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Volvo Car GROUPInterim report THIRD quarter and first nine months 2017

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VOLVO CAR GROUP

INTERIM REPORT THIRD QUARTER AND FIRST NINE MONTHS 2017VOLVO CAR AB (PUBL.) (556810–8988) INTERIM REPORT THIRD QUARTER AND FIRST NINE MONTHS 2017, GOTHENBURG OCTOBER 26TH 2017

THIRD QUARTER

• Retail sales increased by 10.6 per cent to

135,831 (122,766) units

• Net revenue increased by 18.4 per cent to

MSEK 48,880 (41,273)

• Operating income (EBIT) increased by 77.5 per

cent to MSEK 3,669 (2,067)

• Net income increased by 89.4 per cent to

MSEK 2,513 (1,327)

• Cash flow from operating and investing

activities at MSEK -4,357 (921)

• Electrification strategy announced

• Further investments in US operations

announced

• Launch of the new XC40 and of Care by Volvo

FIRST NINE MONTHS

• Retail sales increased by 9.0 per cent to 413,472

(379,329) units

• Net revenue increased by 18.9 per cent to MSEK

149,250 (125,519)

• Operating income (EBIT) increased by 36.4 per

cent to MSEK 10,445 (7,659)

• Net income increased by 42.1 per cent to MSEK

7,262 (5,111)

• Cash flow from operating and investing activities

at MSEK -7,503 (-2,254)

• Full SUV line up launched

• Upgraded credit rating

• Volvo Cars recognised on the 2017 list of the

World’s Most Ethical Company® by the Ethisphere

Institute

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INTERIM REPORT THIRD QUARTER AND FIRST NINE MONTHS 2017

Key figuresQ3

2017Q3

2016

First nine months

2017

First nine months

2016Full year

2016

Net revenue, MSEK 48,880 41,273 149,250 125,519 180,902

Research and development expenses, MSEK -2,612 -2,767 -8,214 –7,892 –10,174

Operating income (EBIT), MSEK 3,669 2,067 10,445 7,659 11,014

Net income, MSEK 2,513 1,327 7,262 5,111 7,460

EBITDA, MSEK 6,588 4,767 19,312 15,506 21,541

Cash flow from operating and investing activities, MSEK -4,357 921 -7,503 –2,254 6,515

Gross margin, % 24.4 21.9 23.2 22.6 21.4

EBIT margin, % 7.5 5.0 7.0 6.1 6.1

EBITDA margin, % 13.5 11.5 12.9 12.4 11.9

Net Cash (Net debt if positive) -8,253 -5,722 -8,253 -5,722 -18,873

Retail sales (units)Q3

2017Q3

2016

First nine months

2017

First nine months

2016Full year

2016

Europe 64,027 60,832 219,840 207,058 290,925

China 30,427 22,699 82,341 63,387 90,930

US 22,861 21,878 56,963 58,532 82,726

Other 18,516 17,357 54,328 50,352 69,751

Retail sales total 135,831 122,766 413,472 379,329 534,332

Wholesales1) 128,841 118,797 416,915 376,843 536,211Production 134,540 114,766 441,625 381,968 533,156

1) Wholesales refers to new car sales to dealers and other customers including own units and rentals.

All amounts are in MSEK unless otherwise stated. Amounts in brackets refer to the same period for the preceding year, unless otherwise stated. All performance measures are further described on page 20.

This report contains statements concerning, among other things, Volvo Car Group’s financial condition and results of operations that are forward-looking in nature. Such statements are not historical facts but, rather, represent Volvo Car Group’s future expectations. Volvo Car Group believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions, however, forward-looking statements involve inherent risks and uncertainties, and a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statement. Such important factors include, but may not be limited to: Volvo Car Group’s market position, growth in the automotive industry, and the effects of competition and other economic, business, competitive and/or regulatory factors affecting the business of Volvo Car Group, its associated companies and joint ventures, and the automotive indus-try in general. Forward-looking statements speak only as of the date they were made and, other than as required by applicable law, Volvo Car Group undertakes no obligation to update any of them in light of new information or future events.

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VOLVO CAR GROUP


Volvo Cars has delivered another quarter of sales growth and increased net revenue, building on the good progress in the first half of the year. The growth in net revenue was driven by the pos-itive sales development in all markets and an improved sales mix as a result of increased sales of the new S and V90 as well as the XC60. As a result, the operating profit and the EBIT margin also improved, demonstrating progress in line with our goals of main-taining sustainable profit levels and being a truly global company with an attractive model line-up in all regions.

We see strong demand for our products even in regions where markets are softening. In China, we have seen a strong growth in sales and our local manufacturing footprint supports our local expansion. The US has been showing signs of recovery since the beginning of the year, when our sales was impacted by delivery constraints. European sales showed good growth with the XC60 continuing to be our best-selling model.

The start of production and roll out of the new XC60 has been successful and from December we will stop producing the XC60 Classic. Our global manufacturing structure gives us the flexibility to gradually shift production from one location to another depend-ing on demand. Consistent with this we have decided to increase our investment in the Charleston manufacturing plant that is now under construction in the US. The plant will produce the new S60 as well as the next generation XC90. It will serve both the US and the international markets in a similar way as has been success-fully implemented in Daqing, China, for the S90.

