Volvo Group Annual and Sustainability Report 2019

Volvo Group Annual and Sustainability Report 2019

VOLVO GROUP ANNUAL AND SUSTAINABILITY REPORT 2019 PERFORM AND TRANSFORM The Volvo Group 2019 Group Volvo The www.volvogroup.com A GLOBAL GROUP 2019 OVERVIEW DRIVING PROSPERITY Every company exists for a reason – it has a purpose. Our solutions to global challenges are driven by our mission to drive prosperity through transport solutions and our vision to be the most desired and successful transport solution provider in the world. We continuously develop our products and services to create value for our customers and to support sustainable soci- eties and the well-being and safety of people. OUR CUSTOMERS MAKE SOCIETIES WORK The Volvo Group’s products and services contribute to much of what we all expect of a well-functioning society. Our trucks, buses, engines, construction equipment and financial services are involved in many of the functions that most of us rely on every day. The major- ity of the Volvo Group’s customers are companies within the transportation or infrastruc- ture industries. The reliability and productivity of the products are important and in many cases c rucial to our customers’ success and profitability. A GLOBAL GROUP 2019 OVERVIEW ON THE ROAD OFF ROAD IN THE CITY AT SEA Our products help ensure that Engines, machines and vehicles Our products are part of daily Our products and services are people have food on the table, from the Volvo Group can be life. They take people to work, there, regardless of whether can travel to their destination found at construction sites, in collect rubbish and keep lights someone is at work on a ship, and have roads to drive on. mines and in the middle of shining. Our buses and public traveling to work on a ferry, on We calculate that 15% of all forests. They are used to mine transport solutions help people holiday in a pleasure boat or food in Europe is delivered by iron ore, transport lumber or get to work or to school. Our con- need urgent help from the sea a truck from the Volvo Group. haul stone and rock. Our indus- struction equipment is used to rescue services. The Volvo Group Our products also deliver goods trial engines power vital irriga- build housing as well as indus- has marine engines for a broad to keep production plants tion installations at agricultural trial and sports facilities. range of applications. running. sites all over the world, so that farmers can grow their crops. 1 A GLOBAL GROUP 2019 OVERVIEW A GLOBAL GROUP The Volvo Group is one of the world’s leading manufacturers of trucks, buses, construction equipment as well as marine and industrial engines. The Group also provides complete solutions for financing and service. With its headquarters in Gothenburg, Sweden, the Group employs 100,000 people, has production facilities in 18 countries and sells its products in more than 190 markets. Competitive products The Volvo Group’s products have been developed to contri bute to efficient transport and infrastructure solutions and to provide our customers with uptime. We drive the develop- ment of electrified vehicles and machines as well as automated solutions for the benefit of customers, society and the environment. Sales of new vehicles, machines and engines as well as used vehicles and machines, superstructures and special vehicles accounted for 77% of the Group’s net sales in 2019. Sales of vehicles and machines build a population of products that drives spare parts sales and service revenue. World-class services In addition to vehicles and machines, the offering includes various types of services such as insurance, rental services, spare parts, repairs, preventive maintenance, service agree- ments and assistance services. The range and flexibility of the offering means that the solutions can be tailor made for each customer to maximize uptime and productivity. The service business contributes to balancing the fluctuations in the sales of new products and is an area of priority. Sales of services accounted for 20% of net sales in 2019. The Group also offers financing for customers and dealers. Financial Services provided financing for 25% of the products sold by the Group in 2019, measured in the markets where financing is offered. Strong p ositions globally Thanks to competitive product programs, strong dealers with extensive service networks and increasingly more complete offerings, the Volvo Group has established leading posi- tions on a global market. The Group is one of the world’s largest manufacturers of heavy- duty trucks, construction equipment, buses and heavy-duty diesel engines as well as a leading supplier of marine and industrial engines. These positions provide for economies of scale in product development, production, purchasing and financial services. Strong brands The Volvo Group’s brand portfolio consists of Volvo, Volvo Penta, UD Trucks, Terex Trucks, Renault Trucks, Prevost, Nova Bus, Mack and Arquus. We partner in alliances and joint ventures with the SDLG, Eicher and Dongfeng brands. By offering products and services under different brands, the Group addresses many different customer and market seg- ments in both mature markets and growth markets. 