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VOLVO CAR GROUP

INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS 2017

Volvo Car GROUPInterim report second quarter and first six months 2017

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VOLVO CAR GROUP

INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS 2017VOLVO CAR AB (PUBL.) (556810–8988)

INTERIM REPORT SECOND QUARTER AND FIRST SIX MONTHS 2017, GOTHENBURG JULY 19TH 2017

SECOND QUARTER

• Retail sales increased by 9.2 per cent to

148,493 (135,972) units

• Net revenue increased by 22.0 per cent to

MSEK 51,468 (42,175)

• Operating income (EBIT) increased by 34.2 per

cent to MSEK 3,285 (2,447)

• Net income increased by 25.0 per cent to

MSEK 2,143 (1,715)

• Cash flow from operating and investing

activities at MSEK –842 (–2,852)

• Start of production of the new XC60

• Electrification plan revealed

• Upgraded credit rating

FIRST SIX MONTHS

• Retail sales increased by 8.2 per cent to 277,641

(256,563) units

• Net revenue increased by 17.6 per cent to MSEK

99,060 (84,202)

• Operating income (EBIT) increased by 21.2 per

cent to MSEK 6,776 (5,592)

• Net income increased by 25.5 per cent to MSEK

4,749 (3,784)

• Cash flow from operating and investing activities

at MSEK –3,146 (–3,175)

• Volvo Cars recognised on the list 2017 of the

World’s Most Ethical Company® by the Ethisphere

Institute

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VOLVO CAR GROUP


Key figuresQ2

2017Q2

2016

First six months

2017

First six months

2016Full year

2016

Net revenue, MSEK 51,468 42,175 99,060 84,202 180,847

Research and development expenses, MSEK –2,930 –2,344 –5,602 –4,757 –9,374

Operating income (EBIT), MSEK 3,285 2,447 6,776 5,592 11,014

Net income, MSEK 2,143 1,715 4,749 3,784 7,460

EBITDA, MSEK 6,363 5,151 12,724 10,739 21,541

Cash flow from operating and investing activities, MSEK –842 –2,852 –3,146 –3,175 6,515

EBIT margin, % 6.4 5.8 6.8 6.6 6.1

EBITDA margin, % 12.4 12.2 12.8 12.8 11.9

Retail sales (units)Q2

2017Q2

2016

First six months

2017

First six months

2016Full year

2016

EMEA 85,308 81,784 164,128 153,953 307,639

whereof Sweden 21,008 20,408 38,724 36,455 70,268Asia-Pacific 37,712 29,220 70,584 57,568 126,314

whereof China 28,579 21,052 51,914 40,688 90,930Americas 24,636 24,112 41,277 43,412 97,197

whereof US 20,626 20,293 34,102 36,654 82,726Other1) 837 856 1,652 1,630 3,182

Retail sales total 148,493 135,972 277,641 256,563 534,332

Wholesales2) 149,022 130,080 288,074 258,046 536,211Production 154,459 131,489 307,085 267,202 533,156

1) Other sales refers to global specialist sales including e.g. diplomat sales.2) Wholesales refers to new car sales to dealers and other customers including own units and rentals.

All amounts are in MSEK unless otherwise stated. Amounts in brackets refer to the same period for the preceding year, unless otherwise stated. All performance measures are further described on page 21–22.

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

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VOLVO CAR GROUP


We grew our revenue by 17.6 per cent and sold 277,641 cars during the first half year, demonstrating a consistent year-on-year development. With fully utilised plants in Europe and increased production speed in China, we continue to meet the strong demand for our cars across all of our markets. The operating income of MSEK 6,776, resulting in an EBIT margin of 6.8 per cent, was supported by our strong product and market mix, however offset by launch costs for the new XC60 as well as increased research and development expenses.

Increased capacity at our plants in China, producing for both local sales and exports, continues to pay off with sales increasing during the first half year by 27.6 in China and 22.6 per cent in Asia Pacific in total.

The American region has seen a return to growth during the second quarter after delivery constraints during the first quarter resulting from the high demand for our SPA cars globally, with sales totalling 41,277 cars for the first half year.

In Europe, we continue to see strong demand for our cars, illus-trated in the high level of sales of the XC60 Classic in the region. The new model was launched in the spring, and has already gen-erated high levels of interest from customers.

For the second half of the year, I look forward to launching our third SUV model, XC40. The model uses our Compact Modular Architecture (CMA) for the first time, and signifies our entry into this fast growing segment. It will allow us to target a new range of customers, and has the potential to become one of the most suc-cessful cars in our line up.

We continue to innovate our business and have forged new partnerships that position us at the forefront of the changes underway in the industry, particularly within connectivity and autonomous drive, partnering with Google and Nvidia. Zenuity, our joint venture with Autoliv, developing software for autonomous drive, is starting its operations in Gothenburg, Munich and Detroit.