In September we entered into a new segment on the SUV mar-ket by launching our new small XC40 SUV. It will be produced in Gent, Belgium, and in Luqiao, China. With the XC40 alongside the XC60 and XC90 we are, for the first time, covering the whole SUV segment making Volvo one of the most SUV focused companies in the industry. The SUV market remains one of the fastest grow-ing in the industry.

With the launch of the XC40 we also introduced a new model of car ownership with the Care by Volvo subscription service. Care by Volvo redefines the traditional model of car ownership and introduces a transparent monthly subscription which will include digital concierge services and e-commerce ordering.

I am also very proud that we have been recognised by the United Nations for our ground-breaking electrification strategy, unveiled in July, stating that all models launched from 2019 will have hybrid or fully electric propulsion. We think this is the right future for Volvo Cars and this recognition confirms that we are leading the way on this important journey. Our recent announce-

ment about our new brand in Polestar, with a state-of-the-art manufacturing facility in Chengdu, China, reinforces that we are committed to deliver on this strategy.

For the full year 2017, I anticipate continuous growth in line with the previous nine months along with more exciting news about our cars and service products. The results so far demonstrate that we are heading in the right direction.

Håkan SamuelssonCEO

ceo COMMENT

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VOLVO CAR GROUP INTERIM REPORT THIRD QUARTER AND FIRST NINE MONTHS 2017

Volvo Car AB (publ.), with its registered office in Gothenburg, is majority owned (99 per cent) by Geely Sweden Holdings AB, owned by Shanghai Geely Zhaoyuan International Investment Co., Ltd., registered in Shanghai, China, owned by Zhejiang Geely Holding Group Ltd., registered in Hangzhou, China.

Volvo Cars’ global retail sales increased by 9.0 per cent to 413,472 (379,329) units and wholesale increased by 10.6 per cent to 416,915 (376,843) units during the first nine months of 2017. The XC60 Classic together with the new XC60 were the best-selling models, followed by the V40/V40 Cross Country. Strong demand for the 90 series contributed to Volvo Cars’ sales growth.

Volvo Cars’ third quarter retail sales increased by 10.6 per cent to 135,831 (122,766) units. The sales growth was supported by strong momentum in China. Wholesale increased by 8.5 per cent to 128,841 (118,797) units. Continued strong demand for the 90 series and the launch of the new XC60 were driving factors in the company’s sales growth.

EuropeTotal sales of passenger cars (EU+EFTA) increased by 3.6 per cent in the first nine months. The improvement was reflected in Volvo Cars’ major European markets, with a sales increase in the

Volvo Car AB (publ.) holds shares in its subsidiary Volvo Car Corporation and provides the Group with certain financing solu-tions. Volvo Car AB (publ.) indirectly, through Volvo Car Corpora-tion and its subsidiaries, operates in the automotive industry with business relating to the design, development, manufacturing, mar-keting and sales of cars and thereto related services. Volvo Car Group and its global operations are referred to as “Volvo Cars”.

overall market in Sweden of 3.1 per cent, Germany 2.2 per cent, and Italy 9.0 per cent. The exception was the United Kingdom, which recorded a decline in sales of 3.9 per cent year-on-year.

Volvo Cars reported a retail sales increase of 6.2 per cent to 219,840 (207,058) units in the first nine months of 2017. Sales was supported by stronger demand for the 90 series, as well as the XC60.

In the third quarter, Volvo Cars increased its retail sales by 5.3 per cent to 64,027 (60,832) units. With a 19 per cent increase, Sweden (15,381 units) was the fastest growing market in Europe, followed by Germany, with 7.5 per cent sales increase (9,124 units). By overall sales – the UK was second strongest despite declining with the overall UK market.

ChinaThe Chinese passenger car market grew by 2.4 per cent in the first nine months. Sales in the SUV segment increased by 16.1

The Volvo Car Group

Sales development

Retail sales (units)Q3

2017Q3

2016 Change %

First nine months

2017

First nine months

2016 Change %

Europe 64,027 60,832 5.3 219,840 207,058 6.2

China 30,427 22,699 34.0 82,341 63,387 29.9

US 22,861 21,878 4.5 56,963 58,532 -2.7

Other 18,516 17,357 6.7 54,328 50,352 7.9

Retail sales total 135,831 122,766 10.6 413,472 379,329 9.0

Wholesales 128,841 118,797 8.5 416,915 376,843 10.6Production 134,540 114,766 17.2 441,625 381,968 15.6

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per cent in the same period. The market saw a rebound in demand in June. This positive development continued in the third quarter, with a gradual monthly improvement.

Volvo Cars’ sales increased by 29.9 per cent for the nine month period, to 82,341 (63,387) units. This growth was driven by the the S90 and growing demand for the XC90 and XC60, which remains the most popular model in the region.

During the third quarter, our sales in China increased by 34.0 per cent to 30,427 (22,699) units.