2 A GLOBAL GROUP 2019 OVERVIEW VOLVO GROUP MARKET EUROPE SHARES IN HEAVY-DUTY TRUCKS NORTH 24.2% AMERICA JAPAN 16.2% 18.5% BRAZIL 22.5% SHARE OF NET SALES SHARE OF NET SALES SHARE OF NET SALES BY SEGMENT BY REVENUE TYPE BY MARKET Trucks, 64% Vehicles, 77% Europe, 38% Group Functions & Other, 2% Financial Services, 3% Financial Services, Africa and Oceania, 3% 6% Services, 20% Volvo Penta, 3% Asia, 19% Buses, 7% Construction South Equipment, America, 7% 21% North America, 30% 3 A GLOBAL GROUP 2019 OVERVIEW CONTENT A GLOBAL GROUP OVERVIEW This is the Volvo Group . .1 2019 in brief . .5 CEO comments. .6 STRATEGY Contributing to a better world . .8 Bringing our strategy to life. 10 The journey continues . 12 Perform and transform . .13 Seven strategic priorities . 14 CASE Electrification . 20 Automation . 24 Connectivity . .28 OUR ROLE IN SOCIETY . 32 VALUE CHAIN . 38 Customers. 44 Product development . 48 Purchasing . .54 Production & Logistics . .56 Retail & Service . .60 Reuse . .62 EMPLOYEES . .64 GROUP PERFORMANCE BOARD OF DIRECTORS’ REPORT 2019 Global strength . 70 Significant events . .72 Financial performance . 74 Financial position . 77 Cash flow statement . 82 Business Areas . 84 Financial management . .97 Changes in consolidated shareholders’ equity . 98 The share . .99 Risks and uncertainties . 102 Sustainability Reporting. 110 NOTES Notes to the financial statements . 113 Parent Company AB Volvo . 176 CORPORATE GOVERNANCE Corporate Governance Report 2019 188 Board of Directors . 196 Group Executive Board . .202 OTHER INFORMATION Proposed remuneration policy . 206 Proposed disposition of unappropriated earnings . 208 Audit report for AB Volvo (publ) . .209 The Volvo Group’s formal financial reports Key Ratios . 212 are presented on pages 70–187, 206–208 Eleven-year summary . 215 and 212–214 and have been audited by the GRI content index . .224 company’s auditors. For information on Annual General Meeting. 227 which pages constitute the Volvo Group’s Preliminary publication dates . 227 Sustain ability Report, please see page 110. 4 A GLOBAL GROUP 2019 OVERVIEW 2019 IN BRIEF INCREASED SALES AND IMPROVED PROFIT ABILITY • Higher vehicle and service sales contributed to • Strong financial position with net financial net sales increasing by 11% to SEK 432 billion assets of SEK 62.6 billion in the Industrial (391). Currency- adjusted net sales grew by 5%. Operations, excluding provisions for post- emplyment b enefits and lease liabilities. • Adjusted operating income improved to SEK 47,910 M (40,660), corresponding to • The Board of Directors proposes an ordinary an adjusted operating margin of 11.1% (10.4). dividend of SEK 5.50 per share (5.00) and an extra dividend of SEK 7.50 per share (5.00). • Operating cash flow of SEK 38.3 billion (26.6) in the Industrial Operations. • Volvo Group and Isuzu Motors intend to form strategic alliance. KEY RATIOS 2019 2018 KEY RATIOS 2019 2018 Net sales, SEK M 431,980 390,834 Net financial position excl. provisions for Adjusted operating income¹, SEK M 47,910 40,660 post-employment benefits and lease liabilities, Industrial Operations, SEK bn 62.6 43.9 Adjusted operating margin, % 11.1 10.4 Return on shareholders’ equity, % 27.0 21.3 Operating income, SEK M 49,531 34,478 Total number of employees 103,985 105,175 Operating margin, % 11.5 8.8 Share of women, % 19 19 Income after financial items, SEK M 46,832 32,148 Share of women, presidents and Income for the period, SEK M 36,495 25,363 other senior executives, % 26 25 Diluted earnings per share, SEK 17.64 12.24 Energy consumption, MWh/SEK M 5.1 5.8 2 Dividend per share, SEK 13.00 10.00 Total CO2 emissions, tons/SEK M Operating cash flow, Industrial (GHG scope 1 & 2) 0.8 1.1 Operations, SEK bn 38.3 26.6 Share of direct material purchasing spend from suppliers having made a CSR self- assessment, % 92 91 Net sales, SEK bn Adjusted operating Operating income, SEK bn Operating cash flow Net financial position income1, SEK bn O perating margin, % Industrial Operations, excl. post-employment Adjusted operating SEK bn benefits and lease liabilities margin, % Industrial Operations, SEK bn 432 62.6 38.3 49.5 47.9 3.5 0.3 –1.2 26.3 43.9 18.3 28.4 26.6 20.2 21.1 29.3 40.7 313 302 333 391 23.3 20.8 29.7 34.5 15 16 17 18 19 15 16 17 18 19 15 16 17 18 19 15 16 17 18 19 15 16 17 18 19 6.5 7.0 8.8 10.4 11.1 7.5 6.9 8.9 8.8 11.5 1 For more information on adjusted operating income, please see Key Ratios on page 212.

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