INTERIM REPORT SECOND QUARTER Volvo Car GROUP interim report Second Quarter i OF 24
VOLVO CAR AB (PUBL.) (556810 8988) VOLVO CAR GROUP INTERIM REPORT SECOND QUARTER, INTERIM GOTHENBURG REPORT JULY SECOND 19 TH QUARTER Volvo Car GROUP interim report second quarter SECOND QUARTER Volvo Cars retail sales at 135,972 (124,563) units Net revenue at MSEK 41,890 (41,564) Operating income (EBIT) of MSEK 2,447 (1,671) Net income of MSEK 1,715 (1,118) Cash flow from operating and investing activities of MSEK 2,852 ( 56) MEUR 500 bond issued Start of production for S90 and V90 FIRST SIX MONTHS Volvo Cars retail sales at 256,563 (232,284) units Net revenue at MSEK 83,647 (75,215) Operating income (EBIT) of MSEK 5,592 (1,660) Net income of MSEK 3,784 (877) Cash flow from operating and investing activities of MSEK 3,175 ( 1,044) 2 OF 24
INTERIM REPORT SECOND QUARTER Key figures Net revenue, MSEK 41,890 41,564 83,647 75,215 164,043 Research and development expenses, MSEK 2,344 2,256 4,757 4,231 8,803 Operating income (EBIT), MSEK 2,447 1,671 5,592 1,660 6,620 Net income, MSEK 1,715 1,118 3,784 877 4,476 EBITDA, MSEK 5,151 3,848 10,739 6,085 16,019 Cash flow from operating and investing activities, MSEK 2,852 56 3,175 1,044 7,234 EBIT margin, % 5.8 4.0 6.7 2.2 4.0 EBITDA margin, % 12.3 9.3 12.8 8.1 9.8 Retail sales (units) Western Europe (excl. Sweden) 53,091 49,876 102,396 93,398 198,049 China 21,052 20,981 40,688 38,292 81,588 Sweden 20,408 18,367 36,455 32,460 71,200 US 20,293 15,644 36,654 29,367 70,047 Other markets 21,128 19,695 40,370 38,767 82,243 Total 135,972 124,563 256,563 232,284 503,127 All amounts are in MSEK unless otherwise stated. Amounts in brackets refer to the same period preceding year, unless otherwise stated. All performance measures are further described in page 21 22. This report has not been subject to review by the auditors of Volvo Car AB (publ.). 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 24
INTERIM REPORT SECOND QUARTER 4 OF 24
INTERIM REPORT SECOND QUARTER ceo COMMENT Volvo Cars has reported a strong first half of. Sales for the first six of the year rose 10.5 per cent compared to the same period last year to 256,563 cars. Moreover, this growth was generated from increases in all three global sales regions. In Europe, sales rose 9.6 per cent, while our turnaround in the US was confirmed with an increase of 24.8 per cent and in China sales increased 6.3 per cent. This broad based increase in sales has been matched by a significant increase in profitability. Operating income for the first six of the year rose to SEK 5.592bn, up from the SEK 1.660bn reported in the same period last year. Revenue from the half year rose from SEK 75.215bn to SEK 83.647bn. Significantly, the EBIT margin for the first half of this year rose to 6.7 per cent from 2.2 per cent for the same period last year. This level of profitability was achieved even though the company absorbed the impact of change over effects associated with the 90 series cars. These numbers demonstrate that the momentum around Volvo Cars transformation is building. We are starting to see the transformative effect of our new vehicles such as the XC90 SUV on both sales and profitability. Sales of the XC90 for the first six of the year were 43,911, bringing the total sales since launch in to 84,532, surpassing our expectations. This positive trend will continue following the launch of the S90 premium sedan and the V90 premium estate. We have already experienced strong initial orders for both the S90 and V90. This robust first half year of financial and operational performance combined with a positive product pipeline allows me to state confidently that we expect to report another record year in in terms of sales, improve our profit and profitability and we expect a positive operating and investing cash flow. In short, Volvo Cars is delivering on its commitment to transform its business and finances and is firmly on the path to a truly global premium car maker. Håkan Samuelsson CEO SALES BY MARKETS FIRST SIX MONTHS SALES BY CARLINE FIRST SIX MONTHS NET REVENUE FIRST SIX MONTHS OPERATING INCOME (EBIT) FIRST SIX MONTHS MSEK 200,000 BSEK 6 150,000 5 4 100,000 3 Western Europe 40% China 16% Sweden 14% US 14% Other markets 16% S 12% V 53% XC 35% 50,000 0 2 1 0 5 OF 24
