China 32,712 28, ,480 51, US 27,539 20, ,622 34, Other whereof; 24,945 18, ,923 35, Japan 4,415 3, ,497 7, Canada 2,744 1, ,561 3, Korea 2,334 1, ,083 3, Russia 2,274 2, ,247 3, Retail sales total 170, , , , Wholesales 177, , , , Production volume 170, , , , OF 27

6 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS Europe In the first half year, the performance of the passenger car market in Europe remained positive recording 2.8 per cent growth. Western Europe s growth has retreated from recent highs but remained positive supported by monetary stimulus, better access to credit and reduced fiscal headwinds. The exception was the UK due to ongoing uncertainties related to Brexit. In the second quarter, Volvo Cars retail sales increased by 5.7 per cent to 85,036 (80,487) units. A major part of the sales growth was driven by demand in Sweden, as well as Netherlands and Italy. Growth was supported by strong XC40 demand which reached 10,351 units as well as XC90 sales of 8,128 units. Sales of the V60 also grew by 18.3 per cent to 11,242 units. Overall, Volvo Cars saw sales growth in all major European markets with the exception of the UK. In the first half year, Volvo Cars retail sales in Europe increased by 5.6 per cent compared to same period last year. The Swedish market continued to account for a significant proportion of Volvo Cars European sales, with sales of 43,102 (38,724) units, reflecting growth of 11.3 per cent. Sales in the Netherlands increased by 42.2 per cent to 8,963 (6,303) units compared to the same period last year. Consumer demand for the new XC40 as well as higher demand for the V90 helped improve sales. Sales in Belgium and France both grew by 10.0 and 9.3 per cent respectively. The decline in Italy is reflective of the first quarter which was in line with the market performance, mainly due to fewer working days. China During the first half year, the Chinese passenger car market grew by 3.7 per cent. Strong consumer appetite for vehicles in the sedan segment helped drive growth within the premium segment. Quarter-on-quarter, demand for our products resulted in continued momentum in China with retail sales growth of 14.5 per cent. The S90 was the major contributor to unit sales, going from 4,529 in second quarter to 8,846 units in the same period. The XC60 and XC90 also reached higher sales volumes of 11,476 (10,453) units and 3,513 (2,649) units respectively. The S90 and XC60 cars are both locally produced, with the latter just reaching full momentum during the second quarter of this year. In the first half of the year, retail sales grew by 18.4 per cent to 61,480 (51,914) units. Growth was driven by higher demand for the S90 as well as the XC90 cars, both of which account for almost 40 per cent of Volvo Cars sales in China. RETAIL SALES BY MARKET FIRST SIX MONTHS Europe, 52% China, 19% US, 15% Other, 14% RETAIL SALES BY CARLINE FIRST SIX MONTHS XC, 51% V, 32% S, 17% US In the first half year, total sales of passenger cars in the US market increased by 1.9 per cent. Economic growth has rebounded and is expected to continue strengthening throughout the year. Demand in the US is mainly focused on - and driven by - the light trucks segment. The SUV market increased by 10.1 per cent as growth in the small-size SUV sector continues. Quarter-on-quarter Volvo Cars retail sales increased by 33.5 per cent to 27,539 (20,626). Sales in the US was mainly driven by strong demand of all three SUVs in Volvo Cars portfolio. In the first half of the year, retail sales increased by 39.6 per cent to 47,622 (34,102) units, all three SUVs being the main driver for demand. Other Quarter-on-quarter retail sales contributed with a strong 32.7 per cent increase to 24,945 (18,801) units, with Japan, Canada, Korea and Russia being the biggest markets. Growth in Japan was driven by SUV sales which grew almost three-fold to 1,657 units, mainly on the XC60 on back of the Car of the Year recognition received in the first quarter this year. Sales in Canada grew 42.3 per cent to 2,744 units, with Korea and Russia closely behind. In the first half year, retail sales increased by 22.6 per cent to 43,923 units. Demand for the XC60 was the main driver behind the increase, growing by 40.3 per cent to 13,131 units. Japan, Canada, Korea and Russia were the fastest growing markets. 6 OF 27

7 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS Top 10 Retail sales by market (units) China 32,712 28,579 61,480 51,914 US 27,539 20,626 47,622 34,102 Sweden 23,008 21,008 43,102 38,724 UK 11,696 11,800 23,213 24,481 Germany 11,012 10,698 19,799 19,697 Belgium 5,195 5,085 11,157 10,147 Italy 4,875 4,457 9,039 9,266 France 4,667 4,345 9,293 8,501 Japan 4,415 3,586 8,497 7,694 Netherlands 4,048 3,634 8,963 6,303 Retail sales by model (units) XC60/XC60 Classic 50,999 48,807 90,784 89,950 XC90 24,696 21,016 47,658 40,186 V40/V40 Cross Country 19,381 25,008 41,588 48,554 XC40 17,505-23,741 - V90/V90 Cross Country 15,743 15,595 31,450 26,650 S90 15,259 10,018 30,977 17,346 V60/V60 Cross Country 14,642 14,139 27,635 28,485 S60/S60 Cross Country 12,007 13,848 23,806 26,171 Other (discontinued models) Total 170, , , ,641 7 OF 27