USDuring the first nine months, sales in the overall US market for light vehicles declined by 1.7 per cent. August sales figures in particular were negatively affected by hurricanes. However, Sep-tember sales figures helped to mitigate this decline due to replacement demand in the hardest affected areas. The underly-ing demand for crossovers and SUVs remained strong and contin-ued to grow. Volvo Cars’ retail sales declined by 2.7 per cent in the first nine months. However, sales in the US is recovering since the begin-ning of the year, when it was impacted by delivery constraints.

In the third quarter, retail sales in the US increased by 4.5 per cent to 22,861 (21,878) units. The XC90 continued to be the best-selling model, followed by the XC60.

OtherVolvo Cars’ retail sales increased by 7.9 per cent to 54,328 (50,352) in the first nine months of 2017, supported by demand for the S90 and V90, as well as stronger demand for the XC60. In the third quarter, retail sales increased by 6.7 per cent. In Japan, Volvo Cars registered a retail sales increase of 11.3 per cent during the first nine months. In Russia and Korea sales improved by 20.3 and 32.6 per cent, respectively. In Russia, the sales growth was supported by a stronger overall demand in the market and increased sales of the 90 series. In Korea, a stronger overall demand, the introduction of the 90 series and a strength-ened dealer network contributed to the growth. Canada increased by 4.3 per cent. In the third quarter, Volvo Cars’ recorded a retail sales increase of 12.9 percent in Japan, 7.1 and per cent in Russia. Sales in Korea improved by 20.0 per cent which was driven by the same factors as for the first nine months. Retail sales in Canada improved by 7.6 per cent.

RETAIL SALES BY MARKET FIRST NINE MONTHS

RETAIL SALES BY CARLINE FIRST NINE MONTHS

US 14%China 20%

Other 13%

Europe 53%

XC 48%

V 35%

S 17%

VOLVO CAR GROUP INTERIM REPORT THIRD QUARTER AND FIRST NINE MONTHS 2017

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VOLVO CAR GROUP


Top 10Retail sales by market (units)

Q3 2017

Q3 2016

First nine months

2017

First nine months

2016

China 30,427 22,699 82,341 63,387

US 22,861 21,878 56,963 58,532

Sweden 15,381 12,926 54,105 49,381

UK 12,035 12,311 36,516 34,881

Germany 9,124 8,489 28,821 27,610

Japan 4,040 3,578 11,734 10,545

Italy 3,774 3,550 13,040 13,016

Belgium 3,771 3,957 13,918 14,542

France 2,982 2,818 11,483 10,894

Spain 2,969 2,912 10,361 9,710

Retail sales by model (units)Q3

2017Q3

2016

First nine months

2017

First nine months

2016

XC60/XC60 Classic 49,491 38,120 139,441 111,937

V40/V40 Cross Country 20,562 23,120 69,116 71,790

XC90 20,410 22,436 60,596 66,347

S60/S60L/S60 Cross Country 13,157 15,927 39,328 43,748

S90/S90L 11,587 2,407 28,933 2,594

V90/V90 Cross Country 11,139 1,278 37,789 1,278

V60/V60 Cross Country 9,455 12,692 37,940 41,785

Other (discontinued models) 30 6,786 329 39,850

Total 135,831 122,766 413,472 379,329

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VOLVO CAR GROUP


THIRD QUARTER 2017

Electrification strategy announcedVolvo Cars announced that every Volvo launched from 2019 will have an electric motor. The portfolio will include electrified cars across the model range; fully electric, plug in hybrids and mild hybrid cars.

Volvo Cars and Geely agree on the formation of LYNK & COA separate LYNK & CO company, fully responsible for the LYNK & CO car line, will be formed. Volvo Cars will hold 30 per cent of the shares, while Geely Auto will hold 50 per cent and Geely Holding 20 per cent of the shares in the new company.

Significant events

VOLVO CAR GROUP


Other eventsProducts & Technology Launch of the new XC40By launching the new XC40, the SUV line up is complete. Produc-tion starts in the Ghent plant in Belgium in November and the XC40 is the first model on the new modular vehicle architecture (CMA).

Further investments in the US operationsThe next generation XC90 large premium SUVs will be built in the new manufacturing plant in Charleston, South Carolina from 2021. This takes Volvo Cars’ total investment in its US manufac-turing operations to over USD 1.1 billion and will raise the total of new jobs created at the Charleston site to nearly 4,000.

Volvo Cars and Geely form technology sharing JVVolvo Cars and Geely Holding has completed the formation of a new joint venture to coordinate procurement and commonality for shared existing and future technology. The new joint venture, GV Automobile Technology (Ningbo) Co. Ltd, will be 50/50 owned by Volvo Cars and Geely Holding.

Acquisition of Amtek Components Sweden ABVolvo Cars acquired 100 per cent of the shares in Amtek Compo-nents Sweden AB, renamed to Automotive Components Floby AB. The acquired company consists of the Floby plant that sup-plies vehicle components to Volvo Cars as well as other external customers.

