volvo car group annual report 2014 GEELY SWEDEN AB | ANNUAL REPORT 2014 this is volvo car group TABLE OF CONTENTS Our history dates back to 1927 when the Swedish company Volvo Car Corporation was founded and the first Volvo car was launched. Volvo Cars is headquartered in 3 2014 in brief Gothenburg in Sweden. Volvo cars are produced in factories in Torslanda in Swe- den, Ghent in Belgium, Chengdu, Daqing and Chongqing in China and Kuala Lum- 4 CEO comment pur in Malaysia. Since 2010, Volvo Cars is owned by Shanghai Geely Zhaoyuan 6 Challenges and opportunities International Investment Co., Ltd. which is ultimately owned by Zhejiang Geely 8 Strategy section Holding Group Ltd. (Geely). In 2014 around 2,300 Volvo dealers sold 465,866 cars in 100 countries around the world. As of December 2014, Volvo Car Group 10 Strategic change themes employed about 24,000 people. 12 Brand 14 Design We started making cars in 1927 because we believed nobody else was making them strong or safe enough for Swedish roads. Along the way we have come up 16 Products with many innovations, some of which have changed the world. This commitment 18 Research and development drives us forward to the next great Volvo Cars idea. 20 Purchasing and manufacturing 24 Marketing and sales 28 People CORPORATE STRUCTURE 35 Board of Directors’ report 43 Consolidated financial statements ZHEJIANG GEELY HOLDING GROUP CO., LTD. 47 Notes to the consolidated financial statements SHANGHAI GEELY ZHAOYUAN INTERNATIONAL INVESTMENT CO., LTD. 76 Parent company financial statements 79 Notes to the parent company GEELY SWEDEN HOLDINGS AB financial statements 83 Auditor’s report 84 Board of Directors GEELY SWEDEN AUTOMOTIVE AB 86 Executive management 88 Definitions GEELY SWEDEN AB VOLVO CAR GROUP (Consolidation level of all financial communication) VOLVO CAR CORPORATION Volvo Cars The Operations ALL SALES COMPANIES, Related OTHER SUBSIDIARIES, JOINT VENTURES companies AND ASSOCIATED COMPANIES READ MORE ON PAGE 35. LORUM IPSUM ”Looking back at 2014’s performance gives me confidence in our future performance. Volvo Cars is performing well. Sales are grow- ing, a range of all new products are on the way, we are leading the field in new technologies and Volvo Cars is well placed to benefit from important new markets.” HÅKAN SAMUELSSON, PRESIDENT & CEO, CEO COMMENT PAGE 4. ANNUAL REPORT 2014 | GEELY SWEDEN AB 1 LORUM IPSUM 2 GEELY SWEDEN AB | ANNUAL REPORT 2014 LORUM IPSUM 2014 in brief • Volvo Cars retail sales up by 8.9 per cent to 465,866 (427,840) units • Volvo Car Group net revenue increased by 6.3 per cent to MSEK 129,959 (122,245) • Operating income (EBIT) at MSEK 2,252 (1,919) • Net income at MSEK 834 (960) • Cash flow from operating and investing activities adjusted for investments in marketable securities of MSEK -4,131 (109) Volvo Concept XC Coupé: "Best Concept Car" In August, Volvo Cars pre-launched the all award at 2014 Detroit Motor Show and Volvo new XC90 in Stockholm. It will be one of Concept Estate: multiple ‘Car of the show’ the safest cars on the market and was Q1 awards in Geneva. Q3 very well received. The Torslanda plant celebrated its 50 Volvo Cars earned top result in 2015 IIHS years anniversary and a new body shop Top Safety Pick+ and the V60 Cross Country was inaugurated to prepare for the new was launched at the Los Angeles motor Q2 XC90 launch. Q4 show in October. RETAIL SALES BY REGION SALES BY CARLINE KEY RATIOS 2014 2014 MSEK 2014 2013 Net revenue 129,959 122,245 Operating income, EBIT 2,252 1,919 Net Income 834 960 EBITDA 9,183 9,057 Operating & investing cash flow –4,131 109 EBIT margin % 1.7 1.6 EBITDA margin, % 7.1 7.4 Equity ratio % 29.9 28.1 China, 17% S, 17% Net debt 928 2,607 Sweden, 13% V, 43% US, 12% XC, 40% Western Europe, 39% Other markets, 18% GEELY SWEDEN AB | ANNUAL REPORT 2014 ANNUAL REPORT 2014 | GEELY SWEDEN AB 3 CEO COMMENT Performing well and leading the field It is Volvo Cars’ long term strategic ambition to further develop its position as a global premium car maker. Driven by the complete renewal of its product range in the next four years, Volvo Cars is aiming to double sales to around 800,000 cars a year until 2020 while improving profitability. During 2014, Volvo Cars took several important steps towards achieving these goals. With the ownership of Geely, Volvo Cars has the operational, stra- The US revival plan tegic and financial capabilities to develop and build a new genera- To regain market share and strengthen our presence in the US we tion of cars. The first fruits of a BSEK 75 investment programme have launched a revival plan, focused on strengthening our brand were to