INTERIM REPORT SECOND QUARTER The Volvo Car Group Volvo Car AB (publ.), with its registered office in Gothenburg, is 100 per cent owned by Geely Sweden Holdings AB, owned by Shanghai Geely Zhaoyuan International Investment Co., Ltd., registered in Shanghai, China, with 100 per cent ownership held 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 PASSENGER CAR MARKET DEVELOPMENT Western Europe Car sales in the first half of were supported by a general economic improvement in most European countries as well as a general need for fleet replacement. Western European passenger car sales continued to grow at a robust pace of 8 per cent. All major Western European markets generated growth, albeit certain geographies enjoyed more moderate uplift e.g. the UK ahead of its EU referendum. In line with the overall industry trends, there remained an ongoing shift from traditional segments to SUV sales. China After turbulent market conditions in, the passenger and commercial vehicle sales in China stabilised during the first six and delivered a solid growth of 9 per cent, on the back of tax reductions on vehicles with engines smaller than 1.6L as well as better macroeconomic conditions than the previous year. The consumer shift to SUVs continued to be a theme in the market, with significant year-over-year sales increases. US Against an industry backdrop of six straight years of growth and record units sold in, the first six of, US vehicle sales growth began to moderate with a growth of 4 per cent. Though sales growth may be slowing, the market still set record sales in the first six of this year driven by macro trends of cheap petrol prices, low unemployment and low interest rates. There was also positivity in certain segments in the market, as demands for the crossover SUVs and light trucks remained robust. Other Markets Macroeconomic conditions in Russia continued to impact the light-vehicle market negatively during the first six, while the Russian passenger vehicle market continued the downward trend by falling 14 per cent. The passenger car market in Japan also remained challenging with a decrease of 7 per cent. In the meanwhile, positive market conditions were present in several Eastern European markets, such as Poland and Czech Republic, where vehicle sales grew by 20 per cent and 18 per cent respectively. 6 OF 24
INTERIM REPORT SECOND QUARTER VOLVO CARS SALES DEVELOPMENT For the second quarter, Volvo Cars retail sales increased by 9.2 per cent to 135,972 (124,563) units, reflecting a positive trend for Volvo Cars across all regions. In particular, the US and Sweden both contributed to the overall positive sales performance with double-digit growth. The all-new XC90 drove the overall increase and reached sales of 23,096 (6,718) units. Volvo Cars best-selling car in the second quarter was the XC60, with 39,502 (41,357) sold units. The second best-selling car line was the V40/V40 Cross Country where sales decreased slightly to 25,340 (26,519) units. In the first six, Volvo Cars reported retail sales of 256,563 (232,284) units, an increase of 10.5 per cent. All regions delivered positive sales growth and contributed to positive sales momentum. The sales increase was mainly driven by the all-new XC90 with 43,911 (6,719) units of the popular model sold worldwide. During the first six of, the XC60 remained the most popular model with 73,817 (78,066) units sold. The second best-selling car line was the V40/V40 Cross Country with sales of 48,670 (51,507) units, followed by the all-new XC90. Western Europe From April to June, Volvo Cars continued its positive sales trend in Western Europe and reported retail sales of 53,091 (49,876) units, an increase of 6.4 per cent. Germany, Spain and France were the main drivers behind the positive development. With sales of 15,290 (17,067) units, the V40/V40 Cross Country remained the best-selling model, while volume growth was driven by 8,017 (3,168) sold units of the all-new XC90. For the first half year, Western Europe delivered a 9.6 per cent increase in sales and reported retail sales of 102,396 (93,398) units. Key markets, including Germany, UK, Belgium and France all delivered solid growth. Spain also continued its strong growth at 28.2 per cent. The V40/V40 Cross Country remained the best-selling model in Western Europe with retail sales of 29,090 (33,064), while the all-new XC90 contributed to the overall solid performance with 15,542 (3,168) units. China Volvo Cars retail sales in China in the second quarter were up by 0.3 per cent and reached 21,052 (20,981) units. The locally-produced S60L was the best-selling model, with 6,958 (6,258) units sold. For the first half of, China delivered solid growth of 6.3 per cent, selling 40,688 (38,292) units. The XC60 was the best-selling model with retail sales of 18,170 (18,292) units, followed by the S60L with 12,724 (11,414) sold