8 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS Significant events SECOND QUARTER First US manufacturing plant inaugurated Delivering on Volvo Cars global manufacturing strategy, Build where you sell, the expanded manufacturing footprint established the company as a truly global car manufacturer with plants in all three major sales regions. Production of the new S60 starts in the fall of, and from 2021 next generation XC90s will be built here, both models destined both for the domestic US market and international export. The US manufacturing operations will create around 4,000 new jobs at the Charleston site over the coming years, approximately 1,500 will be employed this year. Other events The new S60 launched As part of our core business of launching and building premium cars, as well as delivering new mobility solutions, production of the new model starts at the new US plant in the fall of. Following the ambition to increase sales related to subscription services, customers can in addition to buying a car, also access the new S60 by Care by Volvo. Further sustainability commitments announced As a means to further progress towards Volvo Cars sustainability commitments, new ambitions have been formalised so that global use of single use plastic will be reduced, and in some areas removed completely. Further Volvo Cars announced its ambition that from 2025, at least 25 per cent of the plastics used in every newly launched Volvo car will be made from recycled material. Credit rating upgraded In May, the rating agency Moody s upgraded its corporate credit rating for Volvo Cars to Ba1 from Ba2, with a stable outlook. Summary of events first quarter Lynk & Co cars to be produced at Volvo Cars Ghent plant Launch of the new V60 XC60 World Car of the Year and XC40 European Car of the Year Technology start-up investment fund launched First manufacturing plant became climate neutral Volvo Cars named one of the World s Most Ethical Companies Changes to the Volvo Cars Board of Directors 8 OF 27

9 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS Financial summary SECOND QUARTER INCOME AND RESULT The comparative figures refer to the consolidated income statement of the second quarter if not otherwise stated. During the second quarter, Volvo Cars generated net revenue of 66,039 (52,043), an increase of 26.9 per cent, reflecting a continuous strong growth of Volvo Cars core business. Net revenue increased in all main geographical regions as a result of the positive sales development, where wholesales increased by 19.0 per cent to 177,398 (149,022) units. The increase was also an effect of a positive sales mix, mainly driven by all the XC models and the S90, along with a positive exchange rate development. Cost of sales increased to -52,978 (-40,236), reflecting the higher sales volume and product mix together with a negative foreign exchange rate effect. Material costs, freight and distribution as well as labour and overhead are increasing as production increases. Gross income increased to 13,061 (11,807). Gross margin decreased to 19.8 (22.7) per cent, reflecting the ramp up of production including increased logistics. Furthermore, sold licenses decreased to 21 (1,101). The negative effect was partly offset by received government grants. Research and development, selling and administrative expenses, increased to -9,248 (-8,734) mainly driven by an increase of advertising and sales promotion expenses due to launch of new car models and selling expenses due to business growth. For details regarding research and development expenses, see table below. Other operating income and expense, net, increased to 285 (213), mainly related to positive translation exchange effects on operating assets and liabilities, partly offset by a decrease of sold services and increased royalty expenses. Operating income (EBIT) increased to 4,226 (3,285), largely a result of the positive volume and sales mix together with a positive exchange rate effect of 742. The positive gross income development has partly been offset by increased selling and advertising expenses together with a decrease of sold licenses of -1,080. EBIT margin increased to 6.4 (6.3) per cent. Net financial items are in line with previous year, amounting to -339 (-325). The income tax increase is mainly due to increased profit and changes in deferred tax rates. The effective tax rate decreased to 22.3 (27.6) per cent mainly due to timing in withholding tax. Net income amounted to 2,996 (2,143). Net income in relation to net revenue increased to 4.5 (4.1) per cent. Income Statement () Net revenue 66,039 52,043 Gross income 13,061 11,807 Operating income (EBIT) 4,226 3,285 EBITDA 7,573 6,363 Income before tax 3,887 2,960 Net income 2,996 2,143 Research and development () Research and development spending -3,751-4,051 Capitalised development costs 1,983 2,247 Amortisation and depreciation of Research and development 1) -1,056-1,126 Research and development expenses -2,824-2,930 1) Includes amortisation of capitalised development cost and a portion of depreciation of other intangible assets. 9 OF 27

