volvo carvolvo group annual reportannual 2015 VOLVO CAR GROUP ANNUAL REPORT 2015 TABLE OF CONTENTS 1 This is Volvo Car Group 2 2015 in brief 4 CEO comment 6 Our year 8 Our world 10 Challenges and opportunities 12 Strategy section 14 Strategic initiatives 18 Value chain 20 Brand 22 Our customers 24 Design 26 Products 28 Research & Development 32 Purchasing, Manufacturing & Logistics 34 Market Highlights – Western Europe 36 Market Highlights – China 38 Market Highlights – US 40 Marketing & Sales, Ownership Management and Re-Usage 44 People 49 Board of Directors Report 55 Corporate Governance Report 59 Consolidated financial statements 64 Notes to the consolidated financial statements 101 Notes to the parent company financial statements 106 Auditor's report 108 Board of Directors Volvo Car AB 110 Executive Management Team 112 Our heritage LORUM IPSUM this is volvo car group* Our history dates back to 1927 when the Swedish company Volvo Car Corporation was founded and the first Volvo car was launched. Volvo Car Group is headquar- tered in Gothenburg in Sweden. Volvo cars are produced at factories in Torslanda in Sweden, Ghent in Belgium, Chengdu, Daqing and Chongqing in China and Kuala Lumpur in Malaysia. Since 2010, Volvo Cars is owned by Shanghai Geely Zhaoyuan International Investment Co., Ltd. which is ultimately owned by Zhejiang Geely Holding Group Ltd. (Geely Holding). In 2015 around 2,300 Volvo dealers sold 503,127 cars in 100 countries around the world. During 2015, Volvo Car Group employed in average about 28,000 people. The first Volvo rolled off the production line in Gothenburg way back in 1927 and since then, we have gone from strength to strength, creating world-changing inno- vations along the way. “With a successful 2015 behind us, we now enter the second phase of our global transformation.” HÅKAN SAMUELSSON, PRESIDENT AND CEO, CEO COMMENTS PAGE 5 *READ MORE ABOUT VOLVO CAR GROUP ON PAGE 49 V40 CROSS COUNTRY, 707 CRYSTAL WHITE METALLIC ANNUAL REPORT 2015 | VOLVO CAR GROUP 1 2015 in brief 8.0 % 19.2 % Volvo Cars retail sales up Volvo Car Group net revenue to 503,127 (465,866 ) units in creased to MSEK 164,043 (137,590) 6,620 7,234 Operating income (EBIT) Cash flow from operating and investing of MSEK 6,620 (2,128) activities, MSEK 7,234 (–4,766) NET REVENUE EBIT RETAIL SALES MSEK MSEK UNITS 200,000 8,000 600,000 500,000 150,000 6,000 400,000 100,000 4,000 300,000 200,000 50,000 2,000 100,000 0 0 0 11 12 13 14 15 11 12 13 14 15 11 12 13 14 15 For the full year 2015, Volvo Car Group generated Operating income (EBIT) increased to MSEK In 2015, Volvo Cars reported retail sales record of net revenue of MSEK 164,043 (137,590), an 6,620 (2,128), resulting in an operating margin of 503,127 (465,866) units, an increase of 8.0 per cent. increase of 19.2 per cent compared to 2014. 4.0 (1.5) per cent. 2 VOLVO CAR GROUP | ANNUAL REPORT 2015 SALES BY MODEL KEY FIGURES 2015 MSEK 2015 2014 Net revenue 164,043 137,590 Research and development expenses –8,803 –7,193 Operating income, EBIT 6,620 2,128 Net income 4,476 508 EBITDA 16,019 9,491 Cash flow from operating and investing activities 7,234 –4,766 EBIT margin, % 4.0 1.5 EBITDA margin, % 9.8 6.9 S, 13% Equity ratio, % 26.2 27.8 V, 40% Net debt (Net cash if negative) –7,721 856 XC, 47% VOLVO CAR GROUP | ANNUAL REPORT 2015 ANNUAL REPORT 2015 | VOLVO CAR GROUP 3 “We are in the most intense period of in vestment and trans formation in our history.” HÅKAN SAMUELSSON, PRESIDENT AND CEO 4 VOLVO CAR GROUP | ANNUAL REPORT 2015 CEO COMMENT A successful 2015 paves the way for next phase I am pleased to report that in 2015 we sold more than half a million cars for the first time in the company’s history. At the same time we trebled the profit to MSEK 6,620. Now, with a successful 2015 behind us, Volvo Cars is about to enter the second phase of its global transformation. Once completed, the company will take its place as a truly premium car company in all segments. Volvo Cars has made significant progress since being acquired first members of a new Volvo generation. In the next three by Geely Holdings in 2010, not least in expanding its industrial years, the entire product line up will be renewed, with an footprint. Last year’s announcement of the new US factory in expected positive impact on both sales and profitability. South Carolina means that Volvo Cars will have an industrial presence in all three key global regions – Asia, Europe and the We have also developed the Drive-E engine family, with the US. This will provide us with a good balance against market best balance between power and fuel efficiency on the mar- fluctuations. Sales have hit a series of record heights and in ket, and we have committed to a three and four cylinder strat- 2015 we reached 503,127 cars, helped by strong growth in egy across the range. We are the only premium car manufac- Europe and an