geely ab ANnUAL report 2013

I CONTENTS

This is Car Group ...... 1 Financial Reports – 2013 at a glance ...... 2 Consolidated Income Statements ...... 23 CEO Comments...... 4 Consolidated Comprehensive Income ...... 23 Consolidated Balance Sheets ...... 24 Board of Directors Report ...... 6 Changes in Consolidated Equity ...... 25 Financial & Business summary 2013 ...... 7 Consolidated Statement of Cash Flows ...... 26 Strategy ...... 8 Notes to the Consolidated Financial Statements ...... 27 Products & Innovation ...... 10 Income Statements and Comprehensive Income – Parent Company ...... 54 Production & Operations ...... 12 Balance Sheets – Parent Company ...... 55 Sales Development ...... 14 Changes in Equity – Parent Company ...... 56 Board of Directors ...... 16 Statement of Cash Flows – Parent Company ...... 56 Executive Management ...... 18 Notes to the Parent Company Financial Statements ...... 57 Governance ...... 20 ...... 60 Risks & Risk Management ...... 20 Signatures ...... 61 Subsequent Events ...... 21 Auditors Report ...... 62 Proposed Distribution of Net income ...... 21 Contact...... 63

About This Report

The Board of Directors Sweden AB, corporate identity number 556798-9966, hereby submit the Annual Report and consolidated financial statements for January 1 - December 31, 2013. The Volvo Car Group’s consolidated financial review comprises all information through page 6 to 62.

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Visit Volvo Cars at www.volvocars.com and learn more about Volvo Cars’ products and services. Reports are available online at www.volvocars.com/corporate.

II geely sweden ab annual report 2013 This is Volvo Car Group

Volvo Cars’ history dates back to 1927 when the Swedish company The transformation of Volvo Cars Volvo Car Corporation was founded and the first Volvo car was Volvo Cars is going through a major transformation in line with the launched. Volvo Cars is headquartered in (Sweden). Volvo corporate and strategy “Designed Around You” which is all about cars are produced in factories in (Sweden), (), the customer and a human centric focus. Designed Around You is the (China), Chonqing (China), and Kuala Lumpur (Malaysia). foundation of the corporate culture and the strategy sets the objectives Since 2010 Volvo Cars is owned by Zhejiang Geely Holding Group Co. for Volvo Cars to establish itself as a leading brand within the premium Ltd. (Geely). In 2013 around 2,300 Volvo dealers sold 427,840 cars in segment. With roots firmly based in its Swedish heritage, China is 100 countries around the world. As of December 2013, Volvo Car becoming the second home market of Volvo Cars with extensive com- Group employed about 23,200 people. mercial and industrial presence. Additionally, new vehicle and engine technology will serve the global market and ensure a premium customer experience based on safety, contemporary Scandinavian design, envi- ronmental care and clever functionality.

Corporate Objectives Strategic CHANGE THEMES

• Provide cars people want • Emphasize profitability and efficiency • Be a lean and nimble company • Revitalize the Volvo brand with customer centricity throughout • Have a top tier premium auto brand perception the value chain • Be the employer of choice • Reinforce our product strengths based on focused innovation, architecture and win-win collaboration Which will lead to • Capture global growth and sourcing potential, leveraging the • Sales of over 800,000 vehicles globally ­presence in China • Top car industry profitability • Secure profitable growth in core segments in Europe and North America • Build a global organization with performance and health, able to act in a fast, smart and nimble way

The Volvo Car Group Zhejiang Geely – Corporate structure Holding Group Co., Ltd.

Shanghai Geely Zhaoyuan Volvo Car Group includes: International Investment Co., Ltd. • Geely Sweden AB • Volvo Car Corporation • Subsidiaries • companies Geely Sweden Holdings AB

Volvo Cars, the Operations, includes: • Volvo Car Corporation Geely Sweden Automotive AB • Subsidiaries • Joint venture companies • Affiliated companies Volvo Car Group (Consolidation level of all financial Geely Sweden AB communication) Joint venture companies are associated companies in which Volvo Car Corporation holds a voting interest of less or equal to 50 percent. Volvo Cars Affiliated companies are companies in close collaboration with Volvo (The Operations) Volvo Car Corporation Car Group but owned by another legal entity, for example the Chengdu manufacturing plant, Zhongjia Automobile Manufacturing (Chengdu) Co., Ltd., which is owned by Chinese subsidiaries of the parent All sales companies, Affiliated other subsidiaries company, Shanghai Geely Zhaoyuan ­International Investment Co., Ltd.. companies & joint venture companies

geely sweden ab annual report 2013 1 Volvo cars –2013 at a glance

In 2013, Volvo Cars continued its transformation journey and launched of the all-new Volvo XC90, the first car to be based on the Scalable the biggest renewal of the product line up in its history and launching Product Architecture, continued and is scheduled for a global launch the new Drive-E powertrains. Volvo Car Group reported an operating in- in 2014. come of SEK 1,919 (66) million, with a net income of SEK 960 (–542) The industrial expansion in China, financed by Geely, is progress- million. The result was a step into reaching sustainable profitability ing according to plan with the two joint venture companies in Daqing levels, primarily due to the positive second half year. and Zhangjiakou and the plant in Chengdu which went operational in Volvo Car Group managed to turn a loss over the first half of 2013 November 2013. into a full-year profit due to a positive sales development and cost focus. Retail sales for 2013 was mainly driven by an increase in China and reached about the same volumes as 2012. Wholesale declined Key Figures during the first half year following the preparations for the launch of 2013 2012 the renewed models. Retail sales 427,840 421,951 In 2013, Volvo Car Group further strengthened its long term China 61,146 41,989 funding structure via loan agreements with financial partners and institutions. USA 61,233 68,079 A major renewal of the models was launched into markets around EU 20 226,095 227,027 the world. The first versions of Volvo Cars’ in-house developed, new of which Sweden 52,260 51,832 four-cylinder Drive-E powertrain family were launched and new world- Rest of World 79,366 84,856 first safety technologies such as Cyclist Detection with full auto brake Wholesale 419,728 432,950 were introduced in Volvo cars during 2013. Net revenue, MSEK 122,245 124,547 At the International Motor Show (IAA), in Frankfurt, the global - ence caught a glimpse at what the future holds with the launch of the Operating income, MSEK 1,919 66 Volvo Car Concept Coupé. The was the first of three con- Net income, MSEK 960 –542 cept cars showing Volvo Cars’ new design strategy and the possibilities Operating & investing cash flow, MSEK 21 –4,929 of Volvo Cars’ in-house developed platform, the new Scalable Product EBIT margin 1.6% 0.1% Architecture (SPA). The second concept car, the Volvo Concept XC EBITDA, MSEK 9,826 8,082 Coupé, was previewed in late December ahead of its reveal at the Detroit Auto Show in early 2014. Throughout 2013, the development Equity ratio 28.1% 28.5%

RETAIL Sales by region 2013 Average number of employees by region 2013 Models by range 2013

North and South Asia, 6.2% America, 1.8% Rest of the World, China, 14.3% Other, 0.4% C, 2.7% 18.5% Europe excl Nordic S, 17.1% USA, 14.3% countries and Belgium, 4.3%

Belgium, 17.9% XC, 37.9%

V, 42.3% Nordic countries Sweden, 67.9% EU20, 52.9% excl Sweden 1.5%

2 geely sweden ab annual report 2013 • Launch of renewed model range in Geneva

• Launch of the world-first Cyclist Detection Q1 • Improved funding

• Preview of Chinese manufacturing plant in Chengdu

• Start of production of renewed models Q2 • 2013 Global NCAP Innovation Award

• World debut for Volvo Concept Coupé on IAA

• Self-parking car showcase Q3 • Approved manufacturing license in China

• Start of production of Drive-E Powertrains

• Start of production of S60L in Chengdu Q4 • Loan agreement with China Development Bank

geely sweden ab annual report 2013 3 CEO comments

2013 was a year of which we can be proud. We reported an oper- These developments highlight an important fact - there is a very ating income of SEK 1,919 million for the full year of 2013, which healthy appetite for new Volvo cars, which is reassuring considering was a significant improvement from the loss of SEK 577 million the strong pipeline of new models we plan to launch later this year and in the first half of the year. This is a good performance consider- thereafter. ing our first half and I would like to thank all our employees who This takes me to the United States, where Volvo Cars experienced worked so hard to achieve this. a challenging year. Overall sales fell by 10.1 per cent to 61,233 As I consider 2013, I would like to share some valuable observa- cars compared to 2012, partly due to a narrow customer offer. With tions I made during the year, as they feed directly into how Volvo Cars new management in place in the US, new models on the way and a will continue to develop and grow in 2014 and beyond. renewed focus on the Volvo brand by our dealers, it is clear that we are The first observation is that our focus on cost in 2013 has been committed to the market. Within a few years, we should have solidified an essential factor in returning to profitability. We need this work to our position in the market and sell more than 100,000 cars in the continue in order to improve efficiency and productivity. This focus on United States again. costs needs to be a natural and ongoing part of our culture. Stable Innovation remained central to our journey in 2013 and provided profitability is a prerequisite for our future growth and I would like to some important insights into how we are going to develop in future. emphasise that we will continue to focus on increasing revenues by Volvo Cars’ new, highly-efficient, four-cylinder engine family ‘Drive-E’ manufacturing premium cars. Our strategy is one of growth. was launched during the Frankfurt Motor Show in September. Drive-E Sales in China increased to 61,146 cars a raise by 45.6 per cent engines provide an exciting driving experience while at the same time compared to 2012, driven by new products, increased marketing activi- reducing fuel consumption and CO2 emissions. They will replace ties and the expansion of the Chinese dealer network. all other Volvo engine families in the future and all are prepared for It is apparent that China is a crucial market and that our position electrification. with our owner is providing us with a deeper insight into the opportuni- Our Drive-E engines are proof of the fact that the number of cylin- ties to be found in this huge market. This is illustrated by the start of ders no longer matters when the same power as a six or eight cylinder production at the manufacturing plant in Chengdu, China, in November. engine can be derived from a four cylinder engine and at the same Additionally, the engine plant in the Zhangjiakou joint venture com- time offer much lower emissions and much better fuel economy. menced production of Volvo engines. This rapid build-up would not We are also committed to developing autonomous driving. In early have been possible without support from our owner, Geely. December, Volvo Cars and the Swedish government announced a Last year, we made the largest renewal of the model range in Volvo world-first in autonomous driving. From now until 2017 we will work Cars’ history, which was an important factor behind the increase in towards having 100 self-driving Volvo cars use public roads in everyday sales in Europe during the second half of 2013, despite tough eco- driving conditions around the Swedish city of Gothenburg, the world’s nomic conditions. first large-scale autonomous driving pilot project. Autonomous drive

ChinaChina sales sales sweden market share Cars 70,000 2013, % 2012, % Change, 61,146 60,000 %-points 50,000 January–March 20.4 19.3 1.1 41,989 April–June 19.5 18.1 1.4 40,000 July–September 17.3 17.1 0.2 30,000 October–December 22.5 20.6 1.9 17,766 14,922

20,000 14,678 13,780 11,284 10,881

10,497 Full Year 20.0 18.9 1.1 10,000 9,327 0 Q1 Q2 Q3 Q4 Total

2012 2013

4 geely sweden ab annual report 2013 technologies are a major element in developing safer and more sus- In the longer term, we will continue the transformation journey that we tainable cars, while these technologies also have many demonstrable embarked on in 2010, by launching more new Volvo cars based on benefits in terms of efficiency and time management. our in-house developed vehicle architectures, featuring cutting-edge Several Volvo models were recognized for their top safety levels in technologies and powered by our industry-leading family of four- 2013, among others by the American Insurance Institute for Highway cylinder Drive-E powertrains. By taking full control of our own product Safety (IIHS). We are committed to keep that position as industry development without the need for compromises, Volvo Cars will flourish leader and we are moving ever closer to our Safety Vision 2020, which as an independent car manufacturer under solid ownership for many states that by 2020 no one should be killed or seriously injured in a years to come. new Volvo car. The all-new XC90 that we launch later this year will Much of the work that has been undertaken at Volvo Cars since feature the first of several next-generation safety and driver support being acquired by Geely in 2010 has been leading up to today. 2013 systems. was an important step on this path, and it is essential that we do not Finally, I would like to provide a brief insight into the coming years rest on our laurels. 2013 was very challenging and required hard work. at Volvo Cars. The coming year will be a year of growth, with a good five 2014 will be equally challenging and will require equally hard work. Yet per cent increase in sales, characterised by a continued strong perfor- I am convinced that we have the right strategy and the right people to mance in China and a recovery in the US, our two largest markets. take us forward. Volvo Cars will in 2014 and thereafter introduce new technologies, a series of industry-leading innovations and launch the much-anticipat- Gothenburg, April 24 2014 ed all-new XC90, the first car to be built on the company’s brand new, in-house developed SPA platform. It will be the first Volvo production model to carry the company’s new design language, successfully showcased in the critically-acclaimed Volvo concept cars. In China, Håkan Samuelsson Volvo Cars will build on the successful sales performance in 2013 President & CEO and aim to continue its growth momentum. The first full year of local Volvo Car Group production of the S60L in the Chengdu manufacturing plant as well as a further expansion of the dealer network should support Volvo Cars’ continued growth in China.

geely sweden ab annual report 2013 5 Board of Directors ­Report

The Volvo Car Group Geely Sweden AB, with its registered office in Stockholm, is a subsidi- ary of Geely Sweden Automotive AB, a of Geely Sweden Holdings AB, owned by Shanghai Geely Zhaoyuan International Invest- ment Co., Ltd., registered in Shanghai, China with ultimate majority ownership held by Zhejiang Geely Holding Group Ltd., registered in Hangzhou, China. Volvo Car Group consists of Geely Sweden AB, Volvo Personvagnar AB (Volvo Car Corporation), all subsidiaries in which Volvo Car Corpora- tion holds a voting interest of more than 50 per cent or has the power to control, and joint venture companies, and are hereinafter referred to as “Volvo Car Group”. In its capacity as a holding company, Geely Sweden AB does not conduct any direct business, other than holding shares in its subsidiary, Volvo Car Corporation. Geely Sweden AB indi- rectly, through Volvo Car Corporation and its subsidiaries, joint venture companies and affiliated companies, herinafter referred to as ”Volvo Zhejiang Geely Cars”, operate in the with business relating to the Holding Group Co., Ltd. design, development, manufacturing, marketing and sales of cars. As the operational business is conducted in Volvo Cars, the annual report will refer to Volvo Cars when describing the business operation, and Shanghai Geely Zhaoyuan specifically refer to Volvo Car Group where relevant. International Investment Co., Ltd. Two Chinese joint venture companies for manufacturing plants - Zhangjiakou Volvo Car Engine Manufacturing Co., Ltd. and Daqing Volvo Car Manufacturing Co., Ltd. – of which a subsidiary of Volvo Car Corporation owns 30 per cent with the remainder owned by Shanghai Geely Sweden Holdings AB Geely Zhaoyuan International Investment Co., Ltd. and Zhejiang Geely Holding Group Co., Ltd., have been established in 2013. The joint venture companies are accounted for using the equity Geely Sweden Automotive AB method. Volvo Cars governs the operations of the Chinese joint venture companies and the same processes and quality standards as in the European facilities are applied. Volvo Car Group (Consolidation level The manufacturing plant in Chengdu (China), Zhongjia Automobile of all financial com- Geely Sweden AB munication) Manufacturing (Chengdu) Co., Ltd., owned by Chinese subsidiaries of the parent company of the Volvo Car Group, Shanghai Geely Zhaoyuan Volvo Cars International Investment Co., Ltd., is an affiliated company to Volvo (The Operations) Volvo Car Corporation Car Group. Volvo Cars operates and governs the operations of the Chengdu plant to ensure the same processes and quality demands as in the European facilities. All sales companies, Affiliated other subsidiaries When communicating the business performance and financial companies reports, besides from the annual report, the half year consolidated & joint venture companies financial report of Geely Sweden AB is used to represent the perfor- mance of the Volvo Car Group.

6 board of director’s report geely sweden ab annual report 2013 financial & Business summary 2013

2013 was characterized by the introduction of the biggest renewal in the fourth quarter of 2013. A revolving credit facility with maturity in programme in Volvo Cars’ history. The first half of the year, dealer stock 2016 totalling EUR 360 million was put into place during 2013, and reduction and phase out of the older models resulted in negative remained unutilized. wholesales in a year on year comparison. After launching the new models, retail sales increased and reached about the same volumes in Cash Flow 2013 as in 2012, mainly driven by China. Retail sales for Volvo Cars Cash flow from operating activities was positive with SEK 8,861 (2,749) increased by 1.4 per cent to 427,840 (421,951) units. million. This was SEK 6,112 million higher than in 2012, mainly due to the positive operating income and improved working capital develop- Income statement ment. For Volvo Car Group net revenue decreased by SEK 2,302 million Investments, mainly on product development, have increased to SEK 122,245 (124,547) million, primarily due to lower wholesale compared to 2012. Cash flow from investing activities was SEK –8,840 volumes and negative exchange rate development. Gross income (–7,678) million. Cash flow from operating and investing activities increased by SEK 364 million to SEK 20,311 (19,947) million mainly amounted to SEK 21 (–4,929) million and with increased financing as a result of a positive market and carline mix as well as efficiencies activities throughout the year, cash flow for the period increased to on material cost. Expenses in research & development decreased by SEK 5,786 (–4,473) million. SEK 425 million to SEK 5,864 (6,289) million. Expenses in research & development are the net of investments and capitalised product devel- Business summary opment costs supporting the product strategy of Volvo Cars. Operating In China, sales increased by 45.6 per cent compared to 2012 to margin increased to 1.6 per cent (0.1) following a small decrease of 61,146 units (41,989). The European markets are still under the im- administrative expenses to SEK 5,129 (5,192) million and a decrease pression of the debt crisis and sales for EU20 declined by 0.4 per cent of selling expenses to SEK 7,919 (8,642) million. Operating income to 226,095 units (227,027). In the US, Volvo Cars sales decreased amounted to SEK 1,919 million (66), and net income for the year was with 10.1 per cent to 61,233 (68,079) units. SEK 960 million (–542). In 2013, production of the new powertrains, Drive-E, started in Skövde and the development of the new platform, Scalable Product Balance Sheet Architecture (SPA), continued. SPA and Drive-E are essential elements Intangible assets increased by SEK 1,605 million to SEK 17,271 of the transformation of the Volvo brand into a leading premium car (15,666) million linked to investments for SPA and Drive-E. Accounts manufacturer with sustainable profitability. Construction work continued receivable increased by SEK 883 million to SEK 5,618 (4,735) mil- in the manufacturing operations, including the Torslanda plant, to lion, mainly due to sales growth in China. Trade payables increased by prepare for the launch of SPA in 2014. SEK 1,006 million which is related to higher production at the end of The China expansion continued with the establishment of two joint 2013 compared with the same period 2012. Investments in associates venture companies for manufacturing plants in 2013, Zhangjiakou Volvo increased by SEK 609 million to SEK 1,159 million, corresponding to Car Engine Manufacturing Co., Ltd. and Daqing Volvo Car Manufactur- the establishment of the joint venture companies in China. ing Co., Ltd. of which a subsidiary of Volvo Car Corporation owns 30 per Total non-current liabilities amounted to SEK 24,108 (21,073) cent with the remainder owned by Shanghai Geely Zhaoyuan Interna- million. In line with the changed accounting principles under IAS 19 on tional Investment Co., Ltd. and Zhejiang Geely Holding Group Co., Ltd.. Employee Benefits, the Retirement Benefit Obligations have decreased In June 2013, production of the model at to SEK 3,641 million and have been restated accordingly for 2012 the plant in Sweden ceased, and the property was subse- to SEK 5,492. The provision for post employee benefits was highly quently sold. affected by a change in the discount rate. The amendment in account- Volvo Car Financial Services is responsible for managing and devel- ing principles stipulate that the decreased liabilities is to be offset in oping the customer finance and insurance offering provided by Volvo the Group´s equity and have resulted in a positive change in equity to Car’s on a global basis. During 2013, the new entity secured financing 24,638 million, with 2012 restated equity value at SEK 21,901 million. for the majority of the new Volvo cars sold in the US. In most of the During 2013 Volvo Car Group’s liabilities to financial institutions larger markets, Volvo Cars uses a branded financial and insurance of- increased by SEK 5,486 million. In the first quarter, a loan from Swed- fering through Volvo Cars partner banks and insurance companies. ish Export Credit of SEK 1,000 million and the second tranche of EUR 107 million of a China Development Bank (CDB) loan was drawn. 1) EU20 includes Sweden, , , , the , Belgium, During the autumn, CDB and Volvo Car Corporation agreed upon a Luxemburg, , , , , , the UK, , , second loan of USD 800 million of which USD 466 million was drawn , , , and the .

geely sweden ab annual report 2013 board of director’s report 7 Strategy

The start of the Journey Where are we today? 2020 • Division to stand alone • Launch of model year 2014, the • Become a leading global ­premium auto brand most extensive renewal of the model range in Volvo Cars’ history • Independent development of a modular • Production and launch of a in-house ­product technology: Scalable Product A leading premium brand ­Architecture developed powertrain: Drive-E • Independent development of powertrains: • Production start in Chengdu Drive-E • Launch of a new design strategy: • China industrial footprint Concept Coupé • Employee culture change: Aspired Culture

2013

2010

After being acquired by Zhejiang Geely Holding Group Ltd., in 2010, This does not just apply to technology completely developed by Volvo Volvo Cars embarked on a new chapter in the company’s history. Volvo Cars, like the SPA vehicle architecture or the Drive-E engine family, Cars started a transformation journey that will establish the company but also to technology developed through smart collaborations within as a top premium car manufacturer with a strong customer focus, an Geely. An example is the vehicle architecture for future C-segment independent company under solid and stable ownership and offering cars currently developed by China Euro Vehicle Technology (CEVT ) in world-class products that people want, based on in-house developed Gothenburg. While the C-segment architecture will serve both future technology. Volvo and Geely Automobile cars, the modular nature of the architec- Volvo Cars’ corporate strategy, Designed Around You, is based on ture allows for specific solutions that will fulfil the requirements of each the human centric focus that differentiate the brand from other car brand, while at the same time, offering economies of scale. companies. The strategy states clear and ambitious objectives and un- derlines Volvo Cars’ commitment of taking control of its future product China growth plan development with an in-house developed scalable platform and a new An important element of Volvo Cars’ new corporate strategy is the es- modular powertrain family. Volvo Cars has also set out to leverage its tablishment of China as one of the company’s key markets and setting existing fundamental brand pillars: intuitive innovations, safety, environ- up a local headquarter in Shanghai. mental performance and Scandinavian design. The long term strategy In order to support the long-term goal of selling 200,000 cars per which will lead to sales of 800,000 vehicles annually, combined with a year in China, Volvo Cars has established a manufacturing footprint sustainable profitability will be achieved by focusing on the key regions in China. The first plant in China was opened in Chengdu in the sum- Europe, China and the US. mer of 2013, with series production starting in the fourth quarter. Volvo Cars also operates through the newly established joint venture Research & development companies an engine assembly plant in Zhangjiakou, while a second – technological independence manufacturing plant is under construction in Daqing. Volvo Cars is currently in the process of moving towards technology Volvo Cars has established a solid dealer network in all major cities independence. Since 2010, Volvo Cars has been gradually moving in China. Currently the focus is on expanding the network in China’s from Ford legacy technology to technology developed in-house, based smaller cities, many of which represent completely new regional on Volvo Cars’ own prerequisites and without the need for compromise. markets for Volvo Cars. In its marketing activities, Volvo Cars under- lines its Scandinavian heritage and its leadership in .