10 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS FIRST SIX MONTHS INCOME AND RESULT The comparative figures refer to the consolidated income statement of the first six if not otherwise stated. Drivers behind the income and result for the first six are similar to those in the second quarter. Volvo Cars generated net revenue of 122,852 (99,416), an increase of 23.6 per cent, reflecting a continuous strong growth of Volvo Cars core business. Net revenue increased in all main geographical regions as a result of the positive sales development, where wholesales increased by 15.5 per cent to 332,670 (288,074) units. The increase was also an effect of a positive sales mix, mainly driven by all the XC models and the S90, along with a positive exchange rate development. Cost of sales increased to -98,365 (-76,760), reflecting the higher sales volume and product mix together with a negative foreign exchange rate effect. Material costs, freight and distribution as well as labour and overhead are increasing as production increases. Gross income increased to 24,487 (22,656). Gross margin decreased to 19.9 (22.8) per cent, reflecting the ramp up of production including increased logistics and negative exchange rate effects. Furthermore, sold licenses decreased to 48 (1,311). The negative effect was partly offset by received government grants. Research and development, selling and administrative expenses increased to -17,047 (-16,335). The increase is mainly driven by an increase of advertising and sales promotion expenses due to launch of new car models and advertising campaigns together with an increase of selling expenses due to business growth. Administrative and Research and development expenses have partly been offset by received government grants. For details regarding Research and development expenses, see table below. Other operating income and expense, net, decreased to 242 (391), mainly related to a decrease of sold services and increased royalty expenses partly offset by positive translation exchange effects on operating assets and liabilities. Operating income (EBIT) increased to 7,842 (6,776), largely a result of the positive volume and sales mix. The positive gross income development has partly been offset by increased advertising, sales and promotion expenses, selling expenses together with a decrease of sold licenses of -1,263. The exchange rate effect had a limited impact amounting to 105. EBIT margin decreased to 6.4 (6.8) per cent. Net financial items amounted to -517 (-572), mainly related to decreased interest expenses and positive exchange rate effects. The income tax increase is mainly related to increased profit and changes in deferred tax rates. The effective tax rate amounted to 24.0 (23.4) per cent which is in line with previous year. Net income amounted to 5,554 (4,749). Net income in relation to net revenue decreased to 4.5 (4.8) per cent. Income Statement () Net revenue 122,852 99,416 Gross income 24,487 22,656 Operating income (EBIT) 7,842 6,776 EBITDA 14,436 12,724 Income before tax 7,325 6,204 Net income 5,554 4,749 Research and development () Research and development spending -6,592-7,527 Capitalised development costs 3,830 4,081 Amortisation and depreciation of Research and development 1) -2,132-2,156 Research and development expenses -4,894-5,602 1) Includes amortisation of capitalised development cost and a portion of depreciation of other intangible assets. 10 OF 27

11 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS NET FINANCIAL POSITION AND LIQUIDITY The presented figures refer to the consolidated figures for the first six if not otherwise stated. The comparative figures for the cash flow items refer to the consolidated cash flow statement for the six if not otherwise stated. The comparative figures for the balance sheet items refer to the consolidated balance sheets of December 31, if not otherwise stated. CASH FLOW Cash flow from operating and investing activities amounted to 850 (-3,146). Cash flow from operating activities amounted to 11,392 (10,056). The change is due to the positive operating income of 7,842 (6,776), adjusted for depreciation and amortisation of 6,594 (5,948) together with increased income tax paid of -2,733 (-1,475). Change in working capital is positive and amounts to 366 (-1,067). Cash flow from working capital is related to change in inventory, due to adaption to global footprint securing volume growth, product mix and ramp-up of production and increased accounts receivable due to increased sales. Furthermore, payment of 450 was made to the pension fund. The effects has been offset by positive effects in accounts payable, sales generated obligations, advertising and sales promotions, and payroll provisions. Cash flow from investing activities amounted to -10,542 (-13,202). The decrease in investment is mainly due to the finalisation of the construction of the US plant. Investments in tangible assets amounted to -6,842 (-9,187), mainly driven by investments related to new car models, such as the XC40 and the V60. Investments in intangible assets amounted to -4,306 (-4,151) as a result of continuous investments in new and upcoming car models and new technology. Included in investments in shares and participations, net, is a capital contribution to Zenuity AB of 600 offset by a capital contribution of 662 from non-controlling interests within Polestar New Energy Vehicle Co., Ltd. Cash flow from financing activities amounted to 974 (-923). The change is mainly attributable to repayment of liabilities to credit institutions of -6,410 (-1,855), whereof 5,790 was an early repayment of a bank loan. The change in cash flow from financing activities was offset by matured marketable securities of net 3,724 (2,239) and by a drawn credit facility of 2,681. Cash and cash equivalents including marketable securities is in line with previous year, amounting to 39,322 (39,394). Net cash increased to -14,460 (-12,513). Including undrawn credit facilities of 13,598 (15,203), liquidity is at 52,920 (54,597). EQUITY Total equity increased by 2,747 to 57,407 (54,660), resulting in an equity ratio of 27.7 (28.7) per cent. The change is attributable to the positive net income of 5,554 partly offset by negative effects in other comprehensive income. The latter is related to change in cash flow hedge reserve of -4,076 (net of tax), due to a weakened SEK against CNY, EUR and USD and remeasurements of provisions for post-employment benefits of -1,094 (net of tax) due to changes in actuarial assumptions. This has partly been offset by a positive translation foreign exchange effect, including hedges of net investments in foreign operations of 1,764 (net of tax). The equity also increased by 662 due to a capital contribution from non-controlling interests within Polestar New Energy Vehicle Co., Ltd., partly offset by a dividend of 63 to the holders of preference shares. Cash flow Statement () Cash flow from operating activities 11,392 10,056 Cash flow from investing activities -10,542-13,202 Cash flow from operating and investing activities 850-3,146 Cash flow from financing activities Cash flow for the period 1,824-4, OF 27