Electrification is now fundamentally at the core of our business. All models launched after 2019 will have a hybrid or fully electric propulsion. This is an important decision for the company and I am proud that we are able to take this significant step to minimise our environmental impact and thereby meet customer demand.

Given the strong demand for our models, all our plants are currently at near capacity. The successful move of the S90 pro-duction from Torslanda to Daqing has freed up capacity and the S90 will now be exported to both the US and Europe.

ceo COMMENT

Looking ahead to the end of 2017 - we will continue to grow, driven by strong demand and fuelled by increased production capacity in our plants. And as we complete this significant trans-formation, our direction forward is on a solid track.

Håkan SamuelssonCEO

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VOLVO CAR GROUP


VOLVO CAR GROUP


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

Volvo Cars’ global retail sales increased by 8.2 per cent to 277,641 (256,563) units and wholesale increased by 11.6 per cent to 288,074 (258,046) units in the first half of 2017. The XC60 remained the best-selling model, followed by the V40/V40 Cross Country models. Strong demand for the new 90 series models continues to be an important factor in Volvo Cars’ sales growth.

Volvo Cars’ second quarter global retail sales increased by 9.2 per cent to 148,493 (135,972) units. Overall sales growth was supported by our strong momentum in Asia Pacific and EMEA, and improved sales in the Americas. Wholesale increased by 14.6 per cent to 149,022 (130,080) units. The strong demand for the 90 series was larger than the available SPA capacity. This resulted in a slight decrease of global XC90 sales compared with the sec-ond quarter 2016.

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

EMEATotal sales of passenger cars increased by almost 4 per cent in the first six months. The improvement was reflected in all of the major markets, with the exception of the UK. Volvo Cars reported a sales increase of 6.6 per cent to 164,128 (153,953) units as we continued to see strong demand for the new V90, XC90, as well as the XC60. Sales in Sweden increased by 6.2 per cent to 38,724 (36,455) units, reflecting a strong underlying demand in the Swedish market.

In the second quarter, Volvo Cars increased retail sales by 4.3 per cent to 85,308 (81,784) units, growing in key markets like Sweden, the UK, France and Germany. The XC60 was the best-selling model in EMEA, also recording a year-on-year increase in sales. In Sweden, Volvo Cars grew by 2.9 per cent to 21,008 (20,408) units, gaining market share as a result, and in the UK Volvo Cars increased sales by 6.5 per cent.

The Volvo Car Group

Sales development

Retail sales (units)Q2

2017Q2

2016 Change %

First six months

2017

First six months

2016 Change %

EMEA 85,308 81,784 4.3 164,128 153,953 6.6

whereof Sweden 21,008 20,408 2.9 38,724 36,455 6.2Asia Pacific 37,712 29,220 29.1 70,584 57,568 22.6

whereof China 28,579 21,052 35.8 51,914 40,688 27.6Americas 24,636 24,112 2.2 41,277 43,412 –4.9

whereof US 20,626 20,293 1.6 34,102 36,654 –7.0Other 837 856 –2.2 1,652 1,630 1.3

Retail sales total 148,493 135,972 9.2 277,641 256,563 8.2

Wholesales 149,022 130,080 14.6 288,074 258,046 11.6Production 154,459 131,489 17.5 307,085 267,202 14.9

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VOLVO CAR GROUP


Asia PacificPassenger car sales in Asia Pacific decreased by around 1 per cent during the first half of 2017, while the Chinese market grew by almost 2 per cent. In China, April and May both recorded a decline in sales. However, June saw a rebound in demand. Sales of SUVs remained robust and was the fastest growing segment in China. Volvo Cars’ sales increased by 22.6 per cent in Asia Pacific to 70,584 (57,568) units. China was up 27.6 per cent for the six month period, to 51,914 (40,688) units.

During the second quarter, sales in Asia Pacific increased by 29.1 per cent to 37,712 (29,220) units. The upturn was supported by the demand for the XC60, S60L and S90 models, with the XC60 being the best-selling model in Asia Pacific. Sales of the XC90 more than doubled in the region, contributing to the volume growth. Volvo Cars’ sales momentum continued in China with retail sales increasing by 35.8 per cent to 28,579 (21,052) units.

AmericasDuring the first six months, sales of light vehicles in Americas remained on the same level in comparison with the same period 2016. The overall US market for light vehicles declined by more than 2 per cent in the same period. The underlying demand for crossovers and SUVs remained strong and continued to grow. Volvo Cars’ sales declined by 4.9 and 7.0 per cent in Americas and the US, respectively, reflecting Volvo Cars’ prioritisation in the first quarter to distribute 90 series cars to all markets to balance the strong global demand for the SPA models.

Volvo Cars’ sales in Americas increased by 2.2 per cent in the quarter to 24,636 (24,112) units. The US operations recorded a sales increase of 1.6 per cent to 20,626 (20,293) units. The increase was supported by sales of the S90 and V90 models.

The XC90 was the best-selling model in both the Americas and the US, followed by the XC60.