units. Sweden In the second quarter, Volvo Cars retail sales in Sweden continued to be strong with an increase of 11.1 per cent and a total sales of 20,408 (18,367) units. The most sold model was the XC70 with 5,207 (3,476) units, followed by the XC60 selling 4,091 (4,236) units. During the first six, sales in Sweden delivered a strong increase of 12.3 per cent and reached 36,455 (32,460) units. Volvo Cars therefore retained its market-leading position with a market share of 20 per cent. This strong sales performance continues to be supported by the XC carlines in Volvo Cars home market. The XC carlines accounted for 47.6 per cent of the total sales and recorded an increase of 18.8 per cent to 17,359 (14,607) units. US With a sales increase of 29.7 per cent in the second quarter, Volvo Cars further strengthened its position in the competitive US market where a total number of 20,293 (15,644) units were sold. The all-new XC90 contributed with 8,170 (1,453) sold units, and was both the geography s best-selling model and the main growth driver. Over the course of the first half year, Volvo Cars continued its strong recovery in the US, with a substantial sales increase of 24.8 per cent to 36,654 (29,367) units. This positive trend was largely on the back of the all-new XC90, which contributed to the strong performance with 16,017 (1,453) sold units. Other Markets During the second quarter, other markets have continued to stabilise and early signs of recovery are bourne out as sales grew by 7.3 per cent, reaching 21,128 (19,695) units, driven by strong sales in Poland, Japan and Canada. The sales downward trend in Russia also started to stabilise. For the first six, a total number of 40,370 (38,767) units were delivered in Other Markets, which translated into growth of 4.1 per cent. The XC60 and the V40/V40 Cross Country were the most popular models, while the all-new XC90 was the main growth driver selling 7,746 (1,072) units. 7 OF 24
INTERIM REPORT SECOND QUARTER Retail sales, (units) Change % Change % Western Europe 1) 53,091 49,876 6.4 102,396 93,398 9.6 China 21,052 20,981 0.3 40,688 38,292 6.3 Sweden 20,408 18,367 11.1 36,455 32,460 12.3 US 20,293 15,644 29.7 36,654 29,367 24.8 Other Markets 21,128 19,695 7.3 40,370 38,767 4.1 Total 135,972 124,563 9.2 256,563 232,284 10.5 1) Excluding Sweden Retail sales by model, (units) S60 6,558 10,159 12,069 20,355 S60L 7,984 6,258 14,757 11,414 S60 Cross Country 532 995 S80 1,171 1,905 2,344 3,491 S80L 681 47 1,429 S90 187 187 V40 19,981 20,650 38,224 39,639 V40 Cross Country 5,359 5,869 10,446 11,868 V60 11,094 13,838 20,134 27,486 V60 Cross Country 4,784 1,661 8,959 2,015 V70 5,864 7,295 12,259 13,427 XC60 39,502 41,357 73,817 78,066 XC70 9,820 7,695 17,488 15,256 XC90 (Classic) 38 475 924 1,109 XC90 (All-new) 23,096 6,718 43,911 6,719 Other models* 2 2 2 10 Total 135,972 124,563 256,563 232,284 * C70 and S40, discontinued Top 10 Retail sales by market, (units) Top 10 Retail sales by market, (units) China 21,052 20,981 Sweden 20,408 18,367 US 20,293 15,644 UK 11,085 10,604 Germany 10,559 9,262 Belgium 5,277 5,060 Italy 4,951 4,543 France 4,179 3,883 Netherlands 4,050 3,737 Spain 3,623 2,955 China 40,688 38,292 US 36,654 29,367 Sweden 36,455 32,460 UK 22,570 21,144 Germany 19,121 16,861 Belgium 10,585 9,709 Italy 9,466 8,736 France 8,076 7,015 Japan 6,967 6,254 Spain 6,798 5,304 8 OF 24
INTERIM REPORT SECOND QUARTER SIGNIFICANT EVENTS Production start of S90 and V90 During the second quarter, production of the new S90 premium sedan and the new V90 premium estate started in the Torslanda plant, Sweden. This means that all new models in the top-of-theline 90 series, based on Volvo s in-house developed modular vehicle architecture SPA, are now being produced. Bond issuance As of May 18, Volvo Volvo Car AB (publ.) closed the issuance of a MEUR 500 bond, which is the Group s debut bond issuance. The senior unsecured notes issued mature as of May 2021 and carry a fixed coupon rate of 3.25 per cent. The bond issue was conducted for general corporate purposes and is aimed at increasing the company s financial flexibility and diversifying its funding sources. The bond has been listed on the Euro MTF list on the Luxembourg stock exchange (Société de la bourse de Luxembourg). Credit rating In connection to the bond issue, Volvo Cars now also have a public credit rating from Moody s Investors Service, Inc. and Standard & Poor s Financial Services LLC. Summary of first quarter: Betsy Atkins was appointed new member of the Board of Directors Launch of S90 and V90 PARENT COMPANY The parent company