8 board of director’s report geely sweden ab annual report 2013 Volvo Cars also highlights the premium car experience and intuitive Since 1998 Volvo Car Corporation has an environmental product functionality ingrained in its cars and uses its comparative advantage in declaration. All businesses have permits covering their operations and areas like cabin-air quality and safety to appeal to Chinese consumers the environmental impact of noise, emissions to air and water, waste concerned about pollution and the well-being of their families. produced and the consumption of energy and chemicals. Declaration is made continuously to both local and national environmental authorities. Financial Strategy All manufacturing operations in which Volvo cars are built have to Volvo Cars long-term objective is to deliver sustainable top car industry comply with the Volvo Cars Global Environmental Standard (VCGES). profitability. Volvo Cars will continue to invest in new technology and The VCGES sets standards in a whole range of areas, varying from car models that enable the long term objectives. Investments are not waste water treatment over emissions from the paint operations, to the sole driver behind sustainable growth as focus on cost control energy consumption and energy efficiency. VCGES is very strict and throughout the whole value chain will continue. Diversified financing puts high demands on Volvo manufacturing sites. Therefore the plants is important to achieve low financing cost and sustainable financial must perform better than what is legally required. The VCGES is also partnerships, as well as independence. Conservative financial policies an important tool in reaching the desired states in the Volvo Car Group and focused risk management are applied to deliver on the objective of Environmental Strategy. having a financial risk profile and capital structure that enables invest- Volvo Cars’ global quality standards consist of an extensive series ment grade rating. of requirements processes and demands that ensure that each car leaving a Volvo plant is of the highest quality. This approach is followed Sustainability, safety and quality throughout the whole industrial cycle: from stringent demands on ma- Volvo Cars’ commitment to the environment covers the entire lifecycle terials and parts delivered by suppliers to strict controls throughout the of the car, from design, engineering and production to useful life, ser- manufacturing process, to extensive quality checks after final assembly. vice and recycling. Sustainability is central to all decisions and invest- ments; it is key to successful and ethical business. The sustainability People agenda for Volvo Cars is described in four dimensions: people, societal, Volvo Cars has a clear vision: to be the world’s most progressive and economic and environmental. Together, these four dimensions cover desired premium car brand. To reach this - it needs talented people. the work towards a future sustainable mobility. That is why Volvo Cars has made it a strategic objective to become an Volvo Cars has a longstanding commitment to being a responsible employer of choice that manages to attract the best people available. corporation with a clear focus on sustainable development through- When the Corporate Strategy was formulated, the company decided to out the entire value chain. Volvo Cars publishes annual sustainability build a global organisation based on a balance between performance reports in line with the international reporting guidelines of the Global and health. Volvo Cars define health as the ability to align, execute Reporting Initiative (GRI). and renew itself faster than its competition. The balance between Volvo Cars is committed to developing new technologies that help performance and health will improve results, credibility and Volvo Cars create sustainable mobility solutions for the 21st century. Both the attractiveness as an employer. The Volvo Cars culture is the true ena- SPA platform and the Drive-E powertrains are prepared for electri- bler to reach these objectives, it is expressed by three cultural values fication and Volvo Cars is a leading actor in bringing electrification that all employees live by: Passion For Customers And Cars, Move Fast, technologies to market, with the V60 Plug-in Hybrid being a prominent Aim High and Challenge & Respect. example. By coupling the four-cylinder Drive-E engines to electrifica- Since becoming a stand-alone company in 2010, Volvo Cars has tion technology, Volvo Cars delivers a range of smaller, more intelligent made good progress towards its objective to become an employer of powertrains that provide performance levels comparable to that of a choice. Both, in 2012 and 2013, Volvo Cars has been listed on the larger combustion engine, while at the same time reducing fuel con- Universum list of the world’s most attractive employers, in which stu- sumption and CO2 emissions. dents around the globe are asked about their ideal employers. In 2013, Volvo Cars is the leader in automotive safety and remains at the Volvo Cars was ranked 49th on the list of most attractive companies vanguard of innovation in safety solutions. The company continues to among engineering students in the world’s twelve largest economies. introduce world-first technologies in automotive safety and con- Building a global organisation with performance and health and the stantly pushes boundaries in the journey towards its Safety Vision ability to act in a smart and nimble way is the essence of Volvo Cars’ 2020, which states that by 2020 no one should be killed or seriously people strategy. Another important element of becoming and being injured in a new Volvo. A major element in developing safer and more an employer of choice is to ensure sustainable profitability. By being sustainable mobility solutions is autonomous drive technologies, which consistently profitable through steady growth and under solid owner- have many noticeable benefits in terms of safety, efficiency and time ship, Volvo Cars ensures stability and creates new job opportunities in management. the regions it operates. The manufacturing strategy is focusing on four areas: Responsive Manufacturing Structure, Best Practice China Ramp-up, World Class New Model Introduction and Productivity Step Change & Operational Excellence. In line with the strategy, the manufacturing department also simplified the production system, which will be focused around five principles: Teamwork with involvement, Stability through standardisation, Right from me, Demand driven flow and Continuous improvements.

geely sweden ab annual report 2013 board of director’s report 9 Products & Innovation – a 2013 review

New Product Launches – 2013 The concept car also includes a new approach to Volvo Cars’ human- At the in March, Volvo Cars showed no less than centric user experience. A large portrait touch-screen in the centre six renewed cars to the world: a major renewal of the S60, V60, XC60, console interacts with an adaptive digital display and head-up display V70, XC70 and S80 made their world debut in Geneva. The new model in front of the driver. The petrol plug-in hybrid driveline in the Volvo range constituted the most extensive development of existing models Concept Coupé reflects Volvo Cars’ strategy to use electrification to in Volvo Cars’ history. create the most powerful versions in the new four-cylinder Drive-E Part of the launch was a world-first in automotive safety: a technol- engine family. ogy that detects and automatically brakes for cyclists swerving out in front of the car. The new functionality was an enhancement of the Innovation and next generation technology – 2013 existing detection and auto brake technology. Next-generation safety and support features Another feature launched was the innovative permanent high beam During a media event in July, Volvo Cars demonstrated a number of functionality called Active High Beam Control. The system makes driv- user-friendly safety and support technologies that will be introduced in ing in the dark safer and more comfortable by enabling drivers to use the all-new Volvo XC90. Among the technologies shown was pedes- the high beam continuously, thanks to an ingenious mechanism that trian detection in darkness, which makes the detection and braking prevents dazzling of oncoming drivers by shading out only as much of for other vehicles, pedestrians and cyclists work effectively also when the beam as necessary. driving in dusk or at night. In 2013, Volvo Cars also launched its new Sensus Connect info- The all-new XC90 can also be equipped with Adaptive Cruise Con- tainment and connectivity system. The existing user interface called trol with steering assistance. The feature helps the driver stay in the Sensus was extended with the option to add intuitive all-new technol- lane and follow the rhythm of the traffic by automatically following the ogy that enables connectivity and Internet in the car. Drivers go online vehicle ahead. Road edge and barrier detection, also with steer assist, either via a car-mounted 3G/4G dongle or a personal mobile phone. will be introduced in future models produced on the SPA platform. The system also has a voice-activation system, while it is also possible to share a WiFi network with everyone in the car. ‘Drive Me’ – Self-driving cars for sustainable mobility Volvo Cars publicly demonstrated an ingenious autonomous parking Drive-E powertrains concept during the summer 2013. The smart, driverless car parks by The Drive-E powertrains, showcased during the IAA in September are itself as well as interacts safely with other cars and pedestrians in the available in petrol and diesel versions and are currently offered in six car park. The autonomous parking technology will be part of the ‘Drive Volvo models, with a further roll-out planned for 2014. Among the first Me’ autonomous driving pilot project that takes place in Gothenburg in Drive-E engines on the market was the T6 with 306 horse powers 2017, which was announced in early December 2013. ‘Drive Me’ is a (hp) and the new 8-speed automatic, which made the S60 T6 the first joint initiative between Volvo Cars and Swedish government authorities, car in its segment to deliver over two horsepower per gram CO2 from in which 100 self-driving Volvo cars will use public roads in everyday a combustion engine only. Another notable Drive-E variant is the D4, driving conditions, in what will be the world’s first large-scale autono- which in an S60 makes it the first car in the premium D-segment with mous driving pilot project.

CO2 emissions under 100 g/km, delivering 181 hp. The aim with the pilot project is to acquire a deep and broad understanding of the requirements of autonomous driving in rela- New design language and SPA possibilities showcased in Volvo tion to infrastructure, driver interaction and how other drivers react on Concept Coupé autonomous cars. This unique collaboration between authorities and Also making its world debut in Frankfurt was the Volvo Concept Coupé, industry, positions Sweden and Volvo Cars as leaders in the develop- the first of three concept cars to showcase Volvo Cars’ new design di- ment of future mobility. rection and to demonstrate the capabilities of the company’s in-house developed Scalable Product Architecture (SPA), on which the first New experimental electrification technologies new model to be launched is the all-new XC90 in 2014. Inspired by Throughout 2013, Volvo Cars worked with a number of experiments in contemporary, progressive Scandinavian lifestyle and design as well as the field of electrification, as part of the company’s constant drive to iconic elements from the past, both the first and the second concept further develop its electrification technologies. One example is Volvo car - the Volvo XC Concept Coupé, shown in Detroit in January 2014 Cars’ participation in an advanced research project studying the possi- - generated a lot of positive attention in the media and won several bilities of inductive, cordless charging for electric vehicles. The results, awards. published in October, showed that this technology for transferring

10 board of director’s report geely sweden ab annual report 2013 ­energy via an electromagnetic field has a promising future. A Volvo formance of front crash prevention systems. Both the and C30 Electric test car could be fully charged in around 2.5 hours, by XC60 received the highest possible rating – ‘Superior’ – and Volvo placing the car on top of an electromagnetic field in a charging base Cars’ City Safety was the only standard fitment low-speed crash pre- station. vention system in the test, which included 74 vehicles. In another project, Volvo engineers developed a revolutionary con- IIHS also recognized the lasting quality of the Volvo XC90, which cept for lightweight structural energy storage components that could was launched already back in 2002. More than a decade later, IIHS still improve the energy usage of future electrified vehicles. The mate- ranked the XC90 as one of the safest cars on the market by awarding rial, consisting of carbon fibres, nanostructured batteries and super it a 2013 Top Safety Pick+. capacitors, offers lighter energy storage that requires less space in the Previously, the Volvo S60 and XC60 had already received the pres- car, cost effective structure options and is eco-friendly. The research tigious 2013 Top Safety Pick+ ranking since IIHS extended its scope project took place over 3.5 years and resulted in energy-storing car by integrating the small overlap crash test in 2012. In December, the panels on a experimental car. Volvo S80 was also recognized with a 2014 Top Safety Pick+ by IIHS. In the summer of 2013, Volvo rolled out an upgraded fleet of Electric demonstration cars. This fleet, developed in cooperation 2013 Global NCAP Innovation Award with Siemens, allows European leasing customers of Volvo Cars to Volvo Car Group’s pioneering work on pedestrian protection was drive and evaluate this electric version of the Volvo C30. With accelera- rewarded with the ‘2013 Global NCAP Innovation Award’ in May. The tion from 0-70 km/h in 5.9 seconds and a full recharge time of only award recognized a number of ground-breaking pedestrian protection 1.5 hours thanks to a world first on-board fast-charger, the Volvo C30 systems developed by Volvo Cars in recent years, such as Pedestrian Electric delivers on Volvo’s commitment to electrification by enhancing Detection with full auto brake and the world-firstP edestrian Airbag acceleration and customer flexibility. Technology on the . In April, Volvo Cars also revealed the results of a study into the pos- sibilities offered by kinetic flywheel technology, also known as KERS. Folksam accident research study The testing of an experimental system for kinetic energy recovery Volvo Cars’ leadership in safety was further supported by a safety was carried out during 2012. The results show that this technology report of the Swedish insurance company Folksam in September has the potential to significantly reduce fuel consumption, while also 2013. The report put four Volvo models – the S60, V60, V70 and giving drivers an extra boost in terms of horsepower. Volvo Cars is now S80 – in lead of the ranking with an extensive margin. The Folksam evaluating how the technology can be implemented in upcoming Volvo study evaluates the safety performance of 238 car models that have models. been involved in 158,000 accidents that have been reported to the Swedish police between 1994 and 2013. The information is combined Safety achievements and recognition in 2013 with medical reports about 38,000 injured persons in traffic accidents In July, Volvo reached a safety milestone as the sales number of Volvo between 2003 and 2013. cars equipped with systems for automatic braking passed the one million mark.

American Insurance Institute for Highway Several Volvo models were recognized for their top safety levels in 2013. In September, the American Insurance Institute for Highway ­Safety (IIHS) introduced a new test programme that rates the per-

geely sweden ab annual report 2013 board of director’s report 11 Production & Operations

China: Start of Volvo production in Chengdu Global standards for sustainable, In November, series production of Volvo vehicles started at the Geely high-quality car production owned manufacturing plant in Chengdu. The first car built in Chengdu All plants are following the global environmental standards set out in is the Volvo S60L, a long wheel base version of the Volvo S60. The the Volvo Cars Global Environmental Standard (VCGES). The waste start of production in the Chengdu plant was an important milestone water treatment plant in Chengdu is designed with both chemical and in Volvo Cars’ transformation journey and a further cornerstone in the biological treatment steps before the water is released to a municipal establishment of an industrial footprint in China. waste water treatment facility. The VCGES also aims to reduce water In 2013, Volvo Cars also started operations at the engine plant in consumption and to implement a global water protection standard in Zhangjiakou, while work on the establishment of the vehicle manufactur- all plants. In terms of emissions to air, which are mostly caused by paint ing plant in Daqing continued. operations, the Chengdu plant is designed to perform better than the average car factory in Europe. The paint operations in the Chengdu Sweden: SPA investments, start of production plant are based on the use of mainly water-based paints and the state- of Drive-E powertrains of-the-art paint application equipment used in Torslanda and Ghent. At the Swedish operations in Torslanda and Olofström, work continued Volvo Cars strives to find a climate-neutral energy supply for all to make the plants ready for the production of cars built on the SPA its global operations and to continuously reduce the total energy architecture. As part of the significant investments in the new SPA and consumption. All the electricity used in the company’s European Drive-E projects that were announced late 2012, construction of a new operations is certified hydro- and wind-powered electricity. Volvo body shop in the Torslanda vehicle plant in Gothenburg, Sweden was Cars has decades of experience of energy efficiency, such as energy completed during the second half of 2013. In May, Volvo Cars’ engine management, energy monitoring and lean energy principles which are plant in Skövde, Sweden started the production of the company’s new, implemented in all plants. in-house developed Drive-E powertrain family. The new petrol and In China, the supply of is still under development, diesel engines were introduced in a number of car lines in 2013 and but it is expected to grow strongly in the years to come. Volvo Cars fol- will be fully rolled out through 2015. lows this development closely and aims to contribute to the shift from traditional means of energy to renewable sources of energy. Belgium: Strong year for Ghent plant In January, Volvo Cars’ manufacturing plant in Ghent, Belgium celebrat- ed a milestone as the plant’s fifth-millionth car rolled off the assembly line. The Ghent plant started operations in 1965 and currently employs around 4,500 people. The fifth-millionth car was a diesel variant of the successful Volvo V40. In total, produced over 253,000 cars in 2013, with the majority being XC60 and V40 models.

Production numbers per manufacturing/assembly site

Gothenburg Ghent Chengdu1) Uddevalla2) Chongqing3) Malaysia Total 2013 Total 2012 S40 – 6,507 S60/S60L 20,874 35,124 1,856 418 58,272 65,634 S80 7,565 225 7,790 11,549 S80L 3,752 3,752 5,529 V40 80,961 455 81,416 32,526 V40CC 24,138 167 24,305 2,579 V50 – 22,625 V60 56,568 415 56,983 55,161 V70 25,166 25,166 32,030 XC60 113,056 569 113,625 113,252 XC70 23,974 23,974 26,274 XC90 23,491 180 23,671 29,841 C30 – 18,079 C70 4,059 4,059 7,811 Total 157,638 253,279 1,856 4,059 3,752 2,429 423,013 429,397 1) The manufacturing plant in Chengdu (China) is owned by Chinese subsidiaries of the parent company of the Volvo Car Group, Shanghai Geely Zhaoyuan International Investment Co., Ltd. 2) The Uddevalla plant was closed in June 2013. 3) Manufacturing performed in a factory owned by Changah Automotive Co Ltd, and Automotive Co., Ltd.

12 board of director’s report geely sweden ab annual report 2013 geely sweden ab annual report 2013 board of director’s report 13 Sales Development

Car industry development Global trends Global car industry development Demand for new cars in large developed markets such as the US Overall, global gross domestic product (GDP) growth stabilized at 2.5% remains quite healthy, but the shift away from larger cars to smaller, in 2013. Growth in the US improved from 1.1% in the first quarter to more fuel efficient models continues. This indicates that consumers 3.6% in the third – followed by a relapse in the fourth quarter because remain financially constrained and that fuel efficiency is becoming a of the temporary US government shutdown in October. Overall, car key factor when it comes to deciding which car to buy. At the same sales rebounded as the economy, job creation and housing markets time, consumers in larger emerging markets such as Brazil, Russia, improved. India and China are seeking bigger and more luxurious cars, especially The positive global development was partly offset by another SUVs. Crucially, however, they are also demanding fuel efficiency and weak year in Europe. Most northern European markets saw feeble but environmental friendliness. Hybrid and electric cars are unlikely to positive growth in 2013, whilst growth in all the Southern European satisfy this demand in the short term and this has raised interest in economies was negative. One quarter of European pre-crisis car sales optimising and downsizing the internal combustion engine, possibly in volumes was lost between 2007 and 2013, with car sales during this line with electrification. period virtually collapsing in the southern part of the continent. Pre- crisis volumes will not be reached for several years still. At the same Outlook time, structural changes within the industry increase complexity further. In China, growth will continue to develop strongly as increasing dispos- The overcapacity in Europe is still unsolved with plant utilisation for able income makes cars affordable. In the long term, car sales in the more than half of the top 100 plants below break-even; emerging mar- US are expected to be back at pre-crisis level by 2016, while Europe ket demand now outstrips developed market demand and a changing faces a new normal with car sales staying below pre-crisis levels for regulatory environment is placing additional cost on manufacturers. the foreseeable future. The automotive industry has shown itself to In the BRIC countries, with the exception of Russia, economic be resilient and open to change during economic uncertainty. But the growth either stabilized or increased. China’s economic growth hit a way in which it handles the twin pressure of economic and structural low point of 6.1% in the first quarter and then accelerated to 9.1% in change will define its longer term future. the third quarter. Chinese car sales continued to increase with models accounting for the main volumes but with sport utility vehicles (SUV) models showing the strongest growth..

sales by model SALES BY ten biggest markets

2013 2012 2013 2012 S40 181 12,354 US 61,233 68,079

S60 61,579 64,746 China 61,146 41,989

S60L 67 – Sweden 52,260 51,832

S80 7,951 11,698 UK 32,678 31,743

S80L 3,531 5,545 Germany 26,680 32,070

V40 78,307 22,202 Netherlands 23,006 16,338

V40CC 21,604 244 Japan 16,897 13,848

V50 223 30,246 Belgium 16,670 16,338

V60 54,666 53,037 Russia 15,017 20,364

V70 26,133 31,522 Italy 13,708 14,855

XC60 114,010 106,203

XC70 24,418 25,579

XC90 23,784 31,290

C30 5,628 19,256

C70 5,758 8,029

Total 427,840 421,951

14 board of director’s report geely sweden ab annual report 2013 Retail sales in 2013 four models were on the top-ten list of best-selling car models. The In 2013 the market development in the automotive sector was strong once again ended the year as Sweden’s most-sold car, while in China as well as in the US. China grew by 14.5 per cent compared the , XC60 and V40 were other top sellers in the country. to 2012, from 14.972 million units to 17.145 million units. The US China sales increased by 45.6 per cent compared to 2012, sell- market, characterised by high levels of discounts and competitive of- ing 61,146 cars. The increase was driven by new product launches, fers, increased by 8.4 per cent to 15.520 (14.313) million units. increased marketing and the expansion of the dealer network. Demand The economies in Southern Europe contracted, whilst almost all of for Volvo Cars safety offer and premium cabin air quality were major Central and Northern Europe saw weak, but positive growth. In Europe drivers behind the success of the Volvo S60 and XC60, while the first (EU20), the total car market declined by 2.1 per cent to 12.004 full year of Volvo V60 sales also underlined the popularity of the estate (12.265) million units in 2013. A positive exception was the UK, where model with sales of 6,554 cars. The Volvo V40 was launched in China the total car market grew by 10.8 per cent to 2.264 (2.045) million in the first quarter of 2013 and was the third best-selling Volvo model units. in China, behind the XC60 and S60. Volvo Cars experienced a challenging year in the US, but the Volvo Cars retail sales market remains important. Sales fell by 10.1 per cent to 61,233 cars Volvo Cars reported retail sales for 2013 of 427,840 (421,951) units, compared to 2012, partly due to the phase-out of the C30 and C70 an increase of 1.4 per cent following significant growth in China and models and a later introduction of the renewed model programme, flat sales in the mature European markets, partly offset by decreas- while demand for the Volvo XC60 and S60 was strong and both ing sales in the US. The Volvo XC60 was the best-selling model with models sold better than in 2012. Just before the end of the year, Volvo 114,010 (106,203) sold units, followed by the V40 and the S60. Sales Cars introduced the V60 to the American market, which together with for the V40 model reached sales volumes of 78,307 units, while the the refreshed model range and new Drive-E powertrains is expected to V40 Cross Country model recorded additional sales of 21,604 units. stabilize Volvo Cars sales in the American market in 2014. The launch of the renewed models supported the sales develop- Japanese sales grew by 22 per cent to 16,897 cars, a level last ment in Europe, which also built on the ongoing success of the Volvo achieved in the late 1990s. Other well-performing markets in Asia V40 and V60 Plug-in Hybrid. Helped by strong demand for these two were Taiwan with an increase of 4.6 per cent to 4,364 cars and South models, overall sales in the Netherlands increased by 40.8 per cent. Korea with an increase of 11.5 per cent to 1,965 cars. The Netherlands is now Volvo Cars sixth largest market. In Sweden, Volvo Cars defended its position as market leader in Sweden with a small year-on-year increase of 0.8 per cent to 52,260 (51,832) cars. The market share was strengthened to 20 per cent and

Industry development (total passenger vehicles registered)1)

‘000 2013 2012 Change, %

China2) 17,145 14,972 14.5 USA2) 15,520 14,313 8.4 EU 20 12,004 12,265 –2.1 of which Sweden 270 280 –3.7 Rest of the World 17,489 17,676 –1.1

Retail Sales

Number of cars sold 2013 2012 Change, %

China 61,146 41,989 45.6 USA 61,233 68,079 –10.1 EU 20 226,095 227,027 –0.4 of which Sweden 52,260 51,832 0.8 Rest of the World 79,366 84,856 –6.5 TOTAL 427,840 421,951 1.4

Market share1)

% 2013 2012 Change, %–points

China2) 0.36 0.33 0.03 USA2) 0.40 0.47 –0.07 EU 20 1.90 1.87 0.03 of which Sweden 20.01 18.86 1.15 Rest of the World 0.33 0.35 –0.02

1) Source: Polk 2) Preliminary data for China and US.

geely sweden ab annual report 2013 board of director’s report 15 Board of directors

Board of Directors in Geely Sweden AB

This is the Annual Report of Geely Sweden AB. Geely Sweden AB does not conduct any business, other Sweden AB has a Board of Directors consisting of four than holding assets in its subsidiaries and joint venture members. In its capacity as a holding company, Geely companies.

Li Shufu Hans-Olov Olsson Li Donghui Zhang Ran Chairman of the Board of Vice-Chairman of the Board of Member of the Board of Member of the Board of Directors, Since August, 2010. Directors, since August 2010. Directors, since April, 2011. Directors, since August, 2010. Born 1963. MSc in Born 1941. Master of Political Born 1970. MBA and Master Born 1966. Ph.D. in mechanical engineering Sciences. of Management Engineering. Economics. and BSc in Management Other assignments: CFO & Other assignments: Executive Engineering. Vice President, Zhejiang Geely director of Geely Automobile Other assignments: Founder Holding Group, Executive Holdings Limited, CFO of and Chairman, Zhejiang Geely Director, Geely Automobile Geely Auto Group. Holding Group. Holdings, Chairman of London Taxi Corporation.

Board of Directors in Volvo Car Corporation

Volvo Car Corporation is a subsidiary of Geely Sweden AB. The opera- Volvo Car Corporation welcomed two new members to the Board of tional business is conducted in Volvo Car Corporation and its subsidiar- Directors in 2013. Carl-Peter Forster (formerly BMW, Opel, Tata) joined ies. The Board of Directors of Volvo Car Corporation consists of 13 the Board in January and former IKEA CEO Mikael Ohlsson took up a members, with two deputy members from the trade union side. Board position in October.

