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I

geely sweden ab

ANnUAL report

2013

geely sweden ab annual report 2013II

Read moreVisit Volvo Cars at www.volvocars.com and learn more about Volvo Cars’

products and services.

reports are available online at www.volvocars.com/corporate.

About This Reportthe board of directors geely sweden ab, corporate identity number

556798-9966, hereby submit the annual report and consolidated

financial statements for January 1 - december 31, 2013. the Volvo

Car group’s consolidated financial review comprises all information

through page 6 to 62.

this is Volvo Car group ................................................................................................................1

Volvo Cars – 2013 at a glance ...............................................................................................2

Ceo Comments ...................................................................................................................................4

Board of Directors Report ....................................................................................................6

Financial & business summary 2013 ......................................................................7

strategy .............................................................................................................................................8

products & Innovation ........................................................................................................10

production & operations .................................................................................................12

sales development ..............................................................................................................14

board of directors .................................................................................................................16

executive Management .....................................................................................................18

governance .................................................................................................................................20

risks & risk Management .............................................................................................20

subsequent events ..............................................................................................................21

proposed distribution of net income ....................................................................21

Financial Reports

Consolidated Income statements ............................................................................23

Consolidated Comprehensive Income ..................................................................23

Consolidated balance sheets .....................................................................................24

Changes in Consolidated equity ...............................................................................25

Consolidated statement of Cash Flows ..............................................................26

notes to the Consolidated Financial statements ........................................27

Income statements and Comprehensive Income – parent Company .................................................................................................................54

balance sheets – parent Company ........................................................................55

Changes in equity – parent Company ..................................................................56

statement of Cash Flows – parent Company .................................................56

notes to the parent Company Financial statements ...............................57

subsidiaries ................................................................................................................................60

signatures ....................................................................................................................................61

auditors report .......................................................................................................................62

Contact .............................................................................................................................................63

CONTENTS

geely sweden ab annual report 2013 1

Volvo Cars’ history dates back to 1927 when the swedish company

Volvo Car Corporation was founded and the first Volvo car was

launched. Volvo Cars is headquartered in gothenburg (sweden). Volvo

cars are produced in factories in torslanda (sweden), ghent (belgium),

Chengdu (China), Chonqing (China), and Kuala lumpur (Malaysia).

since 2010 Volvo Cars is owned by Zhejiang geely Holding group Co.

ltd. (geely). In 2013 around 2,300 Volvo dealers sold 427,840 cars in

100 countries around the world. as of december 2013, Volvo Car

group employed about 23,200 people.

The TRansFoRmaTion oF VolVo CaRsVolvo Cars is going through a major transformation in line with the

corporate and brand strategy “designed around you” which is all about

the customer and a human centric focus. designed around you is the

foundation of the corporate culture and the strategy sets the objectives

for Volvo Cars to establish itself as a leading brand within the premium

segment. with roots firmly based in its swedish heritage, China is

becoming the second home market of Volvo Cars with extensive com-

mercial and industrial presence. additionally, new vehicle and engine

technology will serve the global market and ensure a premium customer

experience based on safety, contemporary scandinavian design, envi-

ronmental care and clever functionality.

Corporate Objectives• provide cars people want

• be a lean and nimble company

• Have a top tier premium auto brand perception

• be the employer of choice

WhiCh Will leaD To• sales of over 800,000 vehicles globally

• top car industry profitability

Strategic CHANGE THEMES• emphasize profitability and efficiency

• revitalize the Volvo brand with customer centricity throughout

the value chain

• reinforce our product strengths based on focused innovation,

smart architecture and win-win collaboration

• Capture global growth and sourcing potential, leveraging the

presence in China

• secure profitable growth in core segments in europe and north

america

• build a global organization with performance and health, able to

act in a fast, smart and nimble way

This is Volvo Car Group

The Volvo Car Group – Corporate structure

VolVo CaR GRoup inCluDes:• geely sweden ab

• Volvo Car Corporation

• subsidiaries

• Joint venture companies

VolVo CaRs, The opeRaTions, inCluDes:• Volvo Car Corporation

• subsidiaries

• Joint venture companies

• affiliated companies

Joint venture companies are associated companies in which Volvo Car

Corporation holds a voting interest of less or equal to 50 percent.

affiliated companies are companies in close collaboration with Volvo

Car group but owned by another legal entity, for example the Chengdu

manufacturing plant, Zhongjia automobile Manufacturing (Chengdu)

Co., ltd., which is owned by Chinese subsidiaries of the parent

company, shanghai geely Zhaoyuan International Investment Co., ltd..

Zhejiang Geelyholding Group Co., ltd.

shanghai Geely Zhaoyuan international

investment Co., ltd.

Geely sweden holdings aB

Geely Sweden AB

Geely sweden automotive aB

affiliated companies

Volvo Car Group(Consolidation level of all financial communication)

Volvo Cars(the operations)

Volvo Car Corporation

all sales companies, other subsidiaries

& joint venture companies

geely sweden ab annual report 20132

In 2013, Volvo Cars continued its transformation journey and launched

the biggest renewal of the product line up in its history and launching

the new drive-e powertrains. Volvo Car group reported an operating in-

come of seK 1,919 (66) million, with a net income of seK 960 (–542)

million. the result was a step into reaching sustainable profitability

levels, primarily due to the positive second half year.

Volvo Car group managed to turn a loss over the first half of 2013

into a full-year profit due to a positive sales development and cost

focus. retail sales for 2013 was mainly driven by an increase in China

and reached about the same volumes as 2012. wholesale declined

during the first half year following the preparations for the launch of

the renewed models.

In 2013, Volvo Car group further strengthened its long term

funding structure via loan agreements with financial partners and

institutions.

a major renewal of the models was launched into markets around

the world. the first versions of Volvo Cars’ in-house developed, new

four-cylinder drive-e powertrain family were launched and new world-

first safety technologies such as Cyclist detection with full auto brake

were introduced in Volvo cars during 2013.

at the International Motor show (Iaa), in Frankfurt, the global audi-

ence caught a glimpse at what the future holds with the launch of the

Volvo Car Concept Coupé. the concept car was the first of three con-

cept cars showing Volvo Cars’ new design strategy and the possibilities

of Volvo Cars’ in-house developed platform, the new scalable product

architecture (spa). the second concept car, the Volvo Concept XC

Coupé, was previewed in late december ahead of its reveal at the

detroit auto show in early 2014. throughout 2013, the development

of the all-new Volvo XC90, the first car to be based on the scalable

product architecture, continued and is scheduled for a global launch

in 2014.

the industrial expansion in China, financed by geely, is progress-

ing according to plan with the two joint venture companies in daqing

and Zhangjiakou and the plant in Chengdu which went operational in

november 2013.

Volvo cars–2013 at a glance

Key Figures

2013 2012

retail sales 427,840 421,951

China 61,146 41,989

usa 61,233 68,079

eu 20 226,095 227,027

of which sweden 52,260 51,832

rest of world 79,366 84,856

wholesale 419,728 432,950

net revenue, MseK 122,245 124,547

operating income, MseK 1,919 66

net income, MseK 960 –542

operating & investing cash flow, MseK 21 –4,929

ebIt margin 1.6% 0.1%

ebItda, MseK 9,826 8,082

equity ratio 28.1% 28.5%

Average number of employees by region 2013

asia, 6.2%north and south america, 1.8%

sweden, 67.9%

europe excl nordic countries and belgium, 4.3%

belgium, 17.9%

other, 0.4%

nordic countries excl sweden 1.5%

Models by range 2013

s, 17.1%

V, 42.3%

XC, 37.9%

C, 2.7%

RETAIL Sales by region 2013

China, 14.3%

usa, 14.3%

eu20, 52.9%

rest of the world, 18.5%


• Launch of renewed model range in Geneva

• Launch of the world-first Cyclist Detection

• Improved funding

• Preview of Chinese manufacturing plant in Chengdu

• Start of production of renewed models

• 2013 Global NCAP Innovation Award

• World debut for Volvo Concept Coupé on IAA

• Self-parking car showcase

• Approved manufacturing license in China

• Start of production of Drive-E Powertrains

• Start of production of S60L in Chengdu

• Loan agreement with China Development Bank

Q1

Q2

Q3

Q4

geely sweden ab annual report 20134

2013 was a year of which we can be proud. We reported an oper-ating income of seK 1,919 million for the full year of 2013, which was a significant improvement from the loss of seK 577 million in the first half of the year. This is a good performance consider-ing our first half and i would like to thank all our employees who worked so hard to achieve this.

as I consider 2013, I would like to share some valuable observa-

tions I made during the year, as they feed directly into how Volvo Cars

will continue to develop and grow in 2014 and beyond.

the first observation is that our focus on cost in 2013 has been

an essential factor in returning to profitability. we need this work to

continue in order to improve efficiency and productivity. this focus on

costs needs to be a natural and ongoing part of our culture. stable

profitability is a prerequisite for our future growth and I would like to

emphasise that we will continue to focus on increasing revenues by

manufacturing premium cars. our strategy is one of growth.

sales in China increased to 61,146 cars a raise by 45.6 per cent

compared to 2012, driven by new products, increased marketing activi-

ties and the expansion of the Chinese dealer network.

It is apparent that China is a crucial market and that our position

with our owner is providing us with a deeper insight into the opportuni-

ties to be found in this huge market. this is illustrated by the start of

production at the manufacturing plant in Chengdu, China, in november.

additionally, the engine plant in the Zhangjiakou joint venture com-

menced production of Volvo engines. this rapid build-up would not

have been possible without support from our owner, geely.

last year, we made the largest renewal of the model range in Volvo

Cars’ history, which was an important factor behind the increase in

sales in europe during the second half of 2013, despite tough eco-

nomic conditions.

these developments highlight an important fact - there is a very

healthy appetite for new Volvo cars, which is reassuring considering

the strong pipeline of new models we plan to launch later this year and

thereafter.

this takes me to the united states, where Volvo Cars experienced

a challenging year. overall sales fell by 10.1 per cent to 61,233

cars compared to 2012, partly due to a narrow customer offer. with

new management in place in the us, new models on the way and a

renewed focus on the Volvo brand by our dealers, it is clear that we are

committed to the market. within a few years, we should have solidified

our position in the market and sell more than 100,000 cars in the

united states again.

Innovation remained central to our journey in 2013 and provided

some important insights into how we are going to develop in future.

Volvo Cars’ new, highly-efficient, four-cylinder engine family ‘drive-e’

was launched during the Frankfurt Motor show in september. drive-e

engines provide an exciting driving experience while at the same time

reducing fuel consumption and Co2 emissions. they will replace

all other Volvo engine families in the future and all are prepared for

electrification.

our drive-e engines are proof of the fact that the number of cylin-

ders no longer matters when the same power as a six or eight cylinder

engine can be derived from a four cylinder engine and at the same

time offer much lower emissions and much better fuel economy.

we are also committed to developing autonomous driving. In early

december, Volvo Cars and the swedish government announced a

world-first in autonomous driving. From now until 2017 we will work

towards having 100 self-driving Volvo cars use public roads in everyday

driving conditions around the swedish city of gothenburg, the world’s

first large-scale autonomous driving pilot project. autonomous drive

CEO comments

2013, % 2012, % Change, %-points

January–March 20.4 19.3 1.1

april–June 19.5 18.1 1.4

July–september 17.3 17.1 0.2

october–december 22.5 20.6 1.9

Full year 20.0 18.9 1.1

sweden market shareChina salesChina sales

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

10,8

81

2012 2013

Q1 Q2 Q3 Q4 Total

13,7

80

10,4

97

14,9

22

9,32

7

14,6

78

11,2

84 17,7

66

41,9

89

61,1

46

Cars


technologies are a major element in developing safer and more sus-

tainable cars, while these technologies also have many demonstrable

benefits in terms of efficiency and time management.

several Volvo models were recognized for their top safety levels in

2013, among others by the american Insurance Institute for Highway

safety (IIHs). we are committed to keep that position as industry

leader and we are moving ever closer to our safety Vision 2020, which

states that by 2020 no one should be killed or seriously injured in a

new Volvo car. the all-new XC90 that we launch later this year will

feature the first of several next-generation safety and driver support

systems.

Finally, I would like to provide a brief insight into the coming years

at Volvo Cars. the coming year will be a year of growth, with a good five

per cent increase in sales, characterised by a continued strong perfor-

mance in China and a recovery in the us, our two largest markets.

Volvo Cars will in 2014 and thereafter introduce new technologies,

a series of industry-leading innovations and launch the much-anticipat-

ed all-new XC90, the first car to be built on the company’s brand new,

in-house developed spa platform. It will be the first Volvo production

model to carry the company’s new design language, successfully

showcased in the critically-acclaimed Volvo concept cars. In China,

Volvo Cars will build on the successful sales performance in 2013

and aim to continue its growth momentum. the first full year of local

production of the s60l in the Chengdu manufacturing plant as well as

a further expansion of the dealer network should support Volvo Cars’

continued growth in China.

In the longer term, we will continue the transformation journey that we

embarked on in 2010, by launching more new Volvo cars based on

our in-house developed vehicle architectures, featuring cutting-edge

technologies and powered by our industry-leading family of four-

cylinder drive-e powertrains. by taking full control of our own product

development without the need for compromises, Volvo Cars will flourish

as an independent car manufacturer under solid ownership for many

years to come.

Much of the work that has been undertaken at Volvo Cars since

being acquired by geely in 2010 has been leading up to today. 2013

was an important step on this path, and it is essential that we do not

rest on our laurels. 2013 was very challenging and required hard work.

2014 will be equally challenging and will require equally hard work. yet

I am convinced that we have the right strategy and the right people to

take us forward.

gothenburg, april 24 2014

håkan samuelssonpresident & Ceo

Volvo Car group

geely sweden ab annual report 2013board of director’s report6

The VolVo Car Groupgeely sweden ab, with its registered office in stockholm, is a subsidi-

ary of geely sweden automotive ab, a subsidiary of geely sweden

Holdings ab, owned by shanghai geely Zhaoyuan international invest-

ment co., ltd., registered in shanghai, china with ultimate majority

ownership held by Zhejiang geely Holding group ltd., registered in

Hangzhou, china.

Volvo car group consists of geely sweden ab, Volvo personvagnar

ab (Volvo car corporation), all subsidiaries in which Volvo car corpora-

tion holds a voting interest of more than 50 per cent or has the power

to control, and joint venture companies, and are hereinafter referred

to as “Volvo car group”. in its capacity as a holding company, geely

sweden ab does not conduct any direct business, other than holding

shares in its subsidiary, Volvo car corporation. geely sweden ab indi-

rectly, through Volvo car corporation and its subsidiaries, joint venture

companies and affiliated companies, herinafter referred to as ”Volvo

cars”, operate in the automotive industry with business relating to the

design, development, manufacturing, marketing and sales of cars. as

the operational business is conducted in Volvo cars, the annual report

will refer to Volvo cars when describing the business operation, and

specifically refer to Volvo car group where relevant.

two chinese joint venture companies for manufacturing plants

- Zhangjiakou Volvo car engine Manufacturing co., ltd. and daqing

Volvo car Manufacturing co., ltd. – of which a subsidiary of Volvo car

corporation owns 30 per cent with the remainder owned by shanghai

geely Zhaoyuan international investment co., ltd. and Zhejiang geely

Holding group co., ltd., have been established in 2013.

the joint venture companies are accounted for using the equity

method. Volvo cars governs the operations of the chinese joint venture

companies and the same processes and quality standards as in the

european facilities are applied.

the manufacturing plant in chengdu (china), Zhongjia automobile

Manufacturing (chengdu) co., ltd., owned by chinese subsidiaries of

the parent company of the Volvo car group, shanghai geely Zhaoyuan

international investment co., ltd., is an affiliated company to Volvo

car group. Volvo cars operates and governs the operations of the

chengdu plant to ensure the same processes and quality demands as

in the european facilities.

when communicating the business performance and financial

reports, besides from the annual report, the half year consolidated

financial report of geely sweden ab is used to represent the perfor-

mance of the Volvo car group.

Board of Directors Report

Zhejiang Geelyholding Group Co., ltd.

Shanghai Geely Zhaoyuan International

Investment Co., ltd.

Geely Sweden holdings aB

Geely Sweden AB

Geely Sweden automotive aB

affiliated companies

Volvo Car Group(consolidation level of all financial com-munication)

Volvo Cars(the operations)

Volvo Car Corporation

all sales companies, other subsidiaries

& joint venture companies

board of director’s reportgeely sweden ab annual report 2013 7

financial & Business summary 2013

2013 was characterized by the introduction of the biggest renewal

programme in Volvo cars’ history. the first half of the year, dealer stock

reduction and phase out of the older models resulted in negative

wholesales in a year on year comparison. after launching the new

models, retail sales increased and reached about the same volumes in

2013 as in 2012, mainly driven by china. retail sales for Volvo cars

increased by 1.4 per cent to 427,840 (421,951) units.

InCome STaTemenTfor Volvo car group net revenue decreased by seK 2,302 million

to seK 122,245 (124,547) million, primarily due to lower wholesale

volumes and negative exchange rate development. gross income

increased by seK 364 million to seK 20,311 (19,947) million mainly

as a result of a positive market and carline mix as well as efficiencies

on material cost. expenses in research & development decreased by

seK 425 million to seK 5,864 (6,289) million. expenses in research &

development are the net of investments and capitalised product devel-

opment costs supporting the product strategy of Volvo cars. operating

margin increased to 1.6 per cent (0.1) following a small decrease of

administrative expenses to seK 5,129 (5,192) million and a decrease

of selling expenses to seK 7,919 (8,642) million. operating income

amounted to seK 1,919 million (66), and net income for the year was

seK 960 million (–542).

BalanCe SheeTintangible assets increased by seK 1,605 million to seK 17,271

(15,666) million linked to investments for spa and drive-e. accounts

receivable increased by seK 883 million to seK 5,618 (4,735) mil-

lion, mainly due to sales growth in china. trade payables increased by

seK 1,006 million which is related to higher production at the end of

2013 compared with the same period 2012. investments in associates

increased by seK 609 million to seK 1,159 million, corresponding to

the establishment of the joint venture companies in china.

total non-current liabilities amounted to seK 24,108 (21,073)

million. in line with the changed accounting principles under ias 19 on

employee benefits, the retirement benefit obligations have decreased

to seK 3,641 million and have been restated accordingly for 2012

to seK 5,492. the provision for post employee benefits was highly

affected by a change in the discount rate. the amendment in account-

ing principles stipulate that the decreased liabilities is to be offset in

the group´s equity and have resulted in a positive change in equity to

24,638 million, with 2012 restated equity value at seK 21,901 million.

during 2013 Volvo car group’s liabilities to financial institutions

increased by seK 5,486 million. in the first quarter, a loan from swed-

ish export credit of seK 1,000 million and the second tranche of eur

107 million of a china development bank (cdb) loan was drawn.

during the autumn, cdb and Volvo car corporation agreed upon a

second loan of usd 800 million of which usd 466 million was drawn

in the fourth quarter of 2013. a revolving credit facility with maturity in

2016 totalling eur 360 million was put into place during 2013, and

remained unutilized.

CaSh Flowcash flow from operating activities was positive with seK 8,861 (2,749)

million. this was seK 6,112 million higher than in 2012, mainly due to

the positive operating income and improved working capital develop-

ment.

investments, mainly on product development, have increased

compared to 2012. cash flow from investing activities was seK –8,840

(–7,678) million. cash flow from operating and investing activities

amounted to seK 21 (–4,929) million and with increased financing

activities throughout the year, cash flow for the period increased to

seK 5,786 (–4,473) million.

BuSIneSS Summaryin china, sales increased by 45.6 per cent compared to 2012 to

61,146 units (41,989). the european markets are still under the im-

pression of the debt crisis and sales for eu20 declined by 0.4 per cent

to 226,095 units (227,027). in the us, Volvo cars sales decreased

with 10.1 per cent to 61,233 (68,079) units.

in 2013, production of the new powertrains, drive-e, started in

skövde and the development of the new platform, scalable product

architecture (spa), continued. spa and drive-e are essential elements

of the transformation of the Volvo brand into a leading premium car

manufacturer with sustainable profitability. construction work continued

in the manufacturing operations, including the torslanda plant, to

prepare for the launch of spa in 2014.

the china expansion continued with the establishment of two joint

venture companies for manufacturing plants in 2013, Zhangjiakou Volvo

car engine Manufacturing co., ltd. and daqing Volvo car Manufactur-

ing co., ltd. of which a subsidiary of Volvo car corporation owns 30 per

cent with the remainder owned by shanghai geely Zhaoyuan interna-

tional investment co., ltd. and Zhejiang geely Holding group co., ltd..

in June 2013, production of the Volvo c70 convertible model at

the uddevalla plant in sweden ceased, and the property was subse-

quently sold.

Volvo car financial services is responsible for managing and devel-

oping the customer finance and insurance offering provided by Volvo

car’s on a global basis. during 2013, the new entity secured financing

for the majority of the new Volvo cars sold in the us. in most of the

larger markets, Volvo cars uses a branded financial and insurance of-

fering through Volvo cars partner banks and insurance companies.

1) eu20 includes sweden, norway, denmark, finland, the netherlands, belgium, luxemburg, france, spain, italy, greece, portugal, the uK, ireland, germany, switzerland, austria, poland, Hungary and the czech republic.


Strategy

after being acquired by Zhejiang geely Holding group ltd., in 2010,

Volvo cars embarked on a new chapter in the company’s history. Volvo

cars started a transformation journey that will establish the company

as a top premium car manufacturer with a strong customer focus, an

independent company under solid and stable ownership and offering

world-class products that people want, based on in-house developed

technology.

Volvo cars’ corporate strategy, designed around you, is based on

the human centric focus that differentiate the brand from other car

companies. the strategy states clear and ambitious objectives and un-

derlines Volvo cars’ commitment of taking control of its future product

development with an in-house developed scalable platform and a new

modular powertrain family. Volvo cars has also set out to leverage its

existing fundamental brand pillars: intuitive innovations, safety, environ-

mental performance and scandinavian design. the long term strategy

which will lead to sales of 800,000 vehicles annually, combined with a

sustainable profitability will be achieved by focusing on the key regions

europe, china and the us.

ReseaRch & development – technological independenceVolvo cars is currently in the process of moving towards technology

independence. since 2010, Volvo cars has been gradually moving

from ford legacy technology to technology developed in-house, based

on Volvo cars’ own prerequisites and without the need for compromise.

this does not just apply to technology completely developed by Volvo

cars, like the spa vehicle architecture or the drive-e engine family,

but also to technology developed through smart collaborations within

geely. an example is the vehicle architecture for future c-segment

cars currently developed by china euro Vehicle technology (ceVt ) in

gothenburg. while the c-segment architecture will serve both future

Volvo and geely automobile cars, the modular nature of the architec-

ture allows for specific solutions that will fulfil the requirements of each

brand, while at the same time, offering economies of scale.

china gRowth planan important element of Volvo cars’ new corporate strategy is the es-

tablishment of china as one of the company’s key markets and setting

up a local headquarter in shanghai.

in order to support the long-term goal of selling 200,000 cars per

year in china, Volvo cars has established a manufacturing footprint

in china. the first plant in china was opened in chengdu in the sum-

mer of 2013, with series production starting in the fourth quarter.

Volvo cars also operates through the newly established joint venture

companies an engine assembly plant in Zhangjiakou, while a second

manufacturing plant is under construction in daqing.

Volvo cars has established a solid dealer network in all major cities

in china. currently the focus is on expanding the network in china’s

smaller cities, many of which represent completely new regional

markets for Volvo cars. in its marketing activities, Volvo cars under-

lines its scandinavian heritage and its leadership in automotive safety.

• Division to stand alone

• Become a leading global premium auto brand

• Independent development of a modular product technology: scalable product architecture

• Independent development of powertrains: drive-e

• China industrial footprint

• Employee culture change: Aspired Culture

the start of the Journey

• Launch of model year 2014, the most extensive renewal of the model range in Volvo cars’ history

• Production and launch of a in-house developed powertrain: drive-e

• Production start in Chengdu

• Launch of a new design strategy: concept coupé

where are we today?

a leading premium brand

2010

2013

2020


Volvo cars also highlights the premium car experience and intuitive

functionality ingrained in its cars and uses its comparative advantage in

areas like cabin-air quality and safety to appeal to chinese consumers

concerned about pollution and the well-being of their families.