Consumer ExperiencesCare by VolvoAlongside the launch of the new Volvo XC40, a new model of car access was introduced. ‘Care by Volvo’ is a subscription based service; a national, ready-negotiated monthly fee, combined with a new car delivered every 24 months.

Investments in new digital technologyThe acquisition of the technology platform Luxe and transfer of key members of its staff, is aiming at accelerate Volvo Cars’ ability to offer digital customer experiences; pick-up and drop-off ser-vices will add a new level of convenience for Volvo owners.

Summary first six months 2017• Launch and start of production of the new XC60• New shared mobility business announced to be set up• Polestar became separate global high performance car brand• First fully electric car to be built in China• Zenuity, the joint venture with Autoliv with the purpose to develop next generation self-driving car technologies, became operational• Upgraded credit rating to BB+ with a stable outlook• New appointments to the Executive Management Team;

- Martina Buchhauser Senior Vice President Procurement - David Ibison Senior Vice President Corporate

Communications - Xiaolin Yuan Senior Vice President Asia Pacific

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Income Statement (MSEK)Q3

2017Q3

2016

Net revenue 48,880 41,273

Gross income 11,917 9,032

Operating income 3,669 2,067

Income before tax 3,625 1,770

Net income 2,513 1,327

Research and development (MSEK)Q3

2017Q3

2016

Research and development spending -2,998 -3,109

Capitalised development costs 1,391 1,404

Amortisation and depreciation of Research and development4 -1,004 -1,062

Research and development expenses -2,612 -2,767

1) Prior year net revenue and cost of sales have been restated to hedged currency rates. Total effect amounts to MSEK 201 (178) for net revenue and MSEK -35 (101) for cost of sales.

2) Sold licenses have been reclassified from Other Operating Income to Net Revenue. The comparative period has been restated. Total effect amounts to MSEK 2,660 (11).

3) During 2017 costs have been reclassified from cost of sales to research and development. The comparative period has been restated. Total effect amounts to MSEK 197 (188).

4) Includes amortisation of capitalised development cost and a portion of depreciation of other intangible assets.

During the third quarter, Volvo Cars generated net revenue of MSEK 48,880 (41,273)1) 2), an increase of 18.4 per cent. The increase was a result of a positive sales volume development, where wholesale increased by 8.5 per cent to 128,841 (118,797) units, along with an improved sales mix, generated by XC60, S90 and V90 sales. The increase was also an effect of sold licenses, partly offset by a negative currency effect. Cost of sales increased by MSEK 4,722 to MSEK –36,963 (–32,241)1) 3). The increase was attributable to the higher sales volume and the improved sales mix as well as continuous produc-tion ramp-up. Gross income increased to MSEK 11,917 (9,032). Gross margin increased to 24.4 (21.9) per cent.

Volvo Cars is continuously investing in new technologies and new car models while meeting the increase in demand by ramping up production. The growth translates into increased research and development, selling and administrative expenses to MSEK -8,086 (-7,353)3). The increase also reflects a larger workforce, higher marketing and event expenses along with increased IT

expenses. For details regarding research and development expenses, see table below.

Other operating income and expense, net, decreased to MSEK -199 (306)1) 2), mainly related to negative translation exchange effects on operating assets and liabilities.

Operating income (EBIT) increased to MSEK 3,669 (2,067). The improvement was largely a result of the positive gross income development related to increased volumes, positive sales mix and sold licenses. The improvement was partly offset by increased research and development, selling and administrative expenses together with a negative foreign exchange effect of MSEK 930, resulting in an EBIT margin of 7.5 (5.0) per cent.

Net financial items amounted to MSEK –44 (-297), mainly related to decreased interest expenses and other financial expenses as well as increased interest income on cash and short term investments. The income tax increase is related to increased profit and withholding tax.

Net income amounted to MSEK 2,513 (1,327).

Financial summaryTHIRD QUARTER 2017 – INCOME AND RESULTThe comparative figures refer to the consolidated income statement of the third quarter 2016 if not otherwise stated.

VOLVO CAR GROUP


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Drivers behind the income and result for the first nine months are similar to those in the third quarter.

Volvo Cars generated net revenue of MSEK 149,250 (125,519)1)

2), an increase of 18.9 per cent. The increase was a result of a positive sales volume development, where wholesale increased by 10.6 per cent to 416,915 (376,843) units, along with an improved sales mix, generated by XC60, S90 and V90 sales. The increase was also an effect of sold licenses, acquired business (First Rent A Car Group) and positive currency effects.

Cost of sales increased by MSEK 17,532 to MSEK –114,678 (–97,146)1) 3). The increase was attributable to the higher sales volume and the improved sales mix as well as move of production of the S90 series to Daqing and general production ramp-up. Gross income increased to MSEK 34,572 (28,373). Gross margin increased to 23.2 (22.6) per cent.

Volvo Cars is continuously investing in new technologies and new car models while meeting the increase in demand by ramping up production. The growth translates into increased research and development, selling and administrative expenses to MSEK -24,421 (-21,316)3). The increase also reflects a larger workforce,

higher marketing and event expenses along with increased IT expenses. For details regarding research and development expenses, see table below.

