New York November 8, 2006
Leif Johansson, President and CEO 1 Volvo Group Third Quarter Highlights
Third Quarter In Focus Going Forward z Business environment z Manage product- and production - European market stronger than expected change-over - Prebuy effect in North America z Capitalize on new products z Sales increased by 9% z Manage downturn in US truck market z Another quarter with strong profitability - Adjusted operating income up 24% to SEK 4,972 - Adjusted operating margin at 8.7% - Return on equity at 19.3% z EPS up 34% to SEK 9.70 z Increased ownership in Nissan Diesel and a 70% equity investment in Lingong z New financial targets
AB Volvo 2006-11-08 LJo 2 Volvo Group Heavy Duty Truck Market Europe (EU members + Switzerland and Norway) Forecast 2006: ~290,000 Units, Thousands (heavy trucks) 2007: in line with 2006 300 Modification of definition In 1991 (East Germany) and in 2000 (new member states) 277
250 256
230 200 188 171 179 150
122 100 116
50
0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05
AB Volvo 2006-11-08 LJo 3 Volvo Group Strategic focus for the Volvo Group 2007…
→ Building a competitive Volvo Group
→ Profitable growth – Through acquisitions – Geographic expansion – Asia – Eastern Europe – Soft offers
AB Volvo 2006-11-08 LJo 4 Volvo Group
The Volvo Group Vision To be valued as the world’s leading provider of commercial transport solutions
Wanted position
¾ Number one in image and customer satisfaction ¾ Sustainable profitability above average ¾ Number one or two in size or superior growth rate
AB Volvo 2006-11-08 LJo 5 Volvo Group Maintaining Strong Positions
DCX Evobus* Caterpillar
Volvo Group Volvo Buses Komatsu
Paccar Scania Deere
Dongfeng Irisbus Hitachi *Mercedes, Setra & Orion Interna’l > 16 ton Neoman > 12 ton Volvo CE
Volvo Aero Brunswick VolvoVolvo GroupGroup y World leading in development, Volvo Penta DCX production and aftermarket services Yanmar Caterpillar of selected engine components.
Cummins Cummins y Engine components from Volvo Aero is included in 80% of all new Caterpillar Weichai Power 9-18 lit larger civil aircrafts.
AB Volvo 2006-11-08 LJo 6 Volvo Group Volvo Group Organized to deliver sharp customer focus and shared global strength Business areas
Volvo Trucks Renault Trucks Mack Trucks Volvo Buses Volvo CE Volvo Penta Volvo Aero Financial Services Employees35,680 7,710 10,290 1,560 3,460 1,070 Business units
Volvo 3P - 2,930 employees
Volvo Powertrain -8,130
Volvo Parts -3,500
Volvo Logistics - 980
Volvo Information Technology -4,390
AB Volvo 2006-11-08 LJo 7 Volvo Group Volvo Group Organized to deliver sharp customer focus and shared global strength Business areas
Volvo Trucks Renault Trucks Mack Trucks Volvo Buses Volvo CE Volvo Penta Volvo Aero Financial Services
Business units Volvo 3P
Volvo Powertrain
Volvo Parts
Volvo Logistics
Volvo Information Technology
AB Volvo 2006-11-08 LJo 8 Volvo Group Shared architecture and common technologies for unique products Example: Volvo Powertrain Scale and efficiency Unique products
¾ Lower R&D
¾ Production efficiency
¾ High flexibility
¾ One supplier base
¾ Improved quality
Two platforms: 4 - 7L 9 - 16L
AB Volvo 2006-11-08 LJo 9 Volvo Group Strategically well positioned
Emission Legislation Heavy Duty Engines - 2005
VOLVO 182 PM (Particulate Matter) [g/kWh] Euro 2, 1996 179 0.14 DCX 158 0.12 US 02, 2002 CAT Euro 3, 2002 0.10 120 Cummins 0.08 114 Weichai 0.06 65 Scania 0.04 57 0.02 Euro 5, 2009 MAN Euro 4, 2006 46 0.00 US 07, 2007 0 1.02.03.04.05.06.07.0 Yaroslavl 40 US 10, 2010 NOx (g/kWh) Iveco 38
Navistar 37 32 Paccar (DAF)
Kamaz AB Volvo 2006-11-08 LJo 10 Volvo Group Commercial opportunity for customers Potential fuel saving up to 35 %
Cost allocation
Capital
Employees Fuel
AB Volvo 2006-11-08 LJo 11 Volvo Group
Direction for future growth
→ Growth through acquisitions
→ Geographic expansion in Asia and Eastern Europe
→ Soft offers
AB Volvo 2006-11-08 LJo 12 Volvo Group Value creation through growth Example: Volvo CE
Sales Operating income SEK M SEK M Sales 40 000 Acquisition Integration Growth 5 000 – Tripled Net sales mode mode mode Average growth ~13% 4 500 • Pel Job • Backhoe loader 9,1% 4 000 – Operating income 30 000 • Champion • Skidsteer loader •Samsung 3 500 tripled 7.9% 3 000 – Growing market 20 000 2 500 6.5% shares 9.1% 2 000 8.0% Operating margin (%) 8.6% 9.1% 1 500 – Improved strategic 10 000 3.9% 3.2% 1 000 position 2.5% 1.9% 500
2005 0 02 2004 0 2003 20 Q3 2006 2001 2000 1999 s 1998 th 1997 n 1996 o -m 2 1
AB Volvo 2006-11-08 LJo 13 Volvo Group Transition in Trucks: 2005-2006