FInanCIal STraTeGyVolvo cars long-term objective is to deliver sustainable top car industry

profitability. Volvo cars will continue to invest in new technology and

car models that enable the long term objectives. investments are not

the sole driver behind sustainable growth as focus on cost control

throughout the whole value chain will continue. diversified financing

is important to achieve low financing cost and sustainable financial

partnerships, as well as independence. conservative financial policies

and focused risk management are applied to deliver on the objective of

having a financial risk profile and capital structure that enables invest-

ment grade rating.

SuSTaInaBIlITy, SaFeTy and qualITyVolvo cars’ commitment to the environment covers the entire lifecycle

of the car, from design, engineering and production to useful life, ser-

vice and recycling. sustainability is central to all decisions and invest-

ments; it is key to successful and ethical business. the sustainability

agenda for Volvo cars is described in four dimensions: people, societal,

economic and environmental. together, these four dimensions cover

the work towards a future sustainable mobility.

Volvo cars has a longstanding commitment to being a responsible

corporation with a clear focus on sustainable development through-

out the entire value chain. Volvo cars publishes annual sustainability

reports in line with the international reporting guidelines of the global

reporting initiative (gri).

Volvo cars is committed to developing new technologies that help

create sustainable mobility solutions for the 21st century. both the

spa platform and the drive-e powertrains are prepared for electri-

fication and Volvo cars is a leading actor in bringing electrification

technologies to market, with the V60 plug-in Hybrid being a prominent

example. by coupling the four-cylinder drive-e engines to electrifica-

tion technology, Volvo cars delivers a range of smaller, more intelligent

powertrains that provide performance levels comparable to that of a

larger combustion engine, while at the same time reducing fuel con-

sumption and co2 emissions.

Volvo cars is the leader in automotive safety and remains at the

vanguard of innovation in safety solutions. the company continues to

introduce world-first technologies in automotive safety and con-

stantly pushes boundaries in the journey towards its safety Vision

2020, which states that by 2020 no one should be killed or seriously

injured in a new Volvo. a major element in developing safer and more

sustainable mobility solutions is autonomous drive technologies, which

have many noticeable benefits in terms of safety, efficiency and time

management.

the manufacturing strategy is focusing on four areas: responsive

Manufacturing structure, best practice china ramp-up, world class

new Model introduction and productivity step change & operational

excellence. in line with the strategy, the manufacturing department

also simplified the production system, which will be focused around five

principles: teamwork with involvement, stability through standardisation,

right from me, demand driven flow and continuous improvements.

since 1998 Volvo car corporation has an environmental product

declaration. all businesses have permits covering their operations and

the environmental impact of noise, emissions to air and water, waste

produced and the consumption of energy and chemicals. declaration is

made continuously to both local and national environmental authorities.

all manufacturing operations in which Volvo cars are built have to

comply with the Volvo cars global environmental standard (Vcges).

the Vcges sets standards in a whole range of areas, varying from

waste water treatment over emissions from the paint operations, to

energy consumption and energy efficiency. Vcges is very strict and

puts high demands on Volvo manufacturing sites. therefore the plants

must perform better than what is legally required. the Vcges is also

an important tool in reaching the desired states in the Volvo car group

environmental strategy.

Volvo cars’ global quality standards consist of an extensive series

of requirements processes and demands that ensure that each car

leaving a Volvo plant is of the highest quality. this approach is followed

throughout the whole industrial cycle: from stringent demands on ma-

terials and parts delivered by suppliers to strict controls throughout the

manufacturing process, to extensive quality checks after final assembly.

peopleVolvo cars has a clear vision: to be the world’s most progressive and

desired premium car brand. to reach this - it needs talented people.

that is why Volvo cars has made it a strategic objective to become an

employer of choice that manages to attract the best people available.

when the corporate strategy was formulated, the company decided to

build a global organisation based on a balance between performance

and health. Volvo cars define health as the ability to align, execute

and renew itself faster than its competition. the balance between

performance and health will improve results, credibility and Volvo cars

attractiveness as an employer. the Volvo cars culture is the true ena-

bler to reach these objectives, it is expressed by three cultural values

that all employees live by: passion for customers and cars, Move fast,

aim High and challenge & respect.

since becoming a stand-alone company in 2010, Volvo cars has

made good progress towards its objective to become an employer of

choice. both, in 2012 and 2013, Volvo cars has been listed on the

universum list of the world’s most attractive employers, in which stu-

dents around the globe are asked about their ideal employers. in 2013,

Volvo cars was ranked 49th on the list of most attractive companies

among engineering students in the world’s twelve largest economies.

building a global organisation with performance and health and the

ability to act in a smart and nimble way is the essence of Volvo cars’

people strategy. another important element of becoming and being

an employer of choice is to ensure sustainable profitability. by being

consistently profitable through steady growth and under solid owner-

ship, Volvo cars ensures stability and creates new job opportunities in

the regions it operates.


Products & Innovation– a 2013 review

new produCT launCheS – 2013at the geneva Motor show in March, Volvo cars showed no less than

six renewed cars to the world: a major renewal of the s60, V60, Xc60,

V70, Xc70 and s80 made their world debut in geneva. the new model

range constituted the most extensive development of existing models

in Volvo cars’ history.

part of the launch was a world-first in automotive safety: a technol-

ogy that detects and automatically brakes for cyclists swerving out

in front of the car. the new functionality was an enhancement of the

existing detection and auto brake technology.

another feature launched was the innovative permanent high beam

functionality called active High beam control. the system makes driv-

ing in the dark safer and more comfortable by enabling drivers to use

the high beam continuously, thanks to an ingenious mechanism that

prevents dazzling of oncoming drivers by shading out only as much of

the beam as necessary.

in 2013, Volvo cars also launched its new sensus connect info-

tainment and connectivity system. the existing user interface called

sensus was extended with the option to add intuitive all-new technol-

ogy that enables connectivity and internet in the car. drivers go online

either via a car-mounted 3g/4g dongle or a personal mobile phone.

the system also has a voice-activation system, while it is also possible

to share a wifi network with everyone in the car.

drive-e powertrainsthe drive-e powertrains, showcased during the iaa in september are

available in petrol and diesel versions and are currently offered in six

Volvo models, with a further roll-out planned for 2014. among the first

drive-e engines on the market was the t6 with 306 horse powers

(hp) and the new 8-speed automatic, which made the s60 t6 the first

car in its segment to deliver over two horsepower per gram co2 from

a combustion engine only. another notable drive-e variant is the d4,

which in an s60 makes it the first car in the premium d-segment with

co2 emissions under 100 g/km, delivering 181 hp.

new design language and Spa possibilities showcased in Volvo Concept Coupéalso making its world debut in frankfurt was the Volvo concept coupé,

the first of three concept cars to showcase Volvo cars’ new design di-

rection and to demonstrate the capabilities of the company’s in-house

developed scalable product architecture (spa), on which the first

new model to be launched is the all-new Xc90 in 2014. inspired by

contemporary, progressive scandinavian lifestyle and design as well as

iconic elements from the past, both the first and the second concept

car - the Volvo Xc concept coupé, shown in detroit in January 2014

- generated a lot of positive attention in the media and won several

awards.

the concept car also includes a new approach to Volvo cars’ human-

centric user experience. a large portrait touch-screen in the centre

console interacts with an adaptive digital display and head-up display

in front of the driver. the petrol plug-in hybrid driveline in the Volvo

concept coupé reflects Volvo cars’ strategy to use electrification to

create the most powerful versions in the new four-cylinder drive-e

engine family.

InnoVaTIon and nexT GeneraTIon TeChnoloGy – 2013 next-generation safety and support featuresduring a media event in July, Volvo cars demonstrated a number of

user-friendly safety and support technologies that will be introduced in

the all-new Volvo Xc90. among the technologies shown was pedes-

trian detection in darkness, which makes the detection and braking

for other vehicles, pedestrians and cyclists work effectively also when

driving in dusk or at night.

the all-new Xc90 can also be equipped with adaptive cruise con-

trol with steering assistance. the feature helps the driver stay in the

lane and follow the rhythm of the traffic by automatically following the

vehicle ahead. road edge and barrier detection, also with steer assist,

will be introduced in future models produced on the spa platform.

‘drive me’ – Self-driving cars for sustainable mobilityVolvo cars publicly demonstrated an ingenious autonomous parking

concept during the summer 2013. the smart, driverless car parks by

itself as well as interacts safely with other cars and pedestrians in the

car park. the autonomous parking technology will be part of the ‘drive

Me’ autonomous driving pilot project that takes place in gothenburg in

2017, which was announced in early december 2013. ‘drive Me’ is a

joint initiative between Volvo cars and swedish government authorities,

in which 100 self-driving Volvo cars will use public roads in everyday

driving conditions, in what will be the world’s first large-scale autono-

mous driving pilot project.

the aim with the pilot project is to acquire a deep and broad

understanding of the requirements of autonomous driving in rela-

tion to infrastructure, driver interaction and how other drivers react on

autonomous cars. this unique collaboration between authorities and

industry, positions sweden and Volvo cars as leaders in the develop-

ment of future mobility.

new experimental electrification technologiesthroughout 2013, Volvo cars worked with a number of experiments in

the field of electrification, as part of the company’s constant drive to

further develop its electrification technologies. one example is Volvo

cars’ participation in an advanced research project studying the possi-

bilities of inductive, cordless charging for electric vehicles. the results,

published in october, showed that this technology for transferring


energy via an electromagnetic field has a promising future. a Volvo

c30 electric test car could be fully charged in around 2.5 hours, by

placing the car on top of an electromagnetic field in a charging base

station.

in another project, Volvo engineers developed a revolutionary con-

cept for lightweight structural energy storage components that could

improve the energy usage of future electrified vehicles. the mate-

rial, consisting of carbon fibres, nanostructured batteries and super

capacitors, offers lighter energy storage that requires less space in the

car, cost effective structure options and is eco-friendly. the research

project took place over 3.5 years and resulted in energy-storing car

panels on a Volvo s80 experimental car.

in the summer of 2013, Volvo rolled out an upgraded fleet of Volvo

c30 electric demonstration cars. this fleet, developed in cooperation

with siemens, allows european leasing customers of Volvo cars to

drive and evaluate this electric version of the Volvo c30. with accelera-

tion from 0-70 km/h in 5.9 seconds and a full recharge time of only

1.5 hours thanks to a world first on-board fast-charger, the Volvo c30

electric delivers on Volvo’s commitment to electrification by enhancing

acceleration and customer flexibility.

in april, Volvo cars also revealed the results of a study into the pos-

sibilities offered by kinetic flywheel technology, also known as Kers.

the testing of an experimental system for kinetic energy recovery

was carried out during 2012. the results show that this technology

has the potential to significantly reduce fuel consumption, while also

giving drivers an extra boost in terms of horsepower. Volvo cars is now

evaluating how the technology can be implemented in upcoming Volvo

models.

SaFeTy aChIeVemenTS and reCoGnITIon In 2013in July, Volvo reached a safety milestone as the sales number of Volvo

cars equipped with systems for automatic braking passed the one

million mark.

american Insurance Institute for highwayseveral Volvo models were recognized for their top safety levels in

2013. in september, the american insurance institute for Highway

safety (iiHs) introduced a new test programme that rates the per-

formance of front crash prevention systems. both the Volvo s60 and

Xc60 received the highest possible rating – ‘superior’ – and Volvo

cars’ city safety was the only standard fitment low-speed crash pre-

vention system in the test, which included 74 vehicles.

iiHs also recognized the lasting quality of the Volvo Xc90, which

was launched already back in 2002. More than a decade later, iiHs still

ranked the Xc90 as one of the safest cars on the market by awarding

it a 2013 top safety pick+.

previously, the Volvo s60 and Xc60 had already received the pres-

tigious 2013 top safety pick+ ranking since iiHs extended its scope

by integrating the small overlap crash test in 2012. in december, the

Volvo s80 was also recognized with a 2014 top safety pick+ by iiHs.

2013 Global nCap Innovation award Volvo car group’s pioneering work on pedestrian protection was

rewarded with the ‘2013 global ncap innovation award’ in May. the

award recognized a number of ground-breaking pedestrian protection

systems developed by Volvo cars in recent years, such as pedestrian

detection with full auto brake and the world-first pedestrian airbag

technology on the Volvo V40.

Folksam accident research studyVolvo cars’ leadership in safety was further supported by a safety

report of the swedish insurance company folksam in september

2013. the report put four Volvo models – the s60, V60, V70 and

s80 – in lead of the ranking with an extensive margin. the folksam

study evaluates the safety performance of 238 car models that have

been involved in 158,000 accidents that have been reported to the

swedish police between 1994 and 2013. the information is combined

with medical reports about 38,000 injured persons in traffic accidents

between 2003 and 2013.


ChIna: STarT oF VolVo produCTIon In ChenGduin november, series production of Volvo vehicles started at the geely

owned manufacturing plant in chengdu. the first car built in chengdu

is the Volvo s60l, a long wheel base version of the Volvo s60. the

start of production in the chengdu plant was an important milestone

in Volvo cars’ transformation journey and a further cornerstone in the

establishment of an industrial footprint in china.

in 2013, Volvo cars also started operations at the engine plant in

Zhangjiakou, while work on the establishment of the vehicle manufactur-

ing plant in daqing continued.

Sweden: Spa InVeSTmenTS, STarT oF produCTIon oF drIVe-e powerTraInSat the swedish operations in torslanda and olofström, work continued

to make the plants ready for the production of cars built on the spa

architecture. as part of the significant investments in the new spa and

drive-e projects that were announced late 2012, construction of a new

body shop in the torslanda vehicle plant in gothenburg, sweden was

completed during the second half of 2013. in May, Volvo cars’ engine

plant in skövde, sweden started the production of the company’s new,

in-house developed drive-e powertrain family. the new petrol and

diesel engines were introduced in a number of car lines in 2013 and

will be fully rolled out through 2015.

BelGIum: STronG year For GhenT planTin January, Volvo cars’ manufacturing plant in ghent, belgium celebrat-

ed a milestone as the plant’s fifth-millionth car rolled off the assembly

line. the ghent plant started operations in 1965 and currently employs

around 4,500 people. the fifth-millionth car was a diesel variant of the

successful Volvo V40. in total, Volvo car gent produced over 253,000

cars in 2013, with the majority being Xc60 and V40 models.

GloBal STandardS For SuSTaInaBle, hIGh-qualITy Car produCTIon all plants are following the global environmental standards set out in

the Volvo cars global environmental standard (Vcges). the waste

water treatment plant in chengdu is designed with both chemical and

biological treatment steps before the water is released to a municipal

waste water treatment facility. the Vcges also aims to reduce water

consumption and to implement a global water protection standard in

all plants. in terms of emissions to air, which are mostly caused by paint

operations, the chengdu plant is designed to perform better than the

average car factory in europe. the paint operations in the chengdu

plant are based on the use of mainly water-based paints and the state-

of-the-art paint application equipment used in torslanda and ghent.

Volvo cars strives to find a climate-neutral energy supply for all

its global operations and to continuously reduce the total energy

consumption. all the electricity used in the company’s european

operations is certified hydro- and wind-powered electricity. Volvo

cars has decades of experience of energy efficiency, such as energy

management, energy monitoring and lean energy principles which are

implemented in all plants.

in china, the supply of renewable energy is still under development,

but it is expected to grow strongly in the years to come. Volvo cars fol-

lows this development closely and aims to contribute to the shift from

traditional means of energy to renewable sources of energy.

Production & Operations

Production numbers per manufacturing/assembly site

Gothenburg Ghent Chengdu1) Uddevalla2) Chongqing3) Malaysia Total 2013 Total 2012

s40 – 6,507

s60/s60l 20,874 35,124 1,856 418 58,272 65,634

s80 7,565 225 7,790 11,549

s80l 3,752 3,752 5,529

V40 80,961 455 81,416 32,526

V40cc 24,138 167 24,305 2,579

V50 – 22,625

V60 56,568 415 56,983 55,161

V70 25,166 25,166 32,030

Xc60 113,056 569 113,625 113,252

Xc70 23,974 23,974 26,274

Xc90 23,491 180 23,671 29,841

c30 – 18,079

c70 4,059 4,059 7,811

Total 157,638 253,279 1,856 4,059 3,752 2,429 423,013 429,397

1) the manufacturing plant in chengdu (china) is owned by chinese subsidiaries of the parent company of the Volvo car group, shanghai geely Zhaoyuan international investment co., ltd.

2) the uddevalla plant was closed in June 2013.3) Manufacturing performed in a factory owned by changah automotive co ltd, ford Motor company and Mazda automotive co., ltd.


Car InduSTry deVelopmenT Global car industry developmentoverall, global gross domestic product (gdp) growth stabilized at 2.5%

in 2013. growth in the us improved from 1.1% in the first quarter to

3.6% in the third – followed by a relapse in the fourth quarter because

of the temporary us government shutdown in october. overall, car

sales rebounded as the economy, job creation and housing markets

improved.

the positive global development was partly offset by another

weak year in europe. Most northern european markets saw feeble but

positive growth in 2013, whilst growth in all the southern european

economies was negative. one quarter of european pre-crisis car sales

volumes was lost between 2007 and 2013, with car sales during this

period virtually collapsing in the southern part of the continent. pre-

crisis volumes will not be reached for several years still. at the same

time, structural changes within the industry increase complexity further.

the overcapacity in europe is still unsolved with plant utilisation for

more than half of the top 100 plants below break-even; emerging mar-

ket demand now outstrips developed market demand and a changing

regulatory environment is placing additional cost on manufacturers.

in the bric countries, with the exception of russia, economic

growth either stabilized or increased. china’s economic growth hit a

low point of 6.1% in the first quarter and then accelerated to 9.1% in

the third quarter. chinese car sales continued to increase with sedan

models accounting for the main volumes but with sport utility vehicles

(suV) models showing the strongest growth..

Global trendsdemand for new cars in large developed markets such as the us

remains quite healthy, but the shift away from larger cars to smaller,

more fuel efficient models continues. this indicates that consumers

remain financially constrained and that fuel efficiency is becoming a

key factor when it comes to deciding which car to buy. at the same

time, consumers in larger emerging markets such as brazil, russia,

india and china are seeking bigger and more luxurious cars, especially

suVs. crucially, however, they are also demanding fuel efficiency and

environmental friendliness. Hybrid and electric cars are unlikely to

satisfy this demand in the short term and this has raised interest in

optimising and downsizing the internal combustion engine, possibly in

line with electrification.

outlookin china, growth will continue to develop strongly as increasing dispos-

able income makes cars affordable. in the long term, car sales in the

us are expected to be back at pre-crisis level by 2016, while europe

faces a new normal with car sales staying below pre-crisis levels for

the foreseeable future. the automotive industry has shown itself to

be resilient and open to change during economic uncertainty. but the

way in which it handles the twin pressure of economic and structural

change will define its longer term future.

Sales Development

sales by model2013 2012

s40 181 12,354

s60 61,579 64,746

s60l 67 –

s80 7,951 11,698

s80l 3,531 5,545

V40 78,307 22,202

V40cc 21,604 244

V50 223 30,246

V60 54,666 53,037

V70 26,133 31,522

Xc60 114,010 106,203

Xc70 24,418 25,579

Xc90 23,784 31,290

c30 5,628 19,256

c70 5,758 8,029

Total 427,840 421,951

SALES BY ten biggest markets2013 2012

us 61,233 68,079

china 61,146 41,989

sweden 52,260 51,832

uK 32,678 31,743

germany 26,680 32,070

netherlands 23,006 16,338

Japan 16,897 13,848

belgium 16,670 16,338

russia 15,017 20,364

italy 13,708 14,855


retail sales in 2013in 2013 the market development in the automotive sector was strong

in china as well as in the us. china grew by 14.5 per cent compared

to 2012, from 14.972 million units to 17.145 million units. the us

market, characterised by high levels of discounts and competitive of-

fers, increased by 8.4 per cent to 15.520 (14.313) million units.

the economies in southern europe contracted, whilst almost all of

central and northern europe saw weak, but positive growth. in europe

(eu20), the total car market declined by 2.1 per cent to 12.004

(12.265) million units in 2013. a positive exception was the uK, where

the total car market grew by 10.8 per cent to 2.264 (2.045) million

units.

Volvo Cars retail salesVolvo cars reported retail sales for 2013 of 427,840 (421,951) units,

an increase of 1.4 per cent following significant growth in china and

flat sales in the mature european markets, partly offset by decreas-

ing sales in the us. the Volvo Xc60 was the best-selling model with

114,010 (106,203) sold units, followed by the V40 and the s60. sales

for the V40 model reached sales volumes of 78,307 units, while the

V40 cross country model recorded additional sales of 21,604 units.

the launch of the renewed models supported the sales develop-

ment in europe, which also built on the ongoing success of the Volvo

V40 and V60 plug-in Hybrid. Helped by strong demand for these two

models, overall sales in the netherlands increased by 40.8 per cent.

the netherlands is now Volvo cars sixth largest market.

in Sweden, Volvo cars defended its position as market leader in

sweden with a small year-on-year increase of 0.8 per cent to 52,260

(51,832) cars. the market share was strengthened to 20 per cent and

four models were on the top-ten list of best-selling car models. the

Volvo V70 once again ended the year as sweden’s most-sold car, while

the Volvo V60, Xc60 and V40 were other top sellers in the country.

China sales increased by 45.6 per cent compared to 2012, sell-

ing 61,146 cars. the increase was driven by new product launches,

increased marketing and the expansion of the dealer network. demand

for Volvo cars safety offer and premium cabin air quality were major

drivers behind the success of the Volvo s60 and Xc60, while the first

full year of Volvo V60 sales also underlined the popularity of the estate

model with sales of 6,554 cars. the Volvo V40 was launched in china

in the first quarter of 2013 and was the third best-selling Volvo model

in china, behind the Xc60 and s60.

Volvo cars experienced a challenging year in the uS, but the

market remains important. sales fell by 10.1 per cent to 61,233 cars

compared to 2012, partly due to the phase-out of the c30 and c70

models and a later introduction of the renewed model programme,

while demand for the Volvo Xc60 and s60 was strong and both

models sold better than in 2012. Just before the end of the year, Volvo

cars introduced the V60 to the american market, which together with

the refreshed model range and new drive-e powertrains is expected to

stabilize Volvo cars sales in the american market in 2014.

Japanese sales grew by 22 per cent to 16,897 cars, a level last

achieved in the late 1990s. other well-performing markets in asia

were Taiwan with an increase of 4.6 per cent to 4,364 cars and South Korea with an increase of 11.5 per cent to 1,965 cars.

Industry development (total passenger vehicles registered)1)

‘000 2013 2012 Change, %

china2) 17,145 14,972 14.5

usa2) 15,520 14,313 8.4

eu 20 12,004 12,265 –2.1

of which sweden 270 280 –3.7

rest of the world 17,489 17,676 –1.1

Retail Sales

Number of cars sold 2013 2012 Change, %

china 61,146 41,989 45.6

usa 61,233 68,079 –10.1

eu 20 226,095 227,027 –0.4

of which sweden 52,260 51,832 0.8

rest of the world 79,366 84,856 –6.5

ToTal 427,840 421,951 1.4

Market share1)

% 2013 2012 Change, %–points

china2) 0.36 0.33 0.03

usa2) 0.40 0.47 –0.07

eu 20 1.90 1.87 0.03

of which sweden 20.01 18.86 1.15

rest of the world 0.33 0.35 –0.02

1) source: polk2) preliminary data for china and us.


Volvo car corporation is a subsidiary of geely sweden ab. the opera-

tional business is conducted in Volvo car corporation and its subsidiar-

ies. the board of directors of Volvo car corporation consists of 13

members, with two deputy members from the trade union side.

Volvo car corporation welcomed two new members to the board of

directors in 2013. carl-peter forster (formerly bMw, opel, tata) joined

the board in January and former iKea ceo Mikael ohlsson took up a

board position in october.

this is the annual report of geely sweden ab. geely

sweden ab has a board of directors consisting of four

members. in its capacity as a holding company, geely

sweden ab does not conduct any business, other

than holding assets in its subsidiaries and joint venture

companies.

Board oF dIreCTorS In Geely Sweden aB

Li Shufuchairman of the board of directors, since august, 2010.born 1963. Msc in mechanical engineering and bsc in Management engineering.other assignments: founder and chairman, Zhejiang geely Holding group.

Hans-Olov OlssonVice-chairman of the board of directors, since august 2010.born 1941. Master of political sciences.

Li DonghuiMember of the board of directors, since april, 2011.born 1970. Mba and Master of Management engineering.other assignments: cfo & Vice president, Zhejiang geely Holding group, executive director, geely automobile Holdings, chairman of london taxi corporation.