RETAIL SALES BY MARKET FIRST SIX MONTHS

RETAIL SALES BY CARLINE FIRST SIX MONTHS

Americas 15%Asia Pacific 25%

Other 1%

EMEA 59%

XC 47%

V 37%

S 16%

VOLVO CAR GROUP


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VOLVO CAR GROUP


VOLVO CAR GROUP


Retail sales by model, (units)Q2

2017Q2

2016

First six months

2017

First six months

2016

XC60/XC60 Classic 48,807 39,502 89,950 73,817

V40/V40 Cross Country 25,008 25,340 48,554 48,670

XC90 21,016 23,096 40,186 43,911

V90/V90 Cross Country 15,595 − 26,650 −

V60/V60 Cross Country 14,139 15,878 28,485 29,093

S60/S60L/S60 Cross Country 13,848 15,074 26,171 27,821

S90/S90L 10,018 187 17,346 187

Other (discontinued models) 62 16,895 299 33,064

Total 148,493 135,972 277,641 256,563

Top 10Retail sales by market, (units)

Q2 2017

Q2 2016

First six months

2017

First six months

2016

China 28,579 21,052 51,914 40,688

Sweden 21,008 20,408 38,724 36,455

US 20,626 20,293 34,102 36,654

UK 11,800 11,085 24,481 22,570

Germany 10,698 10,559 19,697 19,121

Belgium 5,085 5,277 10,147 10,585

Italy 4,457 4,951 9,266 9,466

France 4,345 4,179 8,501 8,076

Spain 4,119 3,623 7,392 6,798

Japan 3,586 3,301 7,694 6,967

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VOLVO CAR GROUP


SECOND QUARTER 2017

Start of production of the new XC60Production of the new XC60 started in April at the Torslanda plant, Sweden. The new premium SUV was revealed in March at the Geneva Motor Show, replacing the highly-successful original XC60. The model represents the first 60 cluster car produced based on SPA and is part of the next step in the Volvo Cars’ model renewal.

Polestar to become global high performance car companyIn June, it was announced that Polestar, Volvo Cars’ performance car company, is to become a new separately-branded electrified global high performance car company, marking the latest stage in Volvo’s ongoing transformation. Thomas Ingenlath was appointed CEO of Polestar.

First fully electric car to be built in ChinaIt was announced in April that Volvo Cars will build its first fully electric car in China. The all new model will be based on the Com-pact Modular Architecture (CMA) for smaller cars, and will be available for sale in 2019 and exported globally from China.

Joint Venture with Autoliv operationalOperations of Zenuity AB started in April as all approvals from relevant competition authorities were received and closing of the agreement took place. A frame agreement was signed in Decem-ber, pending relevant approvals, according to which Volvo Cars and Autoliv agreed to establish Zenuity AB, a new joint venture developing software for autonomous driving and driver assistance systems.

New partnership to develop next generation self-driving car technologiesIt was communicated in June that Volvo Cars and Autoliv, the world leading automotive safety company, and NVIDIA, the AI and visual computing company, are teaming up to develop advanced systems and software for self-driving cars. The three companies will work together with Zenuity.

Upgraded credit ratingVolvo Cars’ credit rating was upgraded in May by Standard & Poor’s (S&P’s). The global credit rating agency upgraded Volvo Cars from BB with a positive outlook to BB+ with a stable out-look.

New appointments to the Executive Management TeamMartina Buchhauser was appointed Senior Vice President Pro-curement in April. In June, David Ibison succeeded JonathanGoodman as Senior Vice President Corporate Communications.

Summary First Quarter 2017• Launch of the new XC60• New shared mobility business announced to be set up• Xiaolin Yuan was appointed Senior Vice President for Asia

Pacific

Significant events

VOLVO CAR GROUP


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VOLVO CAR GROUP


Income Statement (MSEK)Q2

2017Q2

2016

Net revenue 51,468 42,175

Gross income 10,706 9,215

Operating income 3,285 2,447

Income before tax 2,960 2,148

Net income 2,143 1,715

During the second quarter, Volvo Car Group generated net reve-nue of MSEK 51,468 (42,175)*, an increase of 22.0 per cent. The increase was mainly a result of volume and a positive sales mix, driven by XC60, S90 and V90 sales, along with a positive exchange rate development.

Cost of sales increased by MSEK 7,802 to MSEK –40,762 (–32,960)*. The increase was attributable to higher sales volume and richer mix, as well as move of production of the S90 series to Daqing and general ramp-up of production. Gross income increased to MSEK 10,706 (9,215).

Volvo Cars is continuously investing in new technologies as well as replacing all its car models and finalising the industrial transformation, at the same time as meeting the increasing demand for its cars by ramping up production. This translates into increased research and development and selling as well as administrative expenses, which amounted to MSEK 8,734 (6,948). For details regarding research and development expenses, see table below.

Other operating income and expense, net, increased to MSEK 1,314 (96)*, where sold licenses are the main drivers.