conducts no operations and has no employees. In connection with the bond issuance the parent company changed its legal form to a public entity (refer to Significant events Bond issuance). The income statements and balance sheets for the Parent Company are presented on page 18. EMPLOYEES During the second quarter, Volvo Car Group employed on average 29,180 (27,891) full-time employees. Furthermore, the Group employed on average 3,833 (3,622) consultants during the second quarter. The increased number of consultants and employees are mainly related to higher production volumes and the continuous development of future car models. RISKS AND UNCERTAINTY FACTORS Risks are a natural element in all business activities. 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 53. On June 23, a referendum in the United Kingdom returned a result in favor of leaving the European Union (commonly referred to as Brexit ). Volvo Cars has evaluated the risks and uncertainty factors and sees limited volume and revenue implications. However, currency volatility could increase and there is also additional uncertainty around European economic growth. Other than that, no significant changes have been assessed. SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD No significant events have occurred after the reporting period. 9 OF 24
INTERIM REPORT SECOND QUARTER Financial summary SECOND QUARTER INCOME AND RESULT The comparative figures refer to the consolidated income statement of second quarter if not otherwise stated. During the second quarter, Volvo Car Group generated net revenue of MSEK 41,890 (41,564) which is flat compared to the same period in. The increase from the positive sales mix, mainly due to the all-new XC90, was partly offset by negative exchange rate development. Cost of sales increased by MSEK 907 to MSEK 33,001 ( 32,094) an increase of 2.8 per cent compared to the same period in. This increase is attributable to the sales mix, resulting in increased material costs, and change over effects such as launch costs related to start of production of the new S90 and V90. Gross income decreased to MSEK 8,889 (9,470). Research and development expenses recognised in the income statement increased to MSEK 2,344 (2,256), including amortisation of capitalised development expenses of MSEK 777 ( 606). The increase is related to higher amortisation of capitalised development expenses and increased costs for upcoming car models. See table below. Selling expenses increased by MSEK 364 to MSEK 3,032 ( 2,668) primarily due to increased marketing and event expenses related to the launch of new car models and advertising campaigns. Administrative expenses decreased by MSEK 240 to MSEK 1,572 ( 1,812). Other operating income and expense, net, increased to MSEK 422 ( 1,097). The increase is mainly related to a positive result from realised cash flow hedges. Operating income (EBIT) increased to MSEK 2,447 (1,671), resulting in an operating margin of 5.8 (4.0) per cent. Net financial items amounted to MSEK 299 ( 386). This increase was primarily due to a positive net foreign exchange result on financing activities. Tax expense increased based on the increase in income before tax. Net income amounted to MSEK 1,715 (1,118). Income Statement (MSEK) Net revenue 41,890 41,564 Gross income 8,889 9,470 Operating income (EBIT) 2,447 1,671 Income before tax 2,148 1,285 Net income 1,715 1,118 R&D spending (MSEK) Capitalised development expenses 1,678 1,158 Research and development expenses 2,344 2,256 whereof amortised development expenses 777 606 10 OF 24
INTERIM REPORT SECOND QUARTER FIRST SIX MONTHS INCOME AND RESULT The comparative figures refer to the consolidated income statement of the first six if not otherwise stated. During January to June, Volvo Car Group generated net revenue of MSEK 83,647 (75,215), an increase of 11.2 per cent compared to the same period in. The increase was primarily driven by volume and a positive sales mix, mainly due to the allnew XC90 partly offset by negative exchange rate development. Cost of sales increased by MSEK 6,200 to MSEK 65,319 ( 59,119) an increase of 10.5 per cent compared to the same period in. This increase is primarily attributable to the sales mix, resulting in increased material costs. Gross income increased to MSEK 18,328 (16,096), resulting in a gross margin of 21.9 (21.4) per cent. Research and development expenses recognised in the income statement increased to MSEK 4,757 ( 4,231), including amortisation of capitalised development expenses of MSEK 1,420 ( 1,073). The increase is related to higher amortisation