Zhang RanMember of the board of directors, since august, 2010.born 1966. ph.d. in economics. other assignments: executive director of geely automobile Holdings limited, cfo of geely auto group.

Board of directors

Board oF dIreCTorS In VolVo Car CorporaTIon

Li Shufuchairman of the board of directors, since august 2010.born1963. Msc in mechanical engineering and bsc in Management engineering.other assignments: founder and chairman, Zhejiang geely Holding group.

Hans-Olov OlssonVice-chairman of the board of directors, since august 2010.born 1941. Master of political sciences.

Carl-Peter ForsterMember of the board of directors, since January 2013.born 1954. economics, aeronautical engineering.other assignments: chairman of the board, ZMdi ag and friedola tech gmbH. Member of the board, geely automobile Holdings, gordon Murray design ltd., the Mobility House ag, cosworth group Holdings ltd.

Mikael OhlssonMember of the board of directors, since october 2013.born 1957. industrial economy.

Dr. Herbert H. DemelMember of the board of directors, since august 2010.born 1953. phd in technical sciences.other assignments: special advisor to the ceo and executive Management of Magna, chief operating officer, M+w group gmbH.


Board oF dIreCTorS In VolVo Car CorporaTIon ConT.

Lone Fønss SchrøderMember of the board of directors, since august 2010.born 1960. Msc in law and an Msc in economics.other assignments: Vice chairman and audit committee, saXo bank. Member of the board and audit committee, aker solution asa, Member of the board and chairman of the audit committee nKt a/s and Valmet oy amo.

Dr. Peter ZhangMember of the board of directors, since december 2010.born 1966. phd in economics.other assignments: regional Managing director, north asia, g4s plc.

Winnie Kin Wah FokMember of the board of directors, since august 2010.born 1956. bachelor degree in commerce.other assignments: senior advisor of faM, Member of the board of directors: g4s plc., Kemira oyj, skandinaviska enskilda banken ab, Hopu investments co. ltd.

Li DonghuiMember of the board of directors, since april 2011.born 1970. Mba and Master of Management engineering.other assignments: cfo & Vice president, Zhejiang geely Holding group, executive director, geely automobile Holdings, chairman of london taxi corporation.

Håkan Samuelssonceo and Member of the board of directors, since august 2010. born 1951.Msc in Mechanical engineering.other assignments: chairman of scandlines gmbH, board member Kihlstedt & dueholm.

union representatives

Glenn Bergströmunion representative in the board of directors appointed by if Metall, since 2009.employed by Volvo cars: 1974birth year: 1955

Marko Peltonenunion representative in the board of directors, appointed by if Metall, since 2006.employed by Volvo cars: 1989birth year: 1965

Sören Carlssonunion representative in the board of directors, appointed by unionen, since 2010.employed by Volvo cars: 1985birth year: 1964

Björn Ohlssondeputy union representative appointed, by akademikerna Volvo cars, since 2009.employed by Volvo cars: 1981birth year: 1963

Magnus Sundemodeputy union representative, appointed by if Metall, since 2008.employed by Volvo cars: 1979birth year: 1954


executive management

Håkan Samuelssonpresident & ceo, since october, 2012.born 1951. Msc in Mechanical engineering.previous positions: chairman & ceo, Man ag, executive board Member development/ production, scania group.

Hans Oscarssonchief financial officer, since august 2013.born 1965. Master degree of finance.previous positions: Various positions within finance, Volvo cars.

Lex Kerssemakerssenior Vice president, product strategy & Vehicle line Management, since January, 2011.born 1960. automotive business Management.previous positions: president, Volvo car overseas corp. senior Vice president, brand, business & product strategy, Vice president global Marketing, Volvo cars, gothenborg.

Peter Mertenssenior Vice president, research & development, since april, 2011.born 1961. phd in production and industrial engineering.previous positions: Jaguar cars plc/tata Motors india, Head of corporate Quality Member of the management board of tata automotive and Jaguar/landrover carsglobal Vehicle line executive, compact cars, general Motors.

Alain Vissersenior Vice president Marketing, sales and customer service, since July, 2013.born 1963. Master of business administration.previous positions: board member at opel/Vauxhall. chief Marketing officer at gM europe.

Lars Danielsonsenior Vice president, Volvo cars china operations, since March, 2013.born 1949. b.a. in Mathematics and computer science.previous positions: Vice president, Volvo cars Manufacturing asia, shanghai. general Manager, Volvo cars torslanda (Vct), gothenburg. Vice president Manufacturing, saab automobile, trollhättan.

Volvo car corporation is managed by the executive Management team,

(eMt) with twelve members, led by the ceo and overseen by the board

of directors of Volvo car corporation. besides from managing Volvo car

corporation the executive Management team also set out the direc-

tions for the operations in the rest of the businesses in Volvo cars.

in february 2013, lars danielson was appointed senior Vice

president Volvo car china operations in May, Volvo cars announced the

formation of a new global purchasing and Manufacturing function. lars

wrebo, until then senior Vice president Manufacturing, was appointed

head of the new unit. alain Visser, from opel, took up the position as

senior Vice president, Marketing, sales & customer service in July.

Hans oscarsson, who had a key role during Zhejiang geely Holding

group ltd.’s acquisition of Volvo car group and has been with the com-

pany since 1990, was appointed as chief financial officer in august.

exeCuTIVe manaGemenT Team In VolVo Car CorporaTIon


exeCuTIVe manaGemenT Team In VolVo Car CorporaTIon ConT.

Lars Wrebosenior Vice president, purchasing & Manufacturing, since april, 2012.born 1961. Master of science.previous positions: executive Vice president, production & logistics. Member of the executive board Man trucks & bus, Munich germany, senior Vice president, chassis and cab production, scania, södertälje, sweden. Managing director, scania production angers s.a.s., angers, france.

Björn Sällströmsenior Vice president, Humanresources, since 1 March 2007.born 1954. pedagogical and behavioural science.previous positions: senior Vice president luvata international, england, senior Vice president Hr cardo ab, sweden, senior Vice president Hr Mölnlycke Health care ab, sweden.

Paul Welandersenior Vice president, Quality and customer satisfaction, since april 1, 2011.born 1958. Master of science in Mechanical engineering.previous positions: acting as senior Vice president, product development, senior Vice president, Quality and customer satisfaction, Volvo cars, executive Vice president, aftersales business unit, Volvo cars of north america.

Maria Hembergsenior Vice president group legal and general counsel, since March 2012.born 1964. Master of law.previous positions: legal counsel, ab sKf, lawyer, senior associate Mannheimer swartling, legal counsel, sca Hygine products ab.

Thomas Ingenlathsenior Vice president design, since July, 2012.born 1964.Master of arts.previous positions: design director of the Volkswagen group design studio potsdam, design director of skoda design.

Anders Kärrbergacting senior Vice presidentcorporate communications,since january 2014.born 1959.Master of science, Mechanical engineering.previous positions: Vice president, government affairs, Volvo cars group, director, environment - Vehicle engineering r&d, Volvo cars group, director, environment affairs, ab Volvo.


Governance

Risks & risk management

Volvo cars promotes the value of sound corporate governance, charac-

terized by high standards when it comes to transparency, reliability and

ethical values.

Volvo cars is managed by the executive Management team, (eMt)

with twelve members, led by the ceo and overseen by the board of

directors of Volvo car corporation. the board of directors of Volvo car

corporation consists of 13 members, with two deputy members from

the trade union side. the directors of the board are proposed by the

shareholders nomination committee, including a proposed remunera-

tion to the directors. at the annual shareholders meeting, the board

of directors and the external auditors, are elected or re-elected on an

annual basis. the majority of the board members are independent of

Volvo cars and of the independent board members at least two shall

further be independent of the shareholders.

the board of directors of Volvo car corporation has assigned an audit

committee to oversee the corporate governance, financial reporting, risks

and the compliance with external and internal regulations. the board of

directors has also assigned a compensation committee to determine the

remunerations to the ceo and the eMt members. in 2013, the board of

directors of Volvo car corporation held six ordinary meetings.

InTernal ConTrol oVer FInanCIal reporTInGVolvo cars primarily builds its internal control principles around the

recommendations of the committee of sponsoring organisations of

the treadway commission (coso). group internal control, includ-

ing a local network with internal control coordinators, aims to ensure

compliance with directives, policies and legal requirements. the audit

committee is informed about the result of the work performed by the

internal control function.

in addition there is an internal audit department with the assign-

ment to perform an independent audit of the governance process,

monitor the management of risks and ensure that systems of internal

control are adequate and effective. internal audit reports to the audit

committee. the internal audit plan is approved by the board of Volvo

car corporation, and results from the audits are communicated to the

audit committee and management.

risks are a natural element in all business activities. in order to achieve

its short and long-term objectives, risk management is part of the daily

business at Volvo cars. the risks of Volvo cars are broadly categorised

into strategic, operational, financial and compliance risks.

STraTeGIC rISKSVolvo cars has established an enterprise risk Management (erM)

system following iso 31000 standard. amongst others this includes a

formal risk assessment process. on a regular basis all functions within

Volvo cars report strategic short term and medium term risks and

mitigation activities. the erM system is governed by the enterprise

risk committee. the complete risk list is updated continuously by the

organization. at each board of directors meeting and audit com-

mittee meeting the current status is presented. in addition to these

updates the executive Management team receives quarterly informa-

tion. strategic risks include, but are not limited to: political decisions,

conflicts, changed customer patterns, and the economy’s effect on

demand. other examples of strategic risks result from sustainability

megaforces like population growth, urbanization, resource scarcity

and climate change. Volvo cars is continuously working on mitigating

identified risks. besides risk mitigation, two of the focus areas for erM

in 2014 are to further improve the dialogue about strategic risks within

the organization and to increase the effectiveness of the current risk

management processes.

operaTIonal rISKS operational risks include for example production disruptions, it risks,

supplier dependence, and price fluctuations of raw material or compo-

nents. operational risks are managed by operations. certain cross-

functional risks, such as corporate responsibility, business continuity,

security, it security and insurable risks are centrally coordinated. risk

management is embedded in various process controls of the opera-

tions such as decision tollgates and approval levels.

the group insurance policy stipulates how the management of the

insurable risks shall be handled and how insurance programmes shall

be procured in order to protect Volvo cars from unforeseen losses.

FInanCIal rISKSin the operations, Volvo cars is exposed to various types of financial

risks, such as currency risk, interest rate risk, liquidity risk, credit risk

and commodity price risk. the board of directors has approved a

group treasury policy for Volvo cars describing how the financial risks

shall be managed and controlled. the management of the financial

risks is centralised to Volvo car group’s group treasury function.

further information on financial risk management is available in note

21 - financial risks and financial instruments.

ComplIanCe rISKScompliance risks are corporate legal and business ethical risks, includ-

ing corruptive business practices, anti-competitive behaviour as well as

data privacy and export control matters. the corporate compliance &

ethics office has the overall responsibility for the development, imple-

mentation and maintenance of the corporate compliance programs

within Volvo cars including the Volvo cars code of conduct, corporate

policies and directives.


subsequent events

Proposed distribution of net income

SuBSequenT eVenTSin detroit and geneva, the Volvo concept Xc coupé and the Volvo con-

cept estate demonstrated more of what to expect from the all-new

Xc90, which will be launched later in 2014 .

during 2013, Volvo cars took a decision to insource the assembly

business for headliner and tunnel consoles of Johnson controls inc. in

torslanda and gent respectively, in order to strengthen the value chain

and provide efficiency benefits. the agreements in relation to the

insourcing were signed in March 2014, but are conditional upon the

approval from the relevant competition authorities.

the shanghai Volvo car research and development co., ltd. is a

joint venture company that has been established in china in January

2014. the purpose of the new joint venture is to engage in services sup-

porting the production and sales of Volvo cars in china.

in february 2014 Volvo cars made the decision to investigate the inter-

est from external parties to acquire the business performed in the floby

manufacturing plant.

during the chinese state Visit in belgium in april 2014 the chinese

president Xi Jinping and Mme peng liyuan, and King philippe and

Queen Mathilde of belgium visited the Volvo cars’ production plant in

ghent.

The parent companythe following funds are at the disposal of the annual general Meeting

(agM):

share premium reserve seK 5,509,350,000

shareholders’ contribution seK 293,083,620

net profit brought forward seK 2,091,642,513

net loss for the year seK –57,610,024

at the disposal of the agM seK 7,836,466,109

the board proposes the following allocation of funds:

carried forward seK 7,836,466,109

for the results and financial position in general of the parent company,

geely sweden ab and Volvo car group, reference should be made to

the following financial statements.

Consolidated Financial statements

Consolidated Income statements ..............................................................................23

Consolidated Comprehensive income ...................................................................23

Consolidated Balance Sheets ......................................................................................24

Changes in Consolidated Equity .................................................................................25

Consolidated Statement of Cash Flows .................................................................26

Notes to the Consolidated Financial statements

Note 1 – Accounting Principles ...................................................................................27

Note 2 – Critical Accounting Estimates and judgements .......................33

Note 3 – Net Revenue ........................................................................................................35

Note 4 – Operating Expenses ......................................................................................35

Note 5 – Related Parties ...................................................................................................35

Note 6 – Audit Fees ..............................................................................................................36

Note 7 – Other Operating Income and Expenses .........................................36

Note 8 – Leasing .....................................................................................................................36

Note 9 – Employees and Remuneration ...............................................................37

Note 10 – Depreciation and Amortisation ..........................................................38

Note 11 – Government Grants .....................................................................................38

Note 12 – Financial Income ...........................................................................................38

Note 13 – Financial Expenses ......................................................................................38

Note 14 – Investments in Associates .....................................................................38

Note 15 – Taxes .......................................................................................................................40

Note 16 – Intangible Assets ..........................................................................................41

Note 17 – Tangible Assets ..............................................................................................42

Note 18 – Other Non-Current Assets ....................................................................42

Note 19 – Inventories ..........................................................................................................42

Note 20 – Accounts Receivable and Other Current Assets ..................42

Note 21 – Financial Risks and Financial Instruments ................................43

Note 22 – Marketable securities and cash and cash equivalents ....48

Note 23 – Equity ......................................................................................................................48

Note 24 – Post Employment Benefits ....................................................................49

Note 25 – Current and other non-current Provisions .................................52

Note 26 – Other non - current Liabilities .............................................................52

Note 27 – Other Current Liabilities ..........................................................................52

Note 28 – Pledged Assets ..............................................................................................52

Note 29 – Contingent Liabilities .................................................................................53

Note 30 – Cash Flow statements................................................................................53

Note 31 – Changes in Accounting Principles ..................................................53

Parent Company Financial statements

Income Statements and Comprehensive Income – Parent Company ..................................................................................................................54

Balance Sheets – Parent Company ..........................................................................55

Changes in Equity – Parent Company ....................................................................56

Statement of Cash Flows – Parent Company ...................................................56

Notes to the Parent Company Financial statements

Note 1 – Accounting Principles ...................................................................................57

Note 2 – Related Parties ...................................................................................................57

Note 3 – Audit Fees ..............................................................................................................58

Note 4 – Remuneration to the Board of Directors ........................................58

Note 5 – Financial Income and Expenses ...........................................................58

Note 6 – Taxes ...........................................................................................................................58

Note 7 – Participation in Subsidiary .........................................................................59

Note 8 – Pledged Assets .................................................................................................59

Note 9 – Cash Flow Statement .....................................................................................53

Subsidiaries .........................................................................................................................................60

Contents Financial Report

22 GEELy SwEDEN AB ANNUAL REPORT 2013

SEK million Note 2013 2012

Net revenue 3 122,245 124,547

Cost of sales 4 –101,934 –104,600

Gross income 20,311 19,947

Research and development expenses 4, 16 –5,864 –6,289

Selling expenses 4 –7,919 –8,642

Administrative expenses 4, 6 –5,129 –5,192

Other operating income 7 1,509 1,032

Other operating expenses 7 –1,168 –814

Share of income in associates 14 179 24

Operating income 5, 8, 9, 10, 11 1,919 66

Financial income 12 87 120

Financial expenses 13 –874 –1,180

Income before tax 1,132 –994

Income tax 15 –172 452

Net income 960 –542

Net income attributable to

Owners of the parent company 960 –592

Non-controlling interests – 50

960 –542


Net income for the year 960 –542

Other comprehensive income, net of income tax

Items that will not be reclassified susequently to income statement:

Remeasurements of provisions for post-employment benefits 1,735 –98

Items that may be reclassified susequently to income statement:

Translation difference on foreign operations –160 –324

Translation difference of hedge instruments of net investments in foreign operations –100 48

Change in cash flow hedge reserve 23 9 138

1,484 –236

Total comprehensive income for the year 2,444 –778

Total comprehensive income attributable to

Owners of the parent company 2,444 –828

Non–controlling interests – 50

2,444 –778

CONSOLIDATED INCOME STATEMENTS

CONSOLIDATED COMPREHENSIVE INCOME

23GEELy SwEDEN AB ANNUAL REPORT 2013

SEK million Note Dec 31, 2013 Dec 31, 2012

ASSETS

Non-current assets

Intangible assets 16 17,271 15,666

Property, plant and equipment 8, 17 25,653 25,654

Assets held under operating leases 8, 17 4,145 3,542

Investments in associates 14 1,159 550

Other long-term securities holdings 10 10

Deferred tax assets 15 2,165 1,820

Other non-current assets 18 1,077 734

Total non-current assets 51,480 47,976

Current assets

Inventories 19 12,161 11,812

Accounts receivable 5, 20 5,618 4,735

Current tax assets 97 87

Other current assets 20 2,781 2,587

Marketable securities 22 88 –

Cash and cash equivalents 22 15,372 9,607

Total current assets 36, 117 28,828

TOTAL ASSETS 87,597 76,804

EQUITY & LIABILITIES

Equity 23

Equity attributable to owners of the parent company 24,638 21,901

Total equity 24,638 21,901

Non-current liabilities

Provisions for post-employment benefits 24 3,641 5,492

Deferred tax liabilities 15 1,759 1,556

Other non-current provisions 25 5,463 5,911

Liabilities to credit institutions 26 12,033 7,057

Other non-current liabilities 26 1,212 1,057

Total non-current liabilities 24,108 21,073

Current liabilities

Current provisions 25 8,169 7,182

Liabilities to credit institutions 820 310

Advance payments from customers 317 187

Trade payables 13,632 12,626

Current tax liabilities 658 365

Other current liabilities 27 15,255 13,160

Total current liabilities 38,851 33,830

TOTAL EQUITY & LIABILITIES 87,597 76,804

CONSOLIDATED BALANCE SHEETS


SEK millionShare

CapitalShare

premium

Other contributed

capitalTranslation differences

Other reserves

Retained earnings

Attributable to owners

of the parent

Non- controlling

interest Total

Balance at January 1, 2012 (as previously reported) 1,000 5,509 1,127 –302 – 15,026 22,360 288 22,648

Effect of changes in accounting policies – – – – –1,483 –1,483 – –1,483

Balance at January 1, 2012 (restated) 1,000 5,509 1,127 –302 13,543 20,877 288 21,165

Net income for the year – – – – – –592 –592 50 –542

Other comprehensive income

Remeasurements of provision for post-employment benefits – – – – – –126 –126 – –126

Translation difference on foreign operations – – – –324 – – –324 – –324

Translation difference of hedge instruments for net investments in foreign operations – – – 61 – – 61 – 61

Change in cash flow hedge reserve recognised in other comprehensive income – – – – 177 – 177 – 177

Tax attributable to items recognised in other comprehensive income – – – –13 –39 28 –24 – –24

Other comprehensive income – – – –276 138 –98 –236 – –236

Total comprehensive income – –276 138 –690 –828 50 –778

Transactions with owners

Unconditional shareholder’s contribution – – 1,779 – – – 1,779 – 1,779

Acquisition of remaining shares in non-controlling interest 1) – – – – – 75 75 –333 –258

Other changes – – – – – –2 –2 –5 –7

Transactions with owners – – 1,779 – – 73 1,852 –338 1,514

Balance at December 31, 2012 1,000 5,509 2,906 –578 138 12,926 21,901 – 21,901

Net income for the year – – – – – 960 960 – 960

Other comprehensive income

Remeasurements of provision for post-employment benefits – – – – – 2,190 2,190 – 2,190

Translation difference on foreign operations – – – –160 – – –160 – –160

Translation difference of hedge instruments of net investments in foreign operations – – – –128 – – –128 – –128

Change in cash flow hedge reserve recognised in other comprehensive income – – – – 12 – 12 – 12

Tax attributable to items recognised in other comprehensive income – – – 28 –3 –455 –430 – –430

Other comprehensive income – – – –260 9 1,735 1,484 – 1,484

Total comprehensive income – – – –260 9 2,695 2,444 – 2,444


Unconditional shareholder’s contribution – – 293 – – – 293 – 293

Transactions with owners – – 293 – – – 293 – 293

Balance at December 31, 2013 1,000 5,509 3,199 –838 147 15,621 24,638 – 24,6381 ) Acquisition of remaining shares in Pininfarina Sverige AB (Volvo Car Uddevalla AB).

CHANGES IN CONSOLIDATED EQUITY



OPERATING ACTIVITIES

Operating income 1,919 66

Depreciation and amortisation of non-current assets 10 7,907 8,016

Interest and similar items received 87 120

Interest and similar items paid –433 –423

Other financial items –80 –85

Income tax paid –573 –928

Adjustments for items not affecting cash flow 30 –281 –410

8,546 6,356

Movements in working capital

Change in inventories –349 1,407

Change in accounts receivable –883 –928

Change in accounts payable 1,006 –2,838

Change in items relating to repurchase commitments –816 –1,132

Change in provisions 767 –858

Change in other working capital assets/liabilities 590 742

Cash flow from movements in working capital 315 –3,607

Cash flow from operating activities 8,861 2,749

INVESTING ACTIVITIES

Investments in shares and participations –520 –258

Investments in intangible assets –4,188 –3,061

Disposal of intangible assets 30 500 –

Investments in property, plant and equipment –4,714 –4,466

Disposal of property, plant and equipment 66 93

Investments in marketable securities 22 –88 –

Other 104 14

Cash flow from investing activities –8,840 –7,678

Cash flow from operating and investing activities 21 –4,929

FINANCING ACTIVITIES

Proceeds from credit institutions 26 5,336 8,063

Repayment of liabilities to credit institutions 26 –45 –7,251

Received shareholders contribution 293 –

Other 181 –356

Cash flow from financing activities 5,765 456

Cash flow for the year 5,786 –4,473

Cash and cash equivalents at beginning of year 22 9,607 14,634

Exchange difference on cash and cash equivalents –21 –554

Cash and cash equivalents at end of year 15,372 9,607

CONSOLIDATED STATEMENT OF CASH FLOWS


NOTE 1 – ACCOUNTING PRINCIPLES

Basis of preparationThese are the second financial statements for Geely Sweden AB and its

subsidiaries (Volvo Car Group) that have been prepared in compliance

with the International Financial Reporting Standards (IFRS) issued by

the International Accounting Standards Board (IASB), as adopted by the

European Union. This Annual Report is prepared in accordance with IAS

1 Presentation of Financial Statements and the Swedish Companies

Act. In addition, RFR 1 Supplementary Rules for Groups has been

applied, which is issued by the Swedish Financial Reporting Board. RFR

1 specifies mandatory additions to the IFRS disclosure requirements in

accordance with the Swedish Annual Accounts Act. As from 2012 with

a restatement of comparison year 2011, Volvo Car Group has applied

IFRS in its financial statements.

The consolidated financial statements have been prepared on the

historical cost basis except for certain financial instruments that are car-

ried at fair value, as explained in the accounting policies below. Prepar-

ing the financial reports in compliance with IFRS requires that Manage-

ment make judgements and estimates as well as assumptions that

affect the application of accounting principles and amounts recognised.

The areas involving a higher degree of judgement or complexity, or areas

where assumptions and estimates have significant impact on the con-

solidated financial statements are disclosed in Note 2 - Critical account-

ing estimates and judgements.

The parent company applies the same accounting principles as the

consolidated Volvo Car Group, except in the cases specified in the sec-

tion entitled notes to the parent company’s financial statements. As

required by IAS 1, Volvo Car Group companies apply uniform accounting

rules, irrespective of national legislation, as defined in the Volvo Car

Group Finance Manual, which is in compliance with IFRS. The principles

stated below have been applied consistently for all periods, unless oth-

erwise indicated below. For new accounting standards the application

follows the rules in each particular standard. For information on new

standards, see the section on new and amended standards adopted by

the Volvo Car Group.