Li Shufu Hans-Olov Olsson Carl-Peter Forster Mikael Ohlsson Dr. Herbert H. Demel Chairman of the Board of Vice-Chairman of the Board of Member of the Board of Member of the Board of Member of the Board of Directors, since August 2010. Directors, since August 2010. Directors, since January 2013. Directors, since October 2013. Directors, since August 2010. Born1963. MSc in mechanical Born 1941. Master of Political Born 1954. Economics, Born 1957. Born 1953. PhD in technical engineering and BSc in Sciences. Aeronautical Engineering. Industrial economy. sciences. Management Engineering. Other assignments: Chairman Other assignments: Special Other assignments: Founder of the Board, ZMDi AG Advisor to the CEO and and Chairman, Zhejiang Geely and Friedola Tech GmbH. Executive Management of Holding Group. Member of the Board, Geely Magna, Chief Operating Automobile Holdings, Gordon Officer, M+W Group GmbH. Murray Design Ltd., The Mobility House AG, Group Holdings Ltd.

16 board of director’s report geely sweden ab annual report 2013 Board of Directors in Volvo Car Corporation cont.

Lone Fønss Schrøder Dr. Peter Zhang Winnie Kin Wah Fok Li Donghui Håkan Samuelsson Member of the Board of Member of the Board of Member of the Board of Member of the Board of CEO and Member of the Directors, since August 2010. Directors, since December Directors, since August 2010. Directors, since April 2011. Board of Directors, since Born 1960. MSc in Law and 2010. Born 1956. Bachelor Degree Born 1970. MBA and Master August 2010. Born 1951. an MSc in Economics. Born 1966. PhD in Economics. in Commerce. of Management Engineering. MSc in Mechanical Other assignments: Other assignments: Other assignments: Senior Other assignments: CFO & Engineering. Vice Chairman and Audit Regional Managing Director, Advisor of FAM, Member of Vice President, Zhejiang Geely Other assignments: Chairman Committee, SAXO Bank. North Asia, G4S Plc. the Board of Directors: G4S Holding Group, Executive of Scandlines GmbH, Board Member of the Board and plc., Kemira Oyj, Skandinaviska Director, Geely Automobile member Kihlstedt & Dueholm. Audit Committee, Aker Enskilda Banken AB, HOPU Holdings, Chairman of London Solution ASA, Member of the Investments Co. Ltd. Taxi Corporation. Board and Chairman of the Audit Committee NKT A/S and Valmet Oy amo.

Union representatives

Glenn Bergström Marko Peltonen Sören Carlsson Björn Ohlsson Magnus Sundemo Union representative in The Union representative in The Union representative in The Deputy union representative Deputy union representative, Board of Directors appointed Board of Directors, appointed Board of Directors, appointed appointed, by Akademikerna appointed by IF Metall, since by IF Metall, since 2009. by IF Metall, Since 2006. by Unionen, Since 2010. Volvo Cars, since 2009. 2008. Employed by Volvo Cars: 1974 Employed by Volvo Cars: 1989 Employed by Volvo Cars: 1985 Employed by Volvo Cars: 1981 Employed by Volvo Cars: 1979 Birth year: 1955 Birth year: 1965 Birth year: 1964 Birth year: 1963 Birth year: 1954

geely sweden ab annual report 2013 board of director’s report 17 executive management

Executive Management Team in Volvo Car Corporation

Volvo Car Corporation is managed by the Executive Management Team, formation of a new global Purchasing and Manufacturing function. Lars (EMT) with twelve members, led by the CEO and overseen by the Board Wrebo, until then Senior Vice President Manufacturing, was appointed of Directors of Volvo Car Corporation. Besides from managing Volvo Car head of the new unit. Alain Visser, from Opel, took up the position as Corporation the Executive Management Team also set out the direc- Senior Vice President, Marketing, Sales & Customer Service in July. tions for the operations in the rest of the businesses in Volvo Cars. Hans Oscarsson, who had a key role during Zhejiang Geely Holding In February 2013, Lars Danielson was appointed Senior Vice Group Ltd.’s acquisition of Volvo Car Group and has been with the com- President Volvo Car China Operations in May, Volvo Cars announced the pany since 1990, was appointed as Chief Financial Officer in August.

Håkan Samuelsson Hans Oscarsson Lex Kerssemakers President & CEO, since Chief Financial officer, Senior Vice President, Product October, 2012. since August 2013. Strategy & Vehicle Line Born 1951. MSc in Born 1965. Master Degree of Management, Mechanical Engineering. Finance. since January, 2011. Previous positions: Chairman Previous positions: Various Born 1960. Automotive & CEO, MAN AG, Executive positions within Finance, Volvo ­Business Management. Board Member Development/ Cars. Previous Positions: President, Production, Scania Group. Volvo Car Overseas Corp. Senior Vice President, Brand, Business & Product Strategy, Vice President Global Marketing, Volvo Cars, Gothenborg.

Peter Mertens Alain Visser Lars­ Danielson Senior Vice President, Senior Vice President Senior Vice President, Volvo Research & Development, Marketing, Sales and Cars China Operations, since since April, 2011. Customer Service, March, 2013. Born 1961. PhD in Production since July, 2013. Born 1949. and Industrial Engineering. Born 1963. B.A. in Mathematics and Previous positions: Jaguar Master of Business Computer Science. Cars Plc/ India, Administration. Previous positions: Vice Head of Corporate Quality Previous positions: Board president, Volvo Cars Member of the management member at Opel/Vauxhall. Manufacturing Asia, Shanghai. board of Tata Automotive and Chief Marketing Officer at GM General Manager, Volvo Cars Jaguar/Landrover Cars Europe. Torslanda (VCT), Gothenburg. Global Vehicle Line Executive, Vice President Manufacturing, Compact Cars, . , Trollhättan.

18 board of director’s report geely sweden ab annual report 2013 Executive Management Team in Volvo Car Corporation cont.

Lars Wrebo Björn Sällström Paul Welander Senior Vice President, Senior Vice President, Human Senior Vice President, Quality Purchasing & Manufacturing, Resources, since 1 March and Customer Satisfaction, since April, 2012. 2007. since April 1, 2011. Born 1961. Master of Science. Born 1954. Pedagogical and Born 1958. Master of Science Previous positions: Executive Behavioural Science. in Mechanical Engineering. Vice President, Production Previous positions: Senior Previous positions: Acting & Logistics. Member of the Vice President Luvata as Senior Vice President, Executive Board MAN Trucks International, England, Senior Product Development, Senior & Bus, Munich Germany, Vice President HR Cardo AB, Vice President, Quality and Senior Vice President, Chassis Sweden, Senior Vice President Customer Satisfaction, Volvo and Cab Production, Scania, HR Mölnlycke Health Care Cars, Executive Vice President, Södertälje, Sweden. Managing AB, Sweden. Aftersales Business Unit, Director, Scania Production Volvo Cars of North America. Angers S.A.S., Angers, France.

Maria Hemberg Thomas Ingenlath Anders Kärrberg Senior Vice President Group Senior Vice President Design, Acting Senior Vice President Legal and General Counsel, since July, 2012. Corporate Communications, Since March 2012. Born 1964. since january 2014. Born 1964. Master of Law. Master of Arts. Born 1959. Previous positions: Legal Previous positions: Design Master of Science, Mechanical Counsel, AB SKF, Lawyer, Director of the Volkswagen Engineering. Senior Associate Mannheimer Group Design Studio Previous positions: Swartling, Legal Counsel, SCA Potsdam, Design Director of Vice President, Government Hygine Products AB. Skoda Design. Affairs, Volvo Cars Group, Director, Environment - Vehicle Engineering R&D, Volvo Cars Group, Director, Environment Affairs, AB Volvo.

geely sweden ab annual report 2013 board of director’s report 19 Governance

Volvo Cars promotes the value of sound corporate governance, charac- Internal control over financial reporting terized by high standards when it comes to transparency, reliability and Volvo Cars primarily builds its internal control principles around the ethical values. recommendations of the Committee of Sponsoring Organisations of Volvo Cars is managed by the Executive Management Team, (EMT) the Treadway Commission (COSO). Group Internal Control, includ- with twelve members, led by the CEO and overseen by the Board of ing a local network with Internal Control Coordinators, aims to ensure Directors of Volvo Car Corporation. The Board of Directors of Volvo Car compliance with directives, policies and legal requirements. The Audit Corporation consists of 13 members, with two deputy members from Committee is informed about the result of the work performed by the the trade union side. The Directors of the Board are proposed by the internal control function. shareholders nomination committee, including a proposed remunera- In addition there is an Internal Audit department with the assign- tion to the Directors. At the annual shareholders meeting, the Board ment to perform an independent audit of the governance process, of Directors and the external auditors, are elected or re-elected on an monitor the management of risks and ensure that systems of internal annual basis. The majority of the board members are independent of control are adequate and effective. Internal Audit reports to the Audit Volvo Cars and of the independent board members at least two shall Committee. The internal audit plan is approved by the Board of Volvo further be independent of the shareholders. Car Corporation, and results from the audits are communicated to the The Board of Directors of Volvo Car Corporation has assigned an Audit Audit Committee and management. Committee to oversee the corporate governance, financial reporting, risks and the compliance with external and internal regulations. The Board of Directors has also assigned a Compensation Committee to determine the remunerations to the CEO and the EMT members. In 2013, the Board of Directors of Volvo Car Corporation held six ordinary meetings. Risks & risk management

Risks are a natural element in all business activities. In order to achieve nents. Operational risks are managed by operations. Certain cross- its short and long-term objectives, risk management is part of the daily functional risks, such as corporate responsibility, business continuity, business at Volvo Cars. The risks of Volvo Cars are broadly categorised security, IT security and insurable risks are centrally coordinated. Risk into strategic, operational, financial and compliance risks. management is embedded in various process controls of the opera- tions such as decision tollgates and approval levels. Strategic Risks The Group Insurance Policy stipulates how the management of the Volvo Cars has established an Enterprise Risk Management (ERM) insurable risks shall be handled and how insurance programmes shall system following ISO 31000 standard. Amongst others this includes a be procured in order to protect Volvo Cars from unforeseen losses. formal risk assessment process. On a regular basis all functions within Volvo Cars report strategic short term and medium term risks and Financial risks mitigation activities. The ERM system is governed by the Enterprise In the operations, Volvo Cars is exposed to various types of financial risk committee. The complete risk list is updated continuously by the risks, such as currency risk, interest rate risk, liquidity risk, credit risk organization. At each Board of Directors meeting and Audit Com- and commodity price risk. The Board of Directors has approved a mittee meeting the current status is presented. In addition to these Group Treasury policy for Volvo Cars describing how the financial risks updates the Executive Management Team receives quarterly informa- shall be managed and controlled. The management of the financial tion. Strategic risks include, but are not limited to: political decisions, risks is centralised to Volvo Car Group’s Group Treasury function. conflicts, changed customer patterns, and the economy’s effect on Further information on financial risk management is available in Note demand. Other examples of strategic risks result from sustainability 21 - Financial risks and financial instruments. megaforces like population growth, urbanization, resource scarcity and climate change. Volvo Cars is continuously working on mitigating Compliance risks identified risks. Besides risk mitigation, two of the focus areas for ERM Compliance risks are corporate legal and business ethical risks, includ- in 2014 are to further improve the dialogue about strategic risks within ing corruptive business practices, anti-competitive behaviour as well as the organization and to increase the effectiveness of the current risk data privacy and export control matters. The Corporate Compliance & management processes. Ethics Office has the overall responsibility for the development, imple- mentation and maintenance of the Corporate Compliance Programs Operational Risks within Volvo Cars including the Volvo Cars Code of Conduct, corporate Operational risks include for example production disruptions, IT risks, policies and directives. supplier dependence, and price fluctuations of raw material or compo-

20 board of director’s report geely sweden ab annual report 2013 subsequent events

Subsequent events In February 2014 Volvo Cars made the decision to investigate the inter- In Detroit and Geneva, the Volvo Concept XC Coupé and the Volvo Con- est from external parties to acquire the business performed in the Floby cept Estate demonstrated more of what to expect from the all-new manufacturing plant. XC90, which will be launched later in 2014 . During the Chinese State Visit in Belgium in April 2014 the Chinese During 2013, Volvo Cars took a decision to insource the assembly President Xi Jinping and Mme Peng Liyuan, and King Philippe and business for headliner and tunnel consoles of Johnson Controls Inc. in Queen Mathilde of Belgium visited the Volvo Cars’ production plant in Torslanda and Gent respectively, in order to strengthen the value chain Ghent. and provide efficiency benefits. The agreements in relation to the insourcing were signed in March 2014, but are conditional upon the approval from the relevant competition authorities. The Shanghai Volvo Car Research and Development Co., Ltd. is a joint venture company that has been established in China in January 2014. The purpose of the new joint venture is to engage in services sup- porting the production and sales of Volvo cars in China.

Proposed distribution of net income

The parent company The following funds are at the disposal of the Annual General Meeting (AGM):

Share premium reserve SEK 5,509,350,000 Shareholders’ contribution SEK 293,083,620 Net profit brought forward SEK 2,091,642,513 Net loss for the year SEK –57,610,024 At the disposal of the AGM SEK 7,836,466,109

The Board proposes the following allocation of funds:

Carried forward SEK 7,836,466,109

For the results and financial position in general of the parent company, Geely Sweden AB and Volvo Car Group, reference should be made to the following financial statements.

geely sweden ab annual report 2013 board of director’s report 21 Contents Financial Report

Consolidated Financial statements Note 22 – Marketable securities and cash and cash equivalents .....48 Consolidated Income statements ...... 23 Note 23 – Equity ...... 48 Consolidated Comprehensive income ...... 23 Note 24 – Post Employment Benefits...... 49 Consolidated Balance Sheets ...... 24 Note 25 – Current and other non-current Provisions ...... 52 Changes in Consolidated Equity ...... 25 Note 26 – Other non - current Liabilities ...... 52 Consolidated Statement of Cash Flows...... 26 Note 27 – Other Current Liabilities ...... 52 Note 28 – Pledged Assets ...... 52 Notes to the Consolidated Financial statements Note 29 – Contingent Liabilities ...... 53 Note 1 – Accounting Principles ...... 27 Note 30 – Cash Flow statements...... 53 Note 2 – Critical Accounting Estimates and judgements ...... 33 Note 31 – Changes in Accounting Principles ...... 53 Note 3 – Net Revenue ...... 35 Note 4 – Operating Expenses ...... 35 Parent Company Financial statements Note 5 – Related Parties ...... 35 Income Statements and Comprehensive Income – Parent Company ...... 54 Note 6 – Audit Fees ...... 36 Balance Sheets – Parent Company ...... 55 Note 7 – Other Operating Income and Expenses ...... 36 Changes in Equity – Parent Company ...... 56 Note 8 – Leasing ...... 36 Statement of Cash Flows – Parent Company ...... 56 Note 9 – Employees and Remuneration ...... 37 Note 10 – Depreciation and Amortisation ...... 38 Notes to the Parent Company Financial statements Note 11 – Government Grants ...... 38 Note 1 – Accounting Principles ...... 57 Note 12 – Financial Income ...... 38 Note 2 – Related Parties ...... 57 Note 13 – Financial Expenses ...... 38 Note 3 – Audit Fees ...... 58 Note 14 – Investments in Associates ...... 38 Note 4 – Remuneration to the Board of Directors ...... 58 Note 15 – Taxes ...... 40 Note 5 – Financial Income and Expenses ...... 58 Note 16 – Intangible Assets ...... 41 Note 6 – Taxes ...... 58 Note 17 – Tangible Assets ...... 42 Note 7 – Participation in Subsidiary ...... 59 Note 18 – Other Non-Current Assets ...... 42 Note 8 – Pledged Assets ...... 59 Note 19 – Inventories ...... 42 Note 9 – Cash Flow Statement...... 53 Note 20 – Accounts Receivable and Other Current Assets ...... 42 Note 21 – Financial Risks and Financial Instruments ...... 43 Subsidiaries ...... 60

22 geely sweden ab ANNUAL REPORT 2013 CONSOLIDATED INCOME STATEMENTS

SEK million Note 2013 2012 Net revenue 3 122,245 124,547 Cost of sales 4 –101,934 –104,600 Gross income 20,311 19,947

Research and development expenses 4, 16 –5,864 –6,289 Selling expenses 4 –7,919 –8,642 Administrative expenses 4, 6 –5,129 –5,192 Other operating income 7 1,509 1,032 Other operating expenses 7 –1,168 –814 Share of income in associates 14 179 24 Operating income 5, 8, 9, 10, 11 1,919 66

Financial income 12 87 120 Financial expenses 13 –874 –1,180 Income before tax 1,132 –994

Income tax 15 –172 452 Net income 960 –542

Net income attributable to Owners of the parent company 960 –592 Non-controlling interests – 50 960 –542

CONSOLIDATED COMPREHENSIVE INCOME

SEK million Note 2013 2012 Net income for the year 960 –542

Other comprehensive income, net of income tax Items that will not be reclassified susequently to income statement: Remeasurements of provisions for post-employment benefits 1,735 –98

Items that may be reclassified susequently to income statement: Translation difference on foreign operations –160 –324 Translation difference of hedge instruments of net investments in foreign operations –100 48 Change in cash flow hedge reserve 23 9 138 1,484 –236 Total comprehensive income for the year 2,444 –778

Total comprehensive income attributable to Owners of the parent company 2,444 –828 Non–controlling interests – 50 2,444 –778

geely sweden ab ANNUAL REPORT 2013 23 CONSOLIDATED BALANCE SHEETS

SEK million Note Dec 31, 2013 Dec 31, 2012 ASSETS Non-current assets Intangible assets 16 17,271 15,666 Property, plant and equipment 8, 17 25,653 25,654 Assets held under operating leases 8, 17 4,145 3,542 Investments in associates 14 1,159 550 Other long-term securities holdings 10 10 Deferred tax assets 15 2,165 1,820 Other non-current assets 18 1,077 734 Total non-current assets 51,480 47,976

Current assets Inventories 19 12,161 11,812 Accounts receivable 5, 20 5,618 4,735 Current tax assets 97 87 Other current assets 20 2,781 2,587 Marketable securities 22 88 – Cash and cash equivalents 22 15,372 9,607 Total current assets 36, 117 28,828 TOTAL ASSETS 87,597 76,804

EQUITY & LIABILITIES Equity 23 Equity attributable to owners of the parent company 24,638 21,901 Total equity 24,638 21,901

Non-current liabilities Provisions for post-employment benefits 24 3,641 5,492 Deferred tax liabilities 15 1,759 1,556 Other non-current provisions 25 5,463 5,911 Liabilities to credit institutions 26 12,033 7,057 Other non-current liabilities 26 1,212 1,057 Total non-current liabilities 24,108 21,073

Current liabilities Current provisions 25 8,169 7,182 Liabilities to credit institutions 820 310 Advance payments from customers 317 187 Trade payables 13,632 12,626 Current tax liabilities 658 365 Other current liabilities 27 15,255 13,160 Total current liabilities 38,851 33,830 TOTAL EQUITY & LIABILITIES 87,597 76,804

24 geely sweden ab ANNUAL REPORT 2013 CHANGES IN CONSOLIDATED EQUITY

Attributable Other to owners Non-­ Share Share ­contributed Translation Other Retained of the controlling SEK million ­Capital ­premium capital differences reserves earnings ­parent interest Total Balance at January 1, 2012 (as previously reported) 1,000 5,509 1,127 –302 – 15,026 22,360 288 22,648 Effect of changes in accounting policies – – – – –1,483 –1,483 – –1,483 Balance at January 1, 2012 (restated) 1,000 5,509 1,127 –302 13,543 20,877 288 21,165

Net income for the year – – – – – –592 –592 50 –542

Other comprehensive income Remeasurements of provision for post-employment benefits – – – – – –126 –126 – –126 Translation difference on foreign operations – – – –324 – – –324 – –324 Translation difference of hedge instruments for net investments in foreign operations – – – 61 – – 61 – 61 Change in cash flow hedge reserve recognised in other comprehensive income – – – – 177 – 177 – 177 Tax attributable to items recognised in other comprehensive income – – – –13 –39 28 –24 – –24 Other comprehensive income – – – –276 138 –98 –236 – –236 Total comprehensive income – –276 138 –690 –828 50 –778

Transactions with owners Unconditional shareholder’s contribution – – 1,779 – – – 1,779 – 1,779 Acquisition of remaining shares in non-controlling interest 1) – – – – – 75 75 –333 –258 Other changes – – – – – –2 –2 –5 –7 Transactions with owners – – 1,779 – – 73 1,852 –338 1,514 Balance at December 31, 2012 1,000 5,509 2,906 –578 138 12,926 21,901 – 21,901

Net income for the year – – – – – 960 960 – 960

Other comprehensive income Remeasurements of provision for post-employment benefits – – – – – 2,190 2,190 – 2,190 Translation difference on foreign operations – – – –160 – – –160 – –160 Translation difference of hedge instruments of net investments in foreign operations – – – –128 – – –128 – –128 Change in cash flow hedge reserve recognised in other comprehensive income – – – – 12 – 12 – 12 Tax attributable to items recognised in other comprehensive income – – – 28 –3 –455 –430 – –430 Other comprehensive income – – – –260 9 1,735 1,484 – 1,484 Total comprehensive income – – – –260 9 2,695 2,444 – 2,444

Transactions with owners Unconditional shareholder’s contribution – – 293 – – – 293 – 293 Transactions with owners – – 293 – – – 293 – 293 Balance at December 31, 2013 1,000 5,509 3,199 –838 147 15,621 24,638 – 24,638 1 ) Acquisition of remaining shares in Sverige AB (Volvo Car Uddevalla AB).

geely sweden ab ANNUAL REPORT 2013 25 CONSOLIDATED STATEMENT OF CASH FLOWS

SEK million Note 2013 2012 OPERATING ACTIVITIES Operating income 1,919 66 Depreciation and amortisation of non-current assets 10 7,907 8,016 Interest and similar items received 87 120 Interest and similar items paid –433 –423 Other financial items –80 –85 Income tax paid –573 –928 Adjustments for items not affecting cash flow 30 –281 –410 8,546 6,356

Movements in working capital Change in inventories –349 1,407 Change in accounts receivable –883 –928 Change in accounts payable 1,006 –2,838 Change in items relating to repurchase commitments –816 –1,132 Change in provisions 767 –858 Change in other working capital assets/liabilities 590 742 Cash flow from movements in working capital 315 –3,607 Cash flow from operating activities 8,861 2,749

INVESTING ACTIVITIES Investments in shares and participations –520 –258 Investments in intangible assets –4,188 –3,061 Disposal of intangible assets 30 500 – Investments in property, plant and equipment –4,714 –4,466 Disposal of property, plant and equipment 66 93 Investments in marketable securities 22 –88 – Other 104 14 Cash flow from investing activities –8,840 –7,678 Cash flow from operating and investing activities 21 –4,929

FINANCING ACTIVITIES Proceeds from credit institutions 26 5,336 8,063 Repayment of liabilities to credit institutions 26 –45 –7,251 Received shareholders contribution 293 – Other 181 –356 Cash flow from financing activities 5,765 456 Cash flow for the year 5,786 –4,473

Cash and cash equivalents at beginning of year 22 9,607 14,634 Exchange difference on cash and cash equivalents –21 –554 Cash and cash equivalents at end of year 15,372 9,607

26 geely sweden ab ANNUAL REPORT 2013 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS All amounts are in MSEK unless otherwise stated. Amounts in brackets refer to the preceding year.

