New York November 8, 2006 Leif Johansson, President and CEO 1 Volvo Group Third Quarter Highlights Third Quarter In Focus Going Forward z Business environment z Manage product- and production - European market stronger than expected change-over - Prebuy effect in North America z Capitalize on new products z Sales increased by 9% z Manage downturn in US truck market z Another quarter with strong profitability - Adjusted operating income up 24% to SEK 4,972 - Adjusted operating margin at 8.7% - Return on equity at 19.3% z EPS up 34% to SEK 9.70 z Increased ownership in Nissan Diesel and a 70% equity investment in Lingong z New financial targets AB Volvo 2006-11-08 LJo 2 Volvo Group Heavy Duty Truck Market Europe (EU members + Switzerland and Norway) Forecast 2006: ~290,000 Units, Thousands (heavy trucks) 2007: in line with 2006 300 Modification of definition In 1991 (East Germany) and in 2000 (new member states) 277 250 256 230 200 188 171 179 150 122 100 116 50 0 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 AB Volvo 2006-11-08 LJo 3 Volvo Group Strategic focus for the Volvo Group 2007… → Building a competitive Volvo Group → Profitable growth – Through acquisitions – Geographic expansion – Asia – Eastern Europe – Soft offers AB Volvo 2006-11-08 LJo 4 Volvo Group The Volvo Group Vision To be valued as the world’s leading provider of commercial transport solutions Wanted position ¾ Number one in image and customer satisfaction ¾ Sustainable profitability above average ¾ Number one or two in size or superior growth rate AB Volvo 2006-11-08 LJo 5 Volvo Group Maintaining Strong Positions DCX Evobus* Caterpillar Volvo Group Volvo Buses Komatsu Paccar Scania Deere Dongfeng Irisbus Hitachi *Mercedes, Setra & Orion Interna’l > 16 ton Neoman > 12 ton Volvo CE Volvo Aero Brunswick VolvoVolvo GroupGroup y World leading in development, Volvo Penta DCX production and aftermarket services Yanmar Caterpillar of selected engine components. Cummins Cummins y Engine components from Volvo Aero is included in 80% of all new Caterpillar Weichai Power 9-18 lit larger civil aircrafts. AB Volvo 2006-11-08 LJo 6 Volvo Group Volvo Group Organized to deliver sharp customer focus and shared global strength Business areas Volvo Trucks Renault Trucks Mack Trucks Volvo Buses Volvo CE Volvo Penta Volvo Aero Financial Services Employees35,680 7,710 10,290 1,560 3,460 1,070 Business units Volvo 3P - 2,930 employees Volvo Powertrain -8,130 Volvo Parts -3,500 Volvo Logistics - 980 Volvo Information Technology -4,390 AB Volvo 2006-11-08 LJo 7 Volvo Group Volvo Group Organized to deliver sharp customer focus and shared global strength Business areas Volvo Trucks Renault Trucks Mack Trucks Volvo Buses Volvo CE Volvo Penta Volvo Aero Financial Services Business units Volvo 3P Volvo Powertrain Volvo Parts Volvo Logistics Volvo Information Technology AB Volvo 2006-11-08 LJo 8 Volvo Group Shared architecture and common technologies for unique products Example: Volvo Powertrain Scale and efficiency Unique products ¾ Lower R&D ¾ Production efficiency ¾ High flexibility ¾ One supplier base ¾ Improved quality Two platforms: 4 - 7L 9 - 16L AB Volvo 2006-11-08 LJo 9 Volvo Group Strategically well positioned Emission Legislation Heavy Duty Engines - 2005 VOLVO 182 PM (Particulate Matter) [g/kWh] Euro 2, 1996 DCX 179 0.14 0.12 US 02, 2002 CAT 158 Euro 3, 2002 0.10 Cummins 120 0.08 Weichai 114 0.06 Scania 65 0.04 MAN 57 0.02 Euro 5, 2009 Euro 4, 2006 Yaroslavl 46 0.00 US 07, 2007 0 1.02.03.04.05.06.07.0 Iveco 40 US 10, 2010 NOx (g/kWh) Navistar 38 Paccar (DAF) 37 Kamaz 32 AB Volvo 2006-11-08 LJo 10 Volvo Group Commercial opportunity for customers Potential fuel saving up to 35 % Cost allocation Capital Employees Fuel AB Volvo 2006-11-08 LJo 11 Volvo Group Direction for future growth → Growth through acquisitions → Geographic expansion in Asia and Eastern Europe → Soft offers AB Volvo 2006-11-08 LJo 12 Volvo Group Value creation through growth Example: Volvo CE Sales Operating income SEK M SEK M 40 000 5 000 Acquisition Integration Growth Sales 4 500 – Tripled Net sales mode mode mode Average growth ~13% 4 000 30 000 • Pel Job • Backhoe loader 9,1% • Champion • Skidsteer loader 3 500 – Operating income •Samsung tripled 7.9% 3 000 20 000 2 500 – Growing market 6.5% 2 000 shares 9.1% 8.0% Operating margin (%) 8.6% 1 500 9.1% – Improved strategic 10 000 3.9% 1 000 3.2% position 2.5% 1.9% 500 0 0 s 02 th n 1996 1997 1998 1999 2000 2001 20 2003 2004 2005 o -m Q3 22006 1 AB Volvo 2006-11-08 LJo 13 Volvo Group Transition in Trucks: 