be seen with the pre-launch of the all new XC90 in August and reinforcing our premium position in the US market. We have a 2014. mid-term objective to once again sell 100,000 cars a year in the US. The combination of the new XC90, upcoming cars and our Confident with the future of Volvo Cars action plan means I am confident and determined that we will The new XC90 says a lot about the future of Volvo Cars. succeed. It is built on an entirely new, in-house developed Scalable Product Architecture (SPA) technology, that improves driveability, provides a Strong performance in Europe wider range of design options and will over time generate significant Volvo Cars’ sales in Western Europe rose 9.5 per cent in 2014, economies of scale, improvements in productivity and improved which is twice as fast as its nearest competitors in the premium profitability. SPA will be used across Volvo Cars' future product segment, according to the European Automobile Manufacturers range. Association (ACEA). The XC90 also features Volvo Cars’ in-house designed new Drive-E powertrain, which provides a world leading combination of Leading in Autonomous Driving power and low carbon emissions. In addition, the XC90 offers Another global opportunity is the rapid development of autono- world first safety technologies as standard and the most compre- mous driving technologies. Once again, Volvo Cars is choosing to hensive safety package on the market. address this issue by engaging in it. Reflecting its heritage and While I am extremely confident in the direction we are taking in corporate values, Volvo Cars has announced a bold vision that by terms of our products, it is also extremely important that we build 2020 no-one should be killed or seriously injured in a new Volvo our future development on stable finances. We have shown that car. Volvo Cars believes autonomous driving is a key factor in we can improve our earnings, despite unfavourable currency reaching this vision. developments, while developing world beating cars, investing in That is why we have announced the world’s first and largest new car programmes and maintaining a constant vigilance towards autonomous drive pilot project which will start in 2017 on selected costs. These disciplines will remain in place in coming years. roads in and around Gothenburg. This will involve our customers The changes that Volvo Cars is making come at a time of rapid driving high level autonomous Volvo cars in everyday driving con- development in the global automotive industry. Volvo Cars wel- ditions. comes these changes and is actively positioning the company to This is no technical show case. It seeks to determine how to benefit from them. practically implement autonomous driving and introduce it to the real world. It is Volvo Cars’ strategy to lead the way in new technol- Taking market shares in China ogies rather than be led. One important opportunity is the rise of China as the world’s larg- est car market. Volvo Cars is ideally placed to benefit from this A growth story development. In 2014 we expanded our manufacturing footprint in The benefits of our strategy are already being felt. We have China by announcing that SPA cars would be built at the plant in reported record sales for 2014. But there are other important Daqing and production of the XC60 for the Chinese market has markers that help underpin our confidence in the future. already started in Chengdu. For example, we made 1,927 limited edition XC90s available for China became Volvo Cars’ largest market during 2014 and we sale online after the pre-launch in August. These cars sold out in took market share from our nearest competitors. These and other just 47 hours. In addition, we received over 15,000 online orders developments mean that Volvo Cars is well positioned to develop for the XC90 before production even started, underlining the high from the rise of China as the world's largest automotive market. level of demand for the XC90 when it is released for sale in 2015. 4 GEELY SWEDEN AB | ANNUAL REPORT 2014 LORUM IPSUM ”The XC90 paves the way for a portfolio of exciting new cars to come in the following years” We are also expanding our manufacturing capacity from 200,000 cars a year to 300,000 at our plant in Torslanda in Sweden, which celebrated its 50th anniversary in 2014, ahead of the launch of the FOCUS 2015 new XC90. This has created a need to hire 1,300 new employees. These developments make it very clear that Volvo Cars’ story is one of growth. Retail sales of up to 500,000 units Looking back at 2014’s performance gives me confidence in our Back to growth in the US future performance.