Other operating income and expense, net, decreased to MSEK 193 (344)1) 2), mainly related to negative translation exchange effects on operating assets and liabilities.

Operating income (EBIT) increased to MSEK 10,445 (7,659). The improvement was largely a result of the positive gross income development related to increased volumes, positive sales mix and sold licenses. The improvement was partly offset by increased research and development, selling and administrative expenses together with a negative foreign exchange effect of MSEK 1,480, resulting in an EBIT margin of 7.0 (6.1) per cent.

Net financial items amounted to MSEK –617 (–973), mainly related to decreased interest expenses and other financial expenses as well as increased interest income on cash and short term investments. The income tax increase is related to increased profit and withholding tax.

Net income amounted to MSEK 7,262 (5,111).

FIRST NINE MONTHS 2017 – INCOME AND RESULTThe comparative figures refer to the consolidated income statement of the first nine months 2016 if not otherwise stated.

Income Statement (MSEK)

First nine months

2017

First nine months

2016

Net revenue 149,250 125,519

Gross income 34,572 28,373

Operating income 10,445 7,659

Income before tax 9,828 6,686

Net income 7,262 5,111

Research and development (MSEK)

First nine months

2017

First nine months

2016

Research and development spending -10,526 -9,127

Capitalised development costs 5,472 4,237

Amortisation and depreciation of Research and development4 -3,160 -3,002

Research and development expenses -8,214 -7,892

1) Prior year net revenue and cost of sales have been restated to hedged currency rates. Total effect amounts to MSEK –493 (732) for net revenue and MSEK 173 (148) for cost of sales.

2) Sold licenses have been reclassified from Other Operating Income to Net Revenue. The comparative period has been restated. Total effect amounts to MSEK 3,971 (55).

3) During 2017 costs have been reclassified from cost of sales to research and development. The comparative period has been restated. Total effect amounts to MSEK 623 (556).

4) Includes amortisation of capitalised development cost and a portion of depreciation of other intangible assets.

VOLVO CAR GROUP


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CASH FLOWCash flow from operating and investing activities amounted to MSEK –7,503 (–2,254).

Cash flow from operating activities amounted to MSEK 9,960 (11,535). Operating income stood at MSEK 10,445 (7,659), adjusting for depreciation and amortisation, an additional MSEK 8,867 (7,847) was contributed, although this was partly offset by a change in working capital of MSEK –6,659 (–1,762). The change in working capital is due to production related seasonal-ity, product mix and ramp-up of production in Daqing, affecting both inventories and accounts payable. The change in accounts receivables is explained by increasing sales and sold licenses.

Cash flow from investing activities amounted to MSEK –17,463 (–13,789). Investments in tangible assets amounted to MSEK –11,888 (–7,802), following the ongoing construction of the US plant and special tool investments related to new car models, such as the new XC60 and XC40.

Investments in intangible assets amounted to MSEK –5,680 (–4,347) as a result of continuous investments in new and upcom-ing car models and new technology.

Cash flow from financing activities amounted to MSEK -2,026 (-397). This is primarily attributable to dividends paid of MSEK –2,188 (–), repayment of liabilities to credit institutions of MSEK –2,241 (–4,195) partly offset by matured marketable securities of net MSEK 1,356 (–1,446) and withdrawal of credit facilities MSEK 1,179 (479).

Cash and cash equivalents including marketable securities decreased to MSEK 31,231 (43,373). Net cash decreased to MSEK -8,253 (-18,873). Including the undrawn revolving credit facility of MEUR 1,300, liquidity is at MSEK 43,749 (49,678).

NET FINANCIAL POSITION AND LIQUIDITYThe presented figures refer to the consolidated figures for the first nine months 2017 if not otherwise stated. The comparative figures for the cash flow items refer to the consolidated cash flow statement for the first nine months 2016 if not otherwise stated. The com-parative figures for the balance sheet items refer to the consolidated balance sheets of December 31, 2016 if not otherwise stated.

VOLVO CAR GROUP


Cash flow Statement (MSEK)

First nine months

2017

First nine months

2016

Cash flow from operating activities 9,960 11,535

Cash flow from investing activities -17,463 –13,789

Cash flow from operating and investing activities -7,503 –2,254

Cash flow from financing activities -2,026 –397

Cash flow for the period -9,529 –2,651

EQUITYTotal equity increased by MSEK 7,618 to MSEK 50,928 (43,310), resulting in an equity ratio of 29.0 (26.8) per cent. The change is attributable to the positive net income of MSEK 7,262 and posi-tive effects in other comprehensive income. The latter is related to change in cash flow hedge reserve of MSEK 3,776, offset by a negative translation foreign exchange effect, including hedges of MSEK -869 and remeasurement of post-employment benefits of MSEK -344. Dividend of MSEK -2,188 has been paid to the shareholders, whereof MSEK 65 was distributed to the holders of preference shares.

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SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD Volvo Cars and Geely invest in PolestarVolvo Cars and Geely Holding announced they will make a joint investment of RMB 5 billion (SEK 6.1 billion) to establish a Pole-star manufacturing facility in Chengdu, China. The investment will support the initial phase of Polestar’s electrified product, brand and industrial development.