Operating income (EBIT) increased to MSEK 3,285 (2,447), mainly as a result of the positive volume and sales mix, increased level of sold licences, partly offset by increased fixed costs, and negative foreign exchange effect**, resulting in an operating mar-gin of 6.4 (5.8) per cent.

Net financial items amounted to MSEK –325 (–299), mainly related to a negative net foreign exchange result on financing activities, partly offset by decreased interest expenses on exter-nal funding. The income tax increase is related to increased profit and withholding tax.

Net income amounted to MSEK 2,143 (1,715).

* Prior year net revenue and cost of sales have been restated to hedged currency rates, see Note 1 – Accounting principles.

** Negative MSEK 200.

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

Research and development (MSEK)Q2

2017Q2

2016

Research and development spending –4,051 –2,985

Capitalised development costs 2,247 1,678

Amortisation and depreciation of Research and development1) –1,126 –1,037

Research and development expenses –2,930 –2,344

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

VOLVO CAR GROUP


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

Volvo Car Group generated net revenue of MSEK 99,060 (84,202)*, an increase of 17.6 per cent. The increase was mainly a result of higher volume and a positive sales mix, driven by XC60, S90 and V90 sales, along with a positive exchange rate develop-ment.

Cost of sales increased by MSEK 12,442 to MSEK –77,715 (–65,273)*. The increase was attributable to higher sales volume and richer mix, as well as move of production of the S90 series to Daqing and general ramp-up of production. Gross income increased to MSEK 21,345 (18,929).

Volvo Cars is continuously investing in new technologies as well as replacing all its car models and finalising the industrial transformation, at the same time as meeting the increasing demand for its cars by ramping up production. This translates into increased research and development, selling as well as adminis-trative expenses, which amounted to MSEK 16,335 (13,595). For details regarding research and development expenses, see table below.

Other operating income and expense, net, increased to MSEK 1,702 (82)*, where sold licenses are the main drivers.

Operating income (EBIT) increased to MSEK 6,776 (5,592), mainly as a result of the positive volume and sales mix, increased level of sold licences, partly offset by increased fixed costs, and negative foreign exchange effect**, resulting in an operating mar-gin of 6.8 (6.6) per cent.

Net financial items amounted to MSEK –572 (–676), mainly related to decreased interest expenses on external funding and increased interest income on cash and cash equivalents, partly offset by a negative net foreign exchange result on financing activities. The income tax increase is related to increased profit and withholding tax.

Net income amounted to MSEK 4,749 (3,784).

* Prior year net revenue and cost of sales have been restated to hedged currency rates, see Note 1 – Accounting principles.

** Negative MSEK 550.

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

Income Statement (MSEK)

First six months

2017

First six months

2016

Net revenue 99,060 84,202

Gross income 21,345 18,929

Operating income 6,776 5,592

Income before tax 6,204 4,916

Net income 4,749 3,784

Research and development (MSEK)

First six months

2017

First six months

2016

Research and development spending –7,527 –5,654

Capitalised development costs 4,081 2,836

Amortisation and depreciation of Research and development1) –2,156 –1,939

Research and development expenses –5,602 –4,757

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

VOLVO CAR GROUP


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CASH FLOWCash flow from operating and investing activities amounted to MSEK –3,146 (–3,175).

Cash flow from operating activities amounted to MSEK 9,865 (4,613). Operating income contributed with MSEK 6,776 (5,592), the adjustment for depreciation and amortisation with additional MSEK 5,948 (5,147), partly offset by a change in working capital of MSEK –1,006 (–4,590). The change in working capital is related to increased inventories and accounts payables, due to production related seasonality, product mix and ramp-up of pro-duction in Daqing. The change in accounts receivables is explained by increasing sales and sold services.

Cash flow from investing activities amounted to MSEK –13,011 (–7,788). Investments in tangible assets amounted to MSEK –8,996 (–5,030), following the ongoing construction of the US plant and special tool investments related to new car models, such as the new XC60, S90/S90L and the upcoming XC40. Investments in intangible assets amounted to MSEK –4,151 (–2,938) as a result of continuous investments in new and upcom-ing car models and new technology.

Cash flow from financing activities amounted to MSEK –923 (222). This is primarily attributable to dividends paid of MSEK –2,188 (–), repayment of liabilities to credit institutions of MSEK –1,855 (–3,985), partly offset by matured marketable securities of net MSEK 2,239 (–785).

Cash and cash equivalents including marketable securities decreased to MSEK 36,270 (43,373). Net cash decreased to MSEK 13,122 (18,873). Including the undrawn revolving credit facility of MEUR 1,300, net liquidity is at MSEK 25,651.