Merger mode Transition period Growth mode
“Create synergies” “New architecture and shared technologies. Develop unique brand versions”
• New truck portfolio
• New engine generation
Shared Shared architecture • Industrial changeover: architecture and - Renault Trucks and technologies - Volvo Powertrain technologies
• EU4/EU5 and US’07
AB Volvo 2006-11-08 LJo 14 Volvo Group Trucks entering the growth mode
Growth mode → New competitive product portfolio “Brand unique products from a → New customer segments base of shared architecture and technologies” → More efficient industrial structure → More cost efficient product portfolio -R&D - Purchasing Shared architecture and - Production technologies -Aftermarket → Stronger dealer network → Increased resources to deliver brand uniqueness
AB Volvo 2006-11-08 LJo 15 Volvo Group
50 Increased Sales and Profitability in Trucks*10,0%
45 Sales (bn) 8,0% 40 Operating Margin 35 6,0%
30 4,0% Sales trend 25
2,0% 20
15 0,0%
10 -2,0% 5
0 -4,0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2001 2006 * Adjusted for goodwill adjustment of 1,712 in Q3 2006 AB Volvo 2006-11-08 LJo 16 Volvo Group
Direction for future growth
→ Growth through acquisitions
→ Geographic expansion in Asia and Eastern Europe
→ Soft offers
AB Volvo 2006-11-08 LJo 17 Volvo Group Asia is a strategic region for future growth Example: Heavy duty trucks 2005
North America Europe China 308,000 277,000 238,000
JapanJapan Volvo Group 25% 44,00048,000 Volvo Group 20%
India South America Volvo Group 140,000 72,000 14%
Established Volvo Group markets Entry markets
AB Volvo 2006-11-08 LJo 18 Volvo Group Growth potential in medium duty trucks Global market 2005 1,000 units
DCX 125 GM/Isuzu 90 Telco 69 Navistar 68 DongFeng 66 FAW 62 Ford 49 Hino/Toyota 49 Iveco 21 Nissan Diesel 19 Volvo Group 19 Ashok 16
0 20 40 60 80 100 120 140
AB Volvo 2006-11-08 LJo 19 Volvo Group AsiaAsia isis aa strategicstrategic regionregion forfor futurefuture growthgrowth Construction equipment market (units) – Volvo CE product range
Europe Local 140,000 China Imports North America 140,000 180,000 Japan 65,000 Volvo CE Volvo CE sales: 90% sales: 10%
South America Africa & India M. East 20,000 15,000 50,000 Rest of Asia 10,000
Established Markets: 60% Asia: 40%
AB Volvo 2006-11-08 LJo 20 Volvo Group Market shares in China
Yucai 2% Others 14% CAT 2% Yituo 2% Komatsu 3% Futian 2% Hitachi 3% Chenggong 4% Doosan 4% Changlin 5% Hyundai 4% Kobelco 1%
Shangong 5% Volvo 1%
XCMG 7% Liugong 12%
Lingong 8% Xiagong 11% Longgong 10%
AB Volvo 2006-11-08 LJo 21 Volvo Group Strong distribution network
Own branches
TOP 10 of dealers
Other dealers
AB Volvo 2006-11-08 LJo 22 Volvo Group Competitive entry-level products
Lingong ZL50F – High Volume Lingong LG950 – High End
AB Volvo 2006-11-08 LJo 23 Volvo Group Growth in Eastern Europe
• Strong economic development
• Proximity to existing European industrial set-up 14,6 • Distribution structure well Net sales (SEK bn) 11,4 developed 10,6 8,3 • Demand for premium 7,4 6,4 products
• Attractive risk/reward ratio
2001 2002 2003 2004 2005 2006 12- months
AB Volvo 2006-11-08 LJo 24 Volvo Group
Direction for future growth
→ Growth through acquisitions
→ Geographic expansion in Asia and Eastern Europe
→ Soft offers
AB Volvo 2006-11-08 LJo 25 Volvo Group Growth potential in Soft Products
Advisory services Cargo insurance
Vehicle management Vehicle insurance
Transport management Leasing
Maintenance agreements Driver Parts & accessories Financing development Special equipment Workshop Services
Security Trade-in/ Rental (driver Vehicle used Remanufacturing & cargo) & body vehicles 0 1 2 3 4
AB Volvo 2006-11-08 LJo 26 Volvo Group Present customer offer Soft product* 2005 : ~30% of Group net sales
Related products & services Research & Advanced IT Services Logistics Services Engineering Merchandise Real Estate Services
Extended Aero Spare Infom@x Consulting Warranty Parts Sales Supporting Credit cards Rental products & Vehicle & services Equipment Insurance Used Vehicles Customer & Dealer Transport & Vehicle & Equipment Remanufacturing Extended Parts Accessories Financing Management Training
Facilitating products & services
Customer Superstructure Attachments Parts Assistance Repair & Maintenance Aircraft Engine MRO
Core products
*Excluding Financial Services AB Volvo 2006-11-08 LJo 27 VolvoCapital Group Market Day 2005
SummarySummary
• Increased focus on Group competitiveness
• Focus on organic growth and acquisitions
AB Volvo 2006-11-08 LJo