of capitalised development expenses and increased costs for upcoming car models. See table below. Selling expenses increased by MSEK 580 to MSEK 5,715 ( 5,135) primarily due to increased marketing and event expenses related to the launch of new car models and advertising campaigns. Administrative expenses decreased by MSEK 281 to MSEK 3,123 ( 3,404). Other operating income and expense, net, increased to MSEK 683 ( 1,722). The increase is mainly related to a positive result from realised cash flow hedges and income from collaborations with related parties regarding common development activities. Operating income (EBIT) increased to MSEK 5,592 (1,660), resulting in an operating margin of 6.7 (2.2) per cent. Net financial items amounted to MSEK 676 ( 555). This decrease was due to a negative net foreign exchange result on financing activities. Tax expense increased based on the increase in income before tax. Net income amounted to MSEK 3,784 (877). Income Statement (MSEK) Net revenue 83,647 75,215 Gross income 18,328 16,096 Operating income (EBIT) 5,592 1,660 Income before tax 4,916 1,105 Net income 3,784 877 R&D spending (MSEK) Capitalised development expenses 2,836 2,218 Research and development expenses 4,757 4,231 whereof amortised development expenses 1,420 1,073 11 OF 24
INTERIM REPORT SECOND QUARTER FIRST SIX MONTHS NET FINANCIAL POSITION AND LIQUIDITY The comparative figures for the cash flow items refer to the consolidated cash flow statement of first half year 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. For the first half year, cash flow from operating and investing activities amounted to MSEK 3,175 ( 1,044). Cash flow from operating activities amounted to MSEK 4,613 (7,745). The improved operating income is offset by a negative development in working capital, which is mainly related to increased accounts receivables and inventories, due to production related seasonality and sales mix. Accounts payables is slightly positive, however negatively influenced by change over effects. Furthermore, there is a negative impact from decreased VAT liabilities. Cash flow from investing activities amounted to MSEK 7,788 ( 8,789). Investments in tangible assets amounted to MSEK 5,030 ( 4,487) and is primarily due to assets under construction related to the ongoing construction of the US plant, as well as preparation for production of the new S90 in China. Investments in tangible assets also includes special tool investments related to new car models based on the SPA platform, such as the new S90 and V90. Investments in intangible assets amounted to MSEK 2,938 ( 2,351) and includes investments in upcoming new car models. Cash flow from financing activities amounted to MSEK 222 (4,878) and is mainly attributable to proceeds from the new bond loan of MSEK 4,619, offset by repayment of liabilities to credit institutions which amounted to MSEK 3,985. Cash and cash equivalents including marketable securities decreased to MSEK 27,230 (29,135). The revolving credit facility of MEUR 660 remains undrawn. Net debt/net cash decreased to MSEK 4,622 ( 7,721). Total equity increased by MSEK 2,671 to MSEK 37,306 (34,635), resulting in an equity ratio of 26.4 (26.2) per cent. The change in equity was mainly related to the positive net income for the period of MSEK 3,784 mainly offset by negative effects related to remeasurement of post-employment benefits of MSEK 829, due to a decrease in discount rates. Cash flow Statement (MSEK) Cash flow from operating activities 4,613 7,745 Cash flow from investing activities 7,788 8,789 Cash flow from operating and investing activities 3,175 1,044 Cash flow from financing activities 222 4,878 Cash flow for the period 2,953 3,834 Performance measures June 30, Dec 31, Net debt (Net cash if negative) (MSEK) 4,622 7,721 Equity ratio (%) 26.4 26.2 12 OF 24
INTERIM REPORT SECOND QUARTER CONSOLIDATED INCOME STATEMENTS MSEK Net revenue 41,890 41,564 83,647 75,215 164,043 Cost of sales 33,001 32,094 65,319 59,119 128,238 Gross income 8,889 9,470 18,328 16,096 35,805 Research and development expenses 2,344 2,256 4,757 4,231 8,803 Selling expenses 3,032 2,668 5,715 5,135 10,951 Administrative expenses 1,572 1,812 3,123 3,404 7,234 Other operating income 769 483 1,378 714 2,005 Other operating expenses 347 1,580 695 2,436 4,432 Share of income in joint ventures and associates 84 34 176 56 230 Operating income 2,447 1,671 5,592 1,660 6,620 Financial income 67 11 124 173 238 Financial expenses 366 397 800 728 1,469 Income before tax 2,148 1,285 4,916 1,105 5,389 Income tax 433 167 1,132 228 913 Net income for the period 1,715 1,118 3,784 877 4,476 Net income attributable to Owners of the parent company 1,270 711 3,103 173 3,130 Non-controlling interests 445 407 681 704 1,346 1,715 1,118 3,784 877 4,476 13 OF 24
