Shaping the Future of Trans Portation And
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VOLVO GROUP ANNUAL AND SUSTAINABILITY REPORT 2020 SHAPING THE FUTURE OF TRANS PORTATION AND INFRASTRUCTURE The Volvo Group 2020 Group Volvo The www.volvogroup.com A GLOBAL GROUP 2020 OVERVIEW THIS IS THE VOLVO GROUP OUR CUSTOMERS MAKE SOCIETIES WORK The Volvo Group’s mission is to drive prosperity through transport and infra- structure solutions. We continuously develop our products and services to increase the value for our customers, to support sustainable societies and to promote the well-being and safety of people. Driving prosperity socially, environmentally and financially means striving for transport and infrastructure s olutions that are 100% safe, 100% f ossil-free and 100% more productive. The Volvo Group’s products and services contribute to much of what we all expect of a well- functioning and prosperous society, since our trucks, buses, construction equipment, power solutions for marine and industrial applications, financing and services are involved in many activities that most of us rely on every day. The majority of the Volvo Group’s customers are companies within the transportation or infrastructure industries. The reliability and productivity of our products and services are important, and in many cases crucial, to their success and profitability. ON THE ROAD Our products and services help ensure that people have food on the table, can travel to their destination and have roads to drive on. They also deliver industrial goods to keep production plants running. OFF ROAD Engines, machines and vehicles from the Volvo Group are used to mine iron ore, transport timber or haul stone and rock. They also power vital irrigation installations all over the world, so that farmers can grow their crops. IN THE CITY Our buses take people to work or school, trucks collect rubbish and gensets are used as backup power. Our products are also used to build housing as well as industrial and sports facilities. AT SEA Our products and services are there, regardless of whether someone is at work on a ship, traveling to work on a ferry, on holiday in a pleasure boat or needs urgent help from the sea rescue services. A GLOBAL GROUP 2020 OVERVIEW THIS IS THE VOLVO GROUP THE VOLVO ECR25 ELECTRIC – the first electric compact excavator launched as Volvo Construction Equipment transitions from diesel to electric battery power on models from 1.5 to 3 tons. 1 A GLOBAL GROUP 2020 OVERVIEW THIS IS THE VOLVO GROUP A GLOBAL GROUP WITH STRONG POSITIONS The Volvo Group offers transport- and infrastructure solutions with trucks, buses, construction equipment, power solutions for marine and industrial applications, financing and services that increase our customers’ uptime and productivity. Founded in 1927, the Volvo Group is committed to shaping the future landscape of sustainable transport and infrastructure solutions. The Volvo Group is headquartered in Gothenburg, Sweden, employs almost 100,000 people and serves customers in more than 190 markets. Competitive products The Volvo Group’s products contribute to efficient transport and infrastructure solutions and provide our customers with uptime. We drive the development of electrified vehicles and machines as well as automated solutions for the benefit of customers, society and the environment. Sales of vehicles and machines build a population of products that drive spare parts sales and service revenue. World-class services In addition to vehicles and machines, our offering includes various types of services such as financing, insurance, rentals, spare parts, repairs, preventive maintenance, service agree- ments and assistance services. The range and flexibility of the offering means that solutions can be tailor-made for each customer to maximize uptime and productivity. The service busi- ness contributes to balancing the fluctuations in the sales of new products and improving profitability over the business cycle. Growing the service business is an area of priority. Strong positions globally Thanks to competitive product programs, strong dealers with extensive service networks and increasingly more complete offerings, the Volvo Group has established leading positions globally. We are one of the world’s largest manufacturers of heavy-duty trucks, construction equipment, buses and heavy-duty combustion engines as well as a leading supplier of marine and industrial engines. These positions provide for economies of scale in product develop- ment, production, purchasing and financial services. Strong brands The Volvo Group’s brand portfolio consists of Volvo, Volvo Penta, UD Trucks, Terex Trucks, Renault Trucks, Prevost, Nova Bus, Mack and Arquus. We partner in alliances and joint ventures with the SDLG, Eicher and Dongfeng brands. By