Basis of ConsoLiDationThe consolidated accounts have been prepared based on the principles

set forth in IAS 27 - Consolidated and separate financial statements.

Volvo Car Group includes Geely Sweden AB and its subsidiary Volvo Car

Corporation AB. Volvo Car Group also includes all of Volvo Car Corpora-

tion AB’s subsidiaries, which means the companies in which Volvo Car

Corporation directly or indirectly owns more than 50 per cent of the vot-

ing rights of the shares or in any other way holds power to control. Sub-

sidiaries are fully consolidated from the date on which control is trans-

ferred to the group. They are deconsolidated from the date that control

ceases. IFRS 3 - Business combinations, is applied on acquisitions.

Non-controlling interests, that is equity in a subsidiary not attribut-

able to the parent company, are recognised as a separate item in con-

solidated equity. In the consolidated income statement, the share of the

year’s earnings belonging to non-controlling interest is included in net

income. Separate disclosure of the portion belonging to non-controlling

interests is provided. For more information refer to note 14- Investments

in Associates.

Balances and transactions with Shanghai Geely Zhaoyuan International

Investment Co. Ltd and its subsidiaries, companies that are not part of

the Volvo Car Group, are classified in the consolidated financial state-

ments as balances and transactions with related companies.

subsidiariesThe group applies the acquisition method to account for business com-

binations. The value of the acquired net assets is determined by measur-

ing acquired assets and liabilities and contingent liabilities at fair value

on the date of acquisition. In business combinations where the cost of

acquisition exceeds the fair value of the acquired identifiable net assets,

the difference is accounted for as goodwill. If the acquisition cost is less

than the final fair value of the net assets and the acquisition is deter-

mined to be a bargain purchase, the difference is recognised directly as

income in the income statement. Acquisition-related costs are expensed

as incurred. Inter-company transactions, balances and unrealised gains

or losses on transactions between group companies are eliminated.

associated companies and jointly controlled entitiesAssociated companies are companies in which Volvo Car Group has a

significant but not controlling influence, which generally is when Volvo

Car Group holds between 20 and 50 per cent of shares, but it also

includes investments with less participation if significant influence is

proven. Joint 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. Invest-

ments in associated companies and jointly controlled entities are

reported in accordance with the equity method and are initially recog-

nized at acquisition cost. The group’s share of post-acquisition profit or

loss is recognised in the income statement, and its share of post-acqui-

sition movements in other comprehensive income is recognised in other

comprehensive income with a corresponding adjustment to the carrying

amount of the investment. When the group’s share of losses in an asso-

ciate equals or exceeds its interest in the associate, the group does not

recognise further losses unless it has incurred legal or constructive obli-

gations or made payments on behalf of the associate or jointly con-

trolled entity.

foreign currencytranslation of foreign group entitiesVolvo Car Group’s functional currency is the Swedish krona (SEK). The

functional currency of each Volvo Car Group company is determined

based on the primary economic environment in which it operates. Volvo

Car Group’s and Geely Sweden AB’s presentation currency is SEK.

When preparing the consolidated financial statements, balance sheet

and income statements for all group entities whose functional currency

is not SEK are translated into Volvo Car Group’s presentation currency

using the procedures below, except for subsidiaries in hyperinflationary

economies. Currently none of the entities within Volvo Car Group oper-

ates in a hyperinflationary economy.

- Assets and liabilities are translated at the exchange rates at the

respective year end closing rate.

- Income and expenses are translated at the monthly exchange rates

reported in the income statement and statement of other comprehen-

sive income.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAll amounts are in MSEK unless otherwise stated.

Amounts in brackets refer to the preceding year.

27GEELy SWEdEN AB ANNUAL REPORT 2013

- All translation differences that arise when translating the financial

statements of subsidiaries outside Sweden are recognised as a sepa-

rate item under other comprehensive income in the statement of other

comprehensive income, without affecting income, until the disposal of

the subsidiary.

transactions and balance sheet items in foreign currencyTransactions in foreign currencies are translated to the functional cur-

rency at the exchange rate on the day of the transaction. Monetary

assets and liabilities in foreign currencies are translated to the functional

currency at the exchange rate at the respective year end (closing rate).

Exchange rate differences arising from translation of currencies are

reported in the income statement, except when deferred in other com-

prehensive income as qualifying cash flow hedges and net investment

hedges. Operationally derived exchange gains and losses are shown

under other operating income and other operating expenses respec-

tively. Financially derived exchange gains and losses are shown as finan-

cial income and financial expenses. The main exchange rates applied

are shown in the table below:

eXCHanGe rates

average rate Close rate

Country Currency 2013 2012 2013 2012

China CNy 1,06 1,07 1,07 1,05

Euro zone EUR 8,65 8,71 8,89 8,59

Great Britain GBP 10,19 10,71 10,64 10,50

United states USd 6,53 6,75 6,46 6,52

Russia RUB 0,21 0,22 0,20 0,21

aCCountinG prinCipLesrevenue recognition Volvo Car Group’s recognised net revenue mainly consists of sales of

goods and services. Net revenue is reduced by discounts and returned

goods. Revenue from the sale of goods is recognised when substantially

all risks and rewards are transferred to the customer (generally dealers

and distributors). However, if the sale of vehicles is combined with a

repurchase agreement, the transactions are accounted for as operating

lease contracts. Revenues related to an operating lease arrangement

are recognised straight-line over the lease period and the asset is rec-

ognised as an asset under operating lease in the balance sheet. Reve-

nue from sale to an external party, subject to a subsequent issuance of a

residual value guarantee to an independent financing provider, is recog-

nised at the time of sale and a provision is made for the estimated resid-

ual value risk, provided that significant risks related to the vehicle has

been transferred to the customer. When extended services have been

contractually agreed with the customer in addition to the sale of a vehi-

cle, such as warranty extensions over a fixed period, the related revenue

is recorded on a linear basis in the income statement over the contract

period.

Interest income is reported as it is earned. The calculation is made on

the basis of the return on underlying assets in accordance with the

effective interest method. dividend income is recognised when the right

to receive dividend is obtained. Royalties are recognized in accordance

with the substance of the relevant agreement, generally on an accrual

basis.

Leases Any lease agreements in which the risks and rewards associated with

ownership have been essentially transferred to the related company are

classified as a finance lease. Other leased assets where ownership is

retained by the lessor are classified as operating leases.

Volvo Car Group as lessorVolvo Car Group currently has no finance leases as a lessor per the clos-

ing date. Transactions that include repurchase obligations or residual

value guarantees, and for which significant risks remain with Volvo Car

Group, are carried as operating leases. Operating leases are carried as

Assets held under operating leases among tangible assets. Revenue

from operating leases is recognised on a straight-line basis over the

leasing period. depreciation of the asset occurs on a straight-line basis

under the terms of the commitment and the amounts are adjusted to

conform to the estimated realisable value when the commitment expires.

The estimated realisable value at the commitment termination is evalu-

ated continuously. Principles related to repurchase obligations are fur-

ther explained in the section Revenue recognition.

Volvo Car Group as lesseeIn the case of finance leases, the asset is recognised at the inception of

the lease period as a current or non-current asset at the lower of fair

value or the present value of the minimum lease payments. The asset is

depreciated using the straight-line method over the asset’s useful life or

over the term of the lease if this is shorter. The commitment to pay future

lease payments are discounted to net present value and recorded as a

current or non-current liability in the balance sheet. The lease payments

made are allocated between amortisation of liabilities and interest

expense. For operating leases, i.e., when the risks and rewards associ-

ated with the ownership of the asset have not been transferred to Volvo

Car Group, lease and rental payments are expensed as arised on a

straight-line basis over the lease contract period.

An arrangement that is not in the legal form of a lease is accounted

for as a lease if it is dependent on the use of a specific asset or assets

and the arrangement conveys a right to use the asset.

Government grantsA government grant is recognised when there is reasonable assurance

that Volvo Car Group will comply with the conditions attached to the

grant and that the grant will be received. Government grants are

recorded in the financial statements in accordance with their purpose,

either as reduction of expense or a reduction of the cost of the capital

investment. Government grants are recognised in the income statement

on a systematic basis over the periods necessary to match them with the

related expenses that they are intended to compensate. Government

grants related to assets are deducted from the carrying amount of the

asset and are recognized in the Income statement over the life of a

depreciable asset as a reduced depreciation expense. In cases where

the received government grant is not intended to compensate any

expenses or acquisition of assets the grant is recognised as other

income. Government grants for future expenses are recorded as

deferred income.

income taxes Volvo Car Group’s tax expense consists of current tax and deferred tax.

Taxes are recognised in the income statement except when the underly-

28 GEELy SWEdEN AB ANNUAL REPORT 2013

ing transaction is recognised directly in equity or other comprehensive

income, whereupon related taxation is also recognised in equity or other

comprehensive income.

Current tax is tax that must be paid or will be received for the current

year. Current tax also includes adjustments to current tax attributable to

previous periods.

deferred tax is calculated according to the balance sheet method for all

temporary differences that arise between the tax-related value and the

carrying amount of assets and liabilities. deferred tax assets and liabili-

ties are measured at the nominal amount and at the tax rates that are

expected to apply when the asset is realised or the liability is settled,

using the tax rates and tax rules that have been enacted or substantively

enacted at the balance sheet date. deferred tax assets relating to

deductible temporary differences and loss carryforwards are recognised

to the extent it is probable that they will be utilised in the future. deferred

tax assets and deferred tax liabilities are offset when they are attribut-

able to the same taxation authority on either the same taxable entity or

different taxable entities where there is an intention to settle the bal-

ances on a net basis and the affected company has a legally enforce-

able right to offset tax assets against tax liabilities. Tax laws in Sweden

and in certain other countries allow companies to defer tax payments

through allocation to untaxed reserves. These items are treated as tem-

porary differences in the consolidated balance sheet where the untaxed

reserves are divided between deferred tax liability and equity. In the con-

solidated income statement an allocation to or withdrawal from, untaxed

reserves is divided between deferred taxes and net income for the year.

Classification of current and non-current assets and liabilitiesAn asset is classified as a current asset when it is held primarily for the

purpose of trading, is expected to be realised within twelve months after

the balance sheet date or consists of cash or cash equivalents, provided

it is not subject to any restrictions. All other assets are classified as non-

current assets. A liability is classified as a current liability when it is held

primarily for the purpose of trading or is expected to be settled within

twelve months after the balance sheet date. All other liabilities are clas-

sified as non-current liabilities.

intangible assetsAn intangible asset is recognised when the asset is identifiable, the

Volvo Car Group controls the asset, and it is expected to yield future

economic benefits. Intangible assets comprise product development,

licences and patents, trademarks, dealer network and investments in IT

systems and software. Intangible assets such as trademarks and dealer

networks are normally identified and measured at fair value in connec-

tion with business combinations.

Both acquired and internally generated intangible assets, other than

research and development expenses, are recognised at acquisition cost,

less accumulated depreciation and any impairment loss. When applica-

ble, internal costs directly related to the development of intangible

assets are included in the value of the intangible asset. Borrowing costs

are included in the cost of assets that take substantial period of time to

get ready. Subsequent expenditure on intangible assets increases the

cost only if it is likely that the Volvo Car Group will have future economic

benefit from the subsequent expenditure. All other subsequent expendi-

ture is recognised as an expense in the period in which it is incurred.

Capitalised product development costsVolvo Car Group’s research and development activities are divided into a

concept phase and a product development phase. Research costs dur-

ing the concept phase are charged to the income statement as they

arise. development costs for new products, production systems and

software are capitalised at manufacturing cost beginning on the date

when it is probable that the development expenditure will generate

future economic benefits. development costs are capitalised to the

extent that attributable costs can be measured reliably and both techni-

cal feasibility and successful marketing are assured. If the conditions for

capitalisation are not met, the costs are recognized in the Income state-

ment as expenses in the period they occur. Capitalised development

costs comprise all expenditures that can be directly attributed to the

development phase and that serves to prepare the asset for use, includ-

ing development related overhead and borrowing cost.

development costs previously recognised as an expense are not rec-

ognised as an asset in a subsequent period.

amortisation methods for intangible assetsIntangible assets with finite useful life are amortised on a straight-line

basis in the Income statement over their respective expected economic

life and are tested for impairment whenever there is an indication that

the intangible asset may be impaired. The amortisation period for con-

tractual rights such as licenses does not exceed the contract period.

Trademarks are assumed to have indefinite useful lives since the Volvo

Car Group has the right and the intention to continue to use the trade-

marks for the foreseeable future and the useful life cannot be assessed

why no amortisation is made. dealer network is estimated to have a use-

ful life of 30 years based on the fact that it has been proven historically

to have had a stable basis of dealers.

The useful lives are to a large extent based on historical experience,

expected application as well as other individual characteristics of the

asset. The following useful lives are applied:

dealer network 30 years

Software, mainframe 8 years

Product development costs 3–10 years

Patents, licences and similar rights 3–10 years

Software, PC 3 years

Amortisation is included in cost of sales, selling or administrative

expenses depending on where the assets have been used.

property, plant and equipmentThe Volvo Car Group applies the cost method for measurement of tangi-

ble assets. Cost includes expenditure that can be directly attributed to

the acquisition. Borrowing costs are included in the acquisition value of

an asset that takes substantial period of time to get ready for its

intended use or sale, a so called qualifying asset. Tangible assets are

recognised at acquisition cost, less accumulated depreciation and

potential impairment loss.

Subsequent expenditure on property, plant and equipment increases the

acquisition value only if it is probable that the Volvo Car Group will have

future economic benefit from the subsequent expenditure. The carrying

amount of the replaced part is derecognised. All other repairs and main-

tenance are charged to the income statement during the financial

period in which they are incurred.


Depreciation methods for tangible assetsdepreciation according to plan is based on the acquisition value. Tangi-

ble assets are systematically depreciated over the expected economic

life of the asset.

Each part of an item of property, plant and equipment, with a cost

that is significant in relation to the total cost of the item, is depreciated

separately when the useful life for the part differs from the useful life of

the other parts of the item. Land is assumed to have an indefinite useful

life and is not depreciated.

A review of the useful lives applied in the Group has been done dur-

ing the year. As a result of this review the useful lives for certain types of

machinery and equipment have been adjusted from december 1, 2013.

For further information regarding the effect on depreciations refer to

Note 17 - Tangible assets.

The following useful lives are applied:

Buildings (whereof frames 50 years) 14.5–50 years

Land improvements 30 years

Machinery 8–30 years (previously 14,5–25 years)

Equipment 3–20 years (previously 5–14,5 years)

impairment of assetsThe carrying amounts of intangible and tangible assets as well as all

shareholding investments are tested regularly to assess whether there is

an indication of impairment. Intangible assets that have an indefinite

useful life are tested for impairment annually or whenever there is an

indication of decline in value. The carrying amount of tangible assets

with definite useful lives is tested whenever events or changes in cir-

cumstances indicate that the value of the asset is reduced and there

might be an impairment loss. For these assets as well as assets with an

indefinite useful life, the asset’s recoverable amounts are calculated. The

recoverable amount is the higher of an asset’s fair value less costs to

sell or value in use. Value in use is defined as the present value of the

future cash flows expected to be derived from an asset. For the purpose

of assessing impairment, assets are grouped in one cash-generating

unit (CGU).

When an indication is confirmed, an impairment loss is recognized to

the extent that the carrying amount exceeds its recoverable amount.

Previously recognised impairment loss is reversed if reasons for the ear-

lier impairment no longer exist. An impairment loss is reversed only to

the extent that the asset’s carrying amount after reversal does not

exceed the carrying amount, net of amortisation, which would have been

reported if no impairment loss had been recognized in prior years.

financial assets and liabilitiesFinancial instruments are any form of contract that gives rise to a finan-

cial asset in one company and a financial liability or equity instrument in

another company. Financial assets in the consolidated balance sheet

encompass interest-bearing receivables, trade receivables, other finan-

cial assets, derivative assets and cash and cash equivalents. derivative

instruments include forwards, options and swaps used primarily to cover

risks relating to exchange rate, exposure to interest rate risks and price

fluctuations on electricity. Financial liabilities in the consolidated balance

sheet mostly consist of trade payables, loans and derivative liabilities.

recognition and Measurement of financial assets and liabilitiesFinancial assets and liabilities are recognised in the balance sheet when

the Volvo Car Group becomes a party to the contractual terms and con-

ditions. Receivables are recognised in the balance sheet when Volvo Car

Group has a contractual right to receive payment and liabilities are rec-

ognised when the counterparty has performed and there is a contractual

obligation to pay. Financial assets and liabilities are reported on settle-

ment date, with the exception of derivative instruments, which are

reported on the trade date.

Financial assets are initially recognised at fair value plus transaction

costs except for those financial assets carried at fair value through profit

or loss. Financial assets carried at fair value through profit or loss are ini-

tially recognised at fair value, and transaction costs are expensed in the

income statement. Loans and receivables are subsequently measured at

amortised cost. Accounts receivable are recognised at the amount

expected to be received, i.e. after deduction of bad debts allowance. A

bad debt allowance has incurred when there has been a triggering event

for the customer’s inability to pay. The bad debts on accounts receivable

are recognised as operating expenses. Amortised cost is calculated

using the effective interest method, where any premiums or discounts

and directly attributable costs and revenue are capitalised over the con-

tract period using the effective interest rate. Fair value is generally deter-

mined by reference to official market quotes. When market quotes are

not available the fair value is determined using generally accepted valua-

tion methods such as discounted future cash flows.

Borrowings are initially recognized at fair value net of transaction

costs incurred. After initial recognition, borrowings are valued at amor-

tised cost using the effective interest method.

Classification of financial assets and liabilitiesThe Group classifies its financial assets in the following categories; finan-

cial assets at fair value through profit and loss, loans and receivables,

financial liabilities through profit and loss and other financial liabilities.

Classification takes place at initial recognition. Exceptions from these

principles apply to financial instruments included in hedge accounting,

which are described further in the section “Hedge accounting”.

financial assets carried at fair value through profit or lossA financial asset is assigned to this category if it is held for trading.

derivative instruments with a positive market value are assigned to this

category, unless they are included in hedge accounting. Changes in fair

value of these instruments are recognised in the income statement.

Based on the purpose of the contract, changes in fair value are reported

either under operating income or as financial income/expense. deriva-

tives with positive fair values (unrealised gains) are recognised as other

current assets.

Loans and receivablesNon-derivative financial assets with fixed or determinable payments that

are not quoted in an active market, for example accounts receivable and

loan receivables, are assigned to this category. Cash and cash equiva-

lents are also assigned to this category. Loans and receivables are car-

ried at amortised cost except for accounts receivable that have a short

duration and are therefore valued at nominal value without discounting

to net present value. The nominal value for these short term items will

reflect the fair value.


financial liabilities at fair value through profit and lossderivative instruments with a negative fair value are assigned to this cat-

egory, unless they are included in hedge accounting. Changes in the fair

values of these instruments are recognised in the income statement.

Based on the purpose of the contract, changes in fair value are reported

either under operating income or as financial income/expense. deriva-

tives with negative fair values (unrealised losses) are recognised as

other current liabilities.

other financial liabilitiesThis category includes financial liabilities not held for trading, trade pay-

ables as well as borrowings and repurchase commitments.

Derecognition of financial assets and liabilitiesA financial asset or a portion of a financial asset is derecognised in the

balance sheet when all significant risks and benefits linked to the asset

have been transferred to a third party. Where Volvo Car Group concludes

that all significant risks and benefits have not been transferred, the por-

tion of the financial assets corresponding to Volvo Car Group’s continu-

ous involvement is recognised.

Invoiced sales are sometimes subject to contracts for factoring with

a third party (bank or financial institution). This enables Volvo Car Group

to receive payment for its accounts receivable within a few days after

billing and thus free liquidity at an earlier stage. If the criteria for

derecognition of accounts receivable are not fulfilled, the receivable

remains on the balance sheet. A financial liability or a portion of a finan-

cial liability is derecognised from the balance sheet when the obligation

in the contract has been fulfilled or cancelled or has expired.

For further information regarding financial instruments refer to Note

21 - Financial risks and financial instruments.

Hedge accountingHedge accounting is adopted for derivative instruments that are

included in a documented hedge relationship. For hedge accounting to

be applied, a direct connection between the hedge and the hedged item

is required. Further, it is necessary for the hedge to protect the risk as

effectively as intended, that the effectiveness of the measure can be

demonstrated at all times to be sufficiently high through effectiveness

testing, and that hedging documentation has been prepared. Volvo Car

Group apply hedge accounting starting from April 1, 2012 for derivate

instruments related to hedging of currency risk in future commercial

cash flows. Volvo Car Group also applies hedge accounting of net

investments in foreign operations from december 2012.

Hedge accounting is applied for derivative instruments that were

acquired for the purpose of hedging expected future commercial cash

flows in foreign currencies against currency rate risks. A cash flow

hedge is a hedge held to reduce the risk of an impact on profit or loss

from foreign exchange changes in cash flow relating to a future transac-

tion. In cash flow hedge accounting, the derivative is recognised in the

balance sheet at fair value, and changes in the fair value is recognised

under other comprehensive income and accumulated in the hedge

reserve in equity. Amounts that have been recognised in the hedge

reserve in equity are recognised in the income statement in the same

period as the payment flows reach the income statement. The hedging

relationship is regularly tested up until its maturity date. If the identified

relationships are no longer deemed effective, the fluctuation in fair value

on the hedging instrument from the last period the instrument was con-

sidered effective is recognised in the income statement. If the hedged

transaction is no longer expected to occur, the hedge’s accumulated

changes in value are immediately transferred from other comprehensive

income to the income statement and are included in operating income.

Hedging of net investments in foreign operations refers to hedges

held to reduce the effect of changes in the value of a net investment in a

foreign operation due to changes in foreign exchange rates. The foreign

currency gains and losses on hedging instruments are recognised under

other comprehensive income. In the event of a divestment, the accumu-

lated result from the hedge is immediately transferred from the hedge

reserve in equity to the income statement. For further information

regarding accounting treatment related to foreign currency see section

“Foreign currency” above. See also Note 21- Financial risks and finan-

cial instruments for more information regarding financial instruments.

inventoryInventories of raw material, consumables and supplies, semi-manufac-

tured goods, work in progress, finished goods and goods for resale are

reported in inventories and carried at the lower of actual cost, less

deductions for any obsolescence, and net realisable value at the report-

ing date. Costs of inventories comprise costs of purchase, production

charges and other expenditures incurred in bringing the inventories to

their present location and condition. The cost of inventories of similar

assets is established using the first-in, first-out method (FIFO) and is

based on the standard cost method. The standard costs are updated

annually and adjustments are made at the turn of the model year. Net

realisable value is calculated as the selling price in the ordinary course

of business less estimated costs of completion and selling costs. For

groups of similar products a group valuation method is applied. Physical

stock counts are carried out annually or more often where appropriate in

order to verify the records.

Cash and cash equivalentsCash and cash equivalents consist of cash and bank balances as well as

short-term liquid investments with a maturity of maximum 90 days,

which are subject to an insignificant risk of fluctuations in value. Cash

and cash equivalents are stated at nominal value.

employee benefit obligationsVolvo Car Group has both defined contribution plans and defined benefit

plans. Under a defined contribution plan, Volvo Car Group pays fixed

contributions into a separate legal entity and will have no legal obligation

to pay further contributions if the fund does not hold sufficient assets to

pay all employee benefits. The contributions are recognised as

employee benefit expenses in the income statement when earned by

the employee. The assets of the plans are held separately from those of

Volvo Car Group in funds under the control of trustees.

A defined benefit plan is a pension plan that defines the amount of

post-employee benefit an employee will receive upon retirement, usually

dependent on one or more factors such as age, years of service and

compensation. Volvo Car Group has the obligation for the future bene-

fits. For the funded defined benefits plans, the assets have been sepa-

rated, with the majority invested in pension foundations.

The pension provision or asset recognised in the balance sheet in

respect of defined benefit pension plans is the present value of the


defined benefit obligation at the balance sheet date less the fair value of

plan assets. Prepaid contributions are recognised as an asset to the

extent that a cash refund or reduction in future payments is available.

The calculation of the present value of defined benefit pension

undertakings is performed according to the Projected Unit Credit

method, which also considers future earnings. The calculation is per-

formed annually by independent actuaries. The present value of the

defined benefit obligation is determined by discounting the estimated

future cash outflows using interest rates of high-quality corporate and

government bonds that are denominated in the currency in which the

benefits will be paid, and that have terms to maturity approximating to

the terms of the related pension liability. The discount rate for the Swed-

ish pension obligation is determined by reference to mortgage bonds.