RISKS AND UNCERTAINTY FACTORSRisks are a natural element in all business activities. In order to achieve Volvo Cars’ short and long-term objectives, enterprise risk management is part of the daily activities at Volvo Cars. For a more in-depth analysis of risks, see the Volvo Car Group Annual Report 2016 page 76.

PRODUCTIONVolvo Cars produced 134,540 (114,766) units in the third quarter of 2017, an increase of 17.2 per cent. In the first nine months, production amounted to 441,625 (381,968) units, an increase of 15.6 per cent.

EMPLOYEESDuring the third quarter of 2017, Volvo Car Group employed on average approx. 36,000 (30,000) full-time employees. Further-more, the Group employed on average approx. 4,000 (3,700) consultants. The increased number of employees and consultants mainly relates to higher production volumes, the ramp up in China, the construction of the Charleston manufacturing plant in the US, as well as the continuous development of future car models.

PARENT COMPANYThe parent company conducts no operations and has no employ-ees. The income statements and balance sheets for the parent company are presented on page 18.

VOLVO CAR GROUP


OUTLOOK 2017Revenue growthGlobally, we expect the premium segment to con-tinue to develop positively. While continuing the industrial transformation and renewal of our prod-uct portfolio, Volvo Cars expects further growth of revenue supported by sales growth in 2017.

Operating incomeWe expect to maintain strong profit levels based on a richer model mix, following the introduction of the 90 and 60 series, partly offset by increased expenses for sales and R&D.

InvestmentsIn 2017, we will continue to invest in our global manufacturing footprint, the renewal of our product portfolio and new technologies. Capital expendi-ture is therefore predicted to increase slightly.

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CONSOLIDATED INCOME STATEMENTS

MSEK Q3

2017Q3

2016

First nine months

2017

First nine months

2016Full year

2016

Net revenue 48,880 41,273 149,250 125,519 180,902

Cost of sales -36,963 –32,241 -114,678 –97,146 –142,220

Gross income 11,917 9,032 34,572 28,373 38,682

Research and development expenses -2,612 –2,767 -8,214 –7,892 –10,174

Selling expenses -3,583 –3,046 -10,511 –8,761 –11,992

Administrative expenses -1,891 –1,540 -5,696 –4,663 –6,471

Other operating income 648 630 2,107 1,363 2,412

Other operating expenses -847 –324 -1,914 -1,019 –1,861

Share of income in joint ventures and associates 37 82 101 258 418

Operating income 3,669 2,067 10,445 7,659 11,014

Financial income 74 29 273 153 218

Financial expenses -118 –326 -890 –1,126 –1,711

Income before tax 3,625 1,770 9,828 6,686 9,521

Income tax -1,112 –443 -2,566 –1,575 –2,061

Net income 2,513 1,327 7,262 5,111 7,460

Net income attributable toOwners of the parent company 1,836 1,021 5,645 4,124 5,944

Non-controlling interests 677 306 1,617 987 1,516

2,513 1,327 7,262 5,111 7,460

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CONSOLIDATED COMPREHENSIVE INCOME

MSEKQ3

2017Q3

2016

First nine months

2017

First nine months

2016Full year

2016

Net income for the period 2,513 1,327 7,262 5,111 7,460Other comprehensive income, net of income taxItems that will not be reclassified subsequently to income statement:Remeasurements of provisions for post-employment benefits -58 –1,319 -344 –2,148 –1,157

Items that may be reclassified subsequently to income statement:Translation difference on foreign operations -257 279 -844 539 514

Translation difference of hedge instruments of net investments in foreign operations 3 –66 -25 –149 –124

Change in cash flow hedge 884 –794 3,776 –1,255 –3,074

Other comprehensive income, net of income tax 572 –1,900 2,563 –3,013 –3,841Total comprehensive income for the period 3,085 –573 9,825 2,098 3,619

Total comprehensive income attributable toOwners of the parent company 2,464 –916 8,461 1,109 2,070

Non-controlling interests 621 343 1,364 989 1,549

3,085 –573 9,825 2,098 3,619

15 OF 22

VOLVO CAR GROUP


CONSOLIDATED BALANCE SHEETS

MSEKSept 30,

2017Dec 31,

2016

ASSETSNon-current assetsIntangible assets 28,129 25,368

Property, plant and equipment 51,099 45,468

Assets held under operating leases 2,512 2,483

Receivables on parent company 54 54

Investments in joint ventures and associates 2,509 2,498

Other long-term securities holdings 79 79

Deferred tax assets 4,525 4,112

Other non-current assets 3,516 2,013

Total non-current assets 92,423 82,075

Current assetsInventories 31,302 21,198

Accounts receivable 12,897 8,717

Current tax assets 703 293

Other current assets 6,782 5,757

Marketable securities 3,341 4,738

Cash and cash equivalents 27,890 38,635

Total current assets 82,915 79,338TOTAL ASSETS 175,338 161,413

EQUITY & LIABILITIESEquityEquity attributable to owners of the parent company 46,414 39,536