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

VOLVO CAR GROUP


Cash flow Statement (MSEK)

First six months

2017

First six months

2016

Cash flow from operating activities 9,865 4,613

Cash flow from investing activities –13,011 –7,788

Cash flow from operating and investing activities –3,146 –3,175

Cash flow from financing activities –923 222

Cash flow for the period –4,069 –2,953

EQUITYTotal equity increased by MSEK 4,546 to MSEK 47,856 (43,310), resulting in an equity ratio of 27.6 (26.8) per cent. The change is attributable to the positive net income of MSEK 4,749 and posi-tive effects in consolidated comprehensive income, related to change in cash flow hedge reserves of MSEK 2,892, offset by a negative foreign exchange effect, including hedge, of MSEK –615 and remeasurement of post-employment benefits of MSEK –286. Dividend of MSEK –2,188 has been paid to the shareholders.

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VOLVO CAR GROUP


SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD Volvo Cars reveals electrification plan In July, Volvo Cars announced that every Volvo launched from 2019 will have an electric motor. This represents one of the most significant moves by any car maker to embrace electrification and highlights how over a century after the invention of the internal combustion engine electrification is paving the way for a new chapter in automotive history.

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

EMPLOYEESDuring the second quarter of 2017, Volvo Car Group employed on average 34,200 (29,200) full-time employees. Furthermore, the Group employed on average 4,300 (3,800) consultants. The increased number of employees and consultants is mainly related to higher production volumes, the ramp up in Asia Pacific and Americas, as well as the continuous development of future car models.

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

VOLVO CAR GROUP


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

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

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

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CONSOLIDATED INCOME STATEMENTS

MSEK Note Q2

2017Q2

2016

First six months

2017

First six months

2016Full year

2016

Net revenue 1 51,468 42,175 99,060 84,202 180,847

Cost of sales 1 –40,762 –32,960 –77,715 –65,273 –143,020

Gross income 10,706 9,215 21,345 18,929 37,827

Research and development expenses –2,930 –2,344 –5,602 –4,757 –9,374

Selling expenses –3,751 –3,032 –6,928 –5,715 –11,992

Administrative expenses –2,053 –1,572 –3,805 –3,123 –6,471

Other operating income 1 1,907 443 2,769 777 2,467

Other operating expenses 1 –593 –347 –1,067 –695 –1,861

Share of income in joint ventures and associates –1 84 64 176 418

Operating income 3,285 2,447 6,776 5,592 11,014

Financial income 76 67 151 124 218

Financial expenses –401 –366 –723 –800 –1,711

Income before tax 2,960 2,148 6,204 4,916 9,521

Income tax –817 –433 –1,455 –1,132 –2,061

Net income 2,143 1,715 4,749 3,784 7,460

Net income attributable toOwners of the parent company 1,555 1,270 3,808 3,103 5,944

Non-controlling interests 588 445 941 681 1,516

2,143 1,715 4,749 3,784 7,460

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VOLVO CAR GROUP


CONSOLIDATED COMPREHENSIVE INCOME

MSEKQ2

2017Q2

2016

First six months

2017

First six months

2016Full year

2016

Net income for the period 2,143 1,715 4,749 3,784 7,460Other comprehensive income, net of income taxItems that will not be reclassified subsequently to income statement:Remeasurements of provisions for post-employment benefits –430 –369 –286 –829 –1,157

Items that may be reclassified subsequently to income statement:Translation difference on foreign operations –630 346 –587 260 514

Translation difference of hedge instruments of net investments in foreign operations –31 –66 –28 –83 –124

Change in cash flow hedge 2,488 –1,486 2,892 –461 –3,074

Other comprehensive income, net of income tax 1,397 –1,575 1,991 –1,113 –3,841Total comprehensive income for the period 3,540 140 6,740 2,671 3,619

Total comprehensive income attributable toOwners of the parent company 3,126 –340 5,998 2,025 2,070

Non-controlling interests 414 480 742 646 1,549

3,540 140 6,740 2,671 3,619

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VOLVO CAR GROUP


CONSOLIDATED BALANCE SHEETS

MSEK NoteJune 30,

2017Dec 31,

2016

ASSETSNon-current assetsIntangible assets 27,468 25,368

Property, plant and equipment 50,572 45,468

Assets held under operating leases 2,554 2,483

Receivables on parent company 54 54

Investments in joint ventures and associates 2,491 2,498

Other long-term securities holdings 77 79

Deferred tax assets 4,490 4,112

Other non-current assets 2 3,056 2,013

Total non-current assets 90,762 82,075

Current assetsInventories 29,111 21,198

Accounts receivable 3 10,747 8,717

Current tax assets 661 293

Other current assets 2 6,023 5,757

Marketable securities 2 2,454 4,738

Cash and cash equivalents 2 33,816 38,635

Total current assets 82,812 79,338TOTAL ASSETS 173,574 161,413

EQUITY & LIABILITIESEquityEquity attributable to owners of the parent company 43,963 39,536