The most important actuarial assumptions are stated in Note 24 - Post

employment benefits.

Actuarial gains and losses arising from experience adjustments and

changes in actuarial assumptions are charged or credited to equity in

other comprehensive income in the period in which they arise.

Past service costs are recognized immediately in the income state-

ment when the settlement occurs.

Interest cost and expected return on assets is calculated on a net

basis by applying the discount rate used to measure the defined benefit

obligation to the net defined benefit liability (asset).

Termination benefits are payable when employment is terminated by

the group before the normal retirement date, or whenever an employee

accepts voluntary redundancy in exchange for these benefits. The group

recognizes termination benefits at the earlier of the following dates: (a)

when the group can no longer withdraw the offer of those benefits; and

(b) when the entity recognizes costs for a restructuring that is within the

scope of IAS 37 and involves payment of termination benefits.

provisionsProvisions are recognized in the balance sheet when a legal or con-

structive obligation exist as a result of a past event and it is deemed

more likely than not that an outflow of resources will be required to settle

the obligation and the amount can be reliably estimated. The amount

recognized as provision is the best estimate of the expenditure required

to settle the present obligation at the balance sheet date. Provisions are

regularly reviewed and adjusted as further information becomes avail-

able or circumstances change.

If the effect is material, non-current provisions are recognized at

present value by discounting the expected future cash flows at a pre-tax

rate reflecting current market assessments of the time value of money.

The discount rate does not reflect such risks that are taken into consid-

eration in the estimated future cash flow.

Revisions to estimated cash flows (both amount and likelihood) are

allocated as operating cost. Changes to present value due to the pas-

sage of time and revisions of discount rates to reflect prevailing current

market conditions are recognised as a financial cost.

Warranty provisions include the Group’s cost of satisfying the cus-

tomers with specific contractual warranty obligations, as well as other

costs not covered by contractual commitments. All warranty provisions

are recognised at the sale of the vehicles or spare parts. The initial cal-

culations of the reserves are based on historical warranty statistics con-

sidering known quality improvements, costs for remedy of defaults etc.

The provisions for campaigns booked at point of sale are adjusted as

campaign decisions for specific quality problems are made. On a quar-

terly basis the provisions are adjusted to reflect latest available data

such as actual spend, exchange rates, discounting rates etc. The provi-

sions are reduced by virtually certain warranty reimbursements from

suppliers.

Contingent liabilitiesWhen a commitment does not meet the criteria for recognition of a liabil-

ity or provision in the balance sheet it may be disclosed as a contingent

liability. These possible obligations derive from past events and their

existence will be confirmed only when one or several uncertain future

events, which are not entirely within the Volvo Car Group’s control, take

place or fail to take place. A contingent liability could also exist for a pres-

ent obligation where an outflow of resources is not likely or when the

amount of the obligation cannot be measured with sufficient reliability.

CHanGes in aCCountinG poLiCY anD DisCLosuresnew and amended standards adopted by the groupthe following standards have been adopted by the group for the first time for the financial year beginning on 1 January 2013 and have a material impact on the group:IAS 19 was amended in June 2011 and effective from January 1 2013

with retrospective application. The changes on the Group’s accounting

policies relates to the accounting for changes in defined benefit obliga-

tions and plan assets. The amendments require the recognition of

changes in defined obligations and in fair value of plan assets when they

occur, and hence eliminate the “corridor approach” previously used by

Volvo Car Group and accelerate the recognition of past service costs.

The amendments has resulted in all actuarial gains and losses to be rec-

ognised immediately through other comprehensive income in order for

the net pension asset or liability recognised in the consolidated balance

sheet to reflect the full value of the plan deficit or surplus.

The impact of the new revised IAS 19 has changed the balance

sheet liability due to the removal of the corridor where the unrecognised

net actuarial loss and the unrecognised past service cost have disap-

peared with an increase to the pension liability as a consequence. Inter-

est cost and expected return on assets have been replaced with a net

interest amount that is calculated by applying the discount rate used to

measure the defined benefit obligation to the net defined benefit liability

(asset).

See note 31- Changes of accounting principles for the impact on the

financial statements as a result of the amended IAS 19.

the following standards have been adopted by the group but have no material impact on the group:Amendment to IAS 1, Financial statement presentation regarding other

comprehensive income. The main change is a requirement to group

items presented in ‘other comprehensive income’ (OCI) on the basis of

whether they are potentially reclassifiable to profit or loss.

Amendment to IFRS 7, ‘Financial instruments: disclosures’, on asset

and liability offsetting. New disclosures are included in Note 21- Finan-

cial risks and financial instruments.

IFRS 13, ‘Fair value measurement’, aims to improve consistency and

reduce complexity by providing a precise definition of fair value and a

single source of fair value measurement and disclosure requirements for

use across IFRSs. For further information regarding financial instru-

ments refer to Note 21 - Financial risks and financial instruments.


new standards and interpretations not yet adopted by the GroupWhen preparing the consolidated financial statements as of december

31, 2013, a number of standards, interpretations and amendments have

been published, but have not yet become effective. None of these is

expected to have a significant effect on the consolidated financial state-

ments of the Group except those stated below. The following is a prelim-

inary assessment of the effect that the implementation of these stan-

dards and interpretations could have on Volvo Car Group’s financial

statements.

ifrs 10 – Consolidated financial statementsIFRS 10 is based on existing principles by identifying the concept of

control as the determining factor for assessment of whether a company

should be included in the consolidated financial statements. The stan-

dard provides additional guidance to assist in the determination of con-

trol where this is difficult to assess. Volvo Car Group intends to adopt

IFRS 10 for the year beginning January 1, 2014. A high level assess-

ment shows that there are no significant effects for Volvo Car Group.

ifrs 11 – Joint arrangementsIFRS 11 provides guidance for the accounting of joint arrangements by

focusing on the rights and obligations of the arrangement, rather than

its legal form. Joint arrangements are divided into two categories – joint

operations and joint ventures. In joint operations each joint venture

accounts for the assets, liabilities, revenues and expenses relating to its

interest in the joint arrangement. In joint ventures, each joint venture

shall account for its interest using the equity method. Volvo Car Group

intends to adopt IFRS 11 for the year beginning January 1, 2014. A high

level assessment shows that there are no significant effects for Volvo

Car Group.

ifrs 12 – Disclosure of interests in other entities IFRS 12 is a new and comprehensive standard on disclosure require-

ments for all forms of interests in other entities, including joint arrange-

ments, associates and structured entities. Volvo Car Group intends to

adopt IFRS 12 for the year beginning January 1, 2014. Volvo Car Group

will be affected by extended disclosure requirements in the financial

statements of 2014.

Other changes in standards and interpretations that enter into force

on January 1 2014 or subsequently are not expected to have any

impact on the Group.

NOTE 2 – CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Preparation of the financial statements in accordance with IFRS requires

the company’s executive management and Board of directors to make

estimations and assessments as well as to make assumptions that

affect application of the accounting policies and the reported assets, lia-

bilities, income and expenses. The estimates are based on historical

experience and assumptions that are deemed reasonable and realistic

in the circumstances. The results of these estimations and assessments

are then used to establish the reported values of assets and liabilities

that are not otherwise clearly documented from other sources. The

actual outcome may differ from these estimates and assessments. The

estimates and underlying assumptions are reviewed on a regular basis.

Changes are recognised in the period of the change and future periods

if the change affects both. The estimations and assessments described

below are those that are deemed to be the most important for an under-

standing of Volvo Car Group’s financial reports, taking into account the

degree of materiality and uncertainty. Changes in estimates used in

these and other items could have a material impact on Volvo Car Group’s

financial statements.

impairment of non-current assets The Volvo Car Group has substan-

tial values reported in the balance sheet regarding non-current assets.

Property, plant and equipment and intangible assets are depreciated on

a straight-line basis over their estimated useful lives; refer to Note 1 -

Accounting principles. Management regularly reassesses the useful life

of all significant assets. The carrying amounts of non-current assets are

tested for impairment in accordance with the accounting policies

described in Note 1 to the consolidated accounts, Accounting princi-

ples. An impairment is recognised if the carrying value of the asset

exceeds the recoverable amount. The recoverable amount is the higher

of the asset’s net selling price and its value in use. For these calcula-

tions, certain estimations must be made regarding future cash flows,

required return on investments and other adequate assumptions. The

estimated future cash flows are based on assumptions that represent

management’s best estimate of the economic conditions that will exist

during the asset’s remaining lifetime, and are based on internal business

plans or forecasts.

Future cash flows are determined on the basis of the long-term plan-

ning, which is approved by Management and which is valid at the date of

conduction of the impairment test. This planning is based on expecta-

tions regarding future market share, the market growth as well as the

products’ profitability.

revenue recognition When Volvo Car Group has entered into a resid-

ual value guarantee in relation to a vehicle sale, there may be a question

of judgement regarding whether or not significant risks and rewards of

ownership have been transferred to the customer. If the previous

assessment of retained risk by Volvo Car Group is proven to be incorrect

and it is instead determined that significant risks are retained by Volvo

Car Group, revenue in the coming period will decline and instead be dis-

tributed over several reporting periods. Refer to Note 1 - Accounting

principles for a description of Volvo Car Group’s revenue recognition pol-

icy relating to operating lease contracts.

residual value risk In the course of its operations, Volvo Car Group is

exposed to residual value risks through sales combined with repurchase

agreements and sales to external rental company subject to residual

value guarantees. Residual value risks are reflected in different ways in

the consolidated financial statements depending on the extent to which

the risk remains with the Group. In cases where significant risks pertain-

ing to vehicles remain with Volvo Car Group, the vehicles are generally

recognised in the balance sheet as Assets under operating leases.

Accumulated depreciation on these vehicles reduces the value of the

vehicles from their original acquisition value to their expected residual

value, being the estimated net realisable value, at the end of the lease

term. The depreciations are charged on a straight-line basis over the

term of the commitment. Vehicles sold to an external party, subject to a

subsequent issuance of a residual value guarantee to an independent

financing provider, are derecognised from the balance sheet in cases


where no significant risks remain with Volvo Car Group. A provision is

made for the residual value risk related to the guarantee based upon

estimations of the used products’ future net realisable values. The esti-

mated net realisable value of the products at the end of the commitment

is monitored individually on a continuing basis and is estimated by evalu-

ating recent auction values, future price deterioration due to expected

change of market conditions, marketing incentive plans, vehicle quality

data and repair and reconditioning costs etc. High inventories in the

vehicle industry and low demand may have a negative impact on the

prices of new and used vehicles. A decline in prices of our vehicles may

negatively affect the consolidated income.

Warranty The recognition and measurement of provisions for product

warranties is generally connected with estimates. Estimated costs for

product warranties are charged to cost of sales when the products are

sold. Estimated warranty costs include contractual warranty, warranty

campaigns (recalls and buy-backs) and warranty cover in excess of con-

tractual warranty or campaigns, which is accepted as a matter of policy

or normal practice in order to maintain a good business relation with the

customer. Warranty provisions are estimated based on historical claims

statistics and the warranty period. Quality index improvements based on

historical patterns have been reflected in all categories of warranty.

Refunds from suppliers that decrease Volvo Car Group’s warranty costs

are recognised to the extent these are considered to be virtually certain.

employee benefit obligations The value of pension obligations for

defined benefit obligations is determined through actuarial calculations

based on assumptions about the discount rate, future salary increases,

inflation, mortality rates and demographic conditions. Every change in

these assumptions affects the calculated value of the post-employee

benefits obligations. The discount rate, which is the most critical

assumption, is based on market return on high-quality corporate and

government bonds that are denominated in which the benefits will be

paid and with maturities corresponding to the related pension liability. A

lower discount rate increases the present value of post-employee bene-

fits obligations and their cost while a higher discount rate has the

reverse effect. due to changing market and economic conditions, the

underlying key assumptions may differ from actual developments and

may lead to significant changes in pension and other post-employment

benefit obligations. For further information on pension provisions, see

Note 24 - Post employment benefits.

inventoriesIn situations where the net realizable value is lower than cost, a valuation

allowance is recognised for inventory obsolescence. The total inventory

value, net of inventory obsolescence allowance, was 12,161 (11,812)

whereof value adjustment reserve –191 (–247) as of december 31,

2013.

Deferred tax assets The calculation of deferred tax assets requires

assumptions to be made with regard to the level of future taxable

income and the timing of recovery of deferred tax assets. These

assumptions take account of forecast operating results and the impact

on earnings of the reversal of taxable temporary differences. The mea-

surement of deferred tax assets is subject to uncertainty and the actual

result may diverge from these judgements due for example to future

changes in business climate and altered tax laws. An assessment is

made at each closing date of the likelihood that the deferred tax asset

will be utilised. If needed the carrying amount of the deferred tax asset

will be altered. The judgements that have been made may affect net

income both positively and negatively. Further information is provided in

Note 15 - Taxes.

Legal proceedings Companies within Volvo Car Group are involved in

legal proceedings covering a range of different matters, which are pend-

ing in various jurisdictions. These include, but are not limited to, commer-

cial disputes such as alleged breach of contract, insufficient supplies of

goods or services, product liability, patent infringement or infringement

of other intangible rights. The various matters raised are often of a diffi-

cult and complex nature and often legally complicated. It is therefore dif-

ficult to predict the final outcome of such matters. The companies within

Volvo Car Group work closely with legal advisors and other experts in the

various matters in each jurisdiction. A provision is made when it is deter-

mined that an adverse outcome is more likely than not and the amount

of the loss can be reasonably estimated. In instances where these crite-

ria are not met, a contingent liability has been disclosed provided the risk

qualifies as such liability.

tax processes Volvo Car Group is also, like other global companies, at

times involved in tax processes of varying scope and in various stages.

These tax processes are evaluated regularly and provisions are made

according to the accounting principles, i.e., when it is more likely than not

that additional tax must be paid and the outcome can be reliably esti-

mated. If it is not probable that the additional tax will be paid but the risk

is more than remote, such amounts are shown as contingent liabilities.


NOTE 3 – NET REVENUE

The Net revenue allocated to geographical regions: 2013 2012

China 18,793 13,830

USA 14,132 20,168

EU 201) 67,144 64,567

of which Sweden 17,866 15,951

of which Germany 7,470 9,924

of which UK 6,931 7,134

Rest of the world 22,176 25,982

of which Russia 4,526 6,436

of which Japan 4,595 5,009

Total 122,245 124,5471) Sweden, Norway, Denmark, Finland, The Netherlands, Belgium, Luxemburg,

France, Spain, Italy, Greece, Portugal, United Kingdom, Ireland, Germany, Switzerland, Austria, Poland, Hungary and Czech Republic.

For each significant category of revenue, see additional information in

the Board of Directors report.

NOTE 4 – OPERATING EXPENSES

2013 2012

Cost of sales

Cost of sales –76,459 –78,067

Personnel –11,539 –11,079

Amortisation/depreciation –4,707 –5,358

Other –9,229 –10,096

Total –101,934 –104,600

Research and development expenses

Personnel –1,700 –1,886

Amortisation/depreciation –2,570 –2,078

Other –1,594 –2,325

Total –5,864 –6,289

Selling expenses

Personnel –2,157 –2,150

Amortisation/depreciation –96 –78

Other –5,666 –6,414

Total –7,919 –8,642

Administrative expenses

Personnel –3,161 –2,868

Amortisation/depreciation –343 –312

Other –1,625 –2,012

Total –5,129 –5,192

Capitalised product development costs has reduced the amounts

presented as personnel and other.

NOTE 5 – RELATED PARTies

During the year, Group companies entered into the following trading

transactions with related parties that are not consolidated in the Volvo

Car Group:

Sales of goods, services and other

Purchases of goods, services

and other

2013 2012 2013 2 012

Related companies1) 945 908 –350 –152

Associated companies 2,975 3,053 –1,145 –1,169

Receivables from Payables to

2013 2012 2013 2012

Related companies1) 1,098 965 562 164

Associated companies 65 58 7 211) Related companies are other companies outside Volvo Car Group, but within

the Geely sphere of companies. For associated companies see Note 14 – Investments in associates.

Since 2012, Volvo Car Group has an agreement with a subsidiary within

the Shanghai Geely Zhaoyuan International Investment Co. Ltd Group

for licensing intangible property rights from Volvo Car Group, to enable

production of cars in the Chengdu plant.

In China two new manufacturing joint ventures were established:

Daqing Volvo Car Manufacturing Co. Ltd and Zhangjiakou Volvo Car

Engine Manufacturing Co Ltd. Volvo Car Group holds 30 percent in

each. In 2013 Volvo Car Group granted a licence to engine technology

to a subsidiary with Zhejiang Geely Holding Group Co.Ltd. The license

resulted in an income 2013 since significant risk and rewards had been

transfered to the buyer. During 2013 Geely Sweden AB has received a

contribution from Geely Sweden Automotive AB amounting to SEK 293

million. The contribution was initially received by Geely Sweden Hold-

ings AB from Shanghai Geely Zhaouyan International Investment Co Ltd

and was then given to Geely Sweden Automotive AB as an uncondi-

tional shareholder’s contribution. During 2012 a loan of SEK 1767 mil-

lion from Geely Sweden Automotive AB ( ultimately from Shanghai

Geely Zhaoyuan International Investment Co. Ltd) was transformed in an

unconditional shareholder’s contribution. Also an additional sharehold-

er’s contribution of SEK 12 million from Shanghai Geely Zhaouyan Inter-

national Investmenst Co. Ltd was made during 2012.

Business transactions between Volvo Car Group companies and

related parties or associated companies all arise in the normal course of

business and are conducted on the basis of arm’s length principles.

Volvo Car Group does not engaging any transactions with Board

members or senior executives except ordinary remuneration for services.

For further information about remunerations, see Note 9 - Employees

and remuneration.


NOTE 6 – AUDIT FEES

2013 2012

Deloitte

Audit fees –22 –24

Audit-related fees –3 –3

Tax services –1 –2

Other services –9 –11

Total –35 –40

Audit fees involve audit of the Annual Report, financial accounts and

the administration by the Board of Directors and the Managing Director.

The audit also includes advice and assistance as a result of the observa-

tions made in connection with the audit.

Audit-related fees refer to other assignments to ensure quality in the

financial statements including consultations on reporting requirements

and internal control.

Tax services include tax-related consultancy.

All other work performed by the auditor is defined as other services.

NOTE 7 – OTHER OPERATING INCOME AND EXPENSES

2013 2012

Other operating income

Licences 323 73

Foreign exchange gain 775 104

Technology transfer – 590

Other 411 265

Total 1,509 1,032

2013 2012

Other operating expenses

Amortisation and depreciation of intangible and tangible assets –191 –191

Restructuring costs –60 –49

Royalty –351 –

Property tax –65 –67

Other –501 –507

Total –1,168 –814

NOTE 8 – LEASING

VOlVO CAR GROuP AS leSSOROperational lease contracts are recognised as non-current assets in

assets held under operating leases in the balance sheet and mainly

relate to vehicles sold with repurchase agreements. The difference

between the original sales price and the repurchase price is recognised

in the income statement as revenue on a straight-line basis over the

lease term. The remaining lease revenue yet to be recognised in income

is presented as part of current and non-current liabilities in the balance

sheet, see Note 26 – Other non-current liabilities and Note 27 – Other

current liabilities. The repurchase obligation is considered to be a finan-

cial liability and is presented as part of current and non-current liabilities.

Volvo Car Group does currently not have any finance lease engage-

ments as a lessor.

Future lease revenue of operating lease contracts Rental income 2013 2012

No later than 1 year 549 493

Later than 1 year and no later than 5 years 420 393

Later than 5 years – –

Total 969 886

VOlVO CAR GROuP AS leSSeeOperating lease contractsThe operating lease contracts Volvo Car Group holds are mainly

contracts for premises and office equipment around the world. Also

some production equipment such as forklifts for the factories are under

operating lease contracts.

Operating lease expenses 2013 2012

Minimum lease payments –934 –819

Contingent rents –47 –46

Less subleases 15 27

Total –966 –838

Operating lease commitments per Dec 31, 2013

Minimum lease

paymentsless

subleases Total

Present value of operating lease

commitments less subleases

– No later than 1 year 901 26 875 857

– Later than 1 year and no later than 5 years 1,885 104 1,781 1,587

– Later than 5 years 2,158 164 1,994 1,417

Total 4,944 294 4,650 3,861

Finance lease contractsVolvo Car Group holds finance lease contracts for production equipment

and some buildings used in production. The assets will be owned by

Volvo Car Group at the end of the lease contracts at no additional cost.

All leases are fixed terms with fixed payments.


Finance lease assetsBuildings and land

Machinery and equipment

Acquisition cost

Balance at January 1, 2012 72 1,682

Additions 23 –

Divestments and disposals – –6

Effect of foreign currency exchange differences –3 –

Balance at December 31, 2012 92 1,676

Divestments and disposals –2 –

Effect of foreign currency exchange differences –3 –

Balance at December 31, 2013 87 1,676

Accumulated depreciation

Balance at January 1, 2012 –37 –1,277

Depreciation expense –4 –180

Divestments and disposals – 6

Balance at December 31, 2012 –41 –1,451

Divestments and disposals –7 –95

Balance at December 31, 2013 –48 –1 546

Net balance at December 31, 2012 51 225

Net balance at December 31, 2013 39 130

Gross finance lease liabilities – minimum lease payments

Dec 31, 2013

Dec 31, 2012

– No later than 1 year 33 34

– Later than 1 year and no later than 5 years 122 134

– Later than 5 years 6 30

Total 161 198

Future finance charges on finance leases –22 –34

Present value of finance lease liabilities 139 164

The present value of finance lease liabilities is as follows:

Gross finance lease liabilities – minimum lease payments

Dec 31, 2013

Dec 31, 2012

– No later than 1 year 25 24

– Later than 1 year and no later than 5 years 109 112

– Later than 5 years 5 28

Total 139 164

The finance lease liabilities are included in the financial statement as:

Dec 31, 2013

Dec 31, 2012

Other current liabilities (Note 27) 25 24

Other non-current liabilities (Note 26) 114 140

Total 139 164

NOTE 9 – EMPLOYEES AND REMUNERATION

Average number of employees by region: 2013

Of whom women 20124)

Of whom women

Sweden 15,786 23% 15,458 22%

Nordic countries other than Sweden 342 29% 360 17%

Belgium 4,171 12% 4,155 11%

Europe other than the Nordic countries and Belgium 991 39% 984 40%

North and South America 421 23% 419 23%

Asia 1,432 33% 1,406 53%

Other countries 99 35% 99 37%

Total for Volvo Car Group 23,242 22% 22,881 22%

Number of Board members and senior executives1)

Dec 31, 2013

Of whom women

Dec 31, 2012

Of whom women

Parent company 4 0% 4 0%

Subsidiaries 98 (218)

18% (20%)

105 (209)

12% (22%)

Total for Volvo Car Group

102 (218)

109 (209)

2013 2012

Salaries and other remunerations, total for Volvo Car Group

Wages and salaries,

other remune-

rations

Social security

expenses (of which pension

expenses)

Wages and salaries,

other remune-

rations

Social security


expenses)

Parent company 6 2 (–) 10 3 (–)

Subsidiaries 11,087 4,808 (2,194)

9,989 4,319 (2,021)


11,093 4,810 (2,194)

9,999 4,322 (2,021)

2013 2012

Salaries and other remunera-tion to the Board2), CeO, excecutive management team (eMT)3) and other employees

Wages and salaries,

other remunera-

tions (of which

variable salaries)

Social security


expenses)

Wages and salaries,

other remunera-

tions (of which

variable salaries)

Social security


expenses)

Board, Chief Executive Officer and EMT

194 (34)

108 (33)

145 (7)

103 (32)

Other employees

10,899 4,702 (2,161)

9,854 4,219 (1,989)


11,093 (34)

4,810 (2,194)

9,999 (7)

4,322 (2,021)

1) Senior excecutives are defined as key personnel within the subsidiaries. 2) The Board includes all board members in the subsidiaries within Volvo Car

Group.3) The Excecutive management team (EMT) consists of the CFO and key

management personnel other than board members. For further information regarding EMT, see Board of Directors’ report.

4) Previous year has been adjusted.

Volvo Car Group’s outstanding post-employee benefits obligations to

the Board members, Chief Executive Officer and EMT amount to SEK

113 million (101).

The notice period for a member of EMT is maximum 12 months in

case of termination by Volvo Car Corporation. Furthermore the employee

is, in that case, entitled to severance pay calculated based on the fixed

salary, during a period of maximum 12 months. During 2013, 3 (4)


members of EMT, including the CFO, left the Volvo Car Group.