NOTE 1 – ACCOUNTING PRINCIPLES Balances and transactions with Shanghai Geely Zhaoyuan International Investment Co. Ltd and its subsidiaries, companies that are not part of Basis of preparation the Volvo Car Group, are classified in the consolidated financial state- These are the second financial statements for Geely Sweden AB and its ments as balances and transactions with related companies. subsidiaries (Volvo Car Group) that have been prepared in compliance with the International Financial Reporting Standards (IFRS) issued by Subsidiaries the International Accounting Standards Board (IASB), as adopted by the The group applies the acquisition method to account for business com- European Union. This Annual Report is prepared in accordance with IAS binations. The value of the acquired net assets is determined by measur- 1 Presentation of Financial Statements and the Swedish Companies ing acquired assets and liabilities and contingent liabilities at fair value Act. In addition, RFR 1 Supplementary Rules for Groups has been on the date of acquisition. In business combinations where the cost of applied, which is issued by the Swedish Financial Reporting Board. RFR acquisition exceeds the fair value of the acquired identifiable net assets, 1 specifies mandatory additions to the IFRS disclosure requirements in the difference is accounted for as goodwill. If the acquisition cost is less accordance with the Swedish Annual Accounts Act. As from 2012 with than the final fair value of the net assets and the acquisition is deter- a restatement of comparison year 2011, Volvo Car Group has applied mined to be a bargain purchase, the difference is recognised directly as IFRS in its financial statements. income in the income statement. Acquisition-related costs are expensed The consolidated financial statements have been prepared on the as incurred. Inter-company transactions, balances and unrealised gains historical cost basis except for certain financial instruments that are car- or losses on transactions between group companies are eliminated. ried at fair value, as explained in the accounting policies below. Prepar- ing the financial reports in compliance with IFRS requires that Manage- Associated companies and jointly controlled entities ment make judgements and estimates as well as assumptions that Associated companies are companies in which Volvo Car Group has a affect the application of accounting principles and amounts recognised. significant but not controlling influence, which generally is when Volvo The areas involving a higher degree of judgement or complexity, or areas Car Group holds between 20 and 50 per cent of shares, but it also where assumptions and estimates have significant impact on the con- includes investments with less participation if significant influence is solidated financial statements are disclosed in Note 2 - Critical account- proven. Joint ventures refer to companies in which Volvo Car Group, ing estimates and judgements. through contractual cooperation together with one or more parties, has The parent company applies the same accounting principles as the a joint control over the operational and financial management. Invest- consolidated Volvo Car Group, except in the cases specified in the sec- ments in associated companies and jointly controlled entities are tion entitled notes to the parent company’s financial statements. As reported in accordance with the equity method and are initially recog- required by IAS 1, Volvo Car Group companies apply uniform accounting nized at acquisition cost. The group’s share of post-acquisition profit or rules, irrespective of national legislation, as defined in the Volvo Car loss is recognised in the income statement, and its share of post-acqui- Group Finance Manual, which is in compliance with IFRS. The principles sition movements in other comprehensive income is recognised in other stated below have been applied consistently for all periods, unless oth- comprehensive income with a corresponding adjustment to the carrying erwise indicated below. For new accounting standards the application amount of the investment. When the group’s share of losses in an asso- follows the rules in each particular standard. For information on new ciate equals or exceeds its interest in the associate, the group does not standards, see the section on new and amended standards adopted by recognise further losses unless it has incurred legal or constructive obli- the Volvo Car Group. gations or made payments on behalf of the associate or jointly con- trolled entity. BASIS OF CONSOLIDATION The consolidated accounts have been prepared based on the principles Foreign currency set forth in IAS 27 - Consolidated and separate financial statements. Translation of foreign group entities Volvo Car Group includes Geely Sweden AB and its subsidiary Volvo Car Volvo Car Group’s functional currency is the Swedish krona (SEK). The Corporation AB. Volvo Car Group also includes all of Volvo Car Corpora- functional currency of each Volvo Car Group company is determined tion AB’s subsidiaries, which means the companies in which Volvo Car based on the primary economic environment in which it operates. Volvo Corporation directly or indirectly owns more than 50 per cent of the vot- Car Group’s and Geely Sweden AB’s presentation currency is SEK. ing rights of the shares or in any other way holds power to control. Sub- When preparing the consolidated financial statements, balance sheet sidiaries are fully consolidated from the date on which control is trans- and income statements for all group entities whose functional currency ferred to the group. They are deconsolidated from the date that control is not SEK are translated into Volvo Car Group’s presentation currency ceases. IFRS 3 - Business combinations, is applied on acquisitions. using the procedures below, except for subsidiaries in hyperinflationary Non-controlling interests, that is equity in a subsidiary not attribut- economies. Currently none of the entities within Volvo Car Group oper- able to the parent company, are recognised as a separate item in con- ates in a hyperinflationary economy. solidated equity. In the consolidated income statement, the share of the - Assets and liabilities are translated at the exchange rates at the year’s earnings belonging to non-controlling interest is included in net respective year end closing rate. income. Separate disclosure of the portion belonging to non-controlling - Income and expenses are translated at the monthly exchange rates interests is provided. For more information refer to note 14- Investments reported in the income statement and statement of other comprehen- in Associates. sive income.

geely sweden ab ANNUAL REPORT 2013 27 - All translation differences that arise when translating the financial Leases statements of subsidiaries outside Sweden are recognised as a sepa- Any lease agreements in which the risks and rewards associated with rate item under other comprehensive income in the statement of other ownership have been essentially transferred to the related company are comprehensive income, without affecting income, until the disposal of classified as a finance lease. Other leased assets where ownership is the subsidiary. retained by the lessor are classified as operating leases.

Transactions and balance sheet items in foreign currency Volvo Car Group as lessor Transactions in foreign currencies are translated to the functional cur- Volvo Car Group currently has no finance leases as a lessor per the clos- rency at the exchange rate on the day of the transaction. Monetary ing date. Transactions that include repurchase obligations or residual assets and liabilities in foreign currencies are translated to the functional value guarantees, and for which significant risks remain with Volvo Car currency at the exchange rate at the respective year end (closing rate). Group, are carried as operating leases. Operating leases are carried as Exchange rate differences arising from translation of currencies are Assets held under operating leases among tangible assets. Revenue reported in the income statement, except when deferred in other com- from operating leases is recognised on a straight-line basis over the prehensive income as qualifying cash flow hedges and net investment leasing period. Depreciation of the asset occurs on a straight-line basis hedges. Operationally derived exchange gains and losses are shown under the terms of the commitment and the amounts are adjusted to under other operating income and other operating expenses respec- conform to the estimated realisable value when the commitment expires. tively. Financially derived exchange gains and losses are shown as finan- The estimated realisable value at the commitment termination is evalu- cial income and financial expenses. The main exchange rates applied ated continuously. Principles related to repurchase obligations are fur- are shown in the table below: ther explained in the section Revenue recognition.

EXCHANGE RATES Volvo Car Group as lessee In the case of finance leases, the asset is recognised at the inception of Average rate Close rate the lease period as a current or non-current asset at the lower of fair Country Currency 2013 2012 2013 2012 value or the present value of the minimum lease payments. The asset is China CNY 1,06 1,07 1,07 1,05 depreciated using the straight-line method over the asset’s useful life or Euro zone EUR 8,65 8,71 8,89 8,59 over the term of the lease if this is shorter. The commitment to pay future Great Britain GBP 10,19 10,71 10,64 10,50 lease payments are discounted to net present value and recorded as a United states USD 6,53 6,75 6,46 6,52 current or non-current liability in the balance sheet. The lease payments Russia RUB 0,21 0,22 0,20 0,21 made are allocated between amortisation of liabilities and interest expense. For operating leases, i.e., when the risks and rewards associ- Accounting principles ated with the ownership of the asset have not been transferred to Volvo Revenue recognition Car Group, lease and rental payments are expensed as arised on a Volvo Car Group’s recognised net revenue mainly consists of sales of straight-line basis over the lease contract period. goods and services. Net revenue is reduced by discounts and returned An arrangement that is not in the legal form of a lease is accounted goods. Revenue from the sale of goods is recognised when substantially for as a lease if it is dependent on the use of a specific asset or assets all risks and rewards are transferred to the customer (generally dealers and the arrangement conveys a right to use the asset. and distributors). However, if the sale of vehicles is combined with a repurchase agreement, the transactions are accounted for as operating Government grants lease contracts. Revenues related to an operating lease arrangement A government grant is recognised when there is reasonable assurance are recognised straight-line over the lease period and the asset is rec- that Volvo Car Group will comply with the conditions attached to the ognised as an asset under operating lease in the balance sheet. Reve- grant and that the grant will be received. Government grants are nue from sale to an external party, subject to a subsequent issuance of a recorded in the financial statements in accordance with their purpose, residual value guarantee to an independent financing provider, is recog- either as reduction of expense or a reduction of the cost of the capital nised at the time of sale and a provision is made for the estimated resid- investment. Government grants are recognised in the income statement ual value risk, provided that significant risks related to the vehicle has on a systematic basis over the periods necessary to match them with the been transferred to the customer. When extended services have been related expenses that they are intended to compensate. Government contractually agreed with the customer in addition to the sale of a vehi- grants related to assets are deducted from the carrying amount of the cle, such as warranty extensions over a fixed period, the related revenue asset and are recognized in the Income statement over the life of a is recorded on a linear basis in the income statement over the contract depreciable asset as a reduced depreciation expense. In cases where period. the received government grant is not intended to compensate any Interest income is reported as it is earned. The calculation is made on expenses or acquisition of assets the grant is recognised as other the basis of the return on underlying assets in accordance with the income. Government grants for future expenses are recorded as effective interest method. Dividend income is recognised when the right deferred income. to receive dividend is obtained. Royalties are recognized in accordance with the substance of the relevant agreement, generally on an accrual Income taxes basis. Volvo Car Group’s tax expense consists of current tax and deferred tax. Taxes are recognised in the income statement except when the underly-

28 geely sweden ab ANNUAL REPORT 2013 ing transaction is recognised directly in equity or other comprehensive Capitalised product development costs income, whereupon related taxation is also recognised in equity or other Volvo Car Group’s research and development activities are divided into a comprehensive income. concept phase and a product development phase. Research costs dur- Current tax is tax that must be paid or will be received for the current ing the concept phase are charged to the income statement as they year. Current tax also includes adjustments to current tax attributable to arise. Development costs for new products, production systems and previous periods. software are capitalised at manufacturing cost beginning on the date when it is probable that the development expenditure will generate Deferred tax is calculated according to the balance sheet method for all future economic benefits. Development costs are capitalised to the temporary differences that arise between the tax-related value and the extent that attributable costs can be measured reliably and both techni- carrying amount of assets and liabilities. Deferred tax assets and liabili- cal feasibility and successful marketing are assured. If the conditions for ties are measured at the nominal amount and at the tax rates that are capitalisation are not met, the costs are recognized in the Income state- expected to apply when the asset is realised or the liability is settled, ment as expenses in the period they occur. Capitalised development using the tax rates and tax rules that have been enacted or substantively costs comprise all expenditures that can be directly attributed to the enacted at the balance sheet date. Deferred tax assets relating to development phase and that serves to prepare the asset for use, includ- deductible temporary differences and loss carryforwards are recognised ing development related overhead and borrowing cost. to the extent it is probable that they will be utilised in the future. Deferred Development costs previously recognised as an expense are not rec- tax assets and deferred tax liabilities are offset when they are attribut- ognised as an asset in a subsequent period. able to the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the bal- Amortisation methods for intangible assets ances on a net basis and the affected company has a legally enforce- Intangible assets with finite useful life are amortised on a straight-line able right to offset tax assets against tax liabilities. Tax laws in Sweden basis in the Income statement over their respective expected economic and in certain other countries allow companies to defer tax payments life and are tested for impairment whenever there is an indication that through allocation to untaxed reserves. These items are treated as tem- the intangible asset may be impaired. The amortisation period for con- porary differences in the consolidated balance sheet where the untaxed tractual rights such as licenses does not exceed the contract period. reserves are divided between deferred tax liability and equity. In the con- Trademarks are assumed to have indefinite useful lives since the Volvo solidated income statement an allocation to or withdrawal from, untaxed Car Group has the right and the intention to continue to use the trade- reserves is divided between deferred taxes and net income for the year. marks for the foreseeable future and the useful life cannot be assessed why no amortisation is made. Dealer network is estimated to have a use- Classification of current and non-current assets and liabilities ful life of 30 years based on the fact that it has been proven historically An asset is classified as a current asset when it is held primarily for the to have had a stable basis of dealers. purpose of trading, is expected to be realised within twelve months after The useful lives are to a large extent based on historical experience, the balance sheet date or consists of cash or cash equivalents, provided expected application as well as other individual characteristics of the it is not subject to any restrictions. All other assets are classified as non- asset. The following useful lives are applied: current assets. A liability is classified as a current liability when it is held primarily for the purpose of trading or is expected to be settled within Dealer network 30 years Software, mainframe 8 years twelve months after the balance sheet date. All other liabilities are clas- Product development costs 3–10 years sified as non-current liabilities. Patents, licences and similar rights 3–10 years Software, PC 3 years Intangible assets An intangible asset is recognised when the asset is identifiable, the Amortisation is included in cost of sales, selling or administrative Volvo Car Group controls the asset, and it is expected to yield future expenses depending on where the assets have been used. economic benefits. Intangible assets comprise product development, licences and patents, trademarks, dealer network and investments in IT Property, plant and equipment systems and software. Intangible assets such as trademarks and dealer The Volvo Car Group applies the cost method for measurement of tangi- networks are normally identified and measured at fair value in connec- ble assets. Cost includes expenditure that can be directly attributed to tion with business combinations. the acquisition. Borrowing costs are included in the acquisition value of Both acquired and internally generated intangible assets, other than an asset that takes substantial period of time to get ready for its research and development expenses, are recognised at acquisition cost, intended use or sale, a so called qualifying asset. Tangible assets are less accumulated depreciation and any impairment loss. When applica- recognised at acquisition cost, less accumulated depreciation and ble, internal costs directly related to the development of intangible potential impairment loss. assets are included in the value of the intangible asset. Borrowing costs Subsequent expenditure on property, plant and equipment increases the are included in the cost of assets that take substantial period of time to acquisition value only if it is probable that the Volvo Car Group will have get ready. Subsequent expenditure on intangible assets increases the future economic benefit from the subsequent expenditure. The carrying cost only if it is likely that the Volvo Car Group will have future economic amount of the replaced part is derecognised. All other repairs and main- benefit from the subsequent expenditure. All other subsequent expendi- tenance are charged to the income statement during the financial ture is recognised as an expense in the period in which it is incurred. period in which they are incurred.

geely sweden ab ANNUAL REPORT 2013 29 Depreciation methods for tangible assets Recognition and Measurement of financial assets and liabilities Depreciation according to plan is based on the acquisition value. Tangi- Financial assets and liabilities are recognised in the balance sheet when ble assets are systematically depreciated over the expected economic the Volvo Car Group becomes a party to the contractual terms and con- life of the asset. ditions. Receivables are recognised in the balance sheet when Volvo Car Each part of an item of property, plant and equipment, with a cost Group has a contractual right to receive payment and liabilities are rec- that is significant in relation to the total cost of the item, is depreciated ognised when the counterparty has performed and there is a contractual separately when the useful life for the part differs from the useful life of obligation to pay. Financial assets and liabilities are reported on settle- the other parts of the item. Land is assumed to have an indefinite useful ment date, with the exception of derivative instruments, which are life and is not depreciated. reported on the trade date. A review of the useful lives applied in the Group has been done dur- Financial assets are initially recognised at fair value plus transaction ing the year. As a result of this review the useful lives for certain types of costs except for those financial assets carried at fair value through profit machinery and equipment have been adjusted from December 1, 2013. or loss. Financial assets carried at fair value through profit or loss are ini- For further information regarding the effect on depreciations refer to tially recognised at fair value, and transaction costs are expensed in the Note 17 - Tangible assets. income statement. Loans and receivables are subsequently measured at amortised cost. Accounts receivable are recognised at the amount The following useful lives are applied: expected to be received, i.e. after deduction of bad debts allowance. A bad debt allowance has incurred when there has been a triggering event Buildings (whereof frames 50 years) 14.5–50 years for the customer’s inability to pay. The bad debts on accounts receivable Land improvements 30 years are recognised as operating expenses. Amortised cost is calculated Machinery 8–30 years (previously 14,5–25 years) using the effective interest method, where any premiums or discounts Equipment 3–20 years (previously 5–14,5 years) and directly attributable costs and revenue are capitalised over the con- tract period using the effective interest rate. Fair value is generally deter- Impairment of assets mined by reference to official market quotes. When market quotes are The carrying amounts of intangible and tangible assets as well as all not available the fair value is determined using generally accepted valua- shareholding investments are tested regularly to assess whether there is tion methods such as discounted future cash flows. an indication of impairment. Intangible assets that have an indefinite Borrowings are initially recognized at fair value net of transaction useful life are tested for impairment annually or whenever there is an costs incurred. After initial recognition, borrowings are valued at amor- indication of decline in value. The carrying amount of tangible assets tised cost using the effective interest method. with definite useful lives is tested whenever events or changes in cir- cumstances indicate that the value of the asset is reduced and there Classification of financial assets and liabilities might be an impairment loss. For these assets as well as assets with an The Group classifies its financial assets in the following categories; finan- indefinite useful life, the asset’s recoverable amounts are calculated. The cial assets at fair value through profit and loss, loans and receivables, recoverable amount is the higher of an asset’s fair value less costs to financial liabilities through profit and loss and other financial liabilities. sell or value in use. Value in use is defined as the present value of the Classification takes place at initial recognition. Exceptions from these future cash flows expected to be derived from an asset. For the purpose principles apply to financial instruments included in hedge accounting, of assessing impairment, assets are grouped in one cash-generating which are described further in the section “Hedge accounting”. unit (CGU). When an indication is confirmed, an impairment loss is recognized to Financial assets carried at fair value through profit or loss the extent that the carrying amount exceeds its recoverable amount. A financial asset is assigned to this category if it is held for trading. Previously recognised impairment loss is reversed if reasons for the ear- Derivative instruments with a positive market value are assigned to this lier impairment no longer exist. An impairment loss is reversed only to category, unless they are included in hedge accounting. Changes in fair the extent that the asset’s carrying amount after reversal does not value of these instruments are recognised in the income statement. exceed the carrying amount, net of amortisation, which would have been Based on the purpose of the contract, changes in fair value are reported reported if no impairment loss had been recognized in prior years. either under operating income or as financial income/expense. Deriva- tives with positive fair values (unrealised gains) are recognised as other Financial assets and liabilities current assets. Financial instruments are any form of contract that gives rise to a finan- cial asset in one company and a financial liability or equity instrument in Loans and receivables another company. Financial assets in the consolidated balance sheet Non-derivative financial assets with fixed or determinable payments that encompass interest-bearing receivables, trade receivables, other finan- are not quoted in an active market, for example accounts receivable and cial assets, derivative assets and cash and cash equivalents. Derivative loan receivables, are assigned to this category. Cash and cash equiva- instruments include forwards, options and swaps used primarily to cover lents are also assigned to this category. Loans and receivables are car- risks relating to exchange rate, exposure to interest rate risks and price ried at amortised cost except for accounts receivable that have a short fluctuations on electricity. Financial liabilities in the consolidated balance duration and are therefore valued at nominal value without discounting sheet mostly consist of trade payables, loans and derivative liabilities. to net present value. The nominal value for these short term items will reflect the fair value.

30 geely sweden ab ANNUAL REPORT 2013 Financial liabilities at fair value through profit and loss on the hedging instrument from the last period the instrument was con- Derivative instruments with a negative fair value are assigned to this cat- sidered effective is recognised in the income statement. If the hedged egory, unless they are included in hedge accounting. Changes in the fair transaction is no longer expected to occur, the hedge’s accumulated values of these instruments are recognised in the income statement. changes in value are immediately transferred from other comprehensive Based on the purpose of the contract, changes in fair value are reported income to the income statement and are included in operating income. either under operating income or as financial income/expense. Deriva- Hedging of net investments in foreign operations refers to hedges tives with negative fair values (unrealised losses) are recognised as held to reduce the effect of changes in the value of a net investment in a other current liabilities. foreign operation due to changes in foreign exchange rates. The foreign currency gains and losses on hedging instruments are recognised under Other financial liabilities other comprehensive income. In the event of a divestment, the accumu- This category includes financial liabilities not held for trading, trade pay- lated result from the hedge is immediately transferred from the hedge ables as well as borrowings and repurchase commitments. reserve in equity to the income statement. For further information regarding accounting treatment related to foreign currency see section Derecognition of financial assets and liabilities “Foreign currency” above. See also Note 21- Financial risks and finan- A financial asset or a portion of a financial asset is derecognised in the cial instruments for more information regarding financial instruments. balance sheet when all significant risks and benefits linked to the asset have been transferred to a third party. Where Volvo Car Group concludes Inventory that all significant risks and benefits have not been transferred, the por- Inventories of raw material, consumables and supplies, semi-manufac- tion of the financial assets corresponding to Volvo Car Group’s continu- tured goods, work in progress, finished goods and goods for resale are ous involvement is recognised. reported in inventories and carried at the lower of actual cost, less Invoiced sales are sometimes subject to contracts for factoring with deductions for any obsolescence, and net realisable value at the report- a third party (bank or financial institution). This enables Volvo Car Group ing date. Costs of inventories comprise costs of purchase, production to receive payment for its accounts receivable within a few days after charges and other expenditures incurred in bringing the inventories to billing and thus free liquidity at an earlier stage. If the criteria for their present location and condition. The cost of inventories of similar derecognition of accounts receivable are not fulfilled, the receivable assets is established using the first-in, first-out method (FIFO) and is remains on the balance sheet. A financial liability or a portion of a finan- based on the standard cost method. The standard costs are updated cial liability is derecognised from the balance sheet when the obligation annually and adjustments are made at the turn of the model year. Net in the contract has been fulfilled or cancelled or has expired. realisable value is calculated as the selling price in the ordinary course For further information regarding financial instruments refer to Note of business less estimated costs of completion and selling costs. For 21 - Financial risks and financial instruments. groups of similar products a group valuation method is applied. Physical stock counts are carried out annually or more often where appropriate in Hedge accounting order to verify the records. Hedge accounting is adopted for derivative instruments that are included in a documented hedge relationship. For hedge accounting to Cash and cash equivalents be applied, a direct connection between the hedge and the hedged item Cash and cash equivalents consist of cash and bank balances as well as is required. Further, it is necessary for the hedge to protect the risk as short-term liquid investments with a maturity of maximum 90 days, effectively as intended, that the effectiveness of the measure can be which are subject to an insignificant risk of fluctuations in value. Cash demonstrated at all times to be sufficiently high through effectiveness and cash equivalents are stated at nominal value. testing, and that hedging documentation has been prepared. Volvo Car Group apply hedge accounting starting from April 1, 2012 for derivate Employee benefit obligations instruments related to hedging of currency risk in future commercial Volvo Car Group has both defined contribution plans and defined benefit cash flows. Volvo Car Group also applies hedge accounting of net plans. Under a defined contribution plan, Volvo Car Group pays fixed investments in foreign operations from December 2012. contributions into a separate legal entity and will have no legal obligation Hedge accounting is applied for derivative instruments that were to pay further contributions if the fund does not hold sufficient assets to acquired for the purpose of hedging expected future commercial cash pay all employee benefits. The contributions are recognised as flows in foreign currencies against currency rate risks. A cash flow employee benefit expenses in the income statement when earned by hedge is a hedge held to reduce the risk of an impact on profit or loss the employee. The assets of the plans are held separately from those of from foreign exchange changes in cash flow relating to a future transac- Volvo Car Group in funds under the control of trustees. tion. In cash flow hedge accounting, the derivative is recognised in the A defined benefit plan is a pension plan that defines the amount of balance sheet at fair value, and changes in the fair value is recognised post-employee benefit an employee will receive upon retirement, usually under other comprehensive income and accumulated in the hedge dependent on one or more factors such as age, years of service and reserve in equity. Amounts that have been recognised in the hedge compensation. Volvo Car Group has the obligation for the future bene- reserve in equity are recognised in the income statement in the same fits. For the funded defined benefits plans, the assets have been sepa- period as the payment flows reach the income statement. The hedging rated, with the majority invested in pension foundations. relationship is regularly tested up until its maturity date. If the identified The pension provision or asset recognised in the balance sheet in relationships are no longer deemed effective, the fluctuation in fair value respect of defined benefit pension plans is the present value of the