impressive turnaround in the US. turer to have taken this bold decision. Financially, the operating profit was MSEK 6,620 and the fact In 2015, we strengthened our executive management and that Volvo Cars has been profitable every year since 2010, corporate structure by creating three operating regions, highlights its ability to reform and grow at the same time. The improving our commercial focus. We have also restructured operating profit margin of 4 per cent is a substantial increase the company to more accurately reflect the way it does busi- on 2014. ness by fully consolidating our China business. Over the last four years, Volvo Cars has invested in the devel- We are in the most intense period of investment and transfor- opment of its SPA architecture for larger cars. In 2015 we mation in the company’s history. Volvo Cars is a company that started seeing the fruits of these investments in the shape of has set itself high goals. We will continue our strategy to the XC90 and in the unveiling of the S90 sedan. The XC90 reach them in the coming years. has won over 50 awards and even more important received 88,000 orders in 2015, far exceeding our expectations. Håkan Samuelsson This means that customers like our cars and want to own President and Chief Executive Officer them which bodes well for the future. These cars have allowed us to rejuvenate the brand, giving it a distinctive identity in the premium segment. They are the FOCUS 2015 FOCUS 2016 Retail sales of up to 500,000 units Transformation continues Back to growth in the US Volume and profit improvement Positive impact of the XC90, first car Product renewal out in our major product renewal Clear improvements in profitability VOLVO CAR GROUP | ANNUAL REPORT 2015 ANNUAL REPORT 2015 | VOLVO CAR GROUP 5 OUR YEAR 2015 – a new beginning The all-new Volvo XC90 and the launch of the new Scalable Product Architecture (SPA) marks the beginning of a new chapter in Volvo Cars' story, featuring world-leading safety developments, progressive new human-centric technologies and an unrivalled combination of power and fuel efficiency. JANUARY MARCH MAY The S60 Cross Country is unveiled at All-new XC90 receives Red Dot ‘Best Launch of ‘New Beginning’ brand Detroit Auto Show of the Best’ Product Design campaign featuring Avicii The first series-produced all-new New senior management structure Third production shift at the Torslanda XC90 rolls off the production line at is introduced plant in Sweden starts our Torslanda plant JAN FEB MAR APR MAY JUN FEBRUARY APRIL JUNE Presentation of the Drive Me The premium plug-in hybrid sedan Chinese industrial entities are fully autonomous driving system S60L T6 Twin Engine goes on sale incorporated and consolidated into in China Volvo Car Group The all-new XC90 Excellence is All-new XC90 serves as courtesy cars launched at Shanghai Auto Show at Swedish Royal Wedding 6 VOLVO CAR GROUP | ANNUAL REPORT 2015 OUR YEAR JULY SEPTEMBER NOVEMBER Acquisition of Polestar Start of construction of new Launch of Volvo In-car Delivery, the Performance AB plant in South Carolina, USA world’s first commercially available Ghent factory celebrates its 50th in-car delivery service anniversary Reveal of Concept 26, an interior design concept for autonomous-driving cars JUL AUG SEPT OKT NOV DEC AUGUST OCTOBER DECEMBER The all-new XC90 receives top five Kangaroo detection safety tests are Best sales month in 88 years of star rating in Euro NCAP assessment conducted in Australia our history Reveal of the Compact Modular New premium sedan S90 is unveiled Architecture (CMA) underpinning in Gothenburg Volvo Cars future compact car range Launch of global electrification strategy VOLVO CAR GROUP | ANNUAL REPORT 2015 ANNUAL REPORT 2015 | VOLVO CAR GROUP 7 OUR WORLD Global presence with sales in over 100 countries RETAIL SALES BY EMPLOYEES BY USA REGION 2015 REGION 2015 CAMARILLO DESIGN CENTRE China, 16% China, 14% Sweden, 14% Sweden, 62% US, 14% Belgium, 17% Western Europe, 40% Other markets, 7% Other markets, 16% V60 CROSS COUNTRY, 700 TWILIGHT BRONZE METALLIC 8 VOLVO CAR GROUP | ANNUAL REPORT 2015 OUR WORLD DENMARK SWEDEN SWEDEN COPENHAGEN GOTHENBURG SKÖVDE, FLOBY* & OLOFSTRÖM R&D CENTRE HEAD OFFICE, PRODUCT DEVELOPMENT, ENGINE & COMPONENT DESIGN CENTRE, MANUFACTORING MARKETING, ADMINISTRATION, S60, S80, V60, V70, XC70, XC90 BELGIUM GENT CHINA V40, V40CC, S60, XC60 SHANGHAI R&D CENTRE CHENGDU S60L, XC60 DAQING XC CLASSIC ZHANGIJAKOU ENGINE PRODUCTION MALAYSIA CHONQING** KUALA LUMPUR S80L ASSEMBLY FACTORY MANUFACTURING, R&D SALES LOCATIONS *Floby plant sold in December ** S80L production discontinued in December VOLVO CAR GROUP | ANNUAL REPORT 2015 ANNUAL REPORT 2015 | VOLVO CAR GROUP 9 CHALLENGES AND OPPORTUNITIES the world around volvo cars In an ever-changing world, Volvo Cars needs to ensure that it adapts quickly to changes in its business environment.