INTERIM REPORT SECOND QUARTER CONSOLIDATED COMPREHENSIVE INCOME MSEK Net income for the period 1,715 1,118 3,784 877 4,476 Other comprehensive income, net of income tax Items that will not be reclassified subsequently to income statement: Remeasurements of provisions for post-employment benefits 369 2,061 829 1,051 1,321 Items that may be reclassified subsequently to income statement: Translation difference on foreign operations 346 402 260 150 175 Translation difference of hedge instruments of net investments in foreign operations 66 22 83 87 100 Change in cash flow hedge 1,486 1,259 461 326 1,617 Other comprehensive income, net of income tax 1,575 2,940 1,113 1,614 2,863 Total comprehensive income for the period 140 4,058 2,671 2,491 7,339 Total comprehensive income attributable to Owners of the parent company 340 3,751 2,025 1,708 6,005 Non-controlling interests 480 307 646 783 1,334 140 4,058 2,671 2,491 7,339 14 OF 24
INTERIM REPORT SECOND QUARTER CONSOLIDATED BALANCE SHEETS MSEK Note June 30, Dec 31, ASSETS Non-current assets Intangible assets 23,959 22,834 Property, plant and equipment 40,578 37,428 Assets held under operating leases 2,292 2,172 Investments in joint ventures and associates 692 701 Other long-term securities holdings 12 15 Deferred tax assets 3,997 3,841 Other non-current assets 1,274 1,326 Total non-current assets 72,804 68,317 Current assets Inventories 24,399 20,306 Accounts receivable 3 10,606 8,805 Receivables from parent company 54 54 Current tax assets 473 307 Other current assets 5,974 5,393 Marketable securities 4,330 3,512 Cash and cash equivalents 22,900 25,623 Total current assets 68,736 64,000 TOTAL ASSETS 141,540 132,317 EQUITY & LIABILITIES Equity Equity attributable to owners of the parent company 34,575 32,550 Non-controlling interests 2,731 2,085 Total equity 37,306 34,635 Non-current liabilities Provisions for post-employment benefits 5,857 4,701 Deferred tax liabilities 1,834 1,768 Other non-current provisions 6,330 5,909 Liabilities to credit institutions 14,470 15,168 Bond loan 4,692 Other non-current liabilities 3 3,408 2,927 Total non-current liabilities 36,591 30,473 Current liabilities Current provisions 12,735 12,456 Liabilities to credit institutions 3,446 6,246 Advance payments from customers 528 534 Accounts payable 3 27,459 26,282 Current tax liabilities 509 446 Other current liabilities 3 22,966 21,245 Total current liabilities 67,643 67,209 TOTAL EQUITY & LIABILITIES 141,540 132,317 15 OF 24
INTERIM REPORT SECOND QUARTER CONDENSED CHANGES IN CONSOLIDATED EQUITY MSEK June 30, Dec 31, Opening balance 34,635 34,268 Net income for the period 3,784 4,476 Other comprehensive income, net of income tax 1,113 2,863 Total comprehensive income 2,671 7,339 Transactions with owners 6,972 Closing balance 37,306 34,635 Attributable to Owners of the parent company 34,575 32,550 Non-controlling interests 2,731 2,085 Closing balance 37,306 34,635 16 OF 24
INTERIM REPORT SECOND QUARTER CONSOLIDATED STATEMENTS OF CASH FLOWS MSEK OPERATING ACTIVITIES Operating income 2,447 1,671 5,592 1,660 6,620 Depreciation and amortisation of non-current assets 2,704 2,177 5,147 4,425 9,399 Interest and similar items received 67 35 124 82 141 Interest and similar items paid 423 421 489 498 1,022 Other financial items 45 20 121 83 176 Income tax paid 513 10 884 573 1,645 Adjustments for items not affecting cash flow 103 335 166 426 235 4,134 3,787 9,203 5,439 13,082 Movements in working capital Change in inventories 858 432 2,850 2,994 1,742 Change in accounts receivable 1,651 1,038 1,746 1,106 994 Change in accounts payable 337 1,588 1,177 5,450 7,658 Change in items relating to repurchase commitments 30 206 100 417 29 Change in provisions 491 220 669 254 1,979 Change in other working capital assets/liabilities 368 363 1,740 285 2,564 Cash flow from movements in working capital 2,753 1,331 4,590 2,306 9,494 Cash flow from operating activities 1,381 5,118 4,613 7,745 22,576 INVESTING ACTIVITIES Investments in shares and participations 29 2,230 184 2,197 2,213 Investments in intangible assets 1,762 1,270 2,938 2,351 4,715 Investments in property, plant and equipment 2,496 1,757 5,030 4,487 8,677 Disposal of property, plant and equipment 163 263 Other 4 83 4 83 Cash flow from investing activities 4,233 5,174 7,788 8,789 15,342 Cash flow from operating and investing activities 2,852 56 3,175 1,044 