geely sweden ab ANNUAL REPORT 2013 31 defined benefit obligation at the balance sheet date less the fair value of terly basis the provisions are adjusted to reflect latest available data plan assets. Prepaid contributions are recognised as an asset to the such as actual spend, exchange rates, discounting rates etc. The provi- extent that a cash refund or reduction in future payments is available. sions are reduced by virtually certain warranty reimbursements from The calculation of the present value of defined benefit pension suppliers. undertakings is performed according to the Projected Unit Credit method, which also considers future earnings. The calculation is per- Contingent liabilities formed annually by independent actuaries. The present value of the When a commitment does not meet the criteria for recognition of a liabil- defined benefit obligation is determined by discounting the estimated ity or provision in the balance sheet it may be disclosed as a contingent future cash outflows using interest rates of high-quality corporate and liability. These possible obligations derive from past events and their government bonds that are denominated in the currency in which the existence will be confirmed only when one or several uncertain future benefits will be paid, and that have terms to maturity approximating to events, which are not entirely within the Volvo Car Group’s control, take the terms of the related pension liability. The discount rate for the Swed- place or fail to take place. A contingent liability could also exist for a pres- ish pension obligation is determined by reference to mortgage bonds. ent obligation where an outflow of resources is not likely or when the The most important actuarial assumptions are stated in Note 24 - Post amount of the obligation cannot be measured with sufficient reliability. employment benefits. Actuarial gains and losses arising from experience adjustments and CHANGES IN ACCOUNTING POLICY AND DISCLOSURES changes in actuarial assumptions are charged or credited to equity in New and amended standards adopted by the group other comprehensive income in the period in which they arise. The following standards have been adopted by the group for the Past service costs are recognized immediately in the income state- first time for the financial year beginning on 1 January 2013 and ment when the settlement occurs. have a material impact on the group: Interest cost and expected return on assets is calculated on a net IAS 19 was amended in June 2011 and effective from January 1 2013 basis by applying the discount rate used to measure the defined benefit with retrospective application. The changes on the Group’s accounting obligation to the net defined benefit liability (asset). policies relates to the accounting for changes in defined benefit obliga- Termination benefits are payable when employment is terminated by tions and plan assets. The amendments require the recognition of the group before the normal retirement date, or whenever an employee changes in defined obligations and in fair value of plan assets when they accepts voluntary redundancy in exchange for these benefits. The group occur, and hence eliminate the “corridor approach” previously used by recognizes termination benefits at the earlier of the following dates: (a) Volvo Car Group and accelerate the recognition of past service costs. when the group can no longer withdraw the offer of those benefits; and The amendments has resulted in all actuarial gains and losses to be rec- (b) when the entity recognizes costs for a restructuring that is within the ognised immediately through other comprehensive income in order for scope of IAS 37 and involves payment of termination benefits. the net pension asset or liability recognised in the consolidated balance sheet to reflect the full value of the plan deficit or surplus. Provisions The impact of the new revised IAS 19 has changed the balance Provisions are recognized in the balance sheet when a legal or con- sheet liability due to the removal of the corridor where the unrecognised structive obligation exist as a result of a past event and it is deemed net actuarial loss and the unrecognised past service cost have disap- more likely than not that an outflow of resources will be required to settle peared with an increase to the pension liability as a consequence. Inter- the obligation and the amount can be reliably estimated. The amount est cost and expected return on assets have been replaced with a net recognized as provision is the best estimate of the expenditure required interest amount that is calculated by applying the discount rate used to to settle the present obligation at the balance sheet date. Provisions are measure the defined benefit obligation to the net defined benefit liability regularly reviewed and adjusted as further information becomes avail- (asset). able or circumstances change. See note 31- Changes of accounting principles for the impact on the If the effect is material, non-current provisions are recognized at financial statements as a result of the amended IAS 19. present value by discounting the expected future cash flows at a pre-tax rate reflecting current market assessments of the time value of money. The following standards have been adopted by the group but have The discount rate does not reflect such risks that are taken into consid- no material impact on the group: eration in the estimated future cash flow. Amendment to IAS 1, Financial statement presentation regarding other Revisions to estimated cash flows (both amount and likelihood) are comprehensive income. The main change is a requirement to group allocated as operating cost. Changes to present value due to the pas- items presented in ‘other comprehensive income’ (OCI) on the basis of sage of time and revisions of discount rates to reflect prevailing current whether they are potentially reclassifiable to profit or loss. market conditions are recognised as a financial cost. Amendment to IFRS 7, ‘Financial instruments: Disclosures’, on asset Warranty provisions include the Group’s cost of satisfying the cus- and liability offsetting. New disclosures are included in Note 21- Finan- tomers with specific contractual warranty obligations, as well as other cial risks and financial instruments. costs not covered by contractual commitments. All warranty provisions IFRS 13, ‘Fair value measurement’, aims to improve consistency and are recognised at the sale of the vehicles or spare parts. The initial cal- reduce complexity by providing a precise definition of fair value and a culations of the reserves are based on historical warranty statistics con- single source of fair value measurement and disclosure requirements for sidering known quality improvements, costs for remedy of defaults etc. use across IFRSs. For further information regarding financial instru- The provisions for campaigns booked at point of sale are adjusted as ments refer to Note 21 - Financial risks and financial instruments. campaign decisions for specific quality problems are made. On a quar-

32 geely sweden ab ANNUAL REPORT 2013 New standards and interpretations not yet adopted by the Group if the change affects both. The estimations and assessments described When preparing the consolidated financial statements as of December below are those that are deemed to be the most important for an under- 31, 2013, a number of standards, interpretations and amendments have standing of Volvo Car Group’s financial reports, taking into account the been published, but have not yet become effective. None of these is degree of materiality and uncertainty. Changes in estimates used in expected to have a significant effect on the consolidated financial state- these and other items could have a material impact on Volvo Car Group’s ments of the Group except those stated below. The following is a prelim- financial statements. inary assessment of the effect that the implementation of these stan- dards and interpretations could have on Volvo Car Group’s financial Impairment of non-current assets statements. The Volvo Car Group has substan- tial values reported in the balance sheet regarding non-current assets. IFRS 10 – Consolidated financial statements Property, plant and equipment and intangible assets are depreciated on IFRS 10 is based on existing principles by identifying the concept of a straight-line basis over their estimated useful lives; refer to Note 1 - control as the determining factor for assessment of whether a company Accounting principles. Management regularly reassesses the useful life should be included in the consolidated financial statements. The stan- of all significant assets. The carrying amounts of non-current assets are dard provides additional guidance to assist in the determination of con- tested for impairment in accordance with the accounting policies trol where this is difficult to assess. Volvo Car Group intends to adopt described in Note 1 to the consolidated accounts, Accounting princi- IFRS 10 for the year beginning January 1, 2014. A high level assess- ples. An impairment is recognised if the carrying value of the asset ment shows that there are no significant effects for Volvo Car Group. exceeds the recoverable amount. The recoverable amount is the higher of the asset’s net selling price and its value in use. For these calcula- IFRS 11 – Joint arrangements tions, certain estimations must be made regarding future cash flows, IFRS 11 provides guidance for the accounting of joint arrangements by required return on investments and other adequate assumptions. The focusing on the rights and obligations of the arrangement, rather than estimated future cash flows are based on assumptions that represent its legal form. Joint arrangements are divided into two categories – joint management’s best estimate of the economic conditions that will exist operations and joint ventures. In joint operations each joint venture during the asset’s remaining lifetime, and are based on internal business accounts for the assets, liabilities, revenues and expenses relating to its plans or forecasts. interest in the joint arrangement. In joint ventures, each joint venture Future cash flows are determined on the basis of the long-term plan- shall account for its interest using the equity method. Volvo Car Group ning, which is approved by Management and which is valid at the date of intends to adopt IFRS 11 for the year beginning January 1, 2014. A high conduction of the impairment test. This planning is based on expecta- level assessment shows that there are no significant effects for Volvo tions regarding future market share, the market growth as well as the Car Group. products’ profitability.

IFRS 12 – Disclosure of interests in other entities Revenue recognition When Volvo Car Group has entered into a resid- IFRS 12 is a new and comprehensive standard on disclosure require- ual value guarantee in relation to a vehicle sale, there may be a question ments for all forms of interests in other entities, including joint arrange- of judgement regarding whether or not significant risks and rewards of ments, associates and structured entities. Volvo Car Group intends to ownership have been transferred to the customer. If the previous adopt IFRS 12 for the year beginning January 1, 2014. Volvo Car Group assessment of retained risk by Volvo Car Group is proven to be incorrect will be affected by extended disclosure requirements in the financial and it is instead determined that significant risks are retained by Volvo statements of 2014. Car Group, revenue in the coming period will decline and instead be dis- Other changes in standards and interpretations that enter into force tributed over several reporting periods. Refer to Note 1 - Accounting on January 1 2014 or subsequently are not expected to have any principles for a description of Volvo Car Group’s revenue recognition pol- impact on the Group. icy relating to operating lease contracts.

Residual value risk In the course of its operations, Volvo Car Group is exposed to residual value risks through sales combined with repurchase NOTE 2 – CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS agreements and sales to external rental company subject to residual Preparation of the financial statements in accordance with IFRS requires value guarantees. Residual value risks are reflected in different ways in the company’s executive management and Board of Directors to make the consolidated financial statements depending on the extent to which estimations and assessments as well as to make assumptions that the risk remains with the Group. In cases where significant risks pertain- affect application of the accounting policies and the reported assets, lia- ing to vehicles remain with Volvo Car Group, the vehicles are generally bilities, income and expenses. The estimates are based on historical recognised in the balance sheet as Assets under operating leases. experience and assumptions that are deemed reasonable and realistic Accumulated depreciation on these vehicles reduces the value of the in the circumstances. The results of these estimations and assessments vehicles from their original acquisition value to their expected residual are then used to establish the reported values of assets and liabilities value, being the estimated net realisable value, at the end of the lease that are not otherwise clearly documented from other sources. The term. The depreciations are charged on a straight-line basis over the actual outcome may differ from these estimates and assessments. The term of the commitment. Vehicles sold to an external party, subject to a estimates and underlying assumptions are reviewed on a regular basis. subsequent issuance of a residual value guarantee to an independent Changes are recognised in the period of the change and future periods financing provider, are derecognised from the balance sheet in cases

geely sweden ab ANNUAL REPORT 2013 33 where no significant risks remain with Volvo Car Group. A provision is Inventories made for the residual value risk related to the guarantee based upon In situations where the net realizable value is lower than cost, a valuation estimations of the used products’ future net realisable values. The esti- allowance is recognised for inventory obsolescence. The total inventory mated net realisable value of the products at the end of the commitment value, net of inventory obsolescence allowance, was 12,161 (11,812) is monitored individually on a continuing basis and is estimated by evalu- whereof value adjustment reserve –191 (–247) as of December 31, ating recent auction values, future price deterioration due to expected 2013. change of market conditions, marketing incentive plans, vehicle quality data and repair and reconditioning costs etc. High inventories in the Deferred tax assets The calculation of deferred tax assets requires vehicle industry and low demand may have a negative impact on the assumptions to be made with regard to the level of future taxable prices of new and used vehicles. A decline in prices of our vehicles may income and the timing of recovery of deferred tax assets. These negatively affect the consolidated income. assumptions take account of forecast operating results and the impact on earnings of the reversal of taxable temporary differences. The mea- Warranty The recognition and measurement of provisions for product surement of deferred tax assets is subject to uncertainty and the actual warranties is generally connected with estimates. Estimated costs for result may diverge from these judgements due for example to future product warranties are charged to cost of sales when the products are changes in business climate and altered tax laws. An assessment is sold. Estimated warranty costs include contractual warranty, warranty made at each closing date of the likelihood that the deferred tax asset campaigns (recalls and buy-backs) and warranty cover in excess of con- will be utilised. If needed the carrying amount of the deferred tax asset tractual warranty or campaigns, which is accepted as a matter of policy will be altered. The judgements that have been made may affect net or normal practice in order to maintain a good business relation with the income both positively and negatively. Further information is provided in customer. Warranty provisions are estimated based on historical claims Note 15 - Taxes. statistics and the warranty period. Quality index improvements based on historical patterns have been reflected in all categories of warranty. Legal proceedings Companies within Volvo Car Group are involved in Refunds from suppliers that decrease Volvo Car Group’s warranty costs legal proceedings covering a range of different matters, which are pend- are recognised to the extent these are considered to be virtually certain. ing in various jurisdictions. These include, but are not limited to, commer- cial disputes such as alleged breach of contract, insufficient supplies of Employee benefit obligationsThe value of pension obligations for goods or services, product liability, patent infringement or infringement defined benefit obligations is determined through actuarial calculations of other intangible rights. The various matters raised are often of a diffi- based on assumptions about the discount rate, future salary increases, cult and complex nature and often legally complicated. It is therefore dif- inflation, mortality rates and demographic conditions. Every change in ficult to predict the final outcome of such matters. The companies within these assumptions affects the calculated value of the post-employee Volvo Car Group work closely with legal advisors and other experts in the benefits obligations. The discount rate, which is the most critical various matters in each jurisdiction. A provision is made when it is deter- assumption, is based on market return on high-quality corporate and mined that an adverse outcome is more likely than not and the amount government bonds that are denominated in which the benefits will be of the loss can be reasonably estimated. In instances where these crite- paid and with maturities corresponding to the related pension liability. A ria are not met, a contingent liability has been disclosed provided the risk lower discount rate increases the present value of post-employee bene- qualifies as such liability. fits obligations and their cost while a higher discount rate has the reverse effect. Due to changing market and economic conditions, the Tax processes Volvo Car Group is also, like other global companies, at underlying key assumptions may differ from actual developments and times involved in tax processes of varying scope and in various stages. may lead to significant changes in pension and other post-employment These tax processes are evaluated regularly and provisions are made benefit obligations. For further information on pension provisions, see according to the accounting principles, i.e., when it is more likely than not Note 24 - Post employment benefits. that additional tax must be paid and the outcome can be reliably esti- mated. If it is not probable that the additional tax will be paid but the risk is more than remote, such amounts are shown as contingent liabilities.

34 geely sweden ab ANNUAL REPORT 2013 NOTE 3 – NET REVENUE NOTE 5 – RELATED PARTies

The Net revenue allocated During the year, Group companies entered into the following trading to geographical regions: 2013 2012 transactions with related parties that are not consolidated in the Volvo China 18,793 13,830 Car Group: USA 14,132 20,168 EU 201) 67,144 64,567 Purchases of of which Sweden 17,866 15,951 Sales of goods, goods, services of which Germany 7,470 9,924 services and other and other of which UK 6,931 7,134 2013 2012 2013 2 012 Rest of the world 22,176 25,982 of which Russia 4,526 6,436 Related companies1) 945 908 –350 –152 of which Japan 4,595 5,009 Associated companies 2,975 3,053 –1,145 –1,169 Total 122,245 124,547 1) Sweden, Norway, Denmark, Finland, The Netherlands, Belgium, Luxemburg, Receivables from Payables to France, Spain, Italy, Greece, Portugal, , Ireland, Germany, 2013 2012 2013 2012 ­Switzerland, Austria, Poland, Hungary and Czech Republic. Related companies1) 1,098 965 562 164 For each significant category of revenue, see additional information in Associated companies 65 58 7 21 the Board of Directors report. 1) Related companies are other companies outside Volvo Car Group, but within the Geely sphere of companies. For associated companies see Note 14 – Investments in associates.

Since 2012, Volvo Car Group has an agreement with a subsidiary within NOTE 4 – OPERATING EXPENSES the Shanghai Geely Zhaoyuan International Investment Co. Ltd Group for licensing intangible property rights from Volvo Car Group, to enable 2013 2012 production of cars in the Chengdu plant. Cost of sales In China two new manufacturing joint ventures were established: Cost of sales –76,459 –78,067 Daqing Volvo Car Manufacturing Co. Ltd and Zhangjiakou Volvo Car Personnel –11,539 –11,079 Engine Manufacturing Co Ltd. Volvo Car Group holds 30 percent in Amortisation/depreciation –4,707 –5,358 each. In 2013 Volvo Car Group granted a licence to engine technology Other –9,229 –10,096 to a subsidiary with Zhejiang Geely Holding Group Co.Ltd. The license Total –101,934 –104,600 resulted in an income 2013 since significant risk and rewards had been Research and development expenses transfered to the buyer. During 2013 Geely Sweden AB has received a Personnel –1,700 –1,886 contribution from Geely Sweden Automotive AB amounting to SEK 293 Amortisation/depreciation –2,570 –2,078 million. The contribution was initially received by Geely Sweden Hold- Other –1,594 –2,325 ings AB from Shanghai Geely Zhaouyan International Investment Co Ltd Total –5,864 –6,289 and was then given to Geely Sweden Automotive AB as an uncondi- Selling expenses tional shareholder’s contribution. During 2012 a loan of SEK 1767 mil- Personnel –2,157 –2,150 lion from Geely Sweden Automotive AB ( ultimately from Shanghai Amortisation/depreciation –96 –78 Geely Zhaoyuan International Investment Co. Ltd) was transformed in an Other –5,666 –6,414 unconditional shareholder’s contribution. Also an additional sharehold- Total –7,919 –8,642 er’s contribution of SEK 12 million from Shanghai Geely Zhaouyan Inter- Administrative expenses national Investmenst Co. Ltd was made during 2012. Personnel –3,161 –2,868 Business transactions between Volvo Car Group companies and Amortisation/depreciation –343 –312 related parties or associated companies all arise in the normal course of Other –1,625 –2,012 business and are conducted on the basis of arm’s length principles. Total –5,129 –5,192 Volvo Car Group does not engaging any transactions with Board Capitalised product development costs has reduced the amounts members or senior executives except ordinary remuneration for services. ­presented as personnel and other. For further information about remunerations, see Note 9 - Employees and remuneration.

geely sweden ab ANNUAL REPORT 2013 35 NOTE 6 – AUDIT FEES NOTE 8 – LEASING

2013 2012 Volvo Car Group as lessor Deloitte Operational lease contracts are recognised as non-current assets in Audit fees –22 –24 assets held under operating leases in the balance sheet and mainly Audit-related fees –3 –3 relate to vehicles sold with repurchase agreements. The difference Tax services –1 –2 between the original sales price and the repurchase price is recognised Other services –9 –11 in the income statement as revenue on a straight-line basis over the Total –35 –40 lease term. The remaining lease revenue yet to be recognised in income Audit fees involve audit of the Annual Report, financial accounts and is presented as part of current and non-current liabilities in the balance the administration by the Board of Directors and the Managing Director. sheet, see Note 26 – Other non-current liabilities and Note 27 – Other The audit also includes advice and assistance as a result of the observa- current liabilities. The repurchase obligation is considered to be a finan- tions made in connection with the audit. cial liability and is presented as part of current and non-current liabilities. Volvo Car Group does currently not have any finance lease engage- Audit-related fees refer to other assignments to ensure quality in the ments as a lessor. financial statements including consultations on reporting requirements and internal control. Future lease revenue of operating lease contracts Rental income 2013 2012 Tax services include tax-related consultancy. No later than 1 year 549 493 Later than 1 year and no later than 5 years 420 393 Later than 5 years – – All other work performed by the auditor is defined as other services. Total 969 886

NOTE 7 – OTHER OPERATING INCOME AND EXPENSES Volvo Car Group as lessee Operating lease contracts 2013 2012 The operating lease contracts Volvo Car Group holds are mainly Other operating income ­contracts for premises and office equipment around the world. Also Licences 323 73 some production equipment such as forklifts for the factories are under Foreign exchange gain 775 104 operating lease contracts. Technology transfer – 590 Other 411 265 Operating lease expenses 2013 2012 Total 1,509 1,032 Minimum lease payments –934 –819 Contingent rents –47 –46 2013 2012 Less subleases 15 27 Other operating expenses Total –966 –838 Amortisation and depreciation of intangible and tangible assets –191 –191 Present value of Restructuring costs –60 –49 Operating lease Minimum operating lease Royalty –351 – commitments lease Less commitments per Dec 31, 2013 ­payments ­subleases Total less subleases Property tax –65 –67 – No later than 1 year 901 26 875 857 Other –501 –507 – Later than 1 year and Total –1,168 –814 no later than 5 years 1,885 104 1,781 1,587 – Later than 5 years 2,158 164 1,994 1,417 Total 4,944 294 4,650 3,861

Finance lease contracts Volvo Car Group holds finance lease contracts for production equipment and some buildings used in production. The assets will be owned by Volvo Car Group at the end of the lease contracts at no additional cost. All leases are fixed terms with fixed payments.

36 geely sweden ab ANNUAL REPORT 2013 Buildings Machinery and NOTE 9 – EMPLOYEES AND REMUNERATION Finance lease assets and land equipment Acquisition cost Average number of Of whom Of whom employees by region: 2013 women 20124) women Balance at January 1, 2012 72 1,682 Sweden 15,786 23% 15,458 22% Additions 23 – Nordic countries Divestments and disposals – –6 other than Sweden 342 29% 360 17% Effect of foreign currency Belgium 4,171 12% 4,155 11% exchange differences –3 – Europe other than the Nordic Balance at December 31, 2012 92 1,676 countries and Belgium 991 39% 984 40% Divestments and disposals –2 – North and South America 421 23% 419 23% Effect of foreign currency Asia 1,432 33% 1,406 53% exchange differences –3 – Other countries 99 35% 99 37% Balance at December 31, 2013 87 1,676 Total for Volvo Car Group 23,242 22% 22,881 22% Accumulated depreciation Balance at January 1, 2012 –37 –1,277 Depreciation expense –4 –180 Number of Board Divestments and disposals – 6 ­members and Dec 31, Of whom Dec 31, Of whom Balance at December 31, 2012 –41 –1,451 senior executives1) 2013 women 2012 women Divestments and disposals –7 –95 Parent company 4 0% 4 0% Balance at December 31, 2013 –48 –1 546 Subsidiaries 98 18% 105 12% (218) (20%) (209) (22%) Net balance at December 31, 2012 51 225 Total for Volvo 102 109 Net balance at December 31, 2013 39 130 Car Group (218) (209)

Gross finance lease liabilities – Dec 31, Dec 31, 2013 2012 minimum lease payments 2013 2012 Social Social – No later than 1 year 33 34 Salaries Wages and ­security Wages and ­security and other ­salaries, expenses salaries, expenses – Later than 1 year and no later than 5 years 122 134 ­remunerations, other­ (of which other (of which – Later than 5 years 6 30 total for Volvo remune­ ­pension remune­ ­pension Total 161 198 Car Group rations expenses) rations expenses) Parent company 6 2 (–) 10 3 (–) Future finance charges on finance leases –22 –34 Subsidiaries 11,087 4,808 9,989 4,319 Present value of finance lease liabilities 139 164 (2,194) (2,021) Total for Volvo 11,093 4,810 9,999 4,322 Car Group (2,194) (2,021) The present value of finance lease liabilities is as follows: Gross finance lease liabilities – Dec 31, Dec 31, 2013 2012 minimum lease payments 2013 2012 Salaries and – No later than 1 year 25 24 other remunera- Wages and Wages and – Later than 1 year and no later than 5 years 109 112 tion to the salaries, salaries, 2) – Later than 5 years 5 28 Board , CEO, other Social other Social Excecutive remunera- security remunera- security Total 139 164 ­management tions (of expenses tions (of expenses team (EMT)3) which (of which which (of which and other variable pension variable pension The finance lease liabilities are Dec 31, Dec 31, employees ­salaries) expenses) ­salaries) expenses) included in the financial statement as: 2013 2012 Board, Chief Other current liabilities (Note 27) 25 24 Executive Officer 194 108 145 103 Other non-current liabilities (Note 26) 114 140 and EMT (34) (33) (7) (32) Total 139 164 Other 10,899 4,702 9,854 4,219 employees (2,161) (1,989) Total for Volvo 11,093 4,810 9,999 4,322 Car Group (34) (2,194) (7) (2,021) 1) Senior excecutives are defined as key personnel within the subsidiaries. 2) The Board includes all board members in the subsidiaries within Volvo Car Group. 3) The Excecutive management team (EMT) consists of the CFO and key ­management personnel other than board members. For further information regarding EMT, see Board of Directors’ report. 4) Previous year has been adjusted.