12 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD There are no significant events after the reporting period. RISKS AND UNCERTAINTY FACTORS Risks are a natural element in all business activities, risk mitigation as well. As an example, our reaction to higher tariffs is to adjust prices in certain markets, reallocate vehicles to other markets, as well as reallocate production. In order to achieve Volvo Cars short and long-term objectives, enterprise risk management is part of the daily activities at Volvo Cars. For a more in-depth analysis of risks, see the Volvo Car Group Annual Report page 104. Volvo Cars is present on the bond market and is continuously considering various capital market options that may or may not include possible listings. EMPLOYEES During the second quarter of, Volvo Car Group employed on average 41,700 (34,200) full-time employees. Furthermore, the Group employed on average 2,500 (4,300) consultants. The total increase relates mainly to higher production volumes, the ramp up in China, the construction of the Charleston plant in the US, continuous development of future technologies such as electrification and autonomous driving, as well as continuous development of current and future car models. OUTLOOK Revenue growth We expect the worldwide passenger car market to grow and the premium segment to continue to develop positively. Volvo Cars expects continued growth in revenue and retail sales supported by our renewed product portfolio. Operating income We expect profits to remain strong. Investments The US plant construction and the launch of the V60 and S60 are in their finalising phases; capital expenditure is predicted to be lower compared to. PARENT COMPANY The parent company conducts no operations and has no employees. The income statements and balance sheets for the parent company are presented on page OF 27

13 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS 13 OF 27

14 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS CONSOLIDATED INCOME STATEMENTS Note Full year Net revenue 1) 2) 2 66,039 52, ,852 99, ,646 Cost of sales 1) -52,978-40,236-98,365-76, ,988 Gross income 13,061 11,807 24,487 22,656 46,658 Research and development expenses -2,824-2,930-4,894-5,602-10,187 Selling expenses -4,426-3,751-8,430-6,928-15,266 Administrative expenses -1,998-2,053-3,723-3,805-8,182 Other operating income 2) ,345 1,458 3,054 Other operating expenses ,103-1,067-2,216 Share of income in joint ventures and associates Operating income 4,226 3,285 7,842 6,776 14,061 Financial income Financial expenses ,269 Income before tax 3,887 2,960 7,325 6,204 13,147 Income tax ,771-1,455-2,922 Net income 2,996 2,143 5,554 4,749 10,225 Net income attributable to Owners of the parent company 2,161 1,555 4,242 3,808 7,960 Non-controlling interests , ,265 2,996 2,143 5,554 4,749 10,225 1) In there has been a change related to sale of certain cars accounted for as operational leasing. The comparative periods have been changed accordingly, reducing Net Revenue and Cost of Sales with an amount of 526 for, 955 for the first six and 2,266 for the full year. The change has not had any effect on gross income. 2) Sold licenses were reclassified from Other Operating Income to Net Revenue during. The comparative figures have been changed with an amount of 1,101 for and 1,311 for the first six. 14 OF 27

15 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS CONSOLIDATED COMPREHENSIVE INCOME Full year Net income for the period 2,996 2,143 5,554 4,749 10,225 Other comprehensive income Items that will not be reclassified subsequently to income statement: Remeasurements of provisions for post-employment benefits -1, , Tax on items that will not be reclassified to income statement Items that may be reclassified subsequently to income statement: Translation difference on foreign operations , Translation difference of hedge instruments of net investments in foreign operations Change in fair value of cash flow hedge related to currency and electricity risks -3,896 2,856-4,912 3,044 3,040 Currency and electricity risk hedge contracts recycled to consolidated income statement ,413 Tax on items that may be reclassified to income statement , Other comprehensive income, net of income tax -4,055 1,397-3,406 1,991 2,701 Total comprehensive income for the period -1,059 3,540 2,148 6,740 12,926 Total comprehensive income attributable to Owners of the parent company -2,032 3, ,998 10,777 Non-controlling interests , ,149-1,059 3,540 2,148 6,740 12, OF 27