offering products and services under different brands, we address many different customer and market segments in mature as well as growth markets. Partnerships and collaborations with leading companies New technologies are developing at a faster pace than ever before. Staying at the forefront is vital to be successful, and that is why we work in collaborations and partnerships with other leading companies. We have partnered with Samsung SDI regarding the development of battery packs for our trucks. We are in the process of establishing a joint venture with Daimler Truck with the intention to develop, produce and commercialize fuel cell systems for heavy-duty vehicle applications and other use cases. And we have an agreement with NVIDIA to jointly develop the decision-making system of autonomous commercial vehi- cles and machines. 2 A GLOBAL GROUP 2020 OVERVIEW THIS IS THE VOLVO GROUP VOLVO GROUP MARKET SHARES IN HEAVY-DUTY TRUCKS 16.3%North America Europe25.0% 22.2%Brazil Japan18.9% SHARE OF NET SALES BY MARKET Europe North America 40% 24% Asia 24% South America Africa and Oceania 6% 6% SHARE OF NET SALES BY SEGMENT SHARE OF NET SALES BY REVENUE TYPE Trucks, 61% Group Functions & Other, 2% Vehicles, 73% Financial Services, 4% Financial Services, 4% Volvo Penta, 3% Services, 23% Buses, 6% Construction Equipment, 24% 3 CONTENT . A GLOBAL GROUP OVERVIEW This is the Volvo Group .................1 2020 in brief ......................... 5 CEO comments .................... 6 STRATEGY The future of transportation and infrastructure.....................8 Driving prosperity.................. 10 Perform and transform ............. 12 Seven strategic priorities ............. 15 Financial targets..................... 16 BUSINESS MODEL Value chain........................ 18 Customers ........................20 Climate ...........................24 Resources ........................30 People ...........................34 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2020 Significant events..................40 Financial performance..............42 Financial position ..................45 Cash flow statement . 50 Business Areas ....................52 Financial management .............64 Changes in consolidated equity......65 The share .........................66 Risks and uncertainties.............68 Statutory sustainability report.......76 NOTES Notes to the financial statements....77 Parent Company AB Volvo .........138 SUSTAINABILITY NOTES Group sustainability disclosures ....150 Climate and environment ..........152 Employees and development.......159 Safety ...........................162 Human rights.....................165 Suppliers ........................167 Business ethics and compliance ....169 CORPORATE GOVERNANCE The Volvo Group’s formal financial reports are presented on pages 40–149, Corporate Governance Report...... 172 188–190 and 194–196 and have been audited by the c ompany’s auditors. Board of Directors . 178 For information on which pages constitute the Volvo Group’s Statutory Group Executive Board ..............184 Sustainability Report, please see page 76. Sustainability information can be found integrated in the Group overview OTHER INFORMATION on pages 6–39, in the Sustainability Notes on pages 150–171 and on page Proposed remuneration policy......188 175 and 182 in the Corporate Governance Report. Proposed disposition of unappropriated earnings.............190 Audit report for AB Volvo (publ) .......191 On the cover: After the successful introduction of serial produced electric trucks for Key Ratios .......................194 urban transport and refuse collection, Volvo Trucks has deployed fully electric heavy- Eleven-year summary ...............197 duty con struction trucks along with charging solutions for test in real operations with Annual General Meeting .............206 customer Swerock. Preliminary financial calendar ........206 4 A GLOBAL GROUP 2020 OVERVIEW 2020 IN BRIEF 2020 IN BRIEF GOOD PROFITABILITY DESPITE IMPACT FROM COVID-19 Net sales decreased by 22% to SEK 338 billion KEY RATIOS 2020 2019 (432). Currency- adjusted net sales decreased Net sales, SEK M 338,446 431,980 by 18%. Adjusted operating income¹, SEK M 28,564 47,910 Adjusted operating margin, % 8.4 11.1 1 Adjusted operating income amounted to Operating income, SEK M 27,484 49,531 SEK 28,564 M (47,910), c orresponding to Operating margin, % 8.1 11.5 an adjusted operating margin of 8.4% (11.1). Income after financial items, SEK M 25,917 46,832 Income for the period, SEK M 20,074 36,495 Operating cash flow of SEK 18.5 billion (38.3) Diluted earnings per share, SEK 9.50 17.64 in the Industrial Operations. Dividend per share, SEK 15.002 0 Operating cash flow, Industrial Strong financial position with net financial assets Operations, SEK M 18,545 38,309 Net financial position excl.