Non-controlling interests 4,514 3,774

Total equity 50,928 43,310

Non-current liabilitiesProvisions for post-employment benefits 6,401 6,348

Deferred tax liabilities 2,670 1,209

Other non-current provisions 6,994 6,995

Liabilities to credit institutions 12,108 13,910

Bonds 7,736 7,699

Other non-current liabilities 3,190 5,818

Total non-current liabilities 39,099 41,979

Current liabilitiesCurrent provisions 17,574 15,371

Liabilities to credit institutions 3,044 2,813

Advance payments from customers 542 652

Accounts payable 34,755 30,508

Current tax liabilities 1,436 626

Other current liabilities 27,960 26,154

Total current liabilities 85,311 76,124TOTAL EQUITY & LIABILITIES 175,338 161,413

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VOLVO CAR GROUP


CONDENSED CHANGES IN CONSOLIDATED EQUITY

MSEKSept 30,

2017Dec 31,

2016

Opening balance 43,310 34,635Net income for the period 7,262 7,460

Other comprehensive income, net of income tax 2,563 –3,841

Total comprehensive income 9,825 3,619Aqusition of non-controlling interests − 140

Issue of preference shares -19 4,916

Dividend to shareholders -2,188 −

Transactions with owners -2,207 5,056Closing balance 50,928 43,310

Attributable to Owners of the parent company 46,414 39,536

Non-controlling interests 4,514 3,774

Closing balance 50,928 43,310

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VOLVO CAR GROUP


CONSOLIDATED STATEMENTS OF CASH FLOWS

MSEKQ3

2017Q3

2016

First nine months

2017

First nine months

2016Full year

2016

OPERATING ACTIVITIESOperating income 3,669 2,067 10,445 7,659 11,014

Depreciation and amortisation of non-current assets 2,919 2,700 8,867 7,847 10,527

Interest and similar items received 72 30 223 154 218

Interest and similar items paid -49 –22 -545 –511 –953

Other financial items -6 11 -252 –110 –418

Income tax paid -978 –519 -2,453 –1,403 –1,705

Adjustments for other items not affecting cash flow 121 –173 334 –339 522

5,748 4,094 16,619 13,297 19,205

Movements in working capital

Change in inventories -2,679 513 -10,029 –2,337 –231

Change in accounts receivable -1,642 2,634 -3,778 888 730

Change in accounts payable -1,667 –896 4,734 281 4,023

Change in items relating to repurchase commitments -119 –8 463 –108 –342

Change in provisions 742 831 1,954 1,500 3,497

Change in other working capital assets/liabilities -288 –246 -3 –1,986 –21

Cash flow from movements in working capital -5,653 2,828 -6,659 –1,762 7,656Cash flow from operating activities 95 6,922 9,960 11,535 26,861

INVESTING ACTIVITIESInvestments in shares and participations, net -68 –1,819 68 –1,640 –1,462

Dividend received from joint ventures and associates 37 — 37 5 187

Investments in intangible assets -1,529 -1,409 -5,680 -4,347 –6,394

Investments in property, plant and equipment -2,892 -2,772 -11,888 -7,802 –12,669

Other — –1 — –5 –8

Cash flow from investing activities -4,452 –6,001 -17,463 –13,789 –20,346Cash flow from operating and investing activities -4,357 921 -7,503 –2,254 6,515

FINANCING ACTIVITIESProceeds from credit institutions 419 163 1,179 479 1,696

Proceeds from bond issuance — –22 — 4,597 7,579

Proceeds from issuance of preference shares, net — — -32 — 4,979

Repayment of liabilities to credit institutions -386 –210 -2,241 –4,195 –7,634

Dividend paid to shareholders — — -2,188 — −

Investments in marketable securities, net -883 –661 1,356 –1,446 –1,189

Other -253 111 -100 168 361

Cash flow from financing activities -1,103 –619 -2,026 –397 5,792Cash flow for the period -5,460 302 -9,529 –2,651 12,307

Cash and cash equivalents at beginning of period 33,816 22,900 38,635 25,623 25,623Exchange difference on cash and cash equivalents -466 396 -1,216 626 705

Cash and cash equivalents at end of period 27,890 23,598 27,890 23,598 38,635

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VOLVO CAR GROUP


CONDENSED PARENT COMPANY INCOME STATEMENTS

CONDENSED PARENT COMPANY BALANCE SHEETS

MSEKQ3

2017Q3

2016

First nine months

2017

First nine months

2016Full year

2016

Administrative expenses -4 –7 -14 –9 –10

Income from participation in subsidiary1) − − 1,565 − −

Operating income -4 –7 1,551 –9 –10

Financial income 56 41 173 60 107

Financial expenses -95 –41 -285 –74 –414

Income before tax -43 –7 1,439 –23 –317

Income tax 9 2 30 2 71

Net income -34 –5 1,469 –21 –246

1) Received dividend from subisidary of MSEK 1,565, passed through to the shareholders.

Other comprehensive income and net income are consistent since there are no items in other comprehensive income.