16 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS CONSOLIDATED BALANCE SHEETS Note Dec 31, ASSETS Non-current assets Intangible assets 31,188 29,157 Property, plant and equipment 59,536 55,245 Assets held under operating leases 2,469 2,577 Receivables on parent company Investments in joint ventures and associates 5,756 5,480 Other long-term securities holdings Deferred tax assets 5,854 4,558 Other non-current assets 3 2,947 3,704 Total non-current assets 107, ,855 Current assets Inventories 38,258 30,665 Accounts receivable 4 13,122 10,832 Current tax assets Other current assets 3 7,856 7,955 Marketable securities ,992 Cash and cash equivalents 3 38,881 35,402 Total current assets 99,349 89,309 TOTAL ASSETS 207, ,164 EQUITY & LIABILITIES Equity Equity attributable to owners of the parent company 49,019 48,729 Non-controlling interests 8,388 5,931 Total equity 57,407 54,660 Non-current liabilities Provisions for post-employment benefits 7,715 6,525 Deferred tax liabilities 1,437 1,977 Other non-current provisions 5,679 4,962 Liabilities to credit institutions 3 9,219 6,622 Bonds 3 13,385 12,735 Non-current contract liabilities to customers 1, 4 4,106 3,662 Other non-current liabilities 3 4,724 2,636 Total non-current liabilities 46,265 39,119 Current liabilities Current provisions 6,957 6,513 Liabilities to credit institutions 3 2,178 7,426 Current contract liabilities to customers 1 16,741 14,507 Accounts payable 4 42,148 38,536 Current tax liabilities 929 1,380 Other current liabilities 3, 4 34,700 28,023 Total current liabilities 103,653 96,385 TOTAL EQUITY & LIABILITIES 207, , OF 27

17 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS CONDENSED CHANGES IN CONSOLIDATED EQUITY Dec 31, Opening balance 54,660 43,310 43,310 Net income for the period 5,554 4,749 10,225 Other comprehensive income, net of income tax -3,406 1,991 2,701 Total comprehensive income 2,148 6,740 12,926 Capital contribution from Non-controlling interests Issue of preference shares Dividend to shareholders -63-2,188-2,188 Transactions with owners 599-2,194-1,576 Closing balance 57,407 47,856 54,660 Attributable to Owners of the parent company 49,019 43,963 48,729 Non-controlling interests 8,388 3,893 5,931 Closing balance 57,407 47,856 54, OF 27

18 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS CONSOLIDATED STATEMENTS OF CASH FLOWS Full year OPERATING ACTIVITIES Operating income 4,226 3,285 7,842 6,776 14,061 Depreciation and amortisation of non-current assets 3,347 3,078 6,594 5,948 12,098 Interest and similar items received Interest and similar items paid ,016 Other financial items Income tax paid -1, ,733-1,475-3,471 Adjustments for other items not affecting cash flow -1, ,494 4,937 11,026 11,123 22,179 Movements in working capital Change in inventories 170-3,902-6,005-8,804-10,536 Change in accounts receivable -1,038-2,060-1,816-2,136-2,069 Change in accounts payable 607 4,217 2,257 6,401 8,220 Change in provisions ,274 1,808 2,398 Change in contract liabilities to customers 2,802 1,832 3, ,054 Change in other working capital assets/liabilities 2,446 1,984 3,543 1,688 2,687 Cash flow from movements in working capital 4,315 2, ,067 2,754 Cash flow from operating activities 8,809 6,946 11,392 10,056 24,933 INVESTING ACTIVITIES Investments in shares and participations, net ,081 Dividend received from joint ventures and associates Investments in intangible assets -2,152-2,325-4,306-4,151-9,651 Investments in property, plant and equipment -3,511-5,523-6,842-9,187-17,037 Disposal of property, plant and equipment 9 95 Other Cash flow from investing activities -5,173-7,788-10,542-13,202-28,733 Cash flow from operating and investing activities 3, ,146-3,800 FINANCING ACTIVITIES Proceeds from credit institutions 3, , ,291 Proceeds from bond issuance 4,914 Proceeds from issuance of preference shares, net Repayment of liabilities to credit institutions ,823-6,410-1,855-3,658 Dividend paid to shareholders -63-2, ,188-2,188 Investments in marketable securities, net 2, ,724 2, Other Cash flow from financing activities 5,405-3, ,333 Cash flow for the period 9,041-4,636 1,824-4,069-2,467 Cash and cash equivalents at beginning of period 29,108 39,174 35,402 38,635 38,635 Exchange difference on cash and cash equivalents , Cash and cash equivalents at end of period 38,881 33,816 38,881 33,816 35, OF 27

19 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS CONDENSED PARENT COMPANY INCOME STATEMENTS Full year Administrative expenses Other operating income and expense 7-7 Operating income Income from participation in subsidiary 1) 1,565 1,565 1,565 Financial income Financial expenses Income before tax -82 1, ,482 1,307 Income tax Net income , ,502 1,350 1) Received dividend from subisidary of 1,565, passed through to the shareholders. Other comprehensive income and net income are consistent since there are no items in other comprehensive income. CONDENSED PARENT COMPANY BALANCE SHEETS Dec 31, ASSETS Non-current assets 25,703 25,196 Current assets 4,907 4,895 TOTAL ASSETS 30,610 30,091 EQUITY & LIABILITIES Equity Restricted equity Non-restricted equity 7,064 7,380 Total equity 7,115 7,431 Non-current liabilities 23,319 22,602 Current liabilities TOTAL EQUITY & LIABILITIES 30,610 30, OF 27