Remunerations during the notice period and severance pay amounted to

SEK 21 million (38), excluding social expenses.

INCeNTIVe PROGRAMMeSVolvo Car Group has two global incentive programmes; a short term

incentive programme (STI) including all employees and a long term

incentive programme for Executives and Senior Managers (LTI). The

design and payout of the programmes are subject to the Board of Direc-

tors’ annual approval.

The purpose of the STI-programme is to strengthen global alignment

among employees around Volvo Car Group’s vision, objectives and

strategies and to encourage all employees to achieve and exceed the

business plan targets in order to reach the long term targets.

The purpose of the LTI-programme is to attract, motivate and retain

key competence within Volvo Car Group. The LTI-programme is based on

calculated market value of Volvo Car Group.

NOTE 10 – DEPRECIATION AND AMORTISATION

Operating income includes depreciation and amortisation as specified below: 2013 2012

Software –265 –275

Capitalised product development cost –1,165 –711

Other intangible assets –1,263 –1,273

Buildings and land –471 –465

Machinery & equipment –3,772 –4,102

Assets under operating leases –971 –1,190

Total –7,907 –8,016

Depreciation and amortisation according to plan by function: 2013 2012

Cost of sales1) –4,707 –5,358

Research and development expenses –2,570 –2,078

Selling expenses –96 –78

Administrative expenses –343 –312

Other income and expense –191 –190

Total –7,907 –8,0161) Of which impairment loss SEK 7 million (50).

NOTE 11 – GOVERNMENT GRANTS

Volvo Car Group receives grants mainly from the Swedish Government.

Grants are also received in Belgium and from the EU. In 2013, the

government grants received amounted to SEK 81million (65) and the

government grants realised in the income statement amounted to SEK

76 million (116).

NOTE 12 – FINANCIAL INCOME

2013 2012

Interest income on bank deposits 87 120

Total 87 120

NOTE 13 – FINANCIAL EXPENSES

2013 2012

Net foreign exchange loss on financing activities –82 –151

Interest effect from the measurement of repurchase obligations –197 –172

Interest on loans from related companies – –218

Other interest expenses –333 –179

Other financial expenses –262 –333

Effect of changes in accounting policies – –127

Total –874 –1,180

NOTE 14 – INVESTMENTS IN ASSOCIATES

2013 2012

Share of income in associates 179 24

Total 179 24

Share of income in associates is specified below: 2013 2012

V2 Plug-In Hybrid Vehicle Partnership HB1) 114 –4

Volvofinans Bank AB2) 39 15

Other companies 26 13

Total 179 24

Dec 31, 2013

Dec 31, 2012

At beginning of the year/acquired acquisition value 550 340

Share of net income 179 24

Capital contribution (+)/repayment (-) V2 Plug-In Hybrid Vehicle Partnership HB1) –85 263

Investment in Daqing Volvo Car Manufacturing Co.Ltd3) 133 –

Investment in Zhangjiakou Volvo Car Engine Manufacturing Co Ltd 4) 387 –

Dividends –5 –14

Reclassification from previous year negative participation1) – –63

Total 1,159 550


Volvo Car Group’s carrying amount on investments in associates: Corp. ID no.

Country of incorporation % interest held Dec 31, 2013 Dec 31, 2012

Volvo Trademark Holding AB 556567-0428 Sweden 50 5 6

Volvohandelns PV-Försäljnings AB 556430-4748 Sweden 36 9 8

Volvohandelns PV-Försäljnings KB 916839-7009 Sweden 37 10 7

VCC Tjänstebilar KB 969673-1950 Sweden 37 2 2

VCC Försäljnings KB 969712-0153 Sweden 37 1 1

Göteborgs Tekniska College AB 556570-6768 Sweden 26 2 2

V2 Plug-In Hybrid Vehicle Partnership HB1) 969741-9175 Sweden 50 226 196

Volvofinans Bank AB2) 556069-0967 Sweden 10 337 303

IUC i Olofström AB 556263-1217 Sweden 18 – –

First Rent a Car AB 556434-7820 Sweden 45 52 24

Volvo Event Management Corporation 444517742 Belgium 33 1 1

Daqing Volvo Car Manufacturing Co.Ltd3) 100000400012348 China 30 133 –

Zhangjiakou Volvo Car Engine Manufacturing Co.Ltd4) 100000400012356 China 30 381 –

Carrying amount, participation in associates 1,159 550

The share of voting power corresponds to holdings in per cent as per

above.

For practical reasons, some of the associates are included in the

consolidated financial statements with a certain time lag, normally

one month.

1) V2 Plug-In Hybrid Vehicle Partnership HB is a joint venture, however reported in accordance with the equity method since none of the holding companies, Volvo Cars PHEV Holding AB and Vattenfall PHEV Holding AB, has the decision-making power over the operation. During 2013 V2 Plug-In Hybrid Vehicle Partnership HB received a shareholders’ contribution of SEK14 million (263) from Volvo Cars PHEV Holding AB. During 2013 V2 Plug-in Hybrid Vehi-cle Partnership HB provided a repayment of SEK 99 million (0) to Volvo Cars PHEV Holding AB. As per December 31, 2013 the total equity of V2 Plug-In Hybrid Vehicle Partnership HB amounted to SEK 233 million (403).

2) Volvo Car Group holds 10 per cent of the equity shares of Volvofinans Bank AB and due to significant volume transactions and board representation, Volvo Car Group exercises significant influence on the operations which qualifies for the use of the equity method. As per December 31, 2013 the total adjusted equity of Volvofinans Bank AB amounted to SEK 3,431 million ( 3,065).

3) Volvo Car Group holds 30 percent of Daqing Volvo Car Manufacturing Co.Ltd. The company is reported according to the equity method due to the ownership share. In 2013 the Daquing Volvo Car Manufacturing Co.Ltd received a share-holder contribution of SEK 133 million from Volvo Car Group. As per December 31, 2013 the total equity in Daqing Volvo Car Manufacturing Co Ltd amounted to SEK 444 million (-).

4) Volvo Car Group holds 30 percent of Zhangjiakou Volvo Car Engine Manu-facturing Co Ltd. The company is reported according to the equity method due to the ownership share. In 2013 the Zhangjiakou Volvo Car Engine Manufac-turing Co ltd received a shareholder contribution of SEK 387 million from Volvo Car Group. As per December 31, 2013 the total equity in Zhangjiakou Volvo Car Engine Manufacturing Co Ltd amounted to SEK 1,274 million (-).


NOTE 15 – TAXES

Income tax recognised in income statement 2013 2012

Current income tax for the period –867 –610

Current income tax for previous years 15 20

Deferred taxes 680 1,042

Total –172 452

Information regarding current year tax expense compared to tax expense based on the applicable Swedish tax rate 2013 2012

Income before tax for the year 1,132 –994

Tax according to applicable Swedish tax rate1) –249 261

Capital gains or losses, non-taxable – 4

Effect of different tax rates –90 –1

Tax effect on deferred tax due to change of tax rate – 153

Utilisation of previously unrecognised tax losses –10 17

Revaluation of previously non-valued losses and other temporary differences 161 –

Other 16 18

Total –172 452

1 ) As from January1, 2013 the Swedish tax rate has been changed from 26,3% to 22%.

Income tax recognised directly in equity 2013 2012

Deferred tax

Tax effects on cash flow hedge reserve 3 39

Tax effect of remeasurement of provisions for post employment benefits 455 –28

Tax effects on translation difference, hedge instruments of net investments in foreign operations –28 13

Total 430 24

Specification of deferred tax assetsDec 31,

2013Dec 31,

2012

Goodwill arising from the purchase of the net assets of a business 333 360

Provision for employee benefits 769 1,146

Unutilised tax loss carry-forwards 4,067 3,174

Reserve for unrealised income in inventory 364 363

Provision for warranty 271 160

Other temporary differences 542 588

Total deferred tax assets 6,346 5,791

Netting of assets/liabilities –4,181 –3,971

Total deferred tax assets, net 2,165 1,820

Specification of deferred tax liabilitiesDec 31,

2013Dec 31,

2012

Fixed assets 5,873 5,511

Other temporary differences 67 16

Total deferred tax liabilities 5,940 5,527

Netting of assets/liabilities –4,181 –3,971

Total deferred tax liabillities, net 1,759 1,556

Deferred tax assets and deferred tax liabilities are offset when the item

relates to income taxes levied by the same taxation authority on either

the same taxable entity or different taxable entities which intend either

to settle current tax liabilities and assets on a net basis, or to realise the

assets and settle the liabilities simultaneously.

Deferred tax assets are only accounted for to the extent there are

taxable temporary differences or other factors that convincingly indicate

there will be sufficient future taxable profit. The main part of losses

carried forward is related to jurisdictions where temporary differences

exceed losses carried forward and where periods of utilisation are

in definite.

Deferred tax that may arise on distribution of remaining unrestricted

earnings of foreign subsidiaries has not been booked, hence they can

be distributed free of tax or Volvo Car Group may consider them perma-

nently reinvested in the subsidiaries.

Changes in deferred tax assets and liabilities during the reporting period

Dec 31, 2013

Dec 31, 2012

Net book value of deferred taxes at January 1 264 –735

Deferred tax income/expense recognised through income statement 681 1,042

Change in deferred taxes recognised directly in equity –430 –24

Exchange rate impact –109 –19

Net book value of deferred taxes at December 31 406 264

Unutilised tax-loss carryforwards expire as followsDec 31,

2013Dec 31,

2012

Due date

2014 – –

2015 – –

2016 – 14

2017 – 14

2018 25 –

2019- 18,023 14,525

Total 18,048 14,553

Significant tax loss carry forwards are related to countries with long or

indefinite periods of utilisation. Of the total unused tax loss carry for-

wards, SEK 0 million (SEK 99 million), relates to unused tax losses for

which no deferred tax asset is recognised in the statement of financial

position.

40 GEEly SwEDEN Ab ANNUAl REPORT 2013

NOTE 16 – INTANGIBLE ASSETS

SoftwareCapitalised productdevelopment cost1) ,2) Trademark

Other intangibleassets3) Total

Acquisition cost

balance at January 1, 2012 3,615 3,287 3,598 9,045 19,545

Additions 504 2,591 – 1 3,096

Divestments and disposals –446 – – – –446

Effect of foreign currency exchange differences –3 – – –4 –7

Balance at December 31, 2012 3,670 5,878 3,598 9,042 22,188

Additions 208 4,089 – – 4,297

Divestments and disposals –41 –1 – – –42

Effect of foreign currency exchange differences 8 – – –4 4


Accumulated amortisation and impairment

balance at January 1, 2012 –2,399 –279 – –2,027 –4,705

Amortisation expense –275 –711 – –1,273 –2,259

Divestments and disposals 440 – – – 440

Effect of foreign currency exchange differences 2 – – – 2

Balance at December 31, 2012 –2,232 –990 – –3,300 –6,522

Amortisation expense –265 –1,165 –1,263 –2,693

Divestments and disposals 45 1 – – 46

Effect of foreign currency exchange differences –9 – – 2 –7

Balance at December 31, 2013 –2,461 –2,154 – –4,561 –9,176

Net balance at December 31, 2012 1,438 4,888 3,598 5,742 15,666

Net balance at December 31, 2013 1,384 7,812 3,598 4,477 17,2711) Volvo Car Group has capitalised borrowing costs related to product development of SEK 108 million (38). A capitalisation rate of 4,8 % (5,4%) was used to determine the

amount of borrowing costs eligible for capitalisation.2) During 2013 additional areas of product development activities are reflected in the capitalised figures.3) Other intangible assets refers to licences, dealer network, patents and similar rights.

Intangible assets with indefinite useful lives, ie Trademark, and other

intangible assets not yet ready for use, are tested for impairment annu-

ally as well as if there are any indications of need for impairment. Assets

with definite useful lives are tested if there are any indications of need

for impairment. An impairment test is made by calculating the recover-

able value. If the recoverable value is less than the carrying value, the

asset’s recoverable value is impaired. The recoverable amounts are

based on a discounted cash flow model, with Volvo Car Group as one

single Cash Generating Unit. Management’s business plans and volume

programmes for 2014–2022 are used as a basis for the calculation. A

discount rate of 11.1% (11.1%) has been used. In 2013 the operating

cash flow exceeded the carrying amount, and no impairment loss was

recognised.

41GEEly SwEDEN Ab ANNUAl REPORT 2013

NOTE 17 – TANGIBLE ASSETS

Buildings and land1), 2), 3)

Machinery and equipment1), 3), 4),5)

Construction in progress

Assets under operating leases Total

Aquisition cost

balance at January 1, 2012 13,054 60,238 1,085 4,822 79,199

Additions 279 3,180 1,599 5,256 10,314

Divestments and disposals –104 –1,113 – –3,825 –5,042

Reclassification 32 917 –949 – –

Effect of foreign currency exchange differences –189 –375 –7 –87 –658


Additions 331 2,098 1,897 6,052 10,378

Divestments and disposals –359 –2,029 – –5,124 –7,512

Reclassification 64 1,341 –1,405 – –

Effect of foreign currency exchange differences 45 293 – 18 356


Accumulated depreciation and impairment

balance at January 1, 2012 –6,427 –42,405 – –1,789 –50,621

Depreciation expense –465 –4,102 – –1,191 –5,758

Divestments and disposals 87 993 – 346 1,426

Effect of foreign currency exchange differences 90 236 – 10 336


Depreciation expense –471 –3,772 – –971 –5,214

Divestments and disposals 283 1,914 – 621 2,818

Effect of foreign currency exchange differences –40 –191 – 7 –224


Net balance at December 31, 2012 6,357 17,569 1,728 3,542 29,196

Net balance at December 31, 2013 6,210 17,223 2,220 4,145 29,7981) buildings and land includes finance leases of SEK 39 million (51) and Machinery and equipment includes finance leases of SEK 130 million (225).

For further information regarding finance leases, see Note 8 – leasing.2) Depreciation expense include impairment loss of SEK 7million (50). For further information regarding depreciations, see Note 10 – Depreciation and amortisation.3) Volvo Car Group has no mortgages in property, plant and equipment. For further information regarding pledged assets, see Note 28 – Pledged assets.4) Machinery and equipment includes capitalised borrowing costs of SEK 123 million (148).5) During 2013 the useful lives applied in Volvo Car Group were adjusted. The impact in the income statement amounted to SEK –56 million.

NOTE 18 – OTHER NON-CURRENT ASSETS

Dec 31, 2013

Dec 31, 2012

Restricted cash 930 506

Rental deposition 27 35

Receivable against Ford Motor Company – 7

Other non-current assets 120 186

Total 1,077 734

For further information see Note 21 – Financial risks and financial

instruments.

NOTE 19 – INVENTORIES

Dec 31, 2013

Dec 31, 2012

Raw materials and consumables 130 151

Products in progress 2,118 2,046

Finished goods and goods in resale 9,913 9,615

Total 12,161 11,812

Of which value adjustment reserve: –191 –247

The cost of inventories recognised as an expense and included in cost

of sales amounted to SEK 99,549 million (102,380).

The cost of inventories recognised as an expense includes SEK 50

million (28) in respect of write-downs of inventory to net realisable value.

NOTE 20 – ACCOUNTS RECEIVABLE AND OTHER CURRENT ASSETS

Dec 31, 2013

Dec 31, 2012

Accounts receivable including receivables from related companies 5,618 4,735

VAT receivables 896 821

Prepaid expenses and accrued income 1,078 1,011

Other financial receivables 434 353

Other receivables 373 402

Total 8,399 7,322


NOTE 21 – FINANCIAL RISKS AND FINANCIAL INSTRUMENTS

In its operations, Volvo Car Group is exposed to various types of financial

risks such as currency risk, interest rate risk, credit risk, commodity price

risk, refinancing risk and liquidity risk.

Volvo Car Group treasury function is responsible for management

and control of the financial risks. The management of financial risks is

governed by Volvo Car Group treasury policy which is approved by the

board of Directors and is subject to annual approval. The Policy is

focused on minimizing the negative effects from fluctuating financial

markets on Volvo Car Group’s financial earnings.

FINANCIAl INSTrUMeNTS – ClASSIFICATIONFinancial instruments are divided into three levels depending on the

market information available.

• level 1: level 1 inputs are quoted prices (unadjusted) in active

markets for identical assets or liabilities that the entity can access at

the measurement date.

• level 2: level 2 inputs are inputs other than quoted prices included

within level 1 that are observable for the asset or liability, either

directly or indirectly.

• level 3: level 3 inputs are unobservable inputs for the asset or liability.

All derivative financial instruments that Volvo Car Group holds as at

December 31, 2013 belong to level 2. No transfers between the levels

of the fair value hierarchy have occurred during the year. Financial assets

and liabilities are measured at amortised cost or fair value depending on

their initial classification. Fair value is defined as the price that would be

received to sell an asset or paid to transfer a liability in an orderly trans-

action between market participants at the measurement date. Amor-

tised cost is calculated using the effective interest method, where any

premiums or discounts and directly attributable costs and revenue are

capitalied over the contract period using the effective interest rate. Fair

value is generally determined by reference to official market quotes.

when market quotes are not available the fair value is determined using

generally accepted valuation methods such as discounted future cash

flows.

The fair value of a financial asset or liability reflects non-performance

risk including the counterparty’s credit risk for an asset and an entity’s

own credit risk for a liability. For Volvo Car Group this only applies to

derivatives and marketable securities since no other classes of assets

and liabilities are recorded at fair value. Volvo Car Group has chosen to

use PD (Probability of Default ) of the counterparty to adjust the positive

market value on derivatives and marketable securities. Own credit risk is

adjusted for by taking an average of the PD of a peer group of auto man-

ufacturers.

Aging analysis of accounts receivable and receivables from related companies

2013 Not due

1–30 days

overdue

30–90 days

overdue>90 days overdue Total

Accounts receivable gross 4,782 242 15 651 5,690

Provision doubtful accounts receivable –8 – –29 –35 –72

Accounts receivable net 4,774 242 –14 616 5,618

2012

Accounts receivable gross 4,245 131 166 334 4,876

Provision doubtful accounts receivable – – –5 –136 –141

Accounts receivable net 4,245 131 161 198 4,735

Accounts receivable amounting to SEK 5,618 million (4,735) includes provision for doubtful accounts receivable of SEK 72 million (141).

Change in provision for doubtful accounts receivable is as follows: 2013 2012

balance at January 1 141 131

Additions 24 58

Reversals –83 –44

write-offs –10 –3

Translation difference – –1

Balance at December 31 72 141


The table below shows Volvo Car Groups financial assets and liabilities at fair value

December 31, 2013 level 1 level 2 level 3 Total

Derivative instruments for hedging of currency risk in future commercial cash flows – 393 – 393

Electricity hedges – 18 – 18

Marketable securities – 88 – 88

Total assets – 499 – 499


Derivative instruments for hedging of currency risk related to financial assets and liabilities – 70 – 70


Total liabilities – 307 – 307

December 31, 2012



Total assets – 342 – 342


Derivative instruments for hedging of currency risk and interest rate risk related to financial assets and liabilities – 39 – 39


Total liabilities – 249 – 249

Financial assets and liabilities by category

Finacial instruments at fair value through profit or loss

December 31, 2013Instruments

held for trading

Derivatives used in hedge

accountingloans and

receivablesFinancial liabilities at amortised cost TOTAl Fair Value

Other non-current assets1) – – 1,054 – 1,054 1,054

Accounts receivable – – 5,618 – 5,618 5,618

Derivative assets 58 353 – – 411 411

Marketable securities 88 – – – 88 88

Other current assets1) – – 260 – 260 260

Cash and cash equivalents – – 15,372 – 15,372 15,372

Total assets 146 353 22,304 – 22,803 22,803

Other long-term liabilities1) – – – 792 792 792

liabilities to credit institutions – – – 12,853 12,853 12,853

Trade payables – – – 13,632 13,632 13,632

Derivative liabilities 143 164 – – 307 307

Other current liabilities1) – – – 3,460 3,460 3,460

Total liabilities 143 164 – 30,737 31,044 31,044

December 31, 2012

Other non-current assets1) – – 658 – 658 658

Accounts receivable – – 4,735 – 4,735 4,735

Derivative assets 55 287 – – 342 342

Other current assets1) – – 297 – 297 297

Cash and cash equivalents – – 9,607 – 9,607 9,607

Total assets 55 287 15,297 – 15,639 15,639

Other long-term liabilities1) – – – 676 676 676

liabilities to credit institutions – – – 7,367 7,367 7,367

Trade payables – – – 12,626 12,626 12,626

Derivative liabilities 140 109 – – 249 249

Other current liabilities1) – – – 2,896 2,896 2,896

Total liabilities 140 109 – 23,565 23,814 23,8141) Pre-payments, accruals, statutory receivables and liabilities are excluded, as this analysis is required only for financial instruments.

No financial assets and liabilities are offset in the balance sheet.

Derivative contracts are subject to master netting agreements (ISDA)

and the carrying amount of derivative assets that are not offset in the

balance amount to SEK 411 (342) million and the carrying amount of

the related derivative liabilities amount to SEK –307 million (–249).

No collateral has been received or posted. The carrying amount essen-

tially equals the fair value for all current items. For liabilities to credit

institutions, the carrying amount is a good estimate of the fair value

since this item mainly consists of loans that have a short interest fixing

term. For aging analysis regarding accounts receivable refer to Note 20

– Accounts receivable and other current assets. For aging analysis

regarding liabilities to credit institutions refer to Note 26 – Other non-

current liabilities. Trade payables are for the most part due within 60

days.


Nominal amounts and fair values of derivative instruments

Derivative instruments for hedging of currency risk related to financial assets and liabilities

Dec 31, 2013 Dec 31, 2012

Nominal amount

Fair Value

Nominal amount

Fair Value

Foreign exchange swaps

– receivable position1) 39 – – –

– payable position2) 8,552 –70 3,568 –18

Forward contracts

– receivable position1) – – – –

– payable position2) – – 2,576 –21

Subtotal 8,591 –70 6,144 –39

Derivative instruments for hedging of currency risk in future commercial cash flows

Foreign exchange swaps

– receivable position1) 6,643 111 3,439 84

– payable position2) 5,968 –117 901 –6

Forward contracts


– payable position2) 3,904 –39 4,642 –103

Currency options


– payable position2) 853 –11 5,549 –10

Subtotal 39,486 226 25,441 207

electricity hedges

– receivable position1) –104 18 –80 16

– payable position2) 422 –70 517 –91

Subtotal 318 –52 437 –75

Total 48,395 104 32,022 931) Financial instruments included in the balance sheet under other current assets.2) Financial instruments included in the balance sheet under other current

liabilities.

CUrreNCy rISk MANAGeMeNTThe currency exposure arises from the production in various countries,

procurement and the mix of sales currencies and has a direct impact on

the Volvo Car Group’s operating income, balance sheet and cash flow as

well as the long-term competitiveness.

The currency risk is related to:

• expected future cash flows from sales and purchase in foreign

currencies (transaction risk)

• changes in value of loans and investments (translation risk)

• net assets and liabilities of foreign subsidiaries (translation risk)

Transaction riskThe sales to different markets in combination with purchases in different

currencies determine the transaction exposure.

Sales to markets other than Sweden generate transaction exposure.

For the majority of the sales Volvo Car Corporations’ invoices to national

sales companies are in local currencies. The total currency inflow was

distributed between EUR 25 (23)%, SEK 19 (18)%, CNy 15 (11)%,

USD 13 (18)%, GbP 6 (5)%, RUb 4 (5)% and other currencies 18

(20)%. The major part of the production is in the plants in Sweden and

belgium at cost mainly in EUR and SEK. The total currency outflow was

split into EUR 47 (50)%, SEK 30 (29)%, CNy 5 (4)%, JPy 5 (4) and

other currencies 13 (13)%.

The policy for transaction risk management states that up to 80 per

cent of the future expected cash flows in the coming 15 months can be

hedged with adequate financial instruments: options, forwards or com-

bined instruments with maturities matching expected timing of cash

flows. Hedging of cash flows with maturity more than 15 months

requires a board of Directors’ decision.

The currency exposure is expressed in terms of Cash Flow at Risk

(CFaR), which is the maximum loss at a 95 per cent confidence level in

one year. The CFaR is dependent on the cash flow forecast for the com-

ing 15 months, market volatility and correlations. The CFaR at year end

for the cash flows in one year, excluding hedges, was approximately SEK

3 billion. Another way of expressing the currency sensitivity in revenue

and cost in foreign currencies is to say that during 2013, a one per cent

change in SEK against major currencies, excluding currency hedges,

has a net impact on operating income of approximately SEK 127 million.

