Moving ...The Volvo Group 2010 A global group 1 CEO comment 4 Presence on all continents 6 The Volvo Group’s product offering 8 Moving the world – New York 10 Vision, mission and values 11 Overall strategies 12 Profitable growth 13 Operational Excellence 14 Product renewal 16 Strength factors 17 Volvo Financial goals 18 World-class services 20 Moving the world – London 22 Market overview ... the Board of Directors’ report Without the products and services of the Volvo Group there 24 Significant events 26 Organisation can be no modern society like we know it. Like lifeblood, our trucks, buses, 28 Trucks 32 Buses engines, construction equipment and aircraft components are involved in many of the 34 Construction Equipment 36 Volvo Penta functions that most of us rely on every day. 38 Volvo Aero 40 Volvo Financial Services 42 Moving the world – Australia For instance, one in seven meals eaten in Europe reaches the 44 Sustainable development 50 Moving the world – Stockholm consumers thanks to trucks from the Volvo Group rolling on the roads of the continent. 52 Financial strategy 53 Risks and uncertainties Buses are the most type of public transportation in the world, 56 The share common 58 Financial performance 62 Financial position helping many people to reach work, school, vacations, friends and family. 64 Cash-flow statement And if all the Volvo buses in the world were to start at the same time, they would trans- Financial information 66 Financial information 2010 port more than 10 million people. 67 Consolidated income statement and Other comprehensive income Most of us want to be able to fly far away sometime, either at work or to explore a new 68 Consolidated balance sheet 69 Changes in consolidated Shareholders’ equity part of the world. In 2009, Volvo Aero delivered components for over 90% of all large 70 Consolidated cash-flow statement 71 Notes to consolidated financial civilian aircraft engines. statements 114 Parent Company AB Volvo 126 Proposed remuneration policy Every year, the population on earth produces billions of tons of garbage. 127 Proposed disposition of unappropriated earnings In the US alone, the garbage removed by refuse trucks from the Volvo Group every week 128 Audit Report for AB Volvo 129 Eleven-year summary could form a line of full garbage cans that would reach the moon. Corporate Governance Report These are just a few examples. In this Annual Report, you can learn more about the 138 Group Management 140 Board of Directors and Auditors importance of the Volvo Group in every day life. How we are the lifeblood of modern 142 Corporate Governance Report Fold-out Definitions society – Moving the world. Annual General Meeting This report contains ‘forward-looking statements’. Such statements reflect management’s current expectations with respect to certain future events and potential finan- cial performance. Although the Company believes that the expectations reflected in such forward looking state- ments are reasonable, no assurance can be given that such expectations will prove correct. Such statements are subject to risk and uncertainties and such future events and financial performance could differ materially from those set out in the forward looking statements as a result of, among other factors, (i) changes in economic, market and competitive conditions, (ii) success of business and operating initiatives, (iii) changes in the regulatory environ- ment and other government actions, (iv) fluctuations in exchange rates and (v) business risk management. This report does not imply that the company has under- taken to revise these forward-looking statements, beyond what is required under the company’s registration contract with OMX Nordic Exchange Stockholm if and when circumstances arise that will lead to changes compared to the date when these statements were provided. The Volvo Group's formal financial reports are pre- sented on pages 24–127 in the printed version and has been audited by the company's auditors. VolVo Group Moving the The Volvo Group is one of the world’s leading providers of commer­ Net sales development over ten years, SEK bn cial transport solutions, providing such products as trucks, buses, construction equipment, engines and drive systems for boats and industrial applications, as well as aircraft engine components. The Volvo Group also offers financial solutions and an increasing +43% share of other services to its customers. +18% Europe The Group has about 90,000 employees, production facilities North America in 19 countries, and sales activities in some 180 countries. Strategy The Volvo Group’s strategy is based on customers’ requirements 2000 2010 40.7 47.9 and is focused on profitable growth, product renewal and ope­ 2000 2010 rational excellence. More information. &1 1 72.1 103.0 90.000Employees +458% South America Organization The Volvo