Non-controlling interests 3,893 3,774

Total equity 47,856 43,310

Non-current liabilitiesProvisions for post-employment benefits 6,721 6,348

Deferred tax liabilities 2,297 1,209

Other non-current provisions 7,028 6,995

Liabilities to credit institutions 2 12,322 13,910

Bonds 2 7,724 7,699

Other non-current liabilities 2, 3 3,339 5,818

Total non-current liabilities 39,431 41,979

Current liabilitiesCurrent provisions 16,466 15,371

Liabilities to credit institutions 2 3,001 2,813

Advance payments from customers 628 652

Accounts payable 3 36,440 30,508

Current tax liabilities 1,168 626

Other current liabilities 2, 3 28,584 26,154

Total current liabilities 86,287 76,124TOTAL EQUITY & LIABILITIES 173,574 161,413

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CONDENSED CHANGES IN CONSOLIDATED EQUITY

MSEKJune 30,

2017Dec 31,

2016

Opening balance 43,310 34,635Net income for the period 4,749 7,460

Other comprehensive income, net of income tax 1,991 –3,841

Total comprehensive income 6,740 3,619Aqusition of non-controlling interests − 140

Issue of preference shares –6 4,916

Dividend to shareholders –2,188 −

Transactions with owners –2,194 5,056Closing balance 47,856 43,310

Attributable to Owners of the parent company 43,963 39,536

Non-controlling interests 3,893 3,774

Closing balance 47,856 43,310

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CONSOLIDATED STATEMENTS OF CASH FLOWS

MSEKQ2

2017Q2

2016

First six months

2017

First six months

2016Full year

2016

OPERATING ACTIVITIESOperating income 3,285 2,447 6,776 5,592 11,014

Depreciation and amortisation of non-current assets 3,078 2,704 5,948 5,147 10,527

Interest and similar items received 76 67 151 124 218

Interest and similar items paid –453 –423 –496 –489 –953

Other financial items –230 –45 –246 –121 –418

Income tax paid –952 –513 –1,475 –884 –1,705

Adjustments for other items not affecting cash flow 178 –103 213 –166 522

4,982 4,134 10,871 9,203 19,205

Movements in working capitalChange in inventories –2,703 –858 –7,350 –2,850 –231

Change in accounts receivable –2,060 –1,651 –2,136 –1,746 730

Change in accounts payable 4,217 –337 6,401 1,177 4,023

Change in items relating to repurchase commitments 375 –30 582 –100 –342

Change in provisions 1,173 491 1,212 669 3,497

Change in other working capital assets/liabilities 862 –368 285 –1,740 –21

Cash flow from movements in working capital 1,864 –2,753 –1,006 –4,590 7,656Cash flow from operating activities 6,846 1,381 9,865 4,613 26,861

INVESTING ACTIVITIESInvestments in shares and participations, net 58 24 136 179 –1,280

Dividend received from joint ventures and associates − 5 − 5 5

Investments in intangible assets –2,325 –1,762 –4,151 –2,938 –6,394

Investments in property, plant and equipment –5,423 –2,496 –8,996 –5,030 –12,669

Other 2 –4 − –4 –8

Cash flow from investing activities –7,688 –4,233 –13,011 –7,788 –20,346Cash flow from operating and investing activities –842 –2,852 –3,146 –3,175 6,515

FINANCING ACTIVITIESProceeds from credit institutions 226 262 760 316 1,696

Proceeds from bond issuance − 4,619 − 4,619 7,579

Proceeds from issuance of preference shares, net − − –32 − 4,979

Repayment of liabilities to credit institutions –1,154 –3,850 –1,855 –3,985 –7,634

Dividend paid to shareholders –2,188 − –2,188 − −

Investments in marketable securities, net –851 –2,522 2,239 –785 –1,189

Other 173 198 153 57 361

Cash flow from financing activities –3,794 –1,293 –923 222 5,792Cash flow for the period –4,636 –4,145 –4,069 –2,953 12,307

Cash and cash equivalents at beginning of period 39,174 26,716 38,635 25,623 25,623Exchange difference on cash and cash equivalents –722 329 –750 230 705