7,234 FINANCING ACTIVITIES Proceeds from credit institutions 262 3,711 316 3,800 5,935 Proceeds from bond issuance 4,619 4,619 Repayment of liabilities to credit institutions 3,850 3,302 3,985 3,987 6,626 Received shareholders contribution 3,992 3,992 3,992 Investments in marketable securities, net 2,522 580 785 659 2,488 Other 198 80 57 414 632 Cash flow from financing activities 1,293 4,901 222 4,878 1,445 Cash flow for the period 4,145 4,845 2,953 3,834 8,679 Cash and cash equivalents at beginning of period 26,716 16,924 25,623 17,002 17,002 Exchange difference on cash and cash equivalents 329 642 230 291 58 Cash and cash equivalents at end of period 22,900 21,127 22,900 21,127 25,623 17 OF 24
INTERIM REPORT SECOND QUARTER CONDENSED PARENT COMPANY INCOME STATEMENTS KSEK Administrative expenses 1,247 10 2,212 23 85 Operating income 1,247 10 2,212 23 85 Financial income 19,271 19,271 Financial expenses 33,290 3 33,295 7 16 Income before tax 15,266 13 16,236 30 101 Income tax 275 3 489 7 22 Net income for the period 14,991 10 15,747 23 79 CONDENSED PARENT COMPANY BALANCE SHEETS KSEK June 30, Dec 31, ASSETS Non-current assets 16,968,285 12,300,292 Current assets 18,367 51 TOTAL ASSETS 16,986,652 12,300,343 EQUITY & LIABILITIES Equity Restricted equity 100 100 Non-restricted equity 2,979,306 2,995,053 Total equity 2,979,406 2,995,153 Non-current liabilities 13,986,060 9,304,542 Current liabilities 21,186 648 TOTAL EQUITY & LIABILITIES 16,986,652 12,300,343 18 OF 24
INTERIM REPORT SECOND QUARTER NOTE 1 ACCOUNTING PRINCIPLES This interim report has been prepared in accordance with IAS 34 Interim Financial Reporting and the Swedish Annual Accounts Act. The parent company applies the Swedish Annual Accounts Act and RFR 2 - Reporting for legal entities. The Volvo Car Group applies International Financial Reporting Standards (IFRS) as endorsed by the European Union. The accounting principles adopted are consistent with those described in the Volvo Car Group annual report Note 1 Accounting principles (available at www.volvocars.com). The bond issued in May is recorded at amortized cost with a fair value adjustment related to the interest component of the bond. Changes to fair value of the interest component of the bond is hedged through a fair value hedge by means of interest rate swaps, for which accounting principles are described in the annual report. Certain disclosures required by IAS 34 may be given within this interim report, but outside of the formal interim financial statements. NOTE 2 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. In Volvo Car Group s balance sheet, financial instruments reported at fair value through profit and loss consist of derivatives and marketable securities (excluding time deposits in banks). Fair value of financial instruments is established according to three levels, depending on the market information available. All financial instruments reported at fair value through profit or loss that Volvo Car Group holds as at June 30, belong to level 2. No transfers between the levels of the fair value hierarchy have occurred during the reporting period. Valuation of financial instruments at fair value is based on prevailing market data and on a discounting of estimated cash flows using the deposit/swap curve of the cash flow currency. 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. Derivatives with positive fair values amounted to MSEK 1,538 (1,557), whereof MSEK 387 (464) are included in other non-current assets and MSEK 1,151 (1,093) are included in other current assets. Derivatives with negative fair values amounted to MSEK 1,000 (496), whereof MSEK 446 (117) are included in other non-current liabilities and MSEK 554 (379) are included in other current liabilities. Marketable securities (excluding time deposits in banks) amounted to MSEK 4,631 (4,446), whereof MSEK 2,830 (3,512) are reported as marketable securities and MSEK 1,801 (934) are reported as cash and cash equivalents. Time deposits in banks (not recognised at fair value) amounted to MSEK 1,500 (-) and is included in marketable securities. For financial liabilities valued at amortised cost, reported as current and non-current liabilities to credit institutions and as bond loans, the carrying amount totalled MSEK 22,608 (21,414). The carrying amount is a good estimate of the fair value since the interest rates in existing loan agreements on June 30, were estimated to be in par with credit market interest rates. The fair value therefore corresponds, in every significant respect, with the carrying amount. Fair value of financial instruments such as accounts payables and other non-interest bearing financial liabilities that are valued at amortised cost is regarded as coinciding with the carrying amount. Carrying amount of financial liabilities recorded at amortised cost, as stated in the paragraph above, includes the bond issued in. Carrying amount of the bond is MSEK 4,692. 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 MSEK 29. 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. 19 OF 24