MSEK Sept 30,

2017Dec 31,

2016

ASSETSNon-current assets 20,176 20,100

Current assets 4,995 5,021

TOTAL ASSETS 25,171 25,121

EQUITY & LIABILITIESEquityRestricted equity 51 51

Non-restricted equity 7,499 7,614


Non-current liabilities 17,478 17,338

Current liabilities 143 118

TOTAL EQUITY & LIABILITIES 25,171 25,121

19 OF 22

VOLVO CAR GROUP


GENERAL DEFINITIONS

Volvo Car Group and Volvo CarsVolvo Car AB (publ.), Volvo Car Corporation and all its subsidiaries.

Joint venture companiesJoint ventures refer to companies in which Volvo Car Group, through contractual cooperation together with one or more parties, has a joint control over the operational and financial management.

Gross marginGross margin is Gross income as a percentage of net revenue and represents the percent of total net revenue that Volvo Cars retains after incurring the direct costs associated with producing the goods and services sold.

EBITEBIT represents earnings before interest and taxes. EBIT is syn-onymous with operating income which measures the profit Volvo Car Group generates from its operations.

EBIT marginEBIT margin is EBIT as a percentage of net revenue and meas-ures Volvo Car Group’s operating efficiency.

EBITDAEBITDA represents earnings before interest, taxes, depreciations and amortisation, and is another measurement of the operating performance. It measures the profit Volvo Car Group generate from its operations without effect from previous periods capitali-sation levels.

EBITDA marginEBITDA margin is EBITDA in percentage of net revenue.

Equity ratioTotal equity divided by total assets, is a measurement of Volvo Car Group’s long-term solvency and financial leverage.

Net cash/net debtNet cash/net debt is an indicator of Volvo Car Group’s ability to meet its financial obligations. It is represented by liabilities to credit institutions, bonds and other interest-bearing non- current liabilities, less cash and cash equivalents and marketable securi-ties. If negative, the performance measure is referred to as net cash and if positive the performance measure is referred to as net debt.

LiquidityLiquidity consist of cash and cash equivalents, undrawn credit facilities and marketable securities.

EuropeEurope is defined as EU28+EFTA.

Performance measures disclosed in the interim report are those that are deemed to give a relevant view of Volvo Car Group’s financial performance for a reader of the interim report. For a reconciliation of performance measures, refer to page 23.

DEFINITIONS OF PERFORMANCE MEASURES

20 OF 22

VOLVO CAR GROUP


RECONCILIATION TABLES OF PERFORMANCE MEASURES

Gross MarginQ3

2017Q3

2016

First nine months

2017

First nine months

2016Full year

2016

Gross income in % of net revenue 24.4 21.9 23.2 22.6 21.4

EBIT MarginQ3

2017Q3

2016

First nine months

2017

First nine months

2016Full year

2016

Operating income (EBIT) in % of net revenue 7.5 5.0 7.0 6.1 6.1

EBITDA/EBITDA MarginQ3

2017Q3

2016

First nine months

2017

First nine months

2016Full year

2016

Operating income 3,669 2,067 10,445 7,659 11,014

Depreciation and amortisation of non-current assets 2,919 2,700 8,867 7,847 10,527

EBITDA 6,588 4,767 19,312 15,506 21,541EBITDA in % of net revenue 13.5 11.5 12.9 12.4 11.9

EQUITY RATIOSept 30,

2017Full year

2016


Total assets 175,338 161,413

Equity in % total assets 29.0 26.8

NET DEBT/NET CASH (MSEK)Sept 30,

2017Full year

2016

Liabilities to credit institutions (non-current) 12,108 13,910

Bonds1 7,742 7,693

Other interest-bearing non-current liabilities2 84 84

Liabilities to credit institutions (current) 3,044 2,813

Marketable securities -3,341 –4,738

Cash and cash equivalents -27,890 –38,635

Net cash (Net debt if positive) -8,253 –18,873

1) The bond loans are presented above at amortised cost. The MEUR 500 bond is recognised in the balance sheet with a fair value adjustment and the fair value component amounted to MSEK –6 (6).

2) Included in Other non-current liabilities in the Balance sheet.

LIQUIDITYSept 30,

2017Full year

2016

Cash and cash equivalents 27,890 38,635

Marketable securities 3,341 4,738

Undrawn credit facilities 12,518 6,305

Liquidity 43,749 49,678

21 OF 22

VOLVO CAR GROUP


CONTACT

Nils MöskoVice President, Head of Investor Relations+46-(0)31–59 21 [email protected]

Volvo Car Group Headquarters405 31 Gothenburgwww.volvocars.com

The President and Chief Executive Officer certifies that the interim report gives a fair view of the performance of the business, position and income statements of Volvo Car AB (publ.) and Volvo Car Group, and describes the principal risks and uncertainties to which the Volvo Car Group is exposed.

Gothenburg, October 26, 2017

Håkan SamuelssonPresident and Chief Executive Officer

This report has not been subject to review by Volvo Car AB’s auditors.

The Volvo Car Group interim report on the fourth quarter 2017 will be published on February 8th, 2018.

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