A steering model with a benchmark level of CFaR is decided and a

stipulated mandate to deviate from that benchmark is given to Group

Treasury.

Forward contracts and options are used to reduce the currency risk

in expected future cash flows from sales and purchase in foreign curren-

cies. At year end 39 (38) per cent of the forecasted cash flows in foreign

currencies the coming 15 months was hedged and during 2013 the

average hedge level has been 35 (32) per cent. The transaction expo-

sure in the Group, measured as Cash Flow at Risk (CFaR) based on 15

months net cash flows, is reduced by 46 per cent as of end December

2013.

Maturities of cash flow hedges (forwards and call options), in millions, local currency

Maturity eUr USD GBP CNy NOk rUB AUD CHF CAD PlN CZk

0–6 months 1,420 –664 –182 –4,188 –300 –6,348 –98 –86 –62 –62 –100

7–12 months 109 –308 – –1,000 – –2,047 –20 – –16 – –

>12 months – – – – – – – – – – –

Total 1,529 –972 –182 –5,188 –300 –8,395 –118 –86 –78 –62 –100

The average duration of the portfolio was 3 months (5 months). The fair value of the outstanding derivatives as at December 31, 2013 amounted to

SEK 226 million (207).


Hedge accountingHedge accounting is applied for cash flow hedging of currency risk and

for net investment of foreign operations. Gains and losses on the effec-

tive portions of derivatives designated under cash flow hedge account-

ing and net investment of foreign operations are recognized in other

comprehensive income.

The highly probable forecast transactions in foreign currencies that

are hedged are expected to occur at various dates during the next 15

months. Gains and losses recognized in the hedge reserve in equity on

forward foreign exchange contracts as at December 31, 2013 are

recognized in the income statement in the periods when the hedged

forecast transaction affects the income statement.

based on cash flow hedging portfolio, a one per cent change in the

Swedish krona (SEK) against major currencies has a net impact of SEK

39 million on other comprehensive income.

The cash flow hedge reserve in shareholders’ equity as at December

31, 2013 amounts to SEK 189 million (177) before tax. The ineffective-

ness in the cash flow hedges that has affected net income amounts to

SEK 4 million (–4). The hedge reserve for net investment of foreign

operations as at December 31, 2013 amounts to SEK –68 million (61)

before tax. No ineffectiveness has affected net income for 2013 and

2012.

Fair value of derivatives for cash flow hedging 2013 2012

Hedge reserve 189 177

recognised in other comprehensive income 189 177

Time value in options 37 29

Ineffective contracts – –8

Non hedge accounting – 9

recognised in other operating income and expenses 37 30

Fair value of financial instruments for hedging of net investment of foreign operations

Hedge reserve –68 61

recognised in other comprehensive income –68 61

Total fair value 158 268

Net gains/losses on derivative financial instruments recognised in the income statement

Net gains/losses recognised in other income and expenses 2013 2012

Gains/ losses on commercial currency hedges 836 –287

Total 836 –287

Translation riskTranslation risk in Volvo Car Group relates to the net assets in foreign

subsidiaries. This exposure can generate a positive or negative impact

on Group earnings or change the value of equity.

MSek eUr CNy GBP AUD USD Other Total

Investments in Foreign Operations 4,510 1,928 483 472 –118 1,016 8,291

Translation exposure 4,510 1,928 483 472 –118 1,016 8,291

A one per cent change in the Swedish krona against major currencies

has a net impact of approximately SEK 83 million. The translation risk is

primarily covered by matching the currency composition of debt with the

composition of assets. Part of the investments in operations in the Euro

zone is used for hedge accounting. The residual translation risk is part of

the strategic risk management and is not hedged with financial instru-

ments, the translation effect is recognized in equity.

Total translation effect of net investments in foreign operations was

SEK –160 million (–324). This effect does not impact the income state-

ment but is recognized in equity.

Volvo Car Group uses EUR 420 million of the EUR 922 million debt

to reduce the translation exposure on net investments in EUR. The cur-

rency gains or losses from the translation of the net investments in oper-

ations in EUR used for hedge accounting are recognized in other com-

prehensive income.

The currency risk arising from the part of the external debt of EUR

922 million that has not been used to hedge the net investments in EUR

is managed by currency swaps. Currency gains or losses from the cur-

rency swaps are recognized in the income statement and offset the cur-

rency gains or losses from the residual part of the loan.

The translation effect arising from the external debt of USD 466

million is naturally hedged by the translation effect on internal net receiv-

ables in USD, effects are recognized in the income statement.

Net gains/losses on derivative financial instruments recognised in the income statement 2013 2012

Net gains/ losses reported in financial income and expenses

Gains/ losses on foreign exchange swaps for hedging of external debt 141 –166

Gains/losses on foreign exchange swaps for liquidity hedging 54 –47

Gains/ losses on interest-rate swaps – 6

Total 195 –207

CAPITAl STrUCTUreVolvo Car Group treasury policy stipulates that the medium term objec-

tive is to have a capital structure that enables the company to deliver

according to the requirements in the business plan. The longer term

objective is to have a capital structure that enables investment grade

rating; currently Volvo Car Group has no external rating. The equity ratio

as per December 31, 2013 is 28 (29) per cent.

FUNDING AND lIqUIDITy rISk MANAGeMeNTlong term fundingAll draw down on new loans is evaluated against future liquidity needs

and investment plans. Volvo Car Group should for the coming 12 months

at any given time have available committed financing for investments

and maturing loans. To limit the risk of refinancing, debt maturing over

the next 12 months should not exceed 25 per cent of total debt. less

than 50 per cent of the long term debt should be re-financeable within 3

years.

During first quarter of 2013 a second tranche of EUR 107 million

was drawn from China Development bank (CDb) and in February 2013


Volvo Car Group signed a new loan with Svensk Exportkredit of SEK

1,000 million, with maturity in 2016.

In the fourth quarter 2013, a new loan agreement for USD 800

million was signed with CDb, with maturity in 2021. In November USD

466 million was drawn. The loan will support Volvo Car Group in further

developing the product program. The majority of the remaining USD 334

million is expected to be drawn during 2014. The amortisation structure

and terms of this loan agreement are similar to the loan agreement of

EUR 922 million.

The outstanding amount of long term funding for Volvo Car Group as

per year end 2013 was SEK 11 919 (6 917) million. Remaining credit

duration of the outstanding facilities was 4.8 years.

Outstanding loans are shown below.

Funding CurrencyCommitted

Facilities Utilized Available Maturity

bank loan EUR 922 922 – 2020

bank loan USD 800 466 334 2021

bank loan SEK 1,000 1,000 – 2016

The repayment structure of outstanding long term funding is shown

below.

In relation to all external loans there are information undertakings

and covenants according to lMA (loan Market Association) standards.

These are monitored and calculated quarterly to fulfil the terms and con-

ditions stated in the financial agreements. Covenants are based on stan-

dard ratios such as EbITDA and Net debt.

liquidity risk managementliquidity risk is the risk that Volvo Car Group is unable to meet ongoing

financial obligations on time. In order to meet seasonal volatility in cash

requirements, Volvo Car Group shall always have committed back up

facilities or free cash available corresponding to 5 per cent or more of

net revenue. The rolling 12 months cash flow forecasts are the basis for

the risk assessment of the liquidity risk management.

As at December 31, 2013, Volvo Car Group had cash and cash

equivalents of SEK 15,372 million (9,607), approximately 13 (8) per

cent of net revenue.

Volvo Car Group has a revolving credit facility of 360 MEUR with a

bank group of six banks with maturity in 2016. The purpose of the

arrangement is to serve as back up facility. During 2013, the facility has

remained undrawn. Including backup facilities Volvo Car Group have 15

per cent as liquidity reserve.

INTereST rATe rISk MANAGeMeNTChanges in the interest rate levels will impact Volvo Car Group’s net

financial income/expense or the value of financial assets and liabilities.

The return on cash and cash equivalents, short term investments and

credit facilities are impacted by changes in the interest rates. The

exposure can be either direct from interest rate bearing debt or indirect

through leasing or other financing arrangements.

As at December 31, 2013, Volvo Car Group’s interest-bearing assets

consisted of cash in the form of cash at bank, short term deposits and

marketable securities. The average interest fixing term on these assets

was less than one month. The average interest fixing term on outstand-

ing loans was less than 6 months. The average cost of borrowing was

4.8 (5.4) per cent. A 100 basis points change in market interests would

have an impact of SEK 93 million (27) on interest expenses.

According to the policy the interest rate risk in Volvo Car Group’s net

cash position has a benchmark duration of 6 months. The policy allows a

deviation of –6/+3 months from the benchmark. At year end the dura-

tion was 5 (2) months.

COMMODITy PrICe rISk MANAGeMeNTChanges in commodity prices impact Volvo Car Group’s cash flow and

earnings. Volvo Car Group has large procurement volumes in steel,

aluminum, resin and rubber. Commodity price risk is managed both in

strategic (medium to long-term) and operating (short to medium-term)

levels of transaction risk. The strategic commodity price risk arises from

procurement mix of commodities and the impact on our long term

competitiveness. The management of the strategic commodity price risk

means primarily price management in the procurement contract using

price contract clauses or similar constructions and fixed prices with

suppliers. A one per cent change in the prices of commodities has an

impact on operating income of approximately SEK 73 million.

Volvo Car Group manages the changes in prices for electricity by

using forward contracts. The hedging is managed by Vattenfall Power

Management Ab on discretionary account with certain risk limits

decided by Volvo Car Group.

maturity profile of external loans

0

3,000

6,000

9,000

12,000

1,5000

Outstanding loans 2012Outstanding loans 2013

million SEK equivalent

2013 2014 2015 2016 2017 2018 2019 2020 2021

loan repayment structure

2013 2014 2015 2016 2017 2018 2019 2020 2021

loan Repayment Structure 2013 0 137 389 2,002 1,668 2,335 2,531 2,182 813

loan Repayment Structure 2012 0 105 455 766 1,154 1,544 1,609 1,285 0


Net gains/losses on derivative financial instruments recognised in the income statement 2013 2012

Net gains/losses recognised in operating income and expenses

Gains/losses on electricity hedges 22 –5

Total 22 –5

CreDIT rISk MANAGeMeNTVolvo Car Group’s credit risk focus mainly in counterparty risk in financial

market transactions, investments of cash surplus and counterparty risk

in connection with customer and dealer financing.

Financial counterparties The maximum amount exposed to financial

credit risk is the total of bank accounts, deposits with banks and market

value of outstanding derivatives. The maximum amount exposed to

credit risk for financial instruments is best represented by their carrying

amounts, see table ‘Financial assets and liabilities by category‘ in this

note. Investments of cash surplus are made in the money and capital

markets. All investments must meet the requirements of low credit risk

and high liquidity. All counterparties used for investments and derivative

transactions have credit rating A or better from one of the well-estab-

lished credit rating institutions and ISDA agreements are in place with all

counterparties used for derivative transactions which is required accord-

ing to Volvo Car Group treasury policy. limits are set and limit usage is

followed up for the Volvo Car Group treasury counterparties and depos-

its are diversified between relationship banks. Subsidiaries’ bank bal-

ances are diversified in order to limit credit risk.

Dealers, importers and other counterpartiesFor the credit risk in customer and dealer financing, the objective is to

have a sound and balanced credit portfolio and to engage in credit moni-

toring by means of detailed procedures which include follow-up and

repossession. In cases where the credit risk is considered unsatisfactory

a letter of credit or other instruments are used. The maximum amount

exposed to credit risk is the carrying amount of accounts receivable, see

table ‘Financial assets and liabilities by category’ in this note. For quanti-

fication of credit risk in accounts receivable refer to Note 20 – Accounts

receivable and other current assets.

NOTE 22 – MARKETABLE SECURITIES AND CASH AND CASH EQUIVALENTS

Marketable securities

Dec 31, 2013 Dec 31, 2012

Commercial paper 88 –

Total short-term investments 88 –

The investment has a term of more than three months from acquisition

date.

Cash and cash equivalents

Dec 31, 2013 Dec 31, 2012

Cash in banks 11,223 8,482

bank deposits 4,149 1,125

Total 15,372 9,607

Cash and Cash equivalents includes SEK 1,047 million (878) where lim-

itations exist, mainly liquid funds where exchange controls or other legal

restrictions apply. It is not possible to immediatly use the liquid funds in

other parts of Volvo Car Group, however there is normally no limitation

for use in the Group’s operation in the respective country.

NOTE 23 – EQUITY

The Share Capital of Geely Sweden Ab consists of 1,000,000,000

shares fully paid with a par value of 1 SEK and with voting rights of one

vote per share.

The Share premium relates to the business combination, through

contribution in kind.

Other Contributed Capital consists of contribution from Shanghai

Geely Zhaoyuan International Investment Co. ltd. The contribution was

initially received by Geely Sweden Holdings Ab from Shanghai Geely

Zhaoyuan International Investment Co. ltd. and was then given to Geely

Sweden Automotive Ab and thereafter to Geely Sweden Ab as an

unconditional shareholders’contribution.

The hedge reserve consists of the change in fair value of commercial

cash flow hedging instruments in cases where hedge accounting is

applied according to IAS 39, Financial Instruments: Recognition and

Measurement.

The currency translation reserve comprises all exchange rate

differences resulting from the translation of financial reports of foreign

operations that have prepared their financial reports in a currency other

than Volvo Car Group’s reporting currency. The parent company and

Volvo Car Group present their financial reports in Swedish kronor (SEK).

retained earnings comprises net income for the year and preceding

years.

Non-controlling interest refers to the share of equity that belongs to

external interests without a controlling influence.

Total equity consists of the sum of equity attributable to the owners of

the parent company and equity attributable to non-controlling interests.

At year end 2013 the Volvo Car Group’s total equity amounted to SEK

24,638 million (21,901-restated).

Change in other reserves 2013 2012

balance at January 1 138 –

Change in fair value of currency risk derivatives during the year 189 –160

Currency risk contracts recognised in the income statement1) –177 337

Tax attributable to items recognised in other comprehensive income –3 –39

Balance at December 31 147 1381) Included in the income statement under other operating income/expenses.


Total of which Sweden of which Belgium Total of which Sweden of which Belgium

Financial year ending on Dec 31, 2013 Dec 31, 2013 Dec 31, 2013 Dec 31, 2012 Dec 31, 2012 Dec 31, 2012

Principal actuarial assumptions

weighted-average assumptions to determine benefit obligations

Discount rate 3.89% 4.00% 3.15% 3.52% 3.50% 3.05%

Rate of salary increase 3.20% 3.00% 3.17% 3.10% 3.00% 3.17%

Rate of price inflation 2.13% 2.00% 2.00% 2.08% 2.00% 2.00%

Rate of pension increases 2.16% 2.00% N/A 2.11% 2.00% N/A

weighted-average assumptions to determine net pension cost

Discount rate 3.52% 3.50% 3.06% 3.80% 3.50% 4.42%

Expected long-term rate of return on plan assets – – – 4.99% 4.75% 5.00%

Rate of salary increase 3.09% 3.00% 3.18% 3.52% 3.50% 3.17%

Rate of price inflation 2.08% 2.00% 2.00% 2.09% 2.00% 2.00%

Rate of pension increases 2.10% 2.00% N/A 2.12% 2.00% N/A

Mortality:

Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics and experience in each

territory. Mortality assumptions for Sweden are based on the same assumption recommended by the Financial Supervisory Authority (FFFS 2007:31),

a generational-based table but with one year “age set-back” i.e. a 65-year-old would have the life expectancy of a 64-year-old.

NOTE 24 – POST EMPLOYMENT BENEFITS

Volvo Car Group has various schemes for post-employment benefits,

mainly relating to pension plans. Other benefits can in some locations

include disability, life insurance and health benefits. Pension plans are

classified either as defined contribution or defined benefit plans. Volvo

Car Group has both defined contribution and defined benefit plans.

DeFINeD CONTrIBUTION PlANSUnder a defined contribution plan, Volvo Car Group pays fixed contri-

butions into a separate entity outside Volvo Car Group and will have no

future financial obligations. The contributions are recognised as

employee benefit expense in the income statement.

DeFINeD BeNeFIT PlANSDefined benefit plans are all plans that are not classified as defined

contribution plans. A defined benefit plan is a pension plan where the

employee will receive a defined pension benefit upon retirement, usually

dependent on factors such as age, years of service and compensation.

Volvo Car Group has defined benefit plans for qualifying employees in

some subsidiaries and the largest plans are in Sweden and belgium.

The largest plan overall is the Swedish ITP 2 plan which is a collectively

agreed pension plan for white collar employees. ITP 2 is a final salary-

based plan.

For the defined benefit plans operated, Volvo Car Group has the

obligation for the future benefits. Volvo Car Group’s defined benefit

plans are secured in three ways: as a liability in the balance sheet, assets

held in separate pension funds or funded through insurance payments.

The “funded through insurance payments” plans are defined benefit

plans accounted for as defined contribution plans. These plans in

Sweden are secured with the mutual insurance company Alecta.

The portion secured through insurance with Alecta refers to a

defined benefit plan that comprises several employers and is reported

according to a pronouncement by the Swedish Financial Reporting

board, UFR 3. For 2013, Volvo Car Group did not have access to the

information to report it´s proportinate share of the plan´s obligations,

assets under management and cost, that would make it possible to

report this plan as a defined benefit plan. The ITP 2 pension plan, which

is secured through insurance with Alecta, is therefore reported as a

defined contribution plan.

The collective funding ratio is of the market value of Alecta’s assets

as a percentage of the insurance obligations calculated according to

Alecta’s actuarial methods and assumptions, which do not conform to

IAS 19. The collective funding ratio should normally be allowed to vary

between 125 and 155 percent. At year end 2013, Alecta’s surplus in

the form of the collective funding ratio amounted to 148 percent (129).

In case local legal requirements exist, funded or unfunded plans are

credit insured with an external party.




Change in defined benefit obligation

Defined benefit obligation at beginning of year 14,602 9,866 1,908 13,492 9,342 1,529

Service cost 588 385 125 473 312 110

Interest expense 507 338 59 501 323 65

Cash flows –371 –217 –80 –369 –206 –91

Remeasurements –1,494 –1,806 266 655 87 356

Effect of changes in foreign exchange rates 80 – 68 -150 – –61

Benefit obligation at end of year 13,912 8,566 2,346 14,602 9,858 1,908

Change in fair value of plan assets

Fair value of plan assets at beginning of year 9,184 5,913 1,182 8,397 5,484 1,052

Interest income 335 207 41 318 192 49

Cash flows 90 – 61 100 – 62

Remeasurements 637 264 266 469 237 60

Effect of changes in foreign exchange rates 56 – 42 –100 – –41

Fair value of plan assets at end of year 10,302 6,384 1,592 9,184 5,913 1,182

Amounts recognised in the statement of financial position

Defined benefit obligation 13,912 8,565 2,346 14,602 9,866 1,908

Fair value of plan assets 10,302 6,384 1,592 9,184 5,913 1,182

Funded status 3,610 2,181 754 5,418 3,953 726

Net liability (asset) 3,610 2,181 754 5,418 3,953 726

Components of defined benefit cost

Service cost 588 385 125 472 312 109

Net interest cost 172 131 19 183 131 17

Remeasurements of Other long Term benefits 62 – 60 – – –

Administrative expenses and taxes 8 – – 6 – –

Total pension cost for defined benefit plans 830 516 204 661 443 126

Pension cost for defined contribution plans 1,480 1,321 123 1,324 1,187 116

Total pension cost recognised in Income Statement 2,310 1,837 327 1,985 1,630 242

Remeasurements (recognosed in OCI) –2,194 –2,070 –60 126 –142 297

Effect of changes in demographic assumptions 16 – – 11 – –

Effect of changes in financial assumptions –1,730 –1,748 –6 455 – 240

Effect of experience adjustments 157 –58 212 129 95 117

(Return) on plan assets (excluding interest income) –637 –264 –266 –469 –237 –60

Total defined benefit cost recognized in Income Statement and OCI –1,364 –1,554 144 787 301 423




Net defined benefit liability (asset) reconciliation

Net defined benefit liability (asset) at the beginning of the year 5,418 3,953 726 5,094 3,858 477

Defined benefit cost included in P&l 830 515 203 661 443 126

Total remeasurements included in OCI –2,194 –2,070 –60 126 –142 297

Cash Flows –469 –217 –141 –474 –206 –153

Employer contributions –183 – –105 –205 – –118

Employer direct benefit payments –286 –217 –36 –269 –206 –35

Effect of changes in foreign exchanges rates 25 – 26 11 – –21

Total defined benefit liability (asset) as of end of year 3,610 2,181 754 5,418 3,953 726

Defined benefit obligation

Defined benefit obligation by participant status

Actives 8,038 4,247 2,166 8,408 5,164 1,712

Vested deferreds 2,489 1,809 122 2,864 2,182 144

Retirees 3,385 2,509 58 3,330 2,520 52

Total 13,912 8,565 2,346 14,602 9,866 1,908

History of experience gains and losses 2013 2012

Defined benefit obligation 13,912 14,602

Fair value of plan assets 10,302 9,184

Deficit/(surplus) 3,610 5,418

Difference between the expected and actual return on plan assets

Amount –637 –469

Per centage of plan assets –6% –5%

Experience (gain)/loss on plan liabilities – –

Amount 158 130

Per centage of present value of plan liabilities 1% 1%

Plan assets

Fair value of plan assets 2013

Of which with a

quoted market price

Cash and cash equivalents 333 5

Equity instruments 2,262 931

Debt instruments 2,791 609

Real estate 9 –

Investment funds 3,243 178

Other 1,664 308

Total 10,302 2,031

The responsibility for governance of the pension plans and the plan

assets lies with the Company and Volvo Personvagnar’s Pension Fund.

Volvo Personvagnar’s Pension Fund is managed internally on the basis

of capital preservation strategy and the risk profile is set accordingly. The

investment horizon is long-term and the asset allocation ensures that

the investment portfolios are well diversified.

risksThere are mainly three categories of risks related to defined benefit obli-

gations and pension plans. The first category relates to risks affecting

the actual pension payments. Increased longevity and inflation of salary

and pensions are the principle risks that may increase the future pen-

sion payments, and hence, increase the pension obligation. The second

category relates to investment return. Pension plan assets are invested

in a variety of financial instruments and are exposed to market fluctua-

tions. Poor investment return may reduce the value of investments and

render them insufficient to cover future pension payments. The final cat-

egory relates to measurement and affects the acounting for pensions.

The discount rate used for measuring the present value of the obligation

may fluctuate which impacts the valuation of the defined benefit obliga-

tion. The discount rate also impacts the size of the interest income and

expense that is reported in the Financial items and the service cost. The

risk related to pension obligations, e.g., mortality exposure discount rate

and inflation, are monitored on an ongoing basis.

below is the sensitivity analysis for the main financial assumption and

the potential impact on the present value of the defined benefit obliga-

tion on the major plans.

Sensitivity analysis on defined benefit obligation Total

Discount rate +0,5% –1,000

Discount rate –0,5% 1,000


NOTE 25 – CURRENT AND OTHER NON–CURRENT PROVISIONS

Warranties Service contractsOther sales generated

obligations Other provisions Total

Balance at January 1, 2013 5,001 3,313 3,302 1,477 13,093

Provided for during year 3,210 3,044 7,668 7,043 20,965

Utilised during year –2,928 –3,193 –7,123 –6,246 –19,490

Reversal of unutilised amounts –531 – –86 –185 –802

Translational differences and other –58 –82 13 –8 –134


Of which current 1,993 879 3,774 1,523 8,169

Of which non–current 2,701 2,203 – 558 5,463

For additional information regarding accounting principles for provisions, see Note 1 – Accounting principles and Note 2 – Critical accounting esti-

mates and judgements..

NOTE 26 – OTHER NON - CURRENT LIABILITIES

Dec 31, 2013

Dec 31, 2012

Liabilities to credit institutions and finance lease contracts

Liabilities to credit institutions 11,919 6,917

Liabilities related to finance lease contracts 114 140

Total 12,033 7,057

LiaBiLiTieS TO creDiT inSTiTuTiOnSLiabilities to credit institutions mature until 2021 (2020). The average

cost of borrowing paid 2013 amounted to 4.8% (5.4%). In 2013 the

shares of Geely Sweden AB and Volvo Car Corporation were pledged for

the liabilities to credit institutions of SEK 10,919 million (In 2012 the

libilities for which a share pledge was provided amounted to SEK 6,917

milion).