INTERIM REPORT SECOND QUARTER NOTE 3 RELATED PARTY TRANSACTIONS During the second quarter, group companies entered into the following transactions with related parties that are not consolidated in the Group. The information in the table below includes all assets and liabilities to related parties. Besides from other non-current liabilities of MSEK 1,181 (941) all assets and liabilities are current. Sales of goods services and other, MSEK Related companies 1) 564 251 919 382 1,032 Associated companies and joint ventures 2) 288 326 731 764 1,588 Purchases of goods services and other, MSEK Related companies 1) 93 302 318 505 934 Associated companies and joint ventures 2) 468 318 1,043 802 1,785 Receivables from June 30, Payables to June 30, Related companies 1) 4,812 4,213 5,056 4,377 Associated companies and joint ventures 2) 56 24 35 149 1) Related companies are companies outside the 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, but it also includes investments with less participation if significant influence is proven. 20 OF 24
INTERIM REPORT SECOND QUARTER 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. Western Europe Norway, Denmark, Finland, Netherlands, Belgium, France, Spain, Italy, Germany, Switzerland, Austria, Ireland, UK, Greece and Portugal. Retail sales Retail sales refer to sales to end customers and is a relevant measure of the demand for Volvo Cars from an external point of view. DEFINITIONS OF PERFORMANCE MEASURES Performance measures disclosed in the interim report are those that are deemed to give the most true and fair as well as relevant view of Volvo Car Groups financial performance for a reader of the interim report. For reconciliation of performance measures, refer to page 22. EBIT EBIT represents earnings before interest and taxes. EBIT is synonymous with operating income which measures the profit Volvo Car Group generate from its operations. EBIT margin EBIT margin is EBIT as a percentage of net revenue and measures Volvo Car Groups operating efficiency. EBITDA EBITDA represents earnings before interest, taxes, depreciations and amortisation, and is another measurement on the operating performance. It measures the profit Volvo Car Group generate from its operations without effect from previous periods capitalization 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 Groups 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 and bond loans 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. 21 OF 24
INTERIM REPORT SECOND QUARTER RECONCILIATION TABLES OF PERFORMANCE MEASURES EBIT Margin June 30, June 30, Operating income (EBIT) in % of net revenue 5.8 4.0 6.7 2.2 4.0 EBITDA/ EBITDA Margin June 30, June 30, Operating Income 2,447 1,671 5,592 1,660 6,620 Depreciation and amortisation of non-current assets 2,704 2,177 5,147 4,425 9,399 EBITDA 5,151 3,848 10,739 6,085 16,019 EBITDA in % of net revenue 12.3 9.3 12.8 8.1 9.8 EQUITY RATIO June 30, Total equity 37,306 34,635 Total assets 141,540 132,317 Equity in % total assets 26.4 26.2 NET CASH (MSEK) June 30, Liabilities to credit institutions (non-current) 14,470 15,168 Bond loan 4,692 Liabilities to credit institutions (current) 3,446 6,246 Marketable securities 4,330 3,512 Cash and cash equivalents 22,900 25,623 Net Debt (Net cash if negative) 4,622 7,721 22 OF 24
INTERIM REPORT SECOND QUARTER The President and Chief Executive Officer certify that the interim report gives a fair view of the performance of the business, position and income statements of the parent company and the Group, and describes the principal risks and uncertainties to which the Group are exposed. Gothenburg, July 19, Håkan Samuelsson President and Chief Executive Officer This report has not been subject to review by the auditors of Volvo Car AB (publ.). The Volvo Car Group interim report on the third quarter will be published on October 27, at 06.00 AM CEST. CONTACT Nils Mösko Vice President, Head of Investor Relations +46-(0)31 59 21 09 investors@volvocars.com Volvo Car Group Headquarters 405 31 Gothenburg www.volvocars.com 23 OF 24
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