Volvo Car Group’s outstanding post-employee benefits obligations to the Board members, Chief Executive Officer and EMT amount to SEK 113 million (101). The notice period for a member of EMT is maximum 12 months in case of termination by Volvo Car Corporation. Furthermore the employee is, in that case, entitled to severance pay calculated based on the fixed salary, during a period of maximum 12 months. During 2013, 3 (4)

geely sweden ab ANNUAL REPORT 2013 37 members of EMT, including the CFO, left the Volvo Car Group. NOTE 12 – FINANCIAL INCOME ­Remunerations during the notice period and severance pay amounted to SEK 21 million (38), excluding social expenses. 2013 2012 Interest income on bank deposits 87 120 Total 87 120 Incentive programmes Volvo Car Group has two global incentive programmes; a short term incentive programme (STI) including all employees and a long term incentive programme for Executives and Senior Managers (LTI). The NOTE 13 – FINANCIAL EXPENSES design and payout of the programmes are subject to the Board of Direc- 2013 2012 tors’ annual approval. Net foreign exchange loss on financing activities –82 –151 The purpose of the STI-programme is to strengthen global alignment Interest effect from the measurement among employees around Volvo Car Group’s vision, objectives and of repurchase obligations –197 –172 ­strategies and to encourage all employees to achieve and exceed the Interest on loans from related companies – –218 business plan targets in order to reach the long term targets. Other interest expenses –333 –179 The purpose of the LTI-programme is to attract, motivate and retain Other financial expenses –262 –333 key competence within Volvo Car Group. The LTI-programme is based on Effect of changes in accounting policies – –127 calculated market value of Volvo Car Group. Total –874 –1,180

NOTE 10 – DEPRECIATION AND AMORTISATION NOTE 14 – INVESTMENTS IN ASSOCIATES

Operating income includes depreciation 2013 2012 and amortisation as specified below: 2013 2012 Share of income in associates 179 24 Software –265 –275 Total 179 24 Capitalised product development cost –1,165 –711 Other intangible assets –1,263 –1,273 Share of income in associates is specified below: 2013 2012 Buildings and land –471 –465 V2 Plug-In Partnership HB1) 114 –4 Machinery & equipment –3,772 –4,102 Volvofinans Bank AB2) 39 15 Assets under operating leases –971 –1,190 Other companies 26 13 Total –7,907 –8,016 Total 179 24

Depreciation and amortisation according to plan by function: 2013 2012 Dec 31, Dec 31, Cost of sales1) –4,707 –5,358 2013 2012 Research and development expenses –2,570 –2,078 At beginning of the year/acquired acquisition value 550 340 Selling expenses –96 –78 Share of net income 179 24 Administrative expenses –343 –312 Capital contribution (+)/repayment (-) V2 Plug-In Hybrid Vehicle Partnership HB1) –85 263 Other income and expense –191 –190 Investment in Daqing Volvo Car Manufacturing Co.Ltd3) 133 – Total –7,907 –8,016 Investment in Zhangjiakou Volvo Car Engine 1) Of which impairment loss SEK 7 million (50). ­Manufacturing Co Ltd 4) 387 – Dividends –5 –14 Reclassification from previous year NOTE 11 – GOVERNMENT GRANTS negative participation1) – –63 Total 1,159 550 Volvo Car Group receives grants mainly from the Swedish Government. Grants are also received in Belgium and from the EU. In 2013, the ­government grants received amounted to SEK 81million (65) and the government grants realised in the income statement amounted to SEK 76 million (116).

38 geely sweden ab ANNUAL REPORT 2013 Volvo Car Group’s carrying amount Country of on investments in associates: Corp. ID no. ­incorporation % interest held Dec 31, 2013 Dec 31, 2012 Volvo Trademark Holding AB 556567-0428 Sweden 50 5 6 Volvohandelns PV-Försäljnings AB 556430-4748 Sweden 36 9 8 Volvohandelns PV-Försäljnings KB 916839-7009 Sweden 37 10 7 VCC Tjänstebilar KB 969673-1950 Sweden 37 2 2 VCC Försäljnings KB 969712-0153 Sweden 37 1 1 Göteborgs Tekniska College AB 556570-6768 Sweden 26 2 2 V2 Plug-In Hybrid Vehicle Partnership HB1) 969741-9175 Sweden 50 226 196 Volvofinans Bank AB2) 556069-0967 Sweden 10 337 303 IUC i Olofström AB 556263-1217 Sweden 18 – – First Rent a Car AB 556434-7820 Sweden 45 52 24 Volvo Event Management Corporation 444517742 Belgium 33 1 1 Daqing Volvo Car Manufacturing Co.Ltd3) 100000400012348 China 30 133 – Zhangjiakou Volvo Car Engine Manufacturing Co.Ltd4) 100000400012356 China 30 381 – Carrying amount, participation in associates 1,159 550

The share of voting power corresponds to holdings in per cent as per 2) Volvo Car Group holds 10 per cent of the equity shares of Volvofinans Bank AB above. and due to significant volume transactions and board representation, Volvo Car Group exercises significant influence on the operations which qualifies for the For practical reasons, some of the associates are included in the use of the equity method. As per December 31, 2013 the total adjusted equity consolidated financial statements with a certain time lag, normally of Volvofinans Bank AB amounted to SEK 3,431 million ( 3,065). one month. 3) Volvo Car Group holds 30 percent of Daqing Volvo Car Manufacturing Co.Ltd. The company is reported according to the equity method due to the ownership 1) V2 Plug-In Hybrid Vehicle Partnership HB is a joint venture, however reported share. In 2013 the Daquing Volvo Car Manufacturing Co.Ltd received a share- in accordance with the equity method since none of the holding companies, holder contribution of SEK 133 million from Volvo Car Group. As per December Volvo Cars PHEV Holding AB and PHEV Holding AB, has the 31, 2013 the total equity in Daqing Volvo Car Manufacturing Co Ltd amounted ­decision-making power over the operation. During 2013 V2 Plug-In Hybrid to SEK 444 million (-). Vehicle Partnership HB received a shareholders’ contribution of SEK14 million (263) from Volvo Cars PHEV ­Holding AB. During 2013 V2 Plug-in Hybrid Vehi- 4) Volvo Car Group holds 30 percent of Zhangjiakou Volvo Car Engine Manu­ cle Partnership HB provided a repayment of SEK 99 million (0) to Volvo Cars facturing Co Ltd. The company is reported according to the equity method due PHEV Holding AB. As per December 31, 2013 the total equity of V2 Plug-In to the ownership share. In 2013 the Zhangjiakou Volvo Car Engine Manufac- Hybrid Vehicle Partnership HB amounted to SEK 233 million (403). turing Co ltd received a shareholder contribution of SEK 387 million from Volvo Car Group. As per December 31, 2013 the total equity in Zhangjiakou Volvo Car Engine Manufacturing Co Ltd amounted to SEK 1,274 million (-).

geely sweden ab ANNUAL REPORT 2013 39 NOTE 15 – TAXES Deferred tax assets and deferred tax liabilities are offset when the item Income tax recognised in income statement 2013 2012 relates to income taxes levied by the same taxation authority on either Current income tax for the period –867 –610 Current income tax for previous years 15 20 the same taxable entity or different taxable entities which intend either Deferred taxes 680 1,042 to settle current tax liabilities and assets on a net basis, or to realise the Total –172 452 assets and settle the liabilities simultaneously. Deferred tax assets are only accounted for to the extent there are taxable temporary differences or other factors that convincingly indicate Information regarding current year tax expense compared to tax expense there will be sufficient future taxable profit. The main part of losses based on the applicable Swedish tax rate 2013 2012 ­carried forward is related to jurisdictions where temporary differences Income before tax for the year 1,132 –994 exceed losses carried forward and where periods of utilisation are Tax according to applicable Swedish tax rate1) –249 261 in­definite. Capital gains or losses, non-taxable – 4 Deferred tax that may arise on distribution of remaining unrestricted Effect of different tax rates –90 –1 earnings of foreign subsidiaries has not been booked, hence they can Tax effect on deferred tax due to change of tax rate – 153 be distributed free of tax or Volvo Car Group may consider them perma- Utilisation of previously unrecognised tax losses –10 17 Revaluation of previously non-valued losses nently reinvested in the subsidiaries. and other temporary differences 161 – Other 16 18 Changes in deferred tax assets and Dec 31, Dec 31, liabilities during the reporting period 2013 2012 Total –172 452 Net book value of deferred taxes at January 1 264 –735 1 ) As from January1, 2013 the Swedish tax rate has been changed from 26,3% Deferred tax income/expense recognised to 22%. through income statement 681 1,042 Change in deferred taxes recognised directly in equity –430 –24 Income tax recognised directly in equity 2013 2012 Exchange rate impact –109 –19 Deferred tax Net book value of deferred taxes at December 31 406 264 Tax effects on cash flow hedge reserve 3 39 Tax effect of remeasurement of provisions for post Dec 31, Dec 31, employment benefits 455 –28 Unutilised tax-loss carryforwards expire as follows 2013 2012 Tax effects on translation difference, hedge Due date ­instruments of net investments in foreign operations –28 13 2014 – – Total 430 24 2015 – – 2016 – 14 Dec 31, Dec 31, 2017 – 14 Specification of deferred tax assets 2013 2012 2018 25 – Goodwill arising from the purchase 2019- 18,023 14,525 of the net assets of a business 333 360 Total 18,048 14,553 Provision for employee benefits 769 1,146 Unutilised tax loss carry-forwards 4,067 3,174 Reserve for unrealised income in inventory 364 363 Significant tax loss carry forwards are related to countries with long or Provision for warranty 271 160 indefinite periods of utilisation. Of the total unused tax loss carry for- Other temporary differences 542 588 wards, SEK 0 million (SEK 99 million), relates to unused tax losses for Total deferred tax assets 6,346 5,791 which no deferred tax asset is recognised in the statement of financial­ Netting of assets/liabilities –4,181 –3,971 position. Total deferred tax assets, net 2,165 1,820

Dec 31, Dec 31, Specification of deferred tax liabilities 2013 2012 Fixed assets 5,873 5,511 Other temporary differences 67 16 Total deferred tax liabilities 5,940 5,527

Netting of assets/liabilities –4,181 –3,971 Total deferred tax liabillities, net 1,759 1,556

40 geely sweden ab ANNUAL REPORT 2013 NOTE 16 – INTANGIBLE ASSETS

Capitalised product Other intangible Software development cost1) ,2) Trademark assets3) Total Acquisition cost Balance at January 1, 2012 3,615 3,287 3,598 9,045 19,545 Additions 504 2,591 – 1 3,096 Divestments and disposals –446 – – – –446 Effect of foreign currency exchange differences –3 – – –4 –7 Balance at December 31, 2012 3,670 5,878 3,598 9,042 22,188

Additions 208 4,089 – – 4,297 Divestments and disposals –41 –1 – – –42 Effect of foreign currency exchange differences 8 – – –4 4 Balance at December 31, 2013 3,845 9,966 3,598 9,038 26,447

Accumulated amortisation and impairment Balance at January 1, 2012 –2,399 –279 – –2,027 –4,705 Amortisation expense –275 –711 – –1,273 –2,259 Divestments and disposals 440 – – – 440 Effect of foreign currency exchange differences 2 – – – 2 Balance at December 31, 2012 –2,232 –990 – –3,300 –6,522

Amortisation expense –265 –1,165 –1,263 –2,693 Divestments and disposals 45 1 – – 46 Effect of foreign currency exchange differences –9 – – 2 –7 Balance at December 31, 2013 –2,461 –2,154 – –4,561 –9,176

Net balance at December 31, 2012 1,438 4,888 3,598 5,742 15,666 Net balance at December 31, 2013 1,384 7,812 3,598 4,477 17,271 1) Volvo Car Group has capitalised borrowing costs related to product development of SEK 108 million (38). A capitalisation rate of 4,8 % (5,4%) was used to determine the amount of borrowing costs eligible for capitalisation. 2) During 2013 additional areas of product development activities are reflected in the capitalised figures. 3) Other intangible assets refers to licences, dealer network, patents and similar rights.

Intangible assets with indefinite useful lives, ie Trademark, and other based on a discounted cash flow model, with Volvo Car Group as one intangible assets not yet ready for use, are tested for impairment annu- single Cash Generating Unit. Management’s business plans and volume ally as well as if there are any indications of need for impairment. Assets ­programmes for 2014–2022 are used as a basis for the calculation. A with definite useful lives are tested if there are any indications of need discount rate of 11.1% (11.1%) has been used. In 2013 the operating for impairment. An impairment test is made by calculating the recover- cash flow exceeded the carrying amount, and no impairment loss was able value. If the recoverable value is less than the carrying value, the recognised. asset’s recoverable value is impaired. The recoverable amounts are

geely sweden ab ANNUAL REPORT 2013 41 NOTE 17 – TANGIBLE ASSETS

Buildings Machinery and Construction Assets under and land1), 2), 3) equipment1), 3), 4),5) in progress ­operating leases Total Aquisition cost Balance at January 1, 2012 13,054 60,238 1,085 4,822 79,199 Additions 279 3,180 1,599 5,256 10,314 Divestments and disposals –104 –1,113 – –3,825 –5,042 Reclassification 32 917 –949 – – Effect of foreign currency exchange differences –189 –375 –7 –87 –658 Balance at December 31, 2012 13,072 62,847 1,728 6,166 83,813

Additions 331 2,098 1,897 6,052 10,378 Divestments and disposals –359 –2,029 – –5,124 –7,512 Reclassification 64 1,341 –1,405 – – Effect of foreign currency exchange differences 45 293 – 18 356 Balance at December 31, 2013 13,153 64,550 2,220 7,112 87,035

Accumulated depreciation and impairment Balance at January 1, 2012 –6,427 –42,405 – –1,789 –50,621 Depreciation expense –465 –4,102 – –1,191 –5,758 Divestments and disposals 87 993 – 346 1,426 Effect of foreign currency exchange differences 90 236 – 10 336 Balance at December 31, 2012 –6,715 –45,278 – –2,624 –54,617

Depreciation expense –471 –3,772 – –971 –5,214 Divestments and disposals 283 1,914 – 621 2,818 Effect of foreign currency exchange differences –40 –191 – 7 –224 Balance at December 31, 2013 –6,943 –47,327 – –2,967 –57,237

Net balance at December 31, 2012 6,357 17,569 1,728 3,542 29,196 Net balance at December 31, 2013 6,210 17,223 2,220 4,145 29,798 1) Buildings and land includes finance leases of SEK 39 million (51) and Machinery and equipment includes finance leases of SEK 130 million (225). For further information regarding finance leases, see Note 8 – Leasing. 2) Depreciation expense include impairment loss of SEK 7million (50). For further information regarding depreciations, see Note 10 – Depreciation and amortisation. 3) Volvo Car Group has no mortgages in property, plant and equipment. For further information regarding pledged assets, see Note 28 – Pledged assets. 4) Machinery and equipment includes capitalised borrowing costs of SEK 123 million (148). 5) During 2013 the useful lives applied in Volvo Car Group were adjusted. The impact in the income statement amounted to SEK –56 million.

NOTE 18 – OTHER NON-CURRENT ASSETS NOTE 19 – INVENTORIES

Dec 31, Dec 31, Dec 31, Dec 31, 2013 2012 2013 2012 Restricted cash 930 506 Raw materials and consumables 130 151 Rental deposition 27 35 Products in progress 2,118 2,046 Receivable against Ford Motor Company – 7 Finished goods and goods in resale 9,913 9,615 Other non-current assets 120 186 Total 12,161 11,812 Total 1,077 734 Of which value adjustment reserve: –191 –247 For further information see Note 21 – Financial risks and financial The cost of inventories recognised as an expense and included in cost ­instruments. of sales amounted to SEK 99,549 million (102,380). The cost of inventories recognised as an expense includes SEK 50 million (28) in respect of write-downs of inventory to net realisable value.

NOTE 20 – ACCOUNTS RECEIVABLE AND OTHER CURRENT ASSETS

Dec 31, Dec 31, 2013 2012 Accounts receivable including receivables from related companies 5,618 4,735 VAT receivables 896 821 Prepaid expenses and accrued income 1,078 1,011 Other financial receivables 434 353 Other receivables 373 402 Total 8,399 7,322

42 geely sweden ab ANNUAL REPORT 2013 Aging analysis of accounts receivable and receivables from related companies 1–30 30–90 days days >90 days 2013 Not due ­overdue ­overdue overdue Total Accounts receivable gross 4,782 242 15 651 5,690 Provision doubtful accounts receivable –8 – –29 –35 –72 Accounts receivable net 4,774 242 –14 616 5,618

2012 Accounts receivable gross 4,245 131 166 334 4,876 Provision doubtful accounts receivable – – –5 –136 –141 Accounts receivable net 4,245 131 161 198 4,735 Accounts receivable amounting to SEK 5,618 million (4,735) includes provision for doubtful accounts receivable of SEK 72 million (141).

Change in provision for doubtful accounts receivable is as follows: 2013 2012 Balance at January 1 141 131 Additions 24 58 Reversals –83 –44 Write-offs –10 –3 Translation difference – –1 Balance at December 31 72 141

NOTE 21 – FINANCIAL RISKS AND FINANCIAL INSTRUMENTS

In its operations, Volvo Car Group is exposed to various types of financial and liabilities are measured at amortised cost or fair value depending on risks such as currency risk, interest rate risk, credit risk, commodity price their initial ­classification. Fair value is defined as the price that would be risk, refinancing risk and liquidity risk. received to sell an asset or paid to transfer a liability in an orderly trans- Volvo Car Group treasury function is responsible for management action between market participants at the measurement date. Amor- and control of the financial risks. The management of financial risks is tised cost is calculated using the effective interest method, where any governed by Volvo Car Group treasury policy which is approved by the premiums or discounts and directly attributable costs and revenue are Board of Directors and is subject to annual approval. The Policy is capitalied over the contract period using the effective interest rate. Fair focused on minimizing the negative effects from fluctuating financial value is generally determined by reference to official market quotes. markets on Volvo Car Group’s financial earnings. When ­market quotes are not available the fair value is determined using ­generally accepted valuation methods such as discounted future cash Financial Instruments – Classification flows. Financial instruments are divided into three levels depending on the The fair value of a financial asset or liability reflects non-performance market information available. risk including the counterparty’s credit risk for an asset and an entity’s • Level 1: Level 1 inputs are quoted prices (unadjusted) in active own credit risk for a liability. For Volvo Car Group this only applies to ­markets for identical assets or liabilities that the entity can access at derivatives and marketable securities since no other classes of assets the measurement date. and liabilities are recorded at fair value. Volvo Car Group has chosen to • Level 2: Level 2 inputs are inputs other than quoted prices included use PD (Probability of Default ) of the counterparty to adjust the positive within level 1 that are observable for the asset or liability, either market value on derivatives and marketable securities. Own credit risk is directly or indirectly. adjusted for by taking an average of the PD of a peer group of auto man- • Level 3: Level 3 inputs are unobservable inputs for the asset or liability. ufacturers.

All derivative financial instruments that Volvo Car Group holds as at December 31, 2013 belong to level 2. No transfers between the levels of the fair value hierarchy have occurred during the year. Financial assets

geely sweden ab ANNUAL REPORT 2013 43 The table below shows Volvo Car Groups financial assets and liabilities at fair value December 31, 2013 Level 1 Level 2 Level 3 Total Derivative instruments for hedging of currency risk in future commercial cash flows – 393 – 393 Electricity hedges – 18 – 18 Marketable securities – 88 – 88 Total assets – 499 – 499

Derivative instruments for hedging of currency risk in future commercial cash flows – 167 – 167 Derivative instruments for hedging of currency risk related to financial assets and liabilities – 70 – 70 Electricity hedges – 70 – 70 Total liabilities – 307 – 307

December 31, 2012 Derivative instruments for hedging of currency risk in future commercial cash flows – 326 – 326 Electricity hedges – 16 – 16 Total assets – 342 – 342

Derivative instruments for hedging of currency risk in future commercial cash flows – 119 – 119 Derivative instruments for hedging of currency risk and interest rate risk related to financial assets and liabilities – 39 – 39 Electricity hedges – 91 – 91 Total liabilities – 249 – 249

Financial assets and liabilities by category Finacial instruments at fair value through profit or loss Derivatives Instruments used in hedge Loans and Financial liabilities December 31, 2013 held for trading accounting ­receivables at amortised cost TOTAL Fair Value Other non-current assets1) – – 1,054 – 1,054 1,054 Accounts receivable – – 5,618 – 5,618 5,618 Derivative assets 58 353 – – 411 411 Marketable securities 88 – – – 88 88 Other current assets1) – – 260 – 260 260 Cash and cash equivalents – – 15,372 – 15,372 15,372 Total assets 146 353 22,304 – 22,803 22,803

Other long-term liabilities1) – – – 792 792 792 Liabilities to credit institutions – – – 12,853 12,853 12,853 Trade payables – – – 13,632 13,632 13,632 Derivative liabilities 143 164 – – 307 307 Other current liabilities1) – – – 3,460 3,460 3,460 Total liabilities 143 164 – 30,737 31,044 31,044

December 31, 2012 Other non-current assets1) – – 658 – 658 658 Accounts receivable – – 4,735 – 4,735 4,735 Derivative assets 55 287 – – 342 342 Other current assets1) – – 297 – 297 297 Cash and cash equivalents – – 9,607 – 9,607 9,607 Total assets 55 287 15,297 – 15,639 15,639

Other long-term liabilities1) – – – 676 676 676 Liabilities to credit institutions – – – 7,367 7,367 7,367 Trade payables – – – 12,626 12,626 12,626 Derivative liabilities 140 109 – – 249 249 Other current liabilities1) – – – 2,896 2,896 2,896 Total liabilities 140 109 – 23,565 23,814 23,814 1) Pre-payments, accruals, statutory receivables and liabilities are excluded, as this analysis is required only for financial instruments.

No financial assets and liabilities are offset in the balance sheet. institutions, the carrying amount is a good estimate of the fair value ­Derivative contracts are subject to master netting agreements (ISDA) since this item mainly consists of loans that have a short interest fixing and the carrying amount of derivative assets that are not offset in the term. For aging analysis regarding accounts receivable refer to Note 20 balance amount to SEK 411 (342) million and the carrying amount of – Accounts receivable and other current assets. For aging analysis the related derivative liabilities amount to SEK –307 million (–249). ­regarding liabilities to credit institutions refer to Note 26 – Other non- No collateral has been received or posted. The carrying amount essen- current liabilities. Trade payables are for the most part due within 60 tially equals the fair value for all current items. For liabilities to credit days.