20 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS NOTE 1 ACCOUNTING PRINCIPLES This interim report has been prepared in accordance with IAS 34 Interim Financial Reporting and the Swedish Annual Accounts Act. Volvo Car Group applies International Financial Reporting Standards (IFRS) as endorsed by the European Union. The parent company applies RFR 2 - Reporting for legal entities and the Swedish Annual Accounts Act. The accounting principles and methods of computation adopted are, in all material aspects, consistent with those described in the Volvo Car Group Annual Report Note 1 Accounting Principles for Volvo Car Group and the parent company respectively (available at together with additions in below paragraphs. On January 1,, IFRS 15 Revenue from contracts with customers and IFRS 9 Financial instruments were being applied. Accounting principles adopted are, in all material aspects, consistent with those described in the Volvo Car Group Annual Report Note 33 New Accounting Standards Implemented on January 1,. As described in Note 33, in terms of IFRS 15 there is no transition effect impacting the Consolidated Income Statements, and consequently no restatement of prior year figures in the Consolidated Income Statements. As also described in Note 33, as from 1 January Volvo Car Group has decided to disclose contract liabilities on a separate financial statement line in the Consolidated Balance Sheets, Contract liabilities to customers 1, as non-current and current liabilities respectively. Contract Liabilities to customers are balances related to contracts with customers. Changes in the Income Statement to those balances are recorded in Net revenue. Balances include transactions where the Group either: - Has an obligation to transfer goods or services to the customer for which the Group has received consideration (or an amount of consideration is due). This is the case of Deferred revenue extended service business, Deferred revenue sales with repurchase contracts (recorded as an operating lease) as well as of Advance payments from customers - Has transferred goods or services to the customer but a sales generated obligation is yet to be paid out by the Group. This is the case of Sales generated obligations. For comparison purposes, prior year figures have been reclassified in the Consolidated Balance Sheets, as follows: Non-current contract liabilities to customers Dec 31, Classification in the annual report Sales generated obligations Other non-current provisions Deferred revenue extended service business 2,354 2,112 Other non-current provisions Deferred revenue sales with repurchase contracts 2) Non-current liabilities Advance payments from customers Non-current liabilities Total 4,106 3,662 Current contract liabilities to customers Dec 31, Classification in the annual report Sales generated obligations 13,167 11,314 Current provisions Deferred revenue extended service business 1,410 1,258 Current provisions Deferred revenue sales with repurchase contracts 2) 1,319 1,279 Other current liabilities Advance payments from customers Advance payments from customers Total 16,741 14,507 1) Referred to as Contract liability revenue related in the Q1 interim report and the annual report. 2) Recorded as an operating lease contract. As described in Note 33 in the Volvo Car Group Annual Report, in terms of IFRS 9 there is no transition effect, and consequently no restatement of prior year figures. As required by IFRS 9, a provision for expected credit losses has been recorded per 30 June, with an amount of 17, in addition to the provision for incurred losses. As also required by IFRS 9, time value of options is recorded in other comprehensive income rather than in the income statement in the period ending on 30 June, with an amount of IFRS 16 was published in January 2016 and is effective for accounting periods beginning on or after January 1, The standard was endorsed by the EU in November. It replaces current leasing accounting standard, IAS 17 Leases. The new standard provides guidance for lessee accounting on how to bring lease commitments, previously treated off balance, onto the balance sheet. Volvo Car Group is currently analysing the effects of implementing IFRS 16, and is yet to assess the impact. Certain disclosures, required by IAS 34 Interim financial reporting, may be given within this interim report, but outside of the formal interim financial statements. 20 OF 27