Dec 31, 2013

Dec 31, 2012

Other long-term liabilities

Liabilities related to repurchase agreements 745 627

Deferred leasing revenue 420 393

Effect of remeasurement of other long-term liabilities for payroll taxes – –12

Other liabilities 47 49

Total 1,212 1,057

Dec 31, 2013

Dec 31, 2012

repayment structure of liabilities to credit institutions

1–5 years 8,924 2,480

Over 5 years 2,995 4,437

Total 11,919 6,917

exposure of interest rate changes related to liabilities to credit institutions

6 months or less 11,919 6,917

1–5 years – –

Total 11,919 6,917

The carrying amounts of Volvo car Group’s liabilities to credit institutions are denominated in the following currencies:

Dec 31, 2013

Dec 31, 2012

EUR 7,964 6,917

USD 2,955 –

SEK 1,000 –

Total 11,919 6,917

Volvo car Group has the following undrawn borrowing facilities:

Floating rate

– Expiring within one year 2,159 919

- Expiring after one year but within five years 3,202 -

Total 5,361 919

NOTE 27 – OTHER CURRENT LIABILITIES

Dec 31, 2013

Dec 31, 2012

Accrued expenses and prepaid income 5,624 5,306

Liabilities related to repurchase agreements 3,460 2,896

Personnel related liabilities 2,906 2,592

VAT liabilities 1,475 934

Hedging instruments 308 249

Deferred leasing revenue 549 493

Other liabilities 933 690

Total 15,255 13,160

NOTE 28 – PLEDGED ASSETS

Dec 31, 2013

Dec 31, 2012

Shares in subsidiaries 14,844 16,662

Restricted cash 930 507

Inventory 486 –

Other pledged assets 1 1

Total 16,261 17,170


NOTE 29 – CONTINGENT LIABILITIES

Dec 31, 2013

Dec 31, 2012

Investment commitments in contractual manufacturer 266 349

Share of packaging supply in logistic company – 208

Guarantees to insurance company FPG 116 112

Legal claims 113 –

Other contingent liabilities1) 70 39

Total 565 7081) Apart from the above contingent liabilities, there are other commitments and

guarantees that are not recognised since the likelihood of an outflow of resources is very low. Legal proceedings are further explained in note 2 - Critical accounting estimates and judgements.

NOTE 30 – CASH FLOW STATEMENTS

2013 2012

adjustments for items not affecting cash flow consist of:

Capital gains/losses on sale of tangible and intangible assets 33 36

Share of income in associates –179 –24

Interest effect from the measurement of repurchase obligations –197 –172

Shareholders’contribution to associates offset against invoiced services –14 –263

Effect of changes in accounting policies – –48

Other non-cash items 76 61

Total –281 –410

Acquisition of the remaining shares in Pininfarina Sverige AB (Volvo Car

Uddevalla AB) is classified as an investing activity and is included in

“Investments in shares and participation”.

Sale of intagible assets relates to a sale of technology of a Volvo

platform to Geely Group Ltd Co. The sale was recognised in the Income

statement in 2012 and payment was received during 2013, which has

affected this year’s cash flow from investing activities by 500 MSEK.

NOTE 31 – cHANGES IN ACCOUNTING PRINCIPLES

The revised employee benefit standard IAS 19 introduces changes to

the recognition, measurement, presentation and disclosure of post-

employment benefits. The standard also requires net interest expense/

income to be calculated as the product of the net defined benefit liabil-

ity/asset and the discount rate as determined at the beginning of the

year. The effect of this is to remove the previous concept of recognizing

an expected return on plan assets.

The new principles have been adopted retrospectively as stated

below:

impact of changes in accounting policy on the consolidated income statement

SeK millionDec 31,

2012adopt

iaS 19Dec 31, 2012

(restated)

Gross income 19,947 – 19,947

Operating expenses/income –19,929 48 –19,881

Operating income 18 48 66

Financial expenses/income –933 –127 –1,060

income before tax –915 –79 –994

Income tax 435 17 452

net income –480 –62 –542

impact of changes in accounting policy on the consolidated statement of comprehensive income

SeK millionDec 31,

2012adopt

iaS 19Dec 31, 2012

(restated)

Net income for the year –480 –62 –542

Other comprehensive income, net of income tax

Items that will not be reclassified susequently to income state-ment: – –98 –98

Items that may be reclassified susequently to income state-ment: –138 –138

–618 –160 –778

Total comprehensive income for the year –618 –160 –778

Total comprehensive income attributable to

Owners of the parent company –668 –160 –828

Non-controlling interests 50 – 50

Total –618 –160 –778

Cont. note 31

impact of changes in accounting policy on the consolidated balance sheet

SeK million Jan 1, 2012 adopt iaS 19Jan 1, 2012

(restated) Dec 31, 2012 adopt iaS 19Dec 31, 2012

(restated)

assets

Deferred tax assets 1,636 103 1,739 1,701 118 1,820

Non current assets 44,582 – 44,582 46,156 – 46,156

Total non-current assets 46,218 103 46,321 47,857 118 47,976

Total current assets 34,242 – 34,242 28,829 – 28,829

Total assets 80,460 103 80,563 76,686 118 76,804

equity & liabilities

Total equity 22,648 –1,483 21,165 23,544 –1,643 21,901

Provisions for post employee benefits 2,846 2,298 5,144 2,948 2,545 5,493

Deferred tax liabilities 2,790 –316 2,474 1,902 –346 1,556

Non-current liabilities 15,433 –396 15,037 14,462 –438 14,024

Total non-current liabilities 21,069 1,586 22,655 19,312 1,761 21,073

Total current liabilities 36,743 – 36,743 33,830 – 33,830

Total equity & liabilities 80,460 103 80,563 76,686 118 76,804



Other income 15 51

Gross income 15 51

Administrative expenses 3 –13 –13

Other operating income 1 –

Other operating expenses –2 –142

Operating income 4 1 –104

Financial income 5 30 500

Financial expenses 5 –103 –742

Income before tax –72 –346

Appropriation to tax allocation reserve – 12

Income tax 6 14 43

Net income –58 –291

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

INCOME STATEMENTS AND COMPREHENSIVE INCOME – PARENT COMPANY

54 geely sweden Ab AnnUAl RePORT 2013

SEK million Note Dec 31, 2013 Dec 31, 2012

ASSETS

Non-current assets

Participation in subsidiary 7 11,280 10,987

deferred tax assets 6 175 161

Receivables from group companies 2 567 543

Other non-current assets 2 7

Total non-current assets 12,024 11,698

Current assets

Receivables from group companies 2 26 13

Other current assets 11 50

Cash and cash equivalents 136 110

Total current assets 173 173

TOTAL ASSETS 12,197 11,871

EQUITY AND LIABILITIES

Equity

Restricted equity

share capital (1,000,000,000 shares with par value of 1 seK) 1,000 1,000

1,000 1,000

non-restricted equity

share premium reserve 5,509 5,509

Retained earnings 2,385 2,383

net income for the year –58 –291

7,836 7,601

Total equity 8,836 8,601

Non-current liabilities

non-current liabilities 1 –

liabilities to group companies 2 3,342 3,245

Total non-current liabilities 3,343 3,245

Current liabilities

Current provisions 3 –

Trade payables – 1

liabilities to group companies 2 – 1

Other current liabilities 15 23

Total current liabilities 18 25

TOTAL EQUITY AND LIABILITIES 12,197 11,871

BALANCE SHEETS – PARENT COMPANY

55geely sweden Ab AnnUAl RePORT 2013

Restricted equity Non-restricted equity

SEK million Share CapitalShare premium

reserveOther contributed

capital Retained earnings Total Total equity

Balance at January 1, 2012 1,000 5,509 1,127 –523 6,113 7,113

Net income – – – –291 –291 –291


Unconditional shareholder’s contribution – – 1,779 – 1,779 1,779

Balance at December 31, 2012 1,000 5,509 2,906 –814 7,601 8,601

Net income – – – –58 –58 –58


Unconditional shareholder’s contribution – – 293 – 293 293

Balance at December 31, 2013 1,000 5,509 3,199 –872 7,836 8,836

CHANGES IN EQUITY – PARENT COMPANY

STATEMENT OF CASH FLOWS– PARENT COMPANY


OPERATING ACTIVITIES

Operating income 1 –104

Interest and similar items received – 243

Interest and similar items paid – –236

Adjustments for items not affecting cash flow 9 5 141

6 44

Movements in working capital

Change in other current receivable 28 61

Change in accounts payable –1 –

Change in provisions 4 –

Change in provisions working capital liabilities –9 –13

Cash flow from movements in working capital 22 48

Cash flow from operating activities 28 92


INVESTING ACTIVITIES

Investments in shares and participations –293 –13

Cash flow from investing activities –293 –13

Cash flow from operating and investing activities –265 79

FINANCING ACTIVITIES

Proceeds from borrowings – 1,337

Repayments of borrowings – –1,362

Received shareholders contribution 293 12

Cash flow from financing activities 293 –13

Cash flow for the year 28 66

Cash and cash equivalents at beginning of year 110 47

exchange difference on cash and cash equivalents –2 –3

Cash and cash equivalents at end of year 136 110

56 geely sweden Ab AnnUAl RePORT 2013

NOTE 1 – ACCOUNTING PRINCIPLES

The parent company has been prepared in compliance with Swedish

Annual Accounts Act and Recommendation RFR 2, Accounting for

Legal Entities of the Swedish Financial Reporting Board. There are no

effects of the transition. RFR 2 implies that the parent company in the

Annual Report of a legal entity shall apply all International Financial

Reporting Standards and interpretations approved by the EU as far as

this is possible within the framework of the Annual Accounts Act and

taking into account the connection between reporting and taxation.

The operation of the parent company consist for the most part of

share ownership in Group companies and financing. Volvo Car Group’s

accounting principles apply except for the following areas:

Income taxesDue to the relationship between accounting and taxation, the deferred

tax liability on untaxed reserves are included in the untaxed reserves.

shares In subsIdIarIesThe shares in subsidiaries are accounted for according to the acquisition

cost method. Acquisition-related costs directly atttributable to the acqui-

sition are capitalised as part of the participation in Geely Sweden AB.

Investments are carried at cost and only dividends are accounted for in

the income statement. An impairment test is performed annually and

write-downs are made when permanent decline in value is established.

FInancIal assetsFinancial assets that are intended as a long-term investment are carried

at cost. Impairment tests are conducted annually and impairment losses

are recognised if it is likely that a decline in value is permanent.

Transaction costs directly attributable to the acquisition of Volvo Car

Corporation in 2010 have been accounted for as an increase in the

carrying amount of the shares.

hedgIngThe parent company hedges future interest flows related to assets and

liabilities. When hedging future interest flows, hedging instruments are

not revalued at the exchange rate fluctuations. Instead the entire effect

of changes in exchange rates is recognised in the income statement

when the hedging instrument matures.

In cases where the parent company holds derivative financial instru-

ments not used for hedging receivables and liabilities in foreign currency

or interest flows associated with these, they are reported at the lower of

cost and net realisable value.

equItyIn accordance with the Swedish Annual Accounts Act, the equity is split

between restricted and non-restricted equity.

shareholders’ contrIbutIonShareholders’ contributions are recognised in shares in subsidiaries

and as such they are subject to impairment testing.

NOTE 2 – related parties

During the year, the parent company entered into the following transactions with related parties:

Part of sales to related parties Part of purchases from related parties

2013 2012 2013 2012

Companies within the Volvo Car Group 100% 100% 71% 43%

receivables from liabilities to

2013 2012 2013 2012

Companies within the Volvo Car Group 592 556 3,342 3,246

Geely Sweden Holdings AB 1 – – –

– whereof short-term 26 13 – 1

593 556 3,342 3,246

Of the total receivables from related parties, SEK 594 million (556) is

due within five years. Of the total liabilities to related parties SEK 3,342

million (3,246) is due within five years.

Business transactions between the parent company and related

parties all arise in the normal course of business and are conducted on

the basis of arm’s length principles.

During 2013 the company has received an unconditional share-

holders’ contribution from Geely Sweden Automotive AB amounting to

SEK 293 million (1,779). The contribution was initially received by Geely

Sweden Holding AB from Shanghai Geely Zhaoyuan International

Investment Co Ltd and was then given to Geely Sweden Automotive AB

as an unconditional shareholders’ contribution.

Volvo Car Group does not engage in any transactions with Board

members or senior executives except ordinary remunerations for ser-

vices. For further information regarding remunerations, see Note 9 –

Employees and remuneration in the consolidated statements.

NOTES TO THE parent company FINANCIAL STATEMENTSAll amounts are in SEK million unless otherwise stated.

Amounts in brackets refer to the preceding year.

57GEELy SWEDEN AB ANNUAL REPORT 2013

NOTE 3 – AUDIT FEES

seK thousand 2013 2012

deloitte

Audit fees –84 –44

Audit-related fees –3 –145

Other services –327 –3

total –414 –192

audit fees involve audit of the Annual report, financial accounts and the

administration by the Board of Directors and the Managing Director. The

audit also includes advice and assistance as a result of the observations

made in connection with the audit.

audit-related fees refer to other assignments to ensure quality in the

financial statements including consultations on reporting requirements

and internal control.

All other work performed by the auditor is defined as other services.

NOTE 4 – REMUNERATION TO THE BOARD OF DIRECTORS

Information on remuneration to Board members by gender is shown in

Note 9 – Employees and remuneration, in the consolidated statements.

NOTE 5 – FINANCIAL INCOME AND EXPENSES

2013 2012

Financial income

Interest income from subsidiaries 30 340

Net foreign exchange gain on financing activities – 160

total 30 500

Financial expenses

Interest expenses to parent company – –598

Interest expenses to subsidiaries –96 –

Other interest expenses – –105

Net foreign exchange loss on financing activities –7 –39

total –103 –742

NOTE 6– TAXES

Income tax recognised in income statement 2013 2012

Deferred taxes 14 43

total 14 43

Information regarding current year tax expense compared to tax expense based on the applicable swedish tax rate

Income before tax for the year –72 –334

Tax according to applicable Swedish tax rate, 22% (26.3%) 16 88

Tax effect on deferred tax due to change of tax rate – –32

Additional deferred tax relating to previous years –3 –

Other 1 –13

total 14 43

As from January 1, 2013, the Swedish tax rate has changed from 26.3%

to 22.0%, affecting deferred tax items.

Total deferred tax asset SEK 175 million (161) relates to loss-carry

forward. Deferred tax assets are only accounted for to the extent there

are taxable temporary differences or other factors that convincingly

indicate there will be sufficient future taxable profit. The tax loss

carry-forward has an indefinite period of utilisation.

58 GEELy SWEDEN AB ANNUAL REPORT 2013

NOTE 7 – PARTICIPATION IN SUBSIDIARY

dec 31, 2013

dec 31, 2012

At beginning of the year/acquired acquisition value 10,987 10,974

Shareholders´contribution 293 13

total 11,280 10,987

geely sweden ab’s investments in subsidiaries: corp. Id no. registered office no. of shares % interest held

book value dec 31, 2013

book value dec 31, 2012

Volvo Car Corporation 556074-3089 Göteborg 1,000,000,000 100 11,280 10,987

The share of voting power corresponds to holdings in per cent as per above.

NOTE 8 – PLEDGED ASSETS

dec 31, 2013

dec 31, 2012

Shares in Volvo Car Corporation 11,280 10,987

total 11,280 10,987

Pledged shares in subsidiaries per December 31, 2013 refer to a

loan in Volvo Car Corporation.

NOTE 9 – CASH FLOW STATEMent

Adjustments for items not affecting cash flow consist of:

2013 2012

Reversal of transaction costs in connction with refi-nancing – 38

Unrealised foreign exchange losses - 103

Other non-cash items 5 -

5 141

59GEELy SWEDEN AB ANNUAL REPORT 2013

Legal Entity Corp. ID No. Registered office Holding in per cent

Volvo Personvagnar AB 556074-3089 Gothenburg / Sweden 100

Volvo Car Austria GmbH Austria 100

Volvo Car do Brasil Automoveis Ltda Brazil 100

Volvo Cars Brasil Importacao e Comercia de Veiculos Ltda Brazil 100

Volvo Cars of Canada Ltd Canada 100

Volvo Car Switzerland AG Switzerland 100

Volvo Cars (China) Investment Co Ltd China 100

Volvo Cars Technology (Shanghai) Co China 100

Volvo Auto Czech Sro Czech Republic 100

Volvo Cars Germany GmbH Germany 100

Volvo Car Denmark AS Denmark 100

Volvo Car Espana S.L Spain 100

Volvo Car Finland Auto Oy Finland 100

Volvo Automobiles France SAS France 100

Volvo Car UK Ltd United Kingdom 100

Volvo Car Hellas Greece 100

Volvo Car Hungary Trading and Service Ltd Hungary 100

Volvo Car Ireland Ltd Ireland 100

Volvo Auto India Pvt. Ltd India 100

Volvo Car Italia Spa Italy 100

Volvo Cars Japan Japan 100

Volvo Car Korea Co., Ltd Korea 100

Volvo Auto de Mexico S.A de C.V Mexico 100

Volvo Car Manufacturing Malaysia Sdn Bhd Malaysia 100

Volvo Car Nederland BV The Netherlands 100

Snita Holding BV The Netherlands 100

Swene Holding BV The Netherlands 100

Snebe Holding BV The Netherlands 100

Volvo Car Norway AS Norway 100

Volvo Auto Polska Sp Z.o.o Poland 100

Volvo Car Portugal SA Portugal 100

Volvo Personbilar Sverige AB 556034-3484 Gothenburg / Sweden 100

Volvo Cars Overseas Corp AB 556223-0440 Gothenburg / Sweden 100

Volvo Personvagnar Norden AB 556413-4848 Gothenburg / Sweden 100

Volvo Car Australia Holding AB 556152-2680 Gothenburg / Sweden 100

Goldcup 9397 AB 556955-6441 Gothenburg /Sweden 100

Volvo Bil i Göteborg AB 556056-6266 Gothenburg / Sweden 100

Volvo Car Uddevalla AB 556232-0142 Uddevalla / Sweden 100

Volvo Car NSC Holding AB 556754-8283 Gothenburg / Sweden 100

Volvo Cars PHEV Holding AB 556785-9375 Gothenburg / Sweden 100

Volvo Cars Real Estate and Assets 1 AB 556205-7298 Gothenburg / Sweden 100

Volvo Cars Investment and Borrowing AB 556130-4246 Gothenburg / Sweden 100

Volvo Car Center Uddevalla AB 556651-0193 Uddevalla / Sweden 100

Volvo Cars Services 1 AB 556877-5778 Gothenburg / Sweden 100

Volvo Cars Services 2 AB 556877-5760 Gothenburg / Sweden 100

Volvo Car Asia Pacific Ltd Singapore 100

Volvo Otomobil Ticaret Ltd Turkey 100

Volvo Cars Taiwan Ltd Taiwan 100

Volvo Car South Africa Pty Ltd South Africa 100

Volvo Cars Financial Services US LLC USA 100

Volvo Cars of North America LLC USA 100

Subsidiaries


Signatures

Stockholm, April 24 2014

Li Shufu Hans-Olov Olsson Chairman of the Board Board member

Zhang Ran Li Donghui Board member Board member

Our audit report was submitted, April 24 2014

Deloitte AB

Jan NilssonAuthorized Public Accountant


AUDITOR’S REPORT

To the annual meeting of the shareholders of Geely Sweden ABCorporate identity number 556798-9966This is a translation of the Swedish language original in the events of

any differences between this translation and the Swedish original the

latter shall prevail.

REpORT ON THE ANNuAL ACCOuNTS AND CONSOLIDATED ACCOuNTS we have audited the annual accounts and consolidated accounts of

Geely Sweden AB for the financial year 2013-01-01 – 2013-12-31.

Responsibilities of the Board of Directors for the annual accounts and consolidated accountsThe Board of Directors are responsible for the preparation and fair

presentation of these annual accounts in accordance with the Annual

Accounts Act and of the consolidated accounts in accordance with

International Financial Reporting Standards, as adopted by the EU, and

the Annual Accounts Act, and for such internal control as the Board of

Directors determine is necessary to enable the preparation of annual

accounts and consolidated accounts that are free from material mis-

statement, whether due to fraud or error.

Auditor’s responsibilityOur responsibility is to express an opinion on these annual accounts and

consolidated accounts based on our audit. we conducted our audit in

accordance with International Standards on Auditing and generally

accepted auditing standards in Sweden. Those standards require that

we comply with ethical requirements and plan and perform the audit to

obtain reasonable assurance about whether the annual accounts and

consolidated accounts are free from material misstatement.

An audit involves performing procedures to obtain audit evidence

about the amounts and disclosures in the annual accounts and consoli-

dated accounts. The procedures selected depend on the auditor’s

judgement, including the assessment of the risks of material misstate-

ment of the annual accounts and consolidated accounts, whether due to

fraud or error. In making those risk assessments, the auditor considers

internal control relevant to the company’s preparation and fair presenta-

tion of the annual accounts and consolidated accounts in order to

design audit procedures that are appropriate in the circumstances, but

not for the purpose of expressing an opinion on the effectiveness of the

company’s internal control. An audit also includes evaluating the appro-

priateness of accounting policies used and the reasonableness of

accounting estimates made by the Board of Directors, as well as evalu-

ating the overall presentation of the annual accounts and consolidated

accounts.

we believe that the audit evidence we have obtained is sufficient and

appropriate to provide a basis for our audit opinions.

OpinionsIn our opinion, the annual accounts have been prepared in accordance

with the Annual Accounts Act and present fairly, in all material respects,

the financial position of the parent company as of 31 December 2013

and of its financial performance and its cash flows for the year then

ended in accordance with the Annual Accounts Act. The consolidated

accounts have been prepared in accordance with the Annual Accounts

Act and present fairly, in all material respects, the financial position of

the group as of 31 December 2013 and of their financial performance

and cash flows for the year then ended in accordance with International

Financial Reporting Standards, as adopted by the EU, and the Annual

Accounts Act. The statutory administration report is consistent with the

other parts of the annual accounts and consolidated accounts.

we therefore recommend that the annual meeting of shareholders

adopt the income statement and balance sheet for the parent company

and the group.

REpORT ON OTHER LEGAL AND REGuLATORy REquIREmENTS In addition to our audit of the annual accounts and consolidated

accounts, we have also audited the proposed appropriations of the com-

pany’s profit or loss and the administration of the Board of Directors of

Geely Sweden AB for the financial year 2013-01-01 – 2013-12-31.

Responsibilities of the Board of DirectorsThe Board of Directors is responsible for the proposal for appropriations

of the company’s profit or loss, and the Board of Directors are responsi-

ble for administration under the Companies Act.

Auditor’s responsibilityOur responsibility is to express an opinion with reasonable assurance on

the proposed appropriations of the company’s profit or loss and on the

administration based on our audit. we conducted the audit in accord-

ance with generally accepted auditing standards in Sweden.

As a basis for our opinion on the Board of Directors’ proposed

appropriations of the company’s profit or loss, we examined whether the

proposal is in accordance with the Companies Act.

As a basis for our opinion concerning discharge from liability, in

addition to our audit of the annual accounts and consolidated accounts,

we examined significant decisions, actions taken and circumstances of

the company in order to determine whether any member of the Board of

Directors is liable to the company. we also examined whether any

member of the Board of Directors has, in any other way, acted in

contravention of the Companies Act, the Annual Accounts Act or the

Articles of Association.

we believe that the audit evidence we have obtained is sufficient and

appropriate to provide a basis for our opinions.

Opinionswe recommend to the annual meeting of shareholders that the profit

be appropriated in accordance with the proposal in the statutory

administration report and that the members of the Board of Directors be

discharged from liability for the financial year.

Gothenburg, April 24 2014

Deloitte AB

Signature on the Swedish original

Jan NilssonAuthorized Public Accountant

GEELy SwEDEN AB ANNUAL REPORT 201362

VOLVO CAR GROUP FINANCIAL REPORT JAN–DEC 2013IV

definitions

Comparative figures:The equivalent period is

shown in brackets

Retail Sales:Sales to end customers

Wholesales:Sales to dealers

information and contactyou are welcome to contact us:

Nils Mösko, Vice President, Head of Investor Relations.

[email protected], +46-(0)31-59 22 55.

For media queries, please contact:

David Ibison, Corporate Spokesman.

[email protected], +46-(0)31-59 22 39.

Volvo Car Group Headquarters

50400 – HA2S

SE-405 31 Gothenburg, Sweden

www.volvocars.com

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