44 geely sweden ab ANNUAL REPORT 2013 Nominal amounts and fair values of derivative instruments Transaction risk The sales to different markets in combination with purchases in different Derivative instruments for Dec 31, 2013 Dec 31, 2012 ­hedging of currency risk related Nominal Fair Nominal Fair currencies determine the transaction exposure. to financial assets and liabilities amount Value amount Value Sales to markets other than Sweden generate transaction exposure. Foreign exchange swaps For the majority of the sales Volvo Car Corporations’ invoices to national 1) – receivable position 39 – – – sales companies are in local currencies. The total currency inflow was – payable position2) 8,552 –70 3,568 –18 distributed between EUR 25 (23)%, SEK 19 (18)%, CNY 15 (11)%, Forward contracts USD 13 (18)%, GBP 6 (5)%, RUB 4 (5)% and other currencies 18 – receivable position1) – – – – (20)%. The major part of the production is in the plants in Sweden and – payable position2) – – 2,576 –21 Belgium at cost mainly in EUR and SEK. The total currency outflow was Subtotal 8,591 –70 6,144 –39 split into EUR 47 (50)%, SEK 30 (29)%, CNY 5 (4)%, JPY 5 (4) and

Derivative instruments for other currencies 13 (13)%. ­hedging of currency risk in The policy for transaction risk management states that up to 80 per future commercial cash flows cent of the future expected cash flows in the coming 15 months can be Foreign exchange swaps hedged with adequate financial instruments: options, forwards or com- – receivable position1) 6,643 111 3,439 84 bined instruments with maturities matching expected timing of cash – payable position2) 5,968 –117 901 –6 flows. Hedging of cash flows with maturity more than 15 months Forward contracts requires a Board of Directors’ decision. – receivable position1) 13,203 215 5,598 178 The currency exposure is expressed in terms of Cash Flow at Risk 2) – payable position 3,904 –39 4,642 –103 (CFaR), which is the maximum loss at a 95 per cent confidence level in Currency options one year. The CFaR is dependent on the cash flow forecast for the com- – receivable position1) 8,915 67 5,312 64 ing 15 months, market volatility and correlations. The CFaR at year end – payable position2) 853 –11 5,549 –10 for the cash flows in one year, excluding hedges, was approximately SEK Subtotal 39,486 226 25,441 207 3 billion. Another way of expressing the currency sensitivity in revenue and cost in foreign currencies is to say that during 2013, a one per cent Electricity hedges – receivable position1) –104 18 –80 16 change in SEK against major currencies, excluding currency hedges, – payable position2) 422 –70 517 –91 has a net impact on operating income of approximately SEK 127 million. Subtotal 318 –52 437 –75 A steering model with a benchmark level of CFaR is decided and a Total 48,395 104 32,022 93 stipulated mandate to deviate from that benchmark is given to Group 1) Financial instruments included in the balance sheet under other current­ assets. Treasury. 2) Financial instruments included in the balance sheet under other current Forward contracts and options are used to reduce the currency risk ­liabilities. in expected future cash flows from sales and purchase in foreign curren- cies. At year end 39 (38) per cent of the forecasted cash flows in foreign Currency risk management currencies the coming 15 months was hedged and during 2013 the The currency exposure arises from the production in various countries, average hedge level has been 35 (32) per cent. The transaction expo- procurement and the mix of sales currencies and has a direct impact on sure in the Group, measured as Cash Flow at Risk (CFaR) based on 15 the Volvo Car Group’s operating income, balance sheet and cash flow as months net cash flows, is reduced by 46 per cent as of end December well as the long-term competitiveness. 2013. The currency risk is related to: • expected future cash flows from sales and purchase in foreign ­currencies (transaction risk) • changes in value of loans and investments (translation risk) • net assets and liabilities of foreign subsidiaries (translation risk)

Maturities of cash flow hedges (forwards and call options), in millions, local currency

Maturity EUR USD GBP CNY NOK RUB AUD CHF CAD PLN CZK 0–6 months 1,420 –664 –182 –4,188 –300 –6,348 –98 –86 –62 –62 –100 7–12 months 109 –308 – –1,000 – –2,047 –20 – –16 – – >12 months – – – – – – – – – – – Total 1,529 –972 –182 –5,188 –300 –8,395 –118 –86 –78 –62 –100 The average duration of the portfolio was 3 months (5 months). The fair value of the outstanding derivatives as at December 31, 2013 amounted to SEK 226 million (207).

geely sweden ab ANNUAL REPORT 2013 45 Hedge accounting Hedge accounting is applied for cash flow hedging of currency risk and A one per cent change in the Swedish krona against major currencies for net investment of foreign operations. Gains and losses on the effec- has a net impact of approximately SEK 83 million. The translation risk is tive portions of derivatives designated under cash flow hedge account- primarily covered by matching the currency composition of debt with the ing and net investment of foreign operations are recognized in other composition of assets. Part of the investments in operations in the Euro comprehensive income. zone is used for hedge accounting. The residual translation risk is part of The highly probable forecast transactions in foreign currencies that the strategic risk management and is not hedged with financial instru- are hedged are expected to occur at various dates during the next 15 ments, the translation effect is recognized in equity. months. Gains and losses recognized in the hedge reserve in equity on Total translation effect of net investments in foreign operations was forward foreign exchange contracts as at December 31, 2013 are SEK –160 million (–324). This effect does not impact the income state- ­recognized in the income statement in the periods when the hedged ment but is recognized­ in equity. forecast transaction affects the income statement. Volvo Car Group uses EUR 420 million of the EUR 922 million debt Based on cash flow hedging portfolio, a one per cent change in the to reduce the translation exposure on net investments in EUR. The cur- Swedish krona (SEK) against major currencies has a net impact of SEK rency gains or losses from the translation of the net investments in oper- 39 million on other comprehensive income. ations in EUR used for hedge accounting are recognized in other com- The cash flow hedge reserve in shareholders’ equity as at December prehensive income. 31, 2013 amounts to SEK 189 million (177) before tax. The ineffective- The currency risk arising from the part of the external debt of EUR ness in the cash flow hedges that has affected net income amounts to 922 million that has not been used to hedge the net investments in EUR SEK 4 million (–4). The hedge reserve for net investment of foreign is managed by currency swaps. Currency gains or losses from the cur- operations as at December 31, 2013 amounts to SEK –68 million (61) rency swaps are recognized in the income statement and offset the cur- before tax. No ineffectiveness has affected net income for 2013 and rency gains or losses from the residual part of the loan. 2012. The translation effect arising from the external debt of USD 466 ­million is naturally hedged by the translation effect on internal net receiv-

Fair value of derivatives for cash flow hedging 2013 2012 ables in USD, effects are recognized in the income statement. Hedge reserve 189 177 Net gains/losses on derivative financial Recognised in other comprehensive income 189 177 ­instruments recognised in the income statement 2013 2012 Time value in options 37 29 Net gains/ losses reported in financial income and Ineffective contracts – –8 expenses Non hedge accounting – 9 Gains/ losses on foreign exchange swaps Recognised in other operating income and for hedging of external debt 141 –166 expenses 37 30 Gains/losses on foreign exchange swaps for liquidity hedging 54 –47 Fair value of financial instruments for hedging of Gains/ losses on interest-rate swaps – 6 net investment of foreign operations Total 195 –207 Hedge reserve –68 61 Recognised in other comprehensive income –68 61 Capital Structure Volvo Car Group treasury policy stipulates that the medium term objec- Total fair value 158 268 tive is to have a capital structure that enables the company to deliver according to the requirements in the business plan. The longer term Net gains/losses on derivative financial objective is to have a capital structure that enables investment grade ­instruments recognised in the income statement ­rating; currently Volvo Car Group has no external rating. The equity ratio Net gains/losses recognised in other income and expenses 2013 2012 as per December 31, 2013 is 28 (29) per cent. Gains/ losses on commercial currency hedges 836 –287 Total 836 –287 Funding and liquidity risk management Long term funding Translation risk All draw down on new loans is evaluated against future liquidity needs Translation risk in Volvo Car Group relates to the net assets in foreign and investment plans. Volvo Car Group should for the coming 12 months subsidiaries. This exposure can generate a positive or negative impact at any given time have available committed financing for investments on Group earnings or change the value of equity. and maturing loans. To limit the risk of refinancing, debt maturing over the next 12 months should not exceed 25 per cent of total debt. Less MSEK EUR CNY GBP AUD USD Other Total than 50 per cent of the long term debt should be re-financeable within 3 Investments in years. Foreign Operations 4,510 1,928 483 472 –118 1,016 8,291 During first quarter of 2013 a second tranche of EUR 107 million Translation ­exposure 4,510 1,928 483 472 –118 1,016 8,291 was drawn from China Development Bank (CDB) and in February 2013

46 geely sweden ab ANNUAL REPORT 2013 Volvo Car Group signed a new loan with Svensk Exportkredit of SEK Liquidity risk management 1,000 million, with maturity in 2016. Liquidity risk is the risk that Volvo Car Group is unable to meet ongoing In the fourth quarter 2013, a new loan agreement for USD 800 financial obligations on time. In order to meet seasonal volatility in cash ­million was signed with CDB, with maturity in 2021. In November USD requirements, Volvo Car Group shall always have committed back up 466 million was drawn. The loan will support Volvo Car Group in further facilities or free cash available corresponding to 5 per cent or more of developing the product program. The majority of the remaining USD 334 net revenue. The rolling 12 months cash flow forecasts are the basis for million is expected to be drawn during 2014. The amortisation structure the risk assessment of the liquidity risk management. and terms of this loan agreement are similar to the loan agreement of As at December 31, 2013, Volvo Car Group had cash and cash EUR 922 million. equivalents of SEK 15,372 million (9,607), approximately 13 (8) per The outstanding amount of long term funding for Volvo Car Group as cent of net revenue. per year end 2013 was SEK 11 919 (6 917) million. Remaining credit Volvo Car Group has a revolving credit facility of 360 MEUR with a duration of the outstanding facilities was 4.8 years. bank group of six banks with maturity in 2016. The purpose of the arrangement is to serve as back up facility. During 2013, the facility has Outstanding loans are shown below. remained undrawn. Including backup facilities Volvo Car Group have 15 per cent as liquidity reserve. Committed Funding Currency Facilities Utilized Available Maturity Interest rate risk management Bank loan EUR 922 922 – 2020 Changes in the interest rate levels will impact Volvo Car Group’s net Bank loan USD 800 466 334 2021 financial income/expense or the value of financial assets and liabilities. Bank loan SEK 1,000 1,000 – 2016 The return on cash and cash equivalents, short term investments and credit facilities are impacted by changes in the interest rates. The ­exposure can be either direct from interest rate bearing debt or indirect maturity profile of external loans through leasing or other financing arrangements. million SEK equivalent As at December 31, 2013, Volvo Car Group’s interest-bearing assets 1,5000 consisted of cash in the form of cash at bank, short term deposits and marketable securities. The average interest fixing term on these assets 12,000 was less than one month. The average interest fixing term on outstand- ing loans was less than 6 months. The average cost of borrowing was 9,000 4.8 (5.4) per cent. A 100 basis points change in market interests would have an impact of SEK 93 million (27) on interest expenses. 6,000 According to the policy the interest rate risk in Volvo Car Group’s net cash position has a benchmark duration of 6 months. The policy allows a 3,000 deviation of –6/+3 months from the benchmark. At year end the dura- tion was 5 (2) months. 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 Outstanding loans 2013 Outstanding loans 2012 Commodity price risk management Changes in commodity prices impact Volvo Car Group’s cash flow and The repayment structure of outstanding long term funding is shown earnings. Volvo Car Group has large procurement volumes in steel, below. ­aluminum, resin and rubber. Commodity price risk is managed both in In relation to all external loans there are information undertakings strategic (medium to long-term) and operating (short to medium-term) and covenants according to LMA (Loan Market Association) standards. levels of transaction risk. The strategic commodity price risk arises from These are monitored and calculated quarterly to fulfil the terms and con- procurement mix of commodities and the impact on our long term ditions stated in the financial agreements. Covenants are based on stan- ­competitiveness. The management of the strategic commodity price risk dard ratios such as EBITDA and Net debt. means primarily price management in the procurement contract using price contract clauses or similar constructions and fixed prices with ­suppliers. A one per cent change in the prices of commodities has an impact on operating income of approximately SEK 73 million. Volvo Car Group manages the changes in prices for electricity by using forward contracts. The hedging is managed by Vattenfall­ Power Management AB on discretionary account with certain risk limits decided by Volvo Car Group.

Loan repayment structure 2013 2014 2015 2016 2017 2018 2019 2020 2021 Loan Repayment Structure 2013 0 137 389 2,002 1,668 2,335 2,531 2,182 813 Loan Repayment Structure 2012 0 105 455 766 1,154 1,544 1,609 1,285 0

geely sweden ab ANNUAL REPORT 2013 47 Net gains/losses on derivative financial Cash and Cash equivalents includes SEK 1,047 million (878) where lim- ­instruments recognised in the income statement 2013 2012 itations exist, mainly liquid funds where exchange controls or other legal Net gains/losses recognised in operating income restrictions apply. It is not possible to immediatly use the liquid funds in and expenses other parts of Volvo Car Group, however there is normally no limitation Gains/losses on electricity hedges 22 –5 for use in the Group’s operation in the respective country. Total 22 –5

Credit risk management NOTE 23 – EQUITY Volvo Car Group’s credit risk focus mainly in counterparty risk in financial market transactions, investments of cash surplus and counterparty risk The Share Capital of Geely Sweden AB consists of 1,000,000,000 in connection with customer and dealer financing. shares fully paid with a par value of 1 SEK and with voting rights of one vote per share. Financial counterparties The maximum amount exposed to financial credit risk is the total of bank accounts, deposits with banks and market The Share premium relates to the business combination, through value of outstanding derivatives. The maximum amount exposed to ­contribution in kind. credit risk for financial instruments is best represented by their carrying amounts, see table ‘Financial assets and liabilities by category‘ in this Other Contributed Capital consists of contribution from Shanghai note. Investments of cash surplus are made in the money and capital Geely Zhaoyuan International Investment Co. Ltd. The contribution was markets. All investments must meet the requirements of low credit risk initially received by Geely Sweden Holdings AB from Shanghai Geely and high liquidity. All counterparties used for investments and derivative Zhaoyuan International Investment Co. Ltd. and was then given to Geely transactions have credit rating A or better from one of the well-estab- Sweden Automotive AB and thereafter to Geely Sweden AB as an lished credit rating institutions and ISDA agreements are in place with all unconditional shareholders’contribution. counterparties used for derivative transactions which is required accord- ing to Volvo Car Group treasury policy. Limits are set and limit usage is The hedge reserve consists of the change in fair value of commercial followed up for the Volvo Car Group treasury counterparties and depos- cash flow hedging instruments in cases where hedge accounting is its are diversified between relationship banks. Subsidiaries’ bank bal- applied according to IAS 39, Financial Instruments: Recognition and ances are diversified in order to limit credit risk. Measurement.

Dealers, importers and other counterparties The currency translation reserve comprises all exchange rate For the credit risk in customer and dealer financing, the objective is to ­differences resulting from the translation of financial reports of foreign have a sound and balanced credit portfolio and to engage in credit moni- operations that have prepared their financial reports in a currency other toring by means of detailed procedures which include follow-up and than Volvo Car Group’s reporting currency. The parent company and repossession. In cases where the credit risk is considered unsatisfactory Volvo Car Group present their financial reports in Swedish kronor (SEK). a letter of credit or other instruments are used. The maximum amount exposed to credit risk is the carrying amount of accounts receivable, see Retained earnings comprises net income for the year and preceding table ‘Financial assets and liabilities by category’ in this note. For quanti- years. fication of credit risk in accounts receivable refer to Note 20 – Accounts receivable and other current assets. Non-controlling interest refers to the share of equity that belongs to external interests without a controlling influence. Total equity consists of the sum of equity attributable to the owners of NOTE 22 – MARKETABLE SECURITIES AND CASH the parent company and equity attributable to non-controlling interests.­ AND CASH EQUIVALENTS At year end 2013 the Volvo Car Group’s total equity amounted to SEK 24,638 million (21,901-restated). Marketable securities Change in other reserves 2013 2012 Dec 31, 2013 Dec 31, 2012 Balance at January 1 138 – Commercial paper 88 – Change in fair value of currency risk derivatives Total short-term investments 88 – during the year 189 –160 Currency risk contracts recognised in the income statement1) –177 337 The investment has a term of more than three months from acquisition Tax attributable to items recognised date. in other comprehensive income –3 –39 Cash and cash equivalents Balance at December 31 147 138 1) Included in the income statement under other operating income/expenses. Dec 31, 2013 Dec 31, 2012 Cash in banks 11,223 8,482 Bank deposits 4,149 1,125 Total 15,372 9,607

48 geely sweden ab ANNUAL REPORT 2013 NOTE 24 – POST EMPLOYMENT BENEFITS

Volvo Car Group has various schemes for post-employment benefits, held in separate pension funds or funded through insurance payments. mainly relating to pension plans. Other benefits can in some locations The “funded through insurance payments” plans are defined benefit include disability, life insurance and health benefits. Pension plans are plans accounted for as defined contribution plans. These plans in classified either as defined contribution or defined benefit plans. Volvo ­Sweden are secured with the mutual insurance company Alecta. Car Group has both defined contribution and defined benefit plans. The portion secured through insurance with Alecta refers to a defined benefit plan that comprises several employers and is reported Defined contribution plans according to a pronouncement by the Swedish Financial Reporting Under a defined contribution plan, Volvo Car Group pays fixed contri­ Board, UFR 3. For 2013, Volvo Car Group did not have access to the butions into a separate entity outside Volvo Car Group and will have no information to report it´s proportinate share of the plan´s obligations, future financial obligations. The contributions are recognised as assets under management and cost, that would make it possible to employee benefit expense in the income statement. report this plan as a defined benefit plan. The ITP 2 pension plan, which is secured through insurance with Alecta, is therefore reported as a Defined benefit plans defined contribution plan. Defined benefit plans are all plans that are not classified as defined The collective funding ratio is of the market value of Alecta’s assets ­contribution plans. A defined benefit plan is a pension plan where the as a percentage of the insurance obligations calculated according to employee will receive a defined pension benefit upon retirement, usually Alecta’s actuarial methods and assumptions, which do not conform to dependent on factors such as age, years of service and compensation. IAS 19. The collective funding ratio should normally be allowed to vary Volvo Car Group has defined benefit plans for qualifying employees in between 125 and 155 percent. At year end 2013, Alecta’s surplus in some subsidiaries and the largest plans are in Sweden and Belgium. the form of the collective funding ratio amounted to 148 percent (129). The largest plan overall is the Swedish ITP 2 plan which is a collectively In case local legal requirements exist, funded or unfunded plans are agreed pension plan for white collar employees. ITP 2 is a final salary- credit insured with an external party. based plan. For the defined benefit plans operated, Volvo Car Group has the ­obligation for the future benefits. Volvo Car Group’s defined benefit plans are secured in three ways: as a liability in the balance sheet, assets

Total of which Sweden of which Belgium Total of which Sweden of which Belgium Financial year ending on Dec 31, 2013 Dec 31, 2013 Dec 31, 2013 Dec 31, 2012 Dec 31, 2012 Dec 31, 2012 Principal actuarial assumptions Weighted-average assumptions to determine benefit obligations Discount rate 3.89% 4.00% 3.15% 3.52% 3.50% 3.05% Rate of salary increase 3.20% 3.00% 3.17% 3.10% 3.00% 3.17% Rate of price inflation 2.13% 2.00% 2.00% 2.08% 2.00% 2.00% Rate of pension increases 2.16% 2.00% N/A 2.11% 2.00% N/A

Weighted-average assumptions to determine net pension cost Discount rate 3.52% 3.50% 3.06% 3.80% 3.50% 4.42% Expected long-term rate of return on plan assets – – – 4.99% 4.75% 5.00% Rate of salary increase 3.09% 3.00% 3.18% 3.52% 3.50% 3.17% Rate of price inflation 2.08% 2.00% 2.00% 2.09% 2.00% 2.00% Rate of pension increases 2.10% 2.00% N/A 2.12% 2.00% N/A

Mortality: Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics and experience in each territory. Mortality assumptions for Sweden are based on the same assumption recommended by the Financial Supervisory Authority (FFFS 2007:31), a generational-based table but with one year “age set-back” i.e. a 65-year-old would have the life expectancy of a 64-year-old.

geely sweden ab ANNUAL REPORT 2013 49 Total of which Sweden of which Belgium Total of which Sweden of which Belgium Financial year ending on Dec 31, 2013 Dec 31, 2013 Dec 31, 2013 Dec 31, 2012 Dec 31, 2012 Dec 31, 2012 Change in defined benefit obligation Defined benefit obligation at beginning of year 14,602 9,866 1,908 13,492 9,342 1,529 Service cost 588 385 125 473 312 110 Interest expense 507 338 59 501 323 65 Cash flows –371 –217 –80 –369 –206 –91 Remeasurements –1,494 –1,806 266 655 87 356 Effect of changes in foreign exchange rates 80 – 68 -150 – –61 Benefit obligation at end of year 13,912 8,566 2,346 14,602 9,858 1,908

Change in fair value of plan assets Fair value of plan assets at beginning of year 9,184 5,913 1,182 8,397 5,484 1,052 Interest income 335 207 41 318 192 49 Cash flows 90 – 61 100 – 62 Remeasurements 637 264 266 469 237 60 Effect of changes in foreign exchange rates 56 – 42 –100 – –41 Fair value of plan assets at end of year 10,302 6,384 1,592 9,184 5,913 1,182

Amounts recognised in the statement of financial position Defined benefit obligation 13,912 8,565 2,346 14,602 9,866 1,908 Fair value of plan assets 10,302 6,384 1,592 9,184 5,913 1,182 Funded status 3,610 2,181 754 5,418 3,953 726

Net liability (asset) 3,610 2,181 754 5,418 3,953 726

Components of defined benefit cost Service cost 588 385 125 472 312 109 Net interest cost 172 131 19 183 131 17 Remeasurements of Other Long Term Benefits 62 – 60 – – – Administrative expenses and taxes 8 – – 6 – – Total pension cost for defined benefit plans 830 516 204 661 443 126

Pension cost for defined contribution plans 1,480 1,321 123 1,324 1,187 116 Total pension cost recognised in Income Statement 2,310 1,837 327 1,985 1,630 242

Remeasurements (recognosed in OCI) –2,194 –2,070 –60 126 –142 297 Effect of changes in demographic assumptions 16 – – 11 – – Effect of changes in financial assumptions –1,730 –1,748 –6 455 – 240 Effect of experience adjustments 157 –58 212 129 95 117 (Return) on plan assets (excluding interest income) –637 –264 –266 –469 –237 –60 Total defined benefit cost recognized in Income Statement and OCI –1,364 –1,554 144 787 301 423

50 geely sweden ab ANNUAL REPORT 2013 Total of which Sweden of which Belgium Total of which Sweden of which Belgium Financial year ending on Dec 31, 2013 Dec 31, 2013 Dec 31, 2013 Dec 31, 2012 Dec 31, 2012 Dec 31, 2012 Net defined benefit liability (asset) reconciliation Net defined benefit liability (asset) at the beginning of the year 5,418 3,953 726 5,094 3,858 477 Defined benefit cost included in P&L 830 515 203 661 443 126 Total remeasurements included in OCI –2,194 –2,070 –60 126 –142 297 Cash Flows –469 –217 –141 –474 –206 –153 Employer contributions –183 – –105 –205 – –118 Employer direct benefit payments –286 –217 –36 –269 –206 –35 Effect of changes in foreign exchanges rates 25 – 26 11 – –21 Total defined benefit liability (asset) as of end of year 3,610 2,181 754 5,418 3,953 726

Defined benefit obligation Defined benefit obligation by participant status Actives 8,038 4,247 2,166 8,408 5,164 1,712 Vested deferreds 2,489 1,809 122 2,864 2,182 144 Retirees 3,385 2,509 58 3,330 2,520 52 Total 13,912 8,565 2,346 14,602 9,866 1,908

History of experience gains and losses 2013 2012 Risks Defined benefit obligation 13,912 14,602 There are mainly three categories of risks related to defined benefit obli- Fair value of plan assets 10,302 9,184 gations and pension plans. The first category relates to risks affecting Deficit/(surplus) 3,610 5,418 the actual pension payments. Increased longevity and inflation of salary Difference between the expected and pensions are the principle risks that may increase the future pen- and actual return on plan assets sion payments, and hence, increase the pension obligation. The second Amount –637 –469 category relates to investment return. Pension plan assets are invested Per centage of plan assets –6% –5% in a variety of financial instruments and are exposed to market fluctua- Experience (gain)/loss on plan liabilities – – tions. Poor investment return may reduce the value of investments and Amount 158 130 render them insufficient to cover future pension payments. The final cat- Per centage of present value egory relates to measurement and affects the acounting for pensions. of plan liabilities 1% 1% The discount rate used for measuring the present value of the obligation may fluctuate which impacts the valuation of the defined benefit obliga- Plan assets tion. The discount rate also impacts the size of the interest income and Of which expense that is reported in the Financial items and the service cost. The with a risk related to pension obligations, e.g., mortality exposure discount rate quoted Fair value of plan assets 2013 market price and inflation, are monitored on an ongoing basis. Cash and cash equivalents 333 5 Equity instruments 2,262 931 Below is the sensitivity analysis for the main financial assumption and Debt instruments 2,791 609 the potential impact on the present value of the defined benefit obliga- Real estate 9 – tion on the major plans. Investment funds 3,243 178 Other 1,664 308 Sensitivity analysis on defined benefit obligation Total Total 10,302 2,031 Discount rate +0,5% –1,000 Discount rate –0,5% 1,000

The responsibility for governance of the pension plans and the plan assets lies with the Company and Volvo Personvagnar’s Pension Fund. Volvo Personvagnar’s Pension Fund is managed internally on the basis of capital preservation strategy and the risk profile is set accordingly. The investment horizon is long-term and the asset allocation ensures that the investment portfolios are well diversified.

geely sweden ab ANNUAL REPORT 2013 51 NOTE 25 – CURRENT AND OTHER NON–CURRENT PROVISIONS

Other sales ­generated Warranties Service contracts obligations Other provisions Total Balance at January 1, 2013 5,001 3,313 3,302 1,477 13,093 Provided for during year 3,210 3,044 7,668 7,043 20,965 Utilised during year –2,928 –3,193 –7,123 –6,246 –19,490 Reversal of unutilised amounts –531 – –86 –185 –802 Translational differences and other –58 –82 13 –8 –134 Balance at December 31, 2013 4,694 3,082 3,774 2,081 13,632

Of which current 1,993 879 3,774 1,523 8,169 Of which non–current 2,701 2,203 – 558 5,463 For additional information regarding accounting principles for provisions, see Note 1 – Accounting principles and Note 2 – Critical accounting esti- mates and judgements..