Group has product­related business areas that focus 2000 2010 5.2 29.0 on our customers while the supporting business units work to make efficient use of Group­wide resources. More information. &2 6 Volvo Construction Financial Trucks Buses Equipment Volvo Penta Volvo Aero Services ents m seg Volvo 3P Volvo Powertrain Volvo Parts Volvo Logistics nits u Volvo Business Services Volvo Information Technology siness Volvo Group Real Estate, Volvo Technology, Volvo Technology Transfer, Volvo Group NAP Bu Moving the Share of Group’s net sales by geography Europe, 39% North America, 18% South America, 11% +644% Asia, 25% Asia Rest of the world, 7% Customers 2000 2010 Volvo Group customers are active in about 180 countries. Group 8.8 65.5 sales of products and services are conducted through both wholly owned and independent dealers. The global service network handles customer demand for spare parts and other services. +471% More information. &1 8 Rest of the world Employees The majority of the Group’s employees work in Sweden, France, the 4 7 2000 2010 U.S. , Japan, China, Brazil and Belgium. More information. & 3.4 19.4 Strong positions Share of Group’s net sales • The second largest Western manufacturer of trucks. • No. 4 in construction equipment. Trucks 63% • One of the world’s largest manufacturers of heavy-duty Buses 8% diesel engines. Construction Equipment 20% • Strong positions also in the other business areas. Volvo Penta 3% • Good market presence globally. Volvo Aero 3% Customer Finance 3% The Volvo Group’s vision is to be valued as the world’s leading provider of commercial worldtransport solutions. Recovery, growth improvement in earnings is of course an effect of and strengthened us selling more products and services, but it is ThE volvo profitability also the result of focused work on rationalizing During 2010, the and streamlining all parts of the Group, as well as group 2010 Volvo Group grew at our tight grip on costs. The combination of Net sales increased by 21% to SEK 264.7 billion a good pace with increased profitability with our achievement of increased sales in all regions, improved profitabil- growth without tying up any additional operating Operating income amounted to SEK 18.0 ity and good cash flow. After having reported a capital resulted in our Industrial Operations gen- billion substantial loss in 2009 when the global finan- erating an operational cash flow of SEK 19 billion. Operating cash flow of SEK 19.0 billion in CEO comment cial crisis hit hard and we were forced into con- In spite of our debt increasing when we were Industrial Operations siderable rationalizations, it is pleasing to note going through the global financial crisis in 2009, Net debt in Industrial Operations reduced that recovery in growth and profitability has been we made the assessment that we could take it to 37.4% of shareholders’ equity swift. upon ourselves to reduce our debt by lowering The Group’s sales of SEK 265 billion during cost levels and turning around the negative cash Proposed dividend of SEK 2.50 per share 2010 represented an increase of 21% compared flow. Through hard work, we succeeded in what with the preceding year. Demand for the Group’s we set out to accomplish. Thanks to the improved products recovered strongly in essentially all profitability and strong cash flow, we once again markets. Demand continued to rise from already stand financially strong, with a net debt in Indus- high levels in emerging markets, while in our trial Operations that at the close of the year was mature markets, with the exception of Japan, down to 37% of shareholders’ equity – in line with there was a significant gain in momentum during our objective. the second half of the year. We have been fortunate to be able to welcome the return of increasing numbers of our former Significantly improved earnings colleagues to the Volvo Group – colleagues who Operating income improved to SEK 18 billion, sadly had to leave us in conjunction with the compared with the loss of SEK 17 billion the pre- financial crisis but who have now been offered ceding year. The operating margin was 6.8%. The work again in increasing numbers. It is also pleas- Net sales, SEK bn Operating income, SEK bn Key ratios 2009 2010 Net sales Volvo Group, SEK M 218,361 264,749 Operating income (loss) Volvo Group, SEK M (17,013) 18,000 Operating income (loss) Industrial Operations, SEK M (16,333) 17,834 Operating income (loss) Customer Finance, SEK M (680) 167 Operating margin Volvo Group, % (7.8) 6.8 06 07 08 10 Income (Loss) after financial items, SEK M (20,573) 15,514 20.4 22.2 15.9 18.0 Income(Loss) for the period, SEK M (14,685) 11,212 Diluted earnings per share, SEK (7.26) 5.36 06 07 08 09 10 09 Dividend per share, SEK 0 2.501 259 285 305 218 265 (17.0) Return on shareholders' equity, % (19.7) 16.0 1 According to the Board’s proposal.