21 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS NOTE 2 net revenue Net revenue allocated to geographical regions: Full year China 14,822 11,367 26,712 20,237 45,254 US 10,958 7,781 19,454 15,071 33,457 Europe 30,404 25,549 59,452 50, ,603 of which Sweden 7,455 7,171 14,604 13,086 25,458 of which Germany 4,501 3,769 8,282 6,488 13,519 of which United Kingdom 3,266 2,994 6,437 6,465 12,581 Other markets 9,855 7,346 17,234 14,019 29,332 of which Japan 1,724 1,523 3,059 2,961 5,759 of which Russia 1, ,499 1,330 2,948 Total 66,039 52, ,852 99, ,646 Net revenue allocated to category: Full year Sale of products and related goods and services 1) 63,305 48, ,442 93, ,959 Sale of licenses 21 1, ,311 4,023 Revenue from subscription, leasing and rental business 2,236 1,401 3,358 2,867 6,056 Other Net revenue ,004 1,651 3,608 Total 66,039 52, ,852 99, ,646 1) Includes realised effect of cash flow hedge contracts amounting to -561 (-308) in the second quarter and -556 (-713) for the first six. NOTE 3 FAIR VALUE OF FINANCIAL INSTRUMENTS Valuation principles for financial instruments as described in Volvo Car Group Annual Report Note 21 Financial risks and financial instruments, have been consistently applied throughout the reporting period. The comparative figures in this note refer to December 31,. In Volvo Car Group s balance sheet, financial instruments reported at fair value through the income statement consist of derivatives, equity investments as well as marketable securities (excluding time deposits in banks), see table Financial instruments recorded at fair value through the income statement in this note. Fair value of financial instruments is established according to three levels, depending on market information available. All derivative financial instruments and marketable securities that Volvo Car Group holds as of belong to level 2. In level 3, the amount invested in other long-term securities holdings of 171 (80) is valued at cost, being the best approximate of fair value. No transfers between the levels of the fair value hierarchy have occurred. Valuation of financial instruments at fair value, belonging to level 2, is based on prevailing market data and on a discounting of estimated cash flows using the deposit/swap curve of the cash flow currency and include risk assumptions. For currency option instruments, the valuation is based on Black & Scholes formula. Fair value of commodity contracts is calculated by discounting the difference between the contracted forward price and the contracted forward price that can be obtained on the balance sheet date for the remaining contract period. The total fair value of the derivative portfolio as of, amounted to -3,319 (1,612). The major part is related to cash flow hedging of currency risk. The table below shows the percentage of the forecasted cash flows that were hedged expressed in nominal terms and in Cash Flow at Risk (CFaR), which is the maximum loss at a 95 per cent confidence level in one year. The CFaR is based on the cash flow forecast, market volatility and correlations Dec 31, Dec 31, Nominal hedge % CFaR incl. hedges % OF 27

22 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS NOTE 3 FAIR VALUE OF FINANCIAL INSTRUMENTS - continued Financial instruments recorded at fair value through the income statement Dec 31, Other non-current assets Derivative assets 153 1,234 Other long-term securities holdings Other current assets Derivative assets 1,132 1,172 Marketable securities Marketable securities 1) 991 Cash and cash equivalents Marketable securities 3,119 1,780 Total assets 4,575 5,257 Other non-current liabilities Derivative liabilities 2, Other current liabilities Derivative liabilities 2, Total liabilities 4, ) Excluding time deposits in banks (not recorded at fair value) 441 (3,001). For financial liabilities valued at amortised cost, reported as current and non-current liabilities to credit institutions and as bonds, the carrying amount totalled 24,782 (26,783), see table below. Financial liabilities valued at amortised cost Carrying Carrying amount Fair value amount Fair value Dec 31, Bonds and liabilities to credit institutions 24,782 25,134 26,783 27,465 Total 24,782 25,134 26,783 27,465 Carrying amount of financial liabilities recorded at amortised cost, as stated in the table above, includes the MEUR 500 bond issued in May Carrying amount of the bond is 5,191 (4,854). A fair value adjustment related to the interest component of the bond is included in the carrying amount of the bond. The fair value component of the carrying value amounts to 4 (-14). Changes to fair value of the interest component of the bond is hedged through a fair value hedge by means of interest rate swaps. The interest rate component of the issued bond, level 2, is calculated by discounting the future coupon payments and face value of the bond, using the deposit/swap curve of the cash flow. The remaining bonds are recorded at amortised cost and are not subject to hedge accounting. 22 OF 27

23 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS NOTE 4 RELATED PARTY TRANSACTIONS During the second quarter, Group companies entered into the following transactions with related parties which are not consolidated in the Group. The information in the table below includes all assets and liabilities to related parties. Besides from non-current contract liabilities to customers of 219 (300) all assets and liabilities are current. Sales of goods, services and other Full year Related companies 1) 3) ,345 1,037 4,756 Associated companies and joint ventures 2) ,185 Purchases of goods, services and other Full year Related companies 1) ,613 Associated companies and joint ventures 2) ,599 Receivables Payables Dec 31, Dec 31, Related companies 1) 3,527 3,136 3,297 2,935 Associated companies and joint ventures 2) ) Related companies are companies outside the Volvo Car Group but within the Geely sphere of companies. 2) Associated companies and joint ventures are companies in which Volvo Car Group has a significant but not controlling influence, which generally is when Volvo Car Group holds between 20 and 50 per cent of the shares. 3) Licence revenue represent a value of 4 (100) in the second quarter and 10 (302) for the first six. 23 OF 27