2005-2006 Merger mode Transition period Growth mode “Create synergies” “New architecture and shared technologies. Develop unique brand versions” • New truck portfolio • New engine generation Shared Shared architecture • Industrial changeover: architecture and - Renault Trucks and technologies - Volvo Powertrain technologies • EU4/EU5 and US’07 AB Volvo 2006-11-08 LJo 14 Volvo Group Trucks entering the growth mode Growth mode → New competitive product portfolio “Brand unique products from a → New customer segments base of shared architecture and technologies” → More efficient industrial structure → More cost efficient product portfolio -R&D - Purchasing Shared architecture and - Production technologies -Aftermarket → Stronger dealer network → Increased resources to deliver brand uniqueness AB Volvo 2006-11-08 LJo 15 Volvo Group Increased Sales and Profitability in Trucks* 50 10,0% Sales (bn) 45 Operating Margin 8,0% 40 35 6,0% rend 30 Sales t 4,0% 25 2,0% 20 15 0,0% 10 -2,0% 5 0 -4,0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2001 2006 * Adjusted for goodwill adjustment of 1,712 in Q3 2006 AB Volvo 2006-11-08 LJo 16 Volvo Group Direction for future growth → Growth through acquisitions → Geographic expansion in Asia and Eastern Europe → Soft offers AB Volvo 2006-11-08 LJo 17 Volvo Group Asia is a strategic region for future growth Example: Heavy duty trucks 2005 North America Europe China 308,000 277,000 238,000 JapanJapan Volvo Group 25% 44,00048,000 Volvo Group 20% India South America Volvo Group 140,000 72,000 14% Established Volvo Group markets Entry markets AB Volvo 2006-11-08 LJo 18 Volvo Group Growth potential in medium duty trucks Global market 2005 1,000 units DCX 125 GM/Isuzu 90 Telco 69 Navistar 68 DongFeng 66 FAW 62 Ford 49 Hino/Toyota 49 Iveco 21 Nissan Diesel 19 Volvo Group 19 Ashok 16 0 20 40 60 80 100 120 140 AB Volvo 2006-11-08 LJo 19 Volvo Group AsiaAsia isis aa strategicstrategic regionregion forfor futurefuture growthgrowth Construction equipment market (units) – Volvo CE product range Europe Local 140,000 China Imports North America 140,000 180,000 Japan 65,000 Volvo CE Volvo CE sales: 90% sales: 10% South America Africa & India M. East 20,000 15,000 50,000 Rest of Asia 10,000 Established Markets: 60% Asia: 40% AB Volvo 2006-11-08 LJo 20 Volvo Group Market shares in China Yucai 2% Others 14% CAT 2% Yituo 2% Komatsu 3% Futian 2% Hitachi 3% Chenggong 4% Doosan 4% Changlin 5% Hyundai 4% Kobelco 1% Shangong 5% Volvo 1% XCMG 7% Liugong 12% Lingong 8% Xiagong 11% Longgong 10% AB Volvo 2006-11-08 LJo 21 Volvo Group Strong distribution network Own branches TOP 10 of dealers Other dealers AB Volvo 2006-11-08 LJo 22 Volvo Group Competitive entry-level products Lingong ZL50F – High Volume Lingong LG950 – High End AB Volvo 2006-11-08 LJo 23 Volvo Group Growth in Eastern Europe • Strong economic development • Proximity to existing European industrial set-up 14,6 • Distribution structure well Net sales (SEK bn) 11,4 developed 10,6 8,3 • Demand for premium 7,4 6,4 products • Attractive risk/reward ratio 2001 2002 2003 2004 2005 2006 12- months AB Volvo 2006-11-08 LJo 24 Volvo Group Direction for future growth → Growth through acquisitions → Geographic expansion in Asia and Eastern Europe → Soft offers AB Volvo 2006-11-08 LJo 25 Volvo Group Growth potential in Soft Products Advisory services Cargo insurance Vehicle management Vehicle insurance Transport management Leasing Maintenance agreements Driver Parts & accessories Financing development Special equipment Workshop Services Security Trade-in/ Rental (driver Vehicle used Remanufacturing & cargo) & body vehicles 0 1 2 3 4 AB Volvo 2006-11-08 LJo 26 Volvo Group Present customer offer Soft product* 2005 : ~30% of Group net sales Related products & services Research & Advanced IT Services Logistics Services Engineering Merchandise Real Estate Services Extended Aero Spare Infom@x Consulting Warranty Parts Sales Supporting Credit cards Rental products & Vehicle & services Equipment Insurance Used Vehicles Customer & Dealer Transport & Vehicle & Equipment Remanufacturing Extended Parts Accessories Financing Management Training Facilitating products & services Customer Superstructure Attachments Parts Assistance Repair & Maintenance Aircraft Engine MRO Core products *Excluding Financial Services AB Volvo 2006-11-08 LJo 27 VolvoCapital Group Market Day 2005 SummarySummary • Increased focus on Group competitiveness • Focus on organic growth and acquisitions AB Volvo 2006-11-08 LJo.
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