Cash and cash equivalents at end of period 33,816 22,900 33,816 22,900 38,635

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VOLVO CAR GROUP


CONDENSED PARENT COMPANY INCOME STATEMENTS

CONDENSED PARENT COMPANY BALANCE SHEETS

MSEKQ2

2017Q2

2016

First six months

2017

First six months

2016Full year

2016

Administrative expenses –3 –1 –10 –2 –10

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

Operating income 1,562 –1 1,555 –2 –10

Financial income 57 19 117 19 107

Financial expenses –91 –33 –190 –33 –414

Income before tax 1,528 –15 1,482 –16 –317

Income tax 10 - 20 - 71

Net income 1,538 –15 1,502 –16 –246

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

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

MSEK June 30,

2017Dec 31,

2016

ASSETSNon-current assets 20,168 20,100

Current assets 4,953 5,021

TOTAL ASSETS 25,121 25,121

EQUITY & LIABILITIESEquityRestricted equity 51 51

Non-restricted equity 7,545 7,614


Non-current liabilities 17,455 17,338

Current liabilities 70 118

TOTAL EQUITY & LIABILITIES 25,121 25,121

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VOLVO CAR GROUP


NOTE 1 – ACCOUNTING PRINCIPLES

This interim report has been prepared in accordance with IAS 34 – Interim Financial Reporting and the Swedish Annual Accounts Act. The parent company applies the Swedish Annual Accounts Act and RFR 2 - Reporting for legal entities. The Volvo Car Group applies International Financial Reporting Standards (IFRS) as endorsed by the European Union. The accounting principles adopted, as well as estimated effects of implementing upcoming changes in accounting principles (IFRS 9, 15 and 16), are, in all material aspects, consist-ent with those described in the Volvo Car Group Annual Report 2016 Note 1 – Accounting Principles (available at www.volvocars.com) together with the below addition. In 2017, the effect from realised cash-flow hedges is classified as net revenue and cost of sales, respectively, depending on the underlying substance of the transaction. Comparative figures for 2016 have been restated, whereby a reclassification from other oper-ating income/expenses to net revenue and cost of sales has been made. There has been no impact on operating income. The effect of realised cash-flow hedges for the first half year 2017 in net revenue is MSEK –713 (554) and in cost of sales MSEK 224 (47), with corresponding figures for Q2 isolated MSEK –308 (284) for net revenue and MSEK 85 (42) for cost of sales. Certain disclosures, required by IAS 34 – Interim financial reporting, may be given within this interim report, but outside of the formal interim financial statements.

NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Valuation principles for financial instruments as described in Volvo Car Group Annual Report 2016 Note 21 – Financial risks and financial instruments, have been consistently applied throughout the reporting period. The comparative figures in this note refer to December 31, 2016.

In Volvo Car Group’s balance sheet, financial instruments reported at fair value through the income statement consist of derivatives as well as marketable securities (excluding time deposits in banks). Fair value of financial instruments is established according to three levels, depending on the market information available. All financial instruments reported at fair value through the income statement that Volvo Car Group holds as of June 30, 2017 belong to level 2. No transfers between the levels of the fair value hierarchy have occurred during the reporting period. Valuation of financial instruments at fair value is based on prevailing market data and on a discounting of estimated cash flows using the deposit/swap curve of the cash flow currency and include risk assumptions. For currency option instru-ments, the valuation is based on Black & Scholes formula. Fair value of commodity contracts is calculated by discounting the difference between the contracted forward price and the contracted forward price that can be obtained on the balance sheet date for the remain-ing contract period.

The total fair value of the derivative portfolio as of June 30, 2017, amounted to MSEK 827 (–2,827). The major part is related to cash flow hedging of currency risk. Expressed in nominal terms, 31 (37) per cent of the forecasted cash flows in 24 months and 6 (7) per cent of the forecasted cash flows in 25–48 months were hedged. Derivatives with positive fair values amounted to MSEK 1,717 (1,078), whereof MSEK 1,048 (406) are included in other non-current assets and MSEK 669 (672) are included in other current assets. Deriv-atives with negative fair values amounted to MSEK 890 (3,905), whereof MSEK 254 (1,842) are included in other non-current liabilities and MSEK 636 (2,063) are included in other current liabilities. Marketable securities (excluding time deposits in banks) amounted to MSEK 4,274 (7,537), whereof MSEK 238 (2,720) are reported as marketable securities and MSEK 4,036 (4,817) are reported as cash and cash equivalents. Time deposits in banks (not recognised at fair value) amounted to MSEK 2,216 (2,018) and are included in mar-ketable securities.

For financial liabilities valued at amortised cost, reported as current and non-current liabilities to credit institutions and as bond loans, the carrying amount totalled MSEK 23,047 (24,422). The carrying amount is a good estimate of the fair value since the interest rates in existing loan agreements on June 30, 2017 were estimated to be in par with credit market interest rates. The fair value therefore corre-sponds, in every significant aspect, with the carrying amount. Fair value of financial instruments such as accounts payables and other non-interest bearing financial liabilities that are valued at amortised cost is regarded as coinciding with the carrying amount.

Carrying amount of financial liabilities recorded at amortised cost, as stated in the paragraph above, includes the MEUR 500 bond issued in May 2016. Carrying amount of the bond is MSEK 4,743 (4,717). A fair value adjustment related to the interest component of the bond is included in the carrying amount of the bond. The fair value component of the carrying value amounts to MSEK –17 (6). Changes to fair value of the interest component of the bond is hedged through a fair value hedge by means of interest rate swaps. The interest rate component of the issued bond, level 2, is calculated by discounting the future coupon payments and face value of the bond, using the deposit/swap curve of the cash flow. The MSEK 3,000 bond issued in November 2016 is recorded at amortised cost to an amount of MSEK 2,981 (2,982). No hedge accounting is applied on this bond issue.