24 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS GENERAL DEFINITIONS Volvo Car Group and Volvo Cars Volvo Car AB (publ.), Volvo Car Corporation and all its subsidiaries. Joint venture companies Joint ventures refer to companies in which Volvo Car Group, through contractual cooperation together with one or more parties, has a joint control over the operational and financial management. Retail sales Retail sales refer to sales to end customers (including a portion of cars used as customer loaner and demo cars) and is a relevant measure of the demand for Volvo Cars from an end customer point of view. Europe Europe is defined as EU28+EFTA. Passenger cars Passenger cars are vehicles with at least four wheels, used for the transport of passengers, and comprising no more than eight seats in addition to the driver s seat. DEFINITIONS OF PERFORMANCE MEASURES Performance measures disclosed in the interim report are those that are deemed to give a relevant view of Volvo Car Group s financial performance for a reader of the interim report. For a reconciliation of performance measures, refer to page 25. Gross margin Gross margin is Gross income as a percentage of Net revenue and represents the percent of total Net revenue that Volvo Cars retains after incurring the direct costs associated with producing the goods and services sold. EBIT EBIT represents earnings before interest and taxes. EBIT is synonymous with operating income which measures the profit Volvo Car Group generates from its operations. EBIT margin EBIT margin is EBIT as a percentage of Net revenue and measures Volvo Car Group s operating efficiency. EBITDA EBITDA represents earnings before interest, taxes, depreciations and amortisation, and is another measurement of the operating performance. It measures the profit Volvo Car Group generate from its operations without effect from previous periods capitalisation levels. EBITDA margin EBITDA margin is EBITDA in percentage of Net revenue. Equity ratio Total equity divided by total assets, is a measurement of Volvo Car Group s long-term solvency and financial leverage. Net cash/net debt Net cash/net debt is an indicator of Volvo Car Group s ability to meet its financial obligations. It is represented by liabilities to credit institutions, bonds and other interest-bearing non- current liabilities, less cash and cash equivalents and marketable securities. If negative, the performance measure is referred to as net cash and if positive the performance measure is referred to as net debt. Liquidity Liquidity consist of cash and cash equivalents, undrawn credit facilities and marketable securities. 24 OF 27

25 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS RECONCILIATION TABLES OF PERFORMANCE MEASURES Gross Margin Full year Gross income in % of Net revenue EBIT Margin Full year Operating income (EBIT) in % of Net revenue EBITDA/EBITDA Margin Full year Operating income 4,226 3,285 7,842 6,776 14,061 Depreciation and amortisation of non-current assets 3,347 3,078 6,594 5,948 12,098 EBITDA 7,573 6,363 14,436 12,724 26,159 EBITDA in % of Net revenue EQUITY RATIO Dec 31, Total equity 57,407 54,660 Total assets 207, ,164 Equity in % total assets 27, NET DEBT/NET CASH Dec 31, Liabilities to credit institutions (non-current) 9,219 6,622 Bonds 1) 13,381 12,749 Other interest-bearing non-current liabilities 2) Liabilities to credit institutions (current) 2,178 7,426 Marketable securities ,992 Cash and cash equivalents -38,881-35,402 Net cash (Net debt if positive) -14,460-12,513 1) The bond loans are presented above at amortised cost. The MEUR 500 bond is recognised in the balance sheet with a fair value adjustment and the fair value component amounted to 4 (-14). 2) Included in Other non-current liabilities in the Balance sheet. LIQUIDITY Dec 31, Cash and cash equivalents 38,881 35,402 Marketable securities 441 3,992 Undrawn credit facilities 13,598 15,203 Liquidity 52,920 54, OF 27

26 INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS The President and Chief Executive Officer certifies that the interim report gives a fair view of the performance of the business, position and income statements of Volvo Car AB (publ.) and Volvo Car Group, and describes the principal risks and uncertainties to which Volvo Car AB (publ.) and the Volvo Car Group is exposed. Gothenburg, July 18 th, Håkan Samuelsson President and Chief Executive Officer REVIEW REPORT Introduction We have reviewed the condensed interim financial information (interim report) of Volvo Car AB (publ.) as of and the sixmonth period then ended. The Board of Directors and the President are responsible for the preparation and presentation of this interim report in accordance with IAS 34 and the Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review. Scope of Review We conducted our review in accordance with the International Standard on Review Engagements ISRE 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review has a different focus and is substantially less in scope than an audit conducted in accordance with ISA and other generally accepted auditing practices. The procedures performed in a review do not enable us to obtain a level of assurance that would make us aware of all significant matters that might be identified in an audit. Therefore, the conclusion expressed based on a review does not give the same level of assurance as a conclusion expressed based on an audit. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the interim report is not, in all material respects, prepared for the Group in accordance with IAS 34 and the Annual Accounts Act, and for the Parent Company in accordance with the Annual Accounts Act. Gothenburg, July 18, Deloitte AB Jan Nilsson Authorized Public Accountant CONTACT Nils Mösko Vice President, Head of Investor Relations +46-(0) investors@volvocars.com Volvo Car Group Headquarters Gothenburg 26 OF 27

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