NOTE 26 – OTHER NON - CURRENT LIABILITIES The carrying amounts of Volvo Car Group’s ­liabilities to credit institutions are denominated Dec 31, Dec 31, Dec 31, Dec 31, in the following currencies: 2013 2012 2013 2012 EUR 7,964 6,917 Liabilities to credit institutions USD 2,955 – and finance lease contracts SEK 1,000 – Liabilities to credit institutions 11,919 6,917 Total 11,919 6,917 Liabilities related to finance lease contracts 114 140 Total 12,033 7,057 Volvo Car Group has the following undrawn borrowing facilities: Floating rate Liabilities to credit institutions – Expiring within one year 2,159 919 Liabilities to credit institutions mature until 2021 (2020). The average - Expiring after one year but within five years 3,202 - cost of borrowing paid 2013 amounted to 4.8% (5.4%). In 2013 the Total 5,361 919 shares of Geely Sweden AB and Volvo Car Corporation were pledged for the liabilities to credit institutions of SEK 10,919 million (In 2012 the libilities for which a share pledge was provided amounted to SEK 6,917 milion). NOTE 27 – OTHER CURRENT LIABILITIES Dec 31, Dec 31, Dec 31, Dec 31, 2013 2012 2013 2012 Accrued expenses and prepaid income 5,624 5,306 Other long-term liabilities Liabilities related to repurchase agreements 3,460 2,896 Liabilities related to repurchase agreements 745 627 Personnel related liabilities 2,906 2,592 Deferred leasing revenue 420 393 VAT liabilities 1,475 934 Effect of remeasurement of other long-term liabilities Hedging instruments 308 249 for payroll taxes – –12 Deferred leasing revenue 549 493 Other liabilities 47 49 Other liabilities 933 690 Total 1,212 1,057 Total 15,255 13,160

Dec 31, Dec 31, 2013 2012 Repayment structure of liabilities to credit ­institutions NOTE 28 – PLEDGED ASSETS 1–5 years 8,924 2,480 Dec 31, Dec 31, Over 5 years 2,995 4,437 2013 2012 Total 11,919 6,917 Shares in subsidiaries 14,844 16,662 Restricted cash 930 507 Exposure of interest rate changes related to liabilities to credit institutions Inventory 486 – 6 months or less 11,919 6,917 Other pledged assets 1 1 1–5 years – – Total 16,261 17,170 Total 11,919 6,917

52 geely sweden ab ANNUAL REPORT 2013 NOTE 29 – CONTINGENT LIABILITIES NOTE 31 – cHANGES IN ACCOUNTING PRINCIPLES

Dec 31, Dec 31, The revised employee benefit standard IAS 19 introduces changes to 2013 2012 the recognition, measurement, presentation and disclosure of post- Investment commitments in contractual manufacturer 266 349 employment benefits. The standard also requires net interest expense/ Share of packaging supply in logistic company – 208 Guarantees to insurance company FPG 116 112 income to be calculated as the product of the net defined benefit liabil- Legal claims 113 – ity/asset and the discount rate as determined at the beginning of the Other contingent liabilities1) 70 39 year. The effect of this is to remove the previous concept of recognizing Total 565 708 an expected return on plan assets. 1) Apart from the above contingent liabilities, there are other commitments and The new principles have been adopted retrospectively as stated guarantees that are not recognised since the likelihood of an outflow of below: resources is very low. Legal proceedings are further explained in note 2 - Critical accounting estimates and judgements. Impact of changes in accounting policy on the consolidated income statement

Dec 31, Adopt Dec 31, 2012 SEK million 2012 IAS 19 (restated) NOTE 30 – CASH FLOW STATEMENTS Gross income 19,947 – 19,947 2013 2012 Operating expenses/income –19,929 48 –19,881 Adjustments for items not affecting Operating income 18 48 66 cash flow consist of: Financial expenses/income –933 –127 –1,060 Capital gains/losses on sale of Income before tax –915 –79 –994 tangible and intangible assets 33 36 Income tax 435 17 452 Share of income in associates –179 –24 Net income –480 –62 –542 Interest effect from the measurement of repurchase obligations –197 –172 Shareholders’contribution to associates offset Impact of changes in accounting policy on the consolidated against invoiced services –14 –263 statement of comprehensive income Effect of changes in accounting policies – –48 Dec 31, Adopt Dec 31, 2012 Other non-cash items 76 61 SEK million 2012 IAS 19 (restated) Total –281 –410 Net income for the year –480 –62 –542 Other comprehensive income, net of income tax Acquisition of the remaining shares in Pininfarina Sverige AB (Volvo Car Items that will not be reclassified Uddevalla AB) is classified as an investing activity and is included in susequently to income state- “Investments in shares and participation”. ment: – –98 –98 Sale of intagible assets relates to a sale of technology of a Volvo Items that may be reclassified susequently to income state- platform to Geely Group Ltd Co. The sale was recognised in the Income ment: –138 –138 statement in 2012 and payment was received during 2013, which has –618 –160 –778 affected this year’s cash flow from investing activities by 500 MSEK. Total comprehensive income for the year –618 –160 –778 Total comprehensive income attributable to Owners of the parent company –668 –160 –828 Non-controlling interests 50 – 50 Total –618 –160 –778

Cont. note 31

Impact of changes in accounting policy on the consolidated balance sheet

Jan 1, 2012 Dec 31, 2012 SEK million Jan 1, 2012 Adopt IAS 19 (restated) Dec 31, 2012 Adopt IAS 19 (restated)

Assets Deferred tax assets 1,636 103 1,739 1,701 118 1,820 Non current assets 44,582 – 44,582 46,156 – 46,156 Total non-current assets 46,218 103 46,321 47,857 118 47,976 Total current assets 34,242 – 34,242 28,829 – 28,829 Total assets 80,460 103 80,563 76,686 118 76,804

Equity & liabilities Total equity 22,648 –1,483 21,165 23,544 –1,643 21,901 Provisions for post employee benefits 2,846 2,298 5,144 2,948 2,545 5,493 Deferred tax liabilities 2,790 –316 2,474 1,902 –346 1,556 Non-current liabilities 15,433 –396 15,037 14,462 –438 14,024 Total non-current liabilities 21,069 1,586 22,655 19,312 1,761 21,073 Total current liabilities 36,743 – 36,743 33,830 – 33,830 Total equity & liabilities 80,460 103 80,563 76,686 118 76,804

geely sweden ab ANNUAL REPORT 2013 53 INCOME STATEMENTS AND COMPREHENSIVE INCOME – PARENT COMPANY

SEK million Note 2013 2012 Other income 15 51 Gross income 15 51

Administrative expenses 3 –13 –13 Other operating income 1 – Other operating expenses –2 –142 Operating income 4 1 –104

Financial income 5 30 500 Financial expenses 5 –103 –742 Income before tax –72 –346

Appropriation to tax allocation reserve – 12 Income tax 6 14 43 Net income –58 –291 Other comprehensive income and net income are consistent since there are no items in other comprehensive income.

54 geely sweden ab ANNUAL REPORT 2013 BALANCE SHEETS – PARENT COMPANY

SEK million Note Dec 31, 2013 Dec 31, 2012 ASSETS Non-current assets Participation in subsidiary 7 11,280 10,987 Deferred tax assets 6 175 161 Receivables from group companies 2 567 543 Other non-current assets 2 7 Total non-current assets 12,024 11,698

Current assets Receivables from group companies 2 26 13 Other current assets 11 50 Cash and cash equivalents 136 110 Total current assets 173 173 TOTAL ASSETS 12,197 11,871

EQUITY AND LIABILITIES Equity Restricted equity Share capital (1,000,000,000 shares with par value of 1 SEK) 1,000 1,000 1,000 1,000

Non-restricted equity Share premium reserve 5,509 5,509 Retained earnings 2,385 2,383 Net income for the year –58 –291 7,836 7,601

Total equity 8,836 8,601

Non-current liabilities Non-current liabilities 1 – Liabilities to group companies 2 3,342 3,245 Total non-current liabilities 3,343 3,245

Current liabilities Current provisions 3 – Trade payables – 1 Liabilities to group companies 2 – 1 Other current liabilities 15 23 Total current liabilities 18 25 TOTAL EQUITY AND LIABILITIES 12,197 11,871

geely sweden ab ANNUAL REPORT 2013 55 CHANGES IN EQUITY – PARENT COMPANY

Restricted equity Non-restricted equity Share premium Other contributed SEK million Share Capital reserve capital Retained earnings Total Total equity Balance at January 1, 2012 1,000 5,509 1,127 –523 6,113 7,113

Net income – – – –291 –291 –291 Transactions with owners Unconditional shareholder’s ­contribution – – 1,779 – 1,779 1,779 Balance at December 31, 2012 1,000 5,509 2,906 –814 7,601 8,601

Net income – – – –58 –58 –58 Transactions with owners Unconditional shareholder’s ­contribution – – 293 – 293 293 Balance at December 31, 2013 1,000 5,509 3,199 –872 7,836 8,836

STATEMENT OF CASH FLOWS– PARENT COMPANY

SEK million Note 2013 2012 SEK million Note 2013 2012

OPERATING ACTIVITIES INVESTING ACTIVITIES Operating income 1 –104 Investments in shares and participations –293 –13 Interest and similar items received – 243 Cash flow from investing activities –293 –13 Interest and similar items paid – –236 Adjustments for items not affecting cash flow 9 5 141 Cash flow from operating and investing activities –265 79 6 44

Movements in working capital FINANCING ACTIVITIES Change in other current receivable 28 61 Proceeds from borrowings – 1,337 Change in accounts payable –1 – Repayments of borrowings – –1,362 Change in provisions 4 – Received shareholders contribution 293 12 Change in provisions working capital liabilities –9 –13 Cash flow from financing activities 293 –13 Cash flow from movements in working capital 22 48 Cash flow for the year 28 66 Cash flow from operating activities 28 92 Cash and cash equivalents at beginning of year 110 47 Exchange difference on cash and cash equivalents –2 –3 Cash and cash equivalents at end of year 136 110

56 geely sweden ab ANNUAL REPORT 2013 NOTES TO THE parent company FINANCIAL STATEMENTS All amounts are in SEK million unless otherwise stated. Amounts in brackets refer to the preceding year.

NOTE 1 – ACCOUNTING PRINCIPLES

The parent company has been prepared in compliance with Swedish Financial assets Annual Accounts Act and Recommendation RFR 2, Accounting for Financial assets that are intended as a long-term investment are carried Legal Entities of the Swedish Financial Reporting Board. There are no at cost. Impairment tests are conducted annually and impairment losses effects of the transition. RFR 2 implies that the parent company in the are recognised if it is likely that a decline in value is permanent. Annual Report of a legal entity shall apply all International Financial Transaction costs directly attributable to the acquisition of Volvo Car Reporting Standards and interpretations approved by the EU as far as Corporation in 2010 have been accounted for as an increase in the this is possible within the framework of the Annual Accounts Act and ­carrying amount of the shares. taking into account the connection between reporting and taxation. The operation of the parent company consist for the most part of Hedging share ownership in Group companies and financing. Volvo Car Group’s The parent company hedges future interest flows related to assets and accounting principles apply except for the following areas: liabilities. When hedging future interest flows, hedging instruments are not revalued at the exchange rate fluctuations. Instead the entire effect Income taxes of changes in exchange rates is recognised in the income statement Due to the relationship between accounting and taxation, the deferred when the hedging instrument matures. tax liability on untaxed reserves are included in the untaxed reserves. In cases where the parent company holds derivative financial instru- ments not used for hedging receivables and liabilities in foreign currency Shares in subsidiaries or interest flows associated with these, they are reported at the lower of The shares in subsidiaries are accounted for according to the acquisition cost and net realisable value. cost method. Acquisition-related costs directly atttributable to the acqui- sition are capitalised as part of the participation in Geely Sweden AB. Equity Investments are carried at cost and only dividends are accounted for in In accordance with the Swedish Annual Accounts Act, the equity is split the income statement. An impairment test is performed annually and between restricted and non-restricted equity. write-downs are made when permanent decline in value is established. Shareholders’ contribution Shareholders’ contributions are recognised in shares in subsidiaries and as such they are subject to impairment testing.

NOTE 2 – related parties

During the year, the parent company entered into the following transactions with related parties:

Part of sales to related parties Part of purchases from related parties 2013 2012 2013 2012 Companies within the Volvo Car Group 100% 100% 71% 43%

Receivables from Liabilities to 2013 2012 2013 2012 Companies within the Volvo Car Group 592 556 3,342 3,246 Geely Sweden Holdings AB 1 – – – – whereof short-term 26 13 – 1 593 556 3,342 3,246

Of the total receivables from related parties, SEK 594 million (556) is SEK 293 million (1,779). The contribution was initially received by Geely due within five years. Of the total liabilities to related parties SEK 3,342 Sweden Holding AB from Shanghai Geely Zhaoyuan International million (3,246) is due within five years. ­Investment Co Ltd and was then given to Geely Sweden Automotive AB Business transactions between the parent company and related as an unconditional shareholders’ contribution. ­parties all arise in the normal course of business and are conducted on Volvo Car Group does not engage in any transactions with Board the basis of arm’s length principles. ­members or senior executives except ordinary remunerations for ser- During 2013 the company has received an unconditional share- vices. For further information regarding remunerations, see Note 9 – holders’ contribution from Geely Sweden Automotive AB amounting to Employees and remuneration in the consolidated statements.

geely sweden ab ANNUAL REPORT 2013 57 NOTE 3 – AUDIT FEES NOTE 5 – FINANCIAL INCOME AND EXPENSES

SEK thousand 2013 2012 2013 2012 Deloitte Financial income Audit fees –84 –44 Interest income from subsidiaries 30 340 Audit-related fees –3 –145 Net foreign exchange gain on financing activities – 160 Other services –327 –3 Total 30 500 Total –414 –192 Financial expenses Audit fees involve audit of the Annual report, financial accounts and the Interest expenses to parent company – –598 administration by the Board of Directors and the Managing Director. The Interest expenses to subsidiaries –96 – audit also includes advice and assistance as a result of the observations Other interest expenses – –105 made in connection with the audit. Net foreign exchange loss on financing activities –7 –39 Total –103 –742 Audit-related fees refer to other assignments to ensure quality in the financial statements including consultations on reporting requirements and internal control. NOTE 6– TAXES

All other work performed by the auditor is defined as Other services. Income tax recognised in income statement 2013 2012 Deferred taxes 14 43 Total 14 43

NOTE 4 – REMUNERATION TO THE BOARD OF DIRECTORS Information regarding current year tax expense compared to tax expense based on the applicable Swedish tax rate Information on remuneration to Board members by gender is shown in Income before tax for the year –72 –334 Note 9 – Employees and remuneration, in the consolidated statements. Tax according to applicable Swedish tax rate, 22% (26.3%) 16 88 Tax effect on deferred tax due to change of tax rate – –32 Additional deferred tax relating to previous years –3 – Other 1 –13 Total 14 43 As from January 1, 2013, the Swedish tax rate has changed from 26.3% to 22.0%, affecting deferred tax items. Total deferred tax asset SEK 175 million (161) relates to loss-carry forward. Deferred tax assets are only accounted for to the extent there are taxable temporary differences or other factors that convincingly ­indicate there will be sufficient future taxable profit. The tax loss ­carry-forward has an indefinite period of utilisation.

58 geely sweden ab ANNUAL REPORT 2013 NOTE 7 – PARTICIPATION IN SUBSIDIARY

Dec 31, Dec 31, 2013 2012 At beginning of the year/acquired acquisition value 10,987 10,974 Shareholders´contribution 293 13 Total 11,280 10,987

Geely Sweden AB’s investments Book value Book value in subsidiaries: Corp. ID no. Registered office No. of shares % interest held Dec 31, 2013 Dec 31, 2012 Volvo Car Corporation 556074-3089 Göteborg 1,000,000,000 100 11,280 10,987 The share of voting power corresponds to holdings in per cent as per above.

NOTE 8 – PLEDGED ASSETS

Dec 31, Dec 31, 2013 2012 Shares in Volvo Car Corporation 11,280 10,987 Total 11,280 10,987 Pledged shares in subsidiaries per December 31, 2013 refer to a loan in Volvo Car Corporation.

NOTE 9 – CASH FLOW STATEMent

Adjustments for items not affecting cash flow consist of:

2013 2012 Reversal of transaction costs in connction with refi- nancing – 38 Unrealised foreign exchange losses - 103 Other non-cash items 5 - 5 141

geely sweden ab ANNUAL REPORT 2013 59 Subsidiaries

Legal Entity Corp. ID No. Registered office Holding in per cent Volvo Personvagnar AB 556074-3089 Gothenburg / Sweden 100 Volvo Car Austria GmbH Austria 100 Volvo Car do Brasil Automoveis Ltda Brazil 100 Volvo Cars Brasil Importacao e Comercia de Veiculos Ltda Brazil 100 Volvo Cars of Canada Ltd Canada 100 Volvo Car Switzerland AG Switzerland 100 Volvo Cars (China) Investment Co Ltd China 100 Volvo Cars Technology (Shanghai) Co China 100 Volvo Auto Czech Sro Czech Republic 100 Volvo Cars Germany GmbH Germany 100 Volvo Car Denmark AS Denmark 100 Volvo Car Espana S.L Spain 100 Volvo Car Finland Auto Oy Finland 100 Volvo Automobiles France SAS France 100 Volvo Car UK Ltd United Kingdom 100 Volvo Car Hellas Greece 100 Volvo Car Hungary Trading and Service Ltd Hungary 100 Volvo Car Ireland Ltd Ireland 100 Volvo Auto India Pvt. Ltd India 100 Volvo Car Italia Spa Italy 100 Volvo Cars Japan Japan 100 Volvo Car Korea Co., Ltd Korea 100 Volvo Auto de Mexico S.A de C.V Mexico 100 Volvo Car Manufacturing Malaysia Sdn Bhd Malaysia 100 Volvo Car Nederland BV The Netherlands 100 Snita Holding BV The Netherlands 100 Swene Holding BV The Netherlands 100 Snebe Holding BV The Netherlands 100 Volvo Car Norway AS Norway 100 Volvo Auto Polska Sp Z.o.o Poland 100 Volvo Car Portugal SA Portugal 100 Volvo Personbilar Sverige AB 556034-3484 Gothenburg / Sweden 100 Volvo Cars Overseas Corp AB 556223-0440 Gothenburg / Sweden 100 Volvo Personvagnar Norden AB 556413-4848 Gothenburg / Sweden 100 Volvo Car Australia Holding AB 556152-2680 Gothenburg / Sweden 100 Goldcup 9397 AB 556955-6441 Gothenburg /Sweden 100 Volvo Bil i Göteborg AB 556056-6266 Gothenburg / Sweden 100 Volvo Car Uddevalla AB 556232-0142 Uddevalla / Sweden 100 Volvo Car NSC Holding AB 556754-8283 Gothenburg / Sweden 100 Volvo Cars PHEV Holding AB 556785-9375 Gothenburg / Sweden 100 Volvo Cars Real Estate and Assets 1 AB 556205-7298 Gothenburg / Sweden 100 Volvo Cars Investment and Borrowing AB 556130-4246 Gothenburg / Sweden 100 Volvo Car Center Uddevalla AB 556651-0193 Uddevalla / Sweden 100 Volvo Cars Services 1 AB 556877-5778 Gothenburg / Sweden 100 Volvo Cars Services 2 AB 556877-5760 Gothenburg / Sweden 100 Volvo Car Asia Pacific Ltd Singapore 100 Volvo Otomobil Ticaret Ltd Turkey 100 Volvo Cars Taiwan Ltd Taiwan 100 Volvo Car South Africa Pty Ltd South Africa 100 Volvo Cars Financial Services US LLC USA 100 Volvo Cars of North America LLC USA 100

60 geely sweden ab ANNUAL REPORT 2013 Signatures

Stockholm, April 24 2014

Li Shufu Hans-Olov Olsson Chairman of the Board Board member

Zhang Ran Li Donghui Board member Board member

Our audit report was submitted, April 24 2014

Deloitte AB Jan Nilsson Authorized Public Accountant

geely sweden ab ANNUAL REPORT 2013 61 AUDITOR’S REPORT

To the annual meeting of the shareholders of Geely Sweden AB accounts have been prepared in accordance with the Annual Accounts Corporate identity number 556798-9966 Act and present fairly, in all material respects, the financial position of This is a translation of the original in the events of the group as of 31 December 2013 and of their financial performance any differences between this translation and the Swedish original the and cash flows for the year then ended in accordance with International latter shall prevail. Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. The statutory administration report is consistent with the Report on the annual accounts and consolidated other parts of the annual accounts and consolidated accounts. accounts We therefore recommend that the annual meeting of shareholders We have audited the annual accounts and consolidated accounts of adopt the income statement and balance sheet for the parent company Geely Sweden AB for the financial year 2013-01-01 – 2013-12-31. and the group.

Responsibilities of the Board of Directors for the annual accounts Report on other legal and regulatory requirements and consolidated accounts In addition to our audit of the annual accounts and consolidated The Board of Directors are responsible for the preparation and fair accounts, we have also audited the proposed appropriations of the com- ­presentation of these annual accounts in accordance with the Annual pany’s profit or loss and the administration of the Board of Directors of Accounts Act and of the consolidated accounts in accordance with Geely Sweden AB for the financial year 2013-01-01 – 2013-12-31. International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Responsibilities of the Board of Directors Directors determine is necessary to enable the preparation of annual The Board of Directors is responsible for the proposal for appropriations accounts and consolidated accounts that are free from material mis- of the company’s profit or loss, and the Board of Directors are responsi- statement, whether due to fraud or error. ble for administration under the Companies Act.

Auditor’s responsibility Auditor’s responsibility Our responsibility is to express an opinion on these annual accounts and Our responsibility is to express an opinion with reasonable assurance on consolidated accounts based on our audit. We conducted our audit in the proposed appropriations of the company’s profit or loss and on the accordance with International Standards on Auditing and generally administration based on our audit. We conducted the audit in accord- accepted auditing standards in Sweden. Those standards require that ance with generally accepted auditing standards in Sweden. we comply with ethical requirements and plan and perform the audit to As a basis for our opinion on the Board of Directors’ proposed obtain reasonable assurance about whether the annual accounts and ­appropriations of the company’s profit or loss, we examined whether the consolidated accounts are free from material misstatement. ­proposal is in accordance with the Companies Act. An audit involves performing procedures to obtain audit evidence As a basis for our opinion concerning discharge from liability, in about the amounts and disclosures in the annual accounts and consoli- ­addition to our audit of the annual accounts and consolidated accounts, dated accounts. The procedures selected depend on the auditor’s we examined significant decisions, actions taken and circumstances of judgement, including the assessment of the risks of material misstate- the company in order to determine whether any member of the Board of ment of the annual accounts and consolidated accounts, whether due to Directors is liable to the company. We also examined whether any fraud or error. In making those risk assessments, the auditor considers ­member of the Board of Directors has, in any other way, acted in internal control relevant to the company’s preparation and fair presenta- ­contravention of the Companies Act, the Annual Accounts Act or the tion of the annual accounts and consolidated accounts in order to Articles of Association. design audit procedures that are appropriate in the circumstances, but We believe that the audit evidence we have obtained is sufficient and not for the purpose of expressing an opinion on the effectiveness of the appropriate to provide a basis for our opinions. company’s internal control. An audit also includes evaluating the appro- priateness of accounting policies used and the reasonableness of Opinions accounting estimates made by the Board of Directors, as well as evalu- We recommend to the annual meeting of shareholders that the profit ating the overall presentation of the annual accounts and consolidated be appropriated in accordance with the proposal in the statutory accounts. ­administration report and that the members of the Board of Directors be We believe that the audit evidence we have obtained is sufficient and discharged from liability for the financial year. appropriate to provide a basis for our audit opinions. Gothenburg, April 24 2014 Opinions Deloitte AB In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, Signature on the Swedish original the financial position of the parent company as of 31 December 2013 and of its financial performance and its cash flows for the year then Jan Nilsson ended in accordance with the Annual Accounts Act. The consolidated Authorized Public Accountant

62 geely sweden ab ANNUAL REPORT 2013 information and contact

You are welcome to contact us: Nils Mösko, Vice President, Head of Investor Relations. [email protected], +46-(0)31-59 22 55.

For media queries, please contact: David Ibison, Corporate Spokesman. [email protected], +46-(0)31-59 22 39.

Volvo Car Group Headquarters 50400 – HA2S SE-405 31 Gothenburg, Sweden www.volvocars.com

definitions

Comparative figures: The equivalent period is shown in brackets

Retail Sales: Sales to end customers

Wholesales: Sales to dealers

IV VOLVO CAR GROUP FINANCIAL report jan–DEC 2013