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VOLVO CAR GROUP


NOTE 3 – REL ATED PARTY TRANSACTIONS

During the second quarter 2017, Group companies entered into the following transactions with related parties that are not consolidated in the Volvo Car Group. The information in the table below includes all assets and liabilities to related parties. Besides from other non-current liabilities of MSEK 536 (1,383) all assets and liabilities are current.

Sales of goods, services and otherMSEK

Q2 2017

Q2 2016

First six months

2017

First six months

2016Full year

2016

Related companies1) 445 565 1,037 921 1,738

Associated companies and joint ventures2) 49 42 93 77 162

Purchases of goods, services and otherMSEK

Q22017

Q2 2016

First six months

2017

First six months

2016Full year

2016

Related companies1) –494 –126 –716 –328 –1,241

Associated companies and joint ventures2) –146 –161 –348 –411 –926

Receivables Payables

June 30, 2017

Dec 31,2016

June 30, 2017

Dec 31,2016

Related companies1) 3,246 3,486 3,833 3,726

Associated companies and joint ventures2) 922 780 133 127

1) Related companies are companies outside the Volvo Car Group but within the Geely sphere of companies. 2) Associated companies and joint ventures 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 the shares. In Q4 2016, the method of computing sales and purchase transactions from associated companies was refined, with a similar method being applied to the comparative figures above.

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VOLVO CAR GROUP


GENERAL DEFINITIONS

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

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

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

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

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

EBITDA marginEBITDA margin is EBITDA in percentage of net revenue.

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

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

EMEAEMEA is defined as countries in Europe, Middle East and Africa.

Asia PacificAsia Pacific is defined as China, Japan, Australia, Taiwan, Korea, India, Thailand, and Malaysia, as well as importer markets in the region.

AmericasAmericas is defined as the United States, Canada, Mexico, Brazil and Latin American importer markets.

Performance measures disclosed in the interim report are those that are deemed to give the most true and fair as well as relevant view of Volvo Car Group’s financial performance for a reader of the interim report. For reconciliation of performance measures, refer to page 22.

DEFINITIONS OF PERFORMANCE MEASURES

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VOLVO CAR GROUP


RECONCILIATION TABLES OF PERFORMANCE MEASURES

EBIT MarginQ2

2017Q2

2016June 30,

2017June 30,

2016Full year

2016

Operating income (EBIT) in % of net revenue 6.4 5.8 6.8 6.6 6.1

EBITDA/EBITDA MarginQ2

2017Q2

2016June 30,

2017June 30,

2016Full year

2016

Operating income 3,285 2,447 6,776 5,592 11,014

Depreciation and amortisation of non-current assets 3,078 2,704 5,948 5,147 10,527

EBITDA 6,363 5,151 12,724 10,739 21,541EBITDA in % of net revenue 12.4 12.2 12.8 12.8 11.9

EQUITY RATIOJune 30,

2017Full year

2016


Total assets 173,574 161,413

Equity in % total assets 27.6 26.8

NET DEBT/NET CASH (MSEK)June 30,

2017Full year

2016

Liabilities to credit institutions (non-current) 12,322 13,910

Bonds1 7,741 7,693

Other interest-bearing non-current liabilities2 84 84

Liabilities to credit institutions (current) 3,001 2,813

Marketable securities –2,454 –4,738

Cash and cash equivalents –33,816 –38,635

Net cash (Net debt if positive) –13,122 –18,873

1) The bond loans are presented above at amortised cost. The MEUR 500 bond is recognised in the balance sheet with a fair value adjustment and the fair value component amounted to MSEK –17 (6).

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

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VOLVO CAR GROUP


REVIEW REPORT

IntroductionWe have reviewed the interim report for Volvo Car AB (publ.) for the period January 1 - June 30, 2017. The Board of Directors and the President are responsible for the preparation and presenta-tion of this interim report in accordance with IAS 34 and the Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.

Scope of ReviewWe conducted our review in accordance with the International Standard on Review Engagements ISRE 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review consists of making inquiries, primarily of per-sons responsible for financial and accounting matters, and apply-ing analytical and other review procedures. A review has a differ-ent focus and is substantially less in scope than an audit conducted in accordance with ISA and other generally accepted auditing practices. The procedures performed in a review do not enable us to obtain a level of assurance that would make us aware of all significant matters that might be identified in an audit. Therefore, the conclusion expressed based on a review does not give the same level of assurance as a conclusion expressed based on an audit.

ConclusionBased on our review, nothing has come to our attention that causes us to believe that the interim report is not, in all material respects, prepared for the Group in accordance with IAS 34 and the Annual Accounts Act, and for the Parent Company in accord-ance with the Annual Accounts Act.

Gothenburg, July 19, 2017Deloitte AB

Jan Nilsson Authorized Public Accountant

CONTACT

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

Volvo Car Group Headquarters405 31 Gothenburgwww.volvocars.com

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

Gothenburg, July 19, 2017

Håkan SamuelssonPresident and Chief Executive Officer

The Volvo Car Group interim report on the third quarter 2017 will be published on October 27th